<PAGE> 1
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 MARCH 31, 1997
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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 25,562,938 shares of the
Company's Common Stock were outstanding as of May 13, 1997.
<PAGE> 2
AZCO MINING INC. (DELAWARE)
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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
</TABLE>
<PAGE> 3
AZCO MINING INC. (DELAWARE)
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1997 1996
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 17,901,298 $ 24,295,805
Short-term investments 701,092 1,400,687
Refundable income taxes 234,775
Prepaids and other 113,929 43,861
------------ ------------
Total current assets 18,951,094 25,740,353
------------ ------------
Property and equipment:
Furniture and equipment 194,428 188,080
Less accumulated depreciation (153,688) (127,450)
------------ ------------
40,740 60,630
Refundable deposits on Indonesian Projects 1,116,983
Restricted cash 51,610 51,610
Deposit 4,000,000 4,000,000
Other assets 7,725 180,525
------------ ------------
$ 24,168,152 $ 30,033,118
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 59,392 $ 58,217
------------ ------------
Total current liabilities 59,392 58,217
------------ ------------
Total liabilities 59,392 58,217
------------ ------------
Commitments and contingencies
Stockholders' equity
Common stock: $.002 par value, 100,000,000 shares authorized:
25,562,938 and 25,512,938 shares issued and outstanding as
of March 31, 1997 and June 30, 1996 respectively 51,126 51,026
Additional paid-in capital 25,624,448 25,587,549
Retained earnings (1,566,814) 4,336,326
------------ ------------
24,108,760 29,974,901
------------ ------------
Total liabilities and stockholders' equity $ 24,168,152 $ 30,033,118
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
AZCO MINING INC. (DELAWARE)
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
-------------------------------- ------------------------------
1997 1996 1997 1996
<S> <C> <C> <C> <C>
INCOME:
Interest income $ 301,512 $ 362,308 $ 1,023,413 $ 388,596
Gain on sale of assets 26,473,086
Other income -- -- 25,000
------------ ------------ ------------ -----------
301,512 362,308 1,048,413 26,861,682
------------ ------------ ------------ -----------
EXPENSES:
Salaries 377,016 188,067 738,124 585,310
General and administrative 271,346 189,057 724,308 525,875
Exploration 3,813,595 130,123 5,447,490 183,954
Accounting and legal 106,956 139,359 236,943 565,310
Amortization and depreciation 8,386 11,782 26,238 48,041
Interest expense, net of amount capitalized 171,173
Financing and acquisitions 40,000 113,031 49,362
Miscellaneous 2,101 4,461
------------ ------------ ------------ -----------
4,577,299 700,489 7,286,134 2,133,486
------------ ------------ ------------ -----------
INCOME BEFORE INCOME TAXES (4,275,787) (338,181) (6,237,721) 24,728,196
Income (loss) taxes (200,284) 165,000 (334,580) 5,715,000
------------ ------------ ------------ -----------
NET INCOME (LOSS) $ (4,075,503) $ (503,181) $ (5,903,141) $19,013,196
============ ============ ============ ===========
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
NET INCOME (LOSS) $ (0.16) $ (0.02) $ (0.23) $ 0.74
============ ============ ============ ===========
WEIGHTED AVERAGE COMMON SHARES APPLICABLE TO
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE 25,918,443 25,540,490 25,819,152 25,581,936
============ ============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
AZCO MINING INC. (DELAWARE)
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
---------------------------------
1997 1996
<S> <C> <C>
Cash flows for operating activities:
Net income (loss) $ (5,903,141) $ 19,013,196
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operations:
Depreciation and amortization 26,238 48,041
Tax benefit of stock options 650,000
Loss on sale of furniture and equipment 4,461
Gain on sale of assets (26,473,086)
Changes in assets and liabilities, net:
Restricted cash 281,477
Other assets 102,732 (17,980)
Accounts payable and accrued liabilities 1,175 (548,232)
Deferred liability (450,000)
Deposit (4,000,000)
Income tax refund (217,775)
Proceeds from sale of mineral properties 39,173,295
------------ ------------
Net cash provided (used in) operating activities (5,990,771) 27,681,172
Cash flow from investing activities:
Advances to Indonesian projects (1,116,983)
Maturity (purchases) of short term investments 699,595 (285,397)
Purchases of furniture and equipment and construction in progress (6,348) (6,245)
Proceeds from sale of furniture and equipment 28,882
Development of mineral properties (416,577)
------------ ------------
Net cash provided by (used in) investing activities (423,736) (679,337)
Cash flow from financing and offering activities:
Proceeds from exercised stock options 20,000
Proceeds from issuance of debt 500,000
Payments of debt (3,040,715)
------------ ------------
Net cash provided by (used in) financing and offering activities 20,000 (2,540,715)
Net increase (decrease) in cash and cash equivalents (6,394,507) 24,461,120
Cash and cash equivalents, beginning of period 24,295,805 1,794,638
------------ ------------
Cash and cash equivalents, end of period $ 17,901,298 $ 26,255,758
============ ============
Cash paid during the period for:
Income taxes $ $ 5,065,000
Interest $ $ 230,453
============ ============
Non cash investing and financing activities:
Tax benefit from stock options $ 17,000 $
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
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 $25,587,548 $ 4,336,327 $29,974,901
Stock options exercised 50,000 100 19,900 20,000
Tax benefit from stock options exercised 17,000 17,000
Net Income (loss) (5,903,141) (5,903,141)
----------- ----------- ----------- ----------- -----------
Balance, March 31, 1997 25,562,938 $ 51,126 $25,624,448 $(1,566,814) $24,108,760
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 7
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 for exploration and
development. The Company will consider properties of merit in almost any
geographical location.
