---

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
20549

FORM 10-KSB

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

For the fiscal year ended June 30, 2006

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

Commission file number: 0-20430

AZCO MINING INC.(Name of
small business issuer in its charter)

|Delaware                                 | 84-1094315                
|---------------------------------------- | --------------------------
|(State or other jurisdiction of          | (I.R.S. Employer I.D. No.)
|incorporation or organization)           |                           
|                                         |                           
|7239 N El Mirage Road                    |                           
|Glendale, AZ                             | 85307                     
|(Address of principal executive offices) | (Zip Code)                

Issuer's telephone number: (623) 935-0774

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

Securities registered pursuant to Section 12(g) of the Act:
Common stock, $.002 par value (Title of class)

Check whether the issuer (1) filed
all reports required to be filed by Section 13 or 15(d) of the Exchange Act
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 NoX_

Check if disclosure of delinquent
  filers pursuant to Item 405 of Regulation S-B 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-KSB or any amendment to this Form 10-KSB. [X]

Indicate by check mark whether the registrant is a shell company
  (as defined in Rule 12b-2 of the Exchange Act). Yes__ No X_

Revenues for issuers most recent fiscal year: $16,237

Aggregate market value of stock held by non-affiliates as of
February 12, 2007: $65,887,515

Number of shares of the issuers common stock outstanding
  as of February 12, 2007: 68,513,712

Documents incorporated by reference: NONE

Transitional Small Business Disclosure Format: Yes__ No
X_

1

---

CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS

This annual report on Form 10-KSB
or incorporated by reference may contain certain forward-looking statements as
such term is defined by the securities and exchange commission in its rules,
regulations and releases, which represent the registrants expectations or
beliefs, including but not limited to, statements concerning the registrants
operations, economic performance, financial condition, growth and acquisition
strategies, investments, and future operational plans. For this purpose, any
statements contained herein that are not statements of historical fact may be
deemed to be forward-looking statements. Without limiting the generality of the
foregoing, words such as may, will, expect, believe, anticipate,
intent, could, estimate, might, plan, predict or continue or the
negative or other variations thereof or comparable terminology are intended to
identify forward-looking statements. This information may involve known and
unknown risks, uncertainties and other factors which may cause our actual
results, performance or achievements to be materially different from the future
results, performance or achievements expressed or implied by any forward-looking
statements.

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

These risks and uncertainties and
other factors include, but are not limited to, those set forth under ITEM 6 
Risk Factors. All subsequent written and oral forward-looking statements
attributable to the company or to persons acting on our behalf are expressly
qualified in their entirety by these cautionary statements. Except as required
by federal securities laws, we do not intend to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.

Given these risks and
uncertainties, readers are cautioned not to place undue reliance on our
forward-looking statements.

PART I

|ITEM 1. | DESCRIPTION OF BUSINESS
|------- | -----------------------

Background

Azco Mining Inc. (the Company,
our or we) is a U.S. mining company, incorporated in 1991 in the state of
Delaware, with a general business strategy to acquire and develop mining
properties amenable to low cost production. Azco currently is focused on
financing efforts to: (1) conduct engineering studies on its Summit

2

---

silver-gold property located in New Mexico, (2) conduct further
studies on its Ortiz gold project located in New Mexico, (3) fund the re-opening
and enhancement of its Black Canyon mica project located in Arizona and (4)
acquire high quality gold, silver and/or copper properties. Information about
Azco, including a posting of the most recent financial reports, can be viewed on
the Companys web site, www.azco.com.

In May 2006, for a cash price of
$1.3 million, the Company acquired 100% of the shares of The Lordsburg Mining
Company (Lordsburg), a New Mexico corporation, from Imagin Minerals, Inc.
(Imagin), a privately owned industrial minerals company unrelated to the
Company. With the acquisition of Lordsburg, we acquired the Summit project,
consisting of approximately 117.6 acres of patented and approximately 520 acres
of unpatented mining claims in Grant County, New Mexico; approximately 257 acres
of patented mining claims in Hidalgo County, New Mexico; and milling equipment
including a ball mill and floatation plant in Sierra County, New Mexico. The
milling equipment had been idle for several years following its use by a
subsidiary of Imagin. If feasibility and engineering studies are positive, the
Company intends to relocate the milling equipment to its mining claims in
Hidalgo County and use it to process mineralized material to be mined from its
mining claims in Grant County. Lordsburg holds two permits issued by the state
of New Mexico for mining and milling operations. The Summit silver-gold project
is subject to a property identification agreement between the Company and its
President and Chief Executive Officer.

In August 2004, the Company
entered into an option and lease agreement with Ortiz Mines, Inc., a Missouri
corporation, whereby the Company acquired exclusive rights for exploration,
development and mining of gold and other minerals on 57,267 acres (approximately
90 square miles) of the Ortiz Mine Grant in Santa Fe County, New Mexico. Among
other terms, the lease provides for annual payments that escalate per acre of
ground the Company retains under lease; a sliding-scale production royalty based
on the price of gold; the requirement that the Company comply with all
governmental permitting and other regulations; and other terms common in mining
leases of this type. As of February 1, 2007, the Company has paid a total of
$221,802 in option and lease payments. Payments are current through January 31,
2008. The Ortiz gold project is subject to a property identification agreement
between the Company and its President and Chief Executive Officer.

The Company suspended crushing
and concentrating activities at its Black Canyon mica mine in November 2002 due
to economic constraints. Since the suspension of operations, limited production,
marketing and sales have continued at the Companys Glendale mica processing
facility using inventoried mica, while the Company seeks sources of financing
for the project.

In September 2000, the Company
  entered into a lease and purchase option agreement with New Planet Copper Mining
  Company whereby the Company acquired exclusive rights for exploration, development
  and mining of micaceous iron oxide, copper, gold and other minerals on 31 patented
  mining claims located in La Paz County, Arizona. In August 2003, the Company
  assigned, for the sum of $5,000, its right, title and interest in and to its
  lease with New Planet Copper Mining Company to Metallica Ventures, LLC, a corporation
  controlled by the Companys President and Chief Executive Officer. The
  Company retained an option to reacquire 25% of the New Planet lease. In September
  2005, Metallica Ventures LLC reassigned to the Company, for consideration of
  $10,000 and the issue of 2,000,000 unregistered shares of the Companys
  common stock at $0.30 per share or $600,000, its right, title and interest in
  and to the lease with New Planet Copper Mining Company.

The financial statements have been
  prepared on a going concern basis, which contemplates the realization of assets
  and satisfaction of liabilities and commitments in the normal course of business.
  Should the Company be unable to continue as a going concern, it may be unable
  to realize the carrying value of its assets and to meet its liabilities as they
  become due.

The Company has incurred net
  losses of ($5,383,368) and ($1,596,290) for the years ended June 30, 2006 and
  2005, respectively, and has a total accumulated deficit of ($43,327,751) at
  June 30, 2006. To continue as a going concern, the Company is dependent on continued
  fund raising for project development. However, the Company has no commitment
  from any party to provide additional capital and there is no assurance that
  such funding will be available when needed, or if available, that its terms
  will be favorable or acceptable to the Company.

Recent Developments

On November 3, 2006, the Company
  concluded a Real Property Purchase Agreement with Muzz Investments, LLC (Muzz)
  for the sale of the Company's 60% ownership of real estate and buildings at
  its Glendale, Arizona location. The sale includes approximately five acres of
  land, a 5,000 sq. ft. office building and an 18,000 sq. ft. mill building. Under
  the Agreement, the Company retains ownership of its mica processing equipment
  currently installed in the mill building. The equipment will be removed and
  transported to a storage site for future use. As part of the transaction, the
  Company also agreed to provide for the exercise of 2,550,000 warrants at $0.50
  per share granted to Muzz in 2002 and to issue 2,550,000 unregistered shares
  of its common stock to Muzz. In consideration for Companys entry into
  the Real Property Purchase Agreement and the issue of the unregistered common
  stock, Muzz agreed to terminate a 2002 financing lease agreement and cancel
  all of the Companys outstanding financial obligations under the lease.

3

---

On March 21, 2006, the Company
completed a private placement of senior secured convertible notes, additional
investment rights and warrants to institutional investors for an aggregate
purchase price of $2,500,000. The Company received net proceeds of approximately
$2,270,000 after deducting fees and expenses. The convertible notes have a term
of 17 months and amortize over 12 months beginning on September 1, 2006.
Interest on the principal amount outstanding accrues at a rate of 7% per annum.
The Company may pay principal and accrued interest in cash or, at the Companys
option, in shares of our common stock. The holder of each convertible note, at
the holders option, may convert the note into the Companys common stock at a
conversion price of $1.58 per share. We also granted additional investment
rights to the investors, giving each the right for 12 months to purchase, under
the same terms, an additional convertible note for 50% of the amount initially
purchased. The Company also issued warrants to the note holders, giving the
right for a period of 5 years to purchase in the aggregate 791,139 shares of our
common stock at a price of $1.58 per share.

On September 5, 2006, the Company
agreed with the institutional investors to amend the terms of the March 21,
2006, private placement of senior secured convertible notes, warrants and
additional investment rights. Under the amended terms, payment of the
convertible notes was deferred and the maturity date changed from August 31,
2007 to January 1, 2008. The convertible notes amortize over 12 months in 12
equal monthly installments. The date of the first installment was extended from
September 1, 2006 to February 1, 2007. The price at which the holder of each
convertible note may convert the principal and accrued interest outstanding
under each note into shares of our common stock was reduced from $1.58 to $1.00
per share. The exercise price of the warrants, including warrants issued under
additional investment rights, was reduced from $1.58 to $1.00. In connection
with the amendment, the institutional investors purchased in the aggregate an
additional $1,000,000 of notes under the amended terms, bringing the total
outstanding principal, including interest and liquidated damages, due under the
notes to $3,781,662. The Company is required to register for resale the shares
of common stock issuable upon conversion of the convertible notes, accrued
interest and upon exercise of the warrants. Azco agreed to file a registration
statement with the Securities and Exchange Commission within 60 days of the date
of the amendment and to cause the registration statement to be declared
effective within 150 days of the date of the amendment. The Company is currently
late on its first installment due February 1, 2007 and is in default on the
filing of the registration statement requirement.

Since June 30, 2006, the Company
has refocused its activities to include precious metals acquisition and has
continued to seek sources of new financing. The Black Canyon mica mine has not
operated since operations were suspended in November 2002. The Glendale
processing facility operated on an intermittent basis in fiscals 2004 and 2005,
filling purchase orders using mica from inventory. The Company sold mica, on a
limited basis, to key customers in the plastics and cosmetic industries, and
generated $16,287 in revenue in fiscal 2006 and $54,844 in revenue in fiscal
2005. In addition, the Company financed its activities by selling common stock
aggregating $1,033,241 and $256,000 of in fiscal years 2006 and 2005,
respectively. The Company incurred exploration and mine expenses of $212,489 and
$136,714 during fiscal years 2006 and 2005, respectively.

Products  Mica and Feldspathic Sand

Revenues

The Company produced and sold
mica-filled plastic pellets to the manufacturers of reinforced plastics in the
first quarter of fiscal 2004. During fiscal years 2005 and 2006, the Company was
unable to produce plastic pellets due to a lack of working capital but continued
to sell, to a key customer, the mica needed to produce the pellets. We also
continued to sell cosmetic grade mica on a limited basis. The Company has
limited quantities of inventoried mica available for its key mica customers,
while it seeks financing to resume production.

The Company produced and sold no
feldspathic sand, a by-product of mica production, during fiscal years 2006 or
2005. Previously Azco sold feldspathic sand as golf course bunker sand and as
stucco sand. Sand sales ceased due to the suspension of crushing and
concentrating operations at the Black Canyon mine in November 2002.

Marketing

4

---

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

Customers

Past customers for cosmetic grade
mica include Presperse, Inc. and KOBO, who distributed the product to cosmetic
manufacturers. The Company sold its mica-filled plastic pellets and mica powder
to a major plastic consumer in Canada. Azco sold its feldspathic sand products
to Western Stucco Products Co. and to Pioneer Landscaping Materials, in the
Phoenix area.

Competition

Many companies are engaged in the
exploration and development of mineral properties. The Company is at a
disadvantage with respect to those competitors whose technical staff and
financial resources exceed the Companys. Our lack of revenues and limited
financial resources further hinder our ability to acquire additional mineral
interest.

Our main competitors in the mica
business include Zemex Corporation, Engelhard Corporation and Georgia Industrial
Minerals, who are significant producers of wet ground mica and Oglebay Norton
and J. R. Simplot, who are important suppliers of manufactured sand to the
Phoenix, Arizona area.

Research and Development

The Company has funded, in the
past, research and development efforts to develop its mica-filled plastic
products. Our mica has been evaluated and tested by several potential customers
in the cosmetics and plastics industries. The Company intends, if and when
financing for the mica project can be arranged, to continue its research and
development efforts. Currently the Company is conducting no research and
development.

Employees and Consultants

As of June 30, 2006, we had two
full-time employees and several part-time consultants. Our employees are not
covered by labor union contracts or collective bargaining agreements.

Employment Agreements

On October 7, 2003, the Company
entered into employment and change of control agreements with its President and
Chief Executive Officer. The employment agreement describes, among other things,
the officers duties, compensation levels and benefits. The agreement provides
for annual salary of $180,000 adjusted by the CPI. The term of the agreement is
from October 16, 2003, through and including October 15, 2006, and then
automatically extends through October 15, 2008, and thereafter on a yearly basis
unless terminated on 90 days prior notice. The change of control agreement
provides that if there is a change of control of the Company and the officer
leaves the employment of the Company, for reason other than discharge for cause,
death, or disability, within six months after such change of control, the
officer shall receive a lump sum cash payment of 299% of the base amount as
defined in IRC Section 280G (b) (3), subject to certain limitations of the
Internal Revenue Code. In addition, the officer will continue to be covered by
the Companys medical, health, life and dental plans for 24 months after such
cessation of employment.

On May 2, 2006, the Company
entered into an employment agreement with an attorney who is the son of the
Companys President and Chief Executive Officer which provides a salary of
$5,000 per month and a monthly per diem of $1,000. In connection with full-time
employment, the Company granted 50,000 options under its stock option plan at an
exercise price of $1.24 per share, the closing price on May 2, 2006.

Impairment Charge and Carrying
Value of Assets

5

---

Subsequent to the year ended June
30, 2004, we obtained an independent appraisal of the equipment at the Black
Canyon mine and at the Glendale processing plant. The appraisal indicated a net
realizable value of approximately $1,701,000. Accordingly, we recognized a
reserve for impairment of $4,824,446, which was reflected in the Companys
financial statements for the period ended June 30, 2004.

As of June 30, 2006, Azco carried its
long-lived assets at the following values:

| | Property, plant and equipment, net | $ | 1,753,259 | 
| | ---------------------------------- | - | --------- | 
| | Idle plant and equipment, net      |   | 1,689,000 | 
| | Total                              | $ | 3,442,259 | 

|ITEM 2. | DESCRIPTION OF PROPERTIES
|------- | -------------------------

Summit Silver-Gold Project

Overview

In May 2006, for a cash price of
$1,300,000 we acquired 100% of the shares of The Lordsburg Mining Company
(Lordsburg), a New Mexico corporation. The Company holds Lordsburg as a wholly
owned subsidiary. Lordsburgs major assets include the Summit gold-silver
property consisting of approximately 117 acres of patented mining claims and 600
acres of unpatented mining claims in Grant County, southwestern New Mexico; the
Lordsburg mill site property, located approximately 55 miles south of the Summit
property, consisting of approximately 257 acres of patented mining claims near
the town of Lordsburg, Hidalgo County, New Mexico; mining and operating permits
related to the Summit property and the Lordsburg mill site property; and mineral
processing equipment consisting of a ball mill and 400 ton-per-day flotation
plant, stored at Winston, Sierra County, New Mexico.

We have assigned a high priority
to development of the Summit project and are commencing to conduct engineering
and a feasibility studies in our first quarter of fiscal 2007 at a cost of
approximately $500,000. As presently conceived, the Summit mining and processing
operation would involve underground mining of mineralized material from the
Summit property at a rate of about 400 tons per day and trucking of the mined
material 55 miles to the Lordsburg mill site where metallurgical processing
would take place. At the Lordsburg plant site, processing would be accomplished
through conventional crushing, grinding and selective flotation to yield a bulk
sulfide concentrate containing the recoverable precious metals. This concentrate
would be marketed to a smelter or to an existing precious metals processing
plant.

Although we are encouraged by
work to date on the Summit project, substantial additional feasibility work and
expenditures are required to demonstrate economic viability. We currently have
not established proven or probable reserves on the Summit silver-gold property.

Location and Access

The Summit silver-gold property
is located in a rugged and isolated setting in Grant County, southwestern New
Mexico, near the Arizona state line. The property lies within the Steeple Rock
Mining District, which has recorded notable historic production of gold, silver,
base metals and fluorspar from several mines, currently inoperative, including
Carlisle, East Camp and Norman King.

The property is easily accessible
by paved and gravel road approximately 15 miles northeast from Arizona State
Highway 75 North and the town of Duncan, Arizona. Electric power is not
available on or near the property and would need to be generated on-site in
connection with any mining operation. Water for limited usage is available on
and near the property.

6

---

The terrain of the property is
rugged, with steep canyons and ridges. Elevations range from 4,500 feet to 6,200
feet above sea level. The Summit siliceous mineralized structure forms a
prominent northwesterly trending ridge.

The Lordsburg mill site property
  lies 55 miles to the south of the Summit property near the town of Lordsburg,
  Hidalgo County, New Mexico. Lordsburg is connected to Duncan, Arizona via US
  Highway 70. The Lordsburg property has an approved mill site accessible from
  Lordsburg by a 3-mile paved road. Utilities on site include water and electric
  power. The Lordsburg area is well supported by transportation services including
  trucking and rail services, and by a wide range of fabrication, construction
  and other support services. The labor force required for any plant operation
  could be sourced locally.



Mineral Title

Our holdings at the Summit
silver-gold property in Grant County, New Mexico consist of 10 patented federal
mining claims totaling approximately 117 acres and 26 unpatented federal mining
claims totaling approximately 520 acres. Our holdings at the Lordsburg mill site
in Hidalgo County, New Mexico consist of 16-patented federal mining claims
totaling approximately 257 acres. All claims are held in the name of Lordsburg.
The claims are in good standing in accordance with the mining laws of the United
States.

