UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K

For the year ended December 31, 20072008

Commission file number: 000-31380

ATLAS MINING COMPANY AND SUBSIDIARIES

YEAR 2007 ANNUAL2008ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

PART I

ITEM 1.                          BUSINESS

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 the 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 again.  During the years ended December 31, 20072008 and 2006,2007, the Company provided shaft sinking, underground mine development and mine labor primarily to companies in the mining and civil industries. Historically, the Company’s contract mining operation have been its sole source of revenue and income

We operated a contract mining business under the trade name Atlas Fausett Contracting (“AFC”). AFC was engaged in exploration and mine development as well as preparatory work such as site evaluation, feasibility studies, trouble-shooting and consultation.  AFC's projects included all types of underground mine development, rehabilitation and diamond drilling.  At December 31, 2008, we discontinued our contract mining efforts due to economic conditions and the desire to concentrate our efforts on commercializing the halloysite clay deposit at the Dragon Mine.  There are no plans to resume contract mining activities.

The activities at our Dragon Mine property, located in Juab County, Utah, were suspended in October 2007 when previous management determined that both a resource survey and an appropriate processing facility were needed before the property could be successfully commercialized.  In 2008, a geological consulting firm was hired by us to both carry out a detailed geological review of the property and develop an appropriate method by which to process the mineral resource.  This work is ongoing as of the date of this report.  Beginning in 2009, we began processing material from the mine and distributing samples to potential customers as part of a preliminary marketing program. The geological consulting firm referred to above has sub-contracted with a firm with expertise in the development of mineral processing to identify an appropriate processing system for the Company.  Any subsequent reference to a geological consulting firm may be assumed to include the firm currently being contracted to identify the processing system.

Management believes that the clay resource found at the Dragon Mine property possesses, among other things, certain structural and mineralogical characteristics that may possibly add functionality to applications such as, but not limited to, the controlled release of biological and chemical agents, polymer-related strengtheners and fire retardants, oil field drilling minerals, catalyst carriers, filtration technologies, hydrogen storage for fuel cells and cosmetics.  For certain of the aforementioned applications, management believes the Dragon Mine resource has the potential to serve as a more effective alternative to the materials upon which these current technologies are established. Other above-mentioned applications are being developed to specifically utilize the structural characteristics of the clay resource.

The Dragon Mine property contains halloysite, kaolinite, alunite and other minerals located underground and in waste piles that are the result of previous mining operations.   The geological resource survey being conducted on the Dragon Mine has involved the assessment of approximately 10,000 feet of borehole drill cores and the analysis of samples taken from the five waste piles located at the mine site.  The survey has included X-ray diffraction analysis to determine the levels of halloysite, kaolinite and other minerals found in the resource.  Initial studies have indicated that conventional processing may be used to separate the halloysite and kaolinite fractions from alunite and other minerals found in the Dragon Mine resource.  The geology of the deposit shows alterations of feldspar identified along sidealongside the presence of monzanite, halloysite and kaolinite.  Purer halloysite found at the mine has been identified along sidealongside the presence of iron ore.  The morphology of the halloysite identified at the Dragon Mine, as determined by Scanning Electron Microscopy (“SEM”) analysis, demonstrates the existence of both lath-like and tubular formations.  The kaolinite present at the Dragon Mine has been determined to possess a highly crystalline structure.

NaturalNano, Inc. (OTC: NNAN), in conjunction with Cascade Engineering and it’s subsidiary, Noble Polymers, has developed Pleximer ™, a halloysite nanotube concentrate used to create stronger, lighter, environmentally friendlier and lower-cost polymer-based nanocomposites.  According to NaturalNano’s 2008 annual report, Pleximer ™ is being marketed to the global nanocomposites market that, in the estimation of BCC Research, is expected to grow from $273 million in 2005 to $4.0 billion by 2015.  According to BCC Research, clay-based nanocomposites are expected to represent 47% of the nanocomposites market by 2010.  The U.S. Department of the Navy, represented by the Naval Research Lab (NRL”), has patented a technology that provides for the controlled release of active agents using inorganic tubules such as halloysite clay.  The U.S. Navy’s technology has been licensed by at least two companies that are developing controlled-release applications for the fields of electromagnetic shielding/strength enhancement, cosmetics, fragrances, agriculture, ink and paper, electronics, fabrics and textiles, local drug delivery and mold-resistant building products.  The U.S. Navy has also patented a technology that permits a controlled release of an active agent as an anti-scaling treatment for environments such as oil wells.

