<PAGE>   1


                                    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, 2000

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                       (I.R.S. Employer
 incorporation or organization)                      Identification No.)

   2068 Main Street, Suite C, P.O. Box 1895 Ferndale, WA     98248
   -----------------------------------------------------   ----------
             (Address of corporate office)                 (Zip Code)

Registrant's telephone number, including area code: (360) 380-4467

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

Title of each class               Name of each exchange on which
                                  registered

Common Stock, $.002 par value     The Toronto Stock Exchange

Common Stock, $.002 par value     The American Stock Exchange

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 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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's 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]

The number of shares of the Company's Common Stock outstanding as of September
25, 2000 is 29,887,121.

Aggregate Market Value of Stock held by Non-Affiliates as of September 25, 2000:
$25,670,906 (U.S.)

Documents incorporated by reference: None.


<PAGE>   2

                                     PART I

        Statements contained in the annual report that are not historical facts
are forward-looking statements as that term is defined in the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements are subject to
risks and uncertainties, which could cause actual results to differ materially
from estimated results. Such risks and uncertainties are detailed in filings
with the Securities and Exchange Commission, including, without limitation, in
Item 1. "BUSINESS", Item 2. "PROPERTIES" and Item 7. "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" below.

ITEM 1. BUSINESS

        Azco Mining Inc. ("AZCO" or the "Company") is a U.S. mining company with
a general business strategy to acquire and develop mineral properties amenable
to low cost production. The Company is currently focused on producing high
quality Muscovite Mica from its 100% owned Black Canyon Mica project located in
Arizona. The Company, with its 30% interest, has established a strategic
partnership with Phelps Dodge Corporation on the Piedras Verdes copper project
located in Sonora, Mexico. The business strategy on large exploration projects
has been focused on establishing partnerships with major companies. This
strategy generally reduces financial risk and offers the opportunity to
participate in major mineral projects.

        Prior to the sale of the majority of its copper assets the Company was
dedicated to the development and production of low-cost copper utilizing solvent
extraction-electrowinning or the SX-EW process. AZCO's principal mineral
property was the Sanchez porphyry copper project ("Sanchez Project") located
about 10 miles northeast of the City of Safford in southeastern Arizona. The
Company also had interests in two other porphyry copper properties, the Piedras
Verdes and Suaqui Verde properties located in Sonora State, Mexico. On July 27,
1995 the Board of Directors of AZCO (the "Board") signed definitive agreements
with Phelps Dodge Corporation ("Phelps Dodge" or "PDC") to sell a substantial
portion of the Company's copper assets. AZCO's shareholders approved the sale of
100% of the Sanchez Project and 70% of the Piedras Verdes project for gross
consideration of $40 million.

        A predecessor of AZCO was incorporated on July 13, 1988 under the laws
of Colorado to acquire the mining rights to the Sanchez Project, as well as
certain other mineral properties. On August 27, 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 ("Filton"), in return for the issuance of 3,650,000 common shares.
At that time Filton owned rights in two mining properties located in Mexico, the
Suaqui Verde project located in southeastern Sonora and the Piedras Verdes
project located in southern Sonora. Filton was dissolved effective February 14,
1994 with its Mexican interests being distributed to the Company.

        On July 31, 1992 AZCO merged with AZCO Mining Inc., a Wyoming
corporation ("AZCO (Wyoming)"), with AZCO being the survivor of the merger (the
"Merger"). At the time of the completion of the Merger AZCO (Wyoming) had
3,946,550 shares issued and outstanding and the Company had 12,633,822 common
shares issued and outstanding. One common share of the Company was issued in
exchange for each



                                       2
<PAGE>   3

share of AZCO (Wyoming) in connection with the Merger. AZCO (Wyoming) was
formerly a British Columbia corporation, which was incorporated under the laws
of the Province of British Columbia on August 20, 1981 under the name 241145
B.C. Ltd. 241145 B.C. Ltd. changed its name to Canarex Resources Inc. on June
22, 1983, to International Baron Resources Ltd. on January 25, 1988 and finally
to AZCO Mining Inc. on February 20, 1992. AZCO (Wyoming) was continued under the
laws of Wyoming effective May 13, 1992 prior to merging with AZCO.

        On March 9, 1999 the Company completed the acquisition of Arizona Mica
Properties, Inc., an Arizona corporation ("Arizona Mica"), which owned the
rights to develop 43 unpatented lode-mining claims located in Yavapai County,
Arizona. This acquisition was accomplished through the merger of Arizona Mica
with and into the Company's wholly owned subsidiary, Sanchez Mining Inc., a
Delaware corporation ("Sanchez"), with Sanchez being the surviving corporation
in the merger. Sanchez has subsequently changed its name to AZCO Mica, Inc. In
connection with the merger the Company issued an aggregate of 4,500,000 shares
(the "Shares") of its common stock to the three shareholders of Arizona Mica,
Messrs. Lawrence G. Olson, John O. Rud and Floyd R. Bleak, with each such
shareholder receiving 1,500,000 Shares of the Company's common stock. The Shares
were issued as "restricted securities", as that term is defined in Rule 144
promulgated under the U.S. Securities Act of 1933, as amended (the "Act"), and
the certificates representing the Shares bore a restrictive legend permitting
transfer only pursuant to registration or applicable exemption under the Act.


SIGNIFICANT DEVELOPMENTS IN FISCAL 2000 AND SUBSEQUENT EVENTS


        During the fourth quarter of fiscal 2000 initial production commenced at
the Company's 10,000-ton per year wet ground mica processing facility located in
Glendale, Arizona. Construction and installation of the crushing circuit, at the
mine-site near Black Canyon City, Arizona, is near completion with crushing
expected to start in September of 2000. The concentrator currently being
commissioned at the Glendale plant-site is expected to be relocated and
operational at the mine-site in the second quarter of fiscal 2001.

        Samples of the Company's mica products have been distributed to
potential customers since it has become available. Feedback on the initial
products from potential customers has initiated production changes that have
enhanced the quality of the products. While these improvements to the production
circuits have delayed production and the resultant sales, it is the Company's
goal to produce the highest quality product possible before introducing it to
the market. Initial production of the enhanced products is expected in second
quarter of fiscal 2001.


                                       ***


        On July 10, 2000 the Company notified Minera Cortez Resources Ltd. that
it had elected to terminate the mineral option agreement on the La Adelita
property located in Sonora, Mexico.



                                       3
<PAGE>   4

        The Company continues to control the Silverado and the Alamos claims,
which surround the La Adelita property. In an effort to limit financial exposure
it is the Company's intention to attract a joint venture partner to help further
explore these claim blocks.

                                       ***

        On May 9, 1996 the Company signed an agreement with West Africa Gold &
Exploration Ltd., Eagle River International Limited ("Eagle") and Lion Mining
Finance Limited ("Lion")(the "Mali agreement") that provided for the
establishment of a joint venture holding company, Sanou Mining Corporation
("Sanou"). Sanou is the sole beneficial owner of a Malian subsidiary
headquartered in Bamako and called Western African Gold and Exploration Company
S.A. ("WAG"), which has a 100% working interest in the Medinandi and Dandoko
concessions located in the Kenieba Gold Mining District of western Mali. Eagle,
the original principal concession owner through a Malian subsidiary, has caused
that subsidiary to convey the concessions to WAG.

        Effective August 9, 1996 WAG entered into a debenture agreement with
AZCO thereby acknowledging itself indebted to and promising to pay AZCO, in
consideration of financial advances and services then made, or thereafter made,
the aggregate principal sum of $4,000,000. All advances AZCO has made to date
under the debenture agreement are also evidenced by promissory notes from Eagle.

        On September 3, 1997 AZCO served notice to Eagle stating that, due to
the fact that the work commitment for the license on the Mali project was
unacceptable, AZCO was declaring default of its May 9, 1996 agreement with the
same. In regard to the Mali agreement, among West African Gold & Exploration
Ltd., Eagle, Lion and AZCO, AZCO gave notice of default to its joint-venture
partners. This dispute is still outstanding and the Company is currently trying
to resolve it. Eagle is currently bankrupt as indicated in Item 3. "LEGAL
PROCEEDINGS".

        On April 6, 1998 the Company entered into an agreement with Lines
Overseas Management Ltd. ("Lines"). Under the terms of the Mali agreement Lines
had originally advanced $500,000 and 125,000 shares of the Company's common
stock owned by it to Eagle for payments to Guefest and other parties. The
Company issued 375,000 shares to Lines in consideration for assigning and
quitclaiming to the Company all advances and any other benefit or claim of Lines
related to the Mali agreement.

        The Company is currently in the third year of a joint venture with
Randgold Resources Limited ("Randgold") whereby Randgold has the right to earn
up to 75% of the Company's interest in WAG. To earn this interest Randgold has
agreed, over a 36-month period, to conduct exploration on the WAG property
concessions at a minimum cost of $2 million, with the aim of establishing
whether there is a viable economic gold resource, as defined in the joint
venture agreement, of at least one million ounces. Thereafter Randgold shall
prepare a bankable feasibility study on any such resource for WAG within a
further 12 months in order to earn its interest therein. The Company realized
$277,500 of other income, in conjunction with the joint venture agreement with
Randgold, when the exploration camp assets were sold.

                                       ***



                                       4
<PAGE>   5

        The Company elected to not exercise its option to purchase the Benitoite
Gem Mine located in San Benito County, California. The option expired on January
1, 2000.

                                       ***

        Effective on August 9, 1999 the Company entered into an "Agreement in
Principle" (the "AIP") with each of Thomas Ford and Calgem, Inc., a company
wholly-owned by Mr. Ford (collectively, "Calgem"), pursuant to which Calgem
therein granted the Company an option to purchase all of the issued and
outstanding shares of Calgem and/or business assets of Calgem. Calgem is a
company that auctions colored gemstones on television. In accordance with the
terms and conditions of the AIP, as now expired, the Company had advanced, by
way of a loan to Calgem (the "Loan"), an aggregate of $250,000. The Loan,
together with interest accruing thereon at the rate of ten percent per annum,
was to be secured by way of a senior fixed and floating charge on all of the
assets of Calgem (the "Security"). The Company wrote-off the Loan during the
current fiscal year due to the fact that it had not been successful in
establishing either repayment terms or Security for the Loan. The Company, in
discussions with counsel and Calgem, is currently considering its course of
action against Calgem.

                                       ***

        On May 22, 1998 the Company entered into an agreement to purchase a
$1,500,000 convertible debenture in and to Oro Argentina Limited ("OAL") for the
purpose of financing the first phase of the Chigue White Bentonite project and
the option payments of OAL as required thereby. OAL had an option to acquire a
50% interest in this Bentonite project that is located in San Juan, Argentina,
pursuant to an agreement dated February 2, 1998 between OAL and Pierre Matre.
The debenture bears interest at 12% per annum and was due on September 1, 2000.
On September 1,1999 OAL defaulted on the interest payment due under the terms of
the debenture agreement and the decision was made by the Company to expense, in
fiscal 1999, all costs related to this project. As a result of considering its
alternatives under the debenture agreement, in January of 2000 OAL voluntarily
delivered to the Company all of its interest in and to Port Velmond S.A. which
then held all of OAL's interests in and to Port Velmond S.A. which then held all
of OAL's interests in and to the Bentonite project.


        EXPLORATION AND DEVELOPMENT


        During fiscal 2000 the Company received $277,500 in conjunction with the
Randgold joint venture agreement and the sale of exploration assets.

        Exploration expense of $384,300 was incurred as the Company funded its
30% share of the Piedras Verdes project.

        During fiscal 2000 AZCO incurred $33,852 of exploration expense on the
Mali project. Randgold successfully completed its second year commitment under
the


                                       5
<PAGE>   6


joint venture agreement on the Mali project and has indicated to the Company
that it intends to continue with the third year of commitments under the
agreement.

        The Company incurred exploration expense of $70,557 on its gemstone
initiative before it was terminated. The Company incurred $58,135 in general
exploration expense during the fiscal year.

        Exploration expense of $150,544 was allocated to the La Adelita property
and the Silverado and Alamos claims in fiscal 2000.


EMPLOYEES

        As of August 15, 2000 there were 29 full-time employees of AZCO. None of
these employees are represented by a labor union contract or a collective
bargaining agreement.


LAWS AND REGULATIONS

        AZCO's interests in its projects will be subject to various laws and
regulations concerning development, production, taxes, labor standards,
environmental protection, mine safety and other matters. In addition, new laws
or regulations governing operations and activities could have a material adverse
impact on AZCO.

FOREIGN COUNTRIES AND REGULATORY REQUIREMENTS

        AZCO has mineral interests located in foreign countries including
Mexico, Indonesia and Mali. Mineral exploration, development and mining
activities on its property interests may be affected in varying degrees by
political stability and the policies of other nations in respect of these
countries. Any changes in regulations or shifts in political conditions are
beyond the control of the Company and may adversely affect its business.
Operations may be affected in varying degrees by government regulations,
including those with respect to export controls, expropriation of property,
employment, land use, water use, environmental legislation and mine safety.
Operations may be also affected in varying degrees by political and economic
instability, economic or other sanctions imposed by other nations, terrorism,
military repression, crime, extreme fluctuations in currency exchange rates and
high inflation.

SEASONABILITY

        The mine and concentrator located at the Black Canyon Mica project are
accessed by crossing a ford in the Agua Fria River. This ford is unusable at
times due to high runoff from streams and snowmelt. From past records the
maximum duration that the ford is unusable is approximately 30 days. To overcome
possible interruptions to production due to weather a one to two month stockpile
of mica concentrate is expected to be inventoried at the Glendale process plant
once the crushing and concentration facilities are fully operational at the
mine.

