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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-20430
AZCO MINING INC.
(A DELAWARE CORPORATION)
I.R.S. Employer Identification Number 84-1094315
30 Bowie Avenue
Solomon, Arizona 85551
(520) 428-6881
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES _X_ NO ____
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 25,512,938 shares of the
Company's Common Stock were outstanding as of October 28, 1996.
AZCO MINING INC. (DELAWARE)
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PAGE
Consolidated Balance Sheets ................... 3
Consolidated Statements of Operations ......... 4
Consolidated Statements of Cash Flows ......... 5
Consolidated Statement of Stockholders' Equity. 6
Notes to Interim Consolidated
Financial Statements ........................ 7 & 8
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AZCO MINING INC. (DELAWARE)
CONSOLIDTED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
SEPTEBMER 30, JUNE 30,
1996 1996
------------ --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $21,803,179 $24,295,805
Short-term investments 1,400,687 1,400,687
Refundable income taxes 16,600
Prepaids and other 223,169 43,861
----------- -----------
Total current assets 23,443,635 25,740,353
Property and equipment:
Furniture and equipment 188,080 188,080
Less accumulated depreciation (136,555) (127,450)
----------- -----------
51,525 60,630
Investment in and advances to Mali project 600,000
Advances to Indonesian projects 661,500
Restricted cash 51,610 51,610
Deposit 4,000,000 4,000,000
Other assets 7,725 180,525
----------- -----------
$28,815,995 $30,033,118
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 19,392 $ 58,217
----------- -----------
Total current liabilities 19,392 58,217
----------- -----------
Total liabilities 19,392 58,217
----------- -----------
Commitments and contingencies
Stockholders' equity
Common stock: $.002 par value,
100,000,000 shares authorized:
25,512,938 shares issued and outstanding
as of September 30, 1996 and June 30, 1996 51,026 51,026
Additional paid-in capital 25,587,549 25,587,549
Retained earnings 3,158,028 4,336,326
----------- -----------
28,796,603 29,974,901
----------- -----------
Total liabilities and stockholders' equity $28,815,995 $30,033,118
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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AZCO MINING INC. (DELAWARE)
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
--------------------------------
1996 1995
------------ ------------
<S> <C> <C>
INCOME:
Interest income $ 362,009 $ 23,787
Other income 25,000
------------ ------------
387,009 23,787
------------ ------------
EXPENSES:
Salaries 188,384 141,034
General and administrative 170,946 175,146
Exploration 1,078,636 15,009
Accounting and legal 61,805 317,749
Amortization and depreciation 9,106 21,622
Interest expense, net of amount capitalized 88,920
Financing and acquisitions 73,031 4,362
------------ ------------
1,581,908 763,842
------------ ------------
INCOME BEFORE INCOME TAXES: (1,194,899) (740,055)
Income tax credit (16,600)
------------ ------------
NET INCOME (LOSS) $ (1,178,299) $ (740,055)
============ ============
Earnings per common and common equivalent share
net income (loss) $ (0.05) $ (0.03)
============ ============
Weighted average common shares applicable to
earnings per common and common equivalent share 25,898,337 25,699,902
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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AZCO MINING INC. (DELAWARE)
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1996 1995
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (1,178,299) $ (740,055)
Adjustments to reconcile net loss to net cash used in operations:
Depreciation and amortization 9,106 21,622
Changes in assets and liabilities, net:
Restricted cash (3,920)
Other assets (6,508) 25,316
Accounts payable and accrued liabilities (38,825) (286,809)
Refundable income taxes (16,600)
------------ -----------
Net cash provided by (used in) operating activities (1,231,126) (983,846)
------------ -----------
Cash flows from investing activities:
Investment in and advances to Mali property (600,000)
Advances to Indonesian projects (661,500)
Purchases of furniture and equipment and construction in progress (6,660)
Development of mineral properties (474,961)
------------ -----------
Net cash provided by (used in) investing activities (1,261,500) (481,621)
------------ -----------
Net (decrease) in cash and cash equivalents (2,492,626) (1,465,467)
Cash and cash equivalents at beginning of period 24,295,805 1,794,638
------------ -----------