As of the date of this report, a study is being conducted to identify the applications for which the Dragon Mine resource may provide functionality. Processed clay samples have been distributed to potential customers who have requested halloysite and/or halloysite-kaolinite mixtures.  A number of advanced applications to which the Company plans to market its resource are currently using plate-like structured clays that must undergo expensive exfoliation process to achieve proper functionality.  The tubular morphology of the Dragon Mine resource does not require such an exfoliation process to achieve similar or, in many instances, greater functionality.  Management, therefore, believes that it may be able to deliver its processed mineral to market at price points lower than those of competing clays, without sacrificing performance.

In addition to certain advanced applications previously mentioned, we believe the Dragon Mine resource may also be marketed to certain established, low-tech applications such as, but not limited to, fine porcelain, bone china, high-performance advanced technical ceramics, paint fillers, suspension agents, animal feed, cement hardeners, and food and pharmaceutical additives.  Markets, such as fine porcelain and bone china, would likely require the Dragon Mine clay resource be processed for increased brightness and reduced presence of titanium whereas applications, such as a cement hardener, would require a relatively unprocessed version of the Dragon Mine resource.  Management, as part of its overall business strategy, will continually assess the economic feasibility of pursuing potential markets.

CONTRACT MINING

AFC was engaged in exploration and mine development as well as preparatory work such as site evaluation, feasibility studies, trouble-shooting and consultation.  AFC's projects include all types of underground mine development, rehabilitation and diamond drilling.  At December 31, 2008 we discontinued our contract mining efforts due to economic conditions and the desire to concentrate our efforts on commercializing the halloysite clay deposit at the Dragon Mine.  There are no plans to resume the contract mining business.

DRAGON MINE

The Dragon Mine is located in the Tintic District of north central Utah.  The property is 2 miles southwest the town of Eureka which, in turn, is approximately 75 miles southwest of Salt Lake City. The mine issits on approximately 230 acres.

From 1949 through 1976 Filtrol Corporation operated the Dragon Mine.  To the best of our knowledge, Filtrol mined approximately 1.35 million tons of clay valued at approximately $50 million for use as an input for a petroleum-cracking catalyst product.  The mine was idle from 1977 until we leased it in 2001.  In July 2001, the Company began leasing the Dragon Mine from Conjecture Silver Mines, Inc. of Spokane, Washington.  The Company initially paid 400,000 shares of common stock, valued at $100,000, for a one-year lease.  Under the terms of the lease agreement, the Company had the right to renew the lease annually in exchange for 100,000 additional shares of our common stock or the option to purchaseWe purchased the property for $500,000.  The Company issued 100,000 shares of stock for each year of the lease for the years 2002 – 2005 and exercised the right to purchase the mine on August 18, 2005 for $500,000 cash.in 2005.

Activities atUntil October 2007 we were focused on commercializing the Dragon MineMine.  Such activities were suspended by previous management in October 2007 by current management at the time due to, among other things, the lack of both a comprehensive resource survey of the propertyDragon Mine and an effective mineral processing system.  In 2008, wethe Company retained an internationally recognized geological consulting firm to (i) conduct a geological review and detailed evaluation of a portion of the 230-acre230 acre Dragon Mine deposit and (ii) identifydevelop a system by which to process the potential mineral production of the mine.  As of the date of the filing of this report, we havethe Company has not received a final report regarding either a measurement of the mine’s resource reserve or the development of a processing system.  Prior to the suspension of operations at the mine in October 2007, we focused our marketing efforts primarily on the introduction of the Dragon Mine’s clay resource to the controlled-release application and polymer filler markets.

As of the date of the filing of this report, we will need to raise additional capital to establish commercially viable operations at the Dragon Mine and for other uses.  We cannot assure you that we will be able to raise additional financing, including debt 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.

Record Holders

As of December 31, 2007,2008, there were approximately 1,5651,545 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.

Dividends

Since we became a reporting company in 1999, we have never declared or paid any cash dividend on our common stock.  We are not subject to any restrictions or limitations relating to the declaration or payment of dividends other than those imposed by state corporate laws applicable to corporations generally.

Equity Compensation Plans

Our Board of Directors adopted three equity compensation plans: (1)plans, (i) the Non-qualified Stock Option Plan of Atlas Mining Company, (2)(ii) the Incentive Stock Option Plan of Atlas Mining Company, and (3)(iii) the Consultant Stock Plan.  The Non-qualified Stock Option and Incentive Stock Option plans were adopted in November 1998.  The Non-qualified Stock Option Plan expired in January 2007 and the1997.  The Incentive Stock Option Plan is set to expireexpired in November 2008.  The Consultant Stock Plan was adopted in 2002 and is set to expire in August 2012.

