SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(MARK ONE)
|X| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the Fiscal Year Ended December 31, 2005
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _______________ to ________________
Commission File Number 000-31380
ATLAS MINING COMPANY
(Name of small business issuer in its charter)
Idaho 82-0096527
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
630 East Mullan Avenue
Osburn, Idaho 83849
(Address of principal executive offices)(Zip code)
Issuer's telephone number, including area code: (208) 556-1181
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which each is registered
------------------- -------------------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
(Title of class)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 |_|
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. |_|
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 issuer's revenues for the fiscal year ended December 31, 2005 were
$628,176.
The number of shares of the registrant's common stock, no par value per
share, outstanding as of March 28, 2006 was 48,925,687. The aggregate market
value of the voting and non-voting common equity held by non-affiliates of the
registrant on March 24, 2006, based on the last sales price on the OTC Bulletin
Board as of such date, was approximately $68,495,961.
DOCUMENTS INCORPORATED BY REFERENCE
None.
Transition Small Business Disclosure Format: Yes |_| No |X|
1
TABLE OF CONTENTS
Page
PART I
ITEM 1. DESCRIPTION OF BUSINESS ...................................4
ITEM 2. DESCRIPTION OF PROPERTY ..................................11
ITEM 3. LEGAL PROCEEDINGS ........................................15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ......15
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS ..............................15
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS .....................17
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ..............24
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE ...................24
ITEM 8A CONTROLS AND PROCEDURES ..................................24
ITEM 8B OTHER INFORMATION ........................................24
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT ........................25
ITEM 10. EXECUTIVE COMPENSATION ...................................28
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS ...............29
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ...........30
ITEM 13. EXHIBITS .................................................30
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES ...................31
SIGNATURES ...............................................32
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NOTE REGARDING FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-KSB contains "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. These forward-looking statements are
based on our current expectations, assumptions, estimates and projections about
our business and our industry. Words such as "believe," "anticipate," "expect,"
"intend," "plan," "will," "may," and other similar expressions identify
forward-looking statements. In addition, any statements that refer to
expectations, projections or other characterizations of future events or
circumstances are forward-looking statements. These forward-looking statements
are subject to certain risks and uncertainties that could cause actual results
to differ materially from those reflected in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in the section of this Annual Report entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Factors Affecting Business, Operating Results and Financial Condition", as well
as the following:
o our uncertainty whether a commercially viable deposits or "reserves"
exist on any of our properties;
o our lack of capital and whether or not we will be able to raise
capital when we need it;
o risks of loss of timber revenues due to fire, disease or weather;
o change of market prices for timber, halloysite clay or other
marketable deposits we may find on any of our properties;
o whether or not we will continue to receive the services of our
executive officers and directors, particularly our President,
William T. Jacobson;
and other factors, some of which will be outside our control. You are cautioned
not to place undue reliance on these forward-looking statements, which relate
only to events as of the date on which the statements are made. We undertake no
obligation to publicly revise these forward-looking statements to reflect events
or circumstances that arise after the date hereof. You should refer to and
carefully review the information in future documents we file with the Securities
and Exchange Commission.
3
PART I
ITEM 1. BUSINESS
HISTORY AND DEVELOPMENT OF THE COMPANY
We are a natural resources company engaged in the acquisition, exploration
and development of our resource properties in the states of Idaho and Utah. We
also provide contract mining services and specialized civil construction
services for mine operators, exploration companies and the construction and
natural resources industries through our trade name "Atlas Fausett Contracting."
We were originally incorporated on March 4, 1924 in Idaho and commenced our
operations on that date.
From 1980 to 1997, we had no activities. In 1997, we acquired the
equipment of Fausett International, Inc. for $1,416,099 and began our
contracting business. In 1998, we acquired the Sierra Silver Lead Mining
Company, an Idaho corporation for $276,157. This merger added an additional
329.18 acres of mineral rights to our current holdings. In 1999, we also
acquired the majority outstanding shares of Olympic Silver Resources, Inc., a
Nevada corporation for $228,566. The acquisition of Olympic gave us control of
an Olympic subsidiary mine in Zacatecas, Mexico. In 2001 our agreement on the
mine in Zacatecas expired and we no longer have any interest there. In 1999 we
acquired the Aulbach mining claims for $ 50,000, approximately 100 acres of
timber and mineral property in northern Idaho. In 1999 we acquired 53% interest
in the Park Copper Mining Company for $72,825, which holds 100 acres of timber
and mineral property in northern Idaho. In 2001, we entered into a lease
purchase agreement on the Dragon Mine in Juab County, Utah for $100,000. We
believe this property may contain a deposit of high quality clay, which we are
putting into production. In 2005 we purchased the Dragon Mine for $500,000. In
2002, we cancelled our agreement with Fausett International, Inc., returned the
equipment, and settled the remaining debt. We were not able to utilize this
equipment enough to justify the cost related to owning it.
In the future, we intend to be able to acquire additional properties near
our current mines and elsewhere.
We have brought the Dragon Mine from an exploration stage into a
Development stage. We intend to find other properties that can be acquired,
developed and mined with minimal costs, and environmental problems.
In addition to the mineral resources, we also have harvestable timber
resources on our properties. We contract out logging of our timber to create
revenues and cash flows for our other operations. We have also harvested timber
on approximately 420 acres of our previously owned and newly acquired
properties. We hope to acquire more properties in the future with timber
resources.
We also intend to continue our contract mining services. These services
were originally developed and marketed to provide us with operating revenues. We
hope to increase the revenue derived from these services and to utilize our
expertise in this area to mine our owned properties.
4
CONTRACT MINING
Because of exploration costs and other budget constraints, mining activity
on our Idaho properties has remained idle since the 1980s. However, on August
10, 1997 our board met and approved a plan to revitalize Atlas Mining Company
for the purpose of increasing shareholder value and, in the long term, of making
us an operating company with producing mines.
The first step in this process was to form a contract mining service under
the trade name of Atlas Fausett Contracting, which we refer to as AFC. We
acquired equipment and tools and hired key employees from Fausett International,
Inc., or Fausett, a privately held mining contracting firm with over 30 years
experience in the mining industry. These employees brought with them extensive
knowledge and expertise in all aspects of underground mining.
AFC began contracting work on August 15, 1997. Among its many services,
AFC performs site evaluation, feasibility studies, trouble-shooting and
consultation prior to the undertaking of exploration and mine development. AFC's
projects include all types of underground mine development, rehabilitation and
specialized civil construction. Services are contracted for either individually
or as joint ventures depending on the requirements of a particular project or
the specific needs of an individual client. AFC also handles work under contract
from government agencies.
AFC crews are experienced and have worked on projects in Idaho, Montana,
Oregon, Washington, Nevada, Colorado, Arizona, New Mexico, and British Columbia.
AFC has the required licenses to work in Idaho, Washington and Montana and has
the ability to be licensed in most states in the western United States. AFC
operates under a permit from the Mine Safety and Health Administration and also
possesses a permit to handle explosives from the Bureau of Alcohol, Tobacco and
Firearms.
AFC was the main contractor at the Mayflower Mine, a Brimstone Gold Corp.
project, outside of Whitehall, Montana, and for the Holden Mine closure, a U.S.
Government and U.R.S. Corporation project on Lake Chelan, Washington. AFC
maintained a labor contract with Echo Bay Mines, now Kinross Gold Corporation,
At Republic, Washington for five years, prior to the mines closure, and has
worked at the Lucky Friday Mine for Hecla Mining Company for the past seven
years.
AFC must also compete with other smaller companies that provide contract
services related to underground mining. However, AFC has experience in a number
of different mining techniques. Besides normal underground mining activities,
AFC has expertise in ground stabilization (such as grouting, shotcrete, and rock
bolting). AFC has provided tunnel construction expertise for hydroelectric work.
AFC also works with government agencies and other mining companies with respect
to mine closures to help with industry efforts to alleviate potential hazards
from abandoned mines.
Since AFC mainly concentrates on underground mining activities, there is
very little surface disturbance, which is the main environmental concern faced
by mining companies whose activities are centered on surface mining.
5
TIMBER
Our entry into the timber industry was commenced primarily as a means of
generating cash flow from our exploration properties in northern Idaho. Our
intention is to remain in this industry only to the extent that it supplements
our revenue while we are conducting our exploration activities. With the amount
of timber remaining on Atlas property, we can supplement our revenue for the
next couple of years. As we harvest this timber, we will continue to seek out
additional exploration properties with harvestable timber. It takes
approximately fifteen to twenty years for a tree to mature in northern Idaho,
and our current goal is to acquire enough harvestable land to enable us to
rotate our logging activities on a yearly basis to allow previously harvested
areas the time to grow and mature marketable trees.
When we sell or timber we contract our logging to a qualified logger. We
depend on the logger's experience and reputation in the industry and sometimes
use him to negotiate the sale of our timber to various lumber mills in the area.
We contract a logger on a as needed basis. As with most commodities, timber is
subject to price fluctuations and to government regulation.
The timber business is a cyclical business with lumber prices that
fluctuate based on a number of factors including new housing starts, imports,
and government regulations. North Idaho is predominately held by the U.S.
government, either by the Forest Service or by the Bureau of Land Management.
When these agencies decide to harvest timber the excess timber can affect the
price the mills are willing to pay. In recent years there have been less
government sales of timber due to the environmental and bureaucratic policies
related to these sales. This has created more demand for privately held timber.
We do not hold any contracts with any particular mills at this time. We do,
however, maintain a good relationship with local mills, and are able to enter
into sales agreements with them as needed. Another factor that makes this aspect
of our business cyclical is the weather. North Idaho has a heavy snowfall each
winter, making logging difficult during those months. Consequently we do the
majority of our logging efforts in the summer and fall. Our property consists
primarily of pine, fir and larch, which is used predominately in the building
industry.
Our logging activities are regulated by the Idaho State Department of
Lands. They inspect our logging practices and inform us of any activities that
may cause either a safety or an environmental problem. Our logger carries
workers compensation and liability insurance, and falls under the guidelines of
Occupational Safety and Health Act.
EXPLORATION
We intend to conduct 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.
6
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
December 31, 2004, and 2005 were $340,657 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 again
in 2005 we completed small diamond drilling programs to verify location of clay
beds at the Dragon Mine. With that information we have begun to formulate
development and operating plans. During 2005 we continued to explore the Dragon
Mine, and we have run numerous analytical test on the halloysite clay to
ascertain quality. In 2005 we did not have any sales of halloysite clay
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.
Until the Dragon Mine is in a profitable stage we do not anticipate trying
to develop other properties. However we will continue to look for other
properties that can be acquired, developed and mined with minimal costs, and
environmental problems, which we have done in 2005.
We have submitted a reclamation bond to the proper state authorities, and
have received acceptance of our plan. 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 reclamation plans
to the proper state and federal authorities.
BUSINESS STRATEGY
As was noted above, the creation of AFC was done for the purpose of
creating operating revenues for us. We also intend to expand our exploration,
and our timber production.
To date our activities have been financed primarily through debt and the
sale of equity securities and the issuance of equity for the acquisition of
mining property. See "Management's Discussion and Analysis - Results of
Operations."
We will need to obtain additional funding to pursue our business strategy.
At the present time, we anticipate seeking additional funding through additional
private placements, joint venture agreements, production financing, and/or
pre-sale loans. Our inability to raise additional capital to fund operations
through the remainder of this year and through the next fiscal year would have a
detrimental effect on our viability and ability to pursue our business plan.
COMPETITION
CONTRACT MINING
A review of Dun and Bradstreet shows that the main competitors of AFC
7
in the contract mining business are: American Mine Services, Inc.; Dynatec
Mining Corporation; Tyson; J.S. Redpath and Small Mines Development. Each of
these companies are larger than AFC or part of larger companies which gives them
the depth to take on larger projects that require large capital investments.
Similarly, AFC must compete with other companies that provide contract
services related to underground mining. AFC has had the opportunity to compete
outside of this area on occasion in that it has used its underground mining
expertise in different ways. Such related use of this expertise has been in such
things as rock bolting, shotcrete, and grouting for ground support. AFC has
provided tunnel construction expertise for hydroelectric work. AFC has also
acquired and completed mine closure projects under the jurisdiction of the
Forest Service and State and Federal Environmental Agencies.
The amount of underground contracts for which AFC could bid fluctuates
greatly depending on the economic climate of the industry. However on average
the total contracts offered are generally between $100 and $120 million per
year. Over the past year AFC has not pursued any of the larger projects which
accounts for 80% to 90% of all projects available, and has only looked at
smaller projects in the three state area of Idaho, Montana and Washington. In
the future the company intends to use some of it existing AFC personnel to
pursue any activities on its other properties.
However, we believe we are in a unique position due to our manpower and
mining knowledge and experience. AFC has the ability to compete on larger
projects because of its expertise. However, the issue of whether to compete on
larger projects depends on our willingness to devote the necessary capital,
bonding, and other resources to larger projects when these resources might be
better used in the exploration of our own properties. The goal of our management
at this time is to show continued growth and profitability in AFC in order to
support the total corporate structure, and to utilize the talents and resources
of the AFC for our own exploration projects when those resources are available.
