SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2005
|_| Transition report under Section 13 or 15(d) of the Exchange Act.
For the transition period from ______________ to ______________
Commission file number ___________
ATLAS MINING COMPANY
---------------------
(Exact name of registrant as specified in its charter)
Idaho 82-0096527
----- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
630 East Mullan Avenue, Osburn, Idaho 83849
--------------------------------------- --------
(Address of principal executive offices) (Zip Code)
(208) 556-1181
--------------
Issuer's telephone number, including area code
Former name, former address and formal fiscal year, if changed since
last report: N/A
Indicate by check whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
YES /X/ NO /_/
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
YES /_/ NO /X/
The number of shares outstanding of each of the issuer's classes of
common equity as of November 10, 2005 was as follows: 48,849,837 shares of
Common Stock.
Transitional Small Business Disclosure Format: YES /_/ NO /X/
ATLAS MINING COMPANY
THIRD QUARTER 2005 REPORT ON FORM 10-QSB
TABLE OF CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Unaudited Consolidated Balance Sheet
September 30, 2005. . . . . . . . . . . . . . . . . . . . . . . . . .3
Unaudited Consolidated Statements of Operations Three
Months Ended September 30, 2005 and 2004, Nine Months
Ended September 30, 2005 and 2004 . . . . . . . . . . . . . . . . . .5
Unaudited Consolidated Statements of Cash Flows Three
Months Ended September 30, 2005 and 2004, Nine Months
Ended September 30, 2005 and 2004 . . . . . . . . . . . . . . . . . .6
Notes to Unaudited Consolidated Financial Statements. . . . . . . . .7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . 19
Item 3. Controls and Procedures . . . . . . . . . . . . . . . . . . . . 21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 22
Item 2. Unregistered Sales of Equity Securities and Use of. . . . . . . 22
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . 22
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . 22
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . 22
Item 6. Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Certification under Sarbanes-Oxley Act of 2002 . . . . . . . . . . . . . 22
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2
Atlas Mining Company
Consolidated Balance Sheets
ASSETS
------
September 30, December 31,
2005 2004
------------ ------------
(unaudited)
Current Assets
Cash $ 2,684,580 $ 206,635
Accounts receivable (net of allowance of $0) 132,949 273,014
Investments - available for sale 19,538 19,538
Deposits and Prepaids 93,074 65,738
Advances Related Party 231 -
------------ ------------
Total Current Assets 2,930,372 564,925
Property and Equipment, Net 1,494,014 849,746
------------ ------------
Other Assets
Mining supplies 9,000 9,000
------------ ------------
Total Other Assets 9,000 9,000
------------ ------------
Total Assets $ 4,433,386 $ 1,423,671
============ ============
(Continued)
3
Atlas Mining Company
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31,
2005 2004
------------ ------------
(unaudited)
Current Liabilities
Accounts payable and accrued liabilities $ 119,799 $ 304,925
Current portion of long-term debt 2,297 1,031,672
------------ ------------
Total Current Liabilities 122,096 1,336,597
Long-Term Liabilities
Notes payable 31,365 811,373
Notes payable - related party - 250,354
Less: current portion of long-term debt (2,297) (1,031,672)
------------ ------------
Total Long-Term Liabilities 29,068 30,055
Minority Interest 52,649 52,649
Stockholders' Equity
Preferred stock, $1.00 par value, 10,000,000
shares authorized, noncumulative, nonvoting,
nonconvertible, none issued or outstanding - -
Common stock, no par value, 60,000,000 shares
authorized, 48,419,837 and 36,826,222 shares
issued and outstanding, respectively 12,908,590 6,006,657
Cost of treasury stock, 1,313,022 and
1,313,022 shares, respectively (131,221) (131,221)
Accumulated Deficit (8,547,970) (5,861,240)
Accumulated comprehensive income (loss) 174 174
Prepaid expenses - (10,000)
------------ ------------
Total Stockholders' Equity 4,229,573 4,370
------------ ------------
Total Liabilities and Stockholders' Equity $ 4,433,386 $ 1,423,671
============ ============
The accompanying notes are an integral part of these consolidated financial
statements. The balances for December 31, 2004 were taken from the audited
consolidated financial statements at that date.
