<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, 1997

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.)

1250 - 999 West Hastings Street, Vancouver, BC           V6C 2W2 
----------------------------------------------          --------- 
(Address of principal executive offices)               (Zip Code)

Registrant's telephone number, including area code: (604) 682-7286 
                                                   ---------------

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. { }

The number of shares of the Company's Common Stock outstanding as of September
25, 1997 is 25,620,925.

Aggregate Market Value of Stock held by Non-Affiliates as of September 25,
1997:  $ 29,362,171(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.

ITEM 1. BUSINESS

         AZCO Mining Inc. ("AZCO" or the "Company") is a U.S. mining company
with a general business strategy to acquire mineral properties with a prime
focus on gold.  The Company plans to supplement its core asset, a 30% interest
in the Piedras Verdes project, through the acquisition of other mining
projects.  The Company believes that numerous opportunities exist to acquire
such properties or companies, and that the Company will be an effective
competitor due to its strong cash position and experienced management team.
The Company plans to implement this strategy by entering into joint ventures or
corporate mergers, or making property or corporate acquisitions.

         Prior to the sale of the majority of its copper assets the Company was
dedicated to 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" or "Sanchez
Project") located about 10 miles northeast of the City of Safford in
southeastern Arizona, U.S.A.  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 assets.  AZCO's shareholders
approved the sale of 100% of the Sanchez 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, 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 in Mexico, the
Suaqui Verde project in southeastern Sonora and the Piedras Verdes project 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 share of AZCO (Wyoming) in connection with the Merger.  AZCO
(Wyoming) was formerly a British Columbia corporation which was incorporated
under the laws of





                                        2

<PAGE>   3

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.


SIGNIFICANT DEVELOPMENTS IN FISCAL 1997

         On September 9, 1996 the Company announced that it had received
confirmation from the Ministry of Mines of Indonesia that it had been accepted
to apply for a contract of work (the "Contract of Work") in the name of AZCO
over ground in Irian Jaya.

         The Contract of Work was acquired for AZCO under agreement with
Indotan Inc. ("Indotan"), whereby AZCO paid $416,750 as security for the
Contract of Work and Indotan retained a 15% participating interest, but which
interest was carried in the form of a non-interest-bearing, non-recourse loan
until the completion of a favorable, bankable feasibility study.

         AZCO has since made the decision to relinquish its Contract of Work
over the ground in Irian Jaya and has received a full refund of $416,750
covering the security deposit on that contract.

         On December 5, 1996 the Company announced that it had contracted to
acquire a 90% interest in two additional gold properties, the Bengkulu and the
Purwokerto, totaling 83,940 hectares in Indonesia.  AZCO deposited a total of
$426,840 as security for Contracts of Work on the two properties.

         AZCO has since decided to relinquish its contracts of work over both
these properties.  The Company has received a refund of $244,750 on the
Bengkulu  property and is anticipating a refund of $182,090 on the Purwokerto
property.

         On December 10, 1996 AZCO received confirmation from the Indonesian
government that its applications for mineral rights on two parcels of land in
the Pongkor region, covering 37,683 hectares, had been granted.  The Company
has secured this position with the deposit of $188,415 in seriousness bonds
with the Indonesian government.

         On September 17, 1996 the Company announced that it had contracted to
acquire 51% of a new company ("Sanou Mining Corporation") which has a 100%
working interest in the Medinandi and Dandoko concessions located in the
Kenieba Gold Mining District of western Mali.  The Government of Mali has
retained an option to acquire up to a 15% working interest after completion of
a favorable feasibility study in connection with these concessions.

         An agreement between AZCO, West Africa Gold & Exploration Ltd., Eagle
River International Limited ("Eagle") and Lion Mining Finance Limited provides
for the establishment of a joint venture holding company, Chaplin Holdings
Ltd., which has changed its name to Sanou Mining Corporation.  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 owns these
concessions.  Eagle,





                                       3
<PAGE>   4

the original principal concession owner through a Malian subsidiary, has caused
that subsidiary to convey the concessions to Wag in consideration of 3,500,000
shares and 4,000,000 warrants (exercisable at $1.00  per warrant) of Sanou
Mining Corporation.  As part of its contractual commitment, AZCO has made
available an exploration guarantee of $1,000,000 to the government of Mali, has
the right to purchase 4,800,000 shares of Sanou Mining Corporation at $0.25
per share and has the right to receive and additional 1,000,000 shares of Sanou
Mining Corporation by paying to Eagle 125,000 common shares of AZCO.
Additionally, AZCO has contracted to arrange for and itself provide (and has
the right and obligation to purchase 50%) financing in an amount of $1,000,000
at $0.50 per Sanou Mining Corporation unit.  At completion of the initial
capitalization of Sanou Mining Corporation it is expected that AZCO will own
approximately 51.33% of Sanou Mining Corporation and, in the event that it
purchases 50% of the referenced $1,000,000 financing of Sanou Mining
Corporation, it will own 55.28% of Sanou Mining Corporation.  AZCO has an
obligation to purchase 50% of future financings and a first right  to purchase
any unbought portion of such future financings.

         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 U.S.$4,000,000.  All advances AZCO has made to
date under this agreement are also evidenced by promissory notes from Eagle
River.

         On June 7, 1996 AZCO entered into a agreement to form a strategic
alliance  with Eagle River, with the intent of forming a joint venture company
to mutually develop mineral properties identified by Eagle River.  Eagle
River's responsibility is to seek out and acquire mutually acceptable
properties while AZCO is responsible for the funding of the joint venture
entity.  AZCO 's interest in the entity will be 75% while Eagle River shall
have a 25% interest.

         In fiscal 1997 AZCO advanced $352,659 to Eagle River for the
procurement of several mineral properties located in Africa, but no properties
were acquired and the strategic alliance has not led to the formation of a
joint venture company.

EXPLORATION AND DEVELOPMENT

     As the Company has no properties in production, during fiscal 1997 it has
received no material revenues other than interest income. During fiscal 1997
the Company expensed $14,345 in exploration costs related to the Suaqui Verde
project.  Exploration expenses of $1,846,331 were also incurred as the Company
funded its 30% share of the Piedras Verdes project.

         Exploration expense in Indonesia totaled $1,211,549 for the four
properties  AZCO was involved with during the fiscal year.

         During fiscal 1997 AZCO incurred $4,431,625 of exploration expense in
Africa, and of that amount $4,052,316 was expended on the Mali project while
$352,659 was advanced to Eagle River to fund the strategic alliance.





                                       4
<PAGE>   5

         The Company, during fiscal 1997, advanced Eagle River a total of
$3,832,058 for the advancement of the Mali project and the procurement of
properties to be the basis of a joint venture under the strategic alliance
between AZCO and Eagle River.  To date Eagle River has documented only
$3,392,382 of expenditures on the project funds which have been advanced, and
it is AZCO's contention that Eagle River currently owes the Company $439,676.


EMPLOYEES

     As of August 15, 1996 there were 9 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.


SEASONABILITY

         It is not anticipated  that AZCO's Mexican interests in the state of
Sonora would be of a seasonable nature.  The Company is aware of the fact that
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, 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





                                       5
<PAGE>   6

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 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 potentially could become
material at some point, but the amount of such expenditures are uncertain at
this time.


ITEM 2. PROPERTIES


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.  Activities at the Piedras Verdes property have
consisted mainly of definition drilling, surface trenching, sampling and
metallurgical testing. The main objective of the most recent program was to
further define and expand in-place copper resources.

         Prior to the sale of a 70% interest in Cobre del Mayo to MPDM, the
Company had drilled 242 reverse circulation holes totalling 26,815 meters.
About 110 meters of core drilling was done to obtain geologic information and
samples for metallurgical testing.

         Since the sale of the 70% interest in Cobre del Mayo to MPDM, 217
holes totaling 47,869 meters have been cored thru July 1997.  In addition, the
geologic mapping has been expanded, metallurgical testing has begun and a
geological and ore deposit model is being prepared.





                                       6
<PAGE>   7
         The Piedras Verdes property contains no proven or probable reserves at
this time.  Based on 242 holes drilled by AZCO as described above, the Company
estimated in March 1995 that the mineral resource at Piedras Verdes contains
approximately 154 million tons of copper mineralization with an average grade
of 0.41% copper.


SUAQUI VERDE PROJECT

         The Suaqui Verde copper property is leased by Cobre de Suaqui Verde,
S.A. de C.V., a Mexican corporation that is owned 99.97% by AZCO.  The project
is located in southeastern Sonora State, Mexico, near the town of Suaqui
Grande, which is about 350 km south of the U.S.- Mexico border and 160 km
southeast of Hermosillo (population 600,000), the state capital.

         On June 20, 1996 Cobre de Suaqui Verde, S.A. de C.V. entered into an
agreement (the "Agreement") with Minera Phelps Dodge Mexico, S. de R.L. de
C.V.("MPDM"), a subsidiary of Phelps Dodge, for the exploration of its Suaqui
Verde property.

         Under the terms of the Agreement a new company may eventually be
formed to hold the Suaqui Verde mining rights.  MPDM  can earn 70% in the new
company by expending $2.0 million on the project over the next three years,
funding completion of a comprehensive feasibility study and paying AZCO $25,000
annually.

         Approximately 27,000 feet of drilling completed by AZCO and others has
demonstrated the widespread nature of copper mineralization on the property.
Approximately 115 million pounds of oxide copper have been drill-inferred in 20
million tons of mineralization within a preliminary open pit mine plan.  There
are no proven or probable reserves at the Suaqui Verde project at this time.