The Summit property is subject to
underlying net smelter return royalties capped at $4,000,000 and to a
net-proceeds interest on sales of unbeneficiated mineralized rock with an end
price of $2,400,000. The Summit acquisition is subject to a property
identification agreement between Azco and its President and Chief Executive
Officer.

History of Mining and
Exploration

The Summit silver-gold property
lies within the Steeple Rock district, which is one of the historic mining areas
in the southwest United States. The former mines produced gold, silver and base
metals from underground mining of epithermal vein systems. Prospecting activity
dates back to before 1860. The first recorded production was from the Carlisle
mine, which operated from 1880-1897. A number of other mines including the
Norman King and Billali also produced during the 1880s but ceased operation by
the turn of the century. Following this early production, the district was
largely dormant until the 1930s-mid 1940s when several mines operated.
Subsequently, sporadic small-scale operations continued until the 1990s on
various deposits including the Summit, Center, Mount Royal and Carlisle
deposits.

The US Bureau of Mines estimated
that between 1880 and 1986 the Steeple Rock district produced at least 148,000
ounces of gold, 3.3 million ounces of silver, 1.2 million pounds of copper, 5
million pounds of lead and 4 million pounds of zinc. In addition, there was
unrecorded precious and base metal production as part of silica flux shipments.
Some 6,500 tons of fluorspar also were produced.

In the late 1970s, Summit
Minerals Inc. shipped about 30,000 tons of mineralized material from the Summit
property to ASARCOs El Paso smelter as direct shipping silica flux reported to
have graded 0.102 ounces per ton gold and 4.95 ounces per ton silver.

Exploration work estimated to
have cost in excess of $8 million was carried out on the Summit property from
1984-1992. This included drilling totaling 104,700 feet, of which 78,000 feet
was directed specifically to the Summit structure. In 1984-85, Inspiration Mines
Inc. is reported to have spent about $1.5 million conducting underground
development, shallow core drilling and sampling and mapping. In 1988-89,
Novagold Resources Inc. is reported to have expended some $2 million in surface
and airborne geophysical surveys, underground mapping and sampling, and core
drilling. Novagolds drilling identified a significant block of mineralized
material in the Summit vein. From 1989-1992, Biron Bay Resources Ltd., in joint
venture with Novagold, conducted extensive exploration, drilled 88 core holes,
and is reported to have spent over $5 million extending and improving the level
of confidence in the mineralized material at the Summit and in defining
exploration potential in adjacent and outlying vein structures.

Geology and Mineralizaton

7

---

The Steeple Rock district
contains numerous structurally controlled epithermal vein systems. The veins are
controlled by conjugate fault systems that cut a thick pile of Tertiary volcanic
rocks of intermediate composition. The deposits are localized along structurally
controlled, hydrothermally altered zones cutting the volcanic host rocks. The
dominant structures trend northwesterly and dip steeply. Secondary veins trend
easterly and north-northwesterly. The veins can be traced for distances of up to
several miles along strike and have widths that range up to 100 feet or
more.

The epithermal veins have formed
as open-space filling by a mixture of quartz, carbonate minerals and wallrock
fragments and show evidence of multiple episodes of brecciation and
re-cementation. Gold occurs as fine free grains or as electrum. Silver is found
as argentite or in sulfosalts. Base metal sulfides including chalcopyrite,
sphalerite and galena are common in certain deposits but rare in others. Gangue
minerals usually consist of quartz, pyrite, calcite, barite and fluorite.
Alteration of the volcanic country rocks adjacent to the veins commonly consists
of sericitization, argillization and silicification.

The principal vein structures on
the Summit silver-gold property are the Summit structure, which can be traced
for 3,000 feet from southeast to northwest, and the Billali structure, which
forms a farther 2,000 foot continuation of the Summit structure in a
northwesterly direction across an east-west fault. The Summit and Billali
structures dip steeply to the northeast. These structures form segments of the
East Camp Fault, which constitutes the main ore control in this part of the
Steeple Rock district. The core drilling carried out from 1984-1992 tested both
the Summit and Billali vein structures. Of the two, results from the Summit
structure were considered the more promising with respect to vein continuity and
economic potential.

The Summit mineralized vein
occurs within a wide, structurally controlled zone of hydrothermally altered
volcanic rocks. Silver and gold mineralization is epithermal in style and
consists of silver sulfides and electrum or native gold along with lesser
pyrite, sphalerite and chalcopyrite. Precious metals contents, which are
relatively low at the surface, increase significantly with depth for several
hundred feet, apparently a reflection of vertical mineral zoning within the
deposit. Below 1,000-1,500 feet, the precious metals contents appear to decrease
although little deeper drilling was carried out. The main block of mineralized
material has been shown by extensive drilling to trend northwesterly about 1,500
feet in strike length and to extend 1,000 feet down dip. The true width of
mineralization across the vein ranges from 6 feet to over 50 feet and averages
10-15 feet.

Biron Bay Resources Ltd. carried
out preliminarily estimations of mineralized material contained in the Summit
deposit, at various cutoff grades and using both cut and uncut values for
high-grade assays of gold and silver. Depending on the assumptions made and
cutoff grades employed, tonnages of mineralized material ranged to over 2
million tons. In one estimation, the Summit deposit was estimated to contain
939,000 tons of mineralized material grading 0.152 ounces per ton gold and 11.95
ounces per ton silver, based on uncut assay values and a cutoff grade of 0.10
ounces per ton gold equivalent, calculated at a gold price of $350 per ounce and
a silver price of $4.15 per ounce. Biron Bays estimations were global in nature
and were not based on any assumptions as to minability, relevance of the cutoff
grades in an economic sense, or other factors usually used to define minable
material. Biron Bays estimations were prepared in accordance with different
standards than those prescribed by rules of the SEC. The SEC only permits the
disclosure of proven or probable reserves, which in turn, require the
preparation of a feasibility study demonstrating the economic feasibility of
mining and processing the mineralized material.

We have not received a
feasibility study with regard to our Summit gold-silver property. Substantial
additional feasibility work and expenditures are required to demonstrate
economic viability. No proven or probable reserves have been established at the
Summit silver-gold property.

Metallurgical Testing

Conventional processing
including crushing, grinding and milling of Summit mineralized material to
produce a bulk sulfide flotation concentrate containing the recoverable precious
metals has been evaluated and tested at bench scale. The preliminary bench scale
flotation tests suggest that a precious metals recovery of approximately 86%
with a concentration ratio of 70 to 1 is reasonably achievable. The concentrate
could be treated to produce a dore product or alternatively, it could be
marketed to a smelter or to a precious metals processing operation for final
extraction of gold and silver.

8

---

Mineral Processing
Equipment

With the purchase of Lordsburg,
we acquired an inactive 400 ton-per-day flotation plant, including ball mill and
ancilliary equipment, stored at Winston, Sierra County, New Mexico. In order to
utilize this plant for mineral processing, it would have to be transported from
its current location and erected on a suitable permitted site. Other equipment,
in particular crushing equipment, also would need to be acquired and
installed.

Permits

We hold existing operating
permits for the Summit property and the Lordsburg mill site. The New Mexico
Mining and Minerals Division issued these permits to Lordsburg pursuant to the
New Mexico Mining Act. The permits, when appropriately modified, could
facilitate the commencement of mining at the Summit property and resumption of
mineral processing operations at the Lordsburg mill site.

Permit No. GR001ME at the Summit
property allows operation of a minimal impact mine having a surface
disturbance of less than 5 acres. Should surface disturbance materially expand,
it would be necessary to modify the permit and to post financial assurance for
reclamation. Pursuant to this permit, we are authorized to begin underground
mining operations immediately, assuming an on-site processing plant is not
required.

Permit No. H1001RE at the
Lordsburg mill site is for an existing mining operation and authorizes us to
conduct mining and reclamation operations according to the conditions stipulated
in the permit. All existing mining disturbances are required to be addressed
under a closeout plan and to be secured by financial assurance. Modification of
this permit would be required prior to resumption of flotation milling and in
particular, it would be necessary to obtain a discharge permit related to mill
tailings disposal. We anticipate that applying for and obtaining approval for
such modification to the existing permit would require several months to
complete, however there can be no assurance that any modification would be
approved in a timely manner or at all.

Conceptual Mining and Processing
Plan

As presently conceived, the
Summit mining and processing operation would involve underground mining of
mineralized material from the Summit property at a rate of about 400 tons per
day and trucking of the mined material 55 miles to the Lordsburg mill site where
metallurgical processing would take place. At the Lordsburg plant site,
processing would be accomplished through conventional crushing, grinding and
selective flotation to yield a bulk sulfide concentrate containing the
recoverable precious metals. We would market this concentrate to a smelter or to
an existing precious metals processing plant.

Because of the specialized nature
of underground mining of the type planned for the Summit property, mining and
related activities would be carried out most efficiently utilizing an outside
contractor that has the relevant experience, personnel and equipment. We would
engage such a contractor and mining would be conducted under our current mining
Permit No. GR001ME.

We would relocate our flotation
plant from Winston, New Mexico and install it at the Lordsburg mill site. We
also would acquire and install crushing and other equipment necessary for
milling operations. We would apply for and obtain approval for relevant
modification of our current Permit No. H1001RE and also would obtain any other
required permits, but currently cannot provide assurance that the necessary
permits could be obtained in a timely manner or at all. Assuming we were to
receive approval for modification of Permit No. H1001RE, we would operate the
Lordsburg plant under that permit using our own personnel.

Once we established a milling and
flotation plant at the Lordsburg mill site, we believe the existence of the
plant could offer the possibility of participation in other regional projects
and the milling of mineralized material other than from the Summit property.
There are several notable mining districts within possible trucking distance of
Lordsburg.

Another aspect of the proposed
operation is the potential sale to smelters of silica flux material. The region
encompassing southeastern Arizona and southwestern New Mexico is a major copper
mining and smelting center in the United States. Silica is typically added as
flux in the smelting process to aid in the separation of iron

9

---

from the copper and precious metals and then is discarded as
slag. Suppliers of silica flux typically are paid for suitable siliceous
material and for a portion of any contained precious metals. We believe the
Summit property potentially could be a source of direct-shipping silica flux
material and in fact historically such material was shipped from the property to
a smelter. In addition, we believe siliceous flotation tailings from the
Lordsburg plant would constitute a potential source of silica flux. However, the
silica flux market can be inconsistent and subject to disruptions or
cancellations based on market conditions and competing product supplies. For
these reasons we have not included silica flux sales as part of our project
planning, but we believe such sales are possible and could enhance any future
revenues from the Summit and Lordsburg operations.

Work Program

We consider the Summit project to
have promising potential for production at current prices of gold and silver and
have assigned a high priority to completing the feasibility and other work
necessary to advance the project toward production. Over the next 12 months and
at a cost of approximately $500,000, we plan to complete preliminary engineering
and feasibility work in order to address the major elements of the mining and
processing plan described above. Work related to the Summit property will
include review of the large amount of drilling and geologic information; updated
estimation of tons and grade of mineralized material; design of an underground
mining plan; determination of mine capital and operating costs; and assessment
of additional exploration potential of the property and surrounding areas.

Work related to the proposed
Lordsburg milling operation will include additional metallurgical testing to
characterize Summit mineralized material; optimization and design of a
commercial-scale metallurgical treatment process; application for modification
of the existing permit to allow the planned milling operation; estimation of
capital cost to relocate our flotation plant to Lordsburg and to acquire and
install all necessary processing equipment; estimation of operating costs to
transport mineralized material to the Lordsburg mill site from the Summit
property and to process the material at Lordsburg; and preliminary marketing
studies of the precious metals sulfide concentrate proposed to be produced at
Lordsburg.

Upon receipt of the results of
the feasibility work outlined above, we expect to be in a sound position to
formulate a plan and budget for further exploration and development of the
Summit property.

Ortiz Gold Project

Overview

In August 2004, we acquired
exclusive rights for exploration, development and mining of gold and other
minerals on 57,267 acres (approximately 90 square miles) of the Ortiz Mine Grant
(Grant) in Santa Fe County, New Mexico. In December 2005, we received the
results of an independent scoping study of the Carache and Lucas gold deposits.
The study assessed various processing options for development and provided
estimations of capital and operating costs for each option. It also included an
economic analysis complete with sensitivities on gold price, capital and
operating costs. The report concluded that the financial results indicate a
favorable gold project employing high pressure grinding rolls with gravity
recovery and contract mining. The financial model showed production could be
expected to total 925,036 ounces of gold over 10 years at an average estimated
operating cost of $230 per ounce of gold recovered. The capital cost, assuming
contract mining, was estimated as $38.2 million.

Based on these results, we are
proceeding to examine additional mining and processing options in an attempt to
optimize the projects economics. Over the next 12 months we intend to continue
to work on mining and processing plans. We also intend, in conjunction with this
work, to begin assessment of environmental and permitting issues. We have
budgeted $500,000 for the planned work.

Although the preliminary scoping
study carried out on the Ortiz gold property has yielded encouraging results
with respect to potential economic viability, substantial additional feasibility
work and expenditures are required to demonstrate economic viability. We
currently have not established proven or probable reserves on the Ortiz gold
property

10

---

Location and Access

The Ortiz Mine Grant (Grant),
over which the Company holds a lease on the mineral estate underlying 57,267
acres (90 square miles) of segregated surface estate, is located 30 miles by
road northeast of Albuquerque, in Townships 12, 13 and 14 North, Ranges 7 and 8
East, N.M.P.M., Santa Fe County, New Mexico. The villages of Golden, Madrid and
Cerrillos, with a combined population of less than 1,000 people, lie in and
adjacent to the Grant. Paved New Mexico Highway 14 traverses the western portion
of the Grant. The main line of the Santa Fe Railway crosses the northeast corner
of the Grant. A network of unimproved ranch roads provides access to the various
land holdings. High-voltage electric power lines cross the southern part of the
Grant.

Terrain in the Grant is hilly to
mountainous, with elevations ranging from 6,000 feet in the valleys to nearly
9,000 feet in the Ortiz Mountains. Annual precipitation averages 12 inches.
Vegetation is sparse but varied as is typical of the high deserts of the
Southwest.

The Grant is largely undeveloped
and population is sparse. The land is utilized mainly for cattle grazing. Other
activities include limited subdivision development in the northern part of the
Grant, and mine reclamation work at the former Gold Field Ortiz (Cunningham
Hill) mine site.



Mineral Title

On August 1, 2004, the Company
entered into an option and lease agreement with Ortiz Mines, Inc., a Missouri
corporation, whereby the Company acquired exclusive rights for exploration,
development and mining of gold, silver, copper and other minerals on 57,267
acres (approximately 90 square miles) of the Ortiz Mine Grant in Santa Fe
County, New Mexico. The Company paid an initial sum of $20,000 for a six-month
option, and on February 1, 2005, paid the additional sum of $30,000 in order to
exercise the option and enter into the lease and also to satisfy the obligation
of the first years lease payment. On February 1, 2006, the Company paid $71,184
for the second years lease payment (through January 31, 2007). On February 1,
2007, the Company paid $100,218 for the third year's lease payment through
January 31, 2008. The lease provides for an initial term of seven years (12
years in certain circumstances), continuing year-to-year thereafter for so long
as the Company is producing gold or other leased minerals in commercial
quantities and otherwise is performing its obligations under the lease. Among
other terms, the lease provides for annual lease payments that escalate per acre
of ground the Company retains under lease; a sliding-scale production royalty
varying from 3% to 5% depending on the price of gold; the requirement that the
Company comply with governmental permitting and other regulations; and other
terms common in mining leases of this type.

History of Mining and
Exploration

Prospecting and mining of gold
and silver in the Ortiz area dates to the arrival of the first European
(Spanish) settlers in 1598. Significant gold production from Ortiz placers dates
to 1821. By 1832 several veins and low-grade gold deposits had been discovered.
In 1833 the Ortiz Land Grant, an area about 10.7 miles square centered on the
Ortiz gold vein, was registered and possession given by the First Alcade of the
City of Santa Fe. By the early 1840s, mining at the small underground Ortiz
Mine had ceased. In the late 1800s and early 1900s, sporadic attempts at
commercial mining of lode and placer gold deposits were unsuccessful due to lack
of water and/or low grades. Total pre-1980 mine production has been estimated as
about 100,000 ounces of gold.

The entire Grant was validated by
the United States in 1860 under the terms of the Treaty of Guadalupe Hidalgo.
The owners received fee simple title to the surface and minerals and the area
became known as the Ortiz Mine Grant. Subsequently the Grant changed hands and
the surface was sold subject to reservation of the mineral estate. In 1959 the
mineral-interest owners and associates formed Ortiz Mines, Inc. for the purpose
of promoting and marketing the mineral estate.

In 1973, Consolidated Gold Fields
leased the eastern portion of the Grant from Ortiz Mines, Inc. and developed and
mined the Cunningham Hill deposit (Ortiz Mine). In the period 1980-1986, Gold
Fields produced approximately 250,000 ounces of gold from an open-pit,
heap-leach operation.

11

---

From 1972 through the early
1990s, several companies operating under lease with Ortiz Mines, Inc. carried
out exploration and pre-development activities in the western portion of the
Grant. These companies included Conoco, Inc., LAC Minerals (USA), Inc. and the
LAC-Pegasus Joint Venture. Expenditures by these groups are reported to have
exceeded $40 million. Drilling resulted in the identification of several
deposits estimated to contain in the aggregate approximately 2 million ounces of
gold.

The LAC-Pegasus Joint Venture
carried out the majority of the work in the western portion of the Grant, from
1989-1992. The Joint Venture focused on two deposits in the southwestern part of
the Grant, namely the Carache Canyon (Carache) and Lucas Canyon (Lucas)
deposits. These two deposits were the subject of 386,000 feet of core and
reverse-circulation drilling, metallurgical testing and pre-feasibility studies
carried out by the LAC-Pegasus Joint Venture and by consulting firms and
contractors engaged by the Joint Venture.

Independent Mining Consultants,
Inc. (IMC), an independent geological engineering firm, was engaged by the
LAC-Pegasus Joint Venture to audit estimations of the quantities and grades of
in-place mineralized material at the Carache and Lucas deposits and to prepare
conceptual open pit mine plans based on a gold price of $385 per ounce. IMC
estimated the Carache gold deposit, within the boundaries of a conceptual open
pit, to contain mineralized material of 11.8 million tons grading 0.060 ounces
of gold per ton, for 706,700 ounces of contained gold. IMC estimated the Lucas
gold-copper deposit, within the boundaries of a conceptual open pit, to contain
mineralized material of 7.6 million tons grading 0.043 ounces of gold per ton
and 0.22% copper, for 325,600 ounces of contained gold and 33,440,000 pounds of
contained copper.

