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 September 30, 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
---------------------
(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
--------------
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 November 14, 2006 was as follows: 50,281,367 shares of Common
Stock.
Transitional Small Business Disclosure Format: YES /_/ NO /X/
ATLAS MINING COMPANY
THIRD 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 Sheets
September 30, 2006 . . . . . . . . . . . . . . . . . . . . . . . .3
Unaudited Consolidated Statements of Operations
for the Three Months Ended September 30, 2006 and 2005,
and the Nine Months Ended September 30, 2006 and 2005. . . . . . .5
Unaudited Consolidated Statements of Cash Flows for
the Nine Months Ended September 30, 2006 and 2005. . . . . . . . .6
Notes to Unaudited Consolidated Financial Statements . . . . . . . .7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . 26
Item 3. Controls and Procedures . . . . . . . . . . . . . . . . . . . 29
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . 29
Item 2. Unregistered Sales of Equity Securities and Use of
Securities . . . . . . . . . . . . . . . . . . . . . . . . . 29
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . 29
Item 4. Submission of Matters to a Vote of Security Holders . . . . . 29
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . 29
Item 6. Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Certification under Sarbanes-Oxley Act of 2002. . . . . . . . 32
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . 31
Atlas Mining Company and Subsidiary
Consolidated Balance Sheets
(Unaudited)
ASSETS
-------
September 30, December 31,
2006 2005
------------- -------------
(unaudited)
Current Assets
Cash $ 278,378 $ 2,215,930
Accounts receivable (net of allowance of $0) 520,655 40,174
Investments - available for sale 23,128 19,538
Advances 96 750
Deposits and prepaids 190,484 100,454
------------- -------------
Total Current Assets 1,012,741 2,376,846
------------- -------------
Property and Equipment
Land and tunnels 1,129,034 1,005,159
Land improvements 24,111 -
Buildings and equipment 259,521 188,192
Mining equipment 963,508 244,499
Milling equipment 556,242 247,714
Drilling equipment 61,516 -
Office equipment 1,300 26,689
Vehicles 128,240 111,259
Less: Accumulated depreciation (398,299) (229,310)
------------- -------------
Total Property and Equipment 2,725,173 1,594,200
------------- -------------
Other Assets
Long-term Note Receivable 50,419 50,000
Mining supplies 9,000 9,000
------------- -------------
Total Other Assets 59,419 59,000
------------- -------------
Total Assets $ 3,797,333 $ 4,030,045
============= =============
The accompanying notes are an integral part of these financial statements.
3
Atlas Mining Company and Subsidiary
Consolidated Balance Sheets
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
September 30, December 31,
2006 2005
------------- -------------
(unaudited)
Current Liabilities
Accounts payable and accrued liabilities $ 299,119 $ 101,532
Current portion of long-term debt 284,778 25,973
Current portion of capital lease liabilities 43,002 -
------------- -------------
Total Current Liabilities 626,899 127,505
------------- -------------
Long-Term Liabilities
Notes payable, net of current portion 125,562 23,688
Capital lease liabilities,
net of current portion 33,934 -
------------- -------------
Total Long-Term Liabilities 159,496 23,688
------------- -------------
Minority Interest 52,797 52,797
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, 49,491,367 and 48,852,892 shares
issued and outstanding, respectively 14,505,525 13,598,660
Cost of treasury stock, 1,313,022 in 2006
and 2005 (131,221) (131,221)
Accumulated Deficit (11,416,337) (9,641,558)
Accumulated other comprehensive income (loss) 174 174
------------- -------------
Total Stockholders' Equity (Deficit) 2,958,141 3,826,055
------------- -------------
Total Liabilities and Stockholders' Equity $ 3,797,333 $ 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 For the Nine
Months Ended Months Ended
September 30, September 30,
------------------------- --------------------------
2006 2005 2006 2005
------------ ------------ ------------ ------------
Revenues - Contract Mining $ 1,144,762 $ 234,448 $ 2,246,591 $ 392,926
Revenues - Mining Production - - - -
Revenues - Timber - - - -