         Through June 30, 1997 MPDM has drilled 6 core holes totaling 1600
meters and has conducted surface mapping, geochemical surveys and geophysical
surveys.


MALI GOLD CONCESSIONS

         AZCO presently is the nominal 100% owner of Sanou Mining Corporation
("Sanou"), which is the owner of a Malian subsidiary called Western African
Gold and Exploration Company, S.A. ("WAG") which is the registered owner of the
Medinandi and Dandoko gold concessions in Mali.  Pursuant to its contract with
Eagle River International Limited and Lion Mining Finance, AZCO has an
accountability under the agreement to issue 3,500,000 shares and 4,000,000
warrants of Sanou, subject to AZCO's satisfaction on curing of certain
defaults.  The Medinandi and Dandoko concessions (188.5 and 155.5 square kms.
respectively) are located in the Kenieba Gold Mining district of western Mali.

         The exploration program on the Mali gold concessions in fiscal 1997 was
designed to qualify former exploration results on the Medinandi property. This
program has given the Company a good understanding of the geology and has
identified two new zones that will be targeted in the next phase of exploration.

         Activities at the Mali gold concessions include core drilling, auger
drilling, geochemical surveys, mapping, remote sensing and geological
evaluations.  Through June, 1997 a total of 21 core holes were completed
totaling 2246 meters.   There are no proven or probable reserves at the Mali
gold concessions at this time.





                                       7
<PAGE>   8
         The Company expensed $4,052,316 on the Mali gold concessions during
fiscal 1997.  Of this amount $3,832,058 was advanced to Eagle River for the
following: $1,000,000 towards the purchase payments of the concessions;
$2,166,421 to purchase exploration equipment, establish exploration camps and
fund exploration activities through June 30, 1997; $225,960 to cover
pre-exploration, incorporation and other administrative expenses.  An amount of
$439,677 advanced to Eagle River has yet to be accounted for by the Company's
joint venture partner.

         In addition, the Company expended $220,258 directly on the project for
administrative, project management and pre-exploration expense.

         Initial shipments of exploration equipment to Mali, including 2 drill
rigs an exploration camp and related equipment, were commissioned in January
1997.  Delineation drilling, geochemical surveying and geological evaluation
continued through June.  With the onset of the monsoon season exploration
activity has been put on hold and preparations are being made for the next
drill season anticipated to begin in October.  This will test a number of newly
identified target areas on both the Medinandi and Dandoko concessions.


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. Mineralization is known on both claim blocks, neither of which has been
explored by modern methods.  In recent years accessibility has been greatly
improved with road access running to the heart of each property.  Both
properties are highly prospective for low sulphidation epithermal
mineralization, containing opportunities not only for small tonnage, high-grade
mineralization but also for bulk-tonnage, open pit targets.  There are no
proven or probable reserves at the  Pongkor properties at this time.

         AZCO is currently reviewing the available data on the property and
will shortly commence presentations to a number of companies which have
expressed an interest in joint-venturing the properties.

ITEM 3. LEGAL PROCEEDINGS

         On December 21, 1995 Sanchez Mining Inc. (the Company's wholly-owned
subsidiary) received notice commencing arbitration (the "Arbitration") in
respect of a claim by AIOC Corporation ("AIOC") claiming entitlement of a
buyout of $2.4 million plus additional damages in an unspecified amount and
such other relief as the tribunal may deem appropriate arising from an alleged
breach by Sanchez Mining Inc. of the copper purchase agreement between Sanchez
Mining Inc. and AIOC  dated December 30, 1994 (the "Copper Purchase
Agreement").  AIOC has claimed that the recent sale by Sanchez Mining Inc. and
the Company of certain assets to Phelps Dodge has resulted in the alleged
breach of the Copper Purchase Agreement.  The Arbitration will be conducted in
London, England, in accordance with the arbitration rules of the London Metal
Exchange("LME").





                                       8
<PAGE>   9
         On December 28, 1995 AIOC instituted a legal proceeding against the
Company and Sanchez Mining Inc. in the court of Chancery of the State of
Delaware in and for New Castle County (Civil Action No.14765).  In its
complaint AIOC claimed a breach of the Copper Purchase Agreement and the letter
of agreement, also dated December 30, 1994, among AIOC, Axel Johnson Ore &
Metals, Inc. and the Company, as a result of the Phelps Dodge transaction and
alleged the existence of a buyout agreement whereby the Company agreed, among
other things, to make a $2.4 million payment to AIOC.  AIOC sought damages "in
excess of $5,000,000" and an injunction  to prevent the Company and Sanchez
Mining Inc. from transferring the proceeds of the Phelps Dodge sale so as to
preserve AIOC's right to meaningful relief in the Arbitration before the LME.

         On February 8, 1996 AIOC, the Company and Sanchez Mining Inc. entered
into a "Stipulation and Order of Compromise and Dismissal" whereby (i)the
Company placed $4,000,000 into escrow to satisfy any award in Arbitration, (ii)
the parties agreed to submit all their disputes to the exclusive forum of the
LME Arbitration, (iii) AIOC agreed to release Phelps Dodge from any liability
relating to AIOC's dispute with the Company and Sanchez Mining Inc. and (iv)
the Delaware Chancery Court action would be dismissed.  The Company and Sanchez
Mining Inc. anticipate that they will continue to contest vigorously the claims
of AIOC in the Arbitration.  As a result of the release of Phelps Dodge by
AIOC, the Company received payment of a $1.5 million holdback amount from
Phelps Dodge (plus interest) that had been retained by Phelps Dodge pending the
release of Phelps Dodge in connection with the AIOC dispute.  AIOC has filed a
bankruptcy petition under the United States Bankruptcy Code.  It is uncertain
what effect this will have on the Arbitration.

         LME arbitrators have provided the Company with a timetable for dealing
with the initial hearing.  This hearing will deal with the claims made by AIOC
for payment of $2.4 million plus interest and costs together with certain
related matters.  The potential remains for the balance of the claims made in
arbitration to be pursued at a later date depending on the outcome of the
initial hearing.  Discovery of documents relating to the initial hearing is to
be completed by September 30, 1997.  Witness statements of all factual
witnesses are to be exchanged on or before November 14, 1997.  The hearing has
been set for January 19, 1998.


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

         None

                                    PART II



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

         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, 1997, was 1,075.





                                       9
<PAGE>   10


         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 EXCHANGE                  AMERICAN EXCHANGE 
-------------                    ----------------                  ------------------
                                (Canadian Dollars)                 (U.S. Dollars)
                              --------------------                 --------------

                          High                     Low              High             Low
                          ----                     ---              ----             ---
<S>                       <C>                      <C>              <C>              <C>
   1995  
---------
09/30/95                  $2.18                    $1.60            $1.56            $1.06
12/31/95                  $1.74                    $1.00            $1.31            $0.75

   1996  
---------
03/31/96                  $2.00                    $1.23            $1.50            $0.81
06/30/96                  $2.84                    $1.69            $2.06            $1.19
09/30/96                  $2.35                    $1.75            $1.75            $1.25
12/31/96                  $2.45                    $1.90            $1.88            $1.31

   1997  
---------
03/31/97                  $2.95                    $1.90            $2.25            $1.38
06/30/97                  $2.35                    $1.66            $1.75            $1.19
</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 the section
captioned "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere herein.

                                           For the Year Ended June 30

<TABLE>
<CAPTION>
                          1997             1996             1995              1994              1993
                          ----             ----             ----              ----              ----
<S>                 <C>               <C>              <C>               <C>               <C>
INCOME STATEMENT:

Revenues             $  1,368,753      $ 26,893,607     $    100,800      $     96,268      $     71,973

Net income             (8,155,700)       17,127,455       (4,698,537)       (3,508,702)       (1,965,626)
Per share            $       (.32)     $        .67     $       (.19)     $       (.17)     $       (.11)


Weighted Avg. #
of common shares       25,787,247        25,554,322       25,006,637        20,495,454        17,598,790
& common equiv 
</TABLE>





                                       10

<PAGE>   11

<TABLE>
<S>                          <C>                  <C>              <C>               <C>              <C>
BALANCE SHEET:

Mineral Properties
                                                     12,573,096     10,971,142      7,527,995
Total Assets           22,345,247     30,033,118     15,791,656     15,792,370      8,845,921

Notes Payable                                         2,540,715        540,715        540,715


Total Liabilities         337,050         58,217      3,594,210      2,032,941      1,136,574
Total Stock-           22,008,197     29,974,901     12,197,446     13,759,429      7,709,347
holders' equity
</TABLE>



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


GENERAL

         All material revenues received during fiscal 1997 and 1996 were a
result of  the proceeds of the sale of assets to Phelps Dodge.  All funds
raised prior to fiscal 1996 were used in  the exploration  and development of
the Company's properties.

RESULTS OF OPERATIONS

TWELVE MONTHS ENDED JUNE 30, 1997 COMPARED TO TWELVE MONTHS ENDED JUNE 30,
1996.

         AZCO had a net loss of $8,155,700 for 1997 compared to net income of
$17,127,455 in 1996.  This was the result of the gain on the sale of assets to
Phelps Dodge of $26,076,026, recognized in the year ended June 30, 1996.

         Salaries expense was $1,107,910 during 1997 compared to $774,461 in
1996.  The increase was due primarily to a severance payment of $193,846 and
$149,996 of compensation expense to account for the fair value of stock options
granted to non-employees during the year ended June 30, 1997.

         General and administrative expense was $1,037,253 during 1997 compared
to $772,997 during 1996.  This increase in 1997 was due to increases in general
office and investor relations expenditures of $127,963 and $104,713,
respectively.