A 1990 pre-feasibility study
produced by the LAC-Pegasus Joint Venture concluded that at gold prices of $325
per ounce or higher, economics would be positive for open-pit, heap-leach mining
of the approximately 1.0 million ounces of gold contained in the Carache and
Lucas conceptual pits. The study also concluded that the project had excellent
upside potential to increase both the quantity and grade of contained gold
mineralization. However, the study listed several areas of concern that must be
addressed before a production decision could be made, chief among them
permitting difficulties to be overcome, water rights to be obtained and bulk
sampling to be completed.

In 1989, the LAC-Pegasus Joint
Venture started a decline adit into the Carache deposit for the purpose of bulk
sampling and to provide drilling access for shallow and deep exploration
targets. However, after advancing 1719 feet the decline was halted due to a
temporary water inflow coupled with regulatory and permitting issues. In the
face of a declining gold price, mining development of the Carache or Lucas
deposits did not proceed, and the project ultimately was cancelled and the lease
returned to Ortiz Mines, Inc. Subsequently, no additional exploration was
carried out on the property and it remained dormant until leased by the Company
in August 2004.

Geology and Mineralization

The 90 square-mile Ortiz Mine
Grant is underlain by mid-Tertiary monzonite and latite porphyry stocks, plugs,
dikes and sills that have intruded Paleozoic to early-Tertiary sedimentary
rocks. The intrusive rocks are part of the Ortiz Porphyry Belt, which comprises
from north to south, the Cerrillos Hills, the Ortiz Mountains, the San Pedro
Mountains, and South Mountain. Structurally, the Grant straddles the
Tijeras-Canoncito fault system, a northeast trending zone of fault-bounded
horsts and grabens. This fault zone is a segment of a deep-seated crustal break
that has been active intermittently since Precambrian time and has provided a
zone of weakness for the emplacement of granitic magmas and associated
mineralization. Late-stage volcanism resulted in the formation of breccia pipes
and zones of intense fracturing that provided access for hydrothermal fluids
carrying gold, silver, tungsten, molybdenum and base metals.

The Ortiz Porphyry Belt exhibits
a number of styles of mineralization that occur in a variety of geologic
settings:

Gold-tungsten mineralization in a
breccia pipe at Cunningham Hill adjacent to a volcanic vent, the Ortiz diatreme.

Gold mineralization associated with a
collapse breccia at Carache Canyon.

12

---

Copper and gold disseminated in
stockworks and fractures in monzonite at the Cunningham Gulch (gold) and
Cerrillos (copper-gold) deposits (bulk tonnage low-grade porphyry- type
deposits).

Copper  gold skarns in calcareous
rocks at Lucas Canyon and San Pedro.

Lead  zinc  silver veins at the Cash
Entry and other old mines north of Cerrillos. Lead  zinc  silver pipe-like
mantos in limestone at the Carnahan mine, San Pedro area.

Molybdenite in stockworks and
fractures in the San Lazarus monzonite stock, San Pedro area.

Placer gold deposits on Cunningham
Mesa, on the northern pediment of the San Pedro Mountains, and in most of the
arroyos draining the Ortiz and San Pedro Mountains.

At the Carache gold deposit,
relatively coarse-grained free gold is contained in open space fractures
developed in four gently dipping andesite porphyry sills and a sandstone unit
around the collapsed margins of a breccia pipe. At the Lucas gold-copper
deposit, mineralization occurs in garnet skarn developed in a limestone unit,
the outcropping portion of which forms a dip slope at the surface.

We believe the Ortiz Mine Grant
holds significant potential for additional discoveries. Several partially tested
prospects have been identified, three of which have been shown by drilling to
contain respectively 60,000, 60,000 and 105,000 ounces of gold. About half the
Ortiz Mine Grant is covered by Quaternary gravels derived from the outwash of
adjacent mountains. Exploration targets beneath the gravel cover have been
identified.

Scoping Study of the Carache and
Lucas Gold Deposits

In October 2005, we commissioned
Mineral Advisory Group, LLC (MAG) of Tucson, Arizona, an independent
geological engineering firm, to carry out an engineering review and scoping
study of the Carache and Lucas gold deposits, utilizing as a technical base the
information generated by the LAC-Pegasus Joint Venture in 1989-1991. MAGs
study, which was completed in December 2005, assessed various processing options
for development and provided estimations of capital and operating costs for each
option. It also included an economic analysis complete with sensitivities on
gold price, capital and operating costs.

The MAG report was prepared in
accordance with different standards than those prescribed by rules of the SEC.
The SEC only permits the disclosure of proven or probable reserves, which in
turn, require the preparation of a feasibility study demonstrating the economic
feasibility of mining and processing the mineralized material. We have not
received a feasibility study with regard to our Ortiz property. Substantial
additional feasibility work and expenditures are required to demonstrate
economic viability. No proven or probable reserves have been established at the
Ortiz property.

The processing options MAG
analyzed included heap leaching, ball milling/gravity concentration, and high
pressure grinding rolls/gravity concentration (HPGR option). The optimum
processing route was identified as the HPGR option. The HPGR option was
estimated to be able to achieve a gold recovery of 90% employing simple gravity
concentration while minimizing capital and operating costs. As compared to heap
leaching (the processing route previously advanced by the LAC-Pegasus Joint
Venture), the HPGR option also potentially would have advantages with respect to
environmental disturbance and permitting in that the area of surface disturbance
would be smaller, chemicals would not be required in processing and there would
be less water usage.

MAGs financial model showed
production from the Carache and Lucas conceptual pits could be expected to total
925,036 ounces of gold over 10 years at an average estimated operating cost of
$230 per ounce of gold recovered. The capital cost, assuming contract mining,
was estimated as $38.2 million. At a gold price of $450 per ounce, net operating
pre-tax cash flow would total $139.5 million over the mines ten-year mine life,
and the IRR would be 33.8% . At a gold price of $500 per ounce, net operating
pre-tax cash would increase to $180.9 million. Sensitivity analyses showed that
a variation in gold price is the dominant factor affecting the financial
indicators, IRR and NPV.

13

---

Permitting

Mining and processing operations
at the Ortiz gold property would require permits from the state and federal
governments and also would be subject to county regulations. We have not
obtained or applied for such permits. We may be unable to obtain such permits in
a timely manner, on reasonable terms, or at all. If we cannot obtain or maintain
the necessary permits, or if there is a delay in receiving such permits, our
timetable and business plan for development and mining of the Ortiz gold
property could be adversely affected.

Work Program

As the next step in our
evaluation of the mining potential of the Carache and Lucas deposits, we plan to
conduct additional studies in an attempt to further enhance the projects
economics. This work will include remodeling of the gold mineralization,
redesign of the conceptual open pits employing current gold prices, and
determination of the effect of using a higher cut-off grade in the mine plan.
Improvements to be assessed, if any, would be in a greater total number of
ounces of gold contained, in an increase of the average grade processed, and in
a decrease in the operating cost per ounce of gold produced.

We plan to continue assessment of
mining and processing options for the Carache and Lucas deposits with the
objective of optimizing a development and operating plan. We also intend to
begin assessment of environmental and permitting issues, which will be important
for successful mining development. Based on this work, we expect to be in a
sound position to formulate plans and budgets for additional work on the Carache
and Lucas gold deposits.

We also plan to continue
evaluation of the large 90 square mile area under lease for its exploration
potential for new discoveries of gold and copper deposits. In this regard, we
will continue to utilize the large quantity of existing geological, geochemical,
geophysical and drilling data.

We have budgeted $500,000 for the work to be carried out over
the next 12 months.

Black Canyon Mica Project

Background

In 1999, we acquired the Black
Canyon mica project from Arizona Mica Properties, Inc., a private Arizona
corporation. The project included 43 unpatented mining claims at Black Canyon,
30 miles north of Phoenix, Arizona, and a pilot plant situated in Glendale,
Arizona. In November 2002, due to economic constraints, we suspended crushing
and concentrating activities at its Black Canyon mica mine. Since the suspension
of operations, limited production, marketing and sales have continued at the
Companys Glendale mica processing facility using inventoried mica. We intend to
raise approximately $6.0 million to fund the relocation and enhancement of our
Black Canyon mica project or alternatively, intend to joint venture or to sell
the project.

As part of our due diligence
process, we carried out a marketing study, performed metallurgical testing and
confirmatory diamond drilling, and conducted an environmental audit and title
work. We also conducted a geologic mapping program that recorded the many
pegmatite dikes that host the ore bodies. This work identified mica deposits
lying outside the area of the original 43 mining claims, and additional claims
were acquired. We currently control 67 unpatented mining claims and 9 mill site
claims covering approximately 1,385 acres.

During 1999-2001, we began
construction of the Glendale processing plant, obtained operating permits from
the Bureau of Land Management and the State of Arizona and carried out an
initial mining campaign. In 2002, we commissioned the processing facilities at
the mine site and in Glendale, operated for several months on a test basis and
achieved limited production and commercial sales. Operations at the mine site
were suspended in November 2002.

The ultimate design capacity of
the operation was set by reference to market share goals. Capacity was set as
10,000 tons (20 million pounds) per year of finished mica product, which is
calculated also to yield 180,000 tons per year of by-product feldspathic sand.
The installed capacities at the mine site and at the Glendale

14

---

processing plant are capable of operating but at a throughput
rate less than full planned capacity. In order to achieve full design capacity,
the installation of additional processing equipment is required, and will depend
on the Companys receipt of adequate financing.

We intend to obtain financing in
the amount of $6.0 million to relocate, upgrade and expand the mining and
processing facilities in order to reach planned capacity and to provide working
capital. These expansions are required in order to achieve the higher
throughputs necessary for sustained economic operation. Alternatively, we are
seeking to joint venture or to sell the project. Our total expenditures to date
on the Black Canyon project have exceeded $10 million.

Location and Access

The Black Canyon mine is located
about 30 miles north of Phoenix, Arizona, 3.5 miles west-southwest of Black
Canyon City. It can be reached via U.S. Interstate 17, which connects Phoenix
with Flagstaff, and by a connecting dirt road for the last eight miles.

The Glendale processing plant is
located in an industrial area on the west side of Phoenix, Arizona, 47 miles to
the south of the mine site. In November 2006, the plant and real estate was sold
and we are required to relocate the plant.



Mineral Title

Our property holdings at and
around the Black Canyon mine consist of 67 Federal unpatented mining claims in
Yavapai County, Arizona and 9 Federal mill site claims in Maricopa County,
Arizona, which in total cover approximately 1,385 acres. The claims are located
on public land and held pursuant to the General Mining Law of 1872. The Company
fully owns the mining rights. The claims are in good standing in accordance with
the mining laws of the United States.

Additional details of our claims
are as follows: In Yavapai County, the claims are Spencer Nos. 1-43, 77, 79,
122-127, 146-153, 155, 157, 184, and 186-190, located in Sections 12, 13, 14, 23
and 24, Township 8N Range 1E and Sections 6, 7 and 8, T8N R2E, and recorded by
the Bureau of Land Management on February 25, 1999 and by Yavapai County on
February 26,1999. In Maricopa County, the claims are Mica Mill site Nos. 12, 14,
16, and 19-24, located in Sections 27 and 28, T8N R2E, and recorded by the
Bureau of Land Management on September 17, 1999 and by Maricopa County on
September 20, 1999.

In order to maintain our claims
in good standing, we must pay annual assessment fees to the Bureau of Land
Management and record the payment of rental fees with Yavapai and Maricopa
Counties. Annual assessment and recording costs total approximately $10,000. We
have paid the required fees for the 2006 and 2007 assessment years (September 1,
2005 through August 31, 2007).

Mining and Processing
Facilities

The Black Canyon project consists
of two integrated operating facilities. The mine site west-southwest of Black
Canyon City contains the ore reserves where the Company proposes to conduct open
pit mining operations. The crusher, the concentrator and the feldspathic sand
plant are located at the mine site. These facilities depend on diesel generators
for power. Plans call for mining to be carried out by conventional open pit
methods. The ore is trucked from the pit and delivered to a nearby stockpile
located adjacent to the crusher and concentrator. Mica flakes are separated from
the pegmatite host rock in a process that involves multi-stage crushing and
screening to -3/16 size. Mica is concentrated from the crushed material
utilizing air classifiers. The resulting concentrate, containing 95% mica, was
trucked to the Glendale processing plant for further processing.

In the mica concentrating
process at the mine site, the majority of the crushed host rock, which otherwise
would be discarded as waste, is converted into feldspathic sand for sale into
the local market. Processing of the feldspathic sand involves screening and
magnetic separation to yield sand fractions of various sizes. The sand products
are either bagged for shipment or trucked in bulk to customers.

15

---

The mica concentrate was further
processed at the 5-acre Glendale plant and office site on the west side of
Phoenix. The processing is designed to achieve the desired product sizes and
meet the quality requirements of the market place. The plant was housed in an
18,000 square foot steel framed building, where equipment is installed for wet
grinding, dewatering, drying, and air classification and bagging. The final
products are placed into 50-pound bags or into 1000-pound supersacks ready for
shipment to customers.

Operations at the mine site were
suspended in November 2002. We are seeking new funding in the amount of $6.0
million to relocate, upgrade and expand the mining and processing facilities in
order to reach planned capacity and to provide working capital. These expansions
are required in order to achieve the higher throughputs necessary for sustained
economic operation. Alternatively, we are seeking to joint venture or sell the
project.

Permits

In 1999, we obtained approval for
the Black Canyon Plan of Operations from the Bureau of Land Management and the
State of Arizona. An Environmental Assessment, Clean Water Act Permit and Air
Quality Procedures were all approved. An Aquifer Protection Permit was not
required because processing operations at the mine site did not propose the use
of water.

Geology and Mineralization

The mica deposits occur as
pegmatite dikes cutting Precambrian schist and granite. These dikes are steeply
dipping tabular bodies, continuous along strike and with depth. The main
pegmatite dikes are hosted by the schist and have a northeasterly trend parallel
to the structural grain of the schist. Because the light colored pegmatite dikes
are more resistant to weathering than is the enclosing schist, the dikes stand
out at the surface as elongated light colored ridges relatively easy to discern
and to map geologically.

In the area of the drilled ore
reserves, a concentration of pegmatite occurs as a dike swarm and as massive
irregular bodies of pegmatite. An associated major structure, the Central Pit
fault, appears to have created a zone of dilation that provided open space for
intrusion of the pegmatite. Drilling has identified seven individual dikes that
range from approximately 4 feet to over 20 feet in thickness. At the surface,
massive pegmatite crops out over a width exceeding 50 feet.

The minerals of potential
economic value are all found associated with the pegmatite dikes, and consist of
muscovite mica, feldspar and silica. Muscovite mica, the principal commodity,
constitutes a major accessory mineral of the pegmatite dikes and is ubiquitous
in the pegmatite. Based on visual estimates of drill core, the content of
muscovite in the pegmatite ranges from 5% to 35%. The muscovite is light to
whitish green in color and occurs as discrete, coarse-grained inclusions as well
as fine-grained disseminations in the pegmatite. Feldspar and silica,
by-products of the proposed mining operation, make up most of the remaining
component minerals of the pegmatite on about a 1:1 ratio.

Ore Reserves

In 1998 and 1999, based on
geologic mapping, Azco drilled 41 inclined core holes and collected 59 samples
of pegmatite exposed on the surface, at two central locations. The drill holes
and surface samples were spaced approximately 50 feet apart. The holes ranged
from 200 to 600 feet in length, and drilling totaled 13,070 feet. The drilling
covered only a small portion of the zones of outcropping mica-bearing rocks
mapped on the Companys mining claims.

Mintec Inc., an independent
geological engineering firm, in November 2000 analyzed our drilling and sampling
results, designed the mining plan and calculated the ore reserves. In-place
mining reserves for the pit design were calculated as 2,399,500 tons of proven
ore grading 7.54% mica and 1,527,200 tons of probable ore grading 7.37% mica,
for total reserves of 3,926,680 tons of ore grading 7.48% mica, at a cutoff
grade of 2.47% mica. Approximately 60% of the mica contained in these reserves
is expected to be recoverable after losses due to mining and beneficiation.

16

---

Mica

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

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

In fiscals 2006 and 2005 we sold
a portion of the mica we produced in prior years which had been retained but had
no carrying value in the financial statements. We sold mica products to
customers in the plastics and cosmetics industries and for other specialized
applications. Sales to key customers are continuing on a limited basis. In
addition, other potential consumers have conducted trial tests of our mica
products.

Feldspathic Sand

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

Currently sand producers in
California and Nevada supply sand to the Phoenix manufactured sand market.
Because the material has to be trucked long distances in order to reach Phoenix,
trucking costs are significant and constitute a substantial proportion of the
final selling price. We believe the location of our Black Canyon mine only 30
miles from Phoenix provides us with a transportation cost advantage over
competitors who import sand into Arizona.

In fiscals 2006 and 2005 we sold no
feldspathic sand products.

Planet Micaceous Iron Oxide (MIO) Project

Overview

The Planet property consists of
thirty-one patented mining claims totaling 523 acres located in western Arizona.
In September 2000 we leased the Planet property from New Planet Copper Mining
Company for its potential to produce micaceous iron oxide (MIO). MIO is an
uncommon flake-like form of crystalline hematite (Fe2O3) valued for the
anti-corrosive properties it contributes to coatings formulated to protect
structural steelwork. The lease gives us the exclusive rights for a period of 20
years to explore and develop minerals on the property. Terms of the lease
include monthly payments of $1,500; an option to purchase the property for
$250,000; and a production royalty of 5%.

Results of preliminary work
conducted to date indicate the Planet property contains a MIO deposit with
potential for open pit production. However, as is generally characteristic of
industrial mineral commodities, marketing would play a critical role in the
success of any new MIO operation and is identified as an important risk factor
for successful development. We plan to continue pre-feasibility assessment of
the Planet project.

Location and Access

The Planet property is located in
northwestern La Paz County, west central Arizona. The property lies just south
of the Bill Williams River twelve miles above its junction with the Colorado
River. The property is reached by road, either via the Swansea gravel road,
twenty-eight miles north from the town of Bouse; or via the Osborne Well paved
and gravel road, twenty-five miles east from the town of Parker, Arizona.