4
Atlas Mining Company
Consolidated Statements of Operations
(Unaudited)
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
------------------------- --------------------------
2005 2004 2005 2004
------------ ------------ ------------ ------------
Revenues - Contract Mining $ 234,448 $ 91,069 $ 392,926 $ 466,938
Revenues - Mining Production - - - -
Revenues - Timber - 67,806 - 79,662
------------ ------------ ------------ ------------
Total Revenues $ 234,448 $ 158,875 $ 392,926 $ 546,600
------------ ------------ ------------ ------------
Cost of Sales - Contract Mining 145,119 71,012 324,382 368,832
Cost of Sales - Mining
Production 9,229 6,085 21,188 19,187
Cost of Sales - Timber 5,734 831 6,268 1,911
------------ ------------ ------------ ------------
Total Cost of Sales 160,082 77,928 351,838 389,930
------------ ------------ ------------ ------------
Gross Profit (Loss) 74,366 80,947 41,088 156,670
------------ ------------ ------------ ------------
Operating Expenses
Exploration & development
costs 198,475 93,363 494,978 148,991
General & administrative 283,973 214,177 2,223,778 657,159
------------ ------------ ------------ ------------
Total Operating Expenses 482,448 307,540 2,718,756 806,150
------------ ------------ ------------ ------------
Net Operating Income (Loss) (408,082) (226,593) (2,677,668) (649,480)
------------ ------------ ------------ ------------
Other Income(Expense)
Interest income 16,204 3 16,720 32
Interest expense (37,364) (13,682) (76,847) (37,208)
Miscellaneous Income 15 - 21 -
Minority Interest - - 3 -
Gain (loss) on sale of
investments available for
sale - - - 1,489
Gain (loss) on settlement
of debt 17,618 - 51,042 -
------------ ------------ ------------ ------------
Total Other Income(Expense) (3,527) (13,679) (9,061) (35,687)
------------ ------------ ------------ ------------
Income (Loss) Before Income
Taxes (411,609) (240,272) (2,686,729) (685,167)
Provision (Benefit) for
Income Taxes - - - -
------------ ------------ ------------ ------------
Net Income (Loss) $ (411,609) $ (240,272) $(2,686,729) $ (685,167)
============ ============ ============ ============
Net Income (Loss) Per Share $ (0.01) $ (0.01) $ (0.06) $ (0.02)
============ ============ ============ ============
Weighted Average Shares
Outstanding 48,221,558 37,481,777 44,034,104 36,722,853
============ ============ ============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
5
Atlas Mining Company
Consolidated Statements of Cash Flows
(Unaudited)
For the Nine Months Ended
September 30,
--------------------------
2005 2004
------------ ------------
Cash Flows from Operating Activities:
Net Income (Loss) $(2,686,729) $ (685,167)
Adjustments to Reconcile Net Loss to Net Cash
Provided by Operations:
Depreciation 82,873 27,795
Gain on sale of investments available for sale - (1,489)
Stock issued for services 1,251,387 403,650
Warrants issued for services 390,489 -
Amortization - 10,000
Gain on settlement of debt (51,042) -
Change in Operating Assets and Liabilities:
Accounts receivable 140,065 11,935
Deposits and Prepaids (17,336) (23,871)
Other current receivables (231) -
Accounts payable and accrued expenses (185,126) 19,924
------------ ------------
Net Cash (Used) by Operating Activities (1,075,650) (237,223)
Cash Flows from Investing Activities:
Purchases of equipment (627,141) (443,227)
Proceeds from advances - 247,810
Proceeds from sale of investments - 1,921
Payments for advances - (196,000)
------------ ------------
Net Cash (Used) by Investing Activities (627,141) (389,496)
Cash Flows from Financing Activities:
Proceeds from notes payable - 176,660
Payments for notes payable (979,320) (72,279)
Payments for line of credit - (1,389)
Proceeds from subscription receivable - 524,700
Proceeds from issuance of common stock 5,160,056 -
------------ ------------
Net Cash Provided by Financing Activities 4,180,736 627,692
------------ ------------
Increase in Cash 2,477,945 973
Cash and Cash Equivalents at Beginning of Period 206,635 6,814
------------ ------------
Cash and Cash Equivalents at End of Period $ 2,684,580 $ 7,787
============ ============
(Continued)
6
Atlas Mining Company