The Non-qualified Stock Option Plan allowed us to grant options to purchase up to 10% of the then (at the time of grant) outstanding shares of common stock.  No individual could be granted more than 5% of the outstanding common stock of the Company under the plan.  The price per share for each option granted was to be set by the Administrative Committee.

As of December 31, 2007,2008, we had only two grants of options under the Non-qualified Stock Option Plan oustanding.outstanding.  One was a grant of options to William Jacobson in 2004 to purchase 3,500,000 shares at $0.18 per share.  During 2007, Jacobson exercised 1,084,756 of these options.  The other grant was to Ronald Price in 2006 of options to purchase 1,000,000 shares at prices related to market prices at the time of vesting, which resulted in exercise price from $0.54 to $2.32 per share.  These options vested over the terms of their employment contracts and all unexercised options were terminated per the resignations of Jacobson and Price in June 2008 and December 2008, respectively.

The Incentive Stock Option Plan allowed us to grant options to purchase up to a total of 10% of the then (at the time of grant) outstanding shares of common stock.  No individual can be granted options for more than 5% of the outstanding common stock of the Company.  Options issued under the Incentive Stock Option Plan must have had a price per share at least equal to the fair market value of ourthe Company's common stock on the date of the grant.  As of December 31, 2007,2008, no options were outstanding under the Incentive Stock Option Plan.

The Consultant Stock Plan allowed us to grant options to purchase up to 5,000,000 shares of ourthe Company’s common stock.  The Company filed form S-8 in August 2002 authorizing the issuance of 5,000,000 shares.  The exercise price of the optionsOptions issued under this plan are setvalued at 85% of the market price of the Company’s common stockvalue on the date of the grant.  16,646,647Approximately 17 million options were granted under the plan.  As of December 31, 2007,2008, no unexercised options were outstanding under the Consultant Stock Plan.

In 2007, options and stock awards were granted to Robert Dumont and Robert Gaensbauer and2008, no options were granted to Barbara Suveg.  The grants and the awards were made in connection with employment agreements.  The grants were not made under the Non-qualified Stock Option Plan or the Incentive Stock Option Planequity Compensation Plans.  In June 2008, Mike Lyon, Interim Chief Executive Officer, was granted 50,000 options to purchase common stock at $0.65 per share.  In September 2008, he was granted an additional 25,000 options to purchase common stock at $0.71 per share.  These options have a 5-year term and are considered individual compensation arrangement under SEC rules.  Messrs. Dumont and Gaensbauer and Ms. Suveg voluntarily terminated employment before the end of 2007 and before anyall options were exercised.  Our position is that such voluntary resignations breachedvested by the employment agreements and terminated the employee’s rights to options.  Thetime Mr. Lyon’s tenure as Interim Chief Executive Officer ended in December 2008.   Mr. Lyon’s options and stock awards granted to Messrs. Dumont and Gaensbauer and the options granted to Ms. Suveg are not included in the table below; however, the Company was required to pay the stock award to its former officers and employees.  As of December 31, 2007, we recorded $280,000 in stock award payable.below.

(1) The Incentive Stock Option Plan and the Non-qualified Stock Option Plan do not set forth a maximum number of shares subject to the plans.  Each of the plans has the following provision: “The aggregate number of shares of our common stockthe Company's Common Stock which may be issued upon the exercise of [options] granted under this Plan and any other stock option plan adopted by usthe Company shall not exceed ten percent (10%) of the then issued and outstanding shares of our common stock.the Company's Common Stock.”

RECENT SALES OF UNREGISTERED SECURITIES

Property Exploration

Accounts Receivable

Accounts receivable are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a monthly basis.  Specific reserves are estimated by management based on certain assumptions and variables, including the customer’s financial condition, age of the customer’s receivables, and changes in payment histories.  As of December 31, 20072008 and 2006,2007, no allowance for doubtful accounts was considered necessary.  Trade receivables are written off when deemed uncollectible.  Recoveries of trade receivables previously written off are recorded when received.

Impairment of Assets

In August 2001 Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”) established a single accounting model for long-lived assets to be disposed of by sale, including discontinued operations.  SFAS No. 144 requires that these long-lived assets be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or discontinued operations.  At December 31, 2008 and 2007, no impairments were recognized.

Mining Exploration and Development Costs

Land and mining property acquisitions are carried at cost.  We expenseThe Company expenses prospecting and mining exploration costs.  If, at aAt the point in the future,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.  We may never own a property with proven and probableor probably reserves.

