<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 DECEMBER 31, 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
____ ____
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 February 10, 1997.
<PAGE> 2
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
<PAGE> 3
AZCO MINING INC. (DELAWARE)
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
ASSETS DECEMBER 31, JUNE 30,
1996 1996
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 20,170,828 $ 24,295,805
Short-term investments 701,092 1,400,687
Refundable income taxes 45,500
Prepaids and other 345,716 43,861
------------ ------------
Total current assets 21,263,136 25,740,353
------------ ------------
Property and equipment:
Furniture and equipment 192,430 188,080
Less accumulated depreciation (145,301) (127,450)
------------ ------------
47,129 60,630
Investment in and advances to Mali project 1,750,000
Advances to Indonesian projects 1,083,055
Restricted cash 51,610 51,610
Deposit 4,000,000 4,000,000
Other assets 7,725 180,525
------------ ------------
$ 28,202,655 $ 30,033,118
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 55,392 $ 58,217
------------ ------------
Total current liabilities 55,392 58,217
------------ ------------
Total liabilities 55,392 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
December 31, 1996 and June 30,1996 51,026 51,026
Additional paid-in capital 25,587,549 25,587,549
Retained earnings 2,508,688 4,336,326
------------ ------------
28,147,263 29,974,901
------------ ------------
Total liabilities and stockholders' equity $ 28,202,655 $ 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 SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
----------------------------- -----------------------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
INCOME:
Interest income $ 359,892 $ 2,501 $ 721,901 $ 26,288
Gain on sale of assets 26,473,086 26,473,086
Other income 25,000
------------ ----------- ------------ -----------
359,892 26,475,587 746,901 26,499,374
------------ ----------- ------------ -----------
EXPENSES:
Salaries 172,724 256,209 361,108 397,243
General and administrative 282,016 161,672 452,962 336,818
Exploration 555,259 38,822 1,633,895 53,831
Accounting and legal 68,182 108,202 129,987 425,951
Amortization and depreciation 8,746 14,637 17,852 36,259
Interest expense, net of amount capitalized 82,253 171,173
Financing and acquisitions 40,000 5,000 113,031 9,362
Miscellaneous 2,360 2,360
------------ ----------- ------------ -----------
1,126,927 669,155 2,708,835 1,432,997
------------ ----------- ------------ -----------
INCOME BEFORE INCOME TAXES (767,035) 25,806,432 (1,961,934) 25,066,377
Income Taxes (117,696) 5,550,000 (134,296) 5,550,000
------------ ----------- ------------ -----------
NET INCOME (LOSS) $ (649,339) $20,256,432 $ (1,827,638) $19,516,377
============ =========== ============ ===========
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
NET INCOME (LOSS) $ (0.03) $ 0.79 $ (0.07) $ 0.76
============ =========== ============ ===========
WEIGHTED AVERAGE COMMON SHARES APPLICABLE TO
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE 25,810,480 25,560,820 25,809,420 25,551,177
============ =========== ============ ===========
</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>
SIX MONTHS ENDED
DECEMBER 31,
-------------------------------
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (1,827,638) $ 19,516,377
Adjustments to reconcile net loss to net cash used in operations:
Depreciation and amortization 17,851 23,817
Gain on sale of assets (26,473,086)
Changes in assets and liabilities, net:
Restricted cash (3,920)
Other assets (129,055) 14,713
Deposit (1,500,000)
Accounts payable and accrued liabilities (2,825) (497,444)
Deferred liability (450,000)
Income tax liability/(refund) (45,500) 4,900,000
------------ ------------
Net cash provided by (used in) operating activities (1,987,167) (4,469,543)
------------ ------------
Cash flows from investing activities:
Investment in and advances to Mali property (1,750,000)
Advances to Indonesian projects (1,083,055)
Purchases of furniture and equipment (4,350) 867,075
Development of mineral properties 12,048,096
Acquisition of mineral properties 525,000
Mineral properties sold (12,770,209)
Net proceeds from sale of assets 39,243,295
Investment in Cobre del Mayo (1,145,547)
Proceeds from maturity of investment securities 699,595
------------ ------------
Net cash provided by (used in) investing activities (2,137,810) 38,767,710
------------ ------------
Cash flows from financing and offering activities:
Proceeds from sale of common stock 650,000
Payments of debt (2,540,715)