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
For the Nine Months Ended
September 30,
--------------------------
2005 2004
------------ ------------
Cash Paid For:
Interest $ 76,847 $ 37,208
Income Taxes $ - $ -
Supplemental Disclosure of Non-Cash Investing and
Financing Activities:
Stock issued for services $ 1,251,387 $ 403,650
Stock issued for notes payable $ 150,000 $ -
Warrants issued for services $ 390,489 $ -
The accompanying notes are an integral part of these financial statements
7
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
September 30, 2005
NOTE 1 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles of the United States of America for interim financial
information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles of
the United States of America for complete financial statements. In
the opinion of management, all adjustments, consisting of normal
recurring accruals, considered necessary for a fair presentation have
been included. It is suggested that these condensed consolidated
financial statements be read in conjunction with the December 31, 2004
audited financial statements and notes thereto for Altas Mining
Company and Subsidiary. The results of operations for the periods
ended September 30, 2005 and 2004 are not necessarily indicative of
the operating results for the full year.
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 is a natural resources company engaged in
the acquisition, exploration and development of their resource
properties in the states of Idaho and Utah. They also provide
contract mining services and specialized civil construction services
for mine operators, exploration companies and the construction and
natural resources industries through their trade name "Atlas Fausett
Contracting."
b. Revenue and Cost 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 collection of the
resulting receivable is deemed probable.
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 collection of the
resulting receivable is deemed probable.
8
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
September 30, 2005
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
c. Bad Debts
Bad debts on receivables are charged to expense in the year the
receivable is determined uncollectible, therefore, no allowance for
doubtful accounts is included in the financial statements. Amounts
determined as uncollectible are not significant to the overall
presentation of the financial statements.
d. Basis of Consolidation
The Company's investments representing a 50% or greater interest are
consolidated. The consolidated financial statements presented reflect
the accounts of Atlas Mining Company and Park Copper & Gold. At both
September 30, 2005 and December 31, 2004 the Company held a 53%
ownership interest in Park Copper & Gold, respectively. The Company
recorded no liability for the 47% non-controlling interest as Park
Copper & Gold had a stockholders deficit at the time of merger.
Further, the net loss for Park Copper & Gold for the periods ended
September 30, 2005 and December 31, 2004 applicable to the 47% non-
controlling interest were not allocated to the non-controlling
interest as there is no obligation of the non-controlling interest to
share in such losses. All significant inter-company transactions
between the parent and subsidiary have been eliminated in
consolidation.
e. Loss Per Share
The computation of earnings per share of common stock is based on the
weighted average number of shares outstanding at the date of the
financial statements.
Net Loss Shares Per-Share
(Numerator) (Denominator) Amount
------------- ------------- ----------
For the quarter ended September 30, 2005:
Basic EPS
Net loss to common Shareholders $ (2,686,729) 44,034,104 $ (0.06)
For the quarter ended September 30, 2004:
Basic EPS
Net loss to common Shareholders $ (685,167) 36,722,853 $ (0.02)
For the nine months ended September 30, 2005 and September 30, 2004,
the company had 3,500,000 and 0, respectively, of additional stock
options that could potentially dilute earnings per share in the future
that were not included in the diluted computation because their effect
was anti-dilutive.
