UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from . . . . . . . . . . to . . . . . . . . . . . .
Commission file number 0-20430
AZCO MINING INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 84-1094315
- --------------------------------------------- ------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
7239 N. El Mirage Road
Glendale, Arizona 85307
---------------------------------------
(Address of principal executive offices)
(Zip Code)
(623) 935-0774
----------------------------------------------------
(Registrant's telephone number, including area code)
-------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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.
The Company had 37,573,983 shares of Common Stock outstanding as of
February 12, 2003.
-1-
AZCO MINING INC.
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 7-16
-2-
AZCO MINING INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, JUNE 30,
ASSETS 2002 2002
(UNAUDITED)
Current assets:
Cash and cash equivalents $ 10,971 $ 884,647
Prepaids and other 240,978 179,225
Inventories (Note 2) 1,089,594 1,095,780
-------------- -------------
Total current assets 1,341,543 2,159,652
-------------- -------------
Capital assets (Note 3):
Mineral properties, plant & equipment, net 10,176,175 10,352,872
Capital assets, net 239,966 288,148
-------------- -------------
10,416,141 10,641,020
-------------- -------------
Restricted cash 178,659 190,400
-------------- -------------
Total assets $ 11,936,343 $ 12,991,072
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 603,339 $ 540,768
Notes payable (Note 4) 500,000 443,672
Convertible debenture and option (Note 4) 89,607
Accrued settlement obligation (Note 5) 240,000 586,000
-------------- -------------
1,432,946 1,570,440
Long term liabilities:
Accrued settlement obligation (Note 5) 300,000 444,900
Financing lease liability (Note 4) 2,062,350 1,975,650
Notes payable to related party (Note 4) 663,186 615,068
Other liabilities 98,170 275,127
-------------- -------------
3,123,706 3,310,745
-------------- -------------
Total liabilities 4,556,652 4,881,185
-------------- -------------
Contingencies and commitments (Note 6)
STOCKHOLDERS' EQUITY
Common stock: $.002 par value, 100,000,000 shares
authorized; 35,490,019 shares outstanding as of December 69,909 62,304
31, 2002 and 31,151,121 shares outstanding as of June 30,
2002
Additional paid-in capital 32,567,560 30,951,523
Accumulated deficit (25,257,778) (22,903,940)
-------------- -------------
7,379,691 8,109,887
-------------- -------------
Total liabilities and stockholders' equity $ 11,936,343 $ 12,991,072
============== =============
The accompanying notes are an integral part of these consolidated financial
statements.
-3-
AZCO MINING INC.
CONSOLIDATED STATEMENTS OF
OPERATIONS (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
2002 2001 2002 2001
------------ ------------ ------------ ------------
SALES $ 10,363 $ 24,800 $ 30,825 $ 24,800
OPERATING COSTS AND EXPENSES
Production costs 227,607 221,448 764,641 466,365
General and administrative 280,086 238,659 431,812 446,081
Exploration 13,832 35,720 29,059 83,586
Amortization & depreciation 37,008 37,028 114,352 69,758
Financing consulting fees 41,349 - 432,349 -
Accretion of asset retirement obligation
(Note 6) 1,250 - 2,500 -
------------ ------------ ------------ ------------
Total operating costs and expenses 601,132 532,855 1,774,713 1,065,790
------------ ------------ ------------ ------------
OPERATING LOSS $ (590,769) $ (508,055) $(1,743,888) $(1,040,990)
OTHER INCOME/EXPENSE:
Interest expense (204,310) (189,896) (480,146) (211,326)
Interest income 215 1,110 3,210 1,913
Miscellaneous expense, net (84,109) - (84,109) -
------------ ------------ ------------ ------------
(288,204) (188,786) (561,045) (209,413)
------------ ------------ ------------ ------------
LOSS BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE (878,973) (696,841) (2,304,933) (1,250,403)
Cumulative effect of accounting change, - - 13,902 -
net of taxes of $0 (Note 8)
------------ ------------ ------------ ------------
NET LOSS $ (878,973) $ (696,841) $(2,318,835) $(1,250,403)
============ ============ ============ ============
Basic loss per share before cumulative (0.03) (0.02) (0.07) (0.04)
effect of accounting change
Cumulative effect of accounting change - - - -
------------ ------------ ------------ ------------
Basic loss per share $ (0.03) $ (0.02) $ (0.07) $ (0.04)
============ ============ ============ ============
Diluted loss per share before cumulative (0.03) (0.02) (0.07) (0.04)
effect of accounting change
Cumulative effect of accounting change - - - -
------------ ------------ ------------ ------------
Diluted loss per common share $ (0.03) $ (0.02) $ (0.07) $ (0.04)
============ ============ ============ ============
WEIGHTED AVERAGE COMMON SHARES 33,263,460 30,050,621 32,570,543 30,050,621
============ ============ ============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
-4-
AZCO MINING INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED
DECEMBER 31,
2002 2001
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,318,835) $(1,250,403)
Adjustments to reconcile net loss to net cash
used in operations:
Depreciation and amortization 114,352 69,758
Accretion of asset retirement obligation 2,500
Stock compensation and other
non-cash expenses 363,000
Amortization of debt discount 203,683 150,269
Mark to market adjustments 84,109
Cumulative effect of accounting change 13,902
Changes in assets and liabilities, net:
Prepaid and other (109,820) 39,364
Inventories 6,186 (18,631)
Restricted cash 11,741
Accounts payable and accrued liabilities 389,772 23,440
Accrued settlement obligation (184,900)
------------ ------------
Net cash used in operating activities (1,424,310) (986,203)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 665,000 811,000
Payments on notes payable (100,000) -
Proceeds from stock sale - 164,250
Payments on capital lease obligations (34,766) (21,502)
Proceeds from exercise of options 20,400 -
------------ ------------
Net cash provided by financing activities: 550,634 953,748
------------ ------------
Net decrease in cash and cash equivalents (873,676) (32,455)
Cash and cash equivalents at beginning of period 884,647 39,920
------------ ------------
Cash and cash equivalents at end of period $ 10,971 $ 7,465
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
-5-
AZCO MINING INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
COMMON
STOCK ADDITIONAL
PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
Balance June 30, 2002 31,152,121 $62,304 $30,951,523 $(22,903,940) $ 8,109,887
Dividend to shareholders
(Note 4) 35,003 (35,003) -
Common shares issued
(Note 7) 4,307,898 7,545 1,560,694 1,568,239
Exercise of options 30,000 60 20,340 20,400
Net loss (2,318,835) (2,318,835)
---------- ------- ----------- ------------- ------------
Balance December 31,
2002 35,490,019 $69,909 $32,567,560 $(25,257,778) $ 7,379,691
========== ======= =========== ============= ============
The accompanying notes are an integral part of these consolidated financial
statements.
