Back to GetFilings.com

FORM 10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C 20549

[ X ]

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 2003

Commission file number: 0-20430

AZCO MINING INC.

______________________________________________________

(Exact name of registrant as specified in its charter)

7239 N El Mirage Road, Glendale, AZ  85307

______________________________________________________

(Address of principal executive offices including zip code)

Registrant’s telephone number, including area code: (623) 935-0774

Securities registered pursuant to Section 12(b) of the Act

Securities registered pursuant to Section 12(g) of the Act:  NONE

Indicate by check mark whether the registrant (1) has filed all reports required to 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 [     ]          No [ X ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this Chapter) is not contained herein, and will not be contained, to the best of the registrants’ knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ]

Aggregate Market Value of Stock held by Non-Affiliates as of July 23, 2004: $4,832,928

The number of shares of the Company’s Common Stock outstanding as of July 23, 2004 is 40,342,122.

Documents incorporated by reference: See Item 15.

PART I

FORWARD-LOOKING STATEMENTS

Information included or incorporated by reference in this annual report may contain forward-looking statements.  This information may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from the future results, performance or achievements expressed or implied by any forward-looking statements.  Forward-looking statements, which involve assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “plan,” “intend” or “project” or the negative of these words or other variations on these words or comparable terminology.

This annual report contains forward-looking statements, many assuming that the Company secures adequate financing and is able to continue as a going concern, including statements regarding, among other things, (a) our projected sales and profitability, (b) our growth strategies, (c) anticipated trends in our industry, (d) our future financing plans, (e) our anticipated needs for working capital, (f) 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, if and when production is resumed (g) the lack of commercial acceptance of our mica product or by-products, (h) changes in environmental laws, (i) problems regarding availability of materials and equipment, if and when production is resumed (j) failure of the mica project equipment to process or operate in accordanc e with specifications, including expected throughput, which could prevent the project from producing commercially viable output, if and when production is resumed  (k) 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 and (l) our ability to seek out and acquire high quality gold, silver and/or copper properties.  These statements may be found under “Management’s Discussion and Analysis or Plan of Operations” and “Business,” as well as in this annual report generally.  Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the risks outlined under “Risk Factors” and matters described in this annual report generally.  In light of these risks and uncertainties, there can be no assurance that the forward-looking statements cont ained in this annual report will in fact occur.  In addition to the information expressly required to be included in this annual report, we will provide such further material information, if any, as may be necessary to make the required statements, in light of the circumstances under which they are made, not misleading.

ITEM 1.  BUSINESS

Azco Mining Inc. (“Azco” or “the Company”) is a U.S. mining company, incorporated in August 1991 in the state of Delaware, with a general business strategy to acquire and develop mining properties amenable to low cost production.  Azco is currently focused on financing efforts to: (1) fund the re-opening and enhancement of its Black Canyon mica project located in Arizona and (2) acquire high quality gold, silver and/or copper properties.  Information about Azco, including a posting of the most recent financial reports, can be viewed on the Company’s web site, www.azco.com.

In November 2002, the Company suspended crushing and concentrating activities at its Black Canyon mine due to economic constraints.  Limited production, marketing and sales have continued at its Glendale mica processing facility using inventoried mica, while the Company seeks sources of financing for the project.

In April 2003, the Company sold its 30% share of Cobre del Mayo S.A. de D.V. (“Cobre del Mayo”), the Mexican corporation that holds the Piedras Verdes copper project, to Frontera Cobre del Mayo S.A. de D.V. (“Frontera”), for consideration of $250,000.  In addition, the Company was to receive an initial deferred payment of $250,000, upon the date of construction commencement of the Piedras Verdes copper project, if the COMEX price of copper is less than $1.00 per pound or $500,000 if the COMEX price is greater than $1.00 per pound.  Upon the date of commercial production, the Company was to receive an additional payment of $500,000, if the COMEX price is less than $1.00 per pound or $1,000,000 if the COMEX price is greater than $1.00 per pound.  Frontera also agreed to pay Azco a royalty of $0.02 per pound of copper produced and sold from Piedras Verdes during any calendar quarter the average COMEX price is equal to or greater than $1.20 per pound, until such time as the initial deferred payment, the subsequent deferred payment and the royalty aggregate in total $4,750,000.  In June 2003, the Company subsequently assigned all payment and royalties, defined under the terms of the sale of its interest in Cobre del Mayo, to Mr. Alan Lindsay (“Mr.Lindsay”) and Mr. Anthony Harvey (“Mr. Harvey”), former officers and directors of the Company, under the terms of a settlement agreement.

Prior to the sale of its copper assets, Azco was dedicated to the exploration and development of copper projects utilizing the solvent extraction-electrowinning (“SX-EW”) process.  Azco’s principal mineral property was the Sanchez copper project located northeast of Safford, Arizona.  Azco also owned interests in two other copper properties, the Piedras Verdes and Suaqui Verde properties located in Sonora State, Mexico.  In 1995, with the approval of shareholders, Azco sold the Sanchez copper property and 70% of the Piedras Verdes property to Phelps Dodge Corporation for gross consideration of $40 million.