         Exploration expense in 1997 was $7,575,005 as compared to $738,597 in
1996.  The Company funded $1,846,330 for its 30% share of  the costs related to
the Piedras Verdes project.  In addition, expenditures of $14,344 were incurred
to sustain the Suaqui Verde project.  AZCO expended $4,052,316 on the Mali
project and an additional $352,659 on other various African projects in
connection with the strategic alliance with Eagle River.  A total of $1,211,549
was expended on the four Indonesian properties AZCO was involved with in 1997.
In addition, the company had general exploration expense of $97,807 in 1997.
The large increase in exploration activity in 1997 represents the Company's
change in direction from





                                       11
<PAGE>   12

a development stage mining company with the Sanchez project in 1996 to a pure
exploration company in 1997.

         Accounting and legal expenses decreased from $578,928 in 1996 to
$254,288 in 1997.  The decrease in legal expense in 1997 is the result of the
consent solicitation initiated by Muzinich & Co. in fiscal 1996.

         The Company did not incur interest expense in 1997 as all debt was
retired with the proceeds of the Phelps Dodge sale in 1996.

TWELVE MONTHS ENDED JUNE 30, 1996 COMPARED TO TWELVE MONTHS ENDED JUNE 30,
1995.

         AZCO had  net income $17,127,455 for 1996 compared to a net loss of
$4,698,537 in 1995.  This was the result of the gain on the sale of assets to
Phelps Dodge of $26,076,026, recognized in the year ended June 30, 1996.

         Salaries expense was $774,461 during 1996 compared to $640,306 in
1995.  The increase was due primarily to severance payments of $114,884.

         General and administrative expense was $772,997 during 1996 compared
to $920,246 during 1995.  This decrease in 1996 was in large part due to a
reduction in investor relations expenditures of $127,888.

         Exploration expense in 1996 was $738,597 as compared to no exploration
expense in 1995.  The Company funded $667,380 for its 30% share of  the costs
related to the Piedras Verdes project.  In addition, expenditures of $71,217
were incurred to sustain the Suaqui Verde project.

         The 1996 writedown of $848,487 in mineral properties represents the
Company's Investment in Cobre del Mayo.  AZCO holds a 30% interest in Cobre del
Mayo and, due to the uncertainties involved in the production decision on the
Piedras Verdes project, the Company has written-off this investment.  This
writedown compares to the $503,797 of capitalized development costs that were
expensed in 1995 when it was determined that the Suaqui Verde project was
unlikely to be developed by the Company.

         Accounting and legal expenses decreased from $785,740 in 1995 to
$578,928 in 1996.  This decrease in 1996 is the result of the 1995 expense of
$400,000 related to the settlement with Muzinich & Co. which is  partially
offset in 1996 by proxy solicitation costs of $225,408 incurred over the same
issue.

         Interest expense increased to $171,173 during 1996 as compared to
$106,376 during 1995 as a result of the carrying of increased debt in the first
half of fiscal 1996.  All debt was retired with the proceeds of the Phelps
Dodge sale.

         Financing and acquisition expense decreased to $109,362 during 1996
compared to $1,686,168 during 1995.  This decrease is due to  the 1995 writeoff
of debt and equity costs associated with the attempted financing of the Sanchez
Project.





                                       12
<PAGE>   13



LIQUIDITY AND CAPITAL RESOURCES

         For the fiscal year ended June 30, 1997 the Company met its capital
requirements through the proceeds of the sale of assets to Phelps Dodge in
1996.

         At June 30, 1997 and June 30, 1996 the Company had cash and cash
equivalents of $17,080,260 and $24,295,805, respectively, and working capital
of $17,303,831 and $25,682,136, respectively.  Total liabilities increased from
$58,217 on June 30, 1996 to $337,050 on June 30, 1997.  The increase in current
liabilities in 1997 is due to exploration expenses accrued at year end.


         The Company feels that its current cash position is strong enough to
fund  all capital requirements in fiscal 1998.  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 of the ongoing exploration projects in Mali, Indonesia and
Mexico (including approximately $4.4 million in potential exploration and
pre-production royalties on the Piedras Verdes project over the next 11 years)
is expected to come from the Company's treasury.  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 their interest in
the property.

ADDRESSING THE YEAR 2000

         The Company has confirmed with its accounting software vendor that the
subsequent version of its current product used by the Company will address the
potential year 2000 problem.  It is the intention of the Company to upgrade to
the upcoming software version once it is available.  It is anticipated that
there will be no material impact on the Company.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

     None


                                    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 13, 1997.  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





                                       13
<PAGE>   14

experience, length of time served in each capacity and other matters relevant
to each individual is set forth below the table.

       NAME                          POSITION HELD                   
---------------------------------------------------------------------------

Alan Peter Lindsay..................President, Chairman, Chief Executive
                                    Officer and Director

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

Andrew Frederic de Paula Malim......Director of the Company

Paul Arthur Hodges..................Director of the Company

Dr. Ian McFarlane Gray..............Director of the Company

Ryan Andrew Modesto.................Corporate Controller and
                                    Principal Accounting Officer

Doug W. Ramshaw.....................Vice-President of Corporate Development

Dr. Nick Badham.....................Chief Geologist


         All 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:

         Mr. Lindsay, aged 47, 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 nine 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 63, one the Company's founders, has been associated
with the Company since July 13, 1988.  He 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
he 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





                                       14
<PAGE>   15

a 3,000 tpd underground copper mine rehabilitation expansion located in
Ireland, for Avoca Mines Limited.


         Mr. Malim, aged 54, became a director of the Company on July 16, 1991.
Mr Malim has been associated with Lion Mining Group since 1981 and currently is
the managing director of that company.  Mr. Malim also has majority ownership
of the Lion Mining Group.  The Lion Mining Group has been associated with the
Company since March 1989 and was responsible for rasing a significant portion
of the Company's financing prior to the Company going public.  Mr. Malim was
one of the original members of the James Capel & Company mining team, and for
ten years was a member of the International Stock Exchange, London.

         Mr. Hodges, aged 70, 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 President of Anamax
Mining Company at Twin Buttes.  Most recently Mr. Hodges was President of
Compania Minera El Indio.  He was a director of Lac Minerals Limited, a
publicly traded company acquired by American Barrick in late 1994.  Mr. Hodges
joined the Board as a voting member in August 1993.

         Dr. Gray, aged 61, director, became a director September 4, 1996.
Most recently Dr. Gray has been involved in the assessment, acquisition and
development of gold and copper properties in Indonesia, Peru and Brazil.  For
much of his career Dr. Gray held senior operations and management positions
with INCO Ltd. and BP Minerals International Ltd. and has been involved in
mineral exploration, project development, mine production, formation and
general management of public companies in North America, Australia, Central
Southern Africa, S.E.  Asia and South America.

         Mr. Modesto, aged 42, Corporate Controller and Principal Accounting
Officer since January 1, 1996, joined the Company in June 1994 as Controller of
the Sanchez Project.  Mr. Modesto earned a B.S. in Accounting from the
University of Utah in 1977 and has 20 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's Santa Fe project in
Nevada.

         Mr. Ramshaw, aged 26, Vice-President of Corporate Development
effective April 29, 1997 joined AZCO on February 1, 1997 as Manager- Corporate
Development.  Mr. Ramshaw, a Mining Geologist earned a B.S. from the Royal
School of Mines, London, in 1993 and has a variety of experience in gold
exploration and mining. Prior to joining AZCO, Mr. Ramshaw was a Mining Analyst
at C.M. Oliver and Co. Ltd. from January 1996 through February 1997, Assistant
Editor for the Mining Journal from February 1994 through 1995 and a Consulting
Geologist from June 1993 through January 1994.

         Dr. Badham, aged 50, Chief Geologist joined AZCO on August 1, 1997.
Prior to being associated with AZCO, Dr. Badham was Chief Geologist for RTZ
Mining and





                                       15
<PAGE>   16

Exploration from 1989 through 1996 and Area Selection Geologist for B.P.
Minerals from 1983 through 1989.

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, 1997, all filing requirements
applicable to its officers, directors and greater than ten percent beneficial
owners were complied with, except that Mr. Modesto had one late filing,
reporting one transaction and Mr. Ramshaw failed to timely file his initial
filing on Form 3.


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, 1997, as well as the total compensation
paid to each such individual for the Company's three previous fiscal years:



<TABLE>
<CAPTION>
                           Summary Compensation Table
                        (As at year ended June 30, 1996)

                                                           Annual Compensation                  Long Term
                                                           -------------------                  ---------
                                                                                               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(1)                1997         110,000           5,500           6,000(3)               0
---------------------------------------------------------------------------------------------------------
President(6),Chairman             1996          99,482               0           6,000(3)         300,000
---------------------------------------------------------------------------------------------------------
of the Board and CEO              1995          92,400               0           2,500(3)               0
</TABLE>





                                       16
<PAGE>   17
<TABLE>
<S>                                <C>       <C>          <C>           <C>                   <C>
Anthony R. Harvey(2)          1997         110,000           5,500           6,000(3)               0
---------------------------------------------------------------------------------------------------------
 Vice-Chairman, Vice          1996          99,482               0           6,000(3)         300,000
---------------------------------------------------------------------------------------------------------
 President, Secretary         1995          92,400               0           2,500(3)               0
---------------------------------------------------------------------------------------------------------
David C. Beling               1997         145,833               0         193,846(4)               0
---------------------------------------------------------------------------------------------------------
 President and Chief          1996         142,178          65,000               0            155,000
---------------------------------------------------------------------------------------------------------
 Operating Officer            1995         135,000           7,000            6490(5)               0
</TABLE>


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

(2)      These amounts were actually paid to ARH Management Ltd., a management
         company under the control of Mr. Harvey pursuant to a management
         agreement dated May 1, 1989 with the Company.