-6-
AZCO MINING INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. BASIS OF PRESENTATION AND GOING CONCERN
- -------------------------------------------------
The unaudited consolidated financial information presented herein has been
prepared in accordance with the instructions to Form 10-Q and does not include
all of the information and note disclosures required by generally accepted
accounting principles. Therefore, this information should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Azco Mining Inc. ("Azco" or "the Company") Annual Report on Form
10-K for the fiscal year ended June 30, 2002. This interim financial
information reflects all adjustments that are, in the opinion of management,
necessary to a fair statement of the results for the interim period.
The consolidated balance sheet as of June 30, 2002 included herein has been
derived from the audited consolidated balance sheet included in the Company's
annual report on Form 10-K for the year ended June 30, 2002, but does not
include all the disclosures required by generally accepted accounting
principals.
Azco Mining Inc. is a mining company incorporated in Delaware. Its general
business strategy is to acquire, explore and develop mineral properties. The
Company's principal assets are the 100% owned Black Canyon Mica Project in
Arizona and an interest in the Piedras Verdes Project in Sonora, Mexico. The
Company is currently focused on producing high quality muscovite mica and
feldspathic sand that is produced as a by-product of mica.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue to operate as a going concern. The Company has
suffered recurring losses from operations and the Company will require
additional funds to continue operations. On November 12, 2002, the Company's
Registration Statement on Form S-1, filed with the Securities and Exchange
Commission in regard to an Equity Line of Credit Agreement, became effective.
Management is actively seeking additional financing; however, there is no
assurance that these efforts will be successful or on terms acceptable to the
Company. These matters raise substantial doubt about the Company's ability to
continue as a going concern. These consolidated financial statements do not
include the adjustments that would be necessary, including a provision for
impairment of plant and equipment which could be material, should the Company be
unable to continue as a going concern.
During the first and second quarters of fiscal 2003, the Company had been in
discussions with a lender for a $15 million financing in the form of equity
and/or debt which would have been used to expand and carry-out certain upgrades
to its processing facilities and to retire existing high interest rate debt. In
late December, the potential lender withdrew from these discussions.
Accordingly, the Company has initiated further efforts through its financial
consultants to actively seek alternate financing arrangements, including the
possibility of selling a substantial interest in the mica
-7-
AZCO MINING INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
project. In this connection, discussions are ensuing with three potential
sources regarding a joint venture arrangement and several other sources have
been contacted.
The Company will need a minimum of $3 million of additional funding during the
remainder of calendar 2003 to support production and marketing of our products.
These requirements include costs for general operating purposes including
planned production, payments due on existing debt obligations (including
interest costs) and costs associated with the generation of plastic pellets. In
order to achieve a level of planned production necessary to achieve continued
operations, the Company will likely require additional funding over and above
the $3 million during 2003.
The Company anticipates the expenditure of $3.5 million on additional capital
improvements. These expenses will cover enhancements to the sand plant
facilities including additional rare earth magnets and bagging equipment
enabling it to sell a much larger portion of its sand production into the stucco
and high-end sand markets.
The Company has several mica products inventoried and continues its development
of mica filled plastic pellets in conjunction with three manufacturers of
reinforced plastics. Azco has recently initiated production on an initial
2,000-pound order for its mica filled polyethylene masterbatch. The Company
anticipates that its current inventory of mica is sufficient to support its
continued plastics product development until mica and sand production is
resumed.
There is no assurance that the Company can secure financing by way of a joint
venture or otherwise, and if at all, on terms acceptable to the Company. Should
such financing not be arranged within the next few months, then it is likely
that the Company will need to reassess the carrying value of its production
assets (which are currently recorded at historical cost less any related
depreciation) as the likelihood of recovering their value would be diminished
and a write-down of these asserts may be appropriate.