In March 1999, Azco completed the acquisition of Arizona Mica Properties, Inc. (“Arizona Mica”), an Arizona corporation, which owned the rights to develop 43 unpatented lode-mining claims located in Yavapai County, Arizona.  Azco obtains its mica from these mining claims.  The Arizona Mica acquisition was accomplished through the merger of Arizona Mica with and into Azco’s wholly owned subsidiary, Sanchez Mining Inc., a Delaware corporation, with Sanchez being the surviving corporation.  Sanchez subsequently changed its name to Azco Mica, Inc.  In connection with the merger, Azco issued an aggregate of 4,500,000 shares of its common stock in equal amounts to each of the three shareholders of Arizona Mica: Lawrence G. Olson, John O. Rud and Floyd R. Bleak.

A predecessor of Azco was incorporated in July 1988 under the laws of Colorado to acquire the mining rights to the Sanchez Project, as well as certain other mineral properties.  In August 1991 the predecessor was merged into Azco, a newly incorporated Delaware corporation.  In October 1991, Azco acquired all of the shares of Filton Enterprises Limited, a Gibraltar corporation, in return for the issuance of 3,650,000 Azco common shares.  At that time, Filton owned rights in two copper properties both located in Sonora State, Mexico, the Piedras Verdes and Suaque Verde properties.  Filton was dissolved in 1994 and its assets were distributed to Azco.

In July 1992, Azco merged with Azco Mining Inc., a Wyoming corporation (“Azco Wyoming”), with Azco being the survivor of the merger.  At the time of the completion of the merger, Azco Wyoming had 3,946,550 shares issued and outstanding and Azco had 12,633,822 common shares issued and outstanding.  In connection with the merger, one common share of Azco was issued in exchange for each Azco Wyoming share.  Azco Wyoming was formerly a British Columbia corporation incorporated in August 1981 under the laws of the Province of British Columbia under the name 241145 B.C. Ltd.  241145 B.C. Ltd. changed its name to Canarex Resources Inc. in June 1983, then to International Baron Resources Ltd. in January 1988, and finally to Azco Mining Inc. in February 1992.  Azco Wyoming was continued under the laws of Wyoming in May 1992 prior to merging with Azco.

Recent Developments

Since June 30, 2003 and through the date of this filing, Azco has remained minimally active while it continues to seek sources of new financing.  The Black Canyon mica mine has not operated since operations were suspended in November 2002.  The Glendale processing facility has continued to operate on an intermittent basis in fiscals 2003 and 2004, as required to fill purchase orders, using mica from inventory.  The Company has continued, on a limited basis, to sell mica to key customers in the plastics and cosmetic industries, and during the first half of fiscal 2004 sold approximately $160,000 of cosmetic grade mica and mica-filled plastic pellets. In addition, the Company has financed its activities by selling $348,000 of common stock through the first ten months of fiscal 2004.

In fiscal 2003, Azco raised approximately $1,000,000 through the sale of securities to Cornell Capital Partners (“Cornell”) under an equity line of credit agreement and a securities purchase agreement.  The Company entered into these two agreements with Cornell, respectively, in June 2002 and September 2002.  The Company issued the maximum of 6,000,000 shares allowed under the terms of the agreements.

In April 2003, the Company sold its 30% share of Cobre del Mayo S.A. de D.V. (“Cobre del Mayo”), the Mexican corporation that holds the Piedras Verdes copper project, to Frontera Cobre del Mayo S.A. de D.V. (“Frontera”), for consideration of $250,000.  In addition, the Company was to receive an initial deferred payment of $250,000, upon the date of construction commencement of the Piedras Verdes copper project, if the COMEX price of copper is less than $1.00 per pound or $500,000 if the COMEX price is greater than $1.00 per pound.  Upon the date of commercial production, the Company was to receive an additional payment of $500,000, if the COMEX price is less than $1.00 per pound or $1,000,000 if the COMEX price is greater than $1.00 per pound.  Frontera also agreed to pay Azco a royalty of $0.02 per pound of copper produced and sold from Piedras Verdes during any calendar quarter the average COMEX price is equal to or greater than $1.20 per pound, until such time as the initial deferred payment, the subsequent deferred payment and the royalty aggregate in total $4,750,000.  

In June 2003, the Company subsequently assigned all payment and royalties, defined under the terms of the sale of its interest in Cobre del Mayo, to Mr. Lindsay and Mr. Harvey, former officers and directors of the Company, under the terms of a settlement agreement.

In July 2002, in conjunction with the October 2000 departure of two former executives, Mr. Lindsay and Mr. Harvey, Azco entered into a settlement agreement with these two former directors whereby Azco was required to make monthly payments of $10,000 to each director through June 2004, with a remaining balance of $90,000 due in July 2004.  The Company paid $184,906 through March 31, 2003.  Under the terms of the settlement agreement, Azco agreed also to provide Lindsay and Harvey with 150,000 shares each of unrestricted common stock in Azco Mining Inc.  The shares were issued in July 2002.

In April 2003, due to the Company’s default status under the settlement agreement, Lindsay and Harvey filed for and were granted a writ of garnishment against the Company, whereby the court seized $85,908 of the Company’s funds.  In June 2003, the Company entered into a second settlement agreement with the former directors, which released the Company from the first settlement agreement in return for cash payments totaling $102,257, the issuance of 600,000 shares of the Company’s common stock to each of the former executives and the assignment of all of the Company’s future rights under the terms of the sale of its interest in Cobre del Mayo.