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

(4)      Mr. Beling resigned as a director and officer of the Company effective
         as of April 30, 1997.  Mr. Beling's resignation triggered the
         provision of his employment agreement where in the event of merger,
         consolidation, divestiture, takeover, sale or other similar
         circumstances which result in conditions or terms unacceptable to Mr.
         Beling within the first year after such event, Mr Beling would be paid
         12 months base salary plus any prorated bonuses and vacation accrued
         to the time of termination.  This amount includes $175,000
         representing 12 months of base pay and $18,846 of accrued vacation.

(5)      This amount was paid as a premium on a life insurance policy.

(6)      Mr. Lindsay was appointed President of the Company upon the
         resignation of Mr. Beling effective April 30, 1997.


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

<TABLE>
<CAPTION>
==============================================================================================================================
          Name              Shares          Value                                                Value of Unexercised
                           Acquired        Realized       Number of Securities Underlying       In-The-Money Options at FY-End
                              on                            Unexercised Options at FY-End              ($)(1)
                           Exercise
                                                           -------------------------------------------------------------------
                                                           Exercisable      Unexercisable    Exercisable      Unexercisable
  <S>                        <C>            <C>             <C>                   <C>             <C>             <C>
------------------------------------------------------------------------------------------------------------------------------
  Alan P. Lindsay                                            300,000               0               0               0
------------------------------------------------------------------------------------------------------------------------------
  David C. Beling(2)          50,000         $73,750               0               0               0               0
------------------------------------------------------------------------------------------------------------------------------
  Anthony R. Harvey                                          300,000               0               0               0
==============================================================================================================================
</TABLE>





                                       17
<PAGE>   18
(1)  Based on the closing price of $1.31 of the Company's common stock as quoted
     on the American stock Exchange on June 30, 1997.

(2)  Mr. Beling exercised 50,000 options prior to his resignation on April 30,
     1997. The balance of Mr. Beling's unexercised options were canceled May 31,
     1997.

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
1997 Dr. Gray a non-officer director, was granted an option to acquire 100,000
shares of the Company's stock.

EMPLOYMENT CONTRACTS AND CHANGE-IN-CONTROL ARRANGEMENTS.

         Effective May 1, 1989 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 agreement requires all salary amounts otherwise payable by the
Company to Mr. Lindsay to be paid to Associates.  This agreement is
automatically renewed for two year terms unless either party gives the other
party notice of non-renewal at least 30 days prior to the end of any term.  The
agreement may be terminated by the Company without notice if Mr. Lindsay is no
longer a principal of Associates, or upon the occurrence of certain other
events such as Mr.  Lindsay's bankruptcy or disability.  The agreement may be
terminated by either party, without notice, upon breach of the material terms
of the Agreement, commission of fraud, or misconduct or declaration of
bankruptcy by either party.

         Effective May 1, 1989 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 agreement
requires all salary amounts otherwise payable by the Company to Mr. Harvey to
be paid to Management.  This agreement is automatically renewed for two year
terms unless either party gives the other party notice of non-renewal at least
30 days prior to the end of any term.  The agreement may be terminated by the
Company without notice if Mr. Harvey is no longer a principal of Management, or
upon the occurrence of certain other events such as Mr. Harvey's bankruptcy or
disability.  The agreement may be terminated by either party, without notice,
upon breach of material term of the Agreement, commission of fraud, misconduct
or declaration of bankruptcy by either party.


         Effective August 15, 1994 management agreements (collectively, the
"Management Agreements") were provided to both Messrs. Harvey and Lindsay that
are effective in the event of a change in control of the Company. 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). Such
"base amount" is generally equivalent to the applicable person's average annual
compensation





                                       18
<PAGE>   19

from the Company includable in his gross income over the preceding five years.
Change of control is therein defined  to include only the following:

       (i)    the acquisition of (whether direct or indirect) 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; or

       (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 Messers. Malim and 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 effective
in the event of a change in control of the Company.  These Director's
Agreements provide for a lump sum distribution in the amount of $100,000.
Change in control has the same definition as set forth above in connection with
the Management Agreements.


COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS

     During the fiscal year ending 1997 the Company had no compensation
committee.  Each of the Company's officers and directors participated in
deliberations of the Company's Board of Directors concerning officer
compensation.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The table below sets forth information, as of June 30, 1997, with
respect to beneficial ownership of the Company's Common Stock by each person
known by the Company to be the beneficial owner of more than 5% 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                 Type of Ownership          Number of Shares      Percent of Class
               of Beneficial Owner
-----------------------------------------------------------------------------------------------------------------
  <S>                                               <C>                         <C>                   <C>
  Alan P. Lindsay                                   Record and                  978,569(1)             3.83%
  999 W. Hastings, Ste 1250                         Beneficial
  Vancouver, BC, Canada  V6C 2W2
-----------------------------------------------------------------------------------------------------------------
</TABLE>





                                       19
<PAGE>   20
<TABLE>
  <S>                                              <C>                         <C>                    <C>
-----------------------------------------------------------------------------------------------------------------
  Anthony R. Harvey                                 Record and                  453,252(2)             1.77%
  999 W. Hastings, Ste 1250                         Beneficial
  Vancouver, BC, Canada  V6C 2W2
-----------------------------------------------------------------------------------------------------------------
  Andrew F de P Malim                               Record and                  171,541(3)               *
  7-8 Kendrick Mews                                 Beneficial
  London, England  SW7 3HG
-----------------------------------------------------------------------------------------------------------------
  Paul A. Hodges                                    Record and                  116,524(4)               *
  4536 N. Via Bellas Catalinas                      Beneficial
  Tucson, AZ  85718
-----------------------------------------------------------------------------------------------------------------
  Dr. Ian M. Gray                                   Record and                  100,000(5)               *
  Copper Hill House, Buller Hill                    Beneficial
  Redruth,Cornwall U.K., TR16 6SR
-----------------------------------------------------------------------------------------------------------------
  Officers & Directors                              Record and                  2,106,886              8.24%
  as a Group (8 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
       $1.80 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.

(3)    Includes an option to acquire 125,000 shares at an exercise price of CDN
       $1.80 per share.

(4)    Includes options to acquire (i) 50,000 shares at an exercise price of
       $2.00 per share and (ii) 50,000 shares at an exercise price of CDN $1.80
       per share.

(5)    Includes an option to acquire 100,000 shares at an exercise price of CDN
       $1.90 per share.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Andrew F de P Malim, a non-officer director of the Company, is  the
chairman, managing director and majority shareholder of Lion Mining Finance, a
United Kingdom registered company.  AZCO has entered into a memorandum of
agreement with Eagle River, WAG, and Lion Mining Finance concerning the
development of mining concessions in Mali.  Pursuant to that agreement, Lion
Mining Finance was paid $15,692 for management services and it is anticipated
that Lion Mining Finance will receive an equity interest of up to approximately
21 percent in the project on a fully diluted basis upon completion of the
transaction.


                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 10K





                                       20
<PAGE>   21

(a) 1.   Financial Statements - Reference is made to the Financial Statements
appearing on Pages F-1, F-2, F-3, F-4, F-5, F-6, F-8-F-18 hereof.

2.       Financial Statement Schedules - Reference is made to the Financial
Statement Schedules on Page F-20.

3.       Exhibits

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 Bylaws(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           Management Agreement dated May 1, 1989 between the Registrant and
               ARH Management Ltd.(1)

10.2           Management Agreement dated May 1, 1989 between the Registrant and
               Alan Lindsay and Associates, Ltd.(1)

10.3           Distribution Agreement dated August 15, 1991 between the
               Registrant and Axel Johnson Ore & Metals, Inc.(1)

10.4           Agreements for Suaqui Verde Property(1)

10.5           Agreements for Piedras Verdes Property(1)

10.6           Employment Agreement with David Beling dated September 10,
               1991(1)

10.7           Copper Purchase Agreement dated December 30, 1994 between AIOC
               Corporation and Sanchez Mining Inc.(2)

10.8           Purchase Agreement dated July 27, 1995 between the Registrant,
               Sanchez Mining, Inc. and Phelps Dodge Corporation.(2)

10.9           Settlement Agreement dated August 3, 1995 between the Registrant
               and Muzinich & Co., Inc.(2)


10.10          Memorandum of Agreement between West Africa Gold & Exploration
               Ltd., Eagle River International Limited, Lion Mining Finance
               Limited and AZCO Mining Inc.(4)

10.11          Suaqui Verde Mineral exploration agreement and option to form
               company among AZCO Mining, Inc., Cobre de Suaqui Verde, S.A. de
               C.V. and Minera Phelps Dodge Mexico, S. de R.L. de C.V.(4)





                                       21
<PAGE>   22

10.12*         Letter agreement relating to the Pongkor property offer.


10.13*         Letter agreement relating to the Strategic Alliance with Eagle
               River.


11.1*          Statement regarding computation of per share earnings.

21.1*          Subsidiaries of the Registrant.

24.1*          Consent of Coopers and Lybrand.

27.1*          Financial Data Schedule.


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

(1)    Exhibit Nos. 3.1, 3.2, 10.1, 10.2, 10.3, 10.4, 10.5, and 10.6 are
       incorporated by reference from Exhibit Nos. 3.1, 3.2, 10.1, 10.2, 10.3,
       10.10, 10.11 and 10.15 respectively, from the Registrant's Registration
       Statement on Form S-4 (File No. 33-45162).