-8-
AZCO MINING INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
NOTE 2. INVENTORIES
- --------------------
DECEMBER 31, JUNE 30,
2002 2002
------------- ----------
Broken ore $ 634,351 $ 725,202
Mica work-in-process 357,443 277,378
Mica finished goods 93,200 93,200
Sand finished goods 4,600 0
------------- ----------
Total $ 1,089,594 $1,095,780
============= ===========
NOTE 3. CAPITAL ASSETS
- -----------------------
Detail of mica project mineral properties, plant and equipment is as follows:
DECEMBER 31, JUNE 30,
2002 2002
-------------- ------------
Acquisition of mineral properties $ 2,219,996 $ 2,219,996
Mining and processing plant and equipment 7,122,679 7,122,679
Development costs 943,704 1,104,966
Accumulated amortization (110,204) (94,769)
-------------- ------------
Total $ 10,176,175 $10,352,872
-------------- ------------
Detail of other capital assets is as follows:
DECEMBER 31, JUNE 30,
2002 2002
-------------- ----------
Office building $ 152,997 $ 152,997
Furniture and equipment 381,383 381,383
Vehicles 81,146 81,146
Accumulated depreciation (375,560) (327,378)
-------------- ----------
Total $ 239,966 $ 288,148
-------------- ----------
-9-
AZCO MINING INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
NOTE 4. NOTES PAYABLE, WARRANTS AND OTHER FINANCING
- ----------------------------------------------------
In December 2002, the Company issued a $250,000 note to Cornell Capital Partners
LP ("Cornell") in conjunction with the Equity Line of Credit. A 5% discount was
deducted resulting in net proceeds to the Company of $237,500. The note was
paid off before the due date of February 2003 by issuing 864,436 shares in the
second quarter and an additional 758,150 shares during the third quarter.
In January 2003 the Company received an additional $226,983 from the sale of a
$250,000 note to Cornell in conjunction with the Equity Line of Credit. Legal
fees of $10,517 and a 5% discount of $12,500 were deducted from the proceeds.
The note accrues interest at 24% per year and is due March 17, 2003. Interest
is due only if the note is not paid in full by the due date.
In October 2002, Azco issued a $500,000 convertible debenture to Cornell. The
debenture accrues interest at 6% per year and is due October 8, 2004. The
Company has not accrued interest as it is only due if the debenture is not
converted by the due date. The debenture is convertible into Azco common stock
based upon the average of the three lowest closing prices of Azco's common stock
for the five trading days immediately preceding the conversion date. At the
time of issuance, the Company determined that the conversion option qualified as
a derivative under Statement of Financial Accounting Standards (SFAS) No. 133.
The amount associated with the conversion option has been classified as a
derivative and recorded at its fair value (as determined through a discounted
cash flow model) of $14,803 at December 31, 2002. As of December 31, 2002,
$400,000 of the debentures had been converted into 1,920,373 shares of Azco
common stock. In January 2003, the remaining $100,000 was converted into an
additional 861,377 shares of Azco common stock.
In January 2002, Azco completed a financing lease transaction that yielded the
Company net proceeds of $2,842,500. Under the terms of the transaction, the
Company sold a 40 percent ownership in its mica processing facility located in
Glendale, Arizona. Subsequently, Azco leased the property back for an initial
period of 10 years, with an option to repurchase the 40 percent ownership for
120 percent of the purchase price after the second year. The repurchase price of
the property increases by 10 percent of the purchase price each year the option
remains unexercised up to a maximum of 150 percent of the purchase price.
Payments for the first 6 months under the lease agreement are $30,000, $37,500
for the second six months and $45,000 thereafter.
-10-
AZCO MINING INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
In connection with this transaction, the Company issued a warrant to purchase
2,550,000 shares of the Company's common stock at $.50 per share. This warrant
vested in January 2002 and is exercisable through January 2007.
The notes payable, financing lease and related warrants have been reflected in
the accompanying balance sheet at their relative fair values. The discount
associated with the notes payable and financing lease is being amortized over
the term of the respective instrument using an effective interest method.
In December 2001, the Company received a one-year $100,000 loan, bearing
interest at 12% per annum, from Luis Barrenachea, a shareholder. In connection
with this loan, the Company issued a warrant to purchase 125,000 shares of the
Company's common stock at $.40 per share. In December 2002, the terms of the
loan and the warrants were extended an additional year through December 2003.
The Company's policy is to account for the increase in the value of the warrant
(resulting from an extension of the exercise date) as a dividend to a
shareholder. Accordingly, an additional $7,188 has been reflected as an
increase to accumulated deficit and additional paid-in-capital in the December
31, 2002 Consolidated Statement of Stockholders' Equity.
In October 2001, the Company received a one-year $100,000 loan, bearing interest
at 12% per annum, from Mr. Barrenachea. In connection with this loan, the
Company issued a warrant to purchase 125,000 shares of the Company's common
stock at $.40 per share. In October 2002, the loan and the warrants were
extended an additional year through October 2003. The Company's policy is to
account for the increase in the value of the warrant (resulting from an
extension of the exercise date) as a dividend to a shareholder. Accordingly, an
additional $11,617 has been reflected as an increase to accumulated deficit and
additional paid-in-capital in the December 31, 2002 Consolidated Statement of
Stockholders' Equity.
In September 2001, the Company received a one-year $200,000 loan, bearing
interest at 12% per annum, from Mr. Barrenachea. In connection with this loan,
the Company issued a warrant to purchase 125,000 shares of the Company's common
stock at $.40 per share. In September 2002 the terms of the loan and the
warrants were extended an additional year through September 2003. The Company's
policy is to account for the increase in the value of the warrant (resulting
from an extension of the exercise date) as a dividend to a shareholder.