Exploration And Development

In April 2003, the Company sold its 30% share of Cobre del Mayo S.A. de D.V. (“Cobre del Mayo”), the Mexican corporation that holds the Piedras Verdes copper project, to Frontera Cobre del Mayo S.A. de D.V. (“Frontera”), for consideration of $250,000.  In addition, the Company was to receive an initial deferred payment of $250,000, upon the date of construction commencement of the Piedras Verdes copper project, if the COMEX price of copper is less than $1.00 per pound or $500,000 if the COMEX price is greater than $1.00 per pound.  Upon the date of commercial production, the Company was to receive an additional payment of $500,000, if the COMEX price is less than $1.00 per pound or $1,000,000 if the COMEX price is greater than $1.00 per pound.  Frontera also agreed to pay Azco a royalty of $0.02 per pound of copper produced and sold from Piedras Verdes during any calendar quarter the average COMEX price is equal to or greater than $1.20 per pound, until such time as the initial deferred payment, the subsequent deferred payment and the royalty aggregate in total $4,750,000.  In June 2003, the Company subsequently assigned all payment and royalties, defined under the terms of the sale of its interest in Cobre del Mayo, to Mr. Lindsay and Mr. Harvey, former officers and directors of the Company, under the terms of a settlement agreement.

Azco incurred no exploration expenses during fiscal 2003 in connection with Cobre del Mayo. Prior to the sale of its interest in Cobre del Mayo, the Company elected to dilute its interest in the project, as was permitted by the terms of the Cobre del Mayo shareholders’ agreement.

In September 2001, Randgold Resources terminated the exploration agreement with Azco relating to the West Africa Gold Joint Venture – Mali.  Under the agreement, Randgold had the right to earn 75% of Azco’s interest in the mineral concessions by spending a minimum of $2 million to establish a deposit containing at least one million ounces of gold.  After Randgold withdrew from the joint venture, Azco did not renew the mineral concessions with the Malian government. During fiscal 2002 and 2003, Azco incurred no exploration expense on the Mali project.

In 2003 Azco relinquished the Silverado and the Alamos claims in Sonora, Mexico.  Exploration expenses of $5,862 were incurred in fiscal 2003 with respect to the Silverado and Alamos claims.  

The Company incurred exploration expense of  $22,817 during fiscal 2003 in connection with its lease of the mineral property owned by New Planet Copper Mining Company in La Paz County, Arizona.  In August 2003, the Company sold its interest in this property subject to an option to reacquire a 25% interest at the time of any future commercial development.    

Products

Azco produced and sold mica-f i lled plastic pellets to the manufacturers of reinforced plastics in fiscal 2003.  Currently the Company is unable to produce plastic pellets due to a lack of working capital but has continued to sell, to a key customer, the mica needed to produce the pellets.  Azco also has continued to sell cosmetic grade mica on a limited basis.  The Company believes it has sufficient inventoried mica to meet the needs of its key mica customers for several months, while it seeks financing to resume production.

In the first half of fiscal 2003, Azco sold feldspathic sand, a by-product of mica production, as golf course bunker sand and as stucco sand.  Sand sales ceased due to the suspension of crushing and concentrating operations at the Black Canyon mine in November 2002.  

Marketing

Marketing efforts have been placed on hold pending the resumption of production.  The Company maintains contact with current and past customers.

Customers

Azco sells its cosmetic grade mica to Presperse, Inc. and to KOBO, who distribute the product to cosmetic manufacturers.  In fiscal 2003 sales of cosmetic grade mica totaled $7,658.  The Company sells its mica-filled plastic pellets and mica powder to a major plastic consumer in Canada.  Sales of plastic pellets totaled $16,750 in fiscal 2003.  In fiscal 2003 Azco sold its feldspathic sand products to Pioneer Sand (golf course bunker sand) and Western Stucco Products (stucco sand).  Sand sales totaled $31,060 in fiscal 2003.  

Competition

Many companies are engaged in the exploration and development of mineral properties.  Azco is at a disadvantage with respect to those competitors whose technical and financial resources exceed Azco’s.

Azco’s main competitors include Olglebay Norton Specialty Minerals, Engelhard Corp. and Georgia Industrial Minerals, who are important producers of wet ground mica; and Oglebay Norton and J. R. Simplot, who are the main suppliers of manufactured sand to the Phoenix, Arizona area.

Research And Development

Azco has retained Transmit Technology Group, LLC, of Arlington, Texas, in the past, to provide research and development support for its mica-filled plastic products.  Azco’s mica has been evaluated and tested by several potential customers in the cosmetics and plastics industries.  The Company intends, if and when financing for the mica project can be arranged, to continue its research and development efforts.  Currently the Company is conducting no research and development.

Employees And Consultants

As of June 30, 2003, we had three full-time employees, one part-time employee and one full-time consultant.  None of our employees are covered by labor union contracts or collective bargaining agreements.  

ITEM 2.  PROPERTIES

Black Canyon Mica Project

Background

In 1999 Azco acquired the Black Canyon mica project from Arizona Mica Properties, Inc., a private Arizona corporation.  The project included 43 unpatented mining claims at Black Canyon, 50 miles north of Phoenix, Arizona, and a pilot plant situated in Glendale, Arizona.  As part of its due diligence process, the Company carried out a marketing study, performed metallurgical testing and confirmatory diamond drilling, and conducted an environmental audit and title work.

Azco also conducted a geologic mapping program that recorded the many pegmatite dikes that host the ore bodies.  This work identified mica deposits lying outside the area of the original 43 mining claims, and additional claims were acquired.  Azco currently controls 67 unpatented mining claims and 9 millsite claims covering approximately 1,385 acres.