NOTE 2. NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 Earnings Per Share ("FAS 128") which
specifies the computation, presentation, and disclosure requirements for
earnings per share. FAS 128 replaces the presentation of primary and fully
diluted EPS pursuant to Accounting Principals Board Opinion No. 15 Earnings Per
Share ("APB 15") with the presentation of basic and diluted EPS. Basic EPS
excludes dilution and is computed by dividing net income available to common
stockholders by the weighted average number of shares outstanding for the
period. Diluted EPS reflects the potential dilution that would occur if
securities or other contracts to issue common stock were exercised or converted
into common stock. The Company is required to adopt FAS 128 with its December
31, 1997 quarterly financial statements and restate all prior period EPS
information. The Company will continue to account for EPS under APB 15 until
that time. The application of SFAS 128 had no material effect on the amounts
reported in the financial statements for the three and nine month periods ended
March 31, 1997 and 1996.
In October 1995, the Financial Accounting Standards Board also issued Financial
Accounting Standard No. 123, Accounting for Stock-Based Compensation ("FAS
123"), which defines a fair value-based method of accounting for employee stock
options or similar equity instruments. However, it also allows an entity to
continue to account for these plans according to Accounting Principals Board
Opinion No. 25 ("APB 25"), provided pro forma disclosures of net income and
earnings per share are made as if the fair value based method of accounting
defined by FAS 123 had been applied. The
7
<PAGE> 8
AZCO MINING INC. (DELAWARE)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
Company anticipates electing to continue to measure compensation expense related
to employee stock purchase options using APB 25, and will provide pro forma
disclosures as required.
NOTE 3. MALI PROJECT (NORTHWESTERN AFRICA)
On May 9, 1996 AZCO entered into a Memorandum of Agreement (the "Agreement")
with West African Gold and Exploration Ltd. ("WAG"), a British Virgin Islands
company is 50% owned by, Eagle River International Limited ("Eagle River"), a
Vanuatu corporation, and Lion Mining Finance Limited ("Lion Mining"), a United
Kingdom corporation ("WAG Mali"). Eagle River has purchased properties in Mali,
Africa, from Guefest, a Russian mining consortium (the "Mali Project"). Under
terms of the Agreement, the properties are to be transferred to a new Malian
corporation. It is anticipated that shares in this corporation will be
transferred to a new shell company("SANOU"). Upon fulfillment of conditions
precedent to Azco's participation, Azco has committed to purchase 4,800,000
shares of SANOU at a price of $0.25 per share and receive 1,000,000 shares of
the listed company in consideration for 125,000 common shares of Azco to be
issued to Eagle River.
On May 17, 1996, under the 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 the expenditure of
$1,000,000 on development by May 15, 1997 in order to keep the properties in
good standing.
During the quarter ended March 31, 1997 the Company provided the Mali Project
$3,094,802 for operating costs for a total of $3,402,680 for the current fiscal
year. The operating costs are included in exploration costs in the accompanying
statement of operations.
NOTE 4. INDONESIAN PROJECTS
During the quarter ended March 31, 1997, the Company deposited $41,068 with the
Indonesian Ministry of Mines as security for a Contract of Work on an additional
mineral concession. Azco has a total of $1,116,983 deposited with the Indonesian
Ministry of Mines for the purpose of security for Contracts of Work on mineral
concessions covering 209,778 hectares. These deposits will be refunded in full
by the Indonesian Ministry of Mines.
8
<PAGE> 9
AZCO MINING INC. (DELAWARE)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
NOTE 5. REFUNDABLE INCOME TAXES
The Company's federal taxable loss for the nine months ended March 31, 1997
can be carried back to recover federal income taxes paid for the year ended
June 30, 1996. 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.
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 Corporation
("Phelps Dodge") for a gross purchase price of $40 million.
The Company is currently evaluating a number of potential acquisitions in the
mining industry via merger, joint venture or purchase.
NINE MONTHS ENDED MARCH 31, 1997 COMPARED TO NINE MONTHS ENDED MARCH 31, 1996.
The net loss for the nine month period ended March 31, 1997 was $5,903,141
compared to a net gain of $19,013,196 for the same period ended March 31, 1996.