Cash and cash equivalents at end of period $ 21,803,179 $ 329,171
============ ===========
Cash paid during the period for:
Interest $ 0 $ 12,617
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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AZCO MINING INC. (DELAWARE)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
Common
Stock Additional
--------------------- Paid-In Retained
Shares Amount Capital Earnings Total
<S> <C> <C> <C> <C> <C>
Balance, June 30,1996 25,512,938 $51,026 $25,587,549 $ 4,336,327 $29,974,902
Net Income (loss) (1,178,299) (1,178,299)
---------- ------- ----------- ----------- -----------
Balance, September 30, 1996 25,512,938 $51,026 $25,587,549 $ 3,158,028 $28,796,603
========== ======= =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
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AZCO MINING INC. (DELAWARE)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
In the opinion of management, the accompanying interim financial statements
contain all material adjustments, consisting only of normal recurring
adjustments necessary to present fairly the financial position, the results of
operations, and the cash flows of the Company and its consolidated subsidiaries
for the interim period. Users of financial information produced for interim
periods are encouraged to refer to the footnotes contained in the Annual Report
on Form 10-K when reviewing interim financial results.
AZCO Mining Inc. (Delaware) (the "Company") was formed on July 13, 1988 to
acquire base metal and precious metal properties and either develop or sell
them. The Company will consider properties of merit in almost any geographical
location.
NOTE 2. MALI PROJECT (NORTHWESTERN AFRICA)
On May 9, 1996, Azco entered into a Memorandum of Agreement with the West
African Gold and Exploration, Ltd. ("WAG"), a British Virgin Islands company,
Eagle River International Limited ("Eagle River"), a Vanuatu corporation, and
Lion Mining Finance Limited ("Lion Mining"), a United Kingdom corporation. Eagle
River has purchased properties in Mali, Africa from Guefest, a Russian mining
consortium. Under terms of this agreement, the properties will be transferred to
a new Malian corporation. Shares in this
7
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corporation will be transferred to an offshore company. Upon fulfillment of
conditions precedent to Azco's participation, Azco has committed to purchase
4,800,000 shares of the offshore company at a price of ($0.25) (U.S.) per share
and receive 1,000,000 shares of the offshore company in consideration for
125,000 common shares of Azco to be issued to Eagle River.
On May 17, 1996, under terms of the above agreement, the Company issued an
irrevocable standby letter of credit in the amount of $1,000,000 to guarantee
the development of certain mineral concessions in Mali. The Company, on behalf
of Eagle River, Lion Mining, and WAG, has guaranteed $1,000,000 of development
by May 15, 1997 to keep the properties in good standing.
During the quarter ended September 30, 1996 the Company provided the Mali
Project $210,200 for operating costs. The operating costs are included in
exploration costs in the accompanying statement of operations. In addition, as
of September 30, 1996, the Company had advanced to the project $600,000 for land
acquisition.
8
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AZCO MINING INC. (DELAWARE)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
NOTE 3. INDONESIAN PROJECTS
During the quarter ended September 30, 1996 the Company deposited $661,500 with
the Indonesian Ministry of Mines as Security for the Contract of work on two
mineral concessions.
NOTE 4. REFUNDABLE INCOME TAXES
The Company's federal taxable loss for the three months ended September 30, 1996
can be carried back to recover federal income taxes paid for the year ended June
30, 1996. Accordingly, the statement of operations for the three months ended
September 30, 1996 includes an income tax credit of $16,600. The effective rate
for the federal income tax credit differed from the statutory rate because
foreign losses can not be carried back to recover taxes.
9
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AZCO MINING INC. (DELAWARE)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
GENERAL
The Company was formed on July 13, 1988. On December 21, 1995 the Company
announced that it had completed the sale of its Sanchez Project and a 70%
interest in its Mexican project, the Piedras Verdes, to Phelps Dodge for $40
million (US).
The Company is currently evaluating a number of opportunities in the mining
industry for the purpose of merger, joint venture or project acquisition.