Up until this past year we have noticed less activity in the mining
industry in the United States. The price of metals and increased costs due to
regulations imposed on the industry have driven mining costs upward making
mining less profitable. Consequently, the ability to generate a sustainable
revenues source from AFC has been hampered, and management has decided to find
mineable resources on its own properties to utilize the manpower and equipment
available to the company. As the trend in metals prices improves, the
possibility of more contracting activity should also improve.
TIMBER
Although our logging is a very small percentage of our activities, we face
large numbers of competitors in this industry, and our competitors include
individuals who may own property in northern Idaho and wish to sell their lumber
at market prices to local mills. We are affected by market prices, and as prices
fall and competing suppliers increase, our revenues from this business may fall
significantly. Logging activities in northern Idaho are seasonal due to the
large amount of snow that accumulates during the winter. We do most of our
logging activity in the summer and fall.
EXPLORATION
We face a large number of competitors with respect to our exploration
8
activities. Although we may have some advantage with respect to companies
smaller than ours, we also face the common disadvantage against larger companies
with more available capital. Consequently over the past three years we have
limited our exploration activities to the clay property (Dragon Mine). However
as we complete our exploration activities at the Dragon Mine, we will look more
actively at other exploration targets. Our one advantage over many other smaller
mining companies is that we have the ability to actually mine.
GOVERNMENTAL REGULATION
CONTRACT MINING
We are subject to a variety of state and federal regulations with respect
to this aspect of our business. Most states require a contractors' license
before conducting business in their state. Each state has a different procedure
for licensing. We estimate the annual cost to maintain our state Contractor's
licenses to be approximately $500 per year. We obtain and pay workers
compensation insurance, unemployment, and state withholding in all states in
which we work. We handle these functions as a part of our normal clerical
process.
Several states that we operate in require a permit to handle explosives,
and we maintain such a license under the U.S. Bureau of Alcohol Tobacco and
Firearms (ATF, USC18, Chapter 40). This license must be renewed every three
years. If we hire new employees that will handle our explosives, we are required
to submit information to the ATF. Over the past year, the ATF has asked that we
keep in contact with them regarding any projects that require the use of
explosives.
Property owners must also obtain permits prior to mining. From the
contracting side, we have always required that the mine owner permit his project
with the proper regulatory authority prior to beginning work, which relieves us
of any cost or liability. On our own properties, we will spend approximately
$2,000 per year to keep permits in place.
We are licensed under the Mine Safety and Health Act of 1997 (MSHA)
(License number: VL-2). We are required to submit quarterly reports of our
activities MSHA and to conduct annual refresher courses for our employees. The
annual cost of these functions varies based on the amount of activity. We
estimate that compliance with the described state and federal regulations costs
us approximately $3,000 per year.
TIMBER
Our timber business is regulated by the Idaho state Department of Lands
under the Idaho Forestry Act Title 38, Chapter 1. Under this regulation, a
logger must apply for and obtain a Notification of Forest Practices prior to
starting a logging project. This permit requires the logger to maintain proper
logging practices, including erosion abatement, and fire prevention. The State
of Idaho retains $4 per thousand board feet from all logs hauled to the mill,
and once the project is completed, along with a State inspection verifying that
9
the project was completed according to Idaho Forest Practices Act, the logger
applies for a release of these funds. Although we contract out our logging, we
may be liable, as the landowner, for problems created by the logger. However, we
take measures to ensure that our contracted loggers are reputable and incidents
do not occur. We do not currently have any direct costs related to this
regulation. The process of obtaining access to our ground when it is necessary
to enter through Forest Service or BLM property can delay timber harvesting.
Although the law does not allow either of these agencies to restrict access to
the private landowner, the permitting process is time consuming and reflects a
cost to the landowner. We estimate the cost of this process will be about $5,000
per year.
EXPLORATION AND DEVELOPMENT
Should we decide to conduct exploration activities in Idaho, we must
notify the Idaho State Bureau of Mines as required under Title 47, Chapter 1,
the Department of Lands, and the federal Mine Safety and Health Administration
of our intent. If we produce any ground disturbance, we will then need to notify
the State Department of Environmental Quality to ensure that we are working
within their guidelines. However, we do not intend to conduct any exploration in
Idaho at this time.
We have conducted some exploration activities at the Dragon Mine in Juab
County, Utah. The Utah Department of Natural Resources sets the guidelines for
Exploration, and other mineral related activities based on provisions of the
Mined Land Reclamation Act, Title 40-8, Utah Code Annotated 1953, as amended,
and the General Rules and Rules of Practice and Procedures, R647-1 through
R647-5. We have applied for and received the proper permit from them. We also
applied for and received authority from the Utah Department of Commerce to
conduct business as a foreign corporation in the state as required by Utah Code,
Title 16-10A-1501. Compliance with these regulations is expected to cost us
approximately $1,200 per year. As we hire additional people for this project we
have covered them under proper state workman compensation, withholding and
unemployment laws as required by both Utah and Idaho State employment
regulations. We carry a Mine Safety and Health Administration (MSHA) license
(#4202383) for this property and report as required to this agency. We estimate
the cost of compliance to MSHA to be approximately $5,000 per year.
EMPLOYEES
As of December 31, 2005, Atlas Mining and its subsidiaries have fourteen
employees. As additional projects becomes available we will hire needed
employees. We have also outsourced some of our logging work to a logging
contractor who employs approximately six people. In addition, we periodically
utilize the services of various individuals on a consulting basis. In 2005, we
hired the services of a geologist, prospectors, industrial minerals consultants,
and acquisition experts. We have one employment agreement with our CEO. None of
our employees are covered by a collective bargaining agreement, we have never
experienced a work stoppage, and we consider our labor relations to be
excellent.
ITEM 2. DESCRIPTION OF PROPERTY
PRINCIPAL OFFICE
We rent office space from the Mcgillvray Environmental in Osburn, Shoshone
County, Idaho. The address of the property is 630 East Mullan
10
Avenue, Osburn, Idaho 83849. The property is a two-room office, containing
approximately 800 square feet, in a business complex in the downtown area of
Osburn, Idaho. The rent is $300 per month and there is no rental agreement.
MINING PROPERTIES
-----------------
We have assets of real property, mineral leases and options. The following
section describes our right, title, or claim to our properties and each
property's location. This section also discusses our present plans for
exploration of the properties, and an estimate of mineralized material located
on each property. Please refer to our Glossary at the end of this section for
definitions of technical terms used in our discussion.
SHOSHONE COUNTY, IDAHO
Exploration
We own approximately 900 acres of fee simple property and patented mining
claims, and 260 acres of mineral rights and unpatented claims, located in the
Coeur d'Alene mining district in Shoshone County, Idaho, commonly referred to as
the Silver Valley of North Idaho. Atlas was originally incorporated to pursue
mining activities on the Atlas mine property near Mullan, Idaho. This property
had some past production of silver, lead, zinc and copper in the early 1900's.
However, the existence of minerals on this property cannot be determined without
extensive exploration. Any revenues we may eventually generate may be used to
further explore mines within the Shoshone County area or to acquire and explore
new properties wholly unrelated to our Shoshone County properties. We have no
plans for exploration of the Shoshone County mines at this time.
Our properties in Shoshone County are divided into five separate tracts.
These sections are named for the mines located in that specific section. The
section location and estimated acreage are as follows:
Section Of The Coeur D'Alene Mining District Estimated Acres
Atlas Mine 540 acres fee simple and patented,
180 unpatented
Sierra Trapper Creek 80 acres patented
Aulbach, Section 6 & 7 100 acres patented
Sierra Silver, Woodland Pk & 9 Mi 60 acres patented,
80 acres mineral rights
Sierra Hardscrabble 20 acres patented
L& N claims 108 acres patented
The largest section is the Atlas Mine. The underground Atlas Mine, idle
since the early 1980's due to exploration budget restraints, is located on the
east end of the Coeur d'Alene Mining District in Shoshone County. The property
is accessible by interstate freeway and a county maintained road. Geologically,
the property lies just south of the Osburn Fault in the Wallace and St. Regis
formations. The Mine has over 7,000 feet of tunnels with a rail system and a
11
2,000-foot internal shaft which can be accessed for future exploration.
The other properties in Shoshone County have no accessible workings. All
the properties are accessible either by state highway, county road or forest
service roads. As time and the economic trends merit it we will be looking find
ways to make these properties more productive or to sell them.
The Atlas property carried a first mortgage to CLS Mortgage, all of which
were paid off in 2005.
Timber
We estimate that our properties in Shoshone County contain approximately 2
million board feet of harvestable timber. We contract with independent loggers
to harvest the timber and deliver it to mills. We contract our logging
activities to experienced loggers in the industry. The current return to Atlas
is approximately $150 per thousand board feet. A board foot of lumber is one
foot by one foot by one inch. We implement reforestation techniques to replenish
its timber supply. Much of the remaining timer on Atlas lands requires access
through U S Forest Service or BLM properties. Permitting for access through
these entities is somewhat time consuming and we do not know whether we will be
able to log very much of our properties in the near future.
We acquired our Sierra properties through the acquisition of Sierra Silver
Lead Mining Company. Through this purchase the Company acquired approximately
329 acres of mineral rights that include approximately 250 acres of surface land
and timber. Although there was a small amount of zinc mined on the Sierra Silver
property, there has been no mining activity for over forty years. Subsequent to
the purchase we sold approximately 100 acres. The majority of the Sierra
property lies south of the Osburn Fault in the Wallace formation, and has no
reserves. The property does have approximately 500,000 board feet of timber,
which we value at approximately $75,000.
We acquired our Aulbach claims in March 1999 from Trail Gulch Gold Mining
Company. Through this purchase, we acquired approximately 100 acres of surface
land and mineral rights, including timber rights. To date, we have logged
approximately 650,000 board feet of timber on the property with an approximate
net value of $105,000.
JUAB COUNTY, UTAH
Dragon Mine
The Dragon Mine property, located in Juab County, Utah near the City of
Eureka (Tintic Mining District) has been principally exploited for halloysite
clay, a rare and high unit value clay mineral. The property consists of 38
patented mining claims, approximately 230 acres, located in the following
sections: T10S, R2W, sections 29, 30, 31, and T10S, R3W, Section 36, all
relative to the Salt Lake Meridian. Since July 10, 2001, Atlas Mining Company
had leased the property from Conjecture Silver Mines, Inc., whose address is
P.O.B. 14006, Spokane, Washington 99214. Conjecture Mines has since been
12
merged into Chester Mines, Inc. with the same address. 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 have the right to renew the lease annually in
exchange for 100,000 additional shares of our common stock, or we may buy the
property for $500,000 if we have $1,000,000 in sales from the mine in a 12-month
period. On August 18, 2005, we purchased the property from Conjecture Silver
Mines and transferred ownership to Atlas Mining Company.
Conjecture Mines acquired the claims through a Quit Claim deed and share
exchange with Grand Central Silver Mines, Inc. From 1950 to 1977, the Dragon
Mine was owned by Anaconda and operated by Filtrol Corporation. The property has
been idle since 1977. Examination of the mine maps, the open pit and surviving
correspondence, coupled with informal interviews of former employees, all lead
us to the conclusion that the mining techniques were likely inefficient which
combined with developments of synthetic catalysts (the halloysite was mined for
petroleum cracking) led the mine to price itself out of business. In 2004
Chester Mines, Inc acquired Conjectures Silver Mines, Inc. The address remains
the same as does the principal officer.
Previous owners' records indicate that over 1.1 million tons were mined at
the property from 1950 until it closed. Those records also indicate
approximately 300,000 tons of mineralized material remain on the property. The
previous owners also conducted some exploration core drilling and some reverse
circulation drilling, but the records of the results are incomplete. The figures
in this paragraph depend on the assumption that the old records and maps are
accurate. Our analysis of the surviving maps and record lead us to believe that
their estimates of mineralized material are still valid. In 2003 and 2005 we
conducted small exploration drilling programs, and have been able to further
validate this information. The previous owners' geologists determined the area
of influence was no more than 80 feet along strike and 100 feet along dip. There
were no chemically quantifiable cutoffs to the mineralized material. It appeared
that the most distinguishable factors were visual indicators. The specific
gravity they used was a density of 17 cubic feet per ton.
The property is located in the arid mountains approximately 2 miles
southwest of Eureka, Utah and can be accessed via state highway and county road.
The only evidence of mining prior to our lease was an open pit area and an
abandoned head frame. The Union Pacific Railroad has a spur approximately 2
miles from the property. Power is approximately 1.5 miles from the site, and no
evidence of water except in the shaft.
In 2004 and 2005 we were able to bring the property into a development
stage. We built a mill site which includes a lay down and sorting area for
product, a 50X60 building with KDS processing machine. We installed a 650 KW
electrical generator with service to the mill, office and mine, a water and
septic system, and compressor. We have developed the underground mine with over
800 feet of decline and access tunnels and have exposed the halloysite clay bed
approximately 100 feet underground. To facilitate these activities we have
increased our equipment purchases in 2004 and 2005.
We believe the halloysite material formed through the alteration of a
shale bed lying between a limestone bed and igneous rocks. The base of the
limestone was selectively replaced by iron oxide material with abundant
manganese. The shale was altered to halloysite. This unit is evident in the open
pit. Following the alteration event, halloysite was squeezed into
northeast-striking faults upward through the limestone to the top of the bedrock
in places. Our geologists see added potential to the northeast along these
faults and in the replaced beds to the east and northeast. This potential has
13
not yet been quantified.