17

---

The topography of the property is
rugged, with hills 100 to 500 feet high cut by numerous steep-sided canyons.
Average elevation is 800 feet. The desert climate is typical of western Arizona,
hot and dry in summer but mild in winter. Vegetation is sparse and confined
mainly to the larger drainages.

The project is well served by
existing infrastructure for both construction and operation. All-weather roads
connect the Planet property to Bouse and to Parker. Good highways and the
Arizona & California Railroad, part of the national rail system, serve both
towns. Parker is the larger of the two towns, situated on the Colorado River and
with a population of about 4,000. Highways connect Parker to two east-west
interstate trucking routes, I-10 and I-40, respectively 35 miles to the south
and 60 miles to the north.

Electric power, water and other
  infrastructure are readily available at industrial sites in Bouse and in Parker.
  Fabrication and construction services, and a wide range of commercial and support
  services also are available in Parker and other nearby communities. The labor
  force required for any plant operation could be sourced locally.



Mineral Title

The property consists of
thirty-one patented mining claims totaling 523 acres, comprising an area 3,600
feet wide by 8,000 feet long. We leased the property in September 2000 from the
underlying owner, New Planet Copper Mining Company, for its potential to produce
MIO. The lease gives us exclusive rights for a period of 20 years to explore,
develop and mine copper, gold and other minerals. Terms of the lease include
monthly payments of $1,500; an option to purchase the property for $250,000; and
a production royalty of 5%.

In August 2003, we assigned, for
the sum of $5,000, our right, title and interest in and to the lease with New
Planet Copper Mining Company to Metallica Ventures, LLC (Metallica), a
corporation controlled by our President and Chief Executive Officer. We retained
an option to reacquire 25% of the lease for an amount equal to 25% of the
expenditures on the property from the date of assignment through the date of the
exercise of the option.

In September 2005, Metallica
reassigned to us, for consideration of $10,000 and the issue of 2,000,000
unregistered shares of our common stock, its right, title and interest in and to
the lease with New Planet Copper Mining Company.

History of Mining and
Exploration

The Planet mine was worked for
its copper value from 1863 until l884, and then intermittently through the early
1900s. Several shafts were sunk and 8,000 feet of underground workings were
developed. High-grade ore was extracted and shipped to Swansea, Wales, and to
San Francisco, California. The last mining activity took place between 1915 and
1918 when all remaining high-grade ore was mined and shipped. In total, the
property produced approximately 50,000 tons of ore grading 10% copper.

Between 1942 and 1944, the U. S.
Bureau of Mines investigated the quantity and quality of mineralized material
containing iron oxide at the Planet mine. This work was conducted as part of the
wartime evaluation of potential domestic sources of strategic minerals,
including sources of iron ore for the steel industry. The Bureau carried out
geologic mapping and sampling, and conducted drilling programs utilizing both
churn and diamond drilling methods. The information that resulted from this work
was compiled and recorded in Report of Investigations 3982, Exploration of the
New Planet Iron Deposit. We believe that the information is reliable and of
good quality. In 1945, it was used by the Bureau to calculate the tonnage and
grade of mineralized material containing iron oxide at the Planet deposit.

Work Program

Work completed by the Company and
Metallica included recovery and surveying of the U. S. Bureau of Mines drill
holes from 1942-1944, aerial photography and production of orthophotographs and
topographic base maps, compilation of a comprehensive digital database and
construction of a computerized block model incorporating all geological,
geochemical and assay data, estimations of tonnage and grades of mineralized

18

---

material containing iron oxide, design of conceptual open pits,
preliminary metallurgical testing of MIO material, studies of MIO markets, and
conduct of scoping studies to assess the projects potential for production.

The Company plans to continue
pre-feasibility assessment of the Planet project.

Geology and Mineralization

At the Planet deposit, MIO
deposits associated with a mid-Tertiary, flat-lying, regional detachment fault
are found in the Triassic Buckskin Formation. Rocks in the upper plate above the
fault are composed of schist, limestone, hydrothermal carbonate and quartzite.
Lower-plate rocks are gneisses. The upper and lower plates are separated by
fault breccias up to 60 feet thick. The main mineralized bodies at the Planet
deposit are found in the lower part of the upper plate, adjacent to and above
the detachment fault. They occur as tabular replacements of hydrothermal
carbonate, limestone and schist. The overall trend of the mineralized bodies is
north fifty-five degrees east, and the plunge is eight to nine degrees to the
southwest. Individual bodies dip ten to twenty degrees to the northwest.

The mineralized bodies form
discontinuous lenses, irregular bodies and veins that individually are as much
as 700 feet long, 250 feet wide, and 50 feet thick. Mineralized material
consists dominantly of specularite and massive hematite with some limonite,
malachite, azurite, chrysocolla, and a little pyrite, chalcopyrite, bornite,
gold, and silver. Associated minerals include quartz and calcite. The
mineralized material is very hard at the surface and to a depth of ten feet, but
underground it is soft and powdery.

The U. S. Bureau of Mines and the
Company each have estimated the quantities and grades of mineralized material
containing iron oxide at the Planet deposit. In 1945, the Bureau of Mines
estimated the deposit contained 1.4 million tons averaging 60 percent iron
(85.8% Fe2O3). The Bureau based this estimation on work it had carried out
during 1942-1944, including drilling of twelve churn holes aggregating 3,742
feet, and ten diamond holes totaling 569 feet; and mapping, surveying, and
sampling of surface outcrops and underground workings.

Our updated, more detailed
estimations employed computerized analytical methods and construction of a block
model. We estimated that a total of 1.4 million tons of mineralized material
grading 44.4% iron would be contained in three conceptually designed open pits.
In carrying out our study, we compiled a comprehensive digital database
incorporating relevant information from all sources. The database relied heavily
on the information available from the Bureau of Mines, including geologic and
assay data from drill holes, and results of surface and underground channel
sampling. The database contains new survey information that ties the locations
of drill holes and underground workings to accurate topographic maps generated
from aerial photographs.

The SEC only permits the
disclosure of proven or probable reserves, which in turn, require the
preparation of a feasibility study demonstrating the economic feasibility of
mining and processing. We have not received a feasibility study with regard to
our Planet property. We have not established mining reserves at the Planet
property.

Conceptual Mining and Processing
Plan

As presently conceived, the
Planet mining and processing operation would involve open-pit mining of MIO
mineralized material, primary crushing of the mineralized material at the mine
site, and trucking of the crushed ore approximately twenty-five miles to a
processing plant to be located at an industrial townsite. At the plant site,
metallurgical processing would include grinding, classification, selective
flotation, filtration and drying to yield MIO and red iron oxide, a secondary
product. A stockpile of mineralized material would be maintained at the plant
site. Because only very small tonnages of ore would be needed during the early
years of operation, mining and related activities would be carried out most
efficiently on a periodic, campaign basis utilizing outside contractors. The
project is well situated with respect to development infrastructure and
transportation networks. MIO mineralized material is non-toxic and no
environmental issues are foreseen that would hinder development.

Micaceous Iron Oxide

19

---

MIO is an uncommon flake-like
form of crystalline hematite (Fe2O3) valued for the anti-corrosive properties it
contributes to coatings formulated to protect structural steelwork. MIO improves
UV stability, adhesion, surface tolerance and abrasion resistance, and
significantly increases coating life. It also has the advantage of being
non-toxic to the environment. In Europe and Asia, MIO is the most important
barrier pigment used to protect structural steelwork from corrosion. For many
years it has been employed on bridges, oilrigs, transmission towers, pipelines,
storage tanks, industrial plants and structural steelwork of all
descriptions.

Based on limited available market
data, world production of MIO is estimated as around 20,000-30,000 tons (40-60
million lbs) annually, of which Europe and Asia consume over eighty percent.
Prices are quoted in the range $0.40 -$.60 per pound for top quality material.
Commercial deposits of high quality MIO are geologically rare. One supplier from
underground mines in Austria has dominated the world market for many years;
however, production from that source has been declining. Elsewhere around the
world, production comes from only a handful of small-scale suppliers.

The United States uses only a
relatively small amount of MIO pigment as compared to other regions of the
world. Lack of a domestic source of MIO has forced U. S. paint manufacturers to
depend on imports and may have been a factor in restricting market expansion.
The Planet project, if developed, would establish a domestic source of MIO
pigment. However, as is the case with development of most new industrial
minerals projects, marketing of product would constitute an important risk
element in establishing economic viability.

|ITEM 3. | LEGAL PROCEEDINGS
|------- | -----------------

On June 27, 2006, Montgomery
Equity Partners, Ltd. (Montgomery) filed an action against Azco in the
Superior Court of New Jersey, alleging it is the assignee of a promissory note
executed in January 2003 by the Company in favor of Cornell Capital Partners, LP
(Cornell Capital) and seeking a judgment for unpaid principal of $73,145,
unpaid interest of $57,522 and award of attorneys fees and expenses pursuant to
the terms of the note. On September 29, 2006, the Company filed an answer and
counterclaim against Montgomery, Cornell Capital and their affiliate, Yorkville
Advisors, LLC, denying liability and asserting claims for fraudulent inducement
and breach of good faith and fair dealing. The Companys claims arise out of a
June 2002 transaction underlying the note, and seek a declaration that the note
is invalid, and unspecified damages and other relief. Management intends to
pursue the Companys claims. The Company has recorded the amounts due under the
line of credit and accrued interest payable.

In June 2002 Azco received a
demand for arbitration filed by iCapital Corporation (iCapital) seeking
$144,000 in relief due to failure to pay under a June 2001 financial consulting
agreement. On September 18, 2003 the American Arbitration Association awarded
iCapital $144,000 plus $5,000 in attorneys fees as full settlement of the
claim. Under the terms of the award the Company had 30 days to remit the amount
of the award, after which interest accrues at 5% per annum. On November 15,
2004, the Company agreed with iCapital to settle the approximately $150,000
amount owed, by the issue to iCapital of unregistered shares of its common stock
in six $25,000 increments over a period of six months beginning December 1,
2005, the number of shares to be issued monthly to be calculated on the basis of
the market price of the Companys stock at the time issued. A total of 153,012
shares were issued during the period December 1, 2005  May 1, 2006, in full
satisfaction of the agreement.

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

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

None.

20

---

PART II

|ITEM 5. | MARKET FOR COMMON EQUITY, RELATED
      STOCKHOLDER MATTERS AND SBI **PURCHASE OF EQUITY
      SECURITIES**
|------- | -----------------------------------------------------------------------------------------------------------

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

The Company was delinquent in the
filing of its financial statements for the year ended June 30, 2003 with the
Security and Exchange Commission in the United States and with the Securities
Commissions of Ontario and British Columbia. Consequently cease trade orders
were issued in November 2003 for trading of the Companys common stock on the
TSX and in January 2004 for trading on the OTCBB. Subsequently the Company
traded over-the-counter on the Pink Sheets. In August 2006, the Company became
compliant in the filing of its annual and quarterly financial statements and its
stock resumed trading on the OTCBB.

In May 2004 the Company received
notice that the TSX was reviewing the eligibility for continued listing on TSX
of the common shares of the Company pursuant to Part VII of The Toronto Stock
Exchange Company Manual. The Company fell below several requirements for
continued listing, primarily related to its financial condition and operating
results. In September 2004, the Companys shares were suspended from trading on
the TSX. Subsequently, the Company delisted voluntarily from the TSX.

The Company was delinquent in the
filing of its financial statements for the year ended June 30, 2006, with the
Security and Exchange Commission in the United States. On November 22, 2006, the
Company began trading over-the-counter on the Pink Sheets.

As of February 12, 2007, there
  were 68,513,712 common shares outstanding.

The following table summarizes
  the high and low closing sales price per share of the Company’s common
  stock as quoted on the “Pink Sheets” for the periods indicated.
  Quotations represent prices between dealers, do not include retail markups,
  markdowns or commissions, and do not necessarily represent prices at which actual
  transactions were effected.

|Quarter ended |  | Pink Sheets
|------------- |  | -------------
|              |  | (U.S. $)     
|2004          |  | HIGH         
|09/30/04      |  | $0.21        
|12/31/04      |  | 0.18         
|              |  |              
|2005          |  | HIGH         
|03/31/05      |  | $0.17        
|06/30/05      |  | 0.16         
|09/30/05      |  | 0.43         
|12/31/05      |  | 1.01         
|              |  |              
|2006          |  | HIGH         
|3/31/06       |  | $1.99        
|6/30/06       |  | 1.72         

Transfer Agent

21

---

Colonial Stock Transfer Co. is
the transfer agent for our common stock. The principal office of Colonial Stock
Transfer Co. is located at 66 Exchange Place, Salt Lake City, Utah 84111 and its
telephone number is (801) 355-5740.

Holders Of Common Equity

As of February 12, 2007, the Company had 840 record holders of
common stock.

Dividends

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

Recent Sales and Issuances Of Common Stock and Securities

During the fiscal year ended June
30, 2006, the Company sold 6,005,578 common shares for aggregate cash proceeds
of $1,033,241.

During the fiscal year ended June
30, 2006, the Company issued 2,295,000 shares of common stock for investor
relations and financial consulting services rendered at an aggregate value of
$1,207,550, based on the fair market value on the transaction dates. This amount
has been recorded as general and administrative stock compensation expense.

During the fiscal year ended June
30, 2006, the Company issued 153,012 shares of common stock at a value of
$150,000 for payment on the iCapital settlement obligation. This obligation was
paid in full on May 1, 2006.

On September 22, 2005, the
Company issued 750,000 shares each an officer and to a director, for a total of
1,500,000 shares of common stock with an aggregate value of $450,000, based on
the fair market value on the transaction date. The shares were issued to reduce
accrued wages and accrued interest payable of $100,000 each for a total of
$200,000 and the balance of $250,000 was recorded as general and administrative
stock compensation expense.

On September 22, 2005, the
Company issued 2,000,000 shares of common stock at a market value of $600,000 on
the date of the transaction, to an officer, for the rights, title and interest
in and to the lease with New Planet Copper Mining Company. The Board of
Directors believes the fair value of the lease is equal to the purchase price.
However, there are no established reserves and the Company cannot predict the
economic viability of the project nor reasonably estimate its future cash flows.
Therefore, the value assigned to the transaction has been recorded as general
and administrative stock compensation expense.

On December 21, 2005, the Company
issued 500,000 shares of common stock at a market value of $420,000 on the date
of the transaction for payment of notes payable and related accrued interest to
a shareholder, which aggregated $539,667. The Company recognized a gain of
$119,667 on the conversion of debt to equity.

On March 15, 2006, a director
exercised warrants to purchase 300,000 shares of common stock at $0.70 per share
in exchange for a reduction of accrued interest and principal on the note
payable to the director, aggregating $210,000.

On March 21, 2006, the Company
completed a private placement of senior secured convertible notes, additional
investment rights and warrants to institutional investors for an aggregate
purchase price of $2,500,000. Azco received net proceeds of approximately
$2,270,000 after deducting fees and expenses. The convertible notes have a term
of 17 months and amortize over 12 months beginning on September 1, 2006.
Interest on the principal amount outstanding accrues at a rate of 7% per annum.
Azco may pay principal and accrued interest in cash or, at the Companys option,
in shares of our common stock. The holder of each convertible note, at the
holders option, may convert the note into our common stock at a conversion
price of $1.58 per share. The Company also granted additional investment rights
to the investors, giving each the right for 12 months to purchase, under the
same terms, an additional convertible note for 50% of the amount initially
purchased. We

22

---

also issued warrants to the note holders, giving the right for
a period of 5 years to purchase in the aggregate 791,139 shares of the Companys
common stock at a price of $1.58 per share.

As collateral security of the
Secured Obligations, the Company hereby pledges, grants, assigns, hypothecates
and transfers to the Purchasers a security interest in and Lien upon all of the
Companys right, title and interest in and to (a) $6,000,000 in gold contained
in mineralized materials from the Ortiz Mine Grant over which the Company holds
a lease on the mineral estate underlying 57,267.04 acres (90 square miles) of
segregated surface estate located 30 miles by road northeast of Albuquerque, in
Townships 12, 13 and 14 North, Ranges 7 and 8 East, N.M.P.M., Santa Fe County,
New Mexico, which such gold is as-extracted collateral (as such term is
defined in the New York Uniform Commercial Code) and (b) all proceeds, products
and accessions thereof and related thereto (including, without limitation, any
proceeds of insurance thereon), and, to the extent related to such as extracted
collateral or such proceeds, products and accessions thereof and related
thereto.

Subsequent to our current fiscal
year end, on September 5, 2006, the Company agreed with the institutional
investors to amend the terms of the March 21, 2006, private placement of senior
secured convertible notes, warrants and additional investment rights. Under the
amended terms, payment of the convertible notes was deferred and the maturity
date changed from August 31, 2007, to January 1, 2008. The convertible notes
amortize over 12 months in 12 equal monthly installments. The date of the first
installment was extended from September 1, 2006, to February 1, 2007. The price
at which the holder of each convertible note may convert the principal and
accrued interest amount outstanding under each note into shares of the Companys
common stock was reduced from $1.58 to $1.00 per share. The exercise price of
the warrants, including warrants issued under additional investment rights, was
reduced from $1.58 to $1.00. In connection with the amendment, the institutional
investors purchased in the aggregate an additional $1,000,000 of notes under the
amended terms, bringing the total outstanding principal to $3,781,662. The
Company is required to register for resale the shares of common stock issuable
upon conversion of the convertible notes, accrued interest and upon exercise of
the warrants. Azco has agreed to file a registration statement with the
Securities and Exchange Commission within 60 days of the date of the amendment
and to cause the registration statement to be declared effective within 150 days
of the date of the amendment. The Company is currently in default of the
provision to file the registration statement within 60 days of the date of the
amendment.

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

|ITEM 6. | MANAGEMENTS DISCUSSION AND ANALYSIS OF
      FINANCIAL CONDITION AND **RESULTS OF OPERATIONS**
|------- | -----------------------------------------------------------------------------------------------

Overview

The results of operations for the
  years ended June 30, 2006 and 2005 reflect under-capitalization of the Companys
  Black Canyon mica project, which project requires additional funding to be able
  to resume production and to achieve sustained profitable operation. Results
  of operations similar to those in 2006 and 2005 can be expected to continue
  in the foreseeable future, and are not expected to change significantly until
  such time as additional capital and/or debt resources are secured and the Company
  is able to restructure its debt and lease commitments. The Company anticipates
  a need for at least $9.0 million over the next 36 months in order to satisfy
  past commitments, commence mining operations and initiate an exploration program
  as discussed under the Liquidity and Capital Resources section of this Annual
  Report. If we fail to procure adequate funding on terms acceptable to the Company,
  we may be required to reduce or eliminate substantially all business activities
  until such time as funding of the projects can be secured on a basis acceptable
  to the Company.