------------ ------------
(1,890,715)
------------ ------------
Net (decrease) in cash and cash equivalents (4,124,977) 32,407,452
Cash and cash equivalents at beginning of period 24,295,805 1,794,638
------------ ------------
Cash and cash equivalents at end of period $ 20,170,828 $ 34,202,090
============ ============
Cash paid during the period for:
Interest $ 0 $ 230,453
============ ============
</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 $25,587,549 $ 4,336,326 $29,974,901
Net Income (loss) (1,827,638) (1,827,638)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1996 25,512,938 $ 51,026 $25,587,549 $ 2,508,688 $28,147,263
=========== =========== =========== =========== ===========
</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 March 1995, the Financial Accounting Standards Board issued Financial
Accounting Standard No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of ("FAS 121"), which defines
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill related to those assets to be held and
used and for long-lived assets and certain identifiable intangibles to be
disposed of. This Statement is effective for financial statements for fiscal
years beginning after December 15, 1995. The Company does not believe that this
Statement will have a material impact on the Company's financial condition or
results of operations.
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 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"),
7
<PAGE> 8
AZCO MINING INC. (DELAWARE)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
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 (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 listed company. Upon fulfillment of conditions precedent to
Azco's participation, Azco has committed to purchase 4,800,000 shares of the
listed company at a price of ($0.25) (U.S.) 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 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 December 31, 1996 the Company provided the Mali Project
$97,677 for operating costs for a total of $307,877 for the current fiscal year.
The operating costs are included in exploration costs in the accompanying
statement of operations. In addition, as of December 31, 1996, the Company had
advanced to the Mali Project $600,000 for land acquisition costs and $1,150,000
for exploration equipment.
NOTE 4. INDONESIAN PROJECTS
During the quarter ended December 31, 1996 the Company deposited $421,555 with
the Indonesian Ministry of Mines as security for a Contract of Work on two
additional mineral concessions. Azco has a total of $1,083,055 deposited with
the Indonesian Ministry of Mines for the purpose of security for Contracts of
Work on mineral concessions covering 204,973 hectares.
NOTE 5. REFUNDABLE INCOME TAXES
The Company's federal taxable loss for the six months ended December 31, 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 six months ended
December 31, 1996 includes an income tax credit of $45,500. 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.
8
<PAGE> 9
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 Corporation
("Phelps Dodge") for a gross purchase price of $40 million (US).
The Company is currently evaluating a number of potential acquisitions in the
mining industry via merger, joint venture or purchase.
SIX MONTHS ENDED DECEMBER 31, 1996 COMPARED TO SIx MONTHS ENDED DECEMBER 31,
1995.
The net loss for the six month period ended December 31, 1996 was $1,827,638
compared to a net gain of $19,516,377 for the same period ended December 31,
1995. 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.
Legal and accounting expense was $129,987 for the sixth month period ended
December 31, 1996 as compared to $425,951 for the same period ended December 31,
1995. The decrease is due to legal expense, incurred as a result of the consent
solicitation initiated by Muzinich & Co., in the six month period ended December
31, 1995.
General and administrative expense was $452,962 for the six month period ended
December 31, 1996 as compared to $336,818 for the same period ended December 31,
1995. This increase was the result of increased activity by the Company in the
areas of investor relations and travel during the six month period.
Exploration expense was $1,633,895 for the six month period ended December 31,
1996 compared to $53,831 for the same period ended December 30, 1995. The
increase in exploration expense for 1996 was the result of $553,920 expended to
fund the Company's 30% share of the Piedras Verdes project. In addition the
Company expended $1,079,975 on various African and Indonesian exploration
targets.