        It is not anticipated that AZCO's Mexican property interests in the
State of Sonora will be of a seasonable nature. The Company is aware of the fact
that



                                       6
<PAGE>   7

circumstances in other parts of the world, such as Mali and Indonesia, do make
exploration, mining and mineral processing a seasonal endeavor.

COMPETITIVE CONDITIONS

        Many companies are engaged in the exploration and development of mineral
properties. Since many of these companies have substantially greater technical
and financial resources than the Company the Company may be at a disadvantage
with respect to some of its competitors.

        The marketing of minerals is affected by numerous factors, many of which
are beyond the control of the Company. Such factors include the price of the
mineral in the marketplace, imports of minerals from other nations, the
availability of adequate refining and processing facilities, the price of fuel,
electricity, labor, supplies and reagents and the market price of competitive
minerals. In addition, sale prices for many commodities are determined by world
market forces or are subject to rapid and significant fluctuations that may not
necessarily be related to supply or demand or competitive conditions that in the
past have affected such prices.

ENVIRONMENTAL

        In connection with its future mining and processing operations, the
Company will be required to comply with various federal, state and local laws
and regulations pertaining to the discharge of materials into the environment.
The Company will also be required to maintain various permits and licenses
necessary for its operations from appropriate regulatory agencies. Apart from
capital expenditures associated with the construction and maintenance of
facilities required for usual mining and processing activities, the Company does
not anticipate that compliance with environmental laws will have a material
adverse effect upon the capital expenditures, earnings and competitive position
of the Company for the remainder of the current fiscal year, the next fiscal
year or in subsequent periods deemed material by the Company. AZCO is not
currently subject to any material proceedings arising under environmental laws
and regulations.

        In light of the nature of its business the Company could face
significant exposure from potential claims involving environmental matters.
These matters could involve alleged soil, air and water contamination and
personal injuries or property damage allegedly caused by toxic materials handled
or used by the Company in connection with its mining activities. The Company's
policy is to accrue environmental and cleanup costs when it is probable that a
liability has been incurred and the amount of such liability is determinable.
However, future environment-related expenditures cannot be reasonably quantified
in many circumstances due to the speculative nature of remediation and cleanup
costs, estimates and methods, the imprecise and conflicting data regarding the
characteristics of various types of materials and waste, the unknown number of
other potentially responsible parties involved, the extent to which such costs
may be recoverable from insurance and changing environmental laws and
interpretations. As a result the Company believes its future environment-related
expenditures could potentially become material at some point, but the amount of
such expenditures are uncertain at this time.



                                       7
<PAGE>   8

ITEM 2. PROPERTIES

BLACK CANYON MICA PROJECT

        On March 9, 1999 the Company completed the acquisition of Arizona Mica,
which owned the rights to develop 43 unpatented lode-mining claims located in
Yavapai County, Arizona. This acquisition was accomplished through the merger of
Arizona Mica with and into the Company's wholly owned subsidiary, Sanchez, with
Sanchez being the surviving corporation in the merger. Sanchez has subsequently
changed its name to AZCO Mica, Inc. ("AZCO Mica").

        AZCO Mica has staked 226 additional claims adjacent to the original
property and has defined, through two drill programs, a deposit of 1,366,645
tons of muscovite mica ore. In the fourth quarter of fiscal 2000 production
commenced at the Company's 10,000-ton per year wet ground mica processing
facility in Glendale, Arizona. Construction and installation of the crushing
circuit, at the mine-site near Black Canyon City, Arizona, is near completion
with crushing expected to start in September of 2000. The concentrator currently
being commissioned at the Glendale plant-site is expected to be relocated and
operational at the mine-site in the second quarter of fiscal 2001.

        Through June 30, 2000 the Company has incurred the following capital
costs in relation to the mica project:

<TABLE>
<S>                                        <C>
Acquisition of mineral properties          $2,219,996
Mining and processing plant and equip       4,669,266
Development costs                             919,481
Deferred reclamation costs                    190,400
Inventories                                 1,000,778
                                           ----------
Total                                      $8,999,221
</TABLE>

        During fiscal 2000 the following expenses were incurred in relation to
the mica project:

<TABLE>
<S>                <C>
Start-up costs     $1,371,798
Depreciation           63,234
Reclamation             2,052
                   ----------
Total              $1,437,084
</TABLE>

PIEDRAS VERDES PROJECT

        The Piedras Verdes property is leased by Cobre del Mayo, S.A. de C.V.
("Cobra del Mayo"), a Mexican corporation that is owned 30% by AZCO and 70% by
Minera Phelps Dodge Mexico S. de R.L. de C.V. ("MPDM"), a subsidiary of Phelps
Dodge. The property consists of approximately 640 hectares and is located in
southern Sonora State, Mexico.

        Prior to the sale of a 70% interest in Cobre del Mayo to MPDM, 242
reverse circulation holes totalling 26,815 meters had been drilled. Since the
sale of



                                       8
<PAGE>   9

the 70% interest in Cobre del Mayo to MPDM 217 holes totaling 47,869 meters have
been cored. In addition, the geologic mapping has been expanded, metallurgical
testing has been advanced and a geological and ore deposit model has been
prepared. A pre-feasibility report has been prepared and a $3,600,000 work
budget advancing the project towards bankable feasibility has been approved and
initiated.

        The Company estimates that the Piedras Verdes property contains a 316
million ton deposit grading .37% copper or 2.34 billion pounds of contained
copper (at a .2% cut-off). There are no proven or probable reserves at the
Piedras Verdes property at this time.


SUAQUI VERDE PROJECT

        Cobre de Suaqui Verde, S.A. de C.V., a Mexican corporation that is owned
99.97% by AZCO, leased the Suaqui Verde copper property. Effective July 31, 1999
Cobre de Suaqui Verde, S.A. de C.V., under the direction of the Company,
terminated the June 17, 1991 Suaqui Verdi agreement with Mrs. Maria Dausinger
and has transferred the mineral concessions to Mrs. Dausinger.

MALI GOLD CONCESSIONS

        On May 9, 1996 the Company signed the Mali agreement with West Africa
Gold & Exploration Ltd., Eagle and Lion that provided for the establishment of a
joint venture holding company, Sanou. Sanou is the sole beneficial owner of a
Malian subsidiary headquartered in Bamako and called WAG, which has a 100%
working interest in the Medinandi and Dandoko concessions located in the Kenieba
Gold Mining District of western Mali. Eagle, the original principal concession
owner through a Malian subsidiary, has caused that subsidiary to convey the
concessions to WAG.

        Effective August 9, 1996 WAG entered into a debenture agreement with
AZCO thereby acknowledging itself indebted to and promising to pay AZCO, in
consideration of financial advances and services then made, or thereafter made,
the aggregate principal sum of $4,000,000. All advances AZCO has made to date
under the debenture agreement are also evidenced by promissory notes from Eagle.

        On September 3, 1997 AZCO served notice to Eagle stating that, due to
the fact that the work commitment for the license on the Mali project was
unacceptable, AZCO was declaring default of its May 9, 1996 agreement with the
same. In regard to the Mali agreement among, West African Gold & Exploration
Ltd., Eagle, Lion and AZCO, AZCO gave notice of default to its joint-venture
partners. This dispute is still outstanding and the Company is currently trying
to resolve it. Eagle is currently bankrupt as indicated in Item 3. "LEGAL
PROCEEDINGS".

        On January 21, 1999 the Company announced that it had entered into a
joint venture with Randgold whereby Randgold acquired the right to earn up to
75% of the Company's interest in WAG. To earn this consideration Randgold has
agreed, over the next 36 months, to conduct exploration on the WAG concessions
at a minimum cost of $2 million, with the aim of establishing whether there is a
viable economic gold resource, as defined in the agreement, of at least one



                                       9
<PAGE>   10

million ounces. Thereafter Randgold is required to prepare a bankable
feasibility study on any such resource for WAG within a further 12 months in
order to earn its interest therein. There are no proven or probable reserves at
the Mali properties at this time.


PONGKOR PROPERTIES

        The South and West Pongkor properties adjoin the claim block containing
the 3 million ounce Pongkor Gold Mine in the Bayah Dome area of Western Java in
Indonesia. AZCO does not own any interest in the Pongkor Gold Mine. There are no
proven or probable reserves at the Pongkor properties at this time.

        On November 30, 1999 the Company entered into a joint venture agreement
with Havilah Resources NL ("Havilah") to explore the Pongkor West property.
Havilah, under the terms of the agreement, was entitled to a 60% interest in the
joint venture by completing a $360,000 exploration program over 3 years. On
August 25, 2000 Havilah informed the Company that it had decided to withdraw
from the West Pongkor joint venture immediately. In light of the Havilah
withdrawal the Company is currently assessing the merits of the Pongkor
properties.


ITEM 3. LEGAL PROCEEDINGS

        On January 22, 1999 the trustee (the "Petitioner") in bankruptcy
proceedings against Eagle served a petition, in the Quebec Superior Court,
District of Hull, upon the Company in order to recuperate assets from the
Company. The Petitioner alleges that the Company owes an accounting to the
Petitioner for certain stock in its subsidiary and other alleged assets which,
the Petitioner has alleged, represent hypothetical values that may aggregate, if
one accepts the Petitioner's claims of private stock values, up to $3,400,000.
The Company considers the Petitioner's claims to be without merit and has
engaged counsel that is disputing the matter vigorously on behalf of the
Company. To the knowledge of the Company it is also the largest creditor of
Eagle (a claim has been made in excess of $4,000,000) and, therefore, it is
ultimately the Company's and Canadian counsel's view that the Petitioner will be
primarily accountable to the Company for any assets recovered, whether such
should be through the Company or any other party.

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

        None.



                                       10
<PAGE>   11

                                    PART II



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

        The Company's common shares are listed for trading on The Toronto Stock
Exchange in Canada and The American Exchange in the U.S. under the stock symbol
"AZC". The approximate number of registered shareholders of record for the
Company, as of September 25, 2000, was 1,003.

        Shown below are high and low sale prices of the common stock of the
Company on The Toronto Stock Exchange and The American Stock Exchange for the
fiscal periods indicated.


<TABLE>
<CAPTION>
     Quarter Ended       Toronto Stock Exchange              American Stock Exchange
                              (Canadian $)                          (U.S. $)
     -------------       ----------------------            --------------------------
         1998             High            Low                High               Low
        -------          -------        -------            -------            -------
<S>                      <C>            <C>                <C>                <C>
        09/30/98           1.13           0.70               0.75               0.44
        12/31/98           0.95           0.70               0.63               0.44

         1999
        -------

        03/31/99           1.30           0.75               0.75               0.56
        06/30/99           1.80           0.80               1.31               0.63
        09/30/99           1.62           1.11               1.00               0.81
        12/31/99           1.44           0.95               1.00               0.69

         2000
        -------

        03/31/00           1.80           1.05               1.38               0.75
        06/30/00           2.24           1.35               1.56               1.06
</TABLE>

DIVIDEND POLICY

        AZCO has not paid any dividends on its common shares to date. AZCO does
not anticipate paying any dividends in the foreseeable future.

ITEM 6. SELECTED FINANCIAL DATA

        The following table sets forth selected consolidated financial
information regarding the financial position and operating results for the
Company. For each of the years ended June 30 the selected financial information
has been derived from the Company's consolidated financial statements. This
information should be read in conjunction with Item 7. "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" included below.



                                       11
<PAGE>   12

                           For the year ended June 30

<TABLE>
<CAPTION>
                                        2000                1999                  1998                 1997               1996
                                    ------------        -------------         ------------         ------------       ------------
<S>                                 <C>                 <C>                   <C>                  <C>                <C>
Revenues                            $    592,190        $     917,391         $  1,061,398         $  1,368,753       $ 26,893,607

Net income (loss)                     (3,899,486)          (4,528,006)          (3,044,112)          (8,155,700)         17,127,455

Per share                           $       (.13)       $        (.17)        $       (.12)        $       (.32)      $        .67


Weighted Avg. #
Of common shares                      29,846,839           26,787,226           25,646,449           25,787,247         25,554,322
& common equiv.


Balance Sheet:

Mineral Properties                  $  8,181,582        $   2,219,997           $      nil         $        nil       $        nil

Total Assets                          13,872,311           17,353,717           19,486,669           22,345,247         30,033,118

Notes Payable                                Nil                  nil                  nil                  nil                nil

Total Liabilities                        566,028              387,984              299,061              337,050             58,217

Total Stock-holders' equity         $ 13,306,283        $  16,965,733         $ 19,187,608         $ 22,008,197       $ 29,974,901
                                    ------------        -------------         ------------         ------------       ------------
</TABLE>


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


GENERAL

        All material revenues received during fiscal 2000 and 1999 were a result
of interest earned on the proceeds of the sale of assets to Phelps Dodge with
the exception to $277,500 received in fiscal 2000 in conjunction with the
Randgold joint venture agreement and the sale of exploration assets. All funds
raised prior to fiscal 1996 were used in the exploration and development of the
Company's various mineral properties.

RESULTS OF OPERATIONS

TWELVE MONTHS ENDED JUNE 30, 2000 COMPARED TO TWELVE MONTHS ENDED JUNE 30, 1999

        AZCO had a net loss of $3,899,486 in fiscal 2000 compared to net loss of
$4,528,006 in 1999. The decrease in net loss for the year ended June 30, 2000 is
the result of a decrease in exploration expense of $2,343,787 for the current
period offset by production startup costs of $947,511 and an inventory
write-down of $424,287.

