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INDEX TO FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNT ING FIRM
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
F-3
FINANCIAL STATEMENTS
Consolidated Balance Sheets
F-4
Consolidated Statements of Operations
F-5
Consolidated Statements of
Stockholders’ Equity
F-6
Consolidated Statements of Cash Flows
F-7
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
F-8 – F23
F-1
Report of Independent
Registered Public Account ing Firm
To the Board of Directors and Stockholders
of
AZCO Mining Inc. and Subsidiary
We have audited the consolidated balance
sheet of AZCO Mining Inc. and Subsidiary as of June 30, 2003, and the related
consolidated statements of operations, stockholders’ equity, and cash
flows for the year then ended. These financial statements are the
responsibility of the Company’s management. Our responsibility is
to express an opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with
the standards of the Public Company Accounting Oversight Board (United States)
. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the
financial position of AZCO Mining Inc. and Subsidiary as of June 30, 2003, and
the results of its operations and its cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States
of America.
The consolidated financial statements have
been prepared assuming that the Company will continue as a going concern.
As discussed in Note B to the consolidated financial statements, the
Company has suffered recurring losses and negative cash flows from operations
which raise substantial doubt about its ability to continue as a going concern.
The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Semple & Cooper, LLP
Phoenix, Arizona
March 6, 2004
F-2
Report of Independent Registered Public Accounting Firm
To the Board of Directors and
Stockholders of Azco Mining Inc.
In our opinion, the consolidated financial
statements listed in the accompanying index present fairly, in all material
respects, the financial position of Azco Mining Inc.
and its subsidiary at June 30, 2002, and the results of
their operations and their cash flows for each of the two years in the period
ended June 30, 2002 in conformity with accounting principles generally accepted in the
United States of America. These financial statements are the
responsibility of the Company’s management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
The consolidated financial statements have
been prepared assuming that the Company will continue as a going concern.
As discussed in Note B to the consolidated financial statements, the
Company has suffered recurring losses and negative cash flows from operations
which raises substantial doubt about its ability to continue as a going
concern. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
PricewaterhouseCoopers LLP
Phoenix, Arizona
September 3, 2002
Additional
Comments for Canadian Readers
Canadian reporting standards do not
consider it appropriate to refer to going concern issues where the matter is
adequately disclosed in the notes to financial statements, such as described in
Note B to these consolidated financial statements. This report has been
prepared in accordance with reporting standards in the United States of America
which requires a reference in the Report of Independent Registered Public
Accounting Firm, when there is substantial doubt as to an entity’s
ability to continue as a going concern.
PricewaterhouseCoopers LLP
Phoenix, Arizona
September 3, 2002
F-3
AZCO MINING, INC.
CONSOLIDATED
BALANCE SHEETS
Years Ended June
30,
|
|
2003 |
2002 |
ASSETS
|
Current Assets |
|
|
|
Cash
and cash equivalents |
$
707 |
$
884,647 |
|
Prepaids
and other |
199,420 |
179,225 |
|
Inventory |
1,077,547 |
1,095,780 |
|
|
1,277,674 |
2,159,652 |
|
Capital Assets |
|
|
|
Mineral
properties, plant and equipment, net |
6,884,402 |
10,352,872 |
|
Other
capital assets, net |