Accordingly, an additional $16,198 has been reflected as an increase to
accumulated deficit and additional paid-in-capital in the December 31, 2002
Consolidated Statement of Stockholders' Equity.
In October 2001, the Company restructured its $800,000 loan agreement with
Lawrence Olson the Company's Chairman, CEO and President. Mr. Olson agreed to
extend the note payable an additional year to March 15, 2003 in consideration
for 700,000 warrants
-11-
AZCO MINING INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
to purchase the Company's stock at an exercise price of $0.40. The warrants
vested in December 2001 and shall expire in October 2003. In addition the
annual interest rate was adjusted from prime plus 1% to 12%. In June 2002, the
loan was extended an additional year and Azco entered into a security agreement
with Mr. Olson, whereby Azco's assets secured the loan. The Company's assets
also secure the lease payments due on the financing lease as well as the
payments due under the settlement agreement. The loan is currently due in March
2004.
The fair value of the warrants issued has been determined by the Company using
the Black Scholes valuation model and has been reflected as additional-paid in
capital.
Notes payable at December 31, 2002 consisted of the following:
==============================================================================
Principal Unamortized Discount
- ------------------------------------------------------------------------------
24% note, due February 2003 $ 100,000 $ -
12% note, due September 2003 200,000 -
12% note, due October 2003 100,000 -
12% note, due December 2003 100,000 -
12% note, due March 2004 800,000 136,814
---------------------------------
Total $1,300,000 $ 136,814
---------------------------------
6% convertible debenture, due October 2004 $ 100,000 $ 25,196
Financing lease liability, due January 2011 $2,062,350 $ 2,437,650
==============================================================================
NOTE 5. SETTLEMENT OBLIGATION
- ------------------------------
In July 2002, Azco entered into settlement agreements regarding fees payable
under terminated management agreements with two of its former officers and
directors, Alan P. Lindsay and Anthony R. Harvey. Azco agreed to pay each former
director the sum of $350,000. The amount is to be paid in an initial payment of
$20,000 each, due upon the signing of the Agreement, and in monthly payments of
$10,000 thereafter, with the entire balance due within 24 months of the date
this Agreement is signed. In addition, Azco paid $24,898 representing one half
of the legal fees incurred by the former directors. Under the terms of the
agreement, Azco also provided Harvey and Lindsay each with 150,000 shares of
common stock, which shares shall be unrestricted as allowed pursuant to Rule S-8
of the Rules of the Securities and Exchange Commission. As of December 31,
2002, $540,000 remained outstanding under the agreement.
-12-
AZCO MINING INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
NOTE 6. COMMITMENTS AND CONTINGENCIES
- --------------------------------------
On January 22, 1999, the trustee (Petitioner) in bankruptcy proceedings against
Eagle River served a petition, in the Quebec Superior Court, District of Hull,
upon the Company in order to recover assets from the Company. The Petitioner
alleges that, through the Company's involvement with Eagle River in the Mali
Project, the Company is guilty of contractual breaches in excess of $4,300,000.
No accrual has been made for this claim because the Company does not believe it
is probable that the case will be determined against the Company.
On June 25, 2002 Azco received a demand for arbitration filed by iCapital
Corporation seeking $144,000 in relief due to failure to pay under a June 26,
2001 Financial Consulting Agreement. It is the position of Azco and its counsel
that the contract is void and it is unlikely that iCapital will prevail on their
claim.
NOTE 7. CAPITAL STOCK AND OUTSTANDING OPTIONS
- ----------------------------------------------
In November 2002, the Company's Registration Statement on Form S-1, filed with
the Securities and Exchange Commission in regard to the Equity Line of Credit,
became effective. The Company is now eligible to, at its discretion,
periodically issue and sell shares of common stock to Cornell for up to a total
purchase price of $5 million for a period of up to two years after November 12,
2002, whichever comes first. For each share of common stock purchased under the
Equity Line of Credit, Cornell will pay 92.5% of the lowest closing bid price of
our common stock on the American Stock Exchange for the five trading days
immediately following the notice date. The amount of each advance is subject to
a maximum of $500,000 per advance, with a minimum of five trading days between
advances. In addition, Cornell will retain 5% of each advance under the Equity
Line of Credit. Cornell received 237,624 shares of common stock as a one-time
commitment fee, which was equal to $240,000 based on a closing bid of $1.01 on
June 19, 2002.
On December 18, 2002, the Company issued 10,000 shares for legal services
rendered in conjunction with an August 2002 filing on Form S-8 in connection
with the settlement agreement discussed in Note 5. The value of the shares
issued was $10,200 recorded as general and administrative expense in fiscal
2002.
Options to purchase 1,234,500 and 2,815,500 shares of the Company's common stock
were outstanding under the Company's Stock Option Plan at December 31, 2002 and
2001, respectively. The impact of these options has been excluded from the
diluted earnings per share calculation, as their effect would be anti-dilutive.
These options are exercisable between $0.44 and $1.20 per common share at
varying dates through 2007.
-13-
AZCO MINING INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
NOTE 8. GUARANTEES
- -------------------
In November 2002, the Financial Accounting Statements Board (FASB) issued FASB
Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others" (FIN 45).
FIN 45 requires that upon issuance of certain guarantees, a guarantor must
recognize a liability for the fair value of an obligation assumed under the
guarantee. FIN 45 also requires significant new disclosures, in both interim
and annual financial statements, by a guarantor, about obligations associated
with guarantees issued. FIN 45 disclosure requirements are effective for Azco's
fiscal quarter ended December 31, 2002 and the initial recognition and
measurement provisions are applicable on a prospective basis to guarantees
issued or modified after December 31, 2002.