The financial statements have been
  prepared on a going concern basis, which contemplates the realization of assets
  and satisfaction of liabilities and commitments in the normal course of business.
  Should the Company be unable to continue as a going concern, it may be unable
  to realize the carrying value of its assets and to meet its obligations as they
  become due.

The Company has incurred net losses
  of ($5,383,368) and ($1,596,290) for the years ended June 30, 2006 and 2005,
  respectively, and has a total accumulated deficit of ($43,327,751) at June 30,
  2006. To continue as a going concern, the Company is dependent on continued
  fund raising for project development. However, the Company has no commitment
  from any party to provide additional capital and there is no assurance that
  such funding will be available when needed, or if available, that its terms
  will be favorable or acceptable to the Company.

Results of Operations

Fiscal Year Ended June 30, 2006, Compared to Fiscal Year
Ended June 30, 2005

23

---

Sales

Sales decreased to $16,237 in
fiscal 2006 from $54,844 in fiscal 2005 due primarily to decreased sales of
mica-filled plastic pellets in fiscal 2006. The mica sold was sourced from
inventory. No revenue was generated from the sale of feldspathic sand in fiscals
2006 or 2005, due to the curtailment of operations at the Companys crushing and
concentrating facilities at the Black Canyon mine in November 2002. Prior to the
closure of the Black Canyon facilities, the Company generated revenue from the
sale of feldspathic sand, a by-product of the mica concentrator. The Company has
discontinued processing and sale of inventoried mica into the cosmetic and
reinforced plastic industries, while it seeks financing to resume production.

If and when financing is procured
and production resumes, the Company expects that it will require 12 months or
more time in order for it to introduce its mica and feldspathic sand products
into the markets and to build a customer base necessary for sustained sales and
profitable operation. Although the Company anticipates being able to sell dual
products of mica and feldspathic sand, it has not yet sold significant
quantities of these products and has not entered into sales contracts. There are
numerous factors beyond the Companys control that could affect markets for both
mica and feldspathic sand. The profitability of the Companys operations could
be adversely affected if it does not achieve the selling prices or sales volumes
currently targeted for its products. See also Risk Factors.

Expenses

Production, exploration and
mining costs increased in fiscal 2006 to $212,489 from $136,714 in fiscal 2005.
This increase of $75,775 in fiscal 2006 is mainly attributable increased mine
lease fees aggregating $32,892 and increased consulting work on the Ortiz and
New Planet properties aggregating $106,557 and these increases were offset by
decreases in property taxes of $59,584.

General and administrative
expense increased in fiscal 2006 to $1,207,320 from $1,018,788 in fiscal 2005,
an increase of $188,532. The increase in fiscal 2006 is mainly attributable to
increases in salaries and payroll burden of $34,600, investor relations and
corporate consulting fees of $110,557, insurance costs of $11,197 and financing
costs of $57,029. These increases were mainly offset by decreases in
professional auditing and accounting fees aggregating $34,043.

General and administrative
stock-compensation expense increased in fiscal 2006 to $2,174,670 from $252,690
in fiscal 2005, an increase of $1,921,980. The increase is mainly attributable
to a $1,071,980 increase for investor relations and financial consulting
services, $250,000 expense recognized on stock issued to an officer and to a
director for the payment of accrued expenses and $600,000 expense recognized for
stock issued to an officer for the rights, title and interest in a mineral
lease.

Other Income and Expense

Other income and expense in
fiscal 2006 were $(1,775,445) as compared to $(214,460) for fiscal 2004 or an
increase of $1,560,985. The increase in expense is mainly attributable to a
non-cash loss on derivative instrument liability of $(1,402,903) in fiscal 2006
as compared to a gain on derivative instrument liability of $65,721 in fiscal
2005, or an increase of $(1,468,624). The gain and loss arise from adjustments
to record the Companys derivative financial instruments at fair values in
accordance with current accounting standards. The Companys derivative financial
instruments arose in connection with a financing lease and convertible
debentures. Otherwise, the Company generally does not use derivative financial
instruments for other purposes, such as hedging cash flow or fair-value risks.
The Company uses the Black-Scholes model to estimate the fair value of this
derivative. Because Black-Scholes uses the Companys stock price, changes in the
Companys stock price will result in volatility in the Companys earnings in
future periods as the Company continues to reflect the Companys derivative
financial instruments at fair values.

In fiscal 2006, accretion of
discounts on notes payable and lease liability and interest expense increased
$171,225 over fiscal 2005 and this was offset by increased other income in
fiscal 2006 comprised of forgiveness of debt of $60,603 and interest income of
$18,569.

24

---

Liquidity and Capital Resources; Plan of Operation

As of June 30, 2006, the Company
had cash and cash equivalents of $1,265,392 as compared to $20,101 at June 30,
2005. As of June 30, 2006, we had a working capital deficit of $(5,435,533),
which is mainly attributable to the current portion of our lease financing
liability of $1,890,000 and derivative instrument liabilities of $3,983,960.

During our fiscal year 2006, the
Company sold 6,005,578 common shares in private placements for cash proceeds of
$1,033,241. In addition, on March 21, 2006, we completed a private placement of
senior secured convertible notes, additional investment rights and warrants to
institutional investors for an aggregate purchase price of $2,500,000. The
Company received net proceeds of approximately $2,270,000 after deducting fees
and expenses, which improved our liquidity and cash position significantly. The
placement of the convertible notes enabled the Company to complete the Lordsburg
acquisition for cash of $1.3 million.

In recent years the Company has
not generated any significant revenues from operations and has incurred
significant operating losses. At June 30, 2006, we have an accumulated (deficit)
of $(43,327,751). Our consolidated financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. Our primary source
of funds used during our fiscal year 2006 was from the sale and issuance of
equity securities. We anticipate that our operations through fiscal 2007 will be
funded from the balance of proceeds from these placements; sale of our
securities and possibly through the exercise of certain options and warrants.
While the Company believes it will be able to finance its continuing activities,
there are no assurances of success in this regard or in the Companys ability to
obtain continued financing through capital markets, joint ventures, or other
acceptable arrangements. If managements plans are not successful, operations
and liquidity may be adversely impacted. In the event that we are unable to
obtain additional required capital, we may be forced to reduce our exploration
and operating expenditures or to cease development operations altogether.

The Company is continuing to seek
funding for its mica project or a joint venture operating partner to bring the
mica project to commercial production, funding for the Companys corporate
commitments, continue feasibility studies on our mineral properties and initiate
exploration programs. The Company projects the need for a minimum $9.0 million
working capital during the next 36 months, to fund our current business plan and
strategies. The following is a summary of our current projected funding
requirements:

|Development and operations                   | $ | 6,000,000 | 
|-------------------------------------------- | - | --------- | 
|Exploration programs and feasibility studies |   | 1,500,000 | 
|Corporate overhead and related expenses      |   | 1,500,000 | 
|Total funding requirements                   | $ | 9,000,000 | 

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

Management has developed a plan
to place the Company on an improved financial condition. Important elements of
the plan include becoming compliant in the filing of our annual and quarterly
financial statements, continue securing of interim funding to provide for
deployment of business plan, restructuring of debt with secured creditors and
arrangement of additional project funding. We have begun discussions with
secured creditors concerning restructuring of debt and believe such
restructuring may be possible in conjunction with a major financing if such
financing can be arranged. If we are able to continue to secure additional
interim financing on terms acceptable to the Company, restructure debt and
obtain the additional required project financing, we will be in a position to
deploy our business plan on mining operations.

In January 2002, the Company
completed a financing lease transaction. Under the terms of the transaction, the
Company sold a 40 percent ownership in the Companys mica processing facility
located in Glendale, Arizona. Subsequently, the Company leased the property back
for an initial period of 10 years, with an

25

---

option to repurchase the 40 percent ownership for 120 percent
of the original sales price after the second year. The repurchase price of the
property increases by 10 percent of the original sales price each year the
option remains unexercised up to a maximum of 150 percent of the original sales
price. Payments for the first six months under the financing agreement were
$30,000, for the second six months they increased to $37,450 and thereafter they
are $45,000 per month. For fiscal 2006 and 2005, effectively, these payments
represent interest on the total purchase price of $4,500,000 at 12% per year.
The Company is in default under the terms of the financing lease transaction at
June 30, 2006. At June 30, 2006, the Company is currently past due on $1,890,000
on accrued lease payments. Subsequent to our fiscal year ended, the Company
finalized a settlement of the financing lease. See section below Financing
Activities Subsequent to Fiscal Year Ended 2006.

In 2001, the Company received
three one-year loans totaling in the aggregate $400,000, bearing interest at 12%
per annum, from a sophisticated investor and shareholder. In connection with
these loans, we issued warrants to purchase 500,000 shares of our common stock
at $.40 per share. In 2002 these loans were restructured and became payable in
2003. The Company defaulted on the loans. The warrants vested in 2002 and
expired in 2003. On December 21, 2005, the Company agreed to settle the entire
amount outstanding by issuing 500,000 shares of its restricted common stock.

In March 2001, Lawrence G. Olson, the Companys Chairman and
former President and CEO, jointly with his wife, made an unsecured loan to the
Company in the amount of $800,000 at an interest rate equal to the prime rate of
interest as reported by Imperial Bank plus one percentage point. In conjunction
with the loan, Mr. Olson received 5-year warrants to purchase 300,000 shares of
common stock at an exercise price of $0.70 per share. In October 2001, we
restructured the $800,000 loan agreement with Mr. Olson and the interest rate
payable on the loan was adjusted to 12% annually. In June 2002, the loan was
extended an additional year and the Company entered into a security agreement
with Mr. Olson, whereby the Companys assets secured the loan. The note became
payable in March 2004 after which time it was in default. On March 15, 2006, Mr.
Olson exercised warrants to purchase 300,000 shares of common stock at $0.70 per
share in exchange for a reduction of accrued interest and principal on the note
payable to him, aggregating $210,000. Mr. Olson agreed to reduce the principal
by $50,000 and to extend the $750,000 note payable for a period of 18 months,
until September 15, 2007. The Company has negotiated a restructuring of this
loan in conjunction with the deployment of the mica financing project. See
section below Financing Activities Subsequent to Fiscal Year Ended 2006.

Financing Activities Subsequent to Fiscal Year Ended 2006

Amendment of Secured Convertible
Notes

On September 6,2006, the
Company amended the terms of the private placement of the senior secured
convertible notes that were issued on March 21, 2006 (see NOTE 6 to the
financial statements). The common stock warrants and Additional Investment
Rights held by the investors were also amended.

Under the terms of the amendment,
the maturity of the convertible notes has been deferred from August 31, 2007 to
January 1, 2008. The convertible notes amortize over 12 equal monthly
installments but the date of the first installment has been extended from
September 1. 2006, to February 1, 2007. Interest on the principal amount
outstanding will remain at the rate of 7% per annum and begins to accrue from
February 1, 2007. Interest is payable on the last day of each calendar quarter,
beginning on March 31, 2007. The price at which the holder of each convertible
note may convert the principal and accrued interest amount outstanding under
each note into shares of the Companys common stock has been reduced from $1.58
to $1.00 per share. In connection with the amendment, the investors agreed to
purchase in the aggregate an additional $1,000,000 of notes under the amended
terms, bringing the total outstanding principal, including interest and
liquidated damages, due under the notes to $3,781,662.

In connection with the amendment,
the Company issued additional common stock warrants, increasing the number of
warrants held by the investors to 1,890,300, extended the expiry of those
warrants to September 6, 2011, and reduced the exercise price of the warrants
from $1.58 to $1.00.

The Company also granted to the
investors Additional Investment Rights, increasing the Rights held by the
investors, so that they may purchase up to an additional $1,890,830 of
convertible notes,

26

---

under the same terms and conditions as the amended notes. The
Additional Investment Rights are exercisable for a period of 12 months following
the date of a registration statement. Upon exercise of the Rights, the holders
will also receive 945,416 warrants to purchase common stock. The conversion
prices of the notes issuable on exercise of the Additional Investment Rights and
the warrants issuable under the Additional Investment Rights, were reduced from
$1.58 to $1.00.

The Company is required to
register for resale the shares of common stock issuable upon conversion of the
convertible notes and upon exercise of the warrants. The Company has agreed to
file a registration statement with the Securities and Exchange Commission within
60 days of the date of the amendment and to cause the registration statement to
be declared effective within 150 days of the date of the amendment. If we do not
meet these required dates, or do not maintain the effectiveness of the
registration statement, we are required to pay penalties of 1% per month of the
principal amount of the notes outstanding. The Company is currently in default
of the provision to file the registration statement within 60 days of the date
of the amendment.

The Company used the
Black-Scholes option model to determine the fair value of the additional
warrants and Additional Investment Rights issued, the fair value of the embedded
conversion option related to the increased principal amount of the convertible
notes and the cost of reducing the conversion price of the existing convertible
notes, warrants and Additional Investment Rights from $1.58 to $1.00. Because
these aggregate fair values exceed the additional proceeds received by
approximately $2,400,000, the difference will be recognized as a charge to
income in the quarter ending September 30, 2006. Because the convertible note
had no net initial carrying value and the modifications made to the notes
resulted in no additional carrying value (because the fair value of the
additional derivative instruments issued exceeded the proceeds received), the
Company will recompute, as of the date of the amendment, the effective interest
rate on the convertible notes to accrete the carrying value of the notes to
their redemption dates, based on the revised repayment schedule and amounts.

Sale of Property and Settlement of
Financing Lease

On November 3, 2006, the Company
concluded an agreement with Muzz Investments, LLC (Muzz) for the sale of the
Companys 60% ownership of real estate and buildings at its Glendale, Arizona
location. The sale includes approximately five acres of land, a 5,000 sq. ft.
office building and an 18,000 sq. ft. mill building. Under the agreement, the
Company retains ownership of its mica processing equipment currently installed
in the mill building. The equipment will be removed and transported to a storage
site for future use. As part of the transaction, the Company also agreed to
provide for the exercise of 2,550,000 warrants at $0.50 per share granted to
Muzz in 2002 and to issue 2,550,000 unregistered shares of its common stock to
Muzz. In consideration for Companys entry into the agreement and the issue of
the unregistered stock in settlement of the Muzz warrants, Muzz agreed to
terminate the 2002 financing lease agreement and to cancel all of the
outstanding financial obligations under the lease.

Issuances of Equity and Settlement
of Note Payable-Related Party

On November 15, 2006, the Company
agreed to allow a director to exercise options to purchase 1,000,000 shares of
common stock at $0.10 per share and 1,000,000 shares of common at $0.11 per
share, in exchange for payment of accrued interest owed and reduction of
principal on the note payable to the director, aggregating $210,000. In
addition, the director agreed to contribute to capital the remaining unpaid
principal on the note of $600,000. The Company also agreed to grant a royalty
agreement on a net proceeds interest of 25% of net proceeds from sales of mica
and feldspathic sand toward an end settlement of $600,000.

Critical Accounting Policies and Estimates

Our discussion and analysis of
the Companys financial condition and results of operations is based on the
Companys financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States. The preparation
of these financial statements requires us to make estimates and judgments that
affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amount of revenues and expenses for each period. Critical
accounting policies are defined, as policies that management believes are the
most important

27

---

to the portrayal of the Companys financial condition and
results of operations. These policies may require us to make difficult,
subjective or complex judgments, commonly about the effects of matters that are
inherently uncertain.

Our significant accounting
policies are described in the audited consolidated financial statements and
notes thereto included in footnote Note 2. We believe our most critical
accounting policies relate to asset retirement obligations, impairment of
assets, revenue recognition, depreciation of plant and equipment, and derivative
instrument liabilities.

Asset Retirement Obligations

The Company adopted the
provisions of Statement of Financial Accounting Standards No. 143, Accounting
for Asset Retirement Obligations (SFAS No. 143). SFAS No. 143 addresses
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs estimated to aggregate approximately $250,000. Specifically, the Statement
requires that retirement obligations be recognized when they are incurred and
displayed as liabilities with the initial measurement being at the present value
of estimated third party costs. In addition, the asset retirement cost is
capitalized as part of the assets carrying value and subsequently allocated to
expense over the assets useful life.

The asset retirement costs
associated with the Black Canyon mine consist of reclamation of disturbed
property as well as the disposal and dismantling of related property and
equipment. The Company developed estimations of and accounting for asset
retirement costs in conjunction with third parties and with the Companys
auditors.

As of June 30, 2006, the Company,
pursuant to regulatory requirements, maintained the following restricted assets
associated with reclamation costs for the Black Canyon property: $50,000 held on
deposit on behalf of the Arizona State Treasurer in a one-year automatically
renewable short-term investment; and $128,658 held on deposit on behalf of the
U.S. Bureau of Land Management. Both of the amounts will be held until all
conditions of the reclamation agreement have been fulfilled.

A roll forward of the Companys asset
retirement obligation through June 30, 2006, is as follows:

| | Balance at June 30, 2004                   | $ | 55,309 | 
| | ------------------------------------------ | - | ------ | 
| | Accretion for the year ended June 30, 2005 |   | 5,000  | 
| | Amount included with Lordsburg acquisition |   | 5,000  | 
| | Accretion for the year ended June 30, 2006 |   | 5,000  | 
| | Balance, June 30, 2006                     | $ | 70,309 | 

Revenue Recognition

The Company recognizes the sale
of product when an agreement of sale exists, product delivery has occurred,
title has transferred to the customer and collection is reasonably assured. The
price received is based upon terms of the contract.

Depreciation

Land, buildings, plant, equipment
and vehicles are carried at cost. Replacements, maintenance and repairs that do
not improve or extend the life of the respective assets are expensed as
incurred. Major renewals and improvements are capitalized. Upon retirement, sale
or other disposition, the cost and accumulated depreciation are eliminated and
the gain or loss is included in other income or expense on the statement of
operations.

The Company expenses exploration
costs as incurred, but capitalizes costs directly attributable to the
acquisition of mineral properties, pending determination as to their commercial
feasibility.