        Exploration expense in fiscal 2000 was $697,388 as compared to
$3,041,175 in 1999. Exploration expense for the current period was greatly
reduced from that of last year due to the fiscal 1999 write-off of $1,241,359 in
advances and accrued interest under the OAL debenture agreement. The Company's
joint venture with Randgold on the Mali property and its decision to drop its
gemstone initiative also reduced exploration costs in the current period.



                                       12
<PAGE>   13

        General and administrative expense decreased in fiscal 2000 to
$1,027,582 from $1,301,590 in fiscal 1999. This decrease was due to reduced
activities in investor relations and corporate development as well as related
travel costs in fiscal 2000.

        Amortization and depreciation expense increased from $14,904 in fiscal
1999 to $133,174 in fiscal 2000 due to the commencement of the depreciation of
assets associated with the mica project.

TWELVE MONTHS ENDED JUNE 30, 1999 COMPARED TO TWELVE MONTHS ENDED JUNE 30, 1998.

        AZCO had a net loss of $4,528,006 in fiscal 1999 compared to net loss of
$3,044,112 in 1998. The increase in net loss for the year ended June 30, 1999
was the result of a provision for income tax benefit booked in fiscal 1998.

        The Company's provision for income tax benefit in fiscal 1998 was
$2,109,237 compared to $4,186 for fiscal 1999 due to federal income tax refunds
received as a result of taxes paid on the sale of assets in fiscal 1996.

        Exploration expense in fiscal 1999 was $3,041,175 as compared to
$3,261,405 in fiscal 1998. Exploration expense for fiscal 1999 includes
$1,241,359 representing advances and accrued interest under the OAL debenture
agreement. The decision to expense all costs related to this project was made
after OAL defaulted on its interest payment due on September 1, 1999.

        Legal settlement costs in fiscal 1998 resulted from the $400,000 payment
to AIOC Corporation ("AIOC") as full and final payment of all matters and claims
between AIOC, AZCO and Sanchez.


LIQUIDITY AND CAPITAL RESOURCES

        For the fiscal year ended June 30, 2000 the Company met its capital
requirements through the proceeds of the sale of assets to Phelps Dodge in 1996.

        At June 30, 2000 and June 30, 1999 the Company had cash and cash
equivalents of $4,324,886 and $12,106,173, respectively, and working capital of
$4,883,713 and $11,821,537, respectively. Total liabilities at June 30, 2000
were $566,028 as compared to $387,984 on June 30, 1999.

        The Company feels that its current cash position, along with anticipated
mica revenues, is strong enough to fund all cash requirements in fiscal 2000. In
the event that a production decision is made in regards to the Piedras Verdes
project it is the Company's intention to raise additional capital to fund its
share of the construction costs. Funding approximately $4.1 million in potential
pre-production royalties on the Piedras Verdes project over the next 10 years is
expected to come from either the Company's treasury or from potential joint
venture partners. In the event that is not possible additional funding will be
sought to fund the advance royalties on the Piedras Verdes project if the
Company chooses to retain its interest in that project.



                                       13
<PAGE>   14

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCUSSION ABOUT MARKET RISK

        Not applicable.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        The response to this item is submitted as a separate section at the end
of this report beginning on page F-1 of this Form 10-K.


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

        Not applicable.


                                    PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS

        The following table lists the names and positions of the executive
officers and directors of the Company as of September 25, 2000. All executive
officers and directors have been elected and appointed to serve until their
successors are elected and qualified. Additional information regarding the age,
business experience, and length of time served in each capacity and other
matters relevant to each individual is set forth below in the table.



<TABLE>
<CAPTION>
       NAME                          POSITION HELD
       ----                          -------------
<S>                                  <C>
Alan P. Lindsay                      President, Chairman, Chief Executive
                                     Officer and Director

Anthony R. Harvey                    Vice Chairman of the Board, Director,
                                     Executive Vice President and Secretary

Paul A Hodges                        Director of the Company

Dr. Ian M. Gray                      Director of the Company

Lawrence G. Olson                    Director of the Company

Ryan A. Modesto                      Vice President Finance

Gary L. Simmerman                    Vice President Operations
</TABLE>

        All of the directors and officers of the Company have held their
principal occupations as set out above, except as follows, during at least the
last five years:



                                       14
<PAGE>   15

        Mr. Lindsay, aged 50, one of the Company's founders, has been
responsible for arranging the financing, the corporate development and the
building of the organization important to the success of the Company. Mr.
Lindsay has an extensive background in business management and marketing. Mr.
Lindsay has been involved in the mining business for the past ten years and
since 1989 has been devoted to AZCO's business. From 1982 to 1989 Mr. Lindsay
was the Manager of the Financial Services Division of the North American Life
Assurance Company in Vancouver.

        Mr. Harvey, aged 66, one the Company's founders, has been associated
with the Company since July 13, 1988. Mr. Harvey has been a full-time employee
since May 18, 1989, prior to which he spent 30 years with Wright Engineers
Limited, where he gained extensive experience in the mining industry in various
management positions, including mine construction and ore extraction, bulk
handling and processing, project management and corporate marketing and
development, in many countries including the U.S. As a senior project manager
Mr. Harvey was responsible for the overall management and direction of many
mining projects worldwide, including the Copper Flat Project 15,000 ton per day
copper/moly open pit mining and processing plant located in New Mexico, for
Quintana Minerals Corporation, and a 3,000 tpd underground copper mine
rehabilitation expansion located in Ireland, for Avoca Mines Limited.

        Mr. Hodges, aged 73, a director, has a degree of Engineer of Mines from
the Colorado School of Mines and is a Registered Professional Engineer in
Arizona. Mr. Hodges has over 40 years experience in the mining industry covering
exploration, operations, project startup, management and financing and has
worked for Anaconda, Asarco, RTZ and St. Joe. Mr. Hodges was the Chief Engineer
worldwide for open pit mining for RTZ and was the President of Anamax Mining
Company at Twin Buttes. Most recently Mr. Hodges was the President of Compania
Minera El Indio. Mr. Hodges was a director of Lac Minerals Limited, a publicly
traded company acquired by American Barrick in late 1994. Mr. Hodges joined the
Board of the Company in August 1993.

        Dr. Gray aged 64, a P.Eng. of Ontario, Canada, and a Fellow of the
Society of Economics Geologists, became a director of the Company on September
4, 1996. Dr. Gray, a Mining Geologist from the Royal School of Mines in London,
UK, has spent over 40 years in the international mining industry. Dr. Gray's
experience ranges from mineral exploration through project development to mine
production for a wide variety of minerals throughout North, Central and South
America, Australia, East and Southeast Asia and Central and Southern Africa.
During his career Dr. Gray has held senior positions with major mining companies
such as Inco Ltd. and BP Minerals International Ltd., followed by considerable
experience in the formation and general management of Canadian based junior
mining public companies. Notable achievements include important roles in the
development of the huge Olympic Dam copper, uranium and gold production complex
in South Australia and the 370,000 ounce per year Fort Knox gold mine located
near Fairbanks Alaska.

        Mr. Olson, aged 63, became a director of the Company on March 15, 1999
in connection with the acquisition of Arizona Mica (see Item 13 "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS" pursuant to which Mr. Olson became a
director). Mr. Olson has owned and operated his own business, Olson Precast of
Arizona Inc., since 1973. In 1998 Olson Precast of New Mexico, Inc., a company



                                       15
<PAGE>   16

controlled by Mr. Olson, was liquidated under bankruptcy laws in proceedings in
the U.S. Bankruptcy Court for the District of New Mexico. Mr. Olson received a
B.S. in Civil Engineering from the University of Southern California in 1959.

        Mr. Simmerman, aged 50, joined the Company in September 1992 as Chief
Engineer of the Sanchez Project, and in October of 1998 was appointed
Vice-President of Operations. Mr. Simmerman, a Mining Engineer from the
University of Arizona, has been working in the mining industry since 1974, and
has been involved in exploration, development and production operations in gold,
silver, copper, cobalt, coal and uranium. For the five years prior to joining
the Company Mr. Simmerman was Chief Engineer for Santa Fe Pacific Gold's Rabbit
Creek Mine and was involved in the original determinations of the ore reserves
and the feasibility stage through startup, production and expansion to a
200,000-ton per day operation.

        Mr. Modesto aged 45, Vice President Finance since October 26, 1998,
joined the Company in June of 1994 as Controller of the Sanchez Project. Mr.
Modesto served as the Company's Corporate Controller and Principal Accounting
Officer from January of 1996 to October of 1998. Mr. Modesto earned a B.S. in
Accounting from the University of Utah in 1977 and has 23 years of accounting
and administrative experience in the mining industry. For the six years prior to
joining the Company Mr. Modesto was the Controller for Corona Gold Inc.'s Santa
Fe Mine located in Nevada.


COMPLIANCE WITH SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE OF THE
EXCHANGE ACT OF 1934

        Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(the "SEC"). Officers, directors and greater than ten percent shareholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.

        Based solely on its review of the copies of such forms received by it,
or written representations from certain reporting persons, the Company believes
that, during the fiscal year ended June 30, 2000, all filing requirements
applicable to its officers, directors and greater than ten percent beneficial
owners were complied with.


ITEM 11. EXECUTIVE COMPENSATION

        The following table summarizes the total compensation of the Chief
Executive Officer and the other most highly compensated executive officers
(collectively, the "Named Executive Officers") of the Company earning in excess
of $100,000 for the year ended June 30, 2000, as well as the total compensation
paid to each such individual for the Company's three previous fiscal years:



                                       16
<PAGE>   17



                           Summary Compensation Table
                        (As at year ended June 30, 2000)

<TABLE>
<CAPTION>
                                                                                                        Long Term
                                                               Annual Compensation                    Compensation
                                                   ------------------------------------------         ------------
                                                                                                       Securities
                                                                                                       Underlying
                                                                                                        Options/
                                                                                 Other Annual             SARs
Name and Principal                                   Salary        Bonus         Compensation            Granted
   Position                             Year          ($)           ($)              ($)                   (#)
------------------                      ----       ---------       -----         ------------          -----------
<S>                                     <C>        <C>             <C>           <C>                   <C>
Alan P. Lindsay                         2000       192,938(1)      9,413           9,000(3)                 0

 President, Chairman                    1999       183,750(1)      9,000           9,000(3)              200,000

 of the Board and CEO                   1998       139,169(1)      5,500           7,250(3)                 0

Anthony R. Harvey                       2000       192,938(2)      9,413           9,000(3)                 0

 Vice Chairman, Exec. Vice              1999       183.750(2)      9,000           9,000(3)              200,000

 President, Secretary                   1998       139,169(2)      5,500           7,250(3)                 0

Ryan A. Modesto                         2000        116,664        5,583              0                     0

 Vice President Finance                 1999        109,084        5,500              0                  70,000

                                        1998         97,200        4,800          30,000(4)              13,000

Gary L. Simmerman                       2000        158,824        7,750              0                  50,000

 Vice President Operations              1999        115,973        7,500          30,000(5)              155,000

                                        1998         96,000        4,800              0                  30,000
</TABLE>


(1) These amounts were actually paid to Alan Lindsay and Associates Ltd., a
    management company under the control of Mr. Lindsay, pursuant to management
    agreements dated May 1989 and February 1998 with the Company.

(2) These amounts were actually paid to ARH Management Ltd., a management
    company under the control of Mr. Harvey, pursuant to management agreements
    dated May 1989 and February 1998 with the Company.

(3) These amounts were paid as reimbursement of medical insurance premiums.

(4) Mr. Modesto was granted a $30,000 relocation allowance in conjunction with
    the move of the Company's corporate office from Solomon, Arizona, to
    Ferndale, Washington.



                                       17
<PAGE>   18

(5) Mr. Simmerman was granted a $30,000 relocation allowance in conjunction with
    the Company's establishment of its Glendale office to oversee the Black
    Canyon Mica project.


                        OPTION GRANTS IN LAST FISCAL YEAR


<TABLE>
<CAPTION>
                                                                                                    Potential Realized
                                                                                                     Value (Cdn $) at
                            Number of      % of Total                                              Assumed Annual Rates
                           Securities        Options                                                  of Stock Price
                           Underlying      Granted to     Exercise or                                Appreciation For
                             Options      Employees in    Base Price                                   Option Term
       Name                Granted (#)     Fiscal Year    (Cdn $/Sh)          Expiration Date         5%         10%
-----------------          -----------    ------------    ----------         -----------------     --------   ---------
<S>                        <C>            <C>             <C>                <C>                   <C>        <C>
Gary L. Simmerman           50,000(*)          56%             0.95          December 13, 2004      13,123     28,999
</TABLE>


(*) These options are exercisable from the date of grant (December 13, 1999).


                 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                            AND FY-END OPTIONS VALUES


<TABLE>
<CAPTION>
                       Number of Securities Underlying         Value of Unexercised
                          Unexercised Options at FY-        In-The-Money Options at FY-
                                    End                              End ($)(*)
                       -------------------------------    ------------------------------
       Name             Exercisable      Unexercisable    Exercisable      Unexercisable
-----------------      -------------     -------------    -----------      -------------
<S>                    <C>               <C>              <C>              <C>
Alan P. Lindsay            500,000            0             273,363              0
Anthony R. Harvey          500,000            0             273,363              0
Gary L. Simmerman          315,000            0             165,305              0
Ryan A. Modesto            170,000            0              93,955              0
</TABLE>


(*) Based on the closing price of $1.1875 of the Company's common stock as
    quoted on The American Stock Exchange on June 30, 2000.

COMPENSATION OF DIRECTORS

        The Company pays a fee to its outside, non-officer directors of $1,500
per month. The Company also reimburses its directors for reasonable expenses
incurred by them in attending meetings of the Board of Directors. During fiscal
1999 non-officer directors received a total of $1,750 in consulting fees.

EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL ARRANGEMENTS

        Effective February 1, 1998 the Company entered into a management
agreement with Alan Lindsay and Associates, Ltd. ("Associates"), a British
Columbia corporation owned and controlled by Mr. Lindsay, the Company's Chief
Executive Officer. This new agreement replaces an original May 1, 1989 agreement
in its entirety. This agreement requires all salary amounts otherwise payable by
the Company to Mr. Lindsay to be paid to Associates. Associates is therein
provided with a base fee of $180,000 annually and an allowance for equivalent
benefits



                                       18
<PAGE>   19

enjoyed by Company personnel. The base fee may be renegotiated annually at the
request of either party. In the event that the parties cannot agree then the
base fee is to be increased by the greatest of 5% or the amount of the cost of
living index as published by the Canadian Federal government. The term of this
agreement is for a period of 36 months and renews automatically for subsequent
one-year periods unless either party gives the other party notice of non-renewal
at least 90 days prior to the end of any term. In the event that the agreement
is terminated, or fails to renew due to failure of agreement after the issuance
of a non-renewal notice, Associates will receive a termination fee equal to
either the sum of the buy-out of any outstanding stock options for a price equal
to the average market price of the Company's shares on The Toronto Stock
Exchange multiplied by the number of shares under option and less the exercise
price thereof or, at the election of Associates and subject to regulatory
approval, extension of the option for a year after termination, plus the greater
of,(i) the aggregate remaining base fee for the unexpired remainder of the term
and (ii) the then annual base fee plus one month of base fee for each year, or
portion thereof, served after the effective date. In the event that Associates
is unable to provide the services due to protracted disability or sickness or
the death of its principal (Mr. Lindsay) it may, at any time, declare such to
the Company and may terminate the agreement as a without fault termination and
the termination fee shall be payable. The Company may elect to effect such
termination, and shall pay the termination fee, in the case of death of
Associates' principal or in the event that sickness or disability has continued
for a period in excess of 120 days. It is the Company's estimation that if the
agreement with Associates was terminated effective September 6, 2000 Associates
would be due $500,063 as a termination fee. This fee represents $252,000
(Cdn.$375,000) for the buyout of outstanding stock options on September 6, 2000
and $248,063 representing 15 months of base fee.

        Effective February 1, 1998 the Company entered into a management
agreement with ARH Management Ltd. ("Management"), a British Columbia
corporation owned and controlled by Mr. Harvey, the Company's Vice Chairman.
This new agreement replaces an original May 1, 1989 agreement in its entirety.
This agreement requires all salary amounts otherwise payable by the Company to
Mr. Harvey to be paid to Management. Management is therein provided with a base
fee of $180,000 annually and an allowance for equivalent benefits enjoyed by
Company personnel. The base fee may be renegotiated annually at the request of
either party. In the event that the parties cannot agree then the base fee is to
be increased by the greatest of 5% or the amount of the cost of living index as
published by the Canadian Federal government. The term of this agreement is for
a period of 36 months and renews automatically for subsequent one-year periods
unless either party gives the other party notice of non-renewal at least 90 days
prior to the end of any term. In the event that the agreement is terminated, or
fails to renew due to failure of agreement after the issuance of a non-renewal
notice, Management will receive a termination fee equal to the sum of the
buy-out of any outstanding stock options for a price equal to the average market
price of either the Company's shares on The Toronto Stock Exchange multiplied by
the number of shares under option and less the exercise price thereof or, at the
election of Management and subject to regulatory approval, extension of the
option for a year after termination, plus the greater of,(i) the aggregate
remaining base fee for the unexpired remainder of the term and (ii) the then
annual base fee plus one month of base fee for each year of portion thereof,
served after the effective date. In the event that Management is unable to
provide the services due to



                                       19
<PAGE>   20

protracted disability or sickness or the death of its principal (Mr. Harvey) it
may, at any time, declare such to the Company and may terminate the agreement as
a without fault termination and the termination fee shall be payable. The
Company may elect to effect such termination, and shall pay the termination fee,
in the case of death of Management's principal or in the event that sickness or
disability has continued for a period in excess of 120 days. It is the Company's
estimation that if the agreement with Management was terminated effective
September 6, 2000 Management would be due $500,063 as a termination fee. This
fee represents $252,000 (Cdn.$375,000) for the buyout of outstanding stock
options on September 6, 2000 and $248,063 representing 15 months of base fee.

        Effective August 15, 1994 management agreements were provided to both
Messrs. Harvey and Lindsay that are effective in the event of a change in
control of the Company. Similar management agreements (collectively, the
"Management Agreements") were provided to each of Mr. Modesto, on November 19,
1996, and Mr. Simmerman, on October 23, 1998. The Management Agreements provide
for a lump sum distribution in an amount (taking into account all other
applicable change in control payments by the Company) not to exceed 299% of the
base amount as defined in IRC Section 280G(b) upon a change in control of the
Company. Such "base amount" is generally equivalent to the applicable person's
average annual compensation from the Company includable in his gross income over
the preceding five years. Change of control is therein defined to include only
the following circumstances:

(i)     the acquisition (whether direct or indirect) of shares in excess of 20
        percent of the outstanding shares of common stock of the Company by a
        person or group of persons, other than through a public equity offering
        by the Company;

(ii)    the occurrence of any transaction relating to the Company required to be
        described pursuant to the requirements of item 6(e) of Schedule 14A of
        Regulation 14A of the SEC under the Securities and Exchange Act of 1934;
        or

(iii)   any change in the composition of the Board of Directors of the Company
        resulting in a majority of the present directors not constituting a
        majority; provided, that in making such determination directors who were
        elected by, or on the recommendation of, such present majority, shall be
        excluded.

        Effective August 15, 1994 for Mr. Hodges, and effective November 19,
1996 for Dr. Gray, director's agreements (collectively, the "Director's
Agreements") were provided to each of the above that are also effective in the
event of a change in control of the Company. These Director's Agreements provide
for a lump sum distribution not to exceed $100,000 upon a change in control of
the Company. Change in control has the same definition as set forth above in
connection with the Management Agreements.


COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

        During the fiscal year ending 2000 Mr. Hodges, Mr. Olson and Dr. Gray
acted as the Company's Compensation Committee.



                                       20
<PAGE>   21


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        The table below sets forth information, as of September 25, 2000, with
respect to the beneficial ownership of the Company's common stock by each person
known by the Company to be the beneficial owner of more than five percent of its
outstanding common stock, by each director of the Company, by each Named
Executive Officer and by all officers and directors of the Company as a group.
Unless otherwise noted each shareholder has sole investment and voting power
over the shares owned.


<TABLE>
<CAPTION>
Name and Address
Of Beneficial Owner                               Type of Ownership      Number of Shares         Percent of Class
-------------------                               -----------------      ----------------         ----------------
<S>                                               <C>                    <C>                      <C>
Alan P. Lindsay                                        Record and            1,178,569(1)                 3.89%
999 W. Hastings, Ste 1250                              Beneficial
Vancouver, BC, Canada  V6C 2W2

Anthony R. Harvey                                      Record and             653,252(2)                  2.15%
999 W. Hastings, Ste 1250                              Beneficial
Vancouver, BC, Canada  V6C 2W2

Paul A. Hodges                                         Record and             113,000(3)                    *
4536 N. Via Bellas Catalinas                           Beneficial
Tucson, AZ  85718

Dr. Ian M. Gray
Copper Hill House, Buller Hill                         Record and             151,000(4)                    *
Redruth,Cornwall U.K., TR16 6SR                        Beneficial

Lawrence G. Olson                                                                                         5.85%
3045 S. 35th Avenue                                    Record and            1,754,000(5)
Phoenix, AZ 85009                                      Beneficial

Ryan A. Modesto                                        Record and             175,000(6)
PO Box 1895                                            Beneficial                                           *
Ferndale, WA 98248

Gary L. Simmerman                                      Record and             315,000(7)                    *
1211 W. Crystal Palace Place                           Beneficial

Oro Valley, AZ 85737
Officers & Directors                                   Record and             4,339,821                  13.85%
As a Group (7 persons)                                 Beneficial
</TABLE>



*       indicates less than 1%

        (1)     Includes 605,308 shares owned by a corporation controlled by Mr.
                Lindsay. Includes options to acquire 300,000 shares at an
                exercise price of CDN $1.05 per share and 200,000 shares at an
                exercise price of CDN $0.80 per share.

        (2)     Includes 122,224 shares owned by Mr. Harvey's wife. Includes
                options to acquire 300,000 shares at an exercise price of CDN
                $1.80 per share and 200,000 shares at an exercise price of CDN
                $0.80 per share.

        (3)     Includes options to acquire 50,000 shares at an exercise price
                of CDN $1.05 per share and 50,000 shares at an exercise price of
                CDN $0.70 per share.


                                       21
<PAGE>   22

        (4)     Includes options to acquire 100,000 shares at an exercise price
                of CDN $1.05 per share and 50,000 shares at an exercise price of
                CDN $0.70 per share.

        (5)     Includes an option to acquire 100,000 shares at an exercise
                price of CDN $1.05 per share.

        (6)     Represents options to acquire 120,000 shares at an exercise
                price of CDN $1.05 per share, 20,000 shares at an exercise price
                of CDN $0.70 per share and 30,000 shares at an exercise price of
                CDN $0.80 per share.

        (7)     Includes options to acquire 210,000 shares at an exercise price
                of CDN $1.05 per share, 25,000 shares at an exercise price of
                CDN $0.70 per share, 30,000 shares at an exercise price of CDN
                $0.80 per share and 50,000 shares at a price of CDN $0.95 per
                share.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        On March 9, 1999 the Company completed the acquisition of Arizona Mica,
which owned the rights to develop 43 unpatented lode-mining claims located in
Yavapai County, Arizona. This acquisition was accomplished through the merger of
Arizona Mica with and into the Company's wholly owned subsidiary, Sanchez, with
Sanchez being the surviving corporation in the merger. Sanchez has subsequently
changed its name to AZCO Mica, Inc. In connection with the merger the Company
issued an aggregate of 4,500,000 shares (the "Shares") of its common stock to
the three shareholders of Arizona Mica, Messrs. Lawrence G. Olson, John O. Rud
and Floyd R. Bleak, with each such shareholder receiving 1,500,000 Shares of the
Company's common stock. The Shares were issued as "restricted securities", as
that term is defined in Rule 144 promulgated under the U.S. Securities Act of
1933, as amended (the "Act"), and the certificates representing the Shares bore
a restrictive legend permitting transfer only pursuant to registration or
applicable exemption under the Act.

        As part of the merger transaction Messrs. Olson, Bleak and Rud also
entered into a Voting Agreement (the "Voting Agreement") with the Company,
Arizona Mica and Messrs. Alan P. Lindsay and Anthony R. Harvey, who are
officers, directors and shareholders of the Company. The Voting Agreement has a
term of five years commencing March 9,1999 and the principal provisions of the
Voting Agreement are as follows:

1. Messrs. Olson, Rud and Bleak each grant to the management of the Company, as
such may exist from time to time, the right to vote their Shares in favor of the
nominees to the Company's Board of Directors proposed by management at any
meeting of shareholders of the Company. This provision is implemented through
the grant of an irrevocable proxy by Messrs. Olson, Rud and Bleak to such member
of the Board of Directors of the Company as the Board of Directors may specify
from time to time;

2. The Company agrees to appoint one nominee (the "Nominee") of Messrs. Olson,
Rud and Bleak to the Company's Board of Directors and agrees to include the
Nominee in the management's slate of director's nominees at any meeting, of the
Shareholders of the Company;


                                       22
<PAGE>   23

3. Messrs. Olson, Rud and Bleak are permitted to sell, assign or otherwise
transfer the Shares covered by the Voting Agreement provided that such transfers
comply with applicable securities laws. Any Shares so transferred will no longer
be subject to the terms of the Voting Agreement;

        Lawrence G. Olson, a non-officer director of the Company since March 15,
1999, is the owner of Olson Precast of Arizona Inc. ("Precast"). Precast,
through a closed bidding arrangement, was awarded the concrete contract on the
Company's Glendale, Arizona, mica processing facility. Precast was compensated a
total of $141,385 for the contract.


                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8K

(a) 1. Financial Statements - Reference is made to the Financial Statements
appearing on Pages F-1 through F-22.