Azco, as the guarantor, has a sole guarantee related to the written put option
related to the Company's convertible debenture where the put option has been
accounted for under SFAS 133. This guarantee is characterized by FIN 45 as a
market value/derivative guarantee.
The following table discloses Azco's obligation under guarantees as of December
31, 2002:
- ----------------------- ------------------------- ---------------- -----------
Maximum Potential Amount Liability
Of Future Payments Carrying Amount Collateral
- ----------------------- ------------------------- ---------------- -----------
Market value guarantees $ 100,000 $ 14,803 $ -
- ----------------------- ------------------------- ---------------- -----------
NOTE 9. ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS
- -----------------------------------------------------
On July 1, 2002, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 143, "Accounting for Asset Retirement Obligations"
(SFAS No. 143). SFAS No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs estimated to aggregate approximately $250,000.
Specifically, the Statement requires that retirement obligations be recognized
when they are incurred and displayed as liabilities with the initial measurement
being at the present value of estimated third party costs. In addition, the
asset retirement cost is capitalized as part of the asset's carrying value and
subsequently allocated to expense over the assets useful life.
-14-
AZCO MINING INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
The asset retirement costs associated with the Mica project consist of
reclamation of disturbed property as well as the disposal and dismantling of
related property and equipment. The Company previously accounted for these
costs through periodic charges to earnings using the units-of-production method.
The change in accounting resulted in a cumulative effect charge to earnings
during the period of $13,902.
As of December 31, 2002, the Company maintained the following restricted assets
associated with reclamation costs for the Black Canyon Mica property pursuant to
regulatory requirements:
- $50,000 held on deposit for the Arizona State Treasurer in a one-year
automatically renewable short-term investment; and
- $128,659 held as collateral against an irrevocable letter of credit of
the same amount to the U.S. Bureau of Land Management, which renewed
October 9, 2002 for an additional year.
A roll forward of the Company's asset retirement obligation through December 31,
2002 is as follows:
Initial liability recognition, July 1, 2002 $45,309
Accretion 2,500
-------
Balance, December 31, 2002 $47,809
-------
NOTE 10. NEW PRONOUNCEMENTS
- ------------------------------
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" (SFAS No. 144). SFAS No. 144 replaces certain
previously issued accounting guidance, develops a single accounting model for
long-lived assets other than goodwill and indefinite-lived intangibles, and
broadens the framework previously established for assets to be disposed of by
sale (whether previously held or newly acquired). This Statement was effective
as of the beginning of fiscal 2003 and did not have a material impact on the
Company's financial position, results of operations or cash flows.
-15-
AZCO MINING INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
In April 2002, the FASB issued SFAS No.145, "Rescission of FASB Statements No.
4, 44, and 64, Amendments of FASB Statement No. 13, and Technical Corrections"
(SFAS No.145). This Statement rescinds SFAS No. 4, SFAS No. 64 and further
clarifies debt extinguishments, which classify as extraordinary. Additionally,
SFAS No. 145 amends SFAS No. 13 in order to clarify the accounting for the
treatment of lease modifications. Provisions of this Statement are effective for
fiscal year 2003 and the pronouncement did not have a material impact on its
financial position, results of operations or cash flows.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities" (SFAS No. 146). SFAS No. 146 replaces
Emerging Task Force Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit and Activity (including Certain
Costs Incurred in a Restructuring)". The primary difference from existing
guidance is that SFAS No. 146 requires the recognition of exit cost at fair
value when a liability is incurred, versus at the date of the exit plan
approval. This Statement is effective for exit and disposal activities of the
Company that are initiated after December 31, 2002. The Company has not
historically had significant exit or disposal activities.
In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of FAS 123". SFAS No.
148 provides alternative methods of transition for voluntary change to the fair
value based method of accounting for stock-based employee compensation. In
addition, the Statement amends the disclosure requirements of SFAS No. 123 to
require prominent disclosures in both interim and annual financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. Azco continues to apply the
intrinsic value method of accounting for stock options and will provide the
enhanced disclosure requirements in its third quarter Form 10-Q.
In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.
FIN 46 provides guidance in determining (1) whether consolidation is required
under the "controlling financial interest" model of Accounting Research Bulletin
No. 51 (ARB 51), Consolidated Financial Statements, or (b) other existing
authoritative guidance, or, alternatively, (2) whether the variable-interest
model under FIN 46 should be used to account for existing and new entities.
Azco has considered the guidance in FIN 46 and has determined that it did not
have a material effect on its financial position, results of operations cash
flows or note disclosures thereto.
-16-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations contains statements concerning trends and other forward-looking
information, within the meaning of the federal securities laws. Such
forward-looking statements are subject to uncertainties and factors relating to
our operations and business environment, all of which are difficult to predict
and many of which are beyond our control. We believe that the following factors,
among others, could affect our future performance and cause actual results to
differ materially from those expressed or implied by forward-looking statements
made by us or on our behalf: (1) our lack of necessary financial resources to
complete development of the mica product and by-products, successfully market
our mica product and fund our other capital commitments; (2) the lack of
commercial acceptance of our mica product or by-products; (3) changes in
environmental laws; (4) problems regarding availability of materials and
equipment; (5) failure of the mica project equipment to process or operate in
accordance with specifications, including expected throughput, which could
prevent the project from producing commercially viable output; and (6)
unfavorable weather conditions, in particular, high water levels in the Agua
Fria river which could temporarily limit access to the Black Canyon mica mine
site.