------------ ------------ ------------ ------------
Total Revenues 1,144,762 234,448 2,246,591 392,926
------------ ------------ ------------ ------------
Cost of Sales - Contract
Mining 690,744 145,119 1,392,989 324,382
Cost of Sales - Mining
Production - 9,229 - 21,188
Cost of Sales - Timber - 5,734 - 6,268
------------ ------------ ------------ ------------
Total Cost of Sales 690,744 160,082 1,392,989 351,838
------------ ------------ ------------ ------------
Gross Profit (Loss) 454,018 74,366 853,602 41,088
------------ ------------ ------------ ------------
Operating Expenses
Exploration & development
costs 458,129 198,475 1,581,340 494,978
Mining production costs 74,938 - 255,798 -
General & administrative 229,314 283,973 797,278 2,223,778
------------ ------------ ------------ ------------
Total Operating Expenses 762,381 482,448 2,634,416 2,718,756
------------ ------------ ------------ ------------
Net Operating Income (Loss) (308,363) (408,082) (1,780,814) (2,677,668)
------------ ------------ ------------ ------------
Other Income(Expense)
Interest income 4,871 16,204 25,942 16,720
Interest expense (18,554) (37,364) (20,040) (76,847)
Miscellaneous Income 51 15 133 21
Minority Interest - - - 3
Gain (Loss) on Settlement
of Debt - 17,618 - 51,042
------------ ------------ ------------ ------------
Total Other Income
(Expense) (13,632) (3,527) 6,035 (9,061)
------------ ------------ ------------ ------------
Income (Loss) Before
Income Taxes (321,995) (411,609) (1,774,779) (2,686,729)
Provision (Benefit)
for Income Taxes - - - -
------------ ------------ ------------ ------------
Net Income (Loss) $ (321,995) $ (411,609) $(1,774,779) $(2,686,729)
============ ============ ============ ============
Net Income (Loss) Per Share $ (0.01) $ (0.01) $ (0.04) $ (0.06)
============ ============ ============ ============
Weighted Average Shares
Outstanding 49,444,280 48,221,558 49,001,524 44,034,104
============ ============ ============ ============
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 Nine Months Ended
September 30,
--------------------------
2006 2005
------------ ------------
Cash Flows from Operating Activities:
Net Income (Loss) $(1,774,779) $(2,686,729)
Adjustments to Reconcile Net Loss to Net Cash
Provided by Operations:
Depreciation 168,806 82,873
Amortization 182 -
Stock issued for services 45,000 1,251,387
Warrants issued for services - 390,489
Compensation for options 50,550 -
Gain on Settlement of Debt - (51,042)
Change in Operating Assets and Liabilities:
(Increase) Decrease in:
Accounts receivable (480,482) 140,065
Deposits and prepaids (90,030) (17,336)
Notes receivable (419) -
Other current receivables 654 (231)
Accounts payable and accrued expenses 197,587 (185,126)
------------ ------------
Net Cash Provided(Used) by Operating Activities (1,882,931) (1,075,650)
Cash Flows from Investing Activities:
Purchases of equipment (979,975) (627,141)
Purchases of land improvements (24,111) -
Purchases investment in land and tunnels (123,876) -
Purchases of vehicles (16,980) -
Purchases of investments (3,590) -
------------ ------------
Net Cash Provided (Used) by Investing Activities (1,148,532) (627,141)
Cash Flows from Financing Activities:
Payments on notes payable (76,735) (979,320)
Payments on capital leases (77,374) -
Proceeds from notes payable 436,705 -
Proceeds from issuance of common stock 811,315 5,160,056
------------ ------------
Net Cash Provided (Used) by Financing Activities 1,093,911 4,180,736
------------ ------------
Increase (Decrease) in Cash (1,937,552) 2,477,945
Cash and Cash Equivalents at Beginning of Period 2,215,930 206,635
------------ ------------
Cash and Cash Equivalents at End of Period $ 278,378 $ 2,684,580
============ ============
The accompanying notes are an integral part of these financial statements.
6
Atlas Mining Company
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
For the Nine Months Ended
September 30,
--------------------------
2006 2005
------------ ------------
Cash Paid For:
Interest $ 27,847 $ 76,847
Income Taxes $ - $ -
Supplemental Disclosure of Non-Cash Investing and
Financing Activities:
Stock issued for services $ 45,000 $ 1,251,387
Stock issued for notes payable $ - $ 150,000
Warrants issued for services $ - $ 390,489
Leasing activity for equipment purchases $ 155,019 $ -
The accompanying notes are an integral part of these financial statements.