2. Financial Statement Schedules - Reference is made to the Financial Statement
Schedules on page F-22.

3. Exhibits

<TABLE>
     <S>       <C>
     3.1       Registrant's Certificate of Incorporation dated August 8, 1991(1)

     3.2       Articles of Amendment to the Certificate of Incorporation dated
               December 5, 1991.(1)

     3.3       Registrant's Amended By-laws.(2)

     3.4       Rights Agreement dated July 19, 1995 between the Registrant and
               Montreal Trust Company of Canada.(2)

     4.1       Specimen stock certificate.(3)

    10.1       Agreements for Suaqui Verde property. (1)

    10.2       Agreements for Piedras Verdes property. (1)

    10.3       Purchase Agreement dated July 27, 1995 between the Registrant,
               Sanchez and Phelps Dodge. (2)

    10.4       Memorandum of Agreement between West Africa Gold & Exploration
               Ltd., Eagle, Lion and the Registrant. (4)

    10.5       Management Agreement dated February 1, 1998 between the
               Registrant and ARH Management Ltd. (5)

    10.6       Management Agreement dated February 1, 1998 between the
               Registrant and Alan Lindsay and Associates, Ltd. (5)
</TABLE>


                                       23
<PAGE>   24

<TABLE>
     <S>       <C>
    10.7       Option to Purchase Agreement, for the Benitoite Gem Mine, dated
               December 1, 1997 between the Registrant and William C. Forrest,
               Hilda F. Forrest and Elvis L. Gray. (5)

    10.8       Debenture Agreement dated May 22, 1998, where Registrant
               purchases a $1,500,000 convertible debenture of Oro Argentina
               Limited. (5)

    10.9       Right of First Refusal Agreement dated June 18, 1998 between the
               Registrant and Minera Cortez Resources Ltd. (5)

    10.10      Mineral Property Option Agreement dated July 21, 1998, for the La
               Adelita property, between the Registrant and Minera Cortez
               Resources Ltd. (5)

    10.11      Change in control Management Agreements between the Registrant
               and each of Messrs. Lindsay, Harvey and Modesto. (5)

    10.12      Change in control Director's Agreements between the Registrant
               and each of Mr. Hodges and Dr. Gray. (5)

    10.13      Cobre del Mayo, S.A. de C.V. Shareholders' & Operator's
               Agreement. (5)

    10.14      Agreement and Plan of Merger of Arizona Mica into Sanchez dated
               March 10, 1999. (6)

    10.15      Shareholder's Agreement between the Registrant, Sanou, WAG and
               Randgold dated March 31, 1999. (7)

    10.16      Mineral Property Option Agreement dated May 20, 1999, for the
               Silverado property, between the Registrant and Minera Cortez
               Resources Ltd. (7)

    10.17      AIP dated August 9, 1999 between the Registrant Mr. Thomas Ford
               and Calgem. (7)

    21.1*      Subsidiaries of the Registrant.

    23.1*      Consent of PricewaterhouseCoopers.

    27.1*      Financial Data Schedule.
</TABLE>

------------

(1)     Exhibit nos. 3.1, 3.2, 10.4 and 10.5 are incorporated by reference from
        exhibit nos. 3.1, 3.2, 10.10 and 10.11, respectively, from the
        Registrant's Registration Statement on Form S-4 (File No. 33-45162).

(2)     Exhibit nos. 3.3, 3.4 and 10.3 are incorporated by reference from
        exhibit nos. 3.3, 3.4 and 10.20, respectively, from the Registrant's
        Annual Report on Form 10-K(a) for the fiscal year ended June 30, 1995.

(3)     Exhibit no. 4.1 is incorporated by reference from exhibit no. 1 from the
        Registrant's Registration Statement on Form 8-A that was filed with the
        SEC on July 21, 1992.


                                       24
<PAGE>   25

(4)     Exhibit no. 10.4 is incorporated by reference from exhibit no. 10.10
        from the Registrant's Annual Report on Form 10-K for the fiscal year
        ended June 30, 1996.

(5)     Exhibit nos. 10.5, 10.6, 10.7, 10.8, 10.9, 10.10, 10.11, 10.12 and 10.13
        are incorporated by reference from exhibit nos. 10.7, 10.8, 10.9, 10.10,
        10.12, 10.13, 10.15, 10.16 and 10.17, respectively, from the
        Registrant's Annual Report on Form 10-K for the fiscal year ended June
        30, 1998.

(6)     Exhibit no. 10.14 is incorporated by reference from exhibit no. 1 from
        the Registrant's Form 8K filed with the SEC and dated March 9, 1999.

(7)     Exhibit no. 10.15, 10.16 and 10.17 are incorporated by reference from
        exhibit no. 10.15, 10.16 and 10.17 from the Registrant's Annual Report
        on Form 10-K for the fiscal year ended June 30, 1999.


*       Filed herewith.

        (b) Reports on Form 8K:

                None.


                                       25
<PAGE>   26

                                   SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) 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.


Date: September 27, 2000            By: /s/ Alan P. Lindsay
                                        ----------------------------------------
                                            Alan P. Lindsay
                                            President, Chairman of the Board and
                                            Chief Executive Officer

 Date: September 27, 2000           By: /s/ Ryan A. Modesto
                                        ----------------------------------------
                                            Ryan A. Modesto
                                            Vice President Finance

        Pursuant to the requirements of the Securities Exchange Act of 1934, the
following persons on behalf of the registrant and in the capacities and on the
dates indicated have signed this report below.

<TABLE>
<CAPTION>
     Signature                   Title                 Date
     ---------                   -----                 ----
<S>                    <C>                                   <C> <C>
/s/ Alan P. Lindsay    President, Chairman of the  September 27, 2000
---------------------  Board and Chief Executive
Alan P. Lindsay        Officer


/s/ Anthony R. Harvey  Vice Chairman, Executive    September 27, 2000
---------------------  Vice President, Secretary
Anthony R. Harvey      and Director


/s/ Paul A. Hodges     Director                    September 27, 2000
---------------------
Paul A. Hodges

/s/ Dr. Ian M. Gray    Director                    September 27, 2000
---------------------
Dr. Ian M. Gray

/s/ Paul A. Hodges     Director                    September 27, 2000
---------------------
Paul A. Hodges
</TABLE>


                                       26
<PAGE>   27

AZCO MINING INC. (DELAWARE)
Form 10-K
Item 8, Item 14(a) (1) and (2)
Index to Financial Statements and Supplemental Schedule

<TABLE>
<CAPTION>
                                                                                                     Page
                                                                                                     ----
<S>                                                                                                  <C>
The following financial statements required to be included in Item 8 are listed below:

Report of Independent Accountants                                                                     F-2

Consolidated Balance Sheets as at June 30, 2000 and 1999                                              F-3

Consolidated Statements of Loss for the fiscal years
ended June 30, 2000, 1999 and 1998                                                                    F-4

Consolidated Statements of Stockholders' Equity for the fiscal years
ended June 30, 2000, 1999 and 1998                                                                    F-5

Consolidated Statements of Cash Flows for the fiscal years
ended June 30, 2000, 1999 and 1998                                                                    F-6

Notes to Consolidated Financial Statements                                                            F-7

The following financial statement schedule of the Registrant is included in Item
14(a)(2):

Schedule II - Valuation and Qualifying Accounts for the fiscal years
ended June 30, 2000, 1999 and 1998                                                                   F-23
</TABLE>

Schedules other than the one listed above have been omitted since they are
either not required or not applicable, or since the required information is
shown in the financial statements or related notes


                                                                             F-1

<PAGE>   28


                                                      PRICEWATERHOUSECOOPERS LLP
                                                           CHARTERED ACCOUNTANTS
                                                       1111 West Hastings Street
                                                      Vancouver British Columbia
                                                                  Canada V6E 3R2
                                                     Telephone +1 (604) 806 7000
                                                     Facsimile +1 (604) 806 7806

August 11, 2000

AUDITORS' REPORT

TO THE SHAREHOLDERS OF
AZCO MINING INC. (DELAWARE)

We have audited the consolidated financial statements and the financial
statement schedule of AZCO MINING INC. (DELAWARE) and its subsidiaries listed in
the index on page F-1 of this Form 10-K. These financial statements and the
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
the financial statement schedule based on our audits.

We conducted our audits in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance 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 audits provide a reasonable basis for our
opinion.

In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of Azco Mining Inc. (Delaware) and its
subsidiaries as at June 30, 2000 and 1999 and the consolidated results of their
operations and their cash flows for the each of the three years in the period
ended June 30, 2000 in conformity with United States generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedule referred to above, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.

"PricewaterhouseCoopers LLP"

CHARTERED ACCOUNTANTS

PricewaterhouseCoopers refers to the Canadian firm of PricewaterhouseCoopers LLP
and other members of the world-wide PricewaterhouseCoopers organization.

                                                                             F-2

<PAGE>   29

AZCO MINING INC. (DELAWARE)
Consolidated Balance Sheets
As at June 30, 2000 and 1999

<TABLE>
<CAPTION>
                                                                          2000              1999
                                                                            $                 $
                                                                       -----------       -----------
<S>                                                                     <C>               <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents                                                4,324,886        12,106,173
Prepaids and other                                                         124,077           103,348
Inventories (note 5)                                                     1,000,778                --
                                                                       -----------       -----------

TOTAL CURRENT ASSETS                                                     5,449,741        12,209,521

PROPERTY AND EQUIPMENT
Mineral properties, plant and equipment (note 7)                         7,933,857         5,076,969
Capital assets (note 8)                                                    247,725            16,639
                                                                       -----------       -----------

                                                                         8,181,582         5,093,608

RESTRICTED CASH (note 4)                                                   190,400                --

INVESTMENT AND ADVANCES (note 6)                                            50,588            50,588
                                                                       -----------       -----------

TOTAL ASSETS                                                            13,872,311        17,353,717
                                                                       -----------       -----------

LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities                                   566,028           387,984
                                                                       -----------       -----------

CONTINGENCIES AND COMMITMENTS (notes 9 and 14)

STOCKHOLDERS' EQUITY
CAPITAL STOCK
Authorized
   100,000,000 common shares with a par value of $0.002 per share

Issued and outstanding
   29,887,121 (1999 - 29,832,121) common shares                             59,774            59,664

ADDITIONAL PAID-IN CAPITAL                                              28,537,487        28,297,561

DEFICIT                                                                (15,290,978)      (11,391,492)
                                                                       -----------       -----------

                                                                        13,306,283        16,965,733
                                                                       -----------       -----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                              13,872,311        17,353,717
                                                                       -----------       -----------
</TABLE>

 The accompanying notes are an integral part of these financial statements.

                                                                             F-3

<PAGE>   30


AZCO MINING INC. (DELAWARE)
Consolidated Statements of Loss
For the years ended June 30, 2000, 1999 and 1998

<TABLE>
<CAPTION>
                                                 2000              1999               1998
                                                   $                 $                 $
                                              -----------       -----------       -----------
<S>                                           <C>               <C>               <C>
REVENUE
Interest income - net                             314,690           905,891         1,052,516
Gain (loss) on sale of assets                          --             1,500              (970)
Other income (note 9)                             277,500            10,000             9,852
                                              -----------       -----------       -----------

                                                  592,190           917,391         1,061,398
                                              -----------       -----------       -----------

OPERATING EXPENSES
Salaries                                        1,009,682         1,091,914         1,007,740
General and administrative                      1,027,582         1,301,590         1,523,552
Exploration (notes 6 and 9)                       697,388         3,041,175         3,263,405
Write-off of investment (note 6)                  250,000                --                --
Depreciation and amortization                     133,174            14,904            20,050
Production start-up costs (note 16)             1,371,798                --                --
Legal settlement costs (note 14)                       --                --           400,000
Reclamation                                         2,052                --                --
                                              -----------       -----------       -----------

                                                4,491,676         5,449,583         6,214,747
                                              -----------       -----------       -----------

LOSS BEFORE INCOME TAXES                       (3,899,486)       (4,532,192)       (5,153,349)

INCOME TAX BENEFIT (note 11)                           --             4,186         2,109,237
                                              -----------       -----------       -----------

LOSS FOR THE YEAR                              (3,899,486)       (4,528,006)       (3,044,112)
                                              -----------       -----------       -----------

BASIC LOSS PER COMMON SHARE (note 12)               (0.13)            (0.17)            (0.12)
                                              -----------       -----------       -----------

DILUTED LOSS PER COMMON SHARE (note 12)             (0.13)            (0.17)            (0.12)
                                              -----------       -----------       -----------

WEIGHTED AVERAGE NUMBER OF COMMON SHARES
           OUTSTANDING                         29,846,839        26,787,226        25,646,449
                                              -----------       -----------       -----------
</TABLE>

 The accompanying notes are an integral part of these financial statements.

                                                                             F-4

<PAGE>   31


AZCO MINING INC. (DELAWARE)
Consolidated Statements of Stockholders' Equity
For the years ended June 30, 2000, 1999 and 1998

<TABLE>
<CAPTION>
                                             COMMON SHARES
                                     -----------------------------
                                                                          ADDITIONAL         RETAINED
                                      NUMBER OF                            PAID-IN           EARNINGS
                                       SHARES            AMOUNT            CAPITAL           (DEFICIT)          TOTAL
                                                            $                 $                  $                 $
                                     -----------       -----------       -----------       -----------       -----------

<S>                                  <C>               <C>               <C>               <C>               <C>
BALANCE - JUNE 30, 1997               25,579,834            51,160        25,776,411        (3,819,374)       22,008,197

Stock options exercised                   59,572               119            54,174                --            54,293
Issued for exploration property
           interests                      41,091                82            49,918                --            50,000
Stock option compensation                     --                --           119,230                --           119,230
Loss for the year                             --                --                --        (3,044,112)       (3,044,112)
                                     -----------       -----------       -----------       -----------       -----------

BALANCE - JUNE 30, 1998               25,680,497            51,361        25,999,733        (6,863,486)       19,187,608

Stock options exercised                   50,000               100            34,917                --            35,017
Issued for exploration property
           interests                     405,000               810           261,690                --           262,500
Issued for acquisition (note 7)        4,500,000             9,000         2,280,388                --         2,289,388
Repurchase of Company's shares          (803,376)           (1,607)         (465,767)               --          (467,374)
Stock option compensation                     --                --           186,600                --           186,600
Loss for the year                             --                --                --        (4,528,006)       (4,528,006)
                                     -----------       -----------       -----------       -----------       -----------

BALANCE - JUNE 30, 1999               29,832,121            59,664        28,297,561       (11,391,492)       16,965,733

Stock options exercised                   55,000               110            38,026                --            38,136
Stock option compensation
           (note 10)                          --                --           201,900                --           201,900
Loss for the year                             --                --                --        (3,899,486)       (3,899,486)
                                     -----------       -----------       -----------       -----------       -----------

BALANCE - JUNE 30, 2000               29,887,121            59,774        28,537,487       (15,290,978)       13,306,283
</TABLE>

 The accompanying notes are an integral part of these financial statements.