Provision for Income Taxes

Income taxes are calculated based upon the liability method of accounting in accordance with the Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (“SFAS No. 109”).  In accordance with SFAS No. 109, deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end.year end.  A valuation allowance is recorded against deferred tax assets if management does not believe we havethe Company has met the “more likely than not” standard imposed by SFAS No. 109 to allow for recognition of such an asset.

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 our estimates.  Actual results could differ from those estimates.

Revenue is recognized when earned.  The recorded amounts of financial instruments, including cash equivalents, available for sale securities, receivables, investments, accounts payableCompany's revenue recognition policies are in compliance with the Securities and accrued expenses,Exchange Commission Staff Accounting Bulletin No. 101 and long-term debt, approximate their market values as of December 31, 2007 and 2006.  We have no investments in derivative financial instruments.104.

Revenue Recognition

The Company recognizes revenue infor Contract Mining services is recognized once a contract with a fixed and determinable fee has been established, the period that the related services are performedhave been rendered, and collectabilitycollection is reasonably assured.  For the years ended December 31, 2007 and 2006, the Company derived substantially all of its revenues from leasing equipment and employees for mine development, site evaluation, and preparatory work.  These service contracts generally took the form of fixed-price contracts.  Under fixed-price contracts, revenue is recognized as services are performed, with performance generally assessed using output measures, such feet excavated.  Changes in the scope of work generally result in a renegotiation of contract pricing terms or a contract amendment.  Renegotiated amounts are not included in net revenues until earned and realization is assured. Historically, costs expensed as incurred.  All out-of-pocket costs are included in expenses.  

Revenue for mined halloysite clay if any, will be recognized upon shipment and customer acceptance once a contract with a fixed and determinable fee has been established and collection is reasonably assured or the resulting receivable is deemed probable.

Stock Options and Warrants

We haveThe 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 7.6. Prior to January 1, 2006, wethe Company applied APB Opinion No. 25, “Accounting for Stock Issued to Employees”, and related Interpretations in accounting for awards made under ourthe Company’s stock-based compensation plans.  Under this method, compensation expense was recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price.

During the periods presented in the accompanying financial statements, we havethe Company has adopted the provisions of SFAS No. 123R using the modified-prospective transition method and the disclosures that follow are based on applying SFAS No. 123R.  Under this transition method compensation expense recognized during the yearthree months ended DecemberMarch 31, 2007 included:  (a) compensation expense for all share-based awards granted prior to, but not yet vested as of January 1, 2007, and (b) compensation expense for all share-based awards granted on or after January 1, 2007.  Accordingly, compensation expense of $666,002$427,432 and $377,076$666,002 has been recognized for vesting of options to employees and directors in the accompanying statements of operations for the period ended December 31, 20072008 and 2006,2007, respectively.

In July 2006, the FASB issued Interpretation No. 48 ("FIN 48"), "Accounting to Uncertainty in Income Taxes and An Interpretation of FASB Statement No.109."  FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with SFAS 109.  FIN 48 also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  The new FASB standard also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.  The provisions of FIN 48 are effective for our first quarter ending March 31, 2008.  The adoption of FIN 48 will not have a material impact on our financial statements.

As of December 31, 2007,2008, we did not have nominating, auditing or compensation committees and there were no procedures by which shareholders recommendedmight recommend nominees to the Boardboard of Directors.directors,

As of December 31, 2007,2008, we did not have an audit committee and the board did not functioncommittee.  The Board of Directors functioned as an audit committee.  We did

On December 30, 2008, the Company entered into a Management Agreement with Material Advisors LLC, a management services company (“Manager”). The Management Agreement has a term ending on December 31, 2010 with automatic renewal for successive one year periods unless either Manager or Company provides 90 days prior notice of cancellation to the other party or pursuant to the termination provisions of the Management Agreement.  Under the Management Agreement, Manager is to perform or engage others, including Andre Zeitoun, a principal of Manager and Chris Carney (“Management Personnel”) to perform senior management services including such services as are customarily provided by a chief executive officer but not (unless otherwise agreed) services customarily provided by a chief financial officer (it was subsequently agreed to have person qualifiedMr. Carney perform as Interim Chief Financial Officer). Pursuant to the Management Agreement, Andre Zeitoun is serving as Company’s Chief Executive Officer and will be appointed as a member of the Company’s Board of Directors.  