7
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
September 30, 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. In 2002, the Company settled out the
debt to Fausett International, Inc. and returned a majority of the
unusable equipment; however the Company continues to pursue
contracting activities. The Company also pursues property acquisitions
and resource development projects.
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. The Company has been
unable to locate some of the shareholders of Sierra, and, as of
September 30, 2006, 384,465 shares of the Company's common stock had
not been exchanged. 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
September 30, 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. of Spokane, Washington. Conjecture Mines
has since been merged into Chester Mines, Inc. at the same location.
The Company 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, the Company had the right to renew the lease annually in
exchange for 100,000 additional shares of common stock, or the option
to purchase the property for $500,000 if $1,000,000 in sales were
realized from the mine in a 12-month period. The Company 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. The Dragon Mine is located in Eureka, Utah.
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 easily or readily 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
September 30, 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
September 30, 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 September 30, 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 period ended September 30, 2006:
Basic EPS
Net loss to common shareholders $(1,774,779) 49,001,524 $ (0.04)
============ ============ ============
For the period ended September 30, 2005:
Basic EPS
Net loss to common shareholders $(2,686,729) 44,034,104 $ (0.06)
============ ============ ============
f. Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of
three months or less to be cash equivalents.
10
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
September 30, 2006
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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
------------ ------------ ------------ ------------
September 30, 2006 $ 23,128 $ 174 $ - $ 23,020
December 31, 2005 $ 19,364 $ 174 $ - $ 19,538
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.
11
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
September 30, 2006
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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
Land improvements 20 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 September 30, 2006
and December 31, 2005, no impairments were recognized. Depreciation
expense for the quarters ended September 30, 2006 and 2005 totaled
$168,806 and $82,873, 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
September 30, 2006 and 2005. The Company has no investments in
derivative financial instruments.
12
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
September 30, 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 September 30, 2006, all exploration costs have been expensed.
During the quarter ended September 30, 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 nine months ended September
30, 2006 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, no compensation expense has been
recognized for grants of options to employees and directors in the
accompanying statements of operations for the period ended September
30, 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
September 30, 2006
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
n. Stock Options Continued
2005
------------
Net Loss As reported $(1,887,131)
Deduct: Total stock-based employee
compensation expense determined under
fair value based method (101,100)
------------
Proforma $(1,988,231)
------------
Basic earnings per share As reported $ (0.05)
Proforma $ (0.05)
o. Recently Enacted Accounting Standards
In December 2004, the FASB issued SFAS No. 123(R), "Share-Based
Payment." This Statement is a revision to SFAS No. 123, "Accounting
for Stock-Based Compensation," and supersedes APB Opinion No. 25,
"Accounting for Stock Issued to Employees." SFAS No. 123(R) requires
the measurement of the cost of employee services received in exchange
for an award of equity instruments based on the grant-date fair value
of the award. The cost will be recognized over the period during which
an employee is required to provide service in exchange for the award.
No compensation cost is recognized for equity instruments for which
employees do not render service. When adopted, the Company will be
required to recognize compensation cost as expense for the portion of
outstanding unvested awards, based on the grant-date fair value of
those awards calculated using an option pricing model. Statement
123(R) is effective for small business issuers at the beginning of the
first interim or annual period beginning after December 15, 2005.
Management is currently evaluating the impact SFAS No. 123(R) will
have on the Company's results of operations as a result of adopting
this new Standard.
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.
14
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
September 30, 2006
o. Recently Enacted Accounting Standards (Continued)
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.
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 reduce the Company's debt. The Company has continued
to obtain additional work in its 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 the Company's 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.