9
<PAGE> 10
AZCO MINING INC. (DELAWARE)
THREE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO THREE MONTHS ENDED
DECEMBER 31, 1995.
The net loss for the three month period ended December 31, 1996 was $649,339
compared to a net gain of $20,256,432 for the same period ended December 31,
1995. 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.
Salaries expense was $172,724 for the quarter ended December 31, 1996 compared
to $256,209 for the quarter ended December 31, 1995. The decrease was due to
severance payments incurred in the quarter ended December 31, 1995.
General and administrative expense was $282,016 for the quarter ended December
31, 1996 compared to $161,672 for the quarter ended December 31, 1995. The
increase was the result of increased activity by the Company in the area of
investor relations and travel during the quarter ended December 31, 1996.
Exploration expense was $555,259 for the quarter ended December 31, 1996
compared to $38,822 for the same period ended December 30, 1995. The increase in
exploration expense for the current quarter was the result of $202,350 expended
to fund the Company's 30% share of the Piedras Verdes project. In addition the
Company expended $352,909 on various African and Indonesian exploration targets.
FINANCIAL CONDITION
As of December 31, 1996 the Company had cash and cash equivalents of $20,170,828
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.
10
<PAGE> 11
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.
AZCO MINING, INC.
DATE: FEBRUARY 13, 1996 BY: DAVID C BELING
__________________________ __________________________________
DAVID C. BELING
PRESIDENT
DATE: FEBRUARY 13, 1996 BY: RYAN A. MODESTO
__________________________ __________________________________
RYAN A. MODESTO
PRINCIPAL ACCOUNTING OFFICER
11
<PAGE> 1
AZCO MINING INC. (DELAWARE) Exhibit 1
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS (UNAUDITED)
<TABLE>
<CAPTION>
THREE SIX
MONTHS ENDED DECEMBER 31, MONTHS ENDED DECEMBER 31,
---------------------------- ----------------------------
1996 1995 1996 1995
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Net income (loss) applicable to computation $ (649,339) $20,256,432 $ (1,827,638) $19,516,377
Weighted average common shares assuming
no dilution 25,512,938 25,512,938 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 297,542 47,882 296,482 38,239
------------ ----------- ------------ -----------
Weighted average common shares applicable to
earnings per common and common equivalent
share 25,810,480 25,560,820 25,809,420 25,551,177
------------ ----------- ------------ -----------
Additional shares using the market close price
at the end of the period for the assumed
purchase of shares described above -- -- -- --
Conversion of convertible debentures at the stated rate assumed to
have been converted at the beginning of the earliest period
reported 0 135,179 0 135,179
------------ ----------- ------------ -----------
Weighted average common shares assuming
full dilution 25,810,480 25,695,999 25,809,420 25,686,356
============ =========== ============ ===========
Earnings per common and common equivalent
share
Net income (loss) $ (0.0252) $ 0.7925 $ (0.0708) $ 0.7638
============ =========== ============ ===========
Earnings per common share assuming full dilution:
Net income (loss) $ (0.0252) $ 0.7883 $ (0.0708) $ 0.7598
============ =========== ============ ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000851726
<NAME> AZCO MINING INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 20,871,920
<SECURITIES> 0
<RECEIVABLES> 391,216
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 21,263,136
<PP&E> 7,084,820
<DEPRECIATION> (145,301)
<TOTAL-ASSETS> 28,202,655
<CURRENT-LIABILITIES> 55,392
<BONDS> 0
0
0
<COMMON> 25,638,575
<OTHER-SE> 2,508,688
<TOTAL-LIABILITY-AND-EQUITY> 28,202,655
<SALES> 0
<TOTAL-REVENUES> 746,901
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,708,835
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,961,934)
<INCOME-TAX> (134,296)
<INCOME-CONTINUING> (1,827,638)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,827,638)
<EPS-PRIMARY> (.071)
<EPS-DILUTED> (.071)
</TABLE>