References to "we", "us", "our", and Azco Mining, refer to Azco Mining Inc. and
its subsidiaries, on a consolidated basis, unless the context otherwise
requires.
GENERAL
- -------
We were formed in 1988. In December 1995, we sold our Sanchez copper project
and a 70% interest in our Mexican copper project, the Piedras Verdes Project, to
Phelps Dodge Corporation for $40 million. Principal income since the sale has
been a result of interest earned on the proceeds of the sale of these assets.
We are currently focused on the start up of our facilities to a consistent
production capacity designed to produce high quality muscovite mica and
feldspathic sand from our 100% owned Black Canyon mica project located near
Phoenix, Arizona. The Company is seeking financing that will be necessary to
continue operations.
RESULTS OF OPERATIONS
- -----------------------
THREE MONTHS ENDED DECEMBER 31, 2002 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
2001
The net loss for the three months ended December 31, 2002 was $878,973 ($0.03
per share) compared to a net loss of $ 696,841 ($0.02 per share) for the three
months ended December 31, 2001. The increased net loss is the result of
increased miscellaneous and financing expenses in the current period.
-17-
Miscellaneous expense was $84,109 for the three months ended December 31, 2002
compared to $0 for the three months ended December 31, 2001. The increase in
miscellaneous expense reflects mark to market adjustments associated with the
conversion option.
Financial consulting fees were $41,349 for the three months ended December 31,
2002 compared to $0 for the three months ended December 31, 2001. The increase
in financial consulting fees is due to continued efforts to find a suitable
financing arrangement for the Company.
SIX MONTHS ENDED DECEMBER 31, 2002 COMPARED TO SIX MONTHS ENDED DECEMBER 31,
2001
The net loss for the six months ended December 31, 2002 was $2,318,835 ($0.07
per share) compared to a net loss of $ 1,250,403 ($0.04 per share) for the six
months ended December 31, 2001. The increased net loss is the result of
increased production costs, general and administrative and financing expenses in
the current period.
Production expense for the six months ended December 31 2002 was $764,641
compared to $466,365 for the six months ended December 31, 2001. Increased
expenses in the current period are due to the initial production for sale of
feldspathic sand.
Exploration expense was $29,059 for the six months ended December 31, 2002
compared to $83,586 for the six months ended December 31, 2001. The decrease in
exploration expense is due to the fact that the Company is currently not funding
its share of the costs associated with Cobre del Mayo and has opted for its
interest to be diluted until suitable financing can be arranged.
Financial consulting fees were $432,349 for the six months ended December 31,
2002 compared to $0 for the six months ended December 31, 2001, and reflects
$363,000 for the value of shares provided to a financial consultant of the
Company as well as current period efforts to find suitable financing
arrangements for the Company.
Interest expense was $480,146 for the six months ended December 31 2002 compared
to $211,326 for the six months ended December 31, 2001. The increase is due to
the amortization of the discount associated with the notes payable and financing
lease agreement.
FINANCIAL CONDITION
- --------------------
As of December 31 2002, we had unrestricted cash of $10,971.
Net cash used in operating activities was $1,424,310 for the first six months of
fiscal 2002 as compared to $986,203 in the same period of the prior year. The
increase was due primarily to payments for the settlement obligation with former
officers combined with the increase in production activities undertaken this
quarter partially offset by an increase in accounts payable due to lower cash
levels.
-18-
Net cash flows provided by financing activities were $550,634 for the first six
months of fiscal 2002 as compared to $953,748 in the same period of the prior
year. The variance from the same period of the prior year is the result of a
reduction in the proceeds from notes issued.
The Company has suffered recurring losses from operations and assuming it will
continue to operate as a going concern it will require additional funds to
continue operations. On November 4, 2002 the Company temporarily ceased
production at its Black Canyon Mine crushing and concentrating facilities due to
cash constraints. Production will start again once adequate financing has been
raised. On November 12, 2002, the Company's Form S-1 Registration Statement,
filed with the Securities and Exchange Commission in regard to an Equity Line of
Credit Agreement, became effective. The Company is now eligible to, at our
discretion, periodically issue and sell to Cornell Capital Partners shares of
common stock for a total purchase price of $5 million for a period of up to two
years after November 12, 2002, whichever comes first. The Company has raised a
total of $1,000,000 through February 12, 2002 through the sale of securities to
Cornell through the Equity Line of Credit. The Company plans to use the
proceeds for immediate cash needs until a major financing deal can be closed.
Management is actively seeking additional major financing; however, there is no
assurance that these efforts will be successful or on terms acceptable to the
Company. These matters raise substantial doubt about the Company's ability to
continue as a going concern. These consolidated financial statements do not
include the adjustments that would be necessary, including a provision for
impairment of plant and equipment which could be material, should the Company be
unable to continue as a going concern.
During the first and second quarters of fiscal 2003, the Company had been in
discussions with a lender for a $15 million financing in the form of equity
and/or debt which would have been used to expand and carry-out certain upgrades
to its processing facilities and to retire existing high interest rate debt. In
late December, the potential lender withdrew from these discussions.
Accordingly, the Company has initiated further efforts through its financial
consultants to actively seek alternate financing arrangements, including the
possibility of selling a substantial interest in the mica project. In this
connection, discussions are ensuing with three potential sources regarding a
joint venture arrangement and several other sources have been contacted.