15
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
September 30, 2006
NOTE 3 - LONG-TERM LIABILITIES
Long- term liabilities are detailed in the following schedules as of
September 30, 2006 and December 31, 2005:
September 30, December 31,
2006 2005
------------ ------------
Note payable to a leasing company, due in
monthly installments of $2,135, including
interest at 18.62%. The note matures in
March 2008 and is collateralized equipment. $ 34,892 $ -
Note payable to a leasing company, due in
monthly installments of $1,605, including
interest at 17.03%. The note matures in May
2009 and is collateralized equipment. 41,052 -
Note payable to a leasing company, due in
monthly installments of $676, including
interest at 1.35%. The note matures in June
2008 and is collateralized equipment. 14,024 -
Note payable to a leasing company, due in
monthly installments of $13,000, including
interest at 10%. The note matures in February
2007 and is collateralized equipment. 61,600 -
Note payable to a leasing company, due in
annual installments of $15,573, including
interest at 8.589%. The note matures in August
2011 and is collateralized equipment. 61,225 -
Note payable to a leasing company, due in
monthly installments of $7,500, including
interest at 10%. The note matures in January
2007 and is collateralized equipment. 62,500 -
------------ ------------
Balance forward to next page 275,293 -
16
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
September 30, 2006
NOTE 3 - LONG-TERM LIABILITIES (Continued)
September 30, December 31,
2006 2005
------------ ------------
Balance forward from previous page $ 275,293 $ -
Note payable to a leasing company, due in
monthly installments of $479, including
interest at 0.19%. The note matures in
October 2009 and is collateralized
equipment. 16,000 -
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. 25,268 29,888
Note payable to an insurance company, due
in monthly installments of $12,767. The
note matures in July 2007. 93,780 19,773
------------ ------------
Total Notes Payable $ 410,341 $ 49,661
------------ ------------
Less Current Portion (284,778) (25,973)
------------ ------------
Total Long-Term Liabilities $ 125,563 $ 23,688
============ ============
Future minimum principal payments on notes payable are as follows:
2006 $ 99,588
2007 197,680
2008 52,812
2009 30,696
2010 15,224
Thereafter 14,341
--------------
Total $ 410,341
==============
17
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
September 30, 2006
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. The balance of the note payable at September 30,
2006 and December 31, 2005 is $0 and $0, respectively.
NOTE 5 - 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 September
30, 2006, no options have been granted under this plan.
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.
The significant weighted average assumptions relating to the valuation
of the Company's Stock Options for the nine months ended September 30,
2006 and 2005, were as follows:
18
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
September 30, 2006
NOTE 5 - STOCK OPTIONS (Continued)
2006 2005
------------ ------------
Dividend Yield 0% 0%
Expected Life 4 years 5 years
Expected Volatility 130% 130%
Risk-Free Interest Rate 3.44% 3.44%
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 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 nine
months ended September 30, 2006, are as follows:
September 30, 2006
--------------------------------------------
Weighted
Weighted Average
Average Remaining Aggregate
Exercise Contractual Intrinsic
Shares Price Life Value
--------------------------------------------
Outstanding at beginning of period 3,500,000 $0.18 3 years $ 2,765,000
Granted - - - -
Exercised - - - -
Forfeited - - - -
Expired - - - -
--------------------------------------------
Outstanding at end of Period 3,500,000 $0.18 2.50 years $ 5,495,000
--------------------------------------------
Vested and expected to vest in
the future 3,500,000 $0.18 2.50 years
Exercisable at end of period 1,995,000 $0.18 2.50 years $3,132,150
Weighted average fair value of
options granted - - - -
--------------------------------------------
The Company had 1,995,000 non-vested options at the beginning of the
period with a weighted average grant date fair value of $0.269. At
September 30, 2006 the Company had 1,505,000 non-vested options with a
weighted average grant date fair value of $0.269.
19
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
September 30, 2006
NOTE 5 - STOCK OPTIONS (Continued)
The total intrinsic value of options exercised during the nine months
ended September 30, 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 September 30, 2006 and 2005 (for
outstanding options), less the applicable exercise price.
Common Stock
------------
During the quarter ended September 30, 2006, the Company sold a total
of 50,000 shares of restricted common stock at a price of $0.50 per
share for a total of $25,000 cash. The Company also sold a total of
3,000 shares of restricted common stock at a price of $0.25 per share
for a total of $750 cash. The sales resulted from the redemption of
outstanding warrants.
