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
<PAGE>

                                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


                                       2
<PAGE>

                    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
<PAGE>

                                     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
<PAGE>

      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
<PAGE>

      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
<PAGE>

      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
<PAGE>

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
<PAGE>

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
<PAGE>

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
<PAGE>

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
<PAGE>

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
<PAGE>

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
<PAGE>

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
<PAGE>

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
<PAGE>

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
<PAGE>

      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
<PAGE>

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
<PAGE>

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
<PAGE>

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
<PAGE>

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
<PAGE>

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
<PAGE>

      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
<PAGE>

             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

<PAGE>

                       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
<PAGE>

                       Atlas Mining Company and Subsidiary
                           Consolidated Balance Sheets

                      LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                        December 31,
                                                                                   2005               2004
                                                                               ------------       ------------
<S>                                                                            <C>                <C>
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
                                                                               ============       ============
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                      F-2
<PAGE>

                       Atlas Mining Company and Subsidiary
                      Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                                          For the Year Ended
                                                              December 31,
                                                     -------------------------------
                                                         2005               2004
                                                     ------------       ------------
<S>                                                  <C>                <C>
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
                                                     ============       ============
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                      F-3
<PAGE>

                       Atlas Mining Company and Subsidiary
                 Consolidated Statements of Stockholders' Equity
                 For the Years Ended December 31, 2005 and 2004

<TABLE>
<CAPTION>
                                                              Common Stock                         Treasury Stock
                                                        ------------------------  Accumulated  ------------------------
                                                          Shares       Amount       Deficit      Shares       Amount
                                                        -----------  -----------  -----------  -----------  -----------
<S>                                                      <C>         <C>          <C>            <C>        <C>
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           --           --           --

<CAPTION>

                                                       Accumulated
                                                          Other
                                                      Comprehensive    Prepaid      Subscription
                                                          Income       Expenses     Receivable
                                                       ------------   -----------   -----------
<S>                                                     <C>           <C>           <C>
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                    --            --            --
</TABLE>

                                      F-4
<PAGE>

<TABLE>
<CAPTION>
                                                              Common Stock                         Treasury Stock
                                                        ------------------------  Accumulated  ------------------------
                                                          Shares       Amount       Deficit      Shares       Amount
                                                        -----------  -----------  -----------  -----------  -----------
<S>                                                      <C>         <C>          <C>            <C>        <C>
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
                                                        ===========  ===========  ===========   ===========  ===========

<CAPTION>

                                                       Accumulated
                                                          Other
                                                      Comprehensive    Prepaid      Subscription
                                                          Income       Expenses     Receivable
                                                       ------------   -----------   -----------
<S>                                                     <C>           <C>           <C>
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)  $        --
                                                        ===========  ===========   ===========
</TABLE>


                                      F-5
<PAGE>

                     Atlas Mining Company and Subsidiary
               Consolidated Statements of Stockholders' Equity
         For the Years Ended December 31, 2005 and 2004 (Continued)

<TABLE>
<CAPTION>
                                                              Common Stock                          Treasury Stock
                                                        ------------------------  Accumulated   ------------------------
                                                           Shares       Amount      Deficit       Shares       Amount
                                                        -----------  -----------  -----------   -----------  -----------
<S>                                                      <C>         <C>          <C>             <C>        <C>
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           --            --           --

<CAPTION>

                                                       Accumulated
                                                          Other
                                                      Comprehensive    Prepaid     Subscription
                                                          Income       Expenses     Receivable
                                                      -------------  -----------   ------------
<S>                                                     <C>          <C>           <C>
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                    --           --            --
</TABLE>

                                      F-6
<PAGE>

                     Atlas Mining Company and Subsidiary
               Consolidated Statements of Stockholders' Equity
         For the Years Ended December 31, 2005 and 2004 (Continued)

<TABLE>
<CAPTION>
                                                                    Common Stock                           Treasury Stock
                                                              -------------------------  Accumulated    ------------------------
                                                                Shares        Amount        Deficit       Shares       Amount
                                                              -----------   -----------   -----------   -----------  -----------
<S>                                                           <C>          <C>                    <C>            <C>        <C>
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
                                                              ===========   ===========   ===========   ===========  ===========

<CAPTION>

                                                             Accumulated
                                                                Other
                                                            Comprehensive    Prepaid    Subscription
                                                                Income       Expenses    Receivable
                                                            -------------  -----------  ------------
<S>                                                           <C>          <C>           <C>
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  $        --  $        --
                                                              ===========  ===========  ===========
</TABLE>


                                      F-7
<PAGE>

                       Atlas Mining Company and Subsidiary
                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                               For the Year Ended
                                                                   December 31,
                                                            -------------------------
                                                                2005          2004
                                                            -----------   -----------
<S>                                                         <C>           <C>
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
                                                            ===========   ===========
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                      F-8
<PAGE>

                       Atlas Mining Company and Subsidiary
                Consolidated Statements of Cash Flows (Continued)