(2)    Exhibit Nos. 3.3, 3.4, 10.7, 10.8 and 10.9 are incorporated by reference
       from exhibits Nos. 3.3, 3.4, 10.19, 10.20 and 10.21 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 filed with the SEC on
       July 21, 1992.

(4)    Exhibit Nos. 10.10 and 10.11 are incorporated by reference from exhibits
       Nos. 10.10 and 10.11 from the Registrant's Annual Report on Form 10-K for
       the fiscal year ended June 30, 1996.


*  Filed herewith.

(b)      Reports on Form 8K: None
















                                       22
<PAGE>   23
                                   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 29, 1997         By: /s/ Alan P. Lindsay
                                     -----------------------------------------
                                          Alan P. Lindsay
                                          President, Chairman of the Board and
                                          Chief Executive Officer


 Date: September 29, 1997         By: /s/ Ryan A. Modesto          
                                     -----------------------------------------
                                          Ryan A. Modesto
                                          Corporate Controller and Principal
                                          Accounting Officer


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

<TABLE>
<CAPTION>
     Signature                      Title                           Date
     ---------                      -----                           ----
<S>                         <C>                             <C>
/s/ Alan P. Lindsay          President, Chairman of the      September 29, 1997
---------------------        Board and Chief Executive       
Alan P. Lindsay              Officer

/s/ Anthony R. Harvey        Vice Chairman, Executive        September 29, 1997
---------------------        Vice President, Secretary
Anthony R. Harvey            and Director

/s/ Andrew Malim             Director                        September 29, 1997
---------------------                                                
Andrew F de P Malim


/s/ Paul A. Hodges           Director                        September 29, 1997
---------------------                                                
Paul A. Hodges


/s/ Dr. Ian M. Gray          Director                        September 29, 1997
---------------------                                                
Dr. Ian M. Gray
</TABLE>













                                       23



<PAGE>   24

AZCO MINING, INC. (DELAWARE)



FORM 10-K
ITEM 8, ITEM 14(A)(1) AND (2)
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES


                                                                         PAGE

THE FOLLOWING FINANCIAL STATEMENTS REQUIRED TO BE INCLUDED IN ITEM 8 ARE LISTED
BELOW:

       Report of Independent Accountants                                  F-2

       Consolidated Balance Sheets as of June 30, 1997 and 1996           F-3

       Consolidated Statements of Operations for the fiscal years
         ended June 30, 1997, 1996 and 1995                               F-4

       Consolidated Statements of Stockholders' Equityfor the fiscal
         years ended June 30, 1997, 1996 and 1995                         F-5

       Consolidated Statements of Cash Flows for the fiscal years
         ended June 30, 1997, 1996 and 1995                               F-6

       Notes to Consolidated Financial Statements                         F-7



THE FOLLOWING FINANCIAL STATEMENT SCHEDULE OF THE REGISTRANT
ISINCLUDED IN ITEM 14(A)(2):

       Schedule II - Valuation and Qualifying Accounts for the fiscal
        years ended June 30, 1997, 1996 and 1995                         F-20
  


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>   25


REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors and Stockholders
Azco Mining, Inc. (Delaware):

We have audited the consolidated financial statements and the financial
statement schedule of Azco Mining, Inc. (Delaware) and Subsidiary listed in the
index on page F-1 of this Form 10-K. These financial statements and 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Azco Mining, Inc.
(Delaware) and Subsidiary as of June 30, 1997 and 1996, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1997, in conformity with 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.







COOPERS & LYBRAND L.L.P.

Phoenix, Arizona
August 8, 1997













                                 F-2

<PAGE>   26

AZCO MINING, INC. (DELAWARE)
CONSOLIDATED BALANCE SHEETS
June 30, 1997 and 1996


<TABLE>
<CAPTION>
                                                                                       1997              1996
                                                                                   ------------     ------------
<S>                                                                               <C>              <C>      
                                        ASSETS
Current assets:
    Cash and cash equivalents                                                      $ 17,080,260     $ 24,295,805
    Short-term investments                                                                             1,400,687
    Prepaids and other                                                                   80,893           43,861
    Income tax receivable                                                               479,728
                                                                                   ------------     ------------
              Total current assets                                                   17,640,881       25,740,353
                                                                                   ------------     ------------
Property and equipment:
    Furniture and equipment                                                             158,539          188,080
    Less accumulated depreciation                                                      (111,259)        (127,450)
                                                                                   ------------     ------------
                                                                                         47,280           60,630
                                                                                   ------------     ------------
Refundable deposits                                                                     615,255
Restricted cash                                                                          34,106           51,610
Deposit                                                                               4,000,000        4,000,000
Other assets                                                                              7,725          180,525
                                                                                   ------------     ------------
                                                                                   $ 22,345,247     $ 30,033,118
                                                                                   ============     ============
                                LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Accounts payable and accrued liabilities                                       $    337,050     $     58,217
                                                                                   ------------     ------------

              Total current liabilities                                                 337,050           58,217
                                                                                   ------------     ------------

Commitments and contingencies

Stockholders' equity:
    Common stock:  $.002 par value, 100,000,000 shares authorized; 25,579,834
      and25,512,938 shares issued and outstanding as of June 30, 1997 and 1996,
      respectively
                                                                                         51,160           51,026
    Additional paid-in capital                                                       25,776,411       25,587,549
    Retained earnings (accumulated deficit)                                          (3,819,374)       4,336,326
                                                                                   ------------     ------------
              Total stockholders' equity                                             22,008,197       29,974,901
                                                                                   ------------     ------------

                                                                                   $ 22,345,247     $ 30,033,118
                                                                                   ============     ============
</TABLE>


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








                                 F-3


<PAGE>   27

AZCO MINING, INC. (DELAWARE)
CONSOLIDATED STATEMENTS OF OPERATIONS
for the fiscal years ended June 30, 1997, 1996 and 1995


<TABLE>
<CAPTION>
                                                                       1997             1996             1995
<S>                                                              <C>              <C>              <C>    
Income:
    Interest income                                               $  1,332,679     $    817,581     $    100,800
    Gain on sale of assets                                              11,074       26,076,026
    Other income                                                        25,000
                                                                  ------------     ------------     ------------

                                                                     1,368,753       26,893,607          100,800
                                                                  ------------     ------------     ------------

Operating expenses:
    Salaries                                                         1,107,910          774,461          640,306
    General and administrative                                       1,037,253          772,997          920,246
    Write-down of mineral properties                                                    848,487          503,797
    Exploration                                                      7,575,006          738,597
    Accounting and legal                                               254,288          578,928          785,740
    Amortization and depreciation                                       33,498           57,147          156,704
    Interest expense, net of amount capitalized                                         171,173          106,376
    Financing and acquisition                                          113,031          109,362        1,686,168
                                                                  ------------     ------------     ------------
                                                                    10,120,986        4,051,152        4,799,337
                                                                  ------------     ------------     ------------

Income (loss) before income taxes                                   (8,752,233)      22,842,455       (4,698,537)

Income tax benefit (provision)                                         596,533       (5,715,000)
                                                                  ------------     ------------     ------------

Net income (loss)                                                 $ (8,155,700)    $ 17,127,455     $ (4,698,537)
                                                                  ============     ============     ============

Net income (loss) per common and common equivalent share          $      (0.32)    $       0.67     $      (0.19)
                                                                  ============     ============     ============

Weighted average number of common and common equivalent shares
  outstanding
                                                                    25,787,247       25,554,322       25,006,637
                                                                  ============     ============     ============
</TABLE>


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















                                 F-4

<PAGE>   28

AZCO MINING, INC. (DELAWARE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the fiscal years ended June 30, 1997, 1996 and 1995



<TABLE>
<CAPTION>
                                                                                                                 
                                                                                                                 
                                                                 COMMON STOCK            ADDITIONAL     RETAINED   
                                                         -----------------------------    PAID-IN       EARNINGS  
                                                             SHARES         AMOUNT        CAPITAL      (DEFICIT)         TOTAL
<S>                                                       <C>          <C>            <C>           <C>            <C>         
Balance, June 30, 1994                                     23,862,938   $     47,726   $ 21,804,295  $ (8,092,592)  $ 13,759,429

   Private placement, net of issuance costs of $346,366     1,650,000          3,300      3,133,254                    3,136,554
   Net loss                                                                                            (4,698,537)    (4,698,537)

                                                         ------------   ------------   ------------  ------------   ------------
Balance, June 30, 1995                                     25,512,938         51,026     24,937,549   (12,791,129)    12,197,446
                                                         ------------   ------------   ------------  ------------   ------------
   Tax benefit of stock options                                                             650,000                      650,000
   Net income                                                                                          17,127,455     17,127,455

                                                         ------------   ------------   ------------  ------------   ------------
Balance, June 30, 1996                                     25,512,938         51,026     25,587,549     4,336,326     29,974,901

   Stock options exercised                                     66,896            134         38,866                       39,000
   Stock option compensation                                                                149,996                      149,996
   Net loss                                                                                            (8,155,700)    (8,155,700)
                                                         ------------   ------------   ------------  ------------   ------------
Balance, June 30, 1997                                     25,579,834   $     51,160   $ 25,776,411  $ (3,819,374)  $ 22,008,197
                                                         ============   ============   ============  ============   ============
</TABLE>