Manager is paid an annual fee of $1,000,000 per year for the three-year term of the Management Agreement, payable in equal monthly installments of $83,333.34.  Manager will be solely responsible for the compensation of the Management Personnel, including Mr. Zeitoun and the Management Personnel will not be entitled to any direct compensation or benefits from the Company (including in the case of Mr. Zeitoun, for service on the Board).  Additionally, Company granted Manager non-qualified stock options to purchase, for $0.70 per share (the “$0.70 Option”) a number of shares of the Company equal to 10% of the outstanding common stock of the Company on a fully diluted basis (which shall vest in equal monthly installments over three years). On December 31, 2008, the closing stock price of the Company’s Common Stock was $0.15.  The following sets forth the treatment of the $0.70 Option in the event of a “going private transaction.” Upon the consummation of a transaction resulting in  (A) Company ceasing to be an audit committee financial expert.  We reporteda SEC reporting company, or  having less than 300 shareholders of record  and (B) David A. Taft, IBS Capital LLC, The IBS Turnaround Fund L.P., The IBS Turnaround Fund (QP), The IBS Opportunity Fund (BVI). Ltd., or any of their affiliates or related entities own in earlier 10-Ksthe aggregate more than 50% of the outstanding equity capital of the Company immediately following such transaction (a “Going Private Transaction”), the $0.70 option will be cancelled and replaced by a non-qualified  option (the “Going Private Option”), accompanied by a tandem stock appreciation right (the “SAR”). The Going Private Option will provide Manager the right to purchase the same percentage of Company’s(or its successor’s) outstanding shares of common stock after giving effect to the going private transaction that  were subject to the Board believed that it could not pay enough$0.70 Option. The SAR will entitle Manager to attractreceive either shares of common stock or cash equal in value to the excess of the fair market value of a person with such qualifications to serveshare of common stock on the board.  Wedate of exercise over the base price per share under the SAR. The exercise price of the Going Private Option and the base price under the SAR will be the fair market value per share to be paid in the Going Private Transaction to shareholders who are not awareinvesting in the going private vehicle. The term of any other statements or determination by the Board on such matter.$0.70 Option, the Going Private Option and the SAR will be 10 years.  During their terms, the Going Private Option and the SAR will be fully exercisable.

COMPLIANCE WITH SECTION 16(a) OF EXCHANGE ACTBENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires our officers, directors, executive officers and personsany person who ownbeneficially owns 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, executiveExecutive officers, directors, and persons who own more than 10% of our common stockshareholders are required by Securities and Exchange Commission regulationsregulation to furnish us with copies of all Section 16(a) forms which they file.

During 2008, certain of our directors and executive officers who own our stock filed Forms 3 or Forms 4 with the Securities and Exchange Commission. The information on these filings reflects the current ownership position of all such individuals. To the best of our knowledge, based solely upon reviewduring 2008 all such filings by our officers and directors were made timely, except that (i) due to an administrative error in each instance, Ronald Price (former director) did not file required Form 5, and Morris Weiss filed required Forms 3 and 4 late (attributable to delay in advisor obtaining Edgar Codes) regarding one transaction in each case and (ii) for voluntary filings reflecting ownership of shares held by Material Advisors LLC by Mr. Carney and Mr. Zeitoun.

The general criteria that our Board uses to select nominees includes the following: individuals reputation for integrity, honesty and adherence to high ethical standards; their demonstrated business acumen, experience and ability to exercise sound judgments in matters that relate to the current and long-term objectives of the copies of such reports received or written representations fromCompany; their willingness and ability to contribute positively to the reporting persons, we believe that during our 2007 fiscal year our directors, executive officers and persons who own more than 10% of our common stock complied with all Section 16(a) filing requirements with the exceptiondecision-making process of the following:  NoneCompany; their commitment to understand the Company and its industry and to regularly attend and participate in meetings of the persons who were directors, or Kurt Hoffman who was an officerBoard and director for partits committees; their interest and ability to understand the sometimes conflicting interests of 2007, or IBS Capital LLCthe various constituencies of the Company, which include stockholders, employees, customers, creditors and the IBS Turnaround Fund (QP) (A Limited Partnership),  filedgeneral public; their ability to act in the interests of all stakeholders; and no nominee should have, or appear to have, a Form 5 within 45 daysconflict of interest that would impair the nominees ability to represent the interests of all of the endCompany’s stockholders and to fulfill the responsibilities of fiscal 2007 or provided us with a statementdirector.  There are, however, no specific minimum qualifications that nominees must have in order to be selected.

EXECUTIVE COMPENSATION AND HIGHLY PAID EMPLOYEES