208,671 |
288,148 |
|
|
7,093,073 |
10,641,020 |
|
Other Assets |
|
|
|
Restricted
cash |
181,092 |
190,400 |
|
|
|
|
|
Total
assets |
$
8,551,839 |
$ 12,991,072 |
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
Current Liabilities |
|
|
|
Accounts
payable and accrued liabilities |
$
1,219,937 |
$
540,768 |
|
Line
of credit |
73,145 |
- |
|
Notes
payable, current portion |
1,114,853 |
443,672 |
|
Accrued
settlement obligation |
330,000 |
586,000 |
|
|
2,737,935 |
1,570,440 |
|
|
|
|
|
Long Term Liabilities |
|
|
|
Financing
lease liability |
2,152,854 |
1,975,650 |
|
Notes
payable to related party |
- |
615,068 |
|
Accrued
settlement obligation, net of current portion |
- |
444,900 |
|
Other
liabilities |
92,020 |
275,127 |
|
Total
liabilities |
4,982,809 |
4,881,185 |
|
|
|
|
|
Stockholders’ Equity |
|
|
|
Common
stock, $.002 par value, 100,000,000 shares authorized; |
|
|
|
37,992,122
and 31,152,121 shares issued and outstanding as of June
30, 2003 and 2002, respectively |
75,844 |
62,304 |
|
Additional
paid in capital |
32,978,633 |
30,951,523 |
|
Accumulated
deficit |
(29,485,447) |
(22,903,940) |
|
|
3,569,030 |
8,109,887 |
|
|
|
|
|
Total
liabilities and stockholders’ equity |
$
8,551,839 |
$ 12,991,072 |
See
accompanying notes to the financial statements
F-4
AZCO MINING, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
Years Ended June
30,
|
|
2003 |
2002 |
2001 |
|
|
|
|
|
|
Sales |
$
55,469 |
$
64,880 |
$
17,600 |
|
|
|
|
|
|
Operating Costs and Expenses |
|
|
|
|
Production
costs |
1,033,015 |
1,371,807 |
1,476,512 |
|
General
and administrative |
914,015 |
1,149,508 |
588,632 |
|
Salaries |
360,557 |
341,608 |
430,111 |
|
Exploration |
38,849 |
187,618 |
438,539 |
|
Depreciation
and amortization |
104,486 |
144,379 |
93,860 |
|
Severance
agreement |
(257,743) |
1,030,900 |
- |
|
Financing
expenses |
463,476 |
315,591 |
72,139 |
|
Reclamation |
- |
330 |
371 |
|
Loss
on investments |
- |
- |
3,894 |
|
Impairment
of long-lived assets |
3,291,773 |
- |
- |
|
Capital
asset write-downs |
- |
- |
349,744 |
|
Acquisition
of asset retirement obligation |
5,000 |
- |
- |
|
|
5,953,428 |
4,541,741 |
3,453,802 |
|
|
|
|
|
|
Net
Loss From Operations |
(5,897,959) |
(4,476,861) |
(3,453,802) |
|
|
|
|
|
|
Other Income (Expenses) |
|
|
|
|
Gain
on sale of mineral properties and equipment |
315,000 |
- |
- |
|
Interest
income |
3,211 |
12,945 |
124,626 |
|
Other
income |
- |
- |
980 |
|
Interest
expense |
(952,854) |
(781,723) |
(54,780) |
|
|
(634,643) |
(768,778) |
70,826 |
|
|
|
|
|
|
Loss
before income taxes and cumulative effect of accounting change |
(6,532,602) |
(5,245,639) |
(3,365,376) |
|
|
|
|
|
|
Cumulative
effect of accounting change, net taxes of $0 |
(13,902) |
- |
- |
|
|
|
|
|
|
Income
tax benefit |
- |
988,053 |
- |
|
|
|
|
|
|
Net Loss |
$ (6,546,504) |
$ (4,247,586) |
$ (3,365,376) |
|
|
|
|
|
|
Basic and diluted loss per common share |
$
(0.19) |
$
(0.14) |
$
(0.11) |
|
|
|
|
|
|
Weighted average number of common shares outstanding |
35,146,469 |
30,297,261 |
29,964,636 |
See
accompanying notes to the financial statements
F-5
AZCO MINING, INC.
CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY
Years Ended June
30, 2003, 2002 and 2001
|
|
Common Number of Shares |
Stock Amount |
Additional Paid-in Capital |
Accumulated Deficit |
Total |
|
|
|
|
|
|
|
|
Balance, June 30, 2000 |
29,887,121 |
$
59,774 |
$28,537,487 |
$(15,290,978) |
$13,306,283 |
|
|
|
|
|
|
|
|
Stock options exercised |
163,500 |
327 |
96,564 |
- |
96,891 |
|
Warrants |
- |
- |
119,605 |
- |
119,605 |
|
Net loss for year ended June 30, 2001 |
- |
- |
- |
(3,365,376) |
(3,365,376) |
|
|
|
|
|
|
|
|
Balance, June 30, 2001 |
30,050,621 |
60,101 |
28,753,656 |
(18,656,354) |
10,157,403 |
|
|
|
|
|
|
|
|
Stock options exercised |
61,500 |
123 |
27,269 |
- |
27,392 |
|
Warrants |
- |
- |
1,654,928 |
- |
1,654,928 |
|
Warrants exercised |
250,000 |
500 |