The large variance in the current period net loss and the gain of the same
period last year was the result of the sale of assets to Phelps Dodge.
Salary expense was $738,124 for the nine month period ended March 31, 1997 as
compared to $585,310 for the same period ended March 31, 1996. The increase is
due to a $175,000 severance payment rendered in January 1997 to David C. Beling,
the Company's outgoing president, upon the acceptance of Mr. Beling's
resignation by the Company's Board of Directors.
9
<PAGE> 10
AZCO MINING INC. (DELAWARE)
Legal and accounting expense was $236,943 for the nine month period ended March
31, 1997 as compared to $565,310 for the same period ended March 31, 1996. The
decrease is due to legal expense incurred as a result of the consent
solicitation initiated by Muzinich & Co. in the nine month period ended March
31, 1996.
General and administrative expense was $724,308 for the nine month period ended
March 31, 1997 as compared to $525,875 for the same period ended March 31, 1996.
This increase was the result of increased activity by the Company in the areas
of investor relations and travel.
Exploration expense was $5,447,490 for the nine month period ended December 31,
1996 compared to $183,954 for the same period ended March 31, 1996. The increase
in exploration expense for fiscal 1997 was the result of $763,740 expended to
fund the Company's 30% share of the Piedras Verdes project. In addition the
Company expended $4,683,750 on various African and Indonesian exploration
targets.
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996.
The net loss for the three month period ended March 31, 1997 was $4,075,503
compared to a net loss of $503,181 for the same period ended March 31, 1996. The
increase in the current period's loss was the result of the Company's expanded
exploration programs in Mali and Indonesia.
Salaries expense was $377,016 for the quarter ended March 31, 1997 compared to
$188,067 for the quarter ended March 31, 1996. The increase is due to a $175,000
severance payment rendered in January 1997 to David C. Beling, the Company's
outgoing president, upon the acceptance of Mr. Beling's resignation by the
Company's Board of Directors.
General and administrative expense was $271,346 for the quarter ended March 31,
1997 compared to $189,057 for the quarter ended March 31, 1996. The increase was
the result of increased activity by the Company in the areas of investor
relations and travel.
Exploration expense was $3,813,595 for the quarter ended March 31, 1997 compared
to $130,123 for the same period ended March 31, 1996. The increase in
exploration expense for the current quarter was the result of $209,820 expended
to fund the Company's 30% share of the Piedras Verdes project. In addition, the
Company expended $3,603,775 on various African and Indonesian exploration
targets. Exploration costs of $1,750,000 were expensed during the current
quarter, which had been capitalized during the first six months of the fiscal
period.
10
<PAGE> 11
AZCO MINING INC. (DELAWARE)
FINANCIAL CONDITION
As of March 31, 1997 the Company had cash and cash equivalents of $17,901,298
and short term investments of $701,092.
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
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.
DATE: MAY 15, 1997 BY: ALAN P. LINDSAY
-------------------- ------------------
ALAN P. LINDSAY
CHIEF EXECUTIVE OFFICER
DATE: MAY 15, 1997 BY: RYAN A. MODESTO
-------------------- ------------------
RYAN A. MODESTO
PRINCIPAL ACCOUNTING OFFICER
11
<PAGE> 12
AZCO MINING INC. (DELAWARE) Exhibit 1
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS (UNAUDITED)
<TABLE>
<CAPTION>
THREE NINE
MONTHS ENDED MARCH 31, MONTHS ENDED MARCH 31,
-------------------------------- --------------------------------
1997 1996 1997 1996
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Net income (loss) applicable to computation $ (4,075,503) $ (503,181) $ (5,903,141) $19,013,196
Weighted average common shares assuming
no dilution 25,519,605 25,512,938 25,515,106 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 398,838 27,552 304,046 68,998
------------ ------------ ------------ -----------
Weighted average common shares applicable to
earnings per common and common equivalent
share 25,918,443 25,540,490 25,819,152 25,581,936
============ ============ ============ ===========
Earnings per common and common equivalent
share
Net income (loss) $ (0.16) $ (0.02) $ (0.23) $ 0.74
============ ============ ============ ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000851726
<NAME> AZCO MINING INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 17,901,298
<SECURITIES> 701,092
<RECEIVABLES> 348,704
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 18,951,094
<PP&E> 4,370,746
<DEPRECIATION> (153,688)
<TOTAL-ASSETS> 24,168,152
<CURRENT-LIABILITIES> 59,392
<BONDS> 0
0
0
<COMMON> 25,675,574
<OTHER-SE> (1,566,814)
<TOTAL-LIABILITY-AND-EQUITY> 24,168,152
<SALES> 0
<TOTAL-REVENUES> 1,048,413
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7,286,134
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (6,237,721)
<INCOME-TAX> (334,580)
<INCOME-CONTINUING> (5,903,141)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,903,141)
<EPS-PRIMARY> (.23)
<EPS-DILUTED> (.23)
</TABLE>