Derivative Instruments

28

---

The Company may have derivative
financial instruments in connection with the issuance of debt or equity
instruments, and may issue options or warrants to purchase common stock. In
certain circumstances, options or warrants may be classified as derivative
liabilities rather than as equity. Additionally, the debt or equity instruments
may contain embedded derivative instruments, such as conversion options, which
in certain circumstances, may be required to be bifurcated from the associated
host instrument and accounted for separately as a derivative instrument
liability.

The identification of, and
accounting for, derivative instruments is complex. The derivative instrument
liabilities are re-valued at the end of each reporting period, with changes in
the fair value of the derivative liability recorded as charges or credits to
income, in the period in which the changes occur. For warrants that are
accounted for as derivative instrument liability, the Company determines the
fair value of these warrants using the Black-Scholes option-pricing model. That
model requires assumptions related to the remaining term of the instruments and
risk-free rates of return, the Companys current common stock price and expected
dividend yield, and the expected volatility of the common stock price over the
life of the warrants. The identification of, and accounting for, derivative
instruments and the assumptions used to value them can significantly affect the
financial statements.

Recent Accounting Pronouncements

In June 2006, the Financial
Accounting Standards Board (FASB) issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes  an interpretation of FASB No.
109(FIN 48). FIN 48 clarifies the accounting for uncertainty in income
taxes recognized in a companys financial statements in accordance with SFAS No.
109 and provides guidance on recognizing, measuring, presenting and disclosing
in the financial statements tax positions that a company has taken or expected
to take on a tax return. FIN 48 is effective for the Company as of July 1, 2007.
The Company at this time has not evaluated the impact, if any, of adopting FIN
48 on its financial statements.

In September 2006, the FASB
issued SFAS No. 157, Fair Value Measurements (SFAS 157). SFAS 157
defines fair value, establishes a framework for measuring fair value and expands
disclosures about fair value measurements. This statement addresses how to
calculate fair value measurements required or permitted under other accounting
pronouncements. SFAS 157 is effective for the Company beginning July 1, 2008.
The Company at this time has not evaluated the impact, if any, of SFAS 157 on
its financial statements.

The FASB has also issued SFAS No.
158, Employers Accounting for Defined Benefit Pension and Other Postretirement
Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R), but it will
not have any relationship to the operations of the Company at this time.

In September 2006, the SEC issued
Staff Accounting Bulletin No. 108 (SAB No. 108), which addresses the process
and diversity in practice of quantifying financial statement misstatements
resulting in the potential build up of improper amounts on the balance sheet.
The Company will be required to adopt the provision of SAB No. 108 in fiscal
year 2007. The Company currently does not believe that the adoption of SAB No.
108 will have a material impact on our financial statements.

Off-Balance Sheet Arrangements

During the year ended June 30,
2006, the Company did not engage in any off balance sheet arrangements as
defined in item 303(c) of the SECs Regulation S-B.

Risk Factors

This report, including
managements discussion and analysis or plan of operations, contains forward
looking statements that may be materially affected by numerous risk factors,
including those summarized below:

Risk Factors Related to Our Business and Operations

29

---

We are dependent upon
production of precious metals and industrial minerals from a limited number of
properties, have incurred substantial losses since our inception in 1991, and
may never be profitable.Since our inception in 1991, we have not been
profitable. To become profitable, we must identify mineralization and establish
reserves, and then either develop properties ourselves or locate and enter into
agreements with third party operators. It could be years before we receive any
revenues from industrial mineral or precious metals production. We may suffer
significant additional losses in the future and may never be profitable. There
can be no assurance we will receive revenue from operations in the foreseeable
future, if at all. Even if we do achieve profitability, we may not be able to
sustain or increase profitability on a quarterly or annual basis.

We ceased mining operations at
our Black Canyon mica property in 2002 after unsuccessful attempts to begin
profitable operations. We have not established proven or probable reserves at
our Summit silver-gold property, at our Ortiz gold property or at our Planet
micaceous iron property. If we are unable to economically produce mica and
feldspathic sand from our Black Canyon mica property or silver or gold from our
Summit or Ortiz properties, we will be forced to identify and invest substantial
sums in one or more additional properties. Such properties may not be available
to us on favorable terms or at all. Because of the numerous risks and
uncertainties associated with exploration and development of mining properties,
we are unable to predict the extent of any future losses or when we will become
profitable, if at all.

We will require significant
additional capital to continue our exploration activities, and, if warranted, to
develop mining operations.We will require significant additional
funding for geological and geochemical analysis, metallurgical testing, and, if
warranted, feasibility studies with regard to the results of our exploration. We
may not benefit from such investments if we are unable to identify a commercial
ore deposit. If we are successful in identifying reserves, we will require
significant additional capital to establish a mine and construct a mill and
other facilities necessary to mine those reserves. That funding, in turn, will
depend upon a number of factors, including the state of the national and
worldwide economy and the price of gold and other metals. Our company may not be
successful in obtaining the required financing for these or other purposes,
which would adversely affect our ability to continue operating. Failure to
obtain such additional financing could result in delay or indefinite
postponement of further exploration and the possible, partial or total loss of
our companys potential interest in certain properties.

Our industry is highly
competitive, attractive mineral lands are scarce, and we may not be able to
obtain quality properties.We compete with many companies in the mining
business, including large, established mining companies with substantial
capabilities, personnel and financial resources far greater than our own. In
addition, there is a limited supply of desirable mineral properties available
for acquisition in the United States and in other areas where we may conduct
exploration activities. For these reasons, we may be at a competitive
disadvantage in acquiring mineral properties. Competition in the industry is not
limited to the acquisition of mineral properties but also extends to the
technical expertise to operate such properties and the financial ability to fund
such properties. Our inability to compete with other companies in these areas
could have a material adverse effect on our results of operation and business.

The feasibility of mining
our Summit silver-gold property or our Ortiz gold property has not been
established, meaning that we have not completed engineering, permitting or other
work necessary to determine if it is commercially feasible to develop these
properties.We currently have not established proven or probable
reserves on the Summit silver-gold property or on the Ortiz gold property. A
reserve, as defined by regulation of the SEC, is that part of a mineral
deposit that can be economically and legally extracted or produced at the time
of the reserve determination. A reserve requires a feasibility study
demonstrating with reasonable certainty that the deposit can be economically and
legally extracted and produced. We have not received feasibility studies nor
obtained operating permits with regard to the Summit silver-gold or Ortiz gold
properties. As a result, we have no reserves.

Although preliminary scoping
studies carried out on the Summit silver-gold and Ortiz gold properties have
yielded encouraging results with respect to potential economic viability,
substantial additional feasibility work and expenditures are required to
demonstrate economic viability. The mineralized materials identified to date on
these properties have not and may never demonstrate economic viability. The
feasibility of mining has not been, and may never be, established. Whether a
mineral deposit can be commercially viable depends upon a number of factors,
including the particular attributes of the deposit, including size, grade and
proximity to

30

---

infrastructure; metal prices, which can be highly variable; and
government regulations, including environmental and reclamation obligations. If
we are unable to establish some or all of our mineralized material as proven or
probable reserves in sufficient quantities to justify commercial operations, we
may not be able to raise sufficient capital to develop a mine. If we are unable
to establish such reserves, the market value of our securities may decline.

Fluctuating gold and silver
prices could negatively impact our business plan.The potential for
profitability of gold and silver mining operations at our Summit silver-gold
property and at our Ortiz gold property and the values of these properties are
directly related to the market prices of gold and silver. The prices of gold and
silver may also have a significant influence on the market price of our common
stock. In the event that we obtain positive feasibility results and progress to
a point where a commercial production decision can be made, our decision to put
a mine into production and to commit the funds necessary for that purpose must
be made long before any revenue from production would be received. A decrease in
the price of gold or silver at any time during future development or mining may
prevent our properties from being economically mined or result in the impairment
of assets as a result of lower gold or silver prices. The prices of gold and
silver are affected by numerous factors beyond our control, including inflation,
fluctuation of the United States dollar and foreign currencies, global and
regional demand, the purchase or sale of gold by central banks, and the
political and economic conditions of major gold producing countries throughout
the world. During the last six years, the average annual market price of gold
has progressively increased from $271 per ounce to $604 per ounce, as shown in
the table below:

|Average Annual Market Price of Gold,
      2001-2006 |  
|---------------------------------------------------- | -
|2001                                                 |  
|$ 271                                                | $

Although, if we identify
commercially recoverable reserves on the Summit silver-gold property or on the
Ortiz gold property, it may be possible for us to protect against future gold
and silver price fluctuations through hedging programs, the volatility of metal
prices represents a substantial risk that is impossible to completely eliminate
by planning or technical expertise. In the event gold or silver prices decline
and remain low for prolonged periods of time, we might be unable to develop our
Summit silver-gold property or our Ortiz gold property or produce any revenue.

Any proposal for
commercial mining operations at our Summit silver-gold property or at our Ortiz
gold property would be subject to permitting requirements that could cause us to
delay, suspend or terminate our development plans.Mining and processing
operations at the Summit silver-gold property or at the Ortiz gold property
would require permits from the state and federal governments. We may be unable
to obtain such permits in a timely manner, on reasonable terms, or at all. If we
cannot obtain or maintain the necessary permits, or if there is a delay in
receiving such permits, our timetable and business plan for development and
mining of one or both of these properties could be adversely affected.

We may not be able to
obtain an adequate supply of water to complete desired development and mining of
our Ortiz gold property.For successful development, we will need to
obtain the rights for a sufficient amount of water to service the mining and
processing operation. Our lease with Ortiz Mines, Inc. gives us all rights that
Ortiz Mines, Inc. may have to initiate and use water and water rights in
connection with the property, including among others the right to drill, pump,
divert, transport and use water from wells, containment areas and drainages.
However there can be no assurance we will be able to exercise our rights under
the lease agreement or obtain access to the amount of water needed to operate a
mine at the property.

We may be at risk of losing
title to our Ortiz gold property lease if we fail to perform our obligations
under the lease.Under the terms of our lease with Ortiz Mines, Inc. we
are required to meet certain obligations as is common in a mineral lease of this
type. Among other requirements, we must begin mineral production by February
2112 (February 2117 in certain circumstances), make annual payments that
escalate per acre of ground we retain under lease, pay a sliding-scale
production royalty based on the price of gold and comply with all governmental
permitting and other regulations. If we fail to make payments in a timely manner
or to perform our other obligations as required under the lease, we are at risk
that the lease could be cancelled.

31

---

The mica and feldspathic
sand reserve estimations at our Black Canyon property, the only property on
which we have established reserves, are imprecise. Although independent
consultants have reviewed and concurred with the estimations of reserves
presented in this annual financial report, such estimations are necessarily
imprecise because they depend upon the judgment of the individuals who review
the geological and engineering information and upon statistical inferences drawn
from only limited drilling and sampling. If the Black Canyon mining operation
were to encounter mineralization or geologic conditions different from those
predicted, reserve estimations might have to be adjusted and mining plans
altered. Changes to the planned operations could adversely affect forecast costs
and profitability.

The future prices of mica
and feldspathic sand are uncertain. According to published information,
mica prices recuperated in the past three years after declining over the prior
four years during a period of relatively flat US production. Irrespective of the
apparent recovery in prices, the outlook for future mica prices is unclear.
Feldspathic sand prices and demand have been on the rise over the same period.
The robust housing, construction, and recreational markets in the Southwest have
driven demand for manufactured sand products, and there are indications that
this trend will continue. However, there are numerous factors beyond our control
that could affect markets for both mica and feldspathic sand. No assurance can
be given as to future prices or demand for our products. Any decline in prices
could have a material adverse effect on our financial position.

The market is uncertain
for Black Canyon mica and feldspathic sand products.We plan to sell
mica nationally into the cosmetics and plastics markets, and to sell feldspathic
sand locally into the Phoenix, Arizona construction and recreational markets.
However, we have not yet sold significant quantities of these products and have
not entered into sales contracts. The profitability of our operations could be
adversely affected if we do not achieve the selling prices or sales volumes
currently targeted for our products. The markets are affected by numerous
factors beyond our control. For example, it is possible that new sources of
supply from other domestic plants or imports could create an imbalance in the
markets, depressing prices and causing a decrease in demand for our products.
Any such factors could adversely impact our ability to sell our products, the
prices we receive for our products and our profitability.

Titles to unpatented
claims can be uncertain, and we are at risk of loss of ownership of our Black
Canyon mica property. The Companys property holdings at and around the
Black Canyon mine consist of unpatented mining claims and unpatented mill site
claims located on public land and held pursuant to the General Mining Law of
1872. The validity of such unpatented mining claims may be subject to title
defects and may be contested. Because a substantial portion of all mineral
exploration, development and mining in the United States occurs on unpatented
mining claims, this uncertainty is inherent in the mining industry. We have not
obtained a title opinion on our entire property, with the attendant risk that
title to some claims, particularly title to undeveloped property, may be
defective. Although we believe that our claims are in good standing and held
according to industry practice, we remain at risk that the mining claims may be
forfeited either to the United States or to rival private claimants due to
failure to comply with statutory requirements as to location and maintenance of
the claims or challenges as to whether a discovery of a valuable mineral exists
on every claim.

In recent years the United States
Congress has considered amendments to the General Mining Law of 1872, some of
which would lower the value of unpatented mining claims by restricting
activities and imposing additional user fees or production royalties. If
enacted, these legislative changes could have an adverse impact on the operation
of the Black Canyon mine.

The development and
completion of our properties entail significant risks. The development
of mineral deposits involves significant risks that even the best evaluation,
experience and knowledge cannot eliminate. The economic feasibility of our
mining properties is based upon a number of factors, including estimations of
reserves and mineralized material, extraction and process recoveries,
engineering, capital and operating costs, future production rates and future
prices of gold, silver, copper, mica, feldspathic sand and micaceous iron oxide.

The Companys properties
have no significant operating history upon which to base estimates of operating
costs and capital requirements.As a result, estimations of mineralized
material and reserves, mining and process recoveries and operating costs must be
based to a large extent upon the interpretation of geologic data obtained from
drill holes, and upon scoping and feasibility estimates that derive forecasts of
operating costs from anticipated tonnages and grades of mineralized material and
reserves to be mined and processed, the configuration

32

---

of the mineralized deposits, expected recovery rates of
minerals, comparable facility and equipment costs, and climatic conditions and
other factors. Commonly in new projects, actual construction costs, operating
costs and economic returns differ materially from those initially estimated.
Accordingly, there can be no assurance that our properties can be developed
within the time frames or at the costs anticipated, or that any forecasted
operating results can be achieved.

The nature of mineral
exploration and production activities involves a high degree of risk and the
possibility of uninsured losses that could materially and adversely affect our
operations. Exploration for minerals is highly speculative and involves
greater risk than many other businesses. Most exploration programs fail to
result in the discovery of economic mineralization. Our exploration and mining
efforts are subject to the operating hazards and risks common to the industry,
such as:

- economically insufficient mineralized material;
- fluctuations in production cost that may make mining uneconomical;
- labor disputes;
- unanticipated variations in grade and other geologic problems;
- environmental hazards;
- water conditions;
- difficult surface or underground conditions;
- industrial accidents;
- metallurgical and other processing problems;
- mechanical and equipment performance problems;
- failure of pit walls or dams;
- unusual or unexpected formations;
- personal injury, fire, flooding, cave-ins and landslides; and
- decrease in reserves due to lower metal price.

Any of these risks can adversely
affect the feasibility of development of our properties, production quantities
and rates, and costs and expenditures. We currently have no insurance to guard
against any of these risks. If we determine that capitalized costs associated
with any of our mineral properties are likely not to be recovered, a write-down
of our investment would be necessary. All of these factors may result in
unrecoverable losses or cause the Company to incur potential liabilities, which
could have a material adverse effect on its financial position.

Our ongoing operations,
including past mining activities, are subject to environmental risks that could
expose us to significant liability and delay, suspension or termination of our
operations. All phases of our operations will be subject to federal,
state and local environmental regulation. These regulations mandate, among other
things, the maintenance of air and water quality standards and land reclamation.
They also set forth limitations on the generation, transportation, storage and
disposal of solid and hazardous waste. Environmental legislation is evolving in
a manner which will require stricter standards and enforcement, increased fines
and penalties for non-compliance, more stringent environmental assessments of
proposed projects, and a heightened degree of responsibility for companies and
their officers, directors and employees. Future changes in environmental
regulation, if any, may adversely affect our operations, make our operations
prohibitively expensive, or prohibit them altogether. Environmental hazards may
exist on the Black Canyon mica property, the

33

---

Ortiz gold property, and the Planet micaceous iron oxide
property and on properties in which we may hold interests in the future that are
unknown to us at the present. Failure to comply with applicable environmental
laws, regulations and permitting requirements may result in enforcement actions,
including orders issued by regulatory or judicial authorities, causing
operations to cease or be curtailed, and may include corrective measures
requiring capital expenditures, installation of additional equipment, or
remedial actions.

Production, if any, at our
projects may involve the use of hazardous materials.Should these
materials leak or otherwise be discharged from their containment systems, then
we may become subject to liability for hazards. We have not purchased insurance
for environmental risks including potential liability for pollution or other
hazards as a result of the disposal of waste products occurring from exploration
and production, as it is not generally available at a reasonable price.

In addition to
environmental regulations, we are subject to a wide variety of laws and
regulations directly and indirectly relating to mining that often change and
could adversely affect our business.We are subject to extensive United
States federal, state and local laws and regulations related to mine
prospecting, development, transportation, production, exports, taxes, labor
standards, occupational health and safety, waste disposal, protection and
remediation of the environment, mine safety, hazardous materials, toxic
substances and other matters. These laws and regulation frequently change. New
laws and regulations or more stringent enforcement of existing ones could have a
material adverse impact on the Company, causing a delay or reduction in
production, increasing costs and preventing an expansion of mining activities.

We depend on a limited
number of personnel and the loss of any of these individuals could adversely
affect our business.Our company is highly dependent on two persons,
namely Mr. Olson, our chairman, and Mr. Carson, our president and chief
executive officer and principal financial officer. We rely heavily on these two
individuals for the conduct of our business, and the loss of either would
significantly and adversely affect our business. In that event, we would be
forced to identify and retain a suitable replacement, which we may not be able
to accomplish on terms acceptable to us. We have no life insurance on the life
of any officer.