                                                                             F-5

<PAGE>   32


AZCO MINING INC. (DELAWARE)
Consolidated Statements of Cash Flows
For the years ended June 30, 2000, 1999 and 1998

<TABLE>
<CAPTION>
                                                            2000              1999              1998
                                                              $                 $                 $
                                                         -----------       -----------       -----------
<S>                                                      <C>               <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Loss for the year                                         (3,899,486)       (4,528,006)       (3,044,112)
Items not affecting cash
  Depreciation and amortization                              133,174            14,904            20,050
  Stock option compensation expense (note 10)                201,900           186,600           119,230
  Issuance of common stock for property interest                  --           262,500            50,000
  Loss (gain) on sale of furniture and equipment                  --            (1,500)              970
  Loss on write-down of refundable deposits                       --                --           370,505
  Loss on write down of investment (note 6)                  250,000         1,241,359                --
Net change in assets and liabilities
  Prepaids and other                                         (20,729)          105,438          (120,168)
  Refundable deposits                                             --                --           244,750
  Income taxes receivable                                         --           782,000          (302,272)
  Accounts payable and accrued liabilities                   178,044            45,923           (37,989)
  Inventories                                             (1,000,778)               --                --
  Deposit                                                         --                --         4,000,000
                                                         -----------       -----------       -----------
                                                          (4,157,875)       (1,890,782)        1,300,964
                                                         -----------       -----------       -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in Calgem, Inc.                                  (250,000)               --                --
Purchase of capital assets                                  (298,974)           (7,485)           (2,900)
Proceeds from sale of furniture and equipment                     --             1,500             5,102
Purchase of Minera Cortez Resources Ltd. shares                   --           (16,533)          (34,055)
Purchase of investment in OAL                                     --        (1,140,636)         (100,723)
Purchase of mineral properties, plant and equipment       (2,922,174)       (2,744,581)               --
Restricted cash                                             (190,400)           16,165            17,941
                                                         -----------       -----------       -----------
                                                          (3,661,548)       (3,891,570)         (114,635)
                                                         -----------       -----------       -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options                       38,136            35,017            54,293
Purchase of treasury stock                                        --          (467,374)               --
                                                         -----------       -----------       -----------
                                                              38,136          (432,357)           54,293
                                                         -----------       -----------       -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS          (7,781,287)       (6,214,709)        1,240,622

CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR             12,106,173        18,320,882        17,080,260
                                                         -----------       -----------       -----------
CASH AND CASH EQUIVALENTS - END OF YEAR                    4,324,886        12,106,173        18,320,882
                                                         -----------       -----------       -----------
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                                                             F-6

<PAGE>   33


AZCO MINING INC. (DELAWARE)
Notes to Consolidated Financial Statements
June 30, 2000, 1999 and 1998

1       NATURE OF OPERATIONS

        Azco Mining Inc. (Delaware) (the Company) is a U.S. mining company with
        a general business strategy to acquire mineral properties. The Company
        plans to supplement its core assets, the 100% owned Black Canyon Mica
        Project in Arizona and a 30% interest in the Piedras Verdes Project,
        through its acquisition of other mineral properties.

        Construction of the crushing and concentration equipment needed to
        process mica ore from the Black Canyon Mica Project is near completion,
        with production expected to commence in September 2000. Start-up costs
        related to the project during the period from April 1, 2000 to June 30,
        2000 have been expensed. During the period from April 1, 2000 to June
        30, 2000, samples of the Company's mica products have been issued to
        potential customers for testing.

        Although the Company has taken steps to verify title to mineral
        properties in which it has an interest, according to the usual industry
        standards for the stage of exploration of such properties, these
        procedures do not guarantee the Company's title. Such properties may be
        subject to prior agreements or transfers and title may be affected by
        undetected defects.

2       SIGNIFICANT ACCOUNTING POLICIES

        PRINCIPLES OF CONSOLIDATION

        These consolidated financial statements include the accounts of the
        Company and its majority-owned subsidiaries.

        CASH AND CASH EQUIVALENTS

        The Company considers all liquid investments purchased with a maturity
        of three months or less to be cash equivalents. Cash and cash
        equivalents are stated at cost which approximates market value.

        MINERAL PROPERTIES, PLANT AND EQUIPMENT

        Mineral properties, plant and equipment are recorded at cost.

        Depletion of mineral properties, plant and equipment and deferred
        reclamation costs are to be provided on the unit-of-production method,
        based on proven and probable ore reserves.

        EXPLORATION PROPERTIES

        The Company expenses prospecting and exploration costs and capitalizes
        costs directly attributable to the acquisition of mineral properties,
        pending determination as to their commercial feasibility (to contain a
        viable mineral deposit). Gains or losses resulting from the sale or
        abandonment of mineral properties are included in operations. Proceeds
        from sales of properties in which the Company has retained an economic
        interest are credited against property costs, and no gain is recognized
        until all costs have been fully recovered.

                                                                             F-7

<PAGE>   34

AZCO MINING INC. (DELAWARE)
Notes to Consolidated Financial Statements
June 30, 2000, 1999 and 1998

        PROPERTY EVALUATION

        Recoverability of investments in operating and non-operating properties
        is evaluated periodically. Estimated future net cash flows from each
        property are calculated using estimates of proven and probable ore
        reserves, estimated future prices (considering historical and current
        prices, price trends, and related factors), operating capital, and
        reclamation costs on an undiscounted basis. Where property costs are not
        recoverable reductions in the carrying value of each property are
        recorded to the extent the remaining investment exceeds the estimate of
        fair value. Changes in the geological and engineering interpretations of
        the Company's ore bodies, mica prices and operating costs may change the
        Company's estimate of proven and probable reserves. It is reasonably
        possible that the Company's estimate of proven and probable reserves
        will change in the near term resulting in additional charges for
        depreciation, amortization and reclamation in future reporting periods.

        ENVIRONMENTAL AND RECLAMATION COSTS

        Estimated costs of decommission and reclamation associated with mineral
        properties, plant and equipment, as well as revised regulatory
        requirements, are accrued over the life of the mine through periodic
        charges to earnings using the unit-of-production method.

        CAPITAL ASSETS

        Land, buildings, furniture, equipment and vehicles are carried at cost.
        Replacements, maintenance and repairs that do not improve or extend the
        life of the respective assets are expensed. Major renewals and
        improvements are capitalized. Upon retirement, sale or other
        disposition, the cost and accumulated amortization are eliminated from
        the accounts and the gain or loss is included in operations.

        Buildings are amortized on a straight-line basis over their estimated
        useful lives. Furniture, equipment and vehicles are amortized over their
        estimated useful lives (3 - 5 years) using the straight-line method.

        REVENUE RECOGNITION

        The Company recognizes the sale of mica on shipment of the goods from
        its premises.

        INVENTORIES

        Inventories are recorded at the lower of cost and net realizable value.
        Cost is determined on a weighted average basis and includes all costs in
        bringing the inventory to its present location and condition. Net
        realizable value is the price at which inventories can be sold in the
        normal course of business after allowing for the cost of realization.

                                                                             F-8

<PAGE>   35

AZCO MINING INC. (DELAWARE)
Notes to Consolidated Financial Statements
June 30, 2000, 1999 and 1998

        INCOME TAXES

        The Company accounts for income taxes under Statement of Financial
        Accounting Standards No. 109, "Accounting for Income Taxes." Income
        taxes and liabilities are recognized for the expected future tax
        consequences of events that have been included in the financial
        statements or income tax returns. Deferred tax assets and liabilities
        are determined based on the difference between the financial statements
        and tax bases of assets and liabilities using enacted tax rates in
        effect for the year in which the differences are expected to reverse.

        ESTIMATES

        The preparation of financial statements in conformity with generally
        accepted accounting principles requires management to make estimates and
        assumptions that affect the reported amounts of assets and liabilities
        and disclosure of contingent assets and liabilities at the date of the
        financial statements and the reported amounts of revenues and expenses
        during the reporting period. Actual results could differ from those
        estimates.

        STOCK-BASED COMPENSATION

        In October 1995, the Financial Accounting Standards Board issued
        Statement of Financial Accounting Standards No. 123, "Accounting for
        Stock-Based Compensation," (SFAS No. 123), which defines a fair value
        based method of accounting for employee (including directors) stock
        options. However, it also allows an entity to continue to account for
        these plans according to Accounting Principles Board Opinion No. 25,
        "Accounting for Stock Issued to Employees," (APB No. 25), provided pro
        forma disclosures of net income and earnings per share are made as if
        the fair value based method of accounting defined by SFAS No. 123 has
        been applied. The Company has elected to continue to measure
        compensation expense related to employee stock options using APB No. 25.
        The fair value of options granted to non-employees is expensed as
        compensation when options are granted, and the corresponding amount is
        credited to stockholders' equity.

3       CONCENTRATIONS OF CREDIT RISK

        Financial instruments that potentially subject the Company to
        significant concentrations of credit risk consist principally of cash
        and cash equivalents. The Company invests its cash and cash equivalents
        in high quality issuers. The Company, in the normal course of business,
        maintains cash balances in excess of the Federal Deposit Insurance
        Corporation's insurance limit. At June 30, 2000 and 1999, cash
        equivalents of $4,200,000 and $11,800,000, respectively, were invested
        with one bank's trust and institutional portfolio department.

4       RESTRICTED CASH

        As part of the reclamation deposit for the Black Canyon Mica property,
        the Company has restricted cash of:

        a)      $50,000 held on deposit for the Arizona State Treasurer in a
                one-year automatically renewable short-term investment.

                                                                             F-9

<PAGE>   36

AZCO MINING INC. (DELAWARE)
Notes to Consolidated Financial Statements
June 30, 2000, 1999 and 1998

        b)      $140,400 in an irrevocable letter of credit to the U.S. Bureau
                of Land Management which expires on October 25, 2002.

        Both of the amounts will be held until all terms and conditions of the
        reclamation agreement have been fulfilled or a satisfactory replacement
        bond has been accepted.

5       INVENTORIES

<TABLE>
<CAPTION>
                          $
                     ---------
<S>                  <C>
Broken ore             839,146
Work-in-process        123,033
Finished goods          38,599
                     ---------
                     1,000,778
                     ---------
</TABLE>

6       INVESTMENT AND ADVANCES

        INVESTMENT

        On June 18, 1998, the Company entered into an agreement with Minera
        Cortez Resources Ltd. (Cortez), a public company which trades on the
        Canadian Venture Stock Exchange, whereby the Company was granted a right
        of first refusal for a period of five years to acquire all or any of the
        property interest that Cortez decides to either joint venture, option,
        or dispose of. In consideration, the Company subscribed for 200,000
        common shares of Cortez at Cdn. $0.25 per share. The Company was also
        granted a right of first refusal for the same period to provide up to
        100% of any private or public equity or debt financing that Cortez
        proposes to obtain, on similar terms as any third party is willing to
        provide. In the year ended June 30, 1999, the Company purchased an
        additional 100,000 shares at Cdn. $0.25 per share bringing the carrying
        value of the shares to $50,588. The fair value of the shares at June 30,
        2000 was $50,588.

        Effective on August 9, 1999, the Company entered into an "Agreement in
        Principle" (the AIP) with each of Thomas Ford and Calgem, Inc., a
        company wholly-owned by Mr. Ford, (collectively, Calgem), pursuant to
        which Calgem therein granted the Company an option to purchase all of
        the issued and outstanding shares of Calgem and/or business assets of
        Calgem. Calgem is a company that auctions coloured gemstones on
        television. In accordance with the terms and conditions of the AIP, as
        now expired, the Company had advanced, by way of a loan to Calgem (the
        loan), an aggregate of $250,000. A senior fixed and floating charge on
        all of the assets of Calgem was to be pledged as collateral for the loan
        together with interest accruing thereon at a rate of 10% per annum. The
        Company wrote off the loan during the year ended June 30, 2000 because
        it had not been successful in contacting Calgem to discuss either
        repayment terms or the establishment of the security for the loan. The
        Company, in discussions with counsel, is currently considering its
        course of action against Calgem.

                                                                            F-10

<PAGE>   37

AZCO MINING INC. (DELAWARE)
Notes to Consolidated Financial Statements
June 30, 2000, 1999 and 1998

        ADVANCES

        On May 22, 1998, the Company entered into an agreement to purchase a
        $1,500,000 convertible debenture of Oro Argentina Limited (OAL) for the
        purpose of financing the first phase of the Chiqua White Bentonite
        Project and the option payments of OAL. OAL had an option to acquire a
        50% interest in the Bentonite Project located in San Juan, Argentina,
        pursuant to an agreement dated February 2, 1998 between OAL and Pierre
        Martre. The debenture bears interest at 12% per annum and was due on
        September 1, 2000. On September 1, 1999, OAL defaulted on the interest
        payment due under the terms of the debenture agreement, and the Company
        decided to expense, in fiscal 1999, all costs related to this project,
        resulting in a charge to exploration expense of $1,241,359. In January
        2000, OAL voluntarily delivered to the Company all of its interest in
        Port Velmond S.A., which held all of OAL's interest in the Bentonite
        Project.

7       MINERAL PROPERTIES, PLANT AND EQUIPMENT

<TABLE>
<CAPTION>
                                                 2000              1999
                                                   $                 $
                                               ----------       ----------
<S>                                             <C>              <C>
Mineral properties                              2,219,996        2,219,996
Mining and processing plant and equipment       4,669,266        2,075,508
Development costs                               1,109,881          781,465
Accumulated amortization                          (65,286)              --
                                               ----------       ----------
                                                7,933,857        5,076,969
                                               ----------       ----------
</TABLE>

        BLACK CANYON MICA PROJECT

        On March 10, 1999, the Company announced that it had acquired Arizona
        Mica Properties, Inc. (AMPI) through a merger with the Company's
        subsidiary, Sanchez Mining Inc. AMPI is the owner of the Black Canyon
        Mica Project, a source of high-quality mica and a pilot processing plant
        situated near Phoenix, Arizona.