9
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
September 30, 2005
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
f. Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of
three months or less to be cash equivalents. The Company had
$2,584,580 in excess of federally insured amounts in its bank accounts
at September 30, 2005.
g. Income Taxes
Income taxes are provided for the tax effects of transactions reported
in the financial statements and consist of taxes currently due plus
deferred taxes. Deferred taxes are provided on a liability method
whereby deferred tax assets are recognized for deductible temporary
differences and operating loss, tax credit carry-forwards, and
deferred tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or
all of the deferred tax will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and
rates on the date of enactment.
h. Available for Sale Investments
Management determines the appropriate classification of marketable
equity security investments at the time of purchase and reevaluates
such designation as of each balance sheet date. Unrestricted
marketable equity securities have been classified as available for
sale. Available for sale securities are carried at fair value, with
the unrealized gains and losses, net of tax, reported as a net amount
in accumulated other comprehensive income. Realized gains and losses
and declines in value judged to be other-than-temporary on available
for sale securities are included in investment income or loss. The
cost of securities sold is based on the specific identification
method. Interest and dividends on securities classified as available
for sale are included in investment income.
The following is a summary of available for sale equity securities
which are concentrated in companies in the mining industry:
Gross Gross
Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
---------- ----------- ----------- -----------
September 30, 2005 $ 19,364 $ 174 $ - $ 19,538
December 31, 2004 $ 19,364 $ 174 $ - $ 19,538
10
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
September 30, 2005
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
i. Mining Supplies
Mining supplies, consisting primarily of bits, steel, and other mining
related equipment, are stated at the lower of cost (first-in, first-
out) or market. In addition, equipment repair parts and maintenance
items are also included at cost.
j. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements and revenues and expenses during the
reporting period. In these financial statements assets and
liabilities involve extensive reliance on management's estimates.
Actual results could differ from those estimates.
k. Property and Equipment
Property and equipment are carried at cost. Depreciation and
amortization is computed on the straight-line method over the
estimated useful lives of the assets as follows:
Estimated
Useful Life
-------------
Building 39 years
Mining equipment 2-8 years
Office and shop furniture and equipment 5-8 years
Vehicles 5 years
In accordance with Financial Accounting Standards Board Statement No.
144, the Company records impairment of long-lived assets to be held
and used or to be disposed of when indicators of impairment are
present and the undiscounted cash flows estimated to be generated by
those assets are less than the carrying amount. At September 30, 2005
and 2004, no impairments were recognized. Depreciation expense for
the quarters ended September 30, 2005 and 2004 totaled $82,873 and
$27,795, respectively.
l. Financial Instruments
The recorded amounts of financial instruments, including cash
equivalents, receivables, investments, accounts payable and accrued
expenses, and long-term debt approximate their market values as of
September 30, 2005 and 2004. The Company has no investments in
derivative financial instruments.
11
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
September 30, 2005
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
m. Mining Exploration and Development Costs
The company has elected to expense all mining exploration and
development costs due to the uncertainty of bringing its projects into
production, and in accordance with generally accepted accounting
principles in the mining industry. At such a time as mining continues
in any of the Company's properties, the Company will capitalize costs
of successfully developing the properties, when future benefit of the
costs can be identified.
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
during the second quarter of 2005 and 2004 consistent with the
provisions of SFAS No. 123, the Company's net earnings net of taxes
and earnings per share would have been reduced to the pro forma
amounts indicated below:
2005 2004
------------ ------------
Net Loss As reported $(2,686,729) $ (685,167)
Deduct: Total stock-based employee
compensation expense determined under
fair value based method (151,650) -
------------ ------------
Proforma $(2,838,379) $ (685,167)
------------ ------------
Basic earnings per share As reported $ (0.06) $ (0.02)
Proforma $ (0.06) $ (0.02)
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
12
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
September 30, 2005
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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. The
Company is currently evaluating the effect this new pronouncement will
have on the 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.
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.
NOTE 2 -GOING CONCERN
The accompanying unaudited consolidated financial statements have been
prepared assuming that the Company will continue as a going concern.
The Company has reoccurring net losses. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty. Management has reduced the Company's debt (see Note 4).
The Company has been able to sell shares of its restricted stock to
help support its financing activities. Management believes payment of
it debts, the beginning of mining operations, and the sale of stock
will provide sufficient cash flows to continue as a going concern.