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 and outstanding at September 30, 2006, and changes
during the period then ended is as follows:
Weighted
Average
Exercise
Shares Price
------------------------
Outstanding at beginning of period 999,820 $ 0.54
Granted - -
Exercised 53,000 0.49
Forfeited - -
Expired - -
------------------------
Outstanding at end of period 946,820 $ 0.49
Exercisable at end of period 946,820 0.49
20
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
September 30, 2006
NOTE 5 - STOCK OPTIONS (Continued)
A summary of the status of the warrants outstanding at September 30,
2006 is presented below:
Options Outstanding Options Exercisable
-------------------------------------------------------------------
Weighted Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
----------- ------------ ------------ ------------ ------------ ------------
$0.25 106,820 0.25 years $0.25 106,820 $0.25
$0.40 750,000 0.33 years $0.52 750,000 $0.52
$0.50 90,000 0.25 years $0.50 90,000 $0.50
----------- ------------ ------------ ------------ ------------ ------------
946,820 946,820
During 2005, the Company granted warrants to purchase up to 750,000 of
its common shares at $0.40 per share expiring in January 2007 with a
calculated weighted average fair value of $0.52 each for services. 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 December
31, 2005 include risk-free interest rates of 3.25%, expected dividend
yields of 0%, expected life of 2 years, and expected volatility
76.36%.
During September 2006, the Company had outstanding warrants as
follows:
Number of shares Exercise
underlying the warrants price Issued Expire
-----------------------------------------------------------------------
90,000 $ 0.50 With common shares 12/06
106,820 0.25 For services 12/06
750,000 0.40 For services 01/07
NOTE 6 CAPITAL LEASES
The company leases equipment under capital leases that expire in
September 2006 and March through December 2008. The gross amount of
assets recorded under capital leases and the associated accumulated
depreciation are included under property and equipment and are as
follows:
21
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
September 30, 2006
NOTE 6 CAPITAL LEASES (Continued)
September 30, December 31,
2006 2005
------------- -------------
Mining Equipment $ 155,019 $ -
------------- -------------
Total 155,019 -
Less Accumulated Depreciation (28,053) -
------------- -------------
Net Leased Equipment $ 126,966 $ -
============= =============
The Company amortizes its lease obligations over the term of each
lease. Amortization expense was $28,053 and $0 for the nine month
periods ended September 30, 2006 and 2005, respectively.
The future minimum lease payments are as follows for the twelve-month
periods ended:
December 31, Amount Due
------------ ------------
2006 $ 12,837
2007 53,914
2008 28,040
2009 -
2010 -
Thereafter -
------------
Total minimum obligations $ 94,791
============
Executory costs and interest (17,854)
------------
PV of minimum obligations 76,937
Current portion (49,038)
------------
Long-term obligations $ 27,899
============
NOTE 7 - COMMITMENTS AND CONTINGENCIES
There are no significant commitments and contingencies related to the
Company.
22
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
September 30, 2006
NOTE 8 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 and
exploration companies, and in 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 Period Ended
September 30,
2006 2005
------------ ------------
Contract Mining:
Net Revenue 2,246,591 392,926
Operating Expenses
Cost of Sales 1,392,989 324,382
General & Administrative 379,832 1,047,479
------------ ------------
Total Operating Expenses $ 1,772,821 $ 1,371,861
============ ============
Net Operating Profit (Loss) 473,770 (978,935)
Capital Expenditures: 5,318 2,517
Depreciation: 7,121 525
------------ ------------
Total Assets: 100,786 221,817
------------ ------------
23
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
September 30, 2006
NOTE 8 SEGMENT REPORTING (Continued)
For the Period Ended
September 30,
2006 2005
------------ ------------
Mining Production:
Net Revenue - -
Operating Expenses
Mining Production Costs 255,798 27,456
Exploration & Development Costs 1,581,340 494,978
General & Administrative 379,831 950,098
------------ ------------
Total Operating Expenses 2,216,969 1,472,532
------------ ------------
Net Operating (Loss) (2,216,969) (1,472,532)
------------ ------------
Capital Expenditures: 1,292,109 81,381
------------ ------------
Depreciation: 84,739 82,348
Total Assets: 3,291,137 3,402,818
------------ ------------
Timber:
Net Revenue - -
Operating Expenses
Cost of Sales - -
General & Administrative 54,465 226,201
------------ ------------
54,465 (226,201)
------------ ------------
Net Operating (Loss) (54,465) (226,201)
============ ============
Capital Expenditures: - -
Depreciation: - -
------------ ------------
Total Assets: 405,410 405,410
------------ ------------
24
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