Samples taken from surface and underground exposures of the halloysite
material have been made available to parties interested in conducting
suitability tests. Samples have been taken from seven areas within the open pit.
On the surface, the halloysite material is chalky white, often stained by iron
leaking downward from the iron cap, but a few inches beneath the surface, the
halloysite material turns to soft, wet-looking and soapy feeling, often with a
bluish tinge. However, this material loses its water content and turns chalky
within a few days of exposure to air.
DESCRIPTION OF PROPERTY GLOSSARY
Alteration: Changes in chemical or mineralogical composition of a rock
generally produced by weathering or hydrothermal solutions.
Clay: A size term regarding particles, regardless of mineral
composition, with a diameter of less than four microns, or a
group of hydrous alumino-silicate minerals related to the
micas.
Development: The preparation of an established commercially mineable
deposit (reserves) for its extraction which are not in the
production stage.
Exploration: The search for mineral deposits (reserves) which are not in
either the development or production stage.
Fault: A fracture or fracture zone along which there has been
displacement of the sides relative to one another parallel to
the fracture.
Formation: The primary unit of formal mapping or description.
Grout: A form of ground stabilization where in cement is pumped into
the rock formation.
Halloysite: A clay mineral related to kaolin with essentially the same
chemical composition, but has crystals which are slender
hollow tubes.
Mineral: A naturally formed chemical element or compound having a
definite range in chemical composition and usually a
characteristic crystal form.
Mining Claim: That portion of mineral lands that a miner takes and
holds in accordance with mining laws.
Open Pit: A hole in the ground left by the extraction of material.
Reserve: That part of an identified resource from which a useable
commodity can be economically and legally extracted at the
time of determination.
14
Resource: A concentration of naturally occurring materials in such form
that economic extraction is currently or potentially feasible.
Shaft: An excavation of limited area compared to its depth.
Shotcrete: A form of ground stabilization where concrete is sprayed on
the rock to give it strength.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is quoted on the National Association of Securities
Dealers, Inc. Electronic Bulletin Board (the "OTC Bulletin Board"), and is
traded under the symbol "ALMI". Our common stock began trading on the OTC
Bulleting Board on July 19, 2002; prior to that date our stock traded on the
Over-The-Counter Pink Sheets under the symbol "ALMI". These quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions. The source of this information was found at
http://moneycentral.msn.com.
2005 2004
High Low High Low
---- --- ---- ---
First Quarter $1.51 $0.38 $0.25 $0.105
Second Quarter $1.32 $0.77 $0.255 $0.15
Third Quarter $1.27 $0.96 $0.33 $0.17
Fourth Quarter $1.14 $.078 $0.40 $0.245
As of March 28, 2006, there were approximately 1,633 holders of record of
our common stock. This number does not include an indeterminate number of
shareholders whose shares are held by brokers in street name. Since we have
become a reporting company, we have never declared or paid any cash dividend on
our common stock. We expect to continue to retain all earnings generated by our
operations for the development and growth of our business, and do not anticipate
paying any cash dividends to our shareholders in the foreseeable future. The
payment of future dividends on our common stock and the rate of such dividends,
if any, will be determined by our board of directors in light of our earnings,
financial condition, capital requirements and other factors.
Our Board of Directors has adopted two equity compensation plans, the
Stock Option Plan of Atlas Mining Company, and the Incentive Stock Option Plan
of Atlas Mining Company. Both plans were adopted in 1998, and expired on
December 31, 2003. The Stock Option Plan allowed the Company to grant options to
purchase up to 10% of the then outstanding shares of common stock, and the
15
Incentive Stock Option Plan allows the Company to grant options to purchase up
to a total of 10% of the then outstanding shares of common stock. The price per
share for each option granted will be set by the Administrative Committee. As of
December 31, 2005, one option has been granted under the Stock Option Plan of
Atlas Mining Company to the CEO. Options issued under the Incentive Stock Option
Plan of Atlas Mining Company will have a price per share at least equal to the
fair market value of the Company's common stock on the date of the grant. As of
December 31, 2005, no options have been granted under the Incentive Stock Option
Plan of Atlas Mining Company.
RECENT SALES OF UNREGISTERED SECURITIES
On January 12, 2005, the Company issued 180,000 shares of its common stock
valued to accredited investors for $45,000 cash.
On January 27, 2005, the Company issued 110,000 shares of its common stock
valued at $27,500 for cash to accredited investors.
On February 3, 2005, the Company issued 8,000 shares of its common stock
valued at $2,000 for cash to an accredited investor.
On February 14, 2005, the Company issued 30,000 shares of its common stock
valued at $7,500 for cash to an accredited investor.
On February 22, 2005, the Company issued 1,000,000 shares of its common
stock valued at $500,000 for cash to accredited investors.
On February 24, 2005, the Company issued 50,000 shares of its common stock
valued at $25,000 for services.
On July 1, 2005, the Company issued 4,880,090 shares of its common stock
valued at $4,430,602.80 for cash to accredited investors.
On July 8, 2005, the Company issued 100,000 shares of its common stock
valued at $100,000 to Conjecture Mines, Inc for payment its annual lease payment
on the Dragon Mine.
On August 25, 2005, the Company issued 35,650 shares of its common stock
valued at $8,910 for cash to an accredited investor.
On August 29, 2005, the Company issued 175,000 shares of its common stock
valued at $105,000 for settlement of debt negotiated in January, 2005.
On September 23, 2005, the Company issued 33,680 shares of its common
stock valued at $8,420 for cash to an accredited investor.
On September 27, 2005, the Company issued 2,310 shares of its common stock
valued at $578 for cash to an accredited investor.
On September 30, 2005, the Company issued 46,100 shares of its common
stock valued at $11,525 for cash to an accredited investor.
On October 3, 2005, the Company issued 40,000 shares of its common stock
valued at $40,800 for services.
On November 23, 2005, the Company issued 2,000 shares of its common stock
valued at $500 for cash to an accredited investor.
16
On December 14, 2005, the Company issued 3,850 shares of its common stock
valued at $963 for cash to an accredited investor.
All of the above issuances were exempt from registration pursuant to
Section 4(2) of the Securities Act of 1933 because none of the issuances were a
public offering.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
Our discussion and analysis of our financial condition and results of
operations are based upon our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses. On an on-going basis, we evaluate our estimates based on historical
experience and various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
We are a natural resources company engaged in the acquisition and exploration of
our resource properties in the states of Idaho, Utah and 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."
Currently, our primary source of revenue is generated by our Atlas Fausett
Contracting operations. However, we also have our halloysite clay deposit and
timber.
Contract Mining
In the past our contract mining normally generates 80% or more 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 still be a contributing factor to our revenues.
Property Exploration
We are currently considered an exploration company. Our efforts in exploration
are dependent upon the available funds we can raise to pursue our exploration
efforts. We have no assurances that our exploration will result in proving any
commercially viable deposits. We realize that additional steps will need to be
taken to move from an exploration stage to a development or productions stage.
The majority of our exploration has been at the Dragon Mine in Juab County,
Utah. We have furnished samples of the halloysite clay extracted from this
property to potential buyers and distributors. The preliminary results of these
samples have been favorable, and we have received purchase orders as a result;
and we have received non binding letters of intent from potential buyers. We
have moved into the production stage of this property.
Timber
We will continue to harvest timber on our property. Timber harvesting will be
dependent upon lumber prices and weather.
17
FISCAL YEAR ENDED DECEMBER 31, 2005 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
2004.
Our operations for the period ended December 31, 2005, and the period ended
December 31, 2004 consisted mostly of our contracting work, logging income, and
development and exploration activities.
Revenues
Our total revenues for the period ending December 31, 2005 were $628,176,
compared to $1,035,329 for the period ending December 31, 2004, resulting in a
39% decrease from the same period the previous fiscal year. Our contract mining
revenue for the period ending December 31, 2005 was $628,176 compared to
$696,264 for the period ended December 31, 2004, or an decrease of 10%. Our
timber revenue for the period ending December 31, 2005 was $0.00 compared to
$89,064, for the same period ended December 31, 2004, and we received $0.00 from
halloysite clay sales in 2005 compared to $ 250,000 for the same period ended
December 31, 2004, making up the remaining decrease in revenues.
Gross Profit
Our Gross profit for the year ended December 31, 2005 was $76,918 compared to
$467,784 for the year ended December 31, 2004, resulting in a decrease of 83%
from the same period the previous year. The main reason for this decrease was
the lack of timber sales and the sale of halloysite clay in 2005, compared to
2004.
General and Administrative Expenditures
Our general and administrative expenditures for the period ending December 31,
2005 were $3,106,027 compared to $1,010,781 in 2004, which is a 2.07 times
increase from the same period the previous fiscal year. The reason for this is
attributable to additional costs in professional fees in 2005 not incurred in
2004.
Capital Expenditures
During 2005, we purchased the Dragon Mine in Juab County Utah for $600,000 and
added $321,258 to mining, milling and related equipment. During 2004 we
purchased approximately 100 acres in north Idaho for $60,250, and we constructed
a mill site for $100,688 and bought mining, milling and related equipment for
$363,180.
Interest Payments
Our interest payments for the period ending December 31, 2005 were $77,556,
compared to $23,210 from the same period the previous fiscal year or an increase
of 16%. In 2005, we liquidated the American National Mortgage debt, our major
creditor, resulting in a one time interest payment in the settlement.
Exploration & Development Expenditures
Our exploration expenses for the period ending December 31, 2005 was $760,347
compared to $340,657 for the previous fiscal year, which is a 123% increase from
the same period the previous fiscal year. Some of these expenses were in Canada,
but the majority of expenses were incurred at the Dragon Mine, in Juab County,
Utah, where we have continued our work to develop the property into a production
stage.
Net Profit (Loss)
Our net losses for the period ending December 31, 2005, ($3,780,318), compared
to ($946,274) for the same period ended December 31, 200, or a 299% increase
over the same period the previous fiscal year. The reason for this is attributed
to less revenue and more expenses in 2005 compared to 2004.
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, logging
operations and the sale of halloysite clay. We intend to continue pursuing
contracting work and to log our timber properties to help pay for our
operations. We also intend to sell more halloysite clay. In 2005 and 2004 the
contracting work accounted for about 100% and 67% of the total revenues
respectively. Halloysite clay sales accounted for 24% of the revenue in 2004,
while there were none in 2005. In 2005 and 2004 timber sales accounted for 0%
and 8% of the total revenue respectively. We have also issued common shares of
restricted stock and borrowed from various sources to finance our activities.
Our current debt structure is explained below.
18
We had a note payable to William Jacobson, an officer and director, which was
payable on demand and bearing no interest. The proceeds of this obligation were
used for general working capital. The current amount due as of December 31, 2005
and 2004, was $-0- and $91,488 respectively. Accounts payable and accrued
liabilities due as of December 31, 2005 were $101,532 and are the result of
daily operations and taxes owed.
We had a note payable to Moss Adams, LLP, an accounting firm, which matured on
August 16, 2002. As of December 31, 2005 and 2004 our current balance, including
interest was $-0- and $77,370 respectively. We had notes in the amount $582,498
plus interest payable to American National Mortgage, maturing on May 31, 2003,
and secured by property in northern Idaho. American National Mortgage has filed
bankruptcy, and we had negotiated a settlement on this debt and paid off this
obligation in 2005. We also had a note payable to CLS Mortgage Company, with a
current balance on December 31, 2005 and 2004, of $-0- and $118,920
respectively.
Our principal sources of cash flow are from our timber properties, which
averaged $-0- per month in fiscal year 2005 and $7,422 per month in 2004, our
contract mining, which averaged $52,348 per month in fiscal year 2005 and
$58,022 in 2004, and halloysite clay sales which were $-0- in 2005 and averaged
$20,833 per month in fiscal year 2004 In addition, we also rely on our credit
facilities and any public or private equity issuances we may conduct in the
future.
Cash flow from financing activities for the fiscal year ended December 31, 2005
was $4,152,836 compared to $1,138,553 for the same period in 2004, a difference
of $3,014,283. The main difference was the sale of common stock in 2005.
The Company realized a use of funds of ($779,760) from investing activities for
the fiscal year ended December 31, 2005, compared to ($447,504) for the same
period in 2004, a difference of $332,256. The main difference is attributed to
the purchase of equipment in 2005 of $729,010 compared to $524,119 for the same
period ended December 31, 2004.
Cash flow from operating activities for the fiscal year ended December 31, 2005,
was ($1,363,781) compared to ($491,228) for the same period in 2004, a
difference of $872,553. The Company had more operating losses in 2005 because
of the increase increased operating expenses.
As of April 1, 2003, we rent office space at 630 E. Mullan Avenue in Osburn,
Idaho for $300 per month, on a month-to-month basis from the Mcgillvray
Environmental.
If we do not create additional debt or repay the current debt, we would be
obligated to pay an average of $3,513 per month or $42,156 for the next fiscal
year.
In anticipation of the cash needs for the upcoming year, we have completed a
sale of restricted common stock in 2005.
If we will need to obtain additional funding to pursue our business strategy
during the next fiscal year, we anticipate seeking additional funding through
additional private placements, joint venture agreements, production financing,
and/or pre-sale loans. 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.
Following is summary financial information reflecting our operations for
the periods indicated.