13
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
September 30, 2005
NOTE 3 BUILDINGS AND EQUIPMENT
Buildings and equipment at September 30, 2005 and December 31, 2004
consisted of the following:
September 30, December 31,
2005 2004
------------- -------------
Land and Mineral Rights 1,005,410 405,410
Buildings & Equipment 178,368 178,368
Mining Equipment 189,941 104,201
Milling Equipment 243,116 242,669
Office Equipment 1,300 1,300
Vehicles 111,259 70,305
Less: Accumulated Depreciation (235,380) (152,507)
------------- -------------
Total 1,494,014 849,746
NOTE 4 - LONG-TERM LIABILITIES
Long- term liabilities are detailed in the following schedules:
September 30, December 31,
2005 2004
------------- -------------
Note payable to a company, due in monthly
payments of $1,000 with a balloon payment
due at maturity, including interest at 9%.
The note matured August 16, 2001, past due. $ - 53,455
Note payable to a lending company, due in
Monthly installments of $688, including
interest at 7.59%. The note matures in
March 2010 and is collateralized by a vehicle. 31,365 35,630
Note payable to a lending company, due
in monthly installments of $578, including
interest at 11.99%. The note matured August
2003, secured by a vehicle, past due. - -
Note payable to a mortgage company, due in
monthly installments of $1,614, including
interest at 16%. The note is due in August
2005, secured by the proceeds of a logging
agreement and collateralized by land and a
building. - 118,920
14
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
September 30, 2005
NOTE 4 - LONG-TERM LIABILITIES (Continued)
September 30, December 31,
2005 2004
------------- -------------
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
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 $ 31,365 $ 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 31,365 1,061,727
------------- -------------
Less Current Portion (2,297) (781,318)
------------- -------------
Less Current Portion-Related Party - (250,354)
------------- -------------
Total Current Portion 2,297 1,031,672
------------- -------------
Total Long-Term Liabilities $ 29,068 $ 30,055
============= =============
15
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
September 30, 2005
NOTE 4 - LONG-TERM LIABILITIES (Continued)
Future minimum principal payments on notes payable are as follows at
September 30, 2005:
2005 $ 2,297
2006 6,201
2007 6,688
2008 7,214
2009 7,781
Thereafter 1,184
-------------
Total $ 31,365
=============
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 September 30, 2005 and
December 31, 2004 was $0 and $0, respectively.
The Company had an outstanding note with a related company which was
paid off during the 3rd quarter.
During 2005 and 2004, an officer loaned the Company $1,670 and
$34,659, respectively. During 2004, the Company paid cash of $14,000
as partial payment for the note. During 2003, the Company paid cash
of $1,009 and issued 1,000,000 shares of stock valued at $10,000 as
partial payment for the note. During the 3rd quarter of 2005, both
related party notes were paid off to the respective parties. Through
the first three quarters of 2005, the Company paid off $18,382 in
credit card receipts as partial payment for the note. The Company
paid $40,050 to a life insurance company for a loan made against a
policy for funding of the company. The remaining $34,726 was paid in
cash to resolve the outstanding balance. The balance of the note
payable at September 30, 2005 and 2004 was $0 and $82,829,
respectively.
NOTE 6 - COMMON STOCK, STOCK OPTIONS, AND STOCK WARRANTS
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
16
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
September 30, 2005
NOTE 6 - COMMON STOCK, STOCK OPTIONS AND STOCK WARRANTS (Continued)
by the Committee, but cannot be for more than five years from the date
the option is granted. The option price per share with each option
granted will be fixed by the Administrative Committee on the date of
grant.
The Company adopted an incentive stock option plan in 1998. The stock
option plan permits the Company to grant to key employees options to
purchase shares of stock in the Company at the direction of the
Committee. The price of shares purchased must be equal to or greater
than fair market value of the common stock at the date. At September
30, 2005, no options have been granted under this plan.
During 2004, the company's board of directors approved an option to
the Company's CEO to acquire up to 3.5 million shares of common stock
over a five year period at $0.18 per share under the non-qualified
stock option plan. The options vest 43% on January 1, 2005, and 14%
on January 1, 2006 -2009.
The fair value of each option granted is estimated on the date granted
using the Black-Scholes option pricing model. Assumptions used to
compute the weighted-average grants during the quarter ended September
30, 2005 include risk-free interest rates of 2%, expected dividend
yields of 0%, expected life of 3 years, and expected volatility 150%.