During 1999-2001, Azco began construction of the Glendale processing plant, obtained operating permits from the Bureau of Land Management and the State of Arizona and carried out an initial mining campaign.

In 2002, the Company commissioned the processing facilities at the mine site and in Glendale, operated for several months on a test basis and achieved limited production and sales.  Operations at the mine site were suspended in November 2002.  

The ultimate design capacity of the operation was set by reference to market share goals.  Capacity was set as 10,000 tons (20 million pounds) per year of finished mica product, which is calculated also to yield 180,000 tons per year of by-product feldspathic sand.  The installed capacities at the mine site and at the Glendale processing plant are capable of operating but at a throughput rate less than full planned capacity.  In order to achieve full design capacity, the installation of additional processing equipment is required, and will depend on the Company’s receipt of adequate financing.

Azco is seeking new funding to upgrade and expand the mining and processing facilities in order to reach planned capacity and to provide working capital.

Mineral Reserve s

In 1998 and 1999, Azco drilled 41 core holes at two central locations.  The holes ranged from 200 feet to 600 feet in length.  An independent geological engineering firm calculated the ore reserve s and designed the mining plan.  The 20-year open pit ore reserve s total 4.7 million tons averaging 7.43% mica, with an average waste-to-ore striping ratio of 10.6:1.   Drilling covered only a small portion of the zones of outcropping mica-bearing rocks.

Mining and Processing Facilities

The Black Canyon project consists of two integrated operating facilities.  The mine site near Black Canyon contains the ore reserve s where the Company plans to conduct open pit mining operations.  The crusher, the concentrator and the feldspathic sand plant are located at the mine site.  The second operating facility, the Glendale processing plant, is located on the west side of Phoenix, Arizona, 47 miles to the south of the mine site.  The Glendale processing plant is designed to further process the mica concentrate by wet grinding, dewatering, drying, and air classification and final bagging.

Mica

Azco’s mineral reserves contain high quality muscovite or “white mica”.  Mica is a mineral characterized by crystals that can be easily split into thin elastic sheets and is valued for its unique combination of chemical, physical, electrical, thermal and mechanical properties.  Muscovite exhibits perfect cleavage, flexibility and elasticity, infusibility, low thermal and electrical conductivity, high dielectric strength, light weight, good insulating characteristics, and is stable when exposed to moisture, light and high temperatures.  Because of these properties, muscovite has found widespread application in plastics, automotive coatings, cosmetics, paints, catalysis and composite formulations.  

Azco plans, once adequate financing is obtained, to produce 10,000 tons (20 million pounds) annually of premium wet-ground mica and intends to penetrate existing markets and to establish its own markets in plastics, cosmetics and ultra-micronized applications.  

In fiscal 2003 Azco sold a portion of the mica it produced and retained a portion in inventory.  The Company sold mica products to customers in the plastics and cosmetics industries and for other specialized applications.    S ales to key customers are continuing on a limited basis.  In addition, other potential consumers have conducted trial tests of the Company’s mica products.

Feldspathic Sand

Azco’s feldspathic sand is produced as a by-product of mica concentration and is screened and sized for sale into the Phoenix construction and recreational markets.  Products include golf course bunker sand and sand used in stucco, mortar and other specialized construction applications.  The Company plans, once suitable financing is obtained, to produce 180,000 tons of feldspathic sand products annually.  

Currently sand producers in California and Nevada supply the Phoenix manufactured sand market. Because the material has to be trucked long distances in order to reach Phoenix, trucking costs are significant and constitute a substantial proportion of the final selling price.  The location of Azco’s Black Canyon mine only 50 miles from Phoenix provides the Company with a transportation cost advantage over its competition.

In fiscal 2003 Azco sold all of the high quality feldspathic sand it produced to customers in the Phoenix area.

Impairment Charge and Carrying Value of Assets

In conjunction with discussions surrounding a potential sale of all or some portion of the Company’s mining assets, management determined that an impairment charge was necessary to more accurately reflect the carrying value of its long-lived assets.  The amount of the impairment charge was based on a formal indication of willingness to acquire the Company’s mining assets received during the third quarter and, accordingly, represents management’s best estimate of the fair value of these assets.  An impairment charge of $3,291,773 has reduced the carrying cost of mineral properties, plant and equipment.

On June 30, 2003, Azco carried its long-lived assets related to the Black Canyon project at the following values:

Piedras Verdes Copper Project

Azco owned 30% of the Piedras Verdes copper project after selling 70% of the project to the Phelps Dodge Corporation in December 1995.  In March 2002, Frontera, a Delaware corporation, purchased Phelps Dodge’s 70% interest in the project.

In April 2003, the Company sold its remaining 30% interest in Piedres Verdes to Frontera for consideration of $250,000.  In addition, Azco was to receive two future contingent payments, to be paid at the times the Piedras Verdes project commences construction and attains commercial production, the amounts of the payments depending on the price of copper at those times.

Frontera also agreed to pay Azco a royalty of  $0.02 per pound of copper produced and sold from the project in any calendar quarter during which the average COMEX price of copper is equal to or greater than $1.20 per pound, until such time as the aggregate of the contingent payments and the royalty totals $4,750,000.

In June 2003, the Company assigned all deferred payments and royalties, defined under the terms of the sale agreement, to Lindsay and Harvey, former officers and directors of the Company, under the terms of a settlement agreement.