<TABLE>
<CAPTION>
                                                                For the Year Ended
                                                                    December 31,
                                                             ------------------------
                                                                  2005         2004
                                                             -----------  -----------
<S>                                                          <C>          <C>
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  $        --
                                                             ===========  ===========
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                      F-9
<PAGE>

                       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
<PAGE>

                       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
<PAGE>

                       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.
<TABLE>
<CAPTION>
                                                              Net Loss             Shares        Per-Share
                                                             (Numerator)        (Denominator)      Amount
                                                             -----------        -------------    ----------
<S>                                                          <C>                  <C>             <C>
     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)
                                                             ===========          ==========      =======
</TABLE>

      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
<PAGE>

                       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.

<TABLE>
<CAPTION>
                                                                   December 31,
                                                           --------------------------
                                                              2005           2004
                                                           -----------    -----------
<S>                                                        <C>            <C>
      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                       $        --    $        --
                                                           ==========================
</TABLE>

      At  December  31,  2005,   the  Company  has  net   operating   losses  of
      approximately $8,159,456 which expire from 2006 through 2020.


                                      F-13
<PAGE>

                       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
<PAGE>

                       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
<PAGE>

                       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
<PAGE>

                       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
<PAGE>

                       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
<PAGE>

                       Atlas Mining Company and Subsidiary
                 Notes to the Consolidated Financial Statements
                           December 31, 2005 and 2004

NOTE 4 - LONG-TERM LIABILITIES (Continued)

<TABLE>
<CAPTION>
                                                               2005           2004
                                                             --------    -----------
<S>                                                          <C>         <C>
      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
                                                             ========    ===========
</TABLE>

      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
<PAGE>

                       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
<PAGE>

                       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:

<TABLE>
<CAPTION>
                                                 December 31, 2005               December 31, 2004
                                           ---------------------------------------------------------------
                                                        Weighted Average                  Weighted Average
                                              Shares     Exercise Price        Shares      Exercise Price
                                           ------------  --------------     ------------   --------------
<S>                                          <C>           <C>                <C>              <C>
      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
                                           -----------     -----------      -----------       -----------
</TABLE>

      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:

<TABLE>
<CAPTION>
                                           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
      ------------       ------------      ----------------       ----------------    -----------    ----------------
<S>                        <C>                  <C>                    <C>                     <C>          <C>
      $0.10 - 0.20         3,500,000            3 years                $0.13                   --           $0.13
      ------------       -----------       ----------------       ----------------    -----------    ----------------
                           3,500,000                                                           --
</TABLE>

      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
<PAGE>

                 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:

<TABLE>
<CAPTION>
              Number of shares
           underlying the warrants      Exercise price             Issued              Expire
      ---------------------------------------------------------------------------------------
<S>   <C>                               <C>                   <C>                       <C>
      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
</TABLE>

      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:
<TABLE>
<CAPTION>
                                                December 31, 2005                December 31, 2004
                                          ---------------------------------------------------------------
                                                       Weighted Average                  Weighted Average
                                            Shares      Exercise Price        Shares      Exercise Price
                                          ----------    --------------     ------------   --------------
<S>                                        <C>            <C>                <C>            <C>
      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
                                           ---------      ---------          ---------      ---------
</TABLE>


                                      F-22
<PAGE>

                       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:

<TABLE>
<CAPTION>
                                            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
      ------------       ------------      ----------------       ----------------    -----------    ----------------
<S>                         <C>                <C>                    <C>              <C>               <C>
      $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
</TABLE>

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
<PAGE>

                       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
<PAGE>

                       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
<PAGE>


                       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
<PAGE>


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
<PAGE>

            (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
<PAGE>

<TABLE>
<CAPTION>
Name                             Age           Position
---------------------------------------------------------------------------------------------
<S>                              <C>           <C>
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
---------------------------------------------------------------------------------------------
</TABLE>

      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
<PAGE>

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
<PAGE>

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

<TABLE>
<CAPTION>
                                 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      ($) (1)       ($)
       --------           ----         ---          ---       ---          ---            ----      -------       ---
<S>                       <C>       <C>             <C>       <C>          <C>            <C>          <C>         <C>
William T. Jacobson,      2005      $120,000        --        --           --              --          --          --
Chairman and Chief        2004      $ 78,000        --        --           --              --          --          --
Executive Officer         2003      $ 78,000        --        --           --              --          --          --
</TABLE>

----------
(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
<PAGE>

      (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
<PAGE>

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
                                                          Number of
                                                          Shares of        Percentage of
                                                         Common Stock      Common Stock
                                                         Beneficially      Beneficially
  Name and Address (1)                                    Owned (2)           Owned
-----------------------------------------------------------------------------------------
<S>                                                     <C>                  <C>
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%
-----------------------------------------------------------------------------------------
</TABLE>

*     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
<PAGE>

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
<PAGE>

                                   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