Year Ended December 31,
2005 2004
---- ----
Net revenues $ 628,178 $ 1,035,329
Cost of revenues $ 551,258 $ 567,545
Gross profit $ 76,918 $ 467,784
Selling, general and administrative $ 3,106,027 $ 1,010,781
Gain (Loss) from operations $(3,789,456) $ (883,654)
Net gain (loss) $(3,780,318) $ (946,274)
19
FACTORS AFFECTING BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION
AN INVESTMENT IN OUR SECURITIES IS VERY SPECULATIVE AND INVOLVES A HIGH
DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS, ALONG
WITH THE OTHER MATTERS REFERRED TO IN THIS ANNUAL REPORT, BEFORE YOU DECIDE TO
BUY OUR SECURITIES. IF YOU DECIDE TO BUY OUR SECURITIES, YOU SHOULD BE ABLE TO
AFFORD A COMPLETE LOSS OF YOUR INVESTMENT.
WE HAVE EXPERIENCED ANNUAL OPERATING LOSSES SINCE SEPTEMBER 1997 AND OUR
AUDITORS HAVE INDICATED UNCERTAINTY CONCERNING OUR ABILITY TO CONTINUE
OPERATIONS AS A GOING CONCERN.
We have experienced annual operating losses since our reactivation in
September 1997. As of December 31, 2005, we had an accumulated deficit of
$(9,641,558). We may need to raise additional capital to continue as a going
concern. Our auditors have indicated uncertainty concerning our ability to
continue as a going concern. We can not assure you that that our proposed
projects and services, if fully developed, can be successfully marketed or that
we will ever achieve significant revenues or profitable margins.
WE ARE AN EXPLORATION STAGE COMPANY, AND THERE IS NO ASSURANCE THAT A
COMMERCIALLY VIABLE DEPOSIT OR "RESERVE" EXISTS IN ANY OF OUR PROPERTIES.
We are an exploration stage company and cannot assure you that a
commercially viable deposit, or "reserve," exists in any of our exploration
properties. Therefore, determination of the existence of a reserve will depend
on appropriate and sufficient exploration work and the evaluation of legal,
economic, and environmental factors. If we fail to find a commercially viable
deposit on any of our properties, or if we fail to bring one of our properties
into a profitable operating mode, our financial condition and results of
operations will be materially adversely affected.
WE HAVE RECORDED MINIMAL INCOME FOR OUR EXPLORATION/DEVELOPMENT
ACTIVITIES, AND MAY DO SO IN THE FUTURE.
To date, our exploration properties have produced minimal income from
activities. Additionally, although our timber harvesting and contracting
activities have generated revenue, we as a company have not yet generated any
profit. We may not be able to develop these activities to commercially viable
enterprises or to obtain additional properties that are commercially viable. The
commodities extracted from our properties may never generate significant
revenues or achieve profitability, which will adversely impact our financial
condition.
WE MAY NEED ADDITIONAL FINANCING TO FULLY IMPLEMENT OUR BUSINESS PLAN, AND
IF WE FAIL TO OBTAIN ADDITIONAL FUNDING WE MAY NOT BE ABLE TO CONTINUE OUR
OPERATIONS.
Since September 1997, we have focused our efforts on developing our
business in underground mine contracting primarily to companies in the mining
and civil industries, and other resource development and property acquisitions.
We may need to raise additional capital to implement fully our business plan and
establish adequate operations. We cannot assure you that we will be able to
recover additional public or private financing, including debt
20
or equity financing, as needed, or, if available, on terms favorable to us.
Furthermore, debt financing, if available, will require payment of interest and
may involve restrictive covenants that could impose limitations on our operating
flexibility. Our failure to successfully obtain additional future funding may
jeopardize our ability to continue our business and operations.
WE REQUIRE SUBSTANTIAL FUNDS MERELY TO DETERMINE WHETHER COMMERCIAL
MINERAL DEPOSITS EXIST ON OUR PROPERTIES.
Any potential development and production of our exploration properties
depends upon the results of exploration programs and/or feasibility studies and
the recommendations of duly qualified engineers and geologists. Such programs
require substantial additional funds. Any decision to further expand our
operations on these exploration properties will involve consideration and
evaluation of several significant factors including, but not limited to:
o Costs of bringing each property into production, including
exploration work, preparation of production feasibility studies, and
construction of production facilities;
o Availability and costs of financing;
o Ongoing costs of production;
o Market prices for the minerals to be produced;
o Environmental compliance regulations and restraints; and
o Political climate and/or governmental regulation and control.
WE DO NOT CARRY INSURANCE ON OUR TIMBER ASSETS AND A SIGNIFICANT LOSS OF
STOCK DUE TO FIRE, DISEASE OR OTHER CATASTROPHE MAY MATERIALLY REDUCE THE VALUE
OF OUR TIMBER ASSETS.
We do not carry insurance for fire or disease on its timber reserves due
to the prohibitive cost and our limited financial resources. As a result, any
catastrophic event may significantly reduce the value of our reserves, and
consequently reduce our financial position. The timber industry is affected by
lumber price movements and adjustments, downturns in the housing industry, and
interest rate movements. These factors can reduce the price of timber and lumber
on the open market. A significant decrease in the price of timber may reduce
income and therefore reduce the value of our stock.
OUR SUCCESS DEPENDS A LARGE PART ON OUR ABILITY TO ATTRACT AND RETAIN OR
HIRE KEY PERSONNEL, WHICH WE MAY OR MAY NOT BE ABLE TO DO.
To operate successfully and manage our potential future growth, we must
attract and retain highly qualified key engineering, managerial and financial
personnel. We face intense competition for qualified personnel in these areas,
and we cannot assure you that we will be able to attract and retain qualified
personnel. If we lose our key personnel, which includes our president, William
T. Jacobson, or are unable to hire and retain additional qualified personnel in
the future, our business, financial condition and operating results could be
adversely affected. We do not have any employment agreements with any of our
officers, directors or employees.
WE MAY NOT BE ABLE TO IMPLEMENT OR MAINTAIN FINANCIAL AND MANAGEMENT
SYSTEMS WHICH COULD HAVE A MATERIAL ADVERSE AFFECT ON OUR BUSINESS, FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
If we fail to implement and maintain financial and management
21
information systems, controls and procedures, add internal capacity, facilities
and third-party sourcing arrangements or attract, train, retain, motivate and
manage effectively our employees, it could have a material adverse effect on our
business, financial condition and results of operations.
THE VALUE OF TIMBER ASSETS MAY FLUCTUATE DUE TO CHANGING TIMBER PRICES,
WHICH MAY ADVERSELY IMPACT OUR REVENUES AND OUR FINANCIAL POSITION.
Although we attempt to harvest timber only when the lumber prices merit
it, timber is subject to fluctuation in price. To help offset a change in
prices, we try to obtain a price agreement with the lumber mills prior to going
into any logging program. We do not currently have any agreements with mills.
Although we attempt to offset this by obtaining agreements with our purchasing
mills prior to beginning our logging, we may not be able to account entirely for
price variations, which may result in lower revenues than anticipated.
OUR MARKET VALUE MAY DECREASE IN THE FUTURE.
Our stock is listed on the over-the-counter market. There has been
significant fluctuation in our market price, and the market price of our common
stock may decrease at any time as a result of poor operating results, sales of
our shares, and other factors.
THERE IS COMPREHENSIVE FEDERAL, STATE AND LOCAL REGULATION OF THE
EXPLORATION INDUSTRY THAT COULD HAVE A NEGATIVE IMPACT OUR MINING OPERATIONS.
Exploration operations are subject to federal, state and local laws
relating to the protection of the environment, including laws regulating removal
of natural resources from the ground and the discharge of materials into the
environment. Exploration operations are also subject to federal, state and local
laws and regulations which seek to maintain health and safety standards by
regulating the design and use of exploration methods and equipment. We require
various permits from government bodies for exploration operations to be
conducted. We cannot assure you that such permits will be received. No assurance
can be given that environmental standards imposed by federal, state or local
authorities will not be changed or that any such changes would not have material
adverse effects on our activities. Moreover, compliance with such laws may cause
substantial delays or require capital outlays in excess of those anticipated,
thus causing an adverse effect on us. Additionally, we may be subject to
liability for pollution or other environmental damages that we may elect not to
insure against due to prohibitive premium costs and other reasons. Management is
aware of the necessity of obtaining proper permits prior to conducting any
exploration activity. However, at this point we are not close enough to the
production stage to start the permitting process.
APPLICABILITY OF "PENNY STOCK RULES" TO BROKER-DEALER SALES OF OUR COMMON
STOCK COULD HAVE A NEGATIVE EFFECT ON THE LIQUIDITY AND MARKET PRICE OF OUR
COMMON STOCK.
Our common stock is listed on the Over-the-Counter Bulletin Board. It is
not quoted on any exchange or on NASDAQ, and no other exemptions currently
apply. Therefore, the SEC "penny stock" rules govern the trading in our common
stock. These rules require, among other things, that any broker engaging in a
transaction in our securities provide its customers with the following:
22
o a risk disclosure document,
o disclosure of market quotations, if any,
o disclosure of the compensation of the broker and its
o salespersons in the transaction, and
o monthly account statements showing the market values of our
o securities held in the customer's accounts.
The broker must provide the bid and offer quotations and compensation
information before effecting the transaction. This information must be contained
on the customer's confirmation. Generally, brokers subject to the "penny stock"
rules when effecting transactions in our securities may be less willing to do
so. This may make it more difficult for investors to dispose of our common
stock. In addition, the broker prepares the information provided to the broker's
customer. Because we do not prepare the information, we cannot assure you that
such information is accurate, complete or current.
ITEM 7. FINANCIAL STATEMENTS
The financial statements, together with the independent auditors' report
thereon of Chisolm, Bierwolf & Nilson, LLC, appears beginning on page F-1 of
this report.
23
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
of Atlas Mining Company
We have audited the accompanying consolidated balance sheets of Atlas Mining
Company as of December 31, 2005 and 2004 and the related consolidated statements
of operations, stockholders' equity and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with the standards of the PCAOB (United
States). Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial reporting.
Our audit included consideration of internal control over financial reporting as
a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control over financial reporting.
Accordingly, we express no such opinion. The Company has determined that it is
not required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Atlas
Mining Company as of December 31, 2005 and 2004 and the results of its
operations and cash flows for the years then ended in conformity with U.S.
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has suffered recurring
losses from operations which raises substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
described in Note 2. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ Chisholm, Bierwolf & Nilson, LLC
Chisholm, Bierwolf & Nilson, LLC
Bountiful, UT
January 26, 2006
Atlas Mining Company and Subsidiary
Consolidated Balance Sheets
ASSETS
December 31,
2005 2004
----------- -----------
Current Assets
Cash $ 2,215,930 $ 206,635
Accounts receivable (net of allowance of $0) 40,173 273,014
Investments - available for sale 19,538 19,538
Advances 750 --
Deposits and prepaids 100,454 65,738
----------- -----------
Total Current Assets 2,376,846 564,925
----------- -----------
Property and Equipment
Land and tunnels 1,005,159 405,410
Buildings and equipment 188,192 178,368
Mining equipment 244,499 104,201
Milling equipment 247,714 242,669
Office equipment 26,689 1,300
Vehicles 111,259 70,305
Less: Accumulated depreciation (229,311) (152,507)
----------- -----------
Total Property and Equipment 1,594,200 849,746
----------- -----------
Other Assets
Long-term Note Receivable 50,000 --
Mining supplies 9,000 9,000
----------- -----------
Total Other Assets 59,000 9,000
----------- -----------
Total Assets $ 4,030,045 $ 1,423,671
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-1
Atlas Mining Company and Subsidiary
Consolidated Balance Sheets
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31,
2005 2004
------------ ------------
Current Liabilities
Accounts payable and accrued liabilities $ 101,532 $ 304,925
Current portion of long-term debt 25,973 1,031,672
------------ ------------
Total Current Liabilities 127,505 1,336,597
------------ ------------
Long-Term Liabilities
Notes payable 49,661 970,239
Notes payable - related party -- 91,488
Less: current portion of long-term debt (25,973) (1,031,672)
------------ ------------
Total Long-Term Liabilities 23,688 30,055
------------ ------------
Minority Interest 52,797 52,649
------------ ------------
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,
48,852,892 and 39,892,422 shares issued and outstanding, respectively 13,598,660 6,006,657
Cost of treasury stock, 1,313,022 in 2005 and 2004 (131,221) (131,221)
Accumulated Deficit (9,641,558) (5,861,240)
Accumulated other comprehensive income (loss) 174 174
Prepaid expenses -- (10,000)
------------ ------------
Total Stockholders' Equity (Deficit) 3,826,055 4,370
------------ ------------
Total Liabilities and Stockholders' Equity $ 4,030,045 $ 1,423,671
============ ============
The accompanying notes are an integral part of these financial statements.