New Planet Property

In September 2000, Azco entered into a lease and purchase option agreement with the New Planet Copper Mining Company on 31 patented mining claims located in La Paz County, Arizona, to assess the property for its iron oxide potential.  In August 2003, for the sum of $5,000 the Company assigned its interest in the New Planet project to Metallica Ventures LLC (“Metallica”), a corporation controlled by Mr. W. Pierce Carson, Azco’s current President and Chief Executive Officer.  

The Company retained an option to purchase 25% of the project.  The option is exercisable for a period of 90 days after Metallica has made the decision to proceed to commercial production.  To exercise the option, Azco is required to pay Metallica an amount equal to 25% of the expenditure on the property from the date of the assignment through the date of the exercise of the option.

Mali Gold Concession

In September 2001 Randgold Resources terminated the exploration agreement with Azco relating to the WAG Joint Venture – Mali.  Azco did not renew the mineral concessions with the Malian government.

Silverado And Alamos Claims

In 2003 Azco relinquished the Silverado and the Alamos claims in Sonora, Mexico. Exploration expenses of $5,862 were incurred with respect to these claims in fiscal 2003.

ITEM 3.  LEGAL PROCEEDINGS

In July 2002, Azco entered into a settlement agreement regarding fees payable under terminated management agreements with two of its former officers and directors, Lindsay and Harvey.  Azco agreed to pay each former director the sum of $350,000.  The sum was to be paid in an initial amount of $20,000 each, due upon the signing of the agreement, and in monthly amounts of $10,000 thereafter, with the entire balance due within 24 months of the date of the agreement.  In addition, Azco agreed to pay $24,898 representing one half of the legal fees incurred by the former directors.  The Company paid $184,906 through March 31, 2003.  Azco also issued Lindsay and Harvey each 150,000 shares of unrestricted common stock under the terms of the settlement agreement ..   

In April 2003, due to the Company’s default status under the settlement agreement, Lindsay and Harvey filed for and were granted a writ of garnishment against the Company, whereby the court seized $85,908 of the Company’s funds.  In June 2003, the Company entered into a second settlement agreement with the former directors whereby the Company was fully released under the terms of the first settlement agreement in return for cash payments totaling $102,257, the issuance of 600,000 shares of the Company’s common stock to each of the former executives and the assignment of all of the Company’s future rights under the sale of its interest in Cobre del Mayo.  The cash payments consisted of $95,000 to the former executives plus $7,257 for the reimbursement of legal and court costs.  In August 2003, the stock was issued under the terms of the second settlement agree ment.  A restrictive legend was attached to the stock and its sale is reliant upon an exemption from Rule 144 of the Securities Act of 1934 (“Securities Act”).

The Company’s rights under the agreement with Frontera that were assigned to the former executives include contingent future payments and production royalties totaling in aggregate $4,750,000.

In June 2002 Azco received a demand for arbitration filed by iCapital Corporation (“iCapital”) seeking $144,000 in relief due to failure to pay under a June 2001 financial consulting agreement.  On September 18, 2003 the American Arbitration Association awarded iCapital $144,000 plus $5,000 in attorney’s fees as full settlement of the claim.  Under the terms of the award the Company had 30 days to remit the amount of the award, after which interest accrues at 5% per annum.  Azco failed to pay the amount awarded and has recorded a liability of $149,000 in fiscal 2003.  The Company has been in communication with iCapital and plans to settle once it has obtained adequate financing.

 In January 1999 the trustee in bankruptcy proceedings against Eagle River International Limited, Azco’s former partner in the WAG - Mali joint venture, served a petition upon Azco in the Quebec Superior Court, District of Hull, in order to recuperate from the Company certain subsidiary stock and other assets alleged to have a value of up to $4,300,000.  Azco considers the trustee’s claims to be without merit and has engaged counsel who is vigorously disputing the matter.     

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

During fiscal 2003 the Company’s common stock was traded on the American Stock Exchange (“AMEX”) in the United States and on the Toronto Stock Exchange (“TSX”) in Canada.  In June 2003 the Company voluntarily requested its common stock be delisted from the AMEX.  In July 2003 the Company’s shares began trading on the Over the Counter Bulletin Board (“OTCBB”).  

The Company was delinquent in the filing of its financial statements for the year ended June 30, 2003 with the Security and Exchange Commission in the United States and with the Securities Commissions of Ontario and British Columbia.  Consequently cease trade orders were issued in November 2003 for trading of the Company’s common stock on the TSX and in January 2004 for trading on the OTCBB.  Subsequently the Company has traded over-the-counter on the “Pink Sheets”.  The Company plans to become compliant in the filing of its annual and quarterly financial statements and immediately thereupon to apply for resumption of trading on the OTCBB.

On May 5, 2004 the Company received notice that the TSX is reviewing the eligibility for continued listing on TSX of the common shares of the Company.  Currently the Company falls below several requirements for continued listing, primarily related to its financial condition and operating results.  The Company has been granted 120 days, until September 2, 2004, to comply with all requirements for continued listing or face suspension of trading.  The Company does not expect to be able to meet all requirements for continued listing within the time frame specified and therefore expects its common shares to be suspended from trading on the TSX.  Following suspension of trading, delisting from the TSX can be expected to occur automatically after twelve months unless the Company is reinstated during that period. The Company is exploring the option of trading of its common shares o n the TSX Venture Exchange.     

As of July 23, 2004, there were 40,342,122 common shares outstanding.  