Our Chief Executive Officer
may face a conflict of interest relating to the acquisition of mineral
properties by the Company.The Company has an agreement with Mr. Carson
under which he has identified properties that constitute potential acquisition
targets. Although Mr. Carson has no pre-existing interest in the targeted
properties, under the agreement he stands to gain if the Company acquires an
identified property and either places it into production or sells it. This
arrangement gives rise to potential conflicts of interest with regard to whether
or not the Company should acquire a targeted property and the price we agree to
pay for the property. While we have sought to mitigate the risk inherent in the
arrangement with Mr. Carson by careful evaluation by the Board of Directors of
any proposed transaction, this step may not be sufficient to eliminate the risk
entirely. Acquisitions of the Summit silver-gold property and Ortiz gold
property are subject to the property identification agreement with Mr. Carson.

Delaware law and our
Articles of Incorporation may protect our directors from certain types of
lawsuits. Delaware law provides that our directors will not be liable to our
stockholders or to us for monetary damages for all but certain types of conduct
as directors of our company.Our Articles of Incorporation permit us to
indemnify our directors and officers against all damages incurred in connection
with our business to the fullest extent provided or allowed by law. The
exculpation provisions may have the effect of preventing stockholders from
recovering damages against our directors caused by their negligence, poor
judgment or other circumstances. The indemnification provisions may require us
to use our limited assets to defend our directors and officers against claims,
including claims arising out of their negligence, poor judgment, or other
circumstances.

Risks Related to our Common Stock

The sale of our common
stock by selling shareholders may depress the price of our common stock due to
the limited trading market that exists.We intend to file a registration
statement with the SEC to permit the public sale of securities sold by us in
private placements in March and September 2006. That action will result in a
significant number of additional shares of our common stock available for sale
in the public market. Due to a number of factors, including the lack of listing
of our common stock on a national securities exchange, the trading

34

---

volume in our common stock has historically been limited.
Trading volume over the last 3 months has averaged approximately 115,000 shares
per day. As a result, the sale of a significant amount of common stock by the
selling shareholders may depress the price of our common stock and the price of
our common stock may decline.

Completion of one or more
new acquisitions could result in the issuance of a significant amount of
additional common stock, which may depress the trading price of our common
stock.While no formal offer has been made, or agreement reached, in
connection with acquisition of one or more additional mineral properties,
conceptually, completion of such acquisitions could result in the issuance of a
significant amount of common stock. Such issuance could depress the trading
price of our common stock.

Our stock price may be
volatile and as a result you could lose all or part of your investment.
In addition to volatility associated with OTC securities in general, the value
of your investment could decline due to the impact of any of the following
factors upon the market price of our common stock:

- changes in the worldwide prices for gold or silver;
- disappointing results from our exploration or development efforts;
- failure to meet our revenue or profit goals or operating budget;
- decline in demand for our common stock;
- downward revisions in securities analysts estimates or changes in general
  market conditions;
- technological innovations by competitors or in competing technologies;
- investor perception of our industry or our prospects; and
- general economic trends

In addition, stock markets have
experienced extreme price and volume fluctuations and the market prices of
securities generally have been highly volatile. These fluctuations are often
unrelated to operating performance of a company and may adversely affect the
market price of our common stock. As a result, investors may be unable to resell
their shares at a fair price.

A small number of existing
shareholders own a significant portion of our common stock, which could limit
your ability to influence the outcome of any shareholder vote. Our
executive officers and directors, together with our largest shareholder,
beneficially own approximately 32% of our common stock as of the date of this
report. Under our Articles of Incorporation and Delaware law, the vote of a
majority of the shares outstanding is generally required to approve most
shareholder action. As a result, these individuals and entities will be able to
influence the outcome of shareholder votes for the foreseeable future, including
votes concerning the election of directors, amendments to our Articles of
Incorporation or proposed mergers or other significant corporate
transactions.

We have never paid
dividends on our common stock and we do not anticipate paying any in the
foreseeable future.We have not paid dividends on our common stock to
date, and we may not be in a position to pay dividends in the foreseeable
future. Our ability to pay dividends will depend on our ability to successfully
develop one or more properties and generate revenue from operations. Further,
our initial earnings, if any, will likely be retained to finance our growth. Any
future dividends will depend upon our earnings, our then-existing financial
requirements and other factors and will be at the discretion of our Board of
Directors.

|ITEM 7. | FINANCIAL STATEMENTS AND SUPPLEMENTARY
      DATA
|------- | -------------------------------------------------

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

35

---

|ITEM 8. | CHANGES IN AND DISAGREEMENTS WITH
      ACCOUNTANTS
|------- | ---------------------------------------------------

None.

|ITEM 8a. | CONTROLS AND PROCEDURES
|-------- | -----------------------

We maintain disclosure controls
and procedures (as defined in Rules 13a-15(d) and 15d-15(e) under the
Securities and Exchange Act of 1934, as amended (the Exchange Act)) that are
designed to ensure that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act recorded, processed,
summarized and reported, within the time periods specified in the Securities and
Exchange Commission's rules and forms. Under the supervision of, and the
participation of, our management, including our Chief Executive Officer, has
conducted an evaluation of our disclosure controls and procedures as of June 30,
2006. Based on this evaluation, our Chief Executive Officer has concluded that
our disclosure controls and procedures are effective in alerting him on a timely
basis to material information required to be disclosed in our periodic
reports.

During the quarter ended June 30,
2006, there were no changes in the Companys internal controls over financial
reporting that have materially affected, or are reasonably likely to materially
affect, our internal controls over financial reporting.

PART III

|ITEM 9. | DIRECTORS AND EXECUTIVE OFFICERS
|------- | --------------------------------

The Companys present directors
and officers as well as those who served during fiscal 2006 are as follows:

|Name              | Age | Position                                                                 | Date Elected                                                                                     
|----------------- | --- | ------------------------------------------------------------------------ | -------------------------------------------------------------------------------------------------
|                  |     |                                                                          |                                                                                                  
|Lawrence G. Olson | 69  | Chairman of the Board
      Former President and Chief Executive Officer | 1999 / served as President and
      Chief Executive Officer from October 2000 to October 7, 2003
|                  |     |                                                                          |                                                                                                  
|W. Pierce Carson  | 63  | President, Chief Executive
      Officer and Director                    | October 7, 2003                                                                                  

The directors and officers of
Azco have held their principal occupations as set out above during at least the
last five years, except as described below:

Lawrence G. Olson,
age 69, Chairman, became a director of Azco in March 1999 in connection with the
acquisition of Arizona Mica. He has held the position of Chairman since October
2000, and also formerly held the positions of President and Chief Executive
Officer from October 2000 until October 2003. Mr. Olson has owned and operated
his own business, Olson Precast of Arizona Inc., since 1973. Mr. Olson received
a B.S. Degree in Civil Engineering from the University of Southern California.

W. Pierce Carson,
age 63,was named President and Chief Executive Officer and a director of
Azco in October 2003, following a consulting assignment with the Company. Dr.
Carson has 35 years of international mining experience and has managed the
discovery, financing, development and operation of precious metals, base metals
and industrial mineral properties in the United States, Australia and other
countries. From 1981 to 2000, he worked for Nord Pacific Limited and Nord
Resources Corporation in senior management capacities, including president and
chief executive officer. Prior to 1981, he managed exploration programs for
Exxon Minerals Company and Kennecott Copper Company. Dr. Carson holds a
Bachelors Degree in Geology from Princeton University and MS and PhD Degrees in
Economic Geology from Stanford University.

Committees of the Board of Directors

36

---

Effective June 15, 2006, our
Board of Directors established two board committees: an Audit Committee and a
Compensation Committee. These two committees currently do not have written
charters but during the next fiscal year we intend to adopt such charters to
govern their responsibilities and conduct. Neither of these Committees met
during the fiscal year ended June 30, 2006. Currently, we do not have a
nominating committee or other committees of the Board of Directors.

The information below sets out
the current members of each of the Companys board committees and summarizes the
functions of each of the committees.

Audit Committee

The Board of Directors intends to
structure the Audit Committee to comply with Rule 10A-3 under the Securities
Exchange Act of 1934and to construct a written charter under which it will
operate in compliance with the applicable provisions of the Sarbanes-Oxley
Act of 2002and related rules of the SEC and provisions of any stock
exchange on which the Companys stock may trade.

Currently our Audit Committee is
comprised solely of Lawrence G. Olson, who may not meet prescribed independence
standards nor satisfy the criteria for an audit committee financial expert under
Item 401(e) of Regulation S-B of the rules of the Securities and Exchange
Commission. Each Audit Committee member is able to read and understand
fundamental financial statements, including the Companys consolidated balance
sheet, consolidated statement of operations and consolidated statement of cash
flows.

The Audit Committee will meet
with management and our external auditors to review matters affecting the
Companys financial reporting, the system of internal accounting and financial
controls and procedures and the audit procedures and audit plans. The Audit
Committee will review our significant financial risks, will be involved in the
appointment of senior financial executives and will annually review our
insurance coverage and any off balance sheet transactions.

The Audit Committee will be
mandated to monitor our Companys audit and the preparation of financial
statements and to review and recommend to the Board of Directors all financial
disclosures contained in our companys public documents. The Audit Committee
also will be mandated to appoint external auditors, monitor their qualifications
and independence and determine the appropriate level of their remuneration. The
external auditors will report directly to the Audit Committee and to the Board
of Directors. The Audit Committee and Board of Directors each have the authority
to terminate the external auditors engagement (subject to confirmation by our
stockholders). The Audit Committee also will approve in advance any permitted
services not related to the audit to be provided by the external auditors.

The Company will provide
appropriate funding as determined by the Audit Committee to permit the Audit
Committee to perform its duties and to compensate its advisors. The Audit
Committee, at its discretion, will have the authority to initiate special
investigations, and if appropriate, hire special legal, accounting or other
outside advisors or experts to assist the Audit Committee to fulfill its duties.

Compensation Committee

Currently the Compensation
Committee is comprised solely of Lawrence G Olson, who may not meet prescribed
independence standards. The Compensation Committee is responsible for
considering and authorizing terms of employment and compensation of directors,
executive officers and providing advice on compensation structures in the
various jurisdictions in which our company operates. In addition, the
Compensation Committee reviews our overall salary objectives and any significant
modifications made to employee benefit plans, including those applicable to
directors and executive officers, and proposes any awards of stock options and
incentive and deferred compensation benefits.

Compliance With Section 16(a) of The Securities Exchange Act
of 1934

37

---

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, 2006, its officers, directors and greater than ten percent beneficial owners
complied with all applicable filing requirements.

Code of Ethics for CEO and Senior Financial Officers

Effective June 15, 2006, we
adopted a Code of Ethics for CEO and Senior Financial Officers that applies to
our CEO and all officers. This code summarizes the legal, ethical and regulatory
standards that we must follow and is a reminder to our directors and officers of
the seriousness of that commitment. Compliance with this code and high standards
of business conduct is mandatory for each of our officers. As adopted, our Code
of Ethics sets forth written standards that are designed to deter wrongdoing and
to promote:

| | 1) | Honest and ethical conduct, including the ethical
      handling of actual or apparent conflicts of interest between personal and
      professional relationships;
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                    
| | 2) | compliance with applicable governmental laws, rules and
      regulations;                                                                                         
| |    |                                                                                                                                                                    
| | 3) | the prompt internal reporting of violations of the Code
      of Ethics to an appropriate person or persons identified in the Code of
      Ethics; and            
| |    |                                                                                                                                                                    
| | 4) | accountability for adherence to the Code of
  Ethics.                                                                                                              

We will provide a copy of the
Code of Ethics to any person without charge, upon request. Requests can be sent
to: Azco Mining Inc., 7239 North El Mirage Road, Glendale, Arizona, USA 85307.

|ITEM 10. | EXECUTIVE COMPENSATION
|-------- | ----------------------

The following table summarizes
the total compensation of the Companys Chief Executive Officer and the other
most highly compensated executive officers earning in excess of $100,000 for the
years ended June 30, 2006, 2005 and 2004:

|Summary Compensation
      Table                               
|---------------------------------------------------------------
|                                                               
|                                                               
|                                                               
|Name and
      Title                                           
|                                                               
|Lawrence G. Olson Chairman                                     
|                                                               
|W. Pierce Carson President & CEO                               
|                                                               
|Ryan A. Modesto V.P. of Finance
      (until Jan 31, 2004)     
|                                                               
|Gary L. Simmerman V.P. of Operations
      (until Jan 31, 2004)

*Cancelled unexercised following resignations of officers in
January 2004.

38

---

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

|                  |                 |                | Number of Securities Underlying | Value of Unexercised In-The-Money
|----------------- | --------------- | -------------- | ------------------------------- | ---------------------------------
|                  |                 |                | Unexercised Options at FY-End   | Options at FY-End ($)(*)         
|                  | Shares Acquired |                |                                 |                                  
|Name              | on Exercise     | Value Realized | Exercisable                     | Unexercisable                    
|Lawrence G. Olson | --              | --             | 3,500,000                       | 0                                
|W. Pierce Carson  | --              | --             | 8,000,000                       | 0                                

(*) Based on the closing price of $1.15 of Companys common
stock as quoted on the Pink Sheets on June 30, 2006.

Compensation of Directors

The Company pays to its outside,
non-officer directors a fee of $1,500 per month. Due to financial constraints,
no such fees have been paid or accrued since August 2002. We also reimburse our
directors for reasonable expenses incurred in attending meetings of the Board of
Directors. During fiscal years 2006 and 2005, non-officer directors received no
consulting fees separate and distinct from directors fees as a result of actual
services rendered above and beyond those typical of a non-officer director. It
is Companys policy to grant to directors upon their initial election, options
to purchase 100,000 shares of our common stock at an exercise price equal to the
fair market value of the stock on the date of grant.

Employment Agreements

In October 2003 the Company
entered into employment and change of control agreements with its President and
Chief Executive Officer. The employment agreement describes among other things
the officers duties, compensation levels and benefits. The term of the
agreement is from October 16, 2003, through and including October 15, 2006, and
then automatically extends through October 15, 2008, and thereafter year to year
unless terminated on 90 days prior notice. The change of control agreement
provides that if there is a change of 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 change of control,
the officer shall receive a lump sum cash payment of 299% of the base amount as
defined in IRC Section 280G (b) (3), subject to certain limitations of the
Internal Revenue Code. In addition, the officer will continue to be covered by
the Companys medical, health, life and dental plans for 24 months after such
cessation of employment.

In December 1999 the Company
entered into a change of control agreement with its Chairman. The agreement
provides for a lump sum cash payment in the amount not to exceed $100,000 in the
event of change in control and resignation from the Board.

On May 2, 2006, the Company
entered into an employment agreement with the son of the Companys President and
Chief Executive Officer at a salary of $5,000 per month and a monthly per diem
of $1,000. In connection with the employment agreement, the Company granted
50,000 options under its stock option plan at an exercise price of $1.24 per
share, the closing price on May 2, 2006.

Stock Option Plan

Azco has a Stock Option Plan
(the Plan) dated July 24, 1989, as amended, for the granting of options to
purchase common stock. The board of directors may grant options to key personnel
and others as it deems appropriate provided the number of options does not
exceed 5,950,424. On June 30, 2006, there were 4,050,000 options outstanding
under the Plan. There are no vesting requirements under the Plan. The options
are exercisable over a maximum term of five years.

The following table contains information regarding the
Companys stock option plan as of June 30, 2006:

|                                                            | Number of securities |                              | Number of securities    
|----------------------------------------------------------- | -------------------- | ---------------------------- | ------------------------
|                                                            | to be issued upon    | Weighted average exercise    | remaining available for 
|                                                            | exercise of          | price of outstanding options | future Issuance under   
|Plan
      Category                                         | outstanding options  | US$                          | equity compensation plan
|                                                            |                      |                              |                         
|Equity compensation plan approved by
      security holders | 4,050,000            | $0.12                        | 82,924                  

39

---

|ITEM 11. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
      OWNERS AND MANAGEMENT **AND RELATED STOCKHOLDER MATTERS**
|-------- | --------------------------------------------------------------------------------------------------------

The following table sets forth,
as of November 27, 2006, certain information regarding beneficial ownership of
the Companys common stock by: (i) each person known by us to be the beneficial
owner of more than 5% of our outstanding common stock; (ii) each director and
director-nominee; (iii) each named executive officer; and (iv) all executive
officers and directors as a group.

|                                                                                   |                | Common Stock Beneficially Owned
|---------------------------------------------------------------------------------- | -------------- | -------------------------------
|                                                                                   |                |                                
|Name and Address Of Beneficial Owner                                               | Title of Class | Number of Shares               
|                                                                                   |                |                                
|Christian Mustad
      Bodmenstrasse, Chalet Corcovado 3778 Schoenried Switzerland | Common Stock   | 5,195,000                      
|                                                                                   |                |                                
|Lawrence G. Olson 3045 S.
      35thAvenue Phoenix, AZ 85009                       | Common Stock   | 7,358,700(1)                   
|                                                                                   |                |                                
|W. Pierce Carson 33
      Camino de Avila Tijeras, NM 87059                        | Common Stock   | 12,750,000(2)                  
|                                                                                   |                |                                
|Officers and Directors As a
      Group (2 Persons)                                | Common Stock   | 20,108,700 (3)                 

|(1) | Includes non-plan options to acquire (i) 500,000 shares
      at an exercise price of US $0.11 per share and (ii) 1,000,000 shares at an
      exercise price of $0.10 per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(2) | Includes options issued under the Companys stock option
      plan to acquire 2,000,000 shares at an exercise price of US $0.10 per
      share. Includes non- plan options to acquire (i) 4,000,000 shares at an
      exercise price of US $0.11 per share, and (ii) 2,000,000 shares at an
      exercise price of $0.10 per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(3) | Includes options to acquire an aggregate of 9,500,000
      shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(4) | Applicable percentage of ownership is based on 68,513,712
      shares of common stock outstanding as of February 12, 2007, together with
      securities exercisable or convertible into shares of common stock within
      60 days of February 12, 2007, for each stockholder. Beneficial ownership
      is determined in accordance with the rules of the Commission and generally
      includes voting or investment power with respect to securities. Shares of
      common stock subject to securities exercisable or convertible into shares
      of common stock that are currently exercisable or exercisable within 60
      days of February 12, 2007, are deemed to be beneficially owned by the
      person holding such options for the purpose of computing the percentage of
      ownership of such person, but are not treated as outstanding for the
      purpose of computing the percentage ownership of any other
  person.

|ITEM 12. | CERTAIN RELATIONSHIPS AND RELATED
      TRANSACTIONS
|-------- | ----------------------------------------------------

In October 2003, the Company
entered into a confidential property identification agreement with its current
President and Chief Executive Officer. Under terms of the agreement, the current
officer, on the basis of his prior knowledge, provided a list of 24 specific
mineral properties with potential for exploration and development that might
represent attractive acquisition opportunities for the Company. The Company
agreed to pay compensation to the current officer in the form of a royalty of
1.0% of the value of future production, if any, derived from identified
properties that the Company acquires. In the event an identified property is
acquired and subsequently sold, the Company agreed to pay the current officer an
amount equal to 10.0% of the value of the sale. The Ortiz gold property acquired
in August 2004 and the Summit gold-silver property acquired in May 2006 (See
NOTES 1 and 13 to the Consolidated Financial Statements) are two of the 24
properties identified and are subject to the property identification agreement.