        The acquisition has been accounted for by the purchase method, and the
        results of AMPI have been reflected in the Company's results of
        operations from March 10, 1999. The Company issued to the principals of
        AMPI 4,500,000 shares of the Company's common stock (subject to certain
        trading and voting trust restrictions) with a value of $2,289,388, in
        exchange for all the outstanding shares of AMPI. Details of the net
        assets acquired are as follows:

<TABLE>
<CAPTION>
                                                   $
                                              ----------
<S>                                            <C>
Net assets acquired
Mineral properties                             2,219,996
Development costs                                112,392
Lease obligation                                 (43,000)
Deferred income tax liability                   (754,800)
Recognition of deferred income tax asset         754,800
                                              ----------
                                               2,289,388
                                              ----------
</TABLE>

                                                                            F-11

<PAGE>   38

AZCO MINING INC. (DELAWARE)
Notes to Consolidated Financial Statements
June 30, 2000, 1999 and 1998

        The issuance of the Company's shares to acquire shares of AMPI is a
        non-cash investing and financing activity, and accordingly, the
        transaction is not reflected in the Consolidated Statement of Cash
        Flows.

8       CAPITAL ASSETS

<TABLE>
<CAPTION>
                                           2000
                             ---------------------------------
                                        ACCUMULATED
                              COST      AMORTIZATION      NET
                                $            $             $
                             -------    ------------   -------
<S>                          <C>            <C>        <C>
Land and buildings           152,521        7,626      144,895
Furniture and equipment      139,809       85,647       54,162
Vehicles                      81,146       32,478       48,668
                             -------      -------      -------
                             373,476      125,751      247,725
                             -------      -------      -------
</TABLE>

<TABLE>
<CAPTION>
                                           1999
                             ---------------------------------
                                        ACCUMULATED
                              COST      AMORTIZATION      NET
                                $            $             $
                             -------    ------------   -------
<S>                          <C>           <C>          <C>
Furniture and equipment      74,502        57,863       16,639
                             ------        ------       ------
</TABLE>

9       EXPLORATION PROPERTIES

        a)      PIEDRAS VERDES PROJECT

                The Piedras Verdes Project is located in southern Sonora,
                Mexico. During the year ended June 30, 1996, the Company sold
                70% of its interest in the Piedras Verdes Project to Phelps
                Dodge Corporation (Phelps Dodge).

                Under the terms of the sales agreement with Phelps Dodge, all
                assets and commitments related to this project were transferred
                to a separate company incorporated as Cobre del Mayo, S.A. de
                C.V. (Cobre). The Company maintains a 30% interest and Phelps
                Dodge a 70% interest in Cobre. Under the terms of the
                Shareholders' and Operator's Agreement among Phelps Dodge, Cobre
                del Mayo, Inc., the Company, and Cobre, the Company committed to
                provide up to $3,000,000 for costs required to bring the Piedras
                Verdes Project to the feasibility stage. As at June 30, 2000,
                the Company has advanced $4,293,884 towards the project. The
                Company also committed to funding its 30% of expenditures
                incurred in the feasibility stage. The Company is expensing all
                costs related to the project.

                                                                            F-12

<PAGE>   39

AZCO MINING INC. (DELAWARE)
Notes to Consolidated Financial Statements
June 30, 2000, 1999 and 1998

                On March 4, 1997, Cobre entered into a mining exploration and
                exploitation agreement with Compania Minera Serrana, S.A. de
                C.V. This agreement superseded the pre-existing lease. Under the
                terms of this agreement, Cobre has the following commitments to
                be funded 70% by Phelps Dodge and 30% by the Company:

                i)      $10,000 per month from the execution of the agreement
                        until production begins;

                ii)     three payments of $299,035 due on the date of execution
                        and on the first and second anniversaries of the date of
                        execution;

                iii)    royalties equal to 3% of the net value of mineral
                        production; and

                iv)     advance royalties of $1,000,000 on the third through
                        fifth anniversaries of the date of execution, and
                        $1,500,000 on the sixth through eleventh anniversaries
                        if commercial production is not met by those anniversary
                        dates, provided the average copper price is above $0.90
                        per pound for eight of the previous 12 months, otherwise
                        the advanced royalty is reduced by 75%.

                        In the year ended June 30, 2000, Cobre made advanced
                        royalty payments of $250,000. These amounts are not
                        recoverable if Cobre does not proceed with the project.

                Following the results of a pre-feasibility study carried out by
                Phelps Dodge and announced in November 1998, Phelps Dodge has
                approved and initiated a $3,600,000 work budget advancing the
                project towards a bankable feasibility. Under the terms of the
                agreement, the Company is responsible for funding 30% of this
                work.

        b)      SUAQUI VERDE PROJECT

                On June 20, 1996, the Company entered into a Mineral Exploration
                and Option to Form Company Agreement with Minera Phelps Dodge
                Mexico (MPDM) for the mineral exploration and evaluation of the
                Suaqui Verde mineral concessions in Sonora, Mexico. Under the
                terms of the agreement, MPDM could earn a 70% interest in the
                concessions by incurring exploration expenditures of $2,000,000
                on the project over three years, funding the completion of a
                comprehensive feasibility study, and paying the Company $25,000
                annually.

                During the year ended June 30, 1998, MPDM terminated the option
                agreement with the Company.

                On July 17, 1999, the Company decided to terminate the agreement
                with the property owners and made the final payment due under
                the agreement. The Company paid the mineral duties on the
                concessions until December 31, 1999.

                                                                            F-13

<PAGE>   40

AZCO MINING INC. (DELAWARE)
Notes to Consolidated Financial Statements
June 30, 2000, 1999 and 1998

        c)      LA ADELITA PROPERTY

                On July 21, 1998, the Company entered into an option agreement
                with Cortez whereby the Company was granted an option to earn up
                to 70% interest in the La Adelita property in Sonora, Mexico
                under the following terms:

                i)      by subscribing to 100,000 common shares of Cortez at
                        Cdn. $0.25 per share;

                ii)     by making option payments and paying finder's fees on
                        behalf of Cortez totalling $165,000 over the next five
                        years; and

                iii)    by incurring exploration expenditures on the property
                        totalling $500,000 over the next three years.

                During the year ended June 30, 1999, the Company has expended
                $228,256 on the La Adelita property, thus completing its first
                year's commitment to the property.

                On June 10, 1999, the Company acquired 100% interest in the
                Silverado property, which surrounds the La Adelita property,
                from Cortez for $20,000 and 30,000 of the Company's shares.

                On July 10, 2000, the Company notified Cortez that it had
                elected to terminate the option agreement.

        d)      MALI PROJECT

                On May 9, 1996, the Company entered into a Memorandum of
                Agreement with West African Gold and Exploration, Ltd. (WAG); a
                British Virgin Islands company, Eagle River International
                Limited (Eagle River), a Vanuatu corporation; and Lion Mining
                Finance Limited (Lion Mining), a United Kingdom corporation.
                Eagle River has purchased properties in Mali, Africa from
                Guefest, a Russian mining consortium. Under the terms of this
                agreement, the properties were transferred to West African Gold
                (Mali) Inc. (WAG (Mali)) on July 7, 1997. Shares in this
                corporation have been transferred to Chaplin Holding Ltd., a
                Bahamian company, which has changed its name to Sanou Mining
                Corporation (Sanou). The Company currently holds a 100% interest
                in Sanou.

                On May 17, 1996, under the terms of the above agreement, the
                Company issued an irrevocable standby letter of credit in the
                amount of $1,000,000 to guarantee the development of certain
                mineral concessions in Mali. The Company, on behalf of Eagle
                River, Lion Mining, and WAG, had guaranteed $1,000,000 of
                development by May 15, 1997 to keep the properties in good
                standing. During the year ended June 30, 1997, the Company
                funded $4,052,316 for operating costs on the Mali Project, which
                exceeds the required expenditures. The operating costs are
                included in exploration costs in the accompanying Consolidated
                Statement of Loss.

                                                                            F-14

<PAGE>   41

AZCO MINING INC. (DELAWARE)
Notes to Consolidated Financial Statements
June 30, 2000, 1999 and 1998

                On September 3, 1997, the Company served notice to Eagle River
                that it was declaring default of the Mali agreement as the work
                commitment for the licence on the Mali Project was unacceptable.
                Under the terms of the agreement, Eagle River and Lion Mining
                have to repay all advances made by the Company towards the Mali
                Project. These advances were collateralized by promissory notes
                from Eagle River and debentures from Societe Olifer de Falome
                (SOF) and WAG (Mali) in the amount of $4,000,000. The Company is
                in the process of foreclosure on these securities and, as a
                consequence, takes the position that it is the 100% owner of the
                mining concessions through its subsidiaries WAG and Sanou and
                will pursue Eagle River and SOF for any value shortfall.

                On November 18, 1997, the Company entered into an agreement with
                Lion Mining forming a joint venture called the Kingfisher
                Venture created to pursue profitable exploitation of mineral
                opportunities located by Lion Mining. Pursuant to the terms of
                the agreement, Lion Mining will seek and make available to the
                venture mineral opportunities coming to them in which they are
                capable of participating, and the Company has the right of first
                refusal on these opportunities. The term of the venture is the
                longer of three years or the payout of the Negative Balance plus
                six months, expiring on December 31, 2010. The Negative Balance
                is equal to the total expenditures related to the Mali agreement
                less all recoveries. Lion Mining has also assigned to the
                Company all its rights and interests in the Mali agreement and
                has agreed to cooperate fully with the Company in pursuit of any
                remedies against Eagle River. The Company has released and
                discharged Lion Mining of all suits, debts, and claims related
                to the Mali agreement. The Company plans to foreclose on the
                promissory notes of Eagle River.

                On December 18, 1997, WAG (Mali) was granted a renewable
                exploration agreement on the Mali Project by the Mali Ministry
                of Mines and Energy. The agreement ran through December 1998 and
                has a work commitment of $3,360,000 assigned to it. As of June
                30, 1998, this work commitment had been fulfilled.

                On April 6, 1998, the Company entered into an agreement with
                Lines Overseas Management Ltd. (Lines). Under the terms of the
                Mali agreement, Lines had originally advanced $500,000 and
                125,000 shares of the Company owned by it to Eagle River for
                payments to Guefest and other parties. The Company agreed to
                issue 375,000 of its shares to Lines in consideration for
                assigning and quitclaiming to the Company all advances and
                shares and any other benefit or claim of Lines related to the
                Mali agreement. These shares were issued on September 17, 1998.

                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
                recuperate assets from the Company (see note 14).

                On March 31, 1999, the Company announced that it had entered
                into a joint venture with Randgold Resources Ltd. (Randgold)
                whereby Randgold acquired the right to earn up to 75% of the
                Company's interest. To earn this consideration, Randgold has
                agreed, over the next 36 months, to conduct exploration on the
                WAG concessions at a minimum cost of $2,000,000, with the aim of
                establishing whether there is a viable economic gold resource,
                as defined in the agreement, of at least one million ounces.
                Thereafter Randgold shall prepare a Bankable Feasibility Study
                on any such resource for WAG within a further 12 months in order
                to earn its interest therein.

                The Company realized a gain on sale of assets of $277,500 in
                conjunction with the agreement with Randgold when the
                exploration camp assets were sold.

                                                                            F-15

<PAGE>   42

AZCO MINING INC. (DELAWARE)
Notes to Consolidated Financial Statements
June 30, 2000, 1999 and 1998

        e)      BENITOITE PROJECT

                On December 1, 1997, the Company entered into an agreement
                whereby it was granted an option to purchase the Benitoite
                mineral property in San Benito County, California for a purchase
                price of $1,500,000. The Company could exercise the option on or
                before February 1, 1999. Pursuant to the terms of the agreement,
                the Company made a non-refundable payment of $20,000 to the
                property owners.

                On March 18, 1999, the Company made an additional payment of
                $20,000 to extend the option to January 1, 2000.

                On January 1, 2000, the Company's option to acquire the
                Benitoite gem mine in San Benito County, California expired. The
                Company has no intention to pursue the acquisition of the
                property any further.

10      STOCK OPTIONS

        The Company has elected to follow APB No. 25 and related interpretations
        in accounting for its stock-based employee compensation arrangements.
        Under APB No. 25, as the exercise price of the Company's stock options
        is equal or less than the market price of the underlying stock on the
        date of grant, no compensation expense is recognized.

        The Company has a Stock Option Plan (the Plan) dated July 24, 1989, as
        amended, for the granting of options to purchase common stock. The board
        of directors may grant options to key personnel and others as it deems
        appropriate provided the number of options does not exceed 5,950,424.
        There are no vesting requirements under the Plan. The options are
        exercisable over a maximum term of five years.

        Pro forma information regarding net income and earnings per share is
        required by SFAS No. 123, and has been determined as if the Company had
        accounted for its stock option plan under the fair value based method of
        SFAS No. 123. The fair value of these options was estimated at the date
        of grant using a Black-Scholes options valuation model with the
        following weighted-average assumptions for fiscal 2000: risk-free
        interest rate from 6.01% to 6.69%, no dividend, volatility factor of the
        expected market price of the Company's common stock of 0.62, and an
        expected life ranging from two to five years.