The Company will need a minimum of $3 million of additional funding during the
remainder of calendar 2003 to support production and marketing of our products.
These requirements include costs for general operating purposes including
planned production, payments due on existing debt obligations (including
interest costs) and costs associated with the generation of plastic pellets. In
order to achieve a level of planned production necessary to achieve continued
operations, the Company will likely require additional funding over and above
the $3 million during 2003.
-19-
The Company anticipates the expenditure of $3.5 million on additional capital
improvements. These expenses will cover enhancements to the sand plant
facilities including additional rare earth magnets and bagging equipment
enabling it to sell a much larger portion of its sand production into the stucco
and high-end sand markets.
The Company has several mica products inventoried and continues its development
of mica filled plastic pellets in conjunction with three manufacturers of
reinforced plastics. Azco has recently initiated production on an initial
2,000-pound order for its mica filled polyethylene masterbatch. The Company
anticipates that its current inventory of mica is sufficient to support its
continued plastics product development until mica and sand production is
resumed.
There is no assurance that the Company can secure financing by way of a joint
venture or otherwise, and if at all, on terms acceptable to the Company. Should
such financing not be arranged within the next few months, then it is likely
that the Company will need to reassess the carrying value of its production
assets (which are currently recorded at historical cost less any related
depreciation) as the likelihood of recovering their value would be diminished
and a write-down of these asserts may be appropriate.
LEASE ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
- ----------------------------------------------
Azco leases some heavy equipment. Certain equipment leases are classified as
capital leases and, accordingly, the equipment and related obligation are
recorded on our balance sheet. The Company is committed to lease its former
executive office in Vancouver BC through April 2004 and currently has a tenant
under a sub-lease contract.
Currently, Azco has a total of $1,200,000 of short-term notes due and payable
before March 15, 2004. In addition, the Company has entered into a
sale-leaseback financing arrangement where it may re-purchase the equipment it
sold under this transaction in January 2004 or thereafter, but is not
contractually obligated to do so until 2011. (See Note 5 for additional
information)
In conjunction with the departure of two former executives in October 2000, Azco
entered into a severance agreement in June 2002 whereby Azco is required to make
monthly payments of $10,000, to each director, through June 2004, with the
remaining balance of $90,000 due in July 2004. The Company has paid $184,906
through December 31, 2002. Under the terms of the agreement, Azco was required
to provide Messrs. Harvey and Lindsay each with 150,000 shares of unrestricted
common stock in Azco Mining Inc. The shares were issued in July 2002.
The following table is provided to detail our contractual obligations and lease
commitments:
-20-
PAYMENTS DUE
PAYMENTS DUE IN IN PAYMENTS DUE
PAYMENTS DUE THROUGH 1-3 YEARS 4-5 YEARS AFTER
JUNE 30, 2003 2003-2005 2006-2007 2007
--------------------- --------------- ------------ ------------
Equipment leases $ 34,398 84,727 - -
Office lease 30,168 51,400 - -
Settlement
payments 120,000 420,000 - -
Notes payable 200,000 1,200,000 - -
Financing lease 270,000 1,080,000 1,080,000 6,930,000
--------------------- --------------- ------------ ------------
Total contractual
obligations $ 654,566 2,836,127 1,080,000 6,930,000
===================== =============== ============ ============
NEW ACCOUNTING PRONOUNCEMENTS
- -------------------------------
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" (SFAS No. 144). SFAS No. 144 replaces certain
previously issued accounting guidance, develops a single accounting model for
long-lived assets other than goodwill and indefinite-lived intangibles, and
broadens the framework previously established for assets to be disposed of by
sale (whether previously held or newly acquired). This Statement was effective
as of the beginning of fiscal 2003 and did not have a material impact on the
Company's financial position, results of operations or cash flows.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendments of FASB Statement No. 13, and Technical Corrections"
(SFAS No. 145). This Statement rescinds SFAS No. 4, SFAS No. 64 and further
clarifies debt extinguishments, which classify as extraordinary. Additionally,
SFAS No. 145 amends SFAS No. 13 in order to clarify the accounting for the
treatment of lease modifications. Provisions of this Statement are effective for
fiscal year 2003 and the pronouncement did not have a material impact on its
financial position, results of operations or cash flows.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities". SFAS No. 146 replaces Emerging Task Force
Issue No. 94- 3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit and Activity (including Certain Costs Incurred
in a Restructuring)" (SFAS No. 146).
The primary difference from existing guidance is that SFAS No. 146 requires the
recognition of exit cost at fair value when a liability is incurred, versus at
the date of the exit plan approval. This Statement is effective for exit and
disposal activities of the Company that are initiated after December 31, 2002.
The Company has not historically had significant exit or disposal activities.
-21-
On July 1, 2002, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 143, "Accounting for Asset Retirement Obligations"
(SFAS No. 143). SFAS No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs estimated to aggregate approximately $250,000.
Specifically, the Statement requires that retirement obligations be recognized
when they are incurred and displayed as liabilities with the initial measurement
being at the present value of estimated third party costs. In addition, the
asset retirement cost is capitalized as part of the asset's carrying value and
subsequently allocated to expense over the assets useful life.
The asset retirement costs associated with the Mica project consist of
reclamation of disturbed property as well as the disposal and dismantling of
related property and equipment. The Company previously accounted for these
costs through periodic charges to earnings using the units-of-production method.