F-2
Atlas Mining Company and Subsidiary
Consolidated Statements of Operations
For the Year Ended
December 31,
-------------------------------
2005 2004
------------ ------------
Revenues - Contract Mining $ 628,176 $ 696,264
Revenues - Mining Production -- 250,000
Revenues - Timber -- 89,064
------------ ------------
Total Revenues 628,176 $ 1,035,328
------------ ------------
Cost of Sales - Contract Mining 551,258 $ 532,324
Cost of Sales - Mining Production -- 33,925
Cost of Sales - Timber -- 1,295
------------ ------------
Total Cost of Sales 551,258 567,544
------------ ------------
Gross Profit (Loss) 76,918 467,784
------------ ------------
Operating Expenses
Exploration & development costs 760,347 340,657
General & administrative 3,106,029 1,010,781
------------ ------------
Total Operating Expenses 3,866,376 1,351,438
------------ ------------
Net Operating Income (Loss) (3,789,458) (883,654)
------------ ------------
Other Income(Expense)
Interest income 26,131 36
Interest expense (65,089) (56,224)
Miscellaneous income 146 750
Minority interest (145) 3
Gain (loss) on sale of assets (3,393) (10,049)
Gain (loss) on settlement of debt 51,490 2,864
------------ ------------
Total Other Income(Expense) 9,140 (62,620)
------------ ------------
Income (Loss) Before Income Taxes (3,780,318) (946,274)
Provision (Benefit) for Income Taxes -- --
------------ ------------
Net Income (Loss) $ (3,780,318) $ (946,274)
============ ============
Net Income (Loss) Per Share (Basic and Diluted) $ (0.08) $ (0.03)
============ ============
Weighted Average Shares Outstanding 45,222,704 37,268,310
============ ============
The accompanying notes are an integral part of these financial statements.
F-3
Atlas Mining Company and Subsidiary
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31, 2005 and 2004
Common Stock Treasury Stock
------------------------ Accumulated ------------------------
Shares Amount Deficit Shares Amount
----------- ----------- ----------- ----------- -----------
Balance, December 31, 2003 34,725,151 $ 4,994,977 $(4,914,966) 1,313,022 $ 131,221
1/22/04 - Shares issued for services at $.10 50,000 5,000 - # -- --
2/12/04 - Shares issued for services at $.10 500,000 50,000 -- -- --
2/13/04 - Shares issued for services at $.10 250,000 25,000 -- -- --
2/20/04 - Shares issued for services at $.10 500,000 50,000 -- -- --
2/24/04 - Shares issued for services at $.10 150,000 15,000 -- -- --
3/5/04 - Shares issued for cash at $.14 1,071 150 -- -- --
3/6/04 - Shares issued for services at $.15 500,000 75,000 -- -- --
3/19/04 - Shares issued for services at $.15 150,000 22,500 -- -- --
4/19/04 - Shares issued for services at $.20 195,000 39,000 -- -- --
5/17/04 - Shares issued for services at $.20 200 40 -- -- --
7/08/04 - Shares issued for services at $.20 100,000 20,000 -- -- --
7/15/04 - Shares issued for Dragon Mine lease at $.20 100,000 20,000 -- -- --
7/15/04 - Shares issued for services at $.20 10,000 2,000 -- -- --
8/10/04 - Shares issued for services at $.20 50,000 10,000 -- -- --
8/10/04 - Shares issued for services at $.20 250,000 50,000 -- -- --
8/10/04 - Shares issued for services at $.20 200,000 40,000 -- -- --
10/13/04 - Shares issued for services at $.30 150,000 45,000 -- -- --
10/15/04 - Shares issued for services at $.30 1,000 300 -- -- --
10/26/04 - Shares issued for services at $ .29 10,000 2,900 -- -- --
10/26/04 - Shares issued for services at $.29 90,000 26,100 -- -- --
11/8/04 - Shares issued for services at $.27 200,000 54,000 -- -- --
11/30/04 - Shares issued for services at $.25 30,000 7,500 -- -- --
12/7/04 - Shares issued for cash at $.25 400,000 100,000 -- -- --
12/8/04 - Shares issued for services at $.30 5,000 1,500 -- -- --
Accumulated
Other
Comprehensive Prepaid Subscription
Income Expenses Receivable
------------ ----------- -----------
Balance, December 31, 2003 $ (10,843) $ (5,000) $ (524,700)
1/22/04 - Shares issued for services at $.10 -- -- --
2/12/04 - Shares issued for services at $.10 -- -- --
2/13/04 - Shares issued for services at $.10 -- -- --
2/20/04 - Shares issued for services at $.10 -- -- --
2/24/04 - Shares issued for services at $.10 -- -- --
3/5/04 - Shares issued for cash at $.14 -- -- --
3/6/04 - Shares issued for services at $.15 -- -- --
3/19/04 - Shares issued for services at $.15 -- -- --
4/19/04 - Shares issued for services at $.20 -- -- --
5/17/04 - Shares issued for services at $.20 -- -- --
7/08/04 - Shares issued for services at $.20 -- -- --
7/15/04 - Shares issued for Dragon Mine lease at $.20 -- (20,000.00) --
7/15/04 - Shares issued for services at $.20 -- -- --
8/10/04 - Shares issued for services at $.20 -- -- --
8/10/04 - Shares issued for services at $.20 -- -- --
8/10/04 - Shares issued for services at $.20 -- -- --
10/13/04 - Shares issued for services at $.30 -- -- --
10/15/04 - Shares issued for services at $.30 -- -- --
10/26/04 - Shares issued for services at $ .29 -- -- --
10/26/04 - Shares issued for services at $.29 -- -- --
11/8/04 - Shares issued for services at $.27 -- -- --
11/30/04 - Shares issued for services at $.25 -- -- --
12/7/04 - Shares issued for cash at $.25 -- -- --
12/8/04 - Shares issued for services at $.30 -- -- --
F-4
Common Stock Treasury Stock
------------------------ Accumulated ------------------------
Shares Amount Deficit Shares Amount
----------- ----------- ----------- ----------- -----------
12/8/04 - Shares issued for cash at $.25 200,000 50,000 -- -- --
12/9/04 - Shares issued for services at $.31 250,000 77,500 -- -- --
12/9/04 - Shares issued for cash at $.25 120,000 30,000 -- -- --
12/10/04 - Shares issued for cash at $.25 180,000 45,000 -- -- --
12/16/04 - Shares issued for cash at $.25 420,000 105,000 -- -- --
12/27/04 - Shares issued for services at $.25 20,000 5,000 -- -- --
12/27/04 - Shares issued for cash at $.25 85,000 21,250 -- -- --
12/31/2004 - Warrants issued for brokerage fee 0 16,940
Cash received for subscriptions
receivable
Amortization of prepaid expenses -- -- -- -- --
Net change in unrealized gains (losses) on available
for sale securities -- -- -- -- --
Net loss for the year ended December 31, 2004 -- -- (946,274) -- --
----------- ----------- ----------- ----------- -----------
Balance, December 31, 2004 39,892,422 $ 6,006,657 $(5,861,240) $ 1,313,022 $ 131,221
=========== =========== =========== =========== ===========
Accumulated
Other
Comprehensive Prepaid Subscription
Income Expenses Receivable
------------ ----------- -----------
12/8/04 - Shares issued for cash at $.25 -- -- --
12/9/04 - Shares issued for services at $.31 -- -- --
12/9/04 - Shares issued for cash at $.25 -- -- --
12/10/04 - Shares issued for cash at $.25 -- -- --
12/16/04 - Shares issued for cash at $.25 -- -- --
12/27/04 - Shares issued for services at $.25 -- -- --
12/27/04 - Shares issued for cash at $.25 -- -- --
12/31/2004 - Warrants issued for brokerage fee
Cash received for subscriptions
receivable 524,700
Amortization of prepaid expenses -- 15,000 --
Net change in unrealized gains (losses) on available
for sale securities 11,017.00 -- --
Net loss for the year ended December 31, 2004 -- -- --
----------- ----------- -----------
Balance, December 31, 2004 $ 174 $ (10,000) $ --
=========== =========== ===========
F-5
Atlas Mining Company and Subsidiary
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31, 2005 and 2004 (Continued)
Common Stock Treasury Stock
------------------------ Accumulated ------------------------
Shares Amount Deficit Shares Amount
----------- ----------- ----------- ----------- -----------
Balance, January 1, 2005 39,892,422 $ 6,006,657 $(5,861,240) 1,313,022 $ 131,221
1/3/05- Shares issued for services at $0.40 100,000 40,000 -- -- --
1/4/05- Shares issued for services at $0.40 400,000 160,000 -- -- --
1/12/05 - Shares issued for cash at $0.25 100,000 25,000 -- -- --
1/21/05 - Shares issued for services at $0.50 10,000 5,000 -- -- --
1/24/05- Shares issued for services at $0.50 350,000 175,000 -- -- --
1/27/05 - Shares issued for cash at $0.25 110,000 27,500 -- -- --
1/28/05 - Warrants issued valued at $0.664 -- 390,489
2/2/05 - Shares issued for services at $0.65 7,170 4,661 -- -- --
2/3/05 - Shares issued for cash at $0.25 8,000 2,000 -- -- --
2/14/05 - Shares issued for cash at $0.25 30,000 7,500 -- -- --
2/16/05 - Shares issued for services at $0.80 7,200 5,760 -- -- --
2/22/05 - Shares issued for cash at $0.50 1,000,000 500,000 -- -- --
4/1/05 - Shares issued for services at $0.91 465,000 423,150 -- -- --
4/11/05 - Shares issued for services at $1.01 22,420 22,644 -- -- --
4/14/05 - Shares issued for services at $0.92 30,000 27,600 -- -- --
4/15/05 - Shares issued for services at $0.95 200,000 190,000 -- -- --
4/19/05 - Shares issued for services at $0.95 100,000 95,000 -- -- --
5/4/05 - Shares issued for services at $1.14 62,000 70,680 -- -- --
5/25/05 - Shares issued for services at $1.10 250,000 275,000 -- -- --
6/29/05 - Shares issued for cash at $0.908 4,880,090 4,431,122 -- -- --
7/7/05 - Shares issued for services at $1.05 50,000 52,500 -- -- --
Accumulated
Other
Comprehensive Prepaid Subscription
Income Expenses Receivable
------------- ----------- ------------
Balance, January 1, 2005 $ 174 $ (10,000) $ --
1/3/05- Shares issued for services at $0.40 -- -- --
1/4/05- Shares issued for services at $0.40 -- -- --
1/12/05 - Shares issued for cash at $0.25 -- -- --
1/21/05 - Shares issued for services at $0.50 -- -- --
1/24/05- Shares issued for services at $0.50 -- -- --
1/27/05 - Shares issued for cash at $0.25 -- -- --
1/28/05 - Warrants issued valued at $0.664
2/2/05 - Shares issued for services at $0.65 -- -- --
2/3/05 - Shares issued for cash at $0.25 -- -- --
2/14/05 - Shares issued for cash at $0.25 -- -- --
2/16/05 - Shares issued for services at $0.80 -- -- --
2/22/05 - Shares issued for cash at $0.50 -- -- --
4/1/05 - Shares issued for services at $0.91 -- -- --
4/11/05 - Shares issued for services at $1.01 -- -- --
4/14/05 - Shares issued for services at $0.92 -- -- --
4/15/05 - Shares issued for services at $0.95 -- -- --
4/19/05 - Shares issued for services at $0.95 -- -- --
5/4/05 - Shares issued for services at $1.14 -- -- --
5/25/05 - Shares issued for services at $1.10 -- -- --
6/29/05 - Shares issued for cash at $0.908 -- -- --
7/7/05 - Shares issued for services at $1.05 -- -- --
F-6
Atlas Mining Company and Subsidiary
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31, 2005 and 2004 (Continued)
Common Stock Treasury Stock
------------------------- Accumulated ------------------------
Shares Amount Deficit Shares Amount
----------- ----------- ----------- ----------- -----------
7/8/05 - Shares issued for Dragon Mine lease at $1.00 100,000 100,000 -- -- --
8/24/05 - Shares issued for services at $0.40 (50,000) (20,000) -- -- --
8/25/05 - Shares issued for cash at $0.25 35,650 8,913 -- -- --
8/29/05 - Shares issued for settlement of debt at $0.60 $ 175,000 105,000 -- -- --
negotiated in January, 2005
9/23/05 - Shares issued for cash at $0.25 33,680 8,420 -- -- --
9/27/05 - Shares issued for cash at $0.25 2,310 578 -- -- --
9/30/05 - Shares issued for cash at $0.25 46,100 11,525 -- -- --
10/3/05 - Shares issued for cash at $1.02 40,000 40,800 -- -- --
10/7/05 - Shares issued for services at $0.98 140,000 137,200 -- -- --
11/2/05 - Shares issued for services at $1.07 250,000 267,500 -- -- --
11/23/05 -Shares issued for cash at $0.25 2,000 500 -- -- --
12/14/05 -Shares issued for cash at $0.25 3,850 963 -- -- --
Amortization of prepaid expenses -- -- -- -- --
Net loss for the year ended December 31, 2005 -- -- (3,780,318) -- --
----------- ----------- ----------- ----------- -----------
Balance, December 31, 2005 48,852,892 $13,598,660 $(9,641,558) 1,313,022 $ 131,221
=========== =========== =========== =========== ===========
Accumulated
Other
Comprehensive Prepaid Subscription
Income Expenses Receivable
------------- ----------- ------------
7/8/05 - Shares issued for Dragon Mine lease at $1.00 -- -- --
8/24/05 - Shares issued for services at $0.40 -- -- --
8/25/05 - Shares issued for cash at $0.25 -- -- --
8/29/05 - Shares issued for settlement of debt at $0.60 -- -- --
negotiated in January, 2005
9/23/05 - Shares issued for cash at $0.25 -- -- --
9/27/05 - Shares issued for cash at $0.25 -- -- --
9/30/05 - Shares issued for cash at $0.25 -- -- --
10/3/05 - Shares issued for cash at $1.02 -- -- --
10/7/05 - Shares issued for services at $0.98 -- -- --
11/2/05 - Shares issued for services at $1.07 -- -- --
11/23/05 -Shares issued for cash at $0.25 -- -- --
12/14/05 -Shares issued for cash at $0.25 -- -- --
Amortization of prepaid expenses -- 10,000 --
Net loss for the year ended December 31, 2005 -- -- --
----------- ----------- -----------
Balance, December 31, 2005 $ 174 $ -- $ --
=========== =========== ===========
F-7
Atlas Mining Company and Subsidiary
Consolidated Statements of Cash Flows
For the Year Ended
December 31,
-------------------------
2005 2004
----------- -----------
Cash Flows from Operating Activities:
Net Income (Loss) $(3,780,318) $ (946,274)
Adjustments to Reconcile Net Loss to Net Cash
Provided by Operations:
Depreciation 80,911 30,593
(Gain) loss on sale of investments available for sale -- 10,049
Stock issued for services 1,931,695 620,590
Warrants issued for services 390,489 16,940
Amortization of prepaid expenses (equity) 10,000 15,000
Minority Interest 148 (3)
Loss on sale of assets 3,393 --
(Gain) loss on settlement of debt (51,490) --
Change in Operating Assets and Liabilities:
(Increase) Decrease in:
Accounts receivable 232,842 (240,761)
Deposits and prepaids 34,716 (65,738)
Accounts payable and accrued expenses 146,735 68,376
----------- -----------
Net Cash Provided(Used) by Operating Activities (1,363,781) (491,228)
Cash Flows from Investing Activities:
Purchases of equipment (729,010) (524,119)
Proceeds from advances (payments) (750) 320,693
Proceeds from sale of investments available for sale -- 1,922
Proceeds (payments) on notes receivable (50,000) --
Payments for advances -- (246,000)
----------- -----------
Net Cash Provided (Used) by Investing Activities (779,760) (447,504)
Cash Flows from Financing Activities:
Proceeds from notes payable 210,979 328,489
Payments for notes payable (1,122,962) (67,386)
Payments for line of credit -- (1,400)
Proceeds from issuance of common stock 5,064,819 354,150
Proceeds from collection of subscriptions receivable -- 524,700
----------- -----------
Net Cash Provided (Used) by Financing Activities 4,152,836 1,138,553
----------- -----------
Increase (Decrease) in Cash 2,009,295 199,821
Cash and Cash Equivalents at Beginning of Period 206,635 6,814
----------- -----------
Cash and Cash Equivalents at End of Period $ 2,215,930 $ 206,635
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-8
Atlas Mining Company and Subsidiary
Consolidated Statements of Cash Flows (Continued)
For the Year Ended
December 31,
------------------------
2005 2004
----------- -----------
Cash Paid For:
Interest $ 77,556 $ 23,210
=========== ===========
Income Taxes $ -- $ --
=========== ===========
Supplemental Disclosure of Non-Cash Investing and Financing
Activities:
Stock issued for services $ 1,931,695 $ 620,590
=========== ===========
Warrants issued for services $ 390,489 $ 20,000
=========== ===========
Stock issued for notes payable $ 105,000 $ --
=========== ===========
Stock issued for Dragon Mine $ 100,000 $ --
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-9
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
December 31, 2005 and 2004
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 December 31, 2005, 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.