        The Black-Scholes options valuation model was developed for use in
        estimating the fair value of traded options that have no vesting or
        trading restrictions and are fully transferable. In addition, option
        valuation models require the input of highly subjective assumptions
        including the expected stock price volatility. The Company's employee
        stock options have characteristics significantly different from those of
        traded options. Changes in the subjective assumptions can materially
        affect the fair value estimate.

                                                                            F-16

<PAGE>   43


AZCO MINING INC. (DELAWARE)
Notes to Consolidated Financial Statements
June 30, 2000, 1999 and 1998

        For the purposes of pro forma disclosure, the estimated fair value of
        the options of $34,870 (1999 - $303,580; 1998 - $59,141) is expensed
        when the options are granted as the options are fully vested when
        granted. Additional fair value of the options of $nil (1999 - $269,760;
        1998 - $nil) was expensed when certain options were repriced during the
        year. The Company's pro forma information for fiscal 2000, 1999 and 1998
        is as follows:

<TABLE>
<CAPTION>
                                        2000                1999                1998
                                          $                   $                  $
                                      -----------        -----------        -----------
<S>                                   <C>                <C>                <C>
Pro forma net loss                    (3,934,356)        (4,831,586)        (3,103,253)
                                      -----------        -----------        -----------
Pro forma basic loss per share             (0.13)             (0.18)             (0.12)

Pro forma diluted loss                     (0.13)             (0.18)             (0.12)
</TABLE>

        The estimated fair value of options granted to non-employees of $201,900
        (1999 - $186,600; 1998 - $119,230) has been credited to paid-in capital
        and shown as a charge to salaries in the Consolidated Statement of Loss.

        Plan activity for the years ended June 30, 2000, 1999 and 1998 was as
        follows:

<TABLE>
<CAPTION>
                                                                 WEIGHTED
                                                                  AVERAGE
                                              NUMBER OF       EXERCISE PRICE
                                               SHARES             CDN. $
                                             ----------       --------------
<S>                                          <C>              <C>
Balance - outstanding at June 30, 1997       2,264,572             2.06

Granted                                        252,000             1.71
Cancelled                                     (297,500)            2.17
Exercised                                      (59,572)            1.30

Balance - outstanding at June 30, 1998       2,159,500             2.03

Granted                                      1,580,000             1.09
Cancelled                                     (175,000)            2.11
Exercised                                      (50,000)            1.05

Balance - outstanding at June 30, 1999       3,514,500             1.32

Granted                                        390,000             1.46
Cancelled                                     (300,000)            2.12
Exercised                                      (55,000)            1.02

Balance - outstanding at June 30, 2000       3,549,500             1.28
</TABLE>

        At June 30, 2000 and 1999, 838,424 and 928,424 shares of common stock,
        respectively, were reserved for future grants of options.

        Of the 3,549,500 stock options outstanding at June 30, 2000, 2,105,000
        stock options were issued to directors, employees or key advisors of the
        Company.

                                                                            F-17

<PAGE>   44


AZCO MINING INC. (DELAWARE)
Notes to Consolidated Financial Statements
June 30, 2000, 1999 and 1998

        Stock options exercisable at June 30, 2000 include the following:

<TABLE>
<CAPTION>
                                                 WEIGHTED
                                                 AVERAGE              WEIGHTED
                              NUMBER OF       EXERCISE PRICE           AVERAGE
PRICE RANGE OF OPTIONS         SHARES             CDN. $            REMAINING LIFE
----------------------        ---------       --------------        --------------
<S>                           <C>             <C>                   <C>
Cdn. $0.70 to Cdn. $1.05      2,315,000           0.96                44 months
U.S. $1.00 to Cdn. $1.80        691,500           1.63                17 months
U.S. $1.25 to U.S. $1.75        443,000           2.08                 9 months
Cdn. $2.65 to U.S. $3.00        100,000           2.65                20 months
                              ---------
                              3,549,500
                              ---------
</TABLE>

11      INCOME TAXES

        The income tax benefit is as follows:

<TABLE>
<CAPTION>
                           2000           1999         1998
                             $              $            $
                           -----          -----      ---------
<S>                       <C>             <C>        <C>
Current
 Federal                      --          4,186      2,109,237
 State                        --             --             --
                          ------          -----      ---------
Total tax benefit             --          4,186      2,109,237
</TABLE>

        The income tax benefit differs from the amount computed by applying the
        U.S. federal income tax rate to net income before income taxes, as
        shown:

<TABLE>
<CAPTION>
                                                 2000              1999             1998
                                                   $                 $                $
                                               ----------       ----------       ----------
<S>                                             <C>              <C>              <C>
Tax benefit at the federal statutory rate       1,325,825        1,524,583        1,803,678
State tax                                         194,974          403,566          257,668
Change in valuation allowance                  (1,471,093)      (1,133,208)         162,463
Deferred tax asset recognized                     (77,700)        (754,800)              --
Other                                              27,994          (35,955)        (114,572)
                                               ----------       ----------       ----------
Tax benefit                                            --            4,186        2,109,237
                                               ----------       ----------       ----------
</TABLE>

                                                                            F-18

<PAGE>   45


AZCO MINING INC. (DELAWARE)
Notes to Consolidated Financial Statements
June 30, 2000, 1999 and 1998

        The components of the deferred tax asset and deferred tax liability at
        June 30, 2000 and 1999 are as follows:

<TABLE>
<CAPTION>
                                                 2000              1999
                                                   $                 $
                                               ----------       ----------
<S>                                             <C>                <C>
Deferred tax asset
  Federal net operating loss carryforward       1,875,540          844,060
  State net operating loss carryforward           984,400          819,000
  Foreign mineral properties                    1,943,300        1,772,080
  Inventories                                     164,970               --
  Other                                            43,583           27,860
  Valuation allowance                          (4,179,293)      (2,708,200)
                                               ----------       ----------
Net deferred tax asset                            832,500          754,800
Deferred tax liability
  Mineral properties, plant and equipment        (832,500)        (754,800)
                                               ----------       ----------
                                                       --               --
                                               ----------       ----------
</TABLE>

        At June 30, 2000, the Company had net operating loss carryforwards for
        Arizona income tax purposes of approximately $12.2 million (1999 - $9.1
        million). These losses expire in the amount of $5.3 million on June 30,
        2002, $2.3 million on June 30, 2003, $1.5 million on June 30, 2004 and
        $3.1 million on June 30, 2005.

        At June 30, 2000, the Company had net operating loss carryforward for
        federal income tax purposes of approximately $5.6 million (1999 - $2.5
        million). These losses expire between June 30, 2019 and June 30, 2020.

12      EARNINGS (LOSS) PER SHARE

        Basic EPS excludes dilution and is computed by dividing net income
        (loss) by the weighted average number of shares outstanding. Diluted EPS
        reflects potential dilution that would occur if securities or other
        contracts to issue common stock were exercised or converted into common
        stock. The following is the reconciliation of EPS for fiscal 2000, 1999
        and 1998:

<TABLE>
<CAPTION>
                                                             2000               1999                1998
                                                         ------------       ------------       ------------
<S>                                                      <C>                <C>                <C>
Loss applicable to basic and diluted loss per share      $ (3,899,486)      $ (4,528,006)      $ (3,044,112)
Weighted average number of common shares
           assuming no dilution                            29,846,839         26,787,226         25,646,449
Weighted average common shares applicable to
           income per common share                         29,846,839         26,787,226         25,646,449
Weighted average number of common shares
           assuming full dilution                          29,846,839         26,787,226         25,646,449
Basic loss per common share                              $      (0.13)      $      (0.17)      $      (0.12)
Diluted loss per common share                            $      (0.13)      $      (0.17)      $      (0.12)
</TABLE>

                                                                            F-19

<PAGE>   46


AZCO MINING INC. (DELAWARE)
Notes to Consolidated Financial Statements
June 30, 2000, 1999 and 1998

        Stock options that are anti-dilutive have not been included in the
        computation of diluted loss per common share.

13      SEGMENTAL INFORMATION

        The Company has one operating sector, mica production and the
        exploration and development of mineral properties and geographical
        segments information is as follows:

<TABLE>
<CAPTION>
                                 USA             OTHER        TOTAL
                                  $                $            $
                              ---------         ------      ---------
<S>                           <C>               <C>         <C>
June 30, 2000
  Property and equipment      8,127,420         54,162      8,181,582
                              ---------         ------      ---------
June 30, 1999
  Property and equipment      5,076,969         16,639      5,093,608
                              ---------         ------      ---------
</TABLE>

14      CONTINGENCIES AND COMMITMENTS

        EAGLE RIVER INTERNATIONAL LTD.

        LITIGATION

        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 recuperate assets from
        the Company (see note 9(d)). It is the understanding of the Company and
        its Canadian legal counsel that 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.

        COPPER PURCHASE AGREEMENT

        The Company had formerly entered into a Copper Purchase Agreement
        relating to the copper output of the Sanchez Project. After sale of the
        Sanchez Project, the Company was informed that it was in alleged
        violation of this agreement. A lawsuit was filed against the Company by
        AIOC Corporation (AIOC). The Company agreed to binding arbitration with
        AIOC and received a dismissal of the lawsuit on February 8, 1996, under
        terms of the Stipulation and Order of Compromise and Dismissal.

        Under the terms of the Company's Stipulation and Order of Compromise and
        Dismissal with AIOC, the Company placed $4,000,000 into escrow to
        satisfy any award in the arbitration. During the year ended June 30,
        1998, the Company settled the dispute and paid $400,000 to AIOC. This
        amount has been recorded as a legal settlement cost.

                                                                            F-20

<PAGE>   47


AZCO MINING INC. (DELAWARE)
Notes to Consolidated Financial Statements
June 30, 2000, 1999 and 1998

        EMPLOYMENT AGREEMENTS

        The Company has entered into agreements with four officers and three
        directors. The agreements provide that if there is a change in control
        of the Company and the officer leaves the employment of the Company, for
        whatever reason (other than discharge for cause, death, or disability)
        within six months after such acquisition of control, the officer shall
        receive a lump sum cash payment pursuant to certain limitations of the
        Internal Revenue Code. In addition, the officers will continue to be
        covered by all of the Company's medical, health, life, and dental plans
        for 24 months after such change of control. The directors shall receive
        a lump sum cash payment in the amount not to exceed $100,000.

        In addition, the Company has entered into separate management agreements
        with its President and its Executive Vice-President. These agreements
        were effective February 1, 1998 for a term of 36 months, and provide
        that in the event of termination or failure to renew, the officer will
        receive a termination fee equal to the sum of:

        a)      buy-out of any outstanding stock options at the average market
                price of the Company's shares and less the exercise price, or at
                the officer's election and subject to regulatory approval,
                extension of the option for a year after termination

        b)      greater of the aggregate remaining base fee for the unexpired
                remainder of the term, or an annual base fee plus one month of
                base fee for each year of service after the effective date of
                the agreement.

        During the year ended June 30, 2000, the Company paid $490,200 (1999 -
        $403,500) in management fees to companies controlled by directors. This
        amount has been recorded as salaries expense.

        LEASE COMMITMENTS

        The Company is obligated under long-term operating leases for its office
        space in Vancouver, British Columbia and for mining equipment. The
        aggregate annual commitments under the leases are as follows:

<TABLE>
<CAPTION>
                                        $
                                     -------
<S>                                  <C>
2001                                 201,210
2002                                 193,719
2003                                  93,502
2004                                  55,311
2005                                      --
                                     -------
                                     543,742
                                     -------
</TABLE>

        Rental expense for the Company's office space, net of sublease income,
        for the years ended June 30, 2000, 1999 and 1998 was $78,697, $60,732
        and $60,514, respectively.

15      FAIR VALUE OF FINANCIAL INSTRUMENTS

        The carrying amounts of cash and cash equivalents and restricted cash
        approximated fair values as of June 30, 2000 and 1999 because of the
        relatively short maturity of these instruments.

                                                                            F-21

<PAGE>   48


AZCO MINING INC. (DELAWARE)
Notes to Consolidated Financial Statements
June 30, 2000, 1999 and 1998

16      FOURTH QUARTER CHARGES

        During the fourth quarter of fiscal 2000, the Company recorded a
        compensation expense of $201,900 relating to the accounting for stock
        options granted to non-employees under SFAS No. 123 in the third quarter
        of fiscal 2000. In addition, the Company wrote down inventory by
        $424,287 to its expected recoverable value, which was charged to
        production start-up costs.

17      NEW PRONOUNCEMENTS

        The Financial Accounting Standards Board has issued Statement of
        Financial Accounting Standards No. 133, "Accounting for Derivative
        Instruments and Hedging Activities." The Company is currently assessing
        the impact of this statement for fiscal years beginning after June 15,
        2000.

                                                                            F-22

<PAGE>   49


AZCO MINING INC. (DELAWARE)
Schedule II - Valuation and Qualifying Accounts
For the years ended June 30, 2000, 1999 and 1998

<TABLE>
<CAPTION>
COL. A                               COL. B        COL. C          COL. D        COL. E

                                   BALANCE AT                                   BALANCE AT
                                   BEGINNING                                     END OF
DESCRIPTIONS                        OF YEAR       ADDITIONS       DEDUCTIONS      YEAR
                                       $              $               $             $
                                   ----------     ---------       ----------    ----------
<S>                                <C>            <C>             <C>           <C>
Valuation allowance for
   deferred tax asset(1)
      June 30, 2000                2,708,200      1,548,793         77,700      4,179,293
      June 30, 1999                1,574,992      1,888,008        754,800      2,708,200
      June 30, 1998                1,737,455             --        162,463      1,574,992
</TABLE>

(1)     For further information, refer to note 11, Income Taxes, in the Notes to
        the Consolidated Financial Statements included in Form 10-K.

                                                                            F-23