The following table summarizes the high and low closing sales prices per share of Azco’s common stock on the American Stock Exchange and on the Toronto Stock Exchange for the periods indicated:

Holders Of Common Equity

As of July 23, 2004, Azco had 921 recordholders of common stock.

Dividends

Azco’s Board of Directors has not declared a dividend on its common stock since Azco’s inception and has no plans to pay a cash dividend in the foreseeable future.

Recent Sales Of Securities

Through the first nine months of fiscal 2004, the Company sold $348,000 of common stock to accredited investors at prices ranging from $.10 to $.15 per share.

In June 2003, Azco was forced to enter into a second settlement agreement with Lindsay and Harvey (see below), due to the Company’s default under certain of its obligations under the initial settlement agreement. Under the second settlement agreement, among other terms, the Company agreed to issue 600,000 shares of the Company’s common stock to each of the former executives.  The stock was issued in August 2003.  A restrictive legend was attached to the stock and its sale is reliant upon an exemption from Rule 144 of the Securities Act.

In July 2002, Azco entered into a settlement agreement regarding fees payable under terminated management contracts with two of its former officers and directors, Lindsay and Harvey.  Under the terms of the settlement agreement, among other conditions, Azco agreed to issue Lindsay and Harvey each 150,000 shares of unrestricted common stock in Azco Mining Inc.  The shares were issued in July 2002.  

In December 2002, the Company issued 10,000 shares of common stock for legal services rendered in connection with the Form S-8 registration statement discussed in the previous paragraph.

In July 2002, Azco issued 430,000 shares of common stock to Pacifica Financial Group as compensation for consulting services provided to Azco.  

In June 2002 and September 2002, Azco entered into an equity line of credit agreement and a securities purchase agreement, respectively, with Cornell Capital Partners (“Cornell”).  In fiscal 2003 the Company raised a total of $1,000,000 by the sale of securities to Cornell through these agreements.  The Company issued the maximum of 6,000,000 shares allowed under the terms of the agreements.

In December 2001, Azco received a one-year $100,000 loan, bearing interest at 12% per annum, from a sophisticated investor and shareholder, Luis Barrenchea.  In connection with this loan, Azco issued a warrant to purchase 125,000 shares of Azco’s common stock at $.40 per share.  In December 2002 the loan was restructured and was payable in December 2003. It currently is in default.  The warrant vested in February 2002 and was exercisable through December 3, 2003.  Azco plans to negotiate a restructuring of this loan in conjunction with the procurement of the mica project financing if and when it becomes available.

In October 2001, Azco received a one-year $100,000 loan, bearing interest at 12% per annum, from Mr. Barrenchea.  In connection with this loan, Azco issued a warrant to purchase 125,000 shares of Azco’s common stock at $.40 per share.  In October 2002 the loan was restructured and was payable in October 2003. It currently is in default.  The warrant vested in December 2001 and was exercisable through October 19, 2003.  Azco plans to negotiate a restructuring of this loan in conjunction with the procurement of the mica project financing if and when it becomes available.

In September 2001, Azco received a one-year $200,000 loan, currently bearing interest at 12% per annum, from Mr. Barrenchea.  In connection with this loan, Azco issued a warrant to purchase 250,000 shares of Azco’s common stock at $.40 per share.  In September 2002 the loan was restructured and was payable in September 2003. It currently is in default.  The warrant vested in November 2001 and was exercisable through September 4, 2003.  Azco plans to negotiate a restructuring of this loan in conjunction with the procurement of the mica project financing if and when it becomes available.

In March 2001, Lawrence G. Olson, Azco’s Chairman and former President and CEO, jointly with his wife, made an unsecured loan to Azco in the amount of $800,000 at an interest rate equal to the prime rate of interest as reported by Imperial Bank plus one percentage point.  In conjunction with the loan, Mr. Olson received a warrant to purchase 300,000 shares of common stock for $0.70 per share.  In October 2001, Azco restructured the $800,000 loan agreement with Mr. Olson.  Mr. Olson agreed to extend the note payable an additional year to March 15, 2003 in consideration for 700,000 warrants to purchase common stock at an exercise price of $0.40 per share.  The warrants vested in December 2001 and expired in October 2003.  In addition, effective October 1, 2001, the interest rate payable on the $800,000 Olson loan was adjusted from prime plus 1% to 12% annually. &nbs p;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 loan became payable in March 2004 and currently is in default.  Azco plans to negotiate a restructuring of this loan in conjunction with the procurement of the mica project financing if and when it becomes available.  

With respect to the sale of unregistered securities referenced above, all transactions were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933 (the “1933 Act”), and Regulation D promulgated under the 1933 Act.  In each instance, the purchaser had access to sufficient information regarding Azco so as to make an informed investment decision.  More specifically, Azco had a reasonable basis to believe that each purchaser was an “accredited investor” as defined in Regulation D of the 1933 Act and otherwise had the requisite sophistication to make an investment in Azco’s securities.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data for each of the five years during the period ended June 30 are derived from our audited consolidated financial statements.  The data presented below should be read in conjunction with our consolidated financial statements and related notes, and with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results Of Operations

Year Ended June 30, 2003 Compared To Year Ended June 30, 2002

Sales

Sales decreased in fiscal 2003 to $55,469 from $64,880 in fiscal 2002 due to the curtailment of operations at the Company’s crushing and concentrating facilities at the Black Canyon mine in November 2002.  Prior to the closure of the Black Canyon facilities, the Company generated $31,060 in revenues from the sale of feldspathic sand, a by-product of the mica concentrator.  In addition, revenues of $24,409 were generated from the sale of cosmetic grade mica and mica-filled plastic pellets.  The Company continues to process and sell inventoried mica into the cosmetic and reinforced plastic industries, while it seeks financing to resume production.