The accompanying notes are an integral part of these financial statements 







                                 F-5

<PAGE>   29

AZCO MINING, INC. (DELAWARE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the fiscal years ended June 30, 1997, 1996 and 1995


<TABLE>
<CAPTION>
                                                                            1997          1996           1995
<S>                                                                   <C>            <C>            <C>          
Cash flows from operating activities:
    Net income (loss)                                                  $ (8,155,700)  $ 17,127,455   $ (4,698,537)
    Adjustments to reconcile net income (loss) to net cash provided
      by(used in) operations:
      Depreciation and amortization                                          33,498         57,147        156,704
      Stock compensation expense                                            149,995
      Tax benefit of stock options                                                         650,000
      Write-off of financing costs                                                                        434,989
      Amortization of (discount) premium on investment securities             5,687          1,284        (23,317)
      Write-down of mineral properties                                                     848,487        503,797
      (Gain) loss on sale of furniture and equipment                        (11,074)         4,461
      Gain on sale of assets                                                           (26,076,026)
    Changes in assets and liabilities, net:
      Restricted cash                                                        17,504        298,510          4,750
      Other assets                                                          135,768       (151,542)        58,298
      Refundable deposits                                                  (615,255)
      Income tax receivable                                                (479,728)
      Accounts payable and accrued liabilities                              278,833       (545,278)       (22,479)
      Deferred liability                                                                  (450,000)
      Deposit                                                                           (4,000,000)
    Proceeds from sale of mineral properties                                            39,173,295
                                                                       ------------   ------------   ------------
Net cash provided by (used in) operating activities                      (8,640,472)    26,937,793     (3,585,795)
                                                                       ------------   ------------   ------------
Cash flows from investing activities:
    Purchases of short-term investments                                                (1,401,971)
    Proceeds from maturity of short-term investments                      1,395,000
    Proceeds from maturity of investment securities                                                     1,300,000
    Proceeds from certificate of deposit                                                                  100,000
    Purchases of furniture and equipment and construction in progress       (22,163)        (6,245)      (615,014)
    Proceeds from sale of furniture and equipment                            13,090         28,882
    Development of mineral properties                                                     (516,577)    (2,105,751)

                                                                       ------------   ------------   ------------
Net cash provided by (used in) investing activities                       1,385,927     (1,895,911)    (1,320,765)
                                                                       ------------   ------------   ------------
Cash flows from financing and offering activities:
    Payments for offering costs                                                                          (346,366)
    Proceeds from sale of common stock                                                                  3,482,920
    Proceeds from exercise of stock options                                  39,000
    Proceeds from issuance of debt                                                         500,000      2,000,000
    Payments of debt                                                                    (3,040,715)
    Borrowings on line of credit                                                                          508,348
    Payments on line of credit                                                                           (924,600)
                                                                       ------------   ------------   ------------
Net cash provided by (used in) financing and offering activities             39,000     (2,540,715)     4,720,302
                                                                       ------------   ------------   ------------
Net increase (decrease) in cash and cash equivalents                     (7,215,545)    22,501,167       (186,258)

Cash and cash equivalents, beginning of period                           24,295,805      1,794,638      1,980,896
                                                                       ------------   ------------   ------------
Cash and cash equivalents, end of period                               $ 17,080,260   $ 24,295,805   $  1,794,638
                                                                       ============   ============   ============

Cash paid during the period for:
    Interest paid net of amount capitalized                            $              $    230,453   $     89,374
                                                                       ============   ============   ============
    Taxes                                                              $              $  5,715,000   $
                                                                       ============   ============   ============
</TABLE>


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










                                 F-6

<PAGE>   30

AZCO MINING, INC. (DELAWARE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.     NATURE OF OPERATIONS:

       Azco Mining, Inc. (the "Company") is a U.S. mining company with
       a general business strategy to acquire mineral properties with
       a prime focus on gold. The Company plans to supplement its core
       asset, a 30% interest in the Piedras Verdes Project through its
       acquisition of other mineral properties.

       As of June 30, 1997, the Company had signed agreements with
       various companies to acquire the rights to explore precious
       metal properties in Mali (Northwest Africa) and Indonesia. At
       June 30, 1997, none of the properties had proven reserves of
       commercial ore.


2.     BASIS OF PRESENTATION:

       The consolidated financial statements include the accounts of
       the Company and its majority-owned subsidiary. All intercompany
       balances have been eliminated.



3.     SIGNIFICANT ACCOUNTING POLICIES:

       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.

       SHORT-TERM INVESTMENTS
       Short-term investments consisted of United States Treasury
       Notes with maturities between three and twelve months and were
       classified as "held to maturity" investments at June 30, 1996.
       Accordingly, these investments were carried at amortized cost.
       Due to the short-term maturity of these investments, amortized
       cost approximated fair value. Net realized gains and losses, if
       any, on investments sold are recorded in operations based on
       specific identification of the investments on the trade date.
       Interest income is recorded as earned. No gains or losses were
       realized upon maturity of the investments.

       MINERAL PROPERTIES
       The Company expenses prospecting and exploration costs and
       capitalizes costs directly attributable to the acquisition of
       mining properties, pending determination as to their commercial
       feasibility (to contain a viable mineral deposit). Development
       costs are capitalized and, upon commencement of production,
       will be amortized using the units-of-production method. 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 cost and no gain is
       recognized until all costs have been fully recovered.







                                      F-7

<PAGE>   31

AZCO MINING, INC. (DELAWARE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3.     SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

       PROPERTY EVALUATION
       Recoverability of investments in 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) and operating capital and reclamation costs on an
       undiscounted basis. Reductions in the carrying value of each property are
       recorded to the extent the remaining investment exceeds the estimate of
       future net cash flows.

       Where properties are held for sale, recoverability is assessed based on
       management's estimate of fair value. Reductions in the carrying value of
       each property are recorded to the extent the remaining investment exceeds
       fair value, less costs of disposal.

       FURNITURE AND EQUIPMENT
       Furniture and equipment are carried at cost. Replacements, maintenance
       and repairs which do not improve or extend the life of the respective
       assets are expensed currently. Major renewals and improvements are
       capitalized. Upon retirement, sale or other disposition of furniture and
       equipment, the cost and accumulated depreciation are eliminated from the
       accounts and the gain or loss is included in operations.

       The Company depreciates the non-mining assets over their estimated useful
       lives (3-5 years) using the straight-line method.

       INCOME TAXES
       The Company accounts for income taxes under Statement of Financial
       Accounting Standards 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.

       NET INCOME (LOSS) PER SHARE
       Net income or loss per common and common equivalent share is
       based on the weighted average number of common and common
       equivalent shares outstanding during each year. The common
       equivalent shares of options and warrants are excluded from the
       weighted average number of shares if they are anti-dilutive.

       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.









                                      F-8


<PAGE>   32

AZCO MINING, INC. (DELAWARE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


3.     SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

       STOCK-BASED COMPENSATION
       In October 1995 the Financial Accounting Standards Board issued Financial
       Accounting Standard No. 123, Accounting for Stock-Based Compensation
       ("FAS No. 123"), which defines a fair value based method of accounting
       for employee stock options or similar equity instruments. However, it
       also allows an entity to continue to account for these plans according to
       Accounting Principles Board Opinion No. 25 ("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 FAS No. 123 has been
       applied. The Company has elected to continue to measure compensation
       expense related to employee stock purchase options using APB No. 25.



4.     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 places its cash and cash equivalents with high
       quality financial institutions. 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, 1997 and 1996, cash
       equivalents of $16.8 million and $24.2 million, respectively, were
       invested with one bank's trust and institutional portfolio department.



5.     MINERAL PROPERTIES:

       SANCHEZ PROJECT
       During the second quarter of the year ended June 30, 1996, the Company
       sold 100% of its investment in the Sanchez property located in Graham
       County, Arizona. Proceeds of $37,000,000 from the sale were received and
       a gain of $26,076,026 was recorded.

       COBRE DEL MAYO (PIEDRAS VERDES PROJECT)
       The Piedras Verdes project is located in southern Sonora, Mexico. During
       the second quarter of the year ended June 30, 1996, the Company sold 70%
       of its investment in the Piedras Verdes project. In accordance with the
       Company's policy regarding sales of mineral properties, proceeds of
       $3,000,000 from the sale were credited against the remaining development
       costs and no gain was recognized. The Company is expensing all costs
       related to the project.

       SUAQUI VERDE PROJECT
       During 1995, the Company wrote off all costs related to the Suaqui Verde
       Project due to the cessation of activities.

       On June 20, 1996, Azco entered into a Mineral Exploration and Option to
       Form Company Agreement with Minera Phelps Dodge Mexico for the mineral
       exploration and evaluation of the Suaqui Verde mineral concessions in
       Sonora, Mexico. The Company is expensing all costs related to the
       project.








                                      F-9


<PAGE>   33

5.     MINERAL PROPERTIES: (CONTINUED)

       MALI PROJECT (NORTHWESTERN AFRICA)
       On May 9, 1996, Azco 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 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"). Upon fulfillment
       of conditions precedent to Azco's participation, Azco has committed to
       purchase 4,800,000 shares of Sanou at a price of ($0.25) (U.S.) per share
       and receive 1,000,000 shares of Sanou in consideration for 125,000 common
       shares of Azco to be issued to Eagle River. Azco currently holds in trust
       the one and only share of Sanou.

       On May 17, 1996, under 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, has 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 provided the
       Mali project $4,052,316 for operating costs which exceeds the required
       expenditures. The operating costs are included in exploration costs in
       the accompanying statement of operations.