The change in accounting resulted in a cumulative effect charge to earnings
during the period of $13,902. See Note 9 for additional information.
In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" (FIN 45). FIN 45 requires that upon
issuance of certain guarantees, a guarantor must recognize a liability for the
fair value of an obligation assumed under the guarantee. FIN 45 also requires
significant new disclosures, in both interim and annual financial statements, by
a guarantor, about obligations associated with guarantees issued. FIN 45
disclosure requirements are effective for Azco's fiscal quarter ended December
31, 2002 and the initial recognition and measurement provisions are applicable
on a prospective basis to guarantees issued or modified after December 31, 2002.
Azco, as the guarantor, has a sole guarantee related to the written put option
related to the Company's convertible debenture where the put option has been
accounted for under SFAS 133. This guarantee is characterized by FIN 45 as a
market value/derivative guarantee.
The following table discloses Azco's obligation under guarantees as of December
31, 2002:
- ----------------------- ------------------------- ---------------- -----------
Maximum Potential Amount Liability
Of Future Payments Carrying Amount Collateral
- ----------------------- ------------------------- ---------------- -----------
Market value guarantees $ 100,000 $ 14,803 $ -
- ----------------------- ------------------------- ---------------- -----------
-22-
In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of FAS 123". SFAS No.
148 provides alternative methods of transition for voluntary change to the fair
value based method of accounting for stock-based employee compensation. In
addition, the Statement amends the disclosure requirements of SFAS No. 123 to
require prominent disclosures in both interim and annual financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. Azco continues to apply the
intrinsic value method of accounting for stock options and will provide the
enhanced disclosure requirements in its third quarter Form 10-Q.
In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.
FIN 46 provides guidance in determining (1) whether consolidation is required
under the "controlling financial interest" model of Accounting Research Bulletin
No. 51 (ARB 51), Consolidated Financial Statements, or (b) other existing
authoritative guidance, or, alternatively, (2) whether the variable-interest
model under FIN 46 should be used to account for existing and new entities.
Azco has considered the guidance in FIN 46 and has determined that it did not
have a material effect on its financial position, results of operations cash
flows or note disclosures thereto.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------------
The carrying value of the Company's conversion option is dependent on the fair
value analysis, which considers among other items, the current risk free rate of
return. Movements in this market rate would cause an adjustment to the
determined fair value. This option was converted in January 2003.
ITEM 4: CONTROLS AND PROCEDURES
-------------------------
The Company maintains a system of disclosure controls and procedures that is
designed to ensure information required to be disclosed by the Company is
accumulated and communicated to management in a timely manner. Management has
reviewed this system of disclosure controls and procedures within 90 days of the
date hereof, and has concluded that the current system of controls and
procedures is effective.
The Company maintains a system of internal controls and procedures for financial
reporting. Since the date of management's most recent evaluation, there were no
significant changes in internal controls or in other factors that could
significantly affect internal controls.
PART II. OTHER INFORMATION
- ---------------------------
ITEM 1: LEGAL PROCEEDINGS
-----------------
On January 22, 1999, the trustee (Petitioner) in bankruptcy proceedings against
Eagle River served a petition, in the Quebec Superior Court, District of Hull,
-23-
upon the Company in order to recover assets from the Company. The Petitioner
alleges that, through the Company's involvement with Eagle River in the Mali
Project, the Company is guilty of contractual breaches in excess of $3,400,000.
In management's opinion, this claim is unfounded although the eventual outcome
of the case is not yet determinable. No accrual has been made for this claim
because the Company does not believe it is probable that the case will be
determined against the Company.
On June 25, 2002 Azco received a demand for arbitration filed by iCapital
Corporation seeking $144,000 in relief due to failure to pay under a June 26,
2001 Financial Consulting Agreement. It is the position of Azco and its counsel
that the contract is void and it is unlikely that iCapital will prevail on their
claim.
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 thereunto duly authorized.
AZCO MINING INC.
-----------------------------------
(Registrant)
Date: February 17, 2003 BY: /s/ Lawrence G. Olson
----------------- ----------------------
Lawrence G. Olson
CEO, President and Chairman
Date: February 17, 2003 BY: /s/ Ryan A. Modesto
----------------- --------------------
Ryan A. Modesto
Vice President Finance,
Corporate Secretary
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Azco Mining Inc. (the "Company") on
Form 10-K for the period ended June 30, 2002 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), each of the undersigned,
in the capacities and on the dates indicated below, hereby certifies pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that to his knowledge:
-24-
1. The Quarterly Report on Form 10-Q for the quarterly period ended December
31, 2002 as filed with the Securities and Exchange Commission on the date
hereof, fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; as amended; and
2. The information contained in the Quarterly Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
/s/ Lawrence G. Olson
------------------------------------
Lawrence G. Olson, Chief Executive
Officer
/s/ Ryan Modesto
------------------------------------
Ryan Modesto, Vice President Finance
Certifications
- --------------
I, Lawrence G. Olson, Chief Executive Officer, certify that:
l. I have reviewed this quarterly report on Form 10-Q of AZCO Mining Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
-25-
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
February 17, 2003
/s/ Lawrence G. Olson
- ----------------------
Chief Executive Officer
I, Ryan Modesto, Vice President Finance, certify that:
l. I have reviewed this quarterly report on Form 10-Q of AZCO Mining Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
-26-
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
February 17, 2003
/s/ Ryan Modesto
- ----------------
Vice President Finance
-27-