F-10
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
December 31, 2005 and 2004
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.
F-11
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
December 31, 2005 and 2004
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 December 31,
2005 and 2004 the Company held a 53% and 53% ownership interest in Park
Copper & Gold, respectively. The Company recorded no liability for the 47%
and 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 years ended December 31, 2005 and 2004 applicable to the 47%
and 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 year ended December 31, 2004:
Basic EPS
Net loss to common shareholders $ (946,274) 37,268,310 $ (0.03)
=========== ========== =======
For the year ended December 31, 2005:
Basic EPS
Net loss to common shareholders $(3,780,318) 45,222,704 $ (0.08)
=========== ========== =======
f. Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of
three months or less to be cash equivalents.
F-12
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
December 31, 2005 and 2004
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.
December 31,
--------------------------
2005 2004
----------- -----------
Deferred Tax Assets:
Net Operating Loss Carry-forwards $ 1,223,918 $ 687,450
Contribution Carry-forwards -- 148
Unrealized Loss on Available for Sale Securities -- --
----------- -----------
Total Deferred Tax Assets 1,223,918 687,598
Valuation Allowance for Deferred Tax Assets (680,361) (680,361)
----------- -----------
7,237 7,237
Deferred Tax Liabilities:
Unrealized gain on Available for Sale Securities 1,653 1,653
Tax over Book Depreciation 6,750 5,584
--------------------------
Total Deferred Tax Liabilities 8,403 7,237
--------------------------
Total Deferred Tax Assets $ -- $ --
==========================
At December 31, 2005, the Company has net operating losses of
approximately $8,159,456 which expire from 2006 through 2020.
F-13
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
December 31, 2005 and 2004
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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
----------- ----------- ----------- -----------
December 31, 2005 $ 19,364 $ 174 $ -- $ 19,538
December 31, 2004 $ 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.
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.
F-14
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
December 31, 2005 and 2004
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 December 31, 2005 and 2004, no impairments
were recognized. Depreciation expense for the years ended December 31,
2005 and 2004 totaled $80,911 and $30,593, 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 December 31, 2005 and
2004. The Company has no investments in derivative financial instruments.
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.
As December 31, 2005, all costs associated with the Company's mines have
been expensed. During the year ended December 31, 2005, the Company
recognized revenue of $0 from the sale of halloysite clay.
F-15
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
December 31, 2005 and 2004
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 7. The Company
accounts for the stock option plans in accordance with the recognition and
measurement principles of APB Opinion No. 25, "Accounting for Stock Issued
to Employees", and related Interpretations. Under this method,
compensation expense is recorded on the date of grant only if the current
market price of the underlying stock exceeds the exercise price.
During the periods presented in the accompanying financial statements the
Company has granted options under the 1998 Stock Options Plans. The
Corporation has adopted the disclosure-only provisions under Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost under SFAS No.123 has
been recognized for the stock option plans or other agreements in the
accompanying statement of operations. Had compensation cost for the
Company's stock option plans and agreements been determined based on the
fair value at the grant date for awards in 2005 and 2004 consistent with
the provisions of SFAS No. 123, the Company's net earnings net of taxes
and earnings per share would have been reduced to the pro forma amounts
indicated below:
2005 2004
------------ ---------
Net Loss As reported $ (3,780,318) $(946,274)
------------ ---------
Proforma $ (4,049,916) $(946,274)
============ =========
Basic earnings per share As reported $ (0.08) $ (0.03)
Proforma $ (0.09) $ (0.03)
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.
F-16
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
December 31, 2005 and 2004
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
o. Recently Enacted Accounting Standards (Continued)
In April 2004, the Financial Accounting Standards Board ("FASB") ratified
Emerging Issues Task Force ("EITF") Issue No. 04-2, which amends Statement
of Financial Accounting Standards ("SFAS") No. 141 "Business Combinations"
to the extent all mineral rights are to be considered tangible assets for
accounting purposes. There has been diversity in practice related to the
application of SFAS No. 141 to certain mineral rights held by mining
entities that are not within the scope of SFAS No. 19 "Financial
Accounting and Reporting by Oil and Gas Producing Companies." The SEC
staff's position previously was entities outside the scope of SFAS No. 19
should account for mineral rights as intangible assets in accordance with
SFAS No. 142 "Goodwill and Other Intangible Assets." The application of
this EITF is not expected to have a material effect on the Company's
financial statements.
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs". SFAS
No. 151 requires abnormal amounts of inventory costs related to idle
facility, freight handling and wasted material (spoilage) to be recognized
as current-period charges. In addition, SFAS No. 151 requires that
allocation of fixed production overheads to the costs of conversion be
based on the normal capacity of the production facilities. The Company
will be required to adopt the provisions of SFAS No. 151 for fiscal years
beginning after June 15, 2005. Management believes the provisions of this
Standard will not have a significant effect on our financial position or
results of operations.
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 its 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.
F-17
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
December 31, 2005 and 2004
NOTE 3 - LONG-TERM LIABILITIES
Long-term liabilities are detailed in the following schedules as of
December 31, 2005 and 2004:
2005 2004
-------- -------
Note payable to a company, due in monthly
payments of $1,000 with a balloon payment
due at maturity, including interest at 9%
The note matured August 16, 2001, past due. $ -- 53,455
Note payable to a lending company, due in
Monthly installments of $688, including interest
at 7.59%. The note matures in March 2010 and
is collateralized by a vehicle. 29,888 35,630
Note payable to an insurance company, due in
monthly installments of $2,825. The note matures
in July 2006. 19,773 --
Note payable to a mortgage company, due in
monthly installments of $1,614, including
interest at 16%. The note is due in August
2005, secured by the proceeds of a logging
agreement and collateralized by land and a
building. -- 118,920
Note payable to a lending company, balloon payment
due at maturity, bears interest at 8% per month. The
note is secured by land owned by a related party and
matured in March 2003, past due. -- 120,700
Note payable to a mortgage company, principal due at
maturity and bears interest at 3.5% per month. The
note matured in October 2003, secured by property,
past due. -- 86,100
Note payable to a lending company, principal due at
maturity and bears interest at 5% per month. The note
matured in May 2003, secured by land, past due. -- 345,508
F-18
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
December 31, 2005 and 2004
NOTE 4 - LONG-TERM LIABILITIES (Continued)
2005 2004
-------- -----------
Note payable to a company, principal due at maturity
with no interest. The note matures in May 2005. -- 17,000
Note payable to a company, principal due at maturity
with interest at 10.2%. The note matures in
February 2005. -- 34,060
-----------------------
Total Notes Payable $ 49,661 $ 811,373
-----------------------
Notes payable - related party:
Note payable to a company with a common officer,
payable on demand and bears no interest $ -- 158,866
Note payable to an officer, payable on demand and
bears no interest. -- 91,488
-----------------------
Total Notes Payable - Related Party -- 250,354
-----------------------
Total Long-Term Liabilities 49,661 1,061,727
Less Current Portion (25,973) (781,318)
Less Current Portion-Related Party -- (250,354)
-----------------------
Total Current Portion 25,973 1,031,672
-----------------------
Total Long-Term Liabilities $ 23,688 $ 30,055
======== ===========
Future minimum principal payments on notes payable are as follows:
2006 25,973
2007 6,688
2008 7,214
2009 7,781
2010 2,005
Thereafter --
-------
Total $49,661
=======
F-19
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
December 31, 2005 and 2004
NOTE 5 -RELATED PARTY TRANSACTIONS
During 2005 and 2004, the Company paid advances to a company with a common
officer. The balance of the advances at December 31, 2005 and 2004 is $0
and $0, respectively.
During 2005 and 2004, an officer loaned the Company $1,670 and $34,659,
respectively. The loan was repaid to the officer during the 3rd quarter of
2005. During 2004, the Company paid cash of $14,000 as partial payment for
the note. The balance of the note payable at December 31, 2005 and 2004 is
$0 and $91,488, respectively.
NOTE 6 - 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 December 31, 2005, no options
have been granted under this plan.
During 2004, the company's board of directors approved an option to the
Company's CEO to acquire up to 3.5 million shares of common stock over a
five year period at $0.18 per share under the non-qualified stock option
plan. The options vested 43% on January 1, 2005, and 14% on January 1,
2006 -2009.
The fair value of each option granted is estimated on the date granted
using the Black-Scholes option pricing model. Assumptions used to compute
the weighted-average grants during the year ended December 31, 2004
include risk-free interest rates of 2%, expected dividend yields of 0%,
expected life of 3 years, and expected volatility 150%. During 2004, the
Company granted options to purchase up to 3.5 million of its common shares
with a calculated weighted average fair value of $0.13 each.
F-20
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
December 31, 2005 and 2004
NOTE 6 - STOCK OPTIONS (Continued)
A summary of the status of the options granted under the Company's 1998
stock option plan and other agreements at December 31, 2005 and 2004, and
changes during the years then ended is presented below:
December 31, 2005 December 31, 2004
---------------------------------------------------------------
Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price
------------ -------------- ------------ --------------
Outstanding at beginning of period 3,500,000 $ 0.13 -- $ --
Granted -- -- 3,500,000 0.13
Exercised -- -- -- --
Forfeited -- -- -- --
Expired -- -- -- --
----------- ----------- ----------- -----------
Outstanding at end of Period 3,500,000 $ 0.13 3,500,000 $ 0.13
----------- ----------- ----------- -----------
A summary of the status of the options outstanding under the Company's
stock option plans and employment agreements at December 31, 2005 is
presented below:
Options Outstanding Options Exercisable
--------------------------------------------------------- -------------------------------
Range of Weighted-Average Weighted Average Weighted-Average
Exercise Number Remaining Exercise Number Exercise
Prices Outstanding Contractual Life Price Exercisable Price
------------ ------------ ---------------- ---------------- ----------- ----------------
$0.10 - 0.20 3,500,000 3 years $0.13 -- $0.13
------------ ----------- ---------------- ---------------- ----------- ----------------
3,500,000 --
Common Stock
During the year ended December 31, 2005 the Company sold a total of
6,291,680 shares of restricted common stock at prices ranging from $0.25
to $1.02 per share for a total of $5,064,019 cash.