       INDONESIAN PROJECTS
       During the year, the Company entered into certain agreements to obtain
       the rights to explore property in Indonesia. As a part of the agreements,
       the Company was obligated to pay all costs required under Indonesian law.
       These costs include funds required to be put on deposit with the
       Indonesian Ministry of Mines to obtain Contracts of Work ("CoWs").

       At June 30, 1997, the Company had a total of $615,255 on deposit with the
       Indonesian Ministry of Mines as security for CoWs on mineral concessions
       covering 121,623 hectares. Subsequent to year end, the Company decided
       not to pursue exploration on 83,940 hectares. As a result, the Company
       has applied for a refund of $426,840 in deposits.









                                      F-10

<PAGE>   34


6.     NOTES PAYABLE:
       In May 1991, the Company commenced an offering to issue $1,000,000, 10%
       unsecured Convertible Redeemable Debentures, (the "Debentures"). Under
       this offering, the Company sold $540,715 of the Debentures, $500,000 of
       which were sold to a stockholder of the Company. Interest was 10% per
       annum until May 31, 1995 and 14% per annum until maturity. The Debentures
       could have been converted to common stock at the option of the investor
       after one year for $4 per share. The Debentures were subject to
       prepayment, in whole or in part, without penalty or premium, at any time
       at the option of the Company. The Debentures were subordinate to any
       Senior Debt, as defined in the debenture agreement, that the Company may
       have obtained. The Debentures matured and were paid in full on December
       31, 1995.

       On May 12, 1995, the Company issued $2,000,000, 14% Convertible
       Debentures. Interest at 14% per annum is payable semi-annually from the
       issue date. The Convertible Debentures could have been converted to
       common stock at the option of the investor at any time during the
       two-year term of the Convertible Debentures for $2.00 per share. The
       Convertible Debentures were subordinated to any and all security or
       obligations which may have been issued or incurred by the Company in
       connection with the Company's debt financing requirement for its mineral
       properties. The Convertible Debentures were paid in full on December 19,
       1995. No penalty was assessed for early extinguishment of the debt.

       Interest expense for the years ended June 30, 1996 and 1995 was $171,173
       and $106,376, respectively, after capitalization of interest of $0 and
       $13,940, respectively.




























                                      F-11

<PAGE>   35

7.     WARRANTS AND STOCK OPTIONS:

       WARRANTS
       In connection with a private offering in October 1994, the Company issued
       1,650,000 common shares with warrants at a price of $2.85 (Cdn.) per
       unit. Each warrant entitles the holder to purchase one additional common
       share of the Company for a period of two years from the closing at a
       purchase price of $2.95 (Cdn.) per common share. In October 1996, the
       exercise period was extended one year.

       Changes to outstanding warrants were as follows:


<TABLE>
<CAPTION>
                                                          OTHER                 SPECIAL                TOTAL
 
       <S>                                            <C>                    <C>                     <C>     
               Exercise Price                             $2.00 to            $2.95 Cdn.
                                                        $4.00 U.S.
     
               Expiration Date                         07/31/93 to              10/19/97
                                                          07/31/95
     
        Balance outstanding at June  30, 1994              100,000                                     100,000
       
     
        Issued                                                                 1,650,000             1,650,000
                                                        ----------            ----------            ----------
        Balance outstanding at June  30, 1995              100,000             1,650,000             1,750,000
     
        Canceled                                          (100,000)                                   (100,000)
                                                        ----------            ----------            ----------
     
        Balance outstanding at June  30, 1996                    0             1,650,000             1,650,000
                                                        ----------            ----------            ----------
     
        Balance outstanding at June  30, 1997                    0             1,650,000             1,650,000
                                                        ==========            ==========            ==========
</TABLE>

     
       STOCK OPTIONS
     
       The Company has elected to follow Accounting Principles Board Opinion No.
       25, Accounting for Stock Issued to Employees ("APB 25") and related
       interpretations in accounting for its stock-based employee compensation
       arrangements. Under APB 25, because the exercise price of the Company's
       stock options equals 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. There are no vesting requirements under the Plan. The
       options are exercisable over a maximum term of five years.









                                      F-12


<PAGE>   36

AZCO MINING, INC. (DELAWARE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


7.     WARRANTS AND STOCK OPTIONS: (CONTINUED)

       STOCK OPTIONS (CONTINUED)
       Pro forma information regarding net income and earnings per share is
       required by SFAS 123, and has been determined as if the Company had
       accounted for its stock option plan under the fair value based method of
       SFAS 123. The fair value of these options was estimated at the date of
       grant using a Black-Scholes option pricing model with the following
       weighted-average assumptions for fiscal 1997: risk-free interest rate
       from 5.49% to 6.73%, no dividend, volatility factor of the expected
       market price of the Company's common stock of .66, and an expected life
       of the option of 5 years.

       The Black-Scholes options valuation model was developed for use in
       estimating the fair value of traded options which 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. Because the Company's
       employee stock options have characteristics significantly different from
       those of traded options, and because changes in the subjective input
       assumptions can materially affect the fair value estimate.

       For purposes of pro forma disclosures, the estimated fair value of the
       options is expensed when the options are granted as the options are fully
       vested when granted. The Company's pro forma information for fiscal 1997
       and 1996 follows (in thousands except for earnings per share
       information):

<TABLE>
<CAPTION>
                                                                             1997               1996

<S>                                                                     <C>                <C>           
       Pro forma net income (loss)                                      $  (8,532,094)     $   16,409,607
       
       Pro forma earnings per share:
          Net income (loss) per common and common and
            common equivalent share
                                                                        $       (0.33)     $         0.64

          Net income (loss) per common share assuming full dilution     $       (0.33)     $         0.64
</TABLE>

















                                      F-13
       
       
<PAGE>   37

AZCO MINING, INC. (DELAWARE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


7.     WARRANTS AND STOCK OPTIONS: (CONTINUED)

       STOCK OPTIONS (CONTINUED)

       Plan activity for the years ended June 30, 1997, 1996 and 1995, was as
       follows:

<TABLE>
<CAPTION>
                                                                           NUMBER OF             PRICE RANGE
                                                                             SHARES              OF OPTIONS

         <S>                                                             <C>              <C> 
          Balance outstanding at June 30, 1994                               1,247,408     $0.40 U.S. to $3.50 Cdn.
             Canceled                                                         (50,000)     $2.00 U.S.
                                                                         --------------    
                                                                                           
          Balance outstanding at June 30, 1995                               1,197,408     $0.40 U.S. to $3.50 Cdn.
                                                                         --------------    
                                                                                           
             Granted                                                         1,147,500     $1.20 Cdn. to $3.00 U.S.
             Canceled                                                        (157,500)     $2.40 Cdn. to $3.40 Cdn.
                                                                         --------------    
                                                                                           
          Balance outstanding at June 30, 1996                               2,187,408     $0.40 U.S. to $3.50 Cdn.
                                                                         --------------    
                                                                                           
             Granted                                                           565,000     $1.87 Cdn. to $2.32 Cdn.
             Canceled                                                        (420,940)     $1.80 Cdn. to $3.00 Cdn.
             Exercised                                                        (66,896)     $0.40 U.S. to $1.55 Cdn.
                                                                         --------------    
                                                                                           
          Exercisable at June 30, 1997                                       2,264,572     $1.20 Cdn. to $3.00 U.S.
                                                                         ==============  
</TABLE>

       At June 30, 1997 and 1996, there were 181,543 and 363,886 shares of
       common stock reserved for future grants of options.

       Of the 2,264,468 stock options outstanding at June 30, 1997, all stock
       options were issued to directors, employees or key advisors of the
       Company.

       Shares exercisable at June 30, 1997 include the following:

<TABLE>
<CAPTION>
                              WEIGHTED AVERAGE      WEIGHTED AVERAGE
                 SHARES        EXERCISE PRICE        REMAINING LIFE
                <S>             <C>                   <C>
           
                1,217,072         $1.78 Cdn.           42 months
                  878,500         $2.06 Cdn.           47 months
                  169,000         $3.00 Cdn.           29 months
</TABLE>
















                                      F-14



<PAGE>   38

AZCO MINING, INC. (DELAWARE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


8.     INCOME TAXES:

       The income tax (benefit) expense is as follows:

<TABLE>
<CAPTION>
                                                             1997                1996
       <S>                                               <C>                 <C>       
        Current:
           Federal                                        $ (568,524)         $4,080,000
           State                                             (28,009)          1,635,000
                                                          ----------          ----------
        
             Total current                                  (596,533)          5,715,000
                                                          ----------          ----------
        
        Total tax (benefit) expense                       $ (596,533)         $5,715,000
                                                          ==========          ==========
</TABLE>

       Income tax expense (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>
                                                                      1997             1996            1995
         <S>                                                     <C>              <C>              <C>         
          Tax expense (benefit) at the federal statutory rate     $(3,027,500)     $ 7,995,803      $(1,644,488)
          State tax, net of federal benefit                          (431,477)       1,142,257         (274,864)
          Change in valuation allowance                             2,874,764       (4,207,230)       2,140,751
          Write down of deferred tax asset for stock options           96,692
          Stock options                                                                650,000       
          Other                                                      (109,012)         134,170         (221,399)
                                                                  -----------      -----------      -----------
          
               Tax expense (benefit)                              $  (596,533)     $ 5,715,000      $         0
                                                                  ===========      ===========      ===========
</TABLE>
  
       The components of the net deferred tax asset as of June 30, 1997 and 1996
       are as follows:

<TABLE>
<CAPTION>
                                                                                1997             1996
       <S>                                                                 <C>              <C>
        Deferred tax assets:
           State net operating loss carryforward, expires June 30, 2002     $    68,532      $
                                                                            -----------      -----------

           Stock options                                                                         126,192
           Foreign mineral properties                                         3,911,789          971,457
           Other                                                                 22,851           30,759
           Valuation allowance                                               (4,003,172)      (1,128,408)
                                                                            -----------      -----------
        
             Net deferred tax asset                                         $         0      $         0
                                                                            ===========      ===========
</TABLE>











                                      F-15



<PAGE>   39

AZCO MINING, INC. (DELAWARE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


8.     INCOME TAXES: (CONTINUED)

       The net change in the valuation allowance for the deferred tax asset of
       the Company is as follows:

<TABLE>
<CAPTION>
                                                          1997             1996             1995
                                                      -----------     -----------      -----------
      <S>                                            <C>             <C>              <C>
       Valuation allowance as of July 1               $ 1,128,408     $ 5,335,638      $ 3,194,887
       Increase (decrease) in valuation allowance       2,874,764      (4,207,230)       2,140,751
                                                      -----------     -----------      -----------
       
       Valuation allowance as of June 30              $ 4,003,172     $ 1,128,408      $ 5,335,638
                                                      ===========     ===========      ===========
</TABLE>

       At June 30, 1997, the Company had income tax reporting net operating loss
       carryforwards for Arizona income tax purposes of approximately $1.3
       million.