During 2004, the Company granted options to purchase up to 3.5 million
of its common shares with a calculated weighted average fair value of
$0.13 each.
Common Stock
------------
During the nine months ended September 30, 2005 the Company sold a
total of 6,520,830 shares of restricted common stock at prices ranging
from $0.25 to $1.00 per share for a total of $5,227,557cash.
During the nine months ended September 30, 2005 the Company issued
2,003,790 shares of stock at prices ranging from $0.30 to $1.11 in
payment of $1,283,887 worth of services provided to the company.
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 September
30, 2005 include risk-free interest rates of 3.25%, expected dividend
yields of 0%, expected life of 2 years, and expected volatility
76.36%.
17
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
September 30, 2005
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 has the
sole option to renew the lease on an annual basis. The agreement
requires the lease payments be made through the issuance
of 100,000 shares of the Company's common stock each year. In July
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 has the option to purchase
the mine for $500,000 at anytime, or when it sells $1,000,000 of
product from the mine during a twelve month period. 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.
NOTE 8 SUBSEQUENT EVENTS
There have been no significant subsequent events to report.
18
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
We are a natural resources company engaged in the acquisition and
exploration of our resource properties in the states of Idaho and Utah. We
also provide contract mining services and specialized civil construction
services for mine operators, exploration companies and the construction and
natural resource industries through our trade name "Atlas Fausett
Contracting."
Our primary source of revenue is generated by our Atlas Fausett
Contracting operations. However, we also have exploration targets and
timber. As a result, we are providing Management's discussion on our plan
of operation.
Contract Mining
Our contract mining generates most of our revenues. This may decrease
as we are able to increase operations on our owned properties, and we will
adjust our resources accordingly. At this time, we anticipate that our
contracting will remain a significant portion of our business.
Property Exploration
We intend to continue our exploration activities for halloysite clay
and other minerals, and intend to acquire commercially feasible properties
that can be put into production with minimal environmental problems and
with limited financial resources. We do not intend to seek out and acquire
other properties until we have finished conducting our feasibility surveys
and other exploration work on our current properties. Although we have not
yet generated income from these properties, we are continuing our
exploratory and development work on these properties. We have also been
looking at additional processing methods to help insure that as product is
developed that a system is in place for refinement. We have no assurances
that our exploration will result in proving any commercially viable
deposits. We realize that additional steps will need to be taken to move
from an exploration stage to a development or productions stage.
In August 2001, we leased the Dragon Mine in Juab, Utah and began our
halloysite clay exploration. During the first nine months of 2005, we had
$494,978 in exploration and development expenses. We also acquired
additional equipment amounting to $627,141 for mining at the Dragon Mine.
In the third quarter 2005 we bought the Dragon Mine for $500,000.
The halloysite clay is considered a non-toxic material and, as
commercially viable amounts have been found on the property, we feel we can
produce a salable product with minimal environmental consequences using
proper containment and processing techniques. The intended processing will
be the crushing, drying, and packaging of the product for shipment. We have
been able to formulate development and mining plans. We consider this
property, the Dragon Mine, to be in the development stage, and it is our
intent to bring it into a production stage in the near future. We have
also contacted potential customers, distributors and suppliers in the clay
businesses. Each buyer may have a different use for the product and the
price and quantity will vary as a result. The sale of product cannot be
formalized until we have developed the mine and become production ready.
We are not aggressively looking for silver properties at this time, as
we have been concentrating on our efforts to bring the clay property from
the exploration stage to the development stage. However once the clay
property is further developed it is our intent to look for other properties
that can be acquired, developed and mined with minimal costs and
environmental problems.
We have a mining plan approved by the proper state authorities, have
filed and received Mine Safety and Health Administration (MSHA)
registration, and County permitting where applicable. In the future, we
may pursue additional acquisitions and exploration of other properties for
metals and industrial minerals, development of which will require
submission of new mining and reclamation plans to the proper state and
federal authorities.