Expenses

Production costs decreased by $338,792 in fiscal 2003 due to the curtailment of production at the Black Canyon facilities in November 2002.

Exploration costs decreased by $148,769 in fiscal 2003 as the result of the Company’s election to not fund its current portion of expenses associated with the Piedras Verdes project.

General and administrative expense decreased to $914,015 in fiscal 2003 from $1,149,508 in fiscal 2002.  This decrease was due to legal fees of $12,121 in fiscal 2003 compared to legal fees of $139,638 associated with the lease transaction and other financings in fiscal 2002, and stock exchange fees of $52,309 in fiscal 2003 compared to $108,023 related to maintenance of AMEX and TSX listings in fiscal 2002.       

Financing expenses in the fiscal year ended June 30, 2003 were $463,476 compared to $315,591 in the previous year.  The increase was due to fees under the Pacifica financial agreement, whereby the Company agreed to pay fees to Pacifica in the form of its common stock in the amount of $430,000, $363,000 of which was recorded in fiscal 2003 and $67,000 in fiscal 2002.   

The Company recorded a recovery of expenses of $257,743 in fiscal 2003 due to the relinquishment of debt when it entered into a second settlement agreement with two former executives and restructured the terms of the initial settlement agreement.  Expenses of $1,030,900 related to the initial settlement agreement were recorded in fiscal 2002.

An impairment charge of $3,291,773 was recorded in fiscal 2003, which reduced the carrying value of mineral properties, plant and equipment. The amount of impairment was based upon a third party’s formal indication of willingness to acquire the Company’s mining assets.  It represented management’s best estimate of the fair value of those assets.

Other Income and Expenses

Other income and expenses in fiscal 2003 were $(634,643) as compared to $(768,778) in 2002.  Interest expense increased to $952,854 in fiscal 2003 from $781,723 in fiscal 2002 due to an increase of $315,000 in accretion expense under the land and building leaseback arrangement with Muzz Investments, offset by a $119,391 reduction of deferred interest expense due to the amortization of the premium placed on warrants attached to debt financing packages.

Gain on the sale of mineral properties and equipment in fiscal 2003 consisted of $250,000 received in connection with the sale of the Company’s interest in the Piedras Verde project and $65,000 for the disposal of mobile equipment Income Tax Benefit

The Company’s income tax benefit of $998,053 in fiscal 2002 was associated with the carry back of net operating losses resulting from the March 2002 enactment of the Job Creation and Workers Assistance Act of 2002.

Year Ended June 30, 2002 Compared To Year Ended June 30, 2001

Sales

Sales increased in fiscal 2002 to $64,880 from $17,600 in fiscal 2001 due to the acceptance in the market of our cosmetic grade mica.  Our sales volume in 2002 was 31,600 lbs. as compared to 8,800 lbs. in fiscal 2001.  The sales were derived from cosmetic grade mica produced from the Black Canyon project.  

Beginning June 30, 2002, Azco also sold feldspathic sand into the Phoenix golf course sand and stucco markets.  Azco’s customers included Presperse, Inc. and KOBO for mica, and Pioneer Sand Co. and Western Stucco Products for feldspathic sand.

Expenses

Production costs decreased by $104,705 in fiscal 2002 as compared to fiscal 2001 due to lower than expected demand for the Company’s mica product.

Exploration costs decreased by $250,921 in fiscal 2002 as the result of the Company’s election to not fund its current portion of expenses associated with the Piedras Verdes project.

Salaries expense decreased in fiscal 2002 to $341,608 from $430,111 in fiscal 2001. This decrease was due to the non-renewal in October 2002 of management contracts with two former executives.

General and administrative expense increased in fiscal 2002 to $1,149,508 from $588,632 in fiscal 2001.  This increase was due to $180,000 in financing new lease payments in fiscal 2002, as well as investor relations expense relating to contract services of $495,903 in fiscal 2002 compared to $71,644 in fiscal 2001, accounting fees of $118,180 in fiscal 2002 compared to $38,583 in fiscal 2001 and stock exchange fees of $108,023 in fiscal 2002 compared to $51,673 in fiscal 2001.  Investor relations expense includes $336,043 of non-cash expense related to the issuance of 820,000 shares of stock and 50,000 warrants in exchange for services rendered.  The increase in accounting fees in fiscal 2002 is due to services rendered in connection with the various financings throughout the year.

Expenses of $1,030,900 were recorded in fiscal 2002 related to the settlement reached with two of the Company’s former executives.

Financing expense in fiscal year 2002 was $315,591 compared to $72,139 in fiscal 2001.  The increase was due to recording of the transaction fees due under the Cornell Capital equity line of credit agreement, whereby the Company agreed to issue $250,000 of its common stock as fees.

Other Income and Expenses

Other income and (expenses) was $(768,778) in fiscal 2002 as compared to $70,826 in fiscal 2001.  The principal factors in the decrease in fiscal 2002 were interest of $139,639 on new notes payable and $457,745 of non-cash amortization expenses on debt discounts relating to the financing arrangements.