9.     CONTINGENCIES AND COMMITMENTS:

       MINERAL PROPERTIES
       As described in Note 5, the Company sold 70% of its interest in the
       Piedres Verdes Project. Under terms of the sales agreement with Phelps
       Dodge Corporation ("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. The Company maintains a 30% interest and Phelps
       Dodge a 70% interest in Cobre del Mayo, S.A. de C.V. Under terms of the
       Shareholders and Operator's Agreement among P.D. Cobre del Mayo, Inc.,
       the Company and Cobre del Mayo S.A. de C.V., the Company is committed to
       provide up to $3,000,000 for costs required to bring the Piedres Verdes
       Project to the feasibility stage. During the years ended June 30, 1997
       and 1996, the Company advanced $1,846,331 and $667,380, respectively,
       under terms of this agreement.

       On March 4, 1997, Cobre del Mayo, S.A. de C.V. entered into a mining
       exploration and exploitation agreement with Compania Minera Serrana, S.A.
       de C.V. This agreement superseded the Piedras Verdes lease. Under terms
       of this agreement, Cobre del Mayo, S.A. de C.V. has the following
       commitments:

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

       -      Three payments of $299,035 due on the date of execution and on the
              first and second anniversaries of the date of execution;

       -      Royalties equal to three percent of the net value of mineral
              production;

       -      Advance royalties of $1,000,000 on the third through fifth
              anniversaries of the date of execution, $1,500,000 on the sixth
              through eleventh anniversaries if commercial production in not met
              by those anniversary dates.








                                      F-16


<PAGE>   40

AZCO MINING, INC. (DELAWARE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


9.     CONTINGENCIES AND COMMITMENTS: (CONTINUED)

       EMPLOYMENT AGREEMENTS
       The Company has entered into agreements with three of its officers, three
       of its directors and one employee. 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 had entered into a separate employment agreement
       with its President. The agreement provides that in the event of merger,
       consolidation, divestiture, takeover, sale or other similar circumstances
       which result in conditions or terms unacceptable to the President within
       the first year after such event, the President had the option to be paid
       12 months' base salary plus any prorated bonuses and vacation accrued
       from the time of termination. In fiscal 1997 the President was paid
       $193,846 under this agreement upon termination of his employment with the
       Company.

       LEASE COMMITMENTS
       The Company is obligated under a long-term operating lease for its office
       space in Vancouver, British Columbia through April 1999. The lease
       contains a renewal option of 5 years. The Company was required to provide
       a letter of credit in the amount of $32,975. The letter of credit is
       collateralized by a term deposit of $32,975, which is recorded in
       financial statements as other assets. The annual rental commitment under
       the lease is as follows:


<TABLE>
<CAPTION>
               JUNE 30,
              <S>                               <C>
                1998                             $ 61,389
                1999                               51,158
                                                 --------
                                                 $112,547
                                                 ========
</TABLE>

       Rental expense, net of sublease income, for the years ended June 30,
       1997, 1996 and 1995 was $68,121, $69,140 and $62,737, respectively.

       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 violation of
       this agreement. A lawsuit was filed against the Company by AIOC
       Corporation. The Company agreed to binding arbitration with AIOC
       Corporation and received a dismissal of the lawsuit on February 8, 1996,
       under terms of the Stipulation and Order of Compromise and Dismissal.

       DEPOSIT
       Under the terms of the Company's Stipulation and Order of Compromise and
       Dismissal with AIOC Corporation, the Company placed $4,000,000 into
       escrow to satisfy any award in the arbitration. The amount of the
       settlement, if any, will be applied as an adjustment on the gain on sale
       of assets. Management does not believe that there will be any settlement
       amounts paid as a result of this arbitration and therefore, has not
       accrued any liability.


















                                      F-17

<PAGE>   41

AZCO MINING, INC. (DELAWARE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


10.    FAIR VALUE OF FINANCIAL INSTRUMENTS:
       The carrying amounts of financial instruments including cash and cash
       equivalents, short-term investments and restricted cash approximated fair
       value as of June 30, 1997 and 1996 because of the relatively short
       maturity of these instruments.



11.    RELATED PARTY TRANSACTION:
       A non-officer director of the Company, is the chairman, managing director
       and majority shareholder of Lion Mining Finance, a United Kingdom
       registered company. The Company has entered into a memorandum of
       agreement with Eagle River, WAG and Lion Mining Finance concerning the
       development of mining concessions in Mali (See Note 5). Pursuant to that
       agreement, Lion Mining Finance was paid $15,692 for management services.


12.    FOURTH QUARTER CHARGES:

       During the fourth quarter of fiscal 1997, the Company recorded additional
       compensation expense of $149,996 related to the accounting for stock
       options granted to non-employees accounted for under Financial Accounting
       Standard No. 123. In addition, the Company recorded an additional tax
       benefit of $261,953 for additional tax deductions estimated.

       During the fourth quarter of fiscal 1996, the Company wrote-off its
       investment in Cobre del Mayo, S.A. de C.V. in the amount of $848,487 due
       to the uncertainty regarding the feasibility of the Piedras Verdes
       property located in Mexico.

       During the fourth quarter of fiscal 1995, the Company wrote-down its
       capitalized development costs for the Suaqui Verde property located in
       Mexico because it was unlikely that the property would be developed
       unless warranted by favorable future exploration results. This write-down
       was $503,797 plus the write-off of deferred financing costs of $595,530.
       The deferred financing costs related primarily to the Prudential Power
       Funding Associates debt commitment. Since the Company had agreed to sell
       its interest in the Sanchez Project, the Board of Directors concluded
       that the debt commitment would, in all likelihood, not be utilized.









                                      F-18

<PAGE>   42

AZCO MINING, INC. (DELAWARE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


13.    NEW PRONOUNCEMENTS:
       In February 1997, the Financial Accounting Standards Board issued
       Statement of Financial Accounting Standards No. 128, Earnings Per Share
       ("FAS 128") which specifies the computation, presentation, and disclosure
       requirements for earnings per share. FAS 128 replaces the presentation of
       primary and fully diluted EPS pursuant to Accounting Principles Board
       Opinion No. 15, Earnings Per Share ("APB 15") with the presentation of
       basic and diluted EPS. Basic EPS excludes dilution and is computed by
       dividing net income available to common stockholders by the
       weighted-average number of shares outstanding for the period. Diluted EPS
       reflects the potential dilution that would occur if securities or other
       contracts to issue common stock were exercised or converted into common
       stock. The Company is required to adopt FAS 128 with its December 31,
       1997 quarterly financial statements and restate all prior period EPS
       information. The Company will continue to account for EPS under APB 15
       until that time. The application of SFAS 128 had no material effect on
       the amounts reported in the financial statements for the years ended June
       30, 1997, 1996, and 1995.

       In June 1997, the Financial Accounting Standards Board issued Statement
       of Financial Accounting Standards No. 130, Reporting Comprehensive Income
       and Statement of Financial Accounting Standards No. 131, Disclosures
       About Segments of an Enterprise and Related Information. The Company is
       currently assessing the impact of these statements, both of which are
       effective for fiscal years beginning after December 15, 1997.


















                                      F-19

<PAGE>   43

AZCO MINING, INC. (DELAWARE)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE FISCAL YEARS
ENDED JUNE 30, 1997, 1996 AND 1995


<TABLE>
<CAPTION>
                 COL. A                                   COL. B          COL. C              COL. D              COL. E
-----------------------------------------------         ----------      -----------         ----------          ----------
                                                        BALANCE AT                                              BALANCE AT
                                                        BEGINNING                                                   END
DESCRIPTIONS                                            OF PERIOD        ADDITIONS          DEDUCTIONS          OF PERIOD
<S>                                                   <C>               <C>                <C>                <C>  
Valuation allowance for deferred tax assets(1):
                                               
June 30, 1997                                          $1,128,408        $2,874,764         $                  $ 4,003,172
                                               
June 30, 1996                                           5,335,638                           4,207,230            1,128,408
                                               
June 30, 1995                                           3,194,887         2,140,751                              5,335,638
</TABLE>

                              
(1)     For further information, refer to Note 8, Income Taxes, in the notes to
        the Consolidated Financial Statements included in the Form 10-K


























                                      F-20