19
Timber
We will continue to harvest timber on our property. Timber harvesting
will be dependent upon lumber prices and weather. We normally do not log
much in the winter months.
RESULTS OF OPERATIONS
Total revenues for the nine month period ending September 30, 2005
were $392,926 and $546,600 for the same period ending September 30, 2004,
or a decrease of 28%. For the three month period ending September 30, 2005
revenues were $234,448 compared to $158,875 for the same period ending
September 30, 2004 or an increase of 47%. In the first nine months of 2005
all our income was received from contracting where in the same period ended
2004 nearly 15% of the revenue was from timber. Timber sales in the first
nine months of 2005 were 0- compared to $79,662 for the same period in
2004. Contracting revenues for the first nine months of 2005 were 392,926,
compared to $466,938 for the same period in 2004, or a decrease of 15%.
Although we have concentrated predominately on the development of the
Dragon Mine in 2005, contracting work did pick up in the third quarter of
this year resulting in better revenues for this period. We have two
contracting projects at this time, the Lucky Friday Mine in Idaho for Hecla
and the Delta Training Center in Alaska. We intend to utilize the manpower
resources from contacting to continue our efforts at the Dragon Mine as
these projects are completed. We recognized no revenues from mining
production for the first nine months of 2005 or 2004.
Gross profit (loss) for the nine month period ending September 30,
2005 was $41,088 compared to $156,670 for the same period ending September
30, 2004, a difference of $115,582. For the three month period ending
September 30, 2005 gross profit (loss) was $74,366 compared to $80,947 for
the same period ending September 30, 2004 a difference of $6,581. During
both periods in 2005 and 2004 revenues were enough to cover costs of sales,
although 2005 margins were not as good as 2004. For the nine month period
ended September 30, 2005 gross profit on revenues was 10%, and was 28% for
the same period in 2004. This was mainly due to timber revenue received in
2004 that carried a very large gross profit margin.
Total operating expenses for the nine month period ending September
30, 2005 was $2,686,729 compared to $806,150 for the same period ending
September 30, 2004 or a increase of 237%. For the three month period
ending September 30, 2005 operating expenses were $482,448 compared to
$307,540 for the same period ending September 30, 2004 or an increase of
56.8%. Although exploration and development expenses in 2005 of $494,978
were more in 2005 compared to the $148,991 spent in 2004, the company also
incurred additional general and administrative expenses in 2005 amounting
to approximately $1,566,697 over 2004 due to additional costs related to
bringing the company into a more efficient position with administrative
additions and changes.
Our net income (loss) for the nine month period ending September 30,
2005 was ($2,677,668) compared to ($685,167) or a 292% times increase. The
net profit (loss) for the three month period ending September 30, 2005 was
($411,609) compared to ($240,272) for the same period ending September 30,
2004, or an increase of 71%. As mentioned above, in 2005 the company
experienced more direct costs and more general and administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
To date our activities have been financed primarily through the sale
of equity securities, borrowings, and revenues from Atlas Fausett
Contracting and logging operations. We intend to continue pursuing contract
mining work and logging of our timber properties to help pay for our
operations. For the three month periods ended September 30, 2005 contract
mining accounted for 100% of the revenue and 57% of the revenue for the
same period in 2004. We also sold equity securities to help finance our
activities. In the third quarter 2005, we were able to payoff the majority
of our debts.
Our total assets increased to $4,433,386 as of September 30, 2005,
compared to $1,423,671 as of December 31, 2004. The company has increased
its current assets by $2,365,447, and increased its property and equipment,
including the purchase of the Dragon Mine, by $644,268. Total liabilities
were $203,813 as of September 30, 2005, compared to $1,419,301 as of
December 31, 2004.
20
We currently have a vehicle loan of $31,365 with monthly payments of
$687.52. We also have accounts payable and accrued expenses of $119,799
resulting from contracting and work at the Dragon Mine. All other debts
have been paid.
If we do not incur any additional debts we will be obligated to pay an
average of $687.52 per month or $8,190 for the next fiscal year in debt
repayment.