During the year ended December 31, 2005 the Company issued 2,393,790
shares of stock at prices ranging from $0.30 to $1.11 in payment of
$2,362,984 worth of services provided to the company.
F-21
Notes to the Consolidated Financial Statements
December 31, 2005 and 2004
NOTE 6 - STOCK OPTIONS (Continued)
Stock Warrants
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 December 2005, the Company had outstanding warrants as follows:
Number of shares
underlying the warrants Exercise price Issued Expire
---------------------------------------------------------------------------------------
1,000,000 0.35 With common shares 12/05
280,000 0.50 With common shares 12/06
154,000 0.25 For services 12/06
The fair value of warrants issued for services is estimated on the date
issued using the Black-Scholes option pricing model and totaled $16,940
during 2004 as administrative expenses. Assumptions used to compute the
weighted-average of shares underlying warrants during the year ended
December 31, 2004 included risk-free interest rates of 3.58%, expected
dividend yields of 0%, expected life of 2 years, and expected volatility
75%.
A summary of the status of the warrants granted at December 31, 2005 and
2004, and changes during the years then ended is presented below:
December 31, 2005 December 31, 2004
---------------------------------------------------------------
Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price
---------- -------------- ------------ --------------
Outstanding at beginning of period 1,434,000 $ 0.37 -- $ --
Granted 750,000 0.52 1,434,000 0.37
Exercised -- -- -- --
Forfeited -- -- -- --
Expired 1,000,000 0.35 -- --
--------- --------- --------- ---------
Outstanding at end of Period 1,184,000 $ 0.46 1,434,000 $ 0.37
--------- --------- --------- ---------
F-22
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
December 31, 2005 and 2004
NOTE 6 - STOCK OPTIONS (Continued)
A summary of the status of the warrants outstanding at December 31, 2005
is presented below:
Options Outstanding Options Exercisable
--------------------------------------------------------- -------------------------------
Range of Weighted-Average Weighted Average Weighted-Average
Exercise Number Remaining Exercise Number Exercise
Prices Outstanding Contractual Life Price Exercisable Price
------------ ------------ ---------------- ---------------- ----------- ----------------
$0.25 154,000 1.1 years $0.34 154,000 $0.34
$0.40 750,000 2 years $0.52 750,000 $0.52
$0.50 280,000 2 years $0.50 280,000 $0.50
------------ ----------- ---------------- ---------------- ----------- ----------------
1,184,000 1,184,000
NOTE 7 - COMMITMENTS AND CONTINGENCIES
On July 10, 2001, the Company entered into an agreement to lease and
possibly purchase a mine in Juab County, Utah. The Company had the sole
option to renew the lease on an annual basis. The agreement required the
lease payments be made through the issuance of 100,000 shares of the
Company's common stock each year. In July 2005, the Company issued 100,000
shares of common stock valued at $100,000 to renew the lease. In July
2004, the Company issued 100,000 shares of common stock valued at $20,000
to renew the lease. In July 2003, the Company issued 100,000 shares of
common stock valued at $10,000 to renew the lease. The Company had the
option to purchase the mine for $500,000 at anytime, or when it sold
$1,000,000 of product from the mine during a twelve month period.
During the 3rd quarter of 2005, the Company exercised the purchase option
on the Dragon Mine in Juab County, Utah for $500,000. The Company also
paid $30,000 in royalties which was equivalent to selling $1,000,000 of
product from the clay mine.
The Company has commenced operations at the mine to begin production of
halloysite clay.
On February 16, 2005, a Settlement Agreement was entered into between the
Company and the court appointed receiver for American National Mortgage
Company regarding the resolution of approximately $711,174 principal debt
owed by the Company plus unpaid interest. According to the agreement, the
Company is to pay $406,000 plus 175,000 shares of common stock valued at
$105,000. The agreement became effective upon approval by the courts in
April 2005. The Company paid the $406,000 on June 30, 2005 and issued the
stock portion of the settlement agreement on July 8, 2005. The Company
settled an outstanding debt with Moss Adams, LLP by making payments of
$53,250 during the month of June 2005.
F-23
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
December 31, 2005 and 2004
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, 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 2004 to 2005 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
December 31,
2005 2004
Contract Mining:
Net Revenue 628,176 696,264
Operating Expenses
Cost of Sales 551,258 532,324
General & Administrative 1,397,712 464,852
---------- --------
Total Operating Expenses 1,948,970 987,176
---------- --------
Net Operating (Loss) (1,320,795) (290,912)
========== ========
Capital Expenditures: 21,870 15,724
---------- --------
Depreciation: 4,313 29,022
Total Assets: 158,822 22,477
---------- --------
F-24
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
December 31, 2005 and 2004
Mining Production:
Net Revenue -- 250,000
Operating Expenses
Cost of Sales -- 33,925
Exploration & Development Costs 760,347 340,657
---------- ----------
General & Administrative 1,397,712 454,852
---------- ----------
Total Operating Expenses (2,158,059) 829,434
---------- ----------
Net Operating (Loss) (2,158,059) (579,434)
========== ==========
Capital Expenditures: 707,140 508,395
---------- ----------
Depreciation: 76,598 1,571
Total Assets: 3,465,813 995,784
---------- ----------
Timber:
Net Revenue -- 89,064
Operating Expenses
Cost of Sales -- 1,295
General & Administrative 301,603 101,078
---------- ----------
290,907 102,373
---------- ----------
Net Operating (Loss) (290,907) (13,309)
========== ==========
Capital Expenditures: -- --
---------- ----------
Depreciation: -- --
Total Assets: 405,410 405,410
---------- ----------
Consolidated on Financial
Statements:
Total Revenues 628,176 1,035,329
Operating Expenses
Total Cost of Sales 551,258 567,545
Exploration & development costs 760,347 340,657
Total General & Administrative 3,106,029 1,010,780
---------- ----------
Total Operating Expenses 4,417,634 1,918,982
---------- ----------
Net Operating (Loss) (3,789,458) (883,653)
========== ==========
Capital Expenditures: 729,010 524,119
---------- ----------
Depreciation: 80,911 30,593
Total Assets 4,030,045 1,423,671
---------- ----------
F-25
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
December 31, 2005 and 2004
NOTE 9 - SUBSEQUENT EVENTS
The Company has no significant subsequent events to report.
F-26
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
We have experienced no recent change in or disagreement with our
accountant. Our present auditor, Chisolm, Bierwolf & Nilson, LLC, Box 540216,
No. Salt Lake, UT 84054, has been the Company's auditor since 1999. Management
of the Company intends to keep Chisolm, Bierwolf & Nilson, LLC as its auditor
for the foreseeable future.
ITEM 8A CONTROLS AND PROCEDURES
As of December 31, 2005, an evaluation was performed under the supervision and
with the participation of the Company's management, including the Chief
Executive Officer, who is our principal executive officer and principal
financial officer, of the effectiveness of the design and operation of our
disclosure controls and procedures. Based on that evaluation, our management,
including the Chief Executive Officer, concluded that our disclosure controls
and procedures were effective as of that date. There have been no significant
changes in our internal controls or in other factors that could significantly
affect internal controls subsequent to that date.
ITEM 8B OTHER INFORMATION
We entered into, on October 1, 2004, an employment agreement with our CEO,
William T Jacobson, commencing on October 1, 2004 and ending September 30, 2009.
At the end of the initial term of employment, the agreement shall automatically
be renewed for additional one-year periods, unless either party provides at
least 120 days written notice of its decision not to renew the agreement. Mr.
Jacobson shall be paid compensation as follows:
(i) for the first year, a salary at the annual rate of $120,000;
(ii) for the second year, a salary at the annual rate of $150,000;
(iii) for the third year, a salary at the annual rate of $200,000;
(iv) for the fourth year,, a salary at the annual rate of $225,000;
(v) for the fifth year, a salary at the annual rate of $250,000.
Mr. Jacobson is entitled to a bonus program based on hallmarks as follows:
(a.) Obtain adequate funding package for Company.
24
(b.) Achieve profitability through the Company's activities.
(c.) Increase market cap of Company stock to the benefit of
shareholders.
Bonus payments will be no more than 40% of Mr. Jacobson base salary for
each hallmark. Payments may be in the form of cash or common stock as
mutually agreed by Mr. Jacobson and the Company.
In addition to the foregoing salary, the Company granted Mr. Jacobson an option
to purchase up to 3,500,000 shares of the Company's common stock at an option
exercise price of $.18 per share during the term of employment as follows:
(a)1,500,000 shares shall vest and become exercisable commencing January
1, 2005;
(b) 500,000 shares shall vest and become exercisable commencing on January
1, 2006;
(c) 500,000 shares shall vest and become exercisable commencing on January
1, 2007;
(d) 500,000 shares shall vest and become exercisable commencing on January
1, 2008;
(e) 500,000 shares shall vest and become exercisable commencing on January
1, 2009. Any options, which are not exercised during the Term of
Employment, shall terminate and be of no further force and effect at the
end of the Term of Employment.
In the event of the Mr. Jacobson's involuntary termination of employment
for any reason, other than for just cause due to theft or fraud, Mr.
Jacobson shall be entitled to immediate severance compensation equal to an
amount equal to Mr. Jacobson's base salary for the remaining period of the
term of employment. Additionally, Mr. Jacobson will be eligible to
continue to participate in the employee health and dental benefit plans
(to the extent permissible therein) for a period of one and one half years
from the date of such involuntary termination of employment. Cost of such
participation for Mr. Jacobson and eligible dependents shall be born by
the Company.
During the Term of Employment, if Executive shall, for a period of more
than three (3) consecutive months or for periods aggregating more than
twelve (12) weeks in any fifty-two consecutive weeks, be unable to perform
the services provided for herein, as a result of illness or incapacity or
a physical, mental, or other disability of any nature, the Company may,
upon not less than thirty (30) days notice, terminate the Executive's
employment hereunder. The Executive shall be considered unable to perform
the services provided for herein if he is unable to attend to the normal
duties required of him. In such event, the Company shall pay to the
Executive, or to his legal representatives, his base compensation for a
period of twelve (12) months from the date of termination.
The Company has agreed that it will not consolidate or merge into or with
another corporation or entity, or transfer all or substantially all of its
business and/or assets to another entity, directly or indirectly, unless such
other entity (hereinafter referred to as the "Successor") shall assume Mr.
Jacobson's employment agreement and the obligations of the Company thereunder;
and upon such assumption, the Executive and the Successor shall become obligated
to perform the terms and conditions thereof. However, if during the first 180
days following any such consolidation or merger, the Executive determines that
he does not desire to remain employed by the Successor or the Successor
determines that the services of the Executive are no longer required, such
consolidation or merger shall be deemed an involuntary termination of the
Executive's employment, and the Executive shall be paid an amount equal to his
annual base salary at the time of the consolidation or merger. This payment will
be made to the Executive in a single lump sum at the time of the termination.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT
IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding our directors
and executive officers.
25
Name Age Position
---------------------------------------------------------------------------------------------
William T. Jacobson 59 Chairman of the Board, Chief Executive Officer
---------------------------------------------------------------------------------------------
Jack Harvey 84 Vice President, Director
---------------------------------------------------------------------------------------------
Kurt Hoffman 40 Treasurer, Director
---------------------------------------------------------------------------------------------
Ronald Price 57 Director
---------------------------------------------------------------------------------------------
Marqueta Martinez 56 Secretary
---------------------------------------------------------------------------------------------
There are no family relationships among any of the directors or officers
of the Company.
BUSINESS EXPERIENCE
WILLIAM T. JACOBSON, CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER. Mr.
Jacobson has been Chairman of the Board and Chief Executive Officer of Atlas
Mining Company since August 1997. From 1994 to 1997, Mr. Jacobson served as
Secretary of Atlas and Treasurer of Fausett International, Inc. He has had a
twenty year career in the mining industry and spent fifteen years in the banking
industry. Prior to joining the Company, Mr. Jacobson was a president and
director of the Silver Trend Mining Company, located in Kellogg, Idaho. Mr.
Jacobson holds a business degree from the University of Idaho. Mr. Jacobson is
also a board of director for Transnational Automotive Group, Inc. (symbol:
tamg).
JOHN "JACK" HARVEY, VICE PRESIDENT, DIRECTOR. Mr. Harvey has been Vice
President of Atlas Mining Company for 20 years. He received his mining
engineering degree from Montana Tech. He worked in Butte, Montana with Anaconda
and Arco until he retired about 17 years ago, after a 41 year career. Mr. Harvey
does not hold a board seat in any other public company.
KURT HOFFMAN, TREASURER, DIRECTOR. Mr. Hoffman is the treasurer of Atlas
Mining Company and has been the president of Trend Mining Company since 1998
which is a publicly traded company traded on the over the counter bulletin board
under the symbol "TRDM." Mr. Hoffman also owns and has operated Hoffman Mining
and Land Services since 1995. Other than TRDM, Mr. Hoffman does not hold a board
seat in any other public company.
RONALD R PRICE, DIRECTOR. Mr. Price was appointed as a director of Atlas
Mining Company in 2005. He has recently retired after a 20-year career at The US
Naval Research Laboratory where he used halloysite clay in entrapment and time
release processes. He does not hold a board seat in any other public company.