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1995.
The net loss for the three month period ended September 30, 1996 was $1,178,299
compared to a net loss of $740,055 for the same period ended September 30, 1995.
The increase in the current period net loss is the result of an increase in
exploration expense of $1,063,627 offset by decreased legal and interest expense
as well as an increase in interest income of $338,222.
Legal and accounting expense was $61,805 for the quarter ended September 30,
1996 as compared to $317,749 for the quarter ended September 30, 1995. The
decrease is due to legal expense, incurred as a result of the consent
solicitation initiated by Muzinich & Co., in the quarter ended September 30,
1995.
10
<PAGE> 11
Exploration expense was $1,078,636 for the quarter ended September 30, 1996
compared to $15,009 for the same period ended September 30, 1995. The increase
in exploration expense for the current quarter is the result of $351,570
expended to fund the Company's 30% share of the Piedras Verdes project. In
addition the company expended $714,496 on various African and Indonesian
exploration targets.
AZCO MINING INC. (DELAWARE)
FINANCIAL CONDITION
As of September 30, 1996 the Company had cash and cash equivalents of
$21,803,179 and short term investments of $1,400,687.
The Company believes that for the current fiscal year end June 30, 1997 all
capital requirements will be funded with present cash and cash equivalents.
PART II. OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
NO REPORTED EVENTS THIS PERIOD.
ITEMS 2-5: Not Applicable
11
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ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
1. Statement regarding computation of per share
earnings.
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunder duly authorized.
AZCO MINING, INC.
DATE: NOVEMBER 13, 1996 BY: DAVID C BELING
----------------------------------
DAVID C. BELING
PRESIDENT
DATE: NOVEMBER 13, 1996 BY: RYAN A. MODESTO
----------------------------------
RYAN A. MODESTO
PRINCIPAL ACCOUNTING OFFICER
12
<PAGE> 1
AZCO MINING INC. (DELAWARE) Exhibit 1
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS (UNAUDITED)
<TABLE>
<CAPTION>
THREE
MONTHS ENDED SEPTEMBER 30,
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Net income (loss) applicable to computation $ (1,178,299) $ (740,055)
Weighted average common shares assuming
no dilution 25,512,938 25,512,938
------------ ------------
Stock options and warrants that had a dilutive
effect on net income (based on relationship
of market value to exercise price), assumed
to have been exercised on the first day of
each period (or date of grant, if later), less
the number of shares which could have
been purchased from the proceeds of such
assumed exercise; number of shares using
the weighted average market price for the
assumed purchase of shares described above 199,680 51,785
------------ ------------
Weighted average common shares applicable to
earnings per common and common equivalent
share 25,712,618 25,564,723
------------ ------------
Additional shares using the market close price
at the end of the period for the assumed
purchase of shares described above 185,719 --
Conversion of convertible debentures at the
stated rate assumed to have been converted
at the beginning of the earliest period
reported -- 135,179
------------ ------------
Weighted average common shares assuming
full dilution 25,898,337 25,699,902
============ ============
Earnings per common and common equivalent
share
Net income (loss) $ (0.0458) $ (0.0289)
============ ============
Earnings per common share assuming full dilution:
Net income (loss) $ (0.0455) $ (0.0288)
============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000851726
<NAME> AZCO MINING INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 23,203,866
<SECURITIES> 0
<RECEIVABLES> 239,769
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 23,443,635
<PP&E> 5,508,915
<DEPRECIATION> (136,555)
<TOTAL-ASSETS> 28,815,995
<CURRENT-LIABILITIES> 19,392
<BONDS> 0
0
0
<COMMON> 25,638,575
<OTHER-SE> 3,158,028
<TOTAL-LIABILITY-AND-EQUITY> 28,815,995
<SALES> 0
<TOTAL-REVENUES> 387,009
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,581,908
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,194,899)
<INCOME-TAX> (16,600)
<INCOME-CONTINUING> (1,178,299)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,178,299)
<EPS-PRIMARY> (.046)
<EPS-DILUTED> (.046)
</TABLE>