We do not believe we will need to obtain additional funding to pursue
our business strategy during the next fiscal year. At the present time, we
anticipate utilizing the existing cash available to bring the Dragon Mine
into a positive revenue generating position. Our inability to do this may
require additional capital, however we do not foresee that this will be a
problem for the next fiscal year. Although we do not have any specific
plans or agreements for additional funding, should we anticipate seeking
additional funding we will consider additional private placements, joint
venture agreements, production financing, and/or pre-sale loans.
Our principal sources of revenue during the third quarter 2005 was
from contracting activities which provided an average of $78,149 per month
for the three month period ended September 30, 2005, and averaged $30,356
per month for the same period in 2004. For the nine month period ending
September 30, 2005 our average monthly cash flow from contracting was
$43,658, compared to $51,882 for the same period in 2004. We did not
recognize any logging revenues or production sales during the third quarter
2005. In addition, we rely on our credit facilities and any public or
private sales of equity for additional cash flow.
Cash flow from financing activities for the nine month period ended
September 30, 2005 was $4,180,737 compared to $627,692 for the same period
in 2004, a difference of $3,543,045. The major factor for the difference
was receipt of proceeds from issuance of common stock in 2005.
The Company spent $627,141 from investing activities for the nine
month period ended September 30, 2005, compared to $389,496 in the same
period in 2004, a difference of $237,645. The major factor for the
difference was purchases of equipment in 2005.
Cash flow used by operating activities for the nine month period ended
September 30, 2005, was ($1,075,650) compared to ($237,223) for the same
period in 2004, a difference of $838,427. In the nine month period in 2005
we experienced an increase in the costs of services and issued warrants,
compared to the same period in 2004, that accounted for the major change.
ITEM 3. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures.
The Company's Chief Executive Officer and its Chief Financial Officer,
after evaluating the effectiveness of the Company's disclosure controls
and procedures (as defined in the Securities Exchange Act of 1934 Rules
l3a 14(c) and 15d 14(c) as of a date within 90 days of the filing date of
this quarterly report on Form 10-QSB (the "Evaluation Date"), have
concluded that as of the Evaluation Date, the Company's disclosure controls
and procedures were adequate and effective to ensure that material
information relating to it would be made known to it by others within the
Company, particularly during the period in which this quarterly report
on Form 10-QSB was being prepared.
(b) Changes in Internal Controls.
There were no significant changes in the Company's internal controls or
in other factors that could significantly affect the Company's disclosure
controls and procedures subsequent to the Evaluation Date, nor any
significant deficiencies or material weaknesses in such disclosure
controls and procedures requiring corrective actions.
21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On July 8, 2005 we issued 100,000 shares of common stock valued
at $100,000 for payment on a lease.
On August 25, 2005 we issued 35,650 shares of common stock for
$8,913 cash.
On August 29, 2005 we issued 175,000 shares of common stock
valued at $105,000 for settlement of a debt.
On September 23, 2005 we issued 33,680 shares of common stock for
$8,420 cash.
On September 27, 2005, we issued 2,310 shares of common stock for
$578 cash.
On September 30, 2005 we issued 46,100 shares of common stock for
$11,525 cash.
Unless otherwise noted, the sales set forth above involved no
underwriter's discounts or commissions and are claimed to be
exempt from registration with the Securities and Exchange
Commission pursuant to Section 4 (2) of the Securities Act of
1933, as amended, as transactions by an issuer not involving a
public offering, the issuance and sale by the company of its
securities to financially sophisticated individuals who are fully
aware of the company's activities, as well as its business and
financial condition, and who acquired said securities for
investment purposes and understood the ramifications of same.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits
(a) EXHIBITS
The following exhibits are included in this Report:
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
--------- -----------------------
31.1 Certification pursuant to Rule 13a-14 of the Securities
Exchange Act, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002, of the Chief Executive Officer
and Principal Financial Officer
32.1 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, of the Chief Executive Officer and Principal
Financial Officer
22
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
ATLAS MINING COMPANY
Dated: November 10, 2005 /s/ William Jacobson
--------------------------------------------
By: William Jacobson
Chief Executive Officer,
Chief Financial Officer
23