September 30, 2006
NOTE 8 SEGMENT REPORTING (Continued)
For the Period Ended
September 30,
2006 2005
------------ ------------
Consolidated on Financial Statements:
Total Revenues 2,246,591 392,926
Operating Expenses
Total Cost of Sales 1,392,989 351,838
Exploration & development costs 1,581,340 494,978
Total General & Administrative 1,069,926 2,223,778
------------ ------------
Total Operating Expenses 4,044,255 3,070,594
------------ ------------
Net Operating (Loss) (1,797,664) (2,677,668)
Capital Expenditures: 1,297,427 83,898
------------ ------------
Depreciation: 91,860 82,873
Total Assets 3,797,333 4,030,045
------------ ------------
25
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
This Form 10-QSB contains forward-looking statements, including statements
regarding the expectations of future operations. For this purpose, any
statements contained in this Form 10-QSB that are not statements of
historical fact may be deemed to be forward-looking statements. Without
limiting the foregoing, words such as "may," "will," "expect," "believe,"
"anticipate," "estimate," or "continue" or comparable terminology are
intended to identify forward-looking statements. These statements by their
nature involve substantial risks and uncertainties, and actual results may
differ materially depending on a variety of factors, many of which are not
within the Company's control. These factors include, but are not limited
to, economic conditions generally and in the industries in which the
Company may participate, competition within the chosen industry, including
competition from much larger competitors, technological advances, and the
failure to successfully develop business relationships. In light of these
risks and uncertainties, you are cautioned not to place undue reliance on
these forward-looking statements. This item should be read in conjunction
with "Item 1. Financial Statements" and other items contained elsewhere in
this report.
OVERVIEW
We are a natural resources company engaged in the acquisition and
exploration of our resource properties in the states of Idaho, Utah and 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 our revenues. This may decrease as we
are able to increase operations on our owned properties, and at that time
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 an income
generating stage.
In August 2001, we acquired the Dragon Mine in Juab, Utah and began
our halloysite clay exploration. Our exploration and development expenses
for the period ending September 30, 2006 and September 30, 2005 were
$458,129 and $198,475, 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, separating, and packaging of the product for
shipment. In 2003 and 2004 we completed diamond drilling programs to verify
location of clay beds at the Dragon Mine. In 2006 we continued our diamond
drilling program. With that information we have been able to formulate
development and mining plans. During 2005 and 2006 we have worked to
develop and bring the Dragon Mine into a production stage.
26
Our halloysite clay marketing efforts include contacting potential
customers and distributors, which we have done. Each buyer may have
different uses for the product and, therefore, the prices, qualities, and
quantities 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. Dr. Price has developed and installed more efficient
processing methods at the Dragon Mine and has established contacts with
potential buyers for both micro-tubular encapsulation, as well as
conventional users.
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 concerns.
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
Although we intend to continue to harvest timber on our property, we
have not aggressively pursued any timber contracts due to our exploration
efforts at the Dragon Mine. Timber harvesting is also dependent upon lumber
prices and weather. We normally do not log much during the winter months.
RESULTS OF OPERATIONS
Total revenues for the nine month period ending September 30, 2006
were $2,246,591 and $392,926 for the same period ending September 30, 2005,
or an increase of 472%. For the three month period ending September 30,
2006 revenues were $1,144,762 compared to $234,448 for the same period
ending September 30, 2005 or an increase of 388%. In both first nine
months of 2006 and 2005 all our income was received from contracting.
Although we have concentrated predominately on the development of the
Dragon Mine in 2006, contracting work did pick up in the second and third
quarters of this year resulting in better revenues. We have three
contracting projects at this time. In Idaho, we are working at the Lucky
Friday Mine for Hecla Mining Company, and the Sunshine Mine for Sterling
Mining. In Montana we are working for the Stillwater Mining Company. We
intend to utilize the manpower resources from contracting to continue our
efforts at the Dragon Mine as these projects are completed. We recognized
no revenues from mining production for the first nine months of 2006 or
2005.