Income Tax Benefit

The Company’s income tax benefit of $998,053 in fiscal 2002 was associated with the carryback of net operating losses resulting from the March 2002 enactment of the Job Creation and Workers Assistance Act of 2002.

Liquidity And Capital Resources

As of June 30, 2003, Azco had cash-on-hand of $707, a decrease from $884,647 at June 30, 2002.  The decrease was a result of increased expenses relating to financing activities.  

In fiscal 2004, Azco has continued to seek funding for its mica project. The Company financed these efforts during the first six months of fiscal 2004 with the proceeds of the sale of approximately $160,000 of cosmetic grade mica and mica-filled plastic pellets.  In addition, the Company sold $348,000 of common stock during the first nine months of fiscal 2004 through the offering of stock subscriptions to shareholders and sophisticated investors.  

In an effort to bring the mica project to commercial production, fund the Company’s corporate commitments and initiate an exploration program, Azco anticipates the need for at least $5.2 million of additional financing during the next 12 months, in order to fund the following expected uses:

This projection assumes that the Company will be able to restructure its current debt and lease commitments whereby interest, principal and lease payments will be paid from future mica project revenues or with equity components.

Azco will need additional funding to meet its operating expenses.  If we are unable to procure such additional funding, the Company may be required to eliminate substantially all business activities to conserve cash or may need to seek protection under the U.S. bankruptcy laws.

In fiscal 2003, Azco raised approximately $1,000,000 through the sale of securities to Cornell Capital Partners (“Cornell”) under an equity line of credit agreement and a securities purchase agreement, which the Company and Cornell entered into in June 2002 and September 2002 respectively.  The Company issued the maximum of 6,000,000 shares allowed under the terms of the agreements.

In January 2002, Azco completed a financing lease transaction that yielded Azco net proceeds of $2,842,500.  Under the terms of the transaction, Azco sold a 40% 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 stake for 120% of the original sales price, of $3,000,000, after the second year.  The repurchase price of the property increases by 10% of the original sales price each year the option remains unexercised up to a maximum of 150% of the original sales price.  The lessor maintains a mirror image option to put the property back to the Company.  Payments for the first 6 months under the lease agreement were $30,000, for the second 6 months they increase to $37,500 after which time they are $45,000 per month.  In connection with this transaction, the Company issued a warrant to purchase 2,550,000 shares of the Company’s common stock at $0.50 per share.  The warrant vested in January 2002 and is exercisable through January 16, 2007.  The Company paid the first 12 lease payments but currently is in default under terms of the lease agreement and, as of May 17, 2004, owes $765,000 representing 17 lease payments , plus late payment penalties.  The Company plans to restructure the terms of the lease agreement if and when funding can be arranged for the mica project.

In December 2001, Azco received a one-year $100,000 loan, bearing interest at 12% per annum, from a sophisticated investor and shareholder, Luis Barrenchea.  In connection with this loan, Azco issued a warrant to purchase 125,000 shares of Azco’s common stock at $.40 per share. In December 2002 the loan was restructured and was payable in December 2003. It currently is in default.  The warrant vested in February 2002 and expired in December 2003.  Azco plans to negotiate a restructuring of this loan in conjunction with the procurement of the mica project financing if and when it becomes available.

In October 2001, Azco received a one-year $100,000 loan, bearing interest at 12% per annum, from Mr. Barrenchea.  In connection with this loan, Azco issued a warrant to purchase 125,000 shares of Azco’s common stock at $.40 per share.  In October 2002 the loan was restructured and was payable in October 2003.  It currently is in default.  The warrant vested in December 2001 and expired in October 2003.  Azco plans to negotiate a restructuring of this loan in conjunction with the procurement of the mica project financing if and when it becomes available.

In September 2001, Azco received a one-year $200,000 loan, currently bearing interest at 12% per annum, from Mr. Barrenchea.  In connection with this loan, Azco issued a warrant to purchase 250,000 shares of Azco’s common stock at $.40 per share.  In September 2002 the loan was restructured and was payable in September 2003.  It currently is in default.  The warrant vested in November 2001 and expired in September 2003.  Azco plans to negotiate a restructuring of this loan in conjunction with the procurement of the mica project financing if and when it becomes available.

In March 2001, Lawrence G. Olson, Azco’s Chairman and former President and CEO, jointly with his wife, made an unsecured loan to Azco in the amount of $800,000 at an interest rate equal to the prime rate of interest as reported by Imperial Bank plus one percentage point.  In conjunction with the loan, Mr. Olson received a warrant to purchase 300,000 shares of common stock for $0.70 per share.  In October 2001, Azco restructured the $800,000 loan agreement with Mr. Olson.  Mr. Olson agreed to extend the note payable an additional year to March 2003 in consideration for 700,000 warrants to purchase common stock at an exercise price of $0.40 per share.  The warrants vested in December 2001 and expired in October 2003.  In addition, effective October 1, 2001, the interest rate payable on the $800,000 Olson loan was adjusted from prime plus 1% to 12% annually.  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 loan became payable in March 2004 and currently is in default.  Azco plans to negotiate a restructuring of this loan in conjunction with the procurement of the mica project financing if and when it becomes available.

The agreements with Mr. Barrenchea and Mr. Olson described above are with parties related to Azco and may not be at arms-length.

A summary of the maturity dates of the notes payable currently due and the amounts payable (excluding debt discounts, accrued interest and default penalties) are set forth below: