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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, 1999
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
2068 Main Street Suite C, P.O. Box 1895
Ferndale, WA 98248
(360) 380-4467
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: 29,832,121 shares of the
Company's Common Stock were outstanding as of November 11, 1999.
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AZCO MINING INC. (DELAWARE)
Statements contained in the quarterly report that are not historical facts are
forward-looking statements as that term is defined in the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements are subject to
risks and uncertainties, which could cause actual results to differ materially
from the estimated results. Such risks and uncertainties are detailed in the
Company's filings with the Securities and Exchange Commission.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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<S> <C>
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 - 9
</TABLE>
2
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AZCO MINING INC. (DELAWARE)
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
ASSETS SEPT. 30, JUNE 30,
1999 1999
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 10,110,349 $ 12,106,173
Prepaids and other 225,606 95,623
------------ ------------
Total current assets 10,335,955 12,201,796
------------ ------------
Property and equipment:
Mineral properties, plant and equipment 6,306,469 5,076,969
Furniture and equipment 82,693 74,502
------------ ------------
6,389,162 5,151,471
Less accumulated depreciation (61,558) (57,863)
------------ ------------
6,327,604 5,093,608
------------ ------------
Investments and advances 300,588 50,588
Other assets 7,725 7,725
------------ ------------
$ 16,971,872 $ 17,353,717
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 291,300 $ 387,984
------------ ------------
Total current liabilities 291,300 387,984
------------ ------------
Stockholders' equity
Common stock: $.002 par value, 59,664 59,664
100,000,000 shares authorized:
29,832,121 shares outstanding as of
September 30, 1999 and June 30,1999
Additional paid-in capital 28,297,561 28,297,561
Deficit (11,676,653) (11,391,492)
------------ ------------
16,680,572 16,965,733
------------ ------------
Total liabilities and stockholders' equity $ 16,971,872 $ 17,353,717
============ ============
</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,
---------------------------
<S> <C> <C>
1999 1998
INCOME:
Interest income $ 139,629 $ 261,965
Other income (note 4) 227,500 0
----------- -----------
367,129 261,965
----------- -----------
EXPENSES:
Salaries 189,153 195,805
General and administrative 244,791 197,606
Exploration 134,538 570,412
Accounting and legal 80,113 23,220
Amortization and depreciation 3,695 4,081
----------- -----------
652,290 991,124
----------- -----------
NET LOSS $ (285,161) $ (729,159)
=========== ===========
BASIC LOSS PER COMMON SHARE $ (0.01) $ (0.03)
=========== ===========
DILUTED LOSS PER COMMON SHARE $ (0.01) $ (0.03)
=========== ===========
WEIGHTED AVERAGE COMMON SHARES 29,832,121 25,657,133
=========== ===========
</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,
--------------------------------
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (285,161) $ (729,159)
Adjustments to reconcile net loss to net cash
used in operations:
Stock issued for mineral properties 0 234,375
Depreciation and amortization 3,695 4,081
Gain on sale of Mali assets (227,500) 0
Changes in assets and liabilities, net:
Prepaid and other assets (129,983) (25,200)
Accounts payable and accrued liabilities (96,684) (210,192)
----------- -----------
Net cash used for operating activities (735,633) (726,095)
----------- -----------
Cash flows from investing activities:
Purchases of furniture and equipment (8,191) 0
Purchase of mine property, plant and equipment (1,229,500) 0
Proceeds from sale of Mali assets (note 4) 227,500 0
Investments and advances (250,000) (968,491)
----------- -----------
Net cash used for investing activities (1,260,191) (968,491)
----------- -----------
Cash flows from financing activity:
Purchase of treasury stock 0 (168,080)
----------- -----------
Net cash used for financing activity: 0 (168,080)
----------- -----------
Net decrease in cash and cash equivalents (1,995,824) (1,862,666)
Cash and cash equivalents at beginning of period 12,106,173 18,320,882
----------- -----------
Cash and cash equivalents at end of period $10,110,349 $16,458,216
=========== ===========
</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 Additional
Stock Paid-In
Shares Amount Capital Deficit
<S> <C> <C> <C> <C>
Balance, June 30,1999 29,832,121 $59,664 $28,297,561 $(11,391,492)
Net Loss (285,161)
---------- ------- ----------- ------------
Balance September 30, 1999 29,832,121 $59,664 $28,297,561 $(11,676,653)
========== ======= =========== ============
</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) ("AZCO" or the "Company") is a U.S. mining company
with a general business strategy to acquire and develop mineral properties
amenable to low cost production. The Company is currently focused on producing
high quality Muscovite Mica from its 100% owned Black Canyon Mica project
located in Arizona. The Company, with its 30% interest, has established a
strategic partnership with Phelps Dodge Corporation on the Piedras Verdes copper
project located in Sonora, Mexico. The business strategy on large exploration
projects has been focused on establishing partnerships with major companies.
This strategy generally reduces financial risk and offers the opportunity to
participate in major mineral projects.
NOTE 2. BLACK CANYON MICA PROJECT (ARIZONA)
Construction continues on a 10,000 ton per year wet ground mica processing
facility in Glendale, Arizona, approximately 40 miles from the Black Canyon Mica
Mine. Through September 30, 1999 the Company has expended a total of $4,086,463
on the construction of the Glendale processing facility and mine development.
Total capital costs for the Black Canyon Mica project are currently budgeted at
$6,590,058 that includes $770,000 of contract mining to be amortized over the
first year of production.
The Company received final Bureau of Land Management approval of the Mine Plan
of Operations on October 1, 1999. Mining is expected to commence in November and
the Company is expecting to be in production of high quality Muscovite Mica by
the end of 1999.
NOTE 3. PIEDRAS VERDES PROJECT (MEXICO)
The Piedras Verdes property is leased by Cobre del Mayo, S.A. de C.V. ("Cobre
del Mayo"), a Mexican corporation that is owned 30% by AZCO and 70% by Minera
Phelps Dodge Mexico S. de R.L. de C.V. ("MPDM"), a subsidiary of Phelps Dodge
Corporation. The property consists of approximately 640 hectares and is located
in southern Sonora State, Mexico.
7
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AZCO MINING INC. (DELAWARE)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
A pre-feasibility report has been prepared and a $3,600,000 work budget
advancing the project towards a bankable feasibility is currently underway. The
report, assuming a copper price of $1.00/lb., estimates project operating costs
below $0.50 per pound over a 10-year life with annual copper production of 130
million pounds.
NOTE 4. MALI PROJECT (NORTHWESTERN AFRICA)
The Company is currently in the second year of a joint venture with Randgold
Resources Limited ("Randgold") whereby Randgold has the right to earn up to 75%
of the Company's interest in West Africa Gold and Exploration S.A. ("WAG"). To
earn this interest Randgold has agreed, over a 36 month period, to conduct
exploration on the WAG property concessions at a minimum cost of $2 million,
with the aim of establishing whether there is a viable economic gold resource,
as defined in the joint venture agreement, of at least one million ounces.
Thereafter Randgold shall prepare a Bankable Feasibility Study on any such
resource for WAG within a further 12 months in order to earn its interest
therein. The Company realized a gain on sale of assets of $227,500 in
conjunction with the joint venture agreement with Randgold when the exploration
camp assets were purchased.
NOTE 5. ORO ARGENTINA DEBENTURE AGREEMENT
On November 1, 1999 the Company made demand for principal of $1,159,390 and
interest of $159,973 from Oro Argentina Limited in association with the May 22,
1998 debenture agreement between the two companies.
NOTE 6. CALGEM INC. AGREEMENT IN PRINCIPLE
Effective on August 9, 1999 the Company entered into an "Agreement in Principle"
(the "AIP") with each of Thomas Ford and Calgem, Inc. a company wholly owned by
Mr. Ford, of Redondo Beach, California (collectively, "Calgem"), pursuant to
which, and subject to such legal, accounting and tax advice as may be provided
to the Company by its various professional advisors and counsel prior to
closing. Calgem, a company that auctions colored gemstones on television,
therein granted the Company an option to purchase all of the issued and
outstanding shares of Calgem and/or business assets of Calgem in consideration
of, among other matters, the issuance of an aggregate of 250,000 common shares
of the Company to Calgem together with the payment to Calgem of an aggregate of
$150,000 over a period of one year from regulatory approval to the transaction.
8
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AZCO MINING INC. (DELAWARE)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
In accordance with the terms and conditions of the AIP the Company has now
advanced, by way of interim loan (the "Loan"), an aggregate of $250,000 to the
order and direction of Calgem. The Loan, together with interest accruing thereon
at the rate of ten percent per annum, is to be secured by way of a senior fixed
and floating charge on all of the assets of Calgem and, furthermore, and in
accordance with the terms of the AIP, the Loan is to be utilized for the sole
purpose of purchasing gemstones on behalf of, in the name of and as agent only
for the Company and in conjunction with the present business of Calgem which is
contemplated for acquisition by the Company under the AIP.
The Company and Calgem, in accordance with the terms and conditions of the AIP,
are still in the process of attempting to negotiate the terms and conditions of
a proposed formal agreement which is expected to expand upon, and replace in its
entirety, the AIP, together with the formal terms, conditions and security for
the Loan.
NOTE 8. OUTSTANDING OPTIONS
At September 30, 1999 3,514,500 options to purchase shares of the Company's
common stock were outstanding under the Company's Stock Option Plan. These
options are exercisable between $0.48 and $3.00 per common share at varying
dates through 2004.
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 Corporation
for $40 million. All material revenues since the sale have been a result of
interest earned on the proceeds of the sale of assets to Phelps Dodge
Corporation.
The Company is currently focused on the construction of facilities to produce
high quality Muscovite Mica from its 100% owned Black Canyon Mica project
located in Arizona. The Company, with its 30% interest, has established a
strategic partnership with Phelps Dodge Corporation on the Piedras Verdes copper
project located in Sonora, Mexico.
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1998.
The net loss for the three months ended September 30, 1999 was $285,161 compared
to a net loss of $729,159 for the three months ended September 30, 1998. The
decreased net loss is the result of reduced exploration expense in the current
period. The Company realized income of $227,500 from the sale of exploration
camp assets in Mali during the current period.
Exploration expense was $134,538 for the three months ended September 30, 1999
compared to $570,412 for the three months ended September 30, 1998. The decrease
in exploration expense for the current period is the result of decreased
expenditures on the Mali project and on the Company's gemstone initiative.
During the three month period ended September 30, 1999 the Company expended an
additional $1,229,500 on the construction of facilities relating to the Mica
project. Through September 30, 1999 the Company has expended a total of
$4,086,473 on the development of the Mica project.
10
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AZCO MINING INC. (DELAWARE)
FINANCIAL CONDITION
As of September 30, 1999 the Company had cash and cash equivalents of
$10,110,349.
The Company believes that for the current fiscal year ended June 30, 2000 all
capital requirements will be funded with present cash and cash equivalents as
well as anticipated revenues from the Mica project.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
PART II. OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
None.
ITEMS 2-4: NOT Applicable
ITEM 5: OTHER INFORMATION
None.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 - Financial Data Schedule
(b) Reports on Form 8-K
None.
11
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AZCO MINING INC. (DELAWARE)
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: November 12, 1999 BY: /s/ Alan P. Lindsay
------------------ --------------------
Alan P. Lindsay
CEO, President and Chairman
Date: November 12, 1999 BY: /s/ Ryan A. Modesto
------------------ --------------------
Ryan A. Modesto
Vice President of Finance
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 10,110,349
<SECURITIES> 0
<RECEIVABLES> 533,919
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,644,268
<PP&E> 6,389,162
<DEPRECIATION> (61,558)
<TOTAL-ASSETS> 6,971,872
<CURRENT-LIABILITIES> 291,300
<BONDS> 0
0
0
<COMMON> 59,664
<OTHER-SE> 16,620,908
<TOTAL-LIABILITY-AND-EQUITY> 16,971,872
<SALES> 0
<TOTAL-REVENUES> 367,129
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 652,290
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (285,161)
<INCOME-TAX> 0
<INCOME-CONTINUING> (285,161)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (285,161)
<EPS-BASIC> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