Gross profit (loss) for the nine month period ending September 30,
2006 was $853,602 compared to $41,088 for the same period ending September
30, 2005, a difference of $812,514. For the three month period ending
September 30, 2006 gross profit (loss) was $454,018 compared to $74,366 for
the same period ending September 30, 2005 a difference of $379,652. During
both periods in 2006 and 2005 revenues were enough to cover costs of sales,
although 2005 margins were not as good as 2006. For the nine month period
ended September 30, 2006 gross profit on revenues was 38%, and was 10% for
the same period in 2005. Increased revenues in 2006 reflected a larger
gross profit margin.
Total operating expenses for the nine month period ending September
30, 2006 was $2,634,416 compared to $2,718,756 for the same period ending
September 30, 2005 or a decrease of 3%. For the three month period ending
September 30, 2006 operating expenses were $762,381 compared to $482,448
for the same period ending September 30, 2005 or an increase of 58%.
Exploration and development expenses in the third quarter of 2006 were
$458,129 compared to the $198,475 for the same period in 2005.
27
Our net income (loss) for the nine month period ending September 30,
2006 was ($1,774,779) compared to ($2,686,729)for the same period ending
September 30, 2005, or a decrease of 33.9%. The net profit (loss) for the
three month period ending September 30, 2006 was ($321,995) compared to
($411,609) for the same period ending September 30, 2005, or a decrease of
21.8%. The company experienced substantial exploration and development
costs in 2006 compared to 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 September 30, 2006 and 2005
contract mining accounted for 100% of the revenue. We also sold equity
securities to help finance our activities.
Our total assets as of September 30, 2006 were $3,797,333, compared to
$4,030,045 as of December 31, 2005. The company has decreased its current
assets by $1,364,105, and increased its property and equipment by
$1,130,973. Total liabilities were $786,395 as of September 30, 2006,
compared to $151,193 as of December 31, 2005.
We currently have equipment leases and loans of $487,276 and accounts
payable and accrued expenses of $299,119 resulting from contracting and
work at the Dragon Mine. All other debts have been paid.
If we do not incur any additional debts we will be obligated to pay an
average of $5,104 per month or $61,248 for the next fiscal year in debt
repayment.
We do not believe we will need to obtain additional funding to pursue
our business strategy during the next fiscal year. At the present time, we
anticipate bringing 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.
Although we do not have any specific plans or agreements for additional
funding, should we anticipate seeking additional funding we will consider
additional private placements, joint venture agreements, production
financing, and/or pre-sale loans.
Our principal sources of revenue during the third quarter 2006 was
from contracting activities which provided an average of $381,587 per month
for the three month period ended September 30, 2006, and averaged $78,149
per month for the same period in 2005. For the nine month period ending
September 30, 2006 our average monthly cash flow from contracting was
$249,621, compared to $43,658 for the same period in 2005. We did not
recognize any logging revenues or production sales during the third quarter
2006 or 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 nine month period ended
September 30, 2006 was $1,093,911 compared to $4,180,737 for the same
period in 2005, a difference of $3,086,825. The major factor for the
difference was receipt of proceeds from issuance of common stock in 2005.
The Company spent $1,148,532 from investing activities for the nine
month period ended September 30, 2006, compared to $627,141 in the same
period in 2005, a difference of $521,391. The major factor for the
difference was additional purchases of equipment in 2006.
Cash flow used by operating activities for the nine month period ended
September 30, 2006, was ($1,882,931) compared to ($1,075,650) for the same
period in 2005, a difference of $807,281. In the nine month period in
2006, although we experienced a decrease in net losses, we had an increase
in accounts receivable, deposits and prepaid.
28
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
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On August 23, 2006, we issued 11,000 shares of common stock to an
accredited investor for exercised warrants for $5,250.
On September 22, 2006, we issued 40,000 shares of common stock to
an accredited investor for exercised warrants for $20,000.
On September 27, 2006, we issued 2,000 shares of common stock to
an accredited investor for an exercised warrant for $500.
On October 27, 2006, we issued 40,000 shares of common stock to
an accredited investor for an exercised warrant for $20,000.
On November 3, 2006, we issued 750,000 shares of common stock to
an accredited investor for an exercised warrant for $300,000.
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
29
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
30
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: November 14, 2006 /s/ William Jacobson
--------------------------------------
By: William Jacobson
Chief Executive Officer, Chief Financial
Officer
31