MARQUETA MARTINEZ. SECRETARY. Ms. Martinez is the secretary for the
corporation, and works as a full time employee for the Company. She has worked
in the mining industry since 1991. Ms. Martinez does not hold a board seat in
any other public company. Ms. Martinez is also a past treasurer for the Shoshone
County Habitat for Humanity.
All directors hold office until the next annual meeting of shareholders
and the election and qualification of their successors. Officers are elected
26
annually by, and serve at the discretion of, the Board of Directors. Members of
the Board of Directors are not compensated for serving as directors of Atlas
Mining, however expenses may be reimbursed.
None of the foregoing Directors or Executive Officers has, during the past
five years:
(a) Had any bankruptcy petition filed by or against any business of which
such person was a general partner or executive officer either at the time of the
bankruptcy or within two years prior to that time;
(b) Been convicted in a criminal proceeding or subject to a pending
criminal proceeding;
(c) Been subject to any order, judgment, or decree, not subsequently
reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining, barring, suspending or otherwise limiting
his involvement in any type of business, securities or banking activities; and
(d) Been found by a court of competent jurisdiction (in a civil action),
the Commission or the Commodity Futures Trading Commission to have violated a
federal or state securities or commodities law, and the judgment has not been
reversed, suspended, or vacated.
No individual on our Board of Directors possesses all of the attributes of
an audit committee financial expert and no one on our Board of Directors is
deemed to be an audit committee financial expert. In forming our Board of
Directors, we sought out individuals who would be able to guide our operations
based on their business experience, both past and present, or their education.
Our business model is not complex and our accounting issues are straightforward.
Responsibility for our operations is centralized within management. We rely on
the assistance of others, such as our accountant, to help us with the
preparation of our financial information. We recognize that having a person who
possesses all of the attributes of an audit committee financial expert would be
a valuable addition to our Board of Directors, however, we are not, at this
time, able to compensate such a person therefore, we may find it difficult to
attract such a candidate.
Atlas Mining Company has adopted a Code of Ethical Conduct.
COMPLIANCE WITH SECTION 16(A) OF EXCHANGE ACT
Section 16(a) of the Securities Exchange Act requires our directors,
executive officers and persons who own more than 10% of our Common Stock to file
reports of ownership and changes in ownership of our common stock with the
Securities and Exchange Commission. Directors, executive officers and persons
who own more than 10% of our common stock are required by Securities and
Exchange Commission regulations to furnish to us copies of all Section 16(a)
forms they file.
To our knowledge, based solely upon review of the copies of such reports
received or written representations from the reporting persons, we believe that
during our 2005 fiscal year our directors, executive officers and persons who
own more than 10% of our common stock complied with all Section
27
16(a) filing requirements with the exception of the following: Form 3s for
William T. Jacobson, John Harvey, Kurt Hoffman, Ronald Price and Marqueta
Martinez were filed in March 2003 rather than in July 2002.
ITEM 10. EXECUTIVE COMPENSATION
During the 2005 fiscal year, except for William T Jacobson, no officer
received compensation in excess of $100,000 per year. The following table sets
forth information as to the compensation paid or accrued to William T. Jacobson,
our Chairman and Chief Executive Officer, for the three years ended December 31,
2005, December 31, 2004 and December 31, 2003:
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
----------------------------------------------------------------------------------------------
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION AWARDS OPTIONS/ PAYOUT COMPENSATION
POSITION YEAR ($) ($) ($) ($) SARS ($) (1) ($)
-------- ---- --- --- --- --- ---- ------- ---
William T. Jacobson, 2005 $120,000 -- -- -- -- -- --
Chairman and Chief 2004 $ 78,000 -- -- -- -- -- --
Executive Officer 2003 $ 78,000 -- -- -- -- -- --
----------
(1) Mr. Jacobson owns 1,643,660 shares of restricted stock worth approximately
$2,301,124.
EMPLOYMENT AGREEMENTS
We have an employment agreement with our CEO, William T Jacobson,
commencing on October 1, 2004 and ending September 30, 2009. At the end of the
initial term of employment, the agreement shall automatically be renewed for
additional one-year periods, unless either party provides at least 120 days
written notice of its decision not to renew the agreement. , Mr. Jacobson shall
be paid compensation as follows:
(i) for the first year, a salary at the annual rate of $120,000;
(ii) for the second year, a salary at the annual rate of $150,000;
(iii) for the third year, a salary at the annual rate of $200,000;
(iv) for the fourth year,, a salary at the annual rate of $225,000;
(v) for the fifth year, a salary at the annual rate of $250,000.
Mr. Jacobson is entitled to a bonus program based on hallmarks as follows:
(d.) Obtain adequate funding package for Company.
(e.) Achieve profitability through the Company's activities.
(f.) Increase market cap of Company stock to the benefit of
shareholders.
Bonus payments will be no more than 40% of Mr. Jacobson base salary for
each hallmark. Payments may be in the form of cash or common stock as
mutually agreed by Mr. Jacobson and the Company.
In addition to the foregoing salary, the Company granted Mr. Jacobson an option
to purchase up to 3,500,000 shares of the Company's common stock at an option
exercise price of $.18 per share during the term of employment as follows:
28
(a) 1,500,000 shares shall vest and become exercisable commencing January
1, 2005;
(b) 500,000 shares shall vest and become exercisable commencing on January
1, 2006;
(c) 500,000 shares shall vest and become exercisable commencing on January
1, 2007;
(d) 500,000 shares shall vest and become exercisable commencing on January
1, 2008;
(e) 500,000 shares shall vest and become exercisable commencing on January
1, 2009. Any options, which are not exercised during the Term of
Employment, shall terminate and be of no further force and effect at the
end of the Term of Employment.
In the event of the Mr. Jacobson's involuntary termination of employment
for any reason, other than for just cause due to theft or fraud, Mr.
Jacobson shall be entitled to immediate severance compensation equal to an
amount equal to Mr. Jacobson's base salary for the remaining period of the
term of employment. Additionally, Mr. Jacobson will be eligible to
continue to participate in the employee health and dental benefit plans
(to the extent permissible therein) for a period of one and one half years
from the date of such involuntary termination of employment. Cost of such
participation for Mr. Jacobson and eligible dependents shall be born by
the Company.
During the Term of Employment, if Executive shall, for a period of more
than three (3) consecutive months or for periods aggregating more than
twelve (12) weeks in any fifty-two consecutive weeks, be unable to perform
the services provided for herein, as a result of illness or incapacity or
a physical, mental, or other disability of any nature, the Company may,
upon not less than thirty (30) days notice, terminate the Executive's
employment hereunder. The Executive shall be considered unable to perform
the services provided for herein if he is unable to attend to the normal
duties required of him. In such event, the Company shall pay to the
Executive, or to his legal representatives, his base compensation for a
period of twelve (12) months from the date of termination.
The Company has agreed that it will not consolidate or merge into or with
another corporation or entity, or transfer all or substantially all of its
business and/or assets to another entity, directly or indirectly, unless
such other entity (hereinafter referred to as the "Successor") shall
assume Mr. Jacobson's employment agreement and the obligations of the
Company thereunder; and upon such assumption, the Executive and the
Successor shall become obligated to perform the terms and conditions
thereof. However, if during the first 180 days following any such
consolidation or merger, the Executive determines that he does not desire
to remain employed by the Successor or the Successor determines that the
services of the Executive are no longer required, such consolidation or
merger shall be deemed an involuntary termination of the Executive's
employment, and the Executive shall be paid an amount equal to his annual
base salary at the time of the consolidation or merger. This payment will
be made to the Executive in a single lump sum at the time of the
termination.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 28 2006, information regarding
the beneficial ownership of our common stock with respect to each of our
executive officers, each of our directors, each person known by us to own
beneficially more than 5% of the common stock, and all of our directors and
executive officers as a group. The term "executive officer" is defined as the
Chief Executive Officer, Secretary, Treasurer and the Vice-President. Each
individual or entity named has sole investment and voting power with respect to
shares of common stock indicated as beneficially owned by them, subject to
community property laws, where applicable, except where otherwise noted. The
percentage of common stock beneficially owned is based on 48,925,687 shares of
common stock outstanding as of March 28, 2006.
29
-----------------------------------------------------------------------------------------
Number of
Shares of Percentage of
Common Stock Common Stock
Beneficially Beneficially
Name and Address (1) Owned (2) Owned
-----------------------------------------------------------------------------------------
William T. Jacobson (3)(4) 1,643,660 3.3%
John Harvey (3)(4) 60,767 *
Kurt Hoffman (3)(4) 22,500 *
Ronald R Price (4) 10,000 *
Marqueta Martinez (3) 47,728 *
All Officers and Directors as a Group (5 persons) 1,784,655 3.6%
-----------------------------------------------------------------------------------------
* Less than 1%.
(1) Unless otherwise indicated, the address of the persons named in this
column is c/o Atlas Mining Company, 630 East Mullan Avenue, Osburn, Idaho
83849.
(2) Included in this calculation are shares deemed beneficially owned by
virtue of the individual's right to acquire them within 60 days of the
date of this report that would be required to be reported pursuant to Rule
13d-3 of the Securities Exchange Act of 1934.
(3) Executive Officer.
(4) Director.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We engage in a number of transactions with interested parties. We make
every effort to ensure that these transactions are conducted as arm length
transactions. However, at this time we do not have a formal conflicts of
interest policy.
William Jacobson has loaned Atlas Mining sums of money over the past
several years. In January 2003, Mr. Jacobson accepted 1,000,000 shares of our
common stock, valued at $0.10 per share, for a $100,000 reduction in the note
balance. In 2005 the balance of $34,659 was paid off.
Further discussions of these transactions are described in "Management's
Discussion and Analysis of Plan of Operation - Liquidity and Capital Resources."
30
ITEM 13. EXHIBITS
(a) Exhibits
Exhibit
Number Description of Exhibit
------ ----------------------
3.1 Articles of Incorporation, as amended.(1)
3.2 Bylaws, as amended.(1)
10.1 Atlas Mining Company Common Stock Subscription Agreement.(1)
10.2 Dragon Mine Lease Purchase Agreement.(1)
10.3 Article of Merger of Sierra Silver-Lead Mining Company and
Atlas Mining Company.(1)
10.4 Stock Option Plan of Atlas Mining Company.(1)
10.5 Incentive Stock Option Plan of Atlas Mining Company.(1)
10.6 Investment Marketing Agreement.(1)
10.7 Moss Adams, LLP Promissory Note.(1)
10.8 CLS Mortgage Company Promissory Note.(1)
10.9 Attorney-Client Fee Agreement.(2)
10.10 Professional Adjusters Inc. Appraisal and Clyde James
Resume. (2)
10.11 Employment Agreement--William Jacobson
20.1 Code of Ethical Conduct adopted December 15, 2004
21.1 Subsidiaries of the Registrant.(1)
23.1 Independent Auditors Consent.
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
(1) Incorporated by reference to the similarly described exhibit
included in the Registrant's Amendment No. 4 to its SB-2,
Commission File No. 333-72830, filed with the Commission on
June 11, 2002
(2) Incorporated by reference to the similarly described exhibit
included in the Registrant's Amendment No. 5 to its SB-2,
Commission File No. 333-72830, filed with the Commission on
July 1, 2002.
99.1 Location map, Dragon Mine
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees
The aggregate fees billed by the Company's auditors for professional services
rendered in connection with the audit of the Company's annual consolidated
financial statements for fiscal 2005 and 2004 and reviews of the consolidated
financial statements included in the Company's Forms 10-QSB were $12,096.71 for
2004, and $13,600 in 2005.
Audit-Related Fees
For fiscal 2005 and 2004, the Company's auditors did not bill any fees for
assurance and related services that are reasonably related to the performance of
the audit or review of the Company's financial statements and are not reported
under "Audit Fees" above.
Tax Fees
No fees were billed by the Company's auditors for professional services for tax
compliance, tax advice, and tax planning for fiscal 2005 and 2004, respectively.
All Other Fees
No fees were billed by the Company's auditors for all other non-audit services
rendered to the Company, such as attending meetings and other miscellaneous
financial consulting, in fiscal 2005 and 2004.
Audit Committee
The audit committee meets prior to filing of any Form 10-QSB or 10-KSB to
approve those filings. In addition, the committee meets to discuss audit plans
and anticipated fees for audit and tax work prior to the commencement of that
work. Approximately 100% of all fees paid to our independent auditors for fiscal
2005 are pre-approved by the audit committee.
31
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized on this 28th day of March 2005.
ATLAS MINING COMPANY
By: /s/ William T. Jacobson
--------------------------
William T. Jacobson
Chairman of the Board and Chief
Executive Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Signature Title Date
--------- ----- ----
/s/ William T. Jacobson Chairman of the Board and March 28, 2006
--------------------------- Chief Executive Officer
William T. Jacobson
/s/ John Harvey Vice-President, Director March 28, 2006
---------------------------
John Harvey
/s/ Kurt Hoffman Treasurer, Director March 28, 2006
---------------------------
Kurt Hoffman
/s/ Ronald R Price Director March 28, 2006
---------------------------
Ronald R Price
/s/ Marqueta Martinez Secretary March 28, 2006
---------------------------
Marqueta Martinez
32