On August 12, 2003, the Company
assigned, for the sum of $5,000, its right, title and interest in and to its
lease with New Planet Copper Mining Company to Metallica Ventures, LLC, a
corporation controlled by the Companys current President and Chief Executive
Officer. The Company retained an option to purchase 25% of the New Planet lease
for an amount equal to 25% of the expenditures on the property from the date of
assignment through the date of the exercise of the option. On September 22,
2005, Metallica Ventures LLC reassigned to the Company, for consideration of
$10,000 and the issue of 2,000,000 unregistered shares of the Companys common
stock, its right, title and interest in and to the lease with New Planet Copper
Mining Company.

On September 15, 2005, the
Company entered into a consulting agreement with an attorney who is the son of
the Companys President and Chief Executive Officer. Terms of the contract
provided for compensation of $4,000 per month and payment of certain expenses
for an initial three-month period. On November 28, 2005 the

40

---

contract was extended for a six-month period, after which the
contract extends on a month-to-month basis until terminated by either party. The
Company issued a bonus of 50,000 unregistered shares of common stock in
consideration for the contract extension. On May 2, 2006 the individual was
offered and accepted employment at a salary of $5,000 per month and a monthly
per-diem allowance of $1,000. In connection with employment, the Company granted
50,000 options under its stock option plan at an exercise price of $1.24 per
share, the closing price on May 2, 2006.

In March 2001, Lawrence G. Olson,
the Companys Chairman and former President and CEO, jointly with his wife, made
an unsecured loan to the Company in the amount of $800,000 at an interest rate
equal to the prime rate of interest as reported by Imperial Bank plus one
percentage point. In conjunction with the loan, Mr. Olson received 5-year
warrants to purchase 300,000 shares of common stock at an exercise price of
$0.70 per share. In October 2001, we restructured the $800,000 loan agreement
with Mr. Olson and the interest rate payable on the loan was adjusted to 12%
annually. In June 2002, the loan was extended an additional year and the Company
entered into a security agreement with Mr. Olson, whereby the Companys assets
secured the loan. The note became payable in March 2004 after which time it was
in default. On March 15, 2006, Mr. Olson exercised warrants to purchase 300,000
shares of common stock at $0.70 per share in exchange for a reduction of accrued
interest and principal on the note payable to him, aggregating $210,000. Mr.
Olson agreed to reduce the principal by $50,000 and to extend the $750,000 note
payable for a period of 18 months, until September 15, 2007.

On November 15, 2006, Mr. Olson
  exercised warrants to purchase 1,000,000 shares of common stock at $0.10 per
  share and 1,000,000 shares of common stock at $0.11 per share, in exchange for
  payment of accrued interest owed and reduction of principal on the note payable
  to the director, aggregating $210,000. In addition, Mr. Olson agreed to contribute
  to capital the remaining unpaid principal on the note of $600,000. The Company
  granted a net proceeds interest of 25% of net proceeds from sales of mica and
  feldspathic sand toward an end settlement of $600,000.

|ITEM 13. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
      REPORTS ON FORM 8-K
|-------- | ---------------------------------------------------------------------

(a)

|1. | Financial Statements- Reference is made to the
        Financial Statements appearing on Pages F-1 through F-25.
|-- | ----------------------------------------------------------------------------------------------------------------
|   |                                                                                                                 
|2. | Exhibits                                                                                                        

|Exhibit |                                                                                                                                                                         |                                                                                                                                                 
|------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------
|No.     | Description                                                                                                                                                             | Location                                                                                                                                        
|2.1     | Agreement and Plan of Merger of
      Arizona Mica Properties, Inc. into Sanchez Mining, Inc., a
      wholly-owned subsidiary of Registrant, dated as of March 9, 1999 | Incorporated by reference to
      Exhibit 1 to Registrants 8-K dated March 9, 1999, as filed with
      the SEC on March 24, 1999             
|        |                                                                                                                                                                         |                                                                                                                                                 
|3.1     | Registrants Certificate of
      Incorporation dated August 8, 1991                                                                                                    | Incorporated by reference to
      Exhibit 3.1 to the Registrants Registration Statement on Form S-4
      (File No. 33-45162)                 
|        |                                                                                                                                                                         |                                                                                                                                                 
|3.2     | Articles of Amendment to the
      Certificate of Incorporation dated December 5, 1991                                                                                  | Incorporated by reference to
      Exhibit 3.2 to the Registrants Registration Statement on Form S-4
      (File No. 33-45162)                 
|        |                                                                                                                                                                         |                                                                                                                                                 
|3.3     | Registrants Amended By-laws                                                                                                                                            | Incorporated by reference to
      Exhibit 3.3 to the Registrants Registration Statement on Form S-4
      (File No. 33-45162)                 
|        |                                                                                                                                                                         |                                                                                                                                                 
|4.1     | Specimen stock certificate                                                                                                                                              | Incorporated by reference to
      Exhibit 1 to the Registrants Registration Statement on Form 8-A
      as filed with the SEC on July 21, 1992

41

---

|Exhibit |                                                                                                                                                                                                                                              |                                                                                                                                                                                                
|------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|No.     | Description                                                                                                                                                                                                                                  | Location                                                                                                                                                                                       
|4.2     | Rights Agreement dated July 19,
      1995 between the Registrant and Montreal Trust Company of Canada                                                                                                                                       | Incorporated by reference to
      Exhibit 3.4 to the Registrants Annual Report on Form 10-K/A for
      the fiscal year ended June 30, 1995                                                  
|        |                                                                                                                                                                                                                                              |                                                                                                                                                                                                
|10.1    | Agreements for Piedras Verdes
      property                                                                                                                                                                                                 | Incorporated by reference to
      Exhibit 10.10 to the Registrants Registration Statement on Form
      S-4 (File No. 33-45162)                                                              
|        |                                                                                                                                                                                                                                              |                                                                                                                                                                                                
|10.2    | Purchase Agreement dated July
      27, 1995 between the Registrant, Sanchez and Phelps Dodge                                                                                                                                                | Incorporated by reference to
      Exhibit 10.20 to the Registrants Annual Report on Form 10- K/A
      for the fiscal year ended June 30, 1995                                               
|        |                                                                                                                                                                                                                                              |                                                                                                                                                                                                
|10.3    | Memorandum of Agreement dated
      June 7, 1996, by and among West Africa Gold & Exploration Ltd.,
      Eagle River International Limited, Lion Mining Finance Limited and
      the Registrant                                            | Incorporated by reference to
      Exhibit 10.10 to the Registrants Annual Report on Form 10-K for
      the fiscal year ended June 30, 1996 as filed with the SEC on September
      30, 1996
|        |                                                                                                                                                                                                                                              |                                                                                                                                                                                                
|10.4    | Stock Option Plan                                                                                                                                                                                                                            | Incorporated by reference to
      Exhibit A to Registrants DEF 14A as filed with the SEC on March
      5, 1997                                                                              
|        |                                                                                                                                                                                                                                              |                                                                                                                                                                                                
|10.5    | Memorandum of Agreement/Eagle
      River International Ltd.                                                                                                                                                                                 | Incorporated by reference to
      Exhibit 10.13 to Registrants Annual Report on Form 10-K for the
      year ended June 30, 1997, as filed with the SEC on September 30, 1997                
|        |                                                                                                                                                                                                                                              |                                                                                                                                                                                                
|10.6    | Management Agreements dated
      February 1, 1998 between the Registrant, Alan Lindsay and Associates,
      Ltd. and ARH Management Ltd.                                                                                                   | Incorporated by reference to
      Exhibit 10.8 to the Registrants Annual Report on Form 10-K for
      the fiscal year ended June 30, 1998 as filed with the SEC on September
      30, 1998 
|        |                                                                                                                                                                                                                                              |                                                                                                                                                                                                
|10.7    | Management Agreements dated
      August 15, 1994, by and between the Registrant and both of Alan P.
      Lindsay, Anthony R. Harvey; Management Agreement dated November
      19, 1996, by and between the Registrant and Ryan A. Modesto | Incorporated by reference to
      Exhibit 10.15 to the Registrants Annual Report on Form 10-K for
      the fiscal year ended June 30, 1998 as filed with the SEC on September
      30, 1998
|        |                                                                                                                                                                                                                                              |                                                                                                                                                                                                
|10.8    | Directors Agreement dated
      August 15, 1994, by and between the Registrant and Paul A. Hodges                                                                                                                                           | Incorporated by reference to
      Exhibit 10.16 to the Registrants Annual Report on Form 10-K for
      the fiscal year ended June 30, 1998 as filed with the SEC on September
      30, 1998
|        |                                                                                                                                                                                                                                              |                                                                                                                                                                                                
|10.9    | Shareholders & Operators
      Agreement dated December 19, 1995, by and among PD Cobre Del Mayo,
      Inc., the Registrant and Cobre Del Mayo, SA de CV                                                                                   | Incorporated by reference to
      Exhibit 10.17 to the Registrants Annual Report on Form 10-K for
      the fiscal year ended June 30, 1998 as filed with the SEC on September
      30, 1998
|        |                                                                                                                                                                                                                                              |                                                                                                                                                                                                
|10.10   | Right of First Refusal
      Agreement dated June 18, 1998 by and among the Registrant, Seville
      Mineral Developments SA de CV and Minera Cortez Resources Ltd.                                                                         | Incorporated by reference to
      Exhibit 10.12 to the Registrants Annual Report on Form 10-K for
      the fiscal year ended June 30, 1998 as filed with the SEC on September
      30, 1998
|        |                                                                                                                                                                                                                                              |                                                                                                                                                                                                
|10.11   | Mineral Property Option
      Agreement dated July, 1998, by and between the Registrant and Minera
      Cortez Resources Ltd.                                                                                                               | Incorporated by reference to
      Exhibit 10.13 to the Registrants Annual Report on Form 10-K for
      the fiscal year ended June 30, 1998 as filed with the SEC on September
      30, 1998

42

---

|Exhibit |                                                                                                                                                                    |                                                                                                                                                                                                
|------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|No.     | Description                                                                                                                                                        | Location                                                                                                                                                                                       
|10.12   | Shareholders Agreement by and
      among Registrant, Sanou Mining Corporation, West African Gold &
      Exploration, S.A. and Randgold Resources Ltd.           | Incorporated by reference to
      Exhibit 10.5 to the Registrants Annual Report on Form 10-K for
      the fiscal year ended June 30, 1999 as filed with the SEC on September
      29, 1999 
|        |                                                                                                                                                                    |                                                                                                                                                                                                
|10.13   | Mineral Property Option
      Agreement dated May 20, 1999, by and between the Registrant and Minera
      Cortez Resources Ltd.                                   | Incorporated by reference to
      Exhibit 10.16 to the Registrants Annual Report on Form 10-K for
      the fiscal year ended June 30, 1999 as filed with the SEC on September
      29, 1999
|        |                                                                                                                                                                    |                                                                                                                                                                                                
|10.14   | Agreement in Principal dated
      August 9, 1999 between the Registrant, Thomas Ford and Calgem, Inc.                                                             | Incorporated by reference to
      Exhibit 10.17 to the Registrants Annual Report on Form 10-K for
      the fiscal year ended June 30, 1999 as filed with the SEC on September
      29, 1999
|        |                                                                                                                                                                    |                                                                                                                                                                                                
|10.15   | Non-Revolving Credit Line
      Agreement dated March 14, 2001, by and between the Registrant and
      Lawrence G. Olson                                          | Incorporated by reference to
      Exhibit 10.16 to Registrants 10-K as filed with the SEC on
      October 15, 2001                                                                          
|        |                                                                                                                                                                    |                                                                                                                                                                                                
|10.16   | Settlement Agreement and
      Release by and among the Registrant, Anthony Harvey, ARH Management,
      Ltd., Alan Lindsay and Alan Lindsay and Associates, Ltd. | Incorporated by reference to
      Exhibit 99 to the Registrants 8-K as filed with the SEC on July
      25, 2002                                                                             
|        |                                                                                                                                                                    |                                                                                                                                                                                                
|10.17   | $5,000,000 Equity Line of
      Credit Agreement, by and between the Registrant and Cornell Capital
      Partners, LP dated June 19, 2002                         | Incorporated by reference to
      Exhibit 10.17 to Registrants 10-K as filed with the SEC on
      September 27, 2002                                                                        
|        |                                                                                                                                                                    |                                                                                                                                                                                                
|10.18   | Registration Rights Agreement
      by and between the Registrant and Cornell Capital Partners, LP dated
      June 19, 2000                                       | Incorporated by reference to
      Exhibit 10.18 to Registrants 10-K as filed with the SEC on
      September 27, 2002                                                                        
|        |                                                                                                                                                                    |                                                                                                                                                                                                
|10.19   | Escrow Agreement by and among
      the Registrant, Cornell Capital Partners, LP, Wachovia, NA and Butler
      Gonzales LLP, dated June 19, 2002.                 | Incorporated by reference to
      Exhibit 10.19 to Registrants 10-K as filed with the SEC on
      September 27, 2002                                                                        
|        |                                                                                                                                                                    |                                                                                                                                                                                                
|10.20   | Placement Agent Agreement by
      and between the Registrant and Westrock Advisors, Inc. dated June 19,
      2002.                                               | Incorporated by reference to
      Exhibit 10.20 to Registrants 10-K as filed with the SEC on
      September 27, 2002                                                                        
|        |                                                                                                                                                                    |                                                                                                                                                                                                
|10.21   | $150,000 Subscription Agreement
      between the Registrant and Floyd R. Bleak dated August 13, 2001                                                              | Incorporated by reference to
      Exhibit 10.21 to Registrants 10-K as filed with the SEC on
      September 27, 2002                                                                        
|        |                                                                                                                                                                    |                                                                                                                                                                                                
|10.22   | 300,000 share Stock Loan
      Agreement between the Registrant and Floyd R. Bleak dated October 11,
      2001                                                    | Incorporated by reference to
      Exhibit 10.22 to Registrants 10-K as filed with the SEC on
      September 27, 2002                                                                        
|        |                                                                                                                                                                    |                                                                                                                                                                                                
|10.23   | $200,000 Loan Agreement between
      the Registrant and Patty J. Ryan dated August 27, 2001                                                                       | Incorporated by reference to
      Exhibit 10.23 to Registrants 10-K as filed with the SEC on
      September 27, 2002                                                                        
|        |                                                                                                                                                                    |                                                                                                                                                                                                
|10.24   | $200,000 Loan agreement between
      the Registrant and Luis Barrenchea dated September 4, 2001                                                                   | Incorporated by reference to
      Exhibit 10.24 to Registrants 10-K as filed with the SEC on
      September 27, 2002                                                                        
|        |                                                                                                                                                                    |                                                                                                                                                                                                
|10.25   | Amendment to March 15, 2001
      $800,000 Loan Agreement between the Registrant and Lawrence G. Olson
      dated October 12. 2001                                | Incorporated by reference to
      Exhibit 10.25 to Registrants 10-K as filed with the SEC on
      September 27, 2002                                                                        

43

---

|Exhibit |                                                                                                                                                  |                                                                                                                                     
|------- | ------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------
|No.     | Description                                                                                                                                      | Location                                                                                                                            
|10.26   | $100,000 Loan agreement between
      the Registrant and Luis Barrenchea dated October 19, 2001                                                  | Incorporated by reference to
      Exhibit 10.26 to Registrants 10-K as filed with the SEC on
      September 27, 2002             
|        |                                                                                                                                                  |                                                                                                                                     
|10.27   | $100,000 Loan agreement between
      the Registrant and Luis Barrenchea dated December 4, 2001                                                  | Incorporated by reference to
      Exhibit 10.27 to Registrants 10-K as filed with the SEC on
      September 27, 2002             
|        |                                                                                                                                                  |                                                                                                                                     
|10.28   | $3,000,000 Purchase Agreement
      between the Registrant and Muzz Investments, LLC dated January 17,
      2002                                | Incorporated by reference to
      Exhibit 10.28 to Registrants 10-K as filed with the SEC on
      September 27, 2002             
|        |                                                                                                                                                  |                                                                                                                                     
|10.29   | Lease Agreement between the
      Registrant and Muzz Investments, LLC dated January 17, 2002                                                    | Incorporated by reference to
      Exhibit 10.29 to Registrants 10-K as filed with the SEC on
      September 27, 2002             
|        |                                                                                                                                                  |                                                                                                                                     
|10.30   | Amendment No. 2 to Loan
      Agreement dated March 15, 2001 for $800,000 between the Registrant and
      Lawrence G. Olson dated June 28, 2002 | Incorporated by reference to
      Exhibit 10.30 to Registrants 10-K as filed with the SEC on
      September 27, 2002             
|        |                                                                                                                                                  |                                                                                                                                     
|10.31   | Directors Agreements dated
      April 26, 2002, by and between the Registrant and Stanley A. Ratzlaff
      and M. William Lightner            | Incorporated by reference to
      Exhibit 10.31 to Registrants 10-K as filed with the SEC on
      September 27, 2002             
|        |                                                                                                                                                  |                                                                                                                                     
|10.32   | Settlement Agreement dated July
      9, 2002 by and between the Registrant and Anthony Harvey and Alan
      Lindsay                            | Incorporated by reference to
      Exhibit 1 to Registrants 8-K dated July 11, 2002, as filed with
      the SEC on July 25, 2002  
|        |                                                                                                                                                  |                                                                                                                                     
|10.34   | Stock Purchase Agreement dated
      April 10, 2003 by and between the Registrant and Frontera Cobre del
      Mayo, Inc.                        | Incorporated by reference to
      Exhibit 1 to Registrants 8-K dated April 10, 2003, as filed with
      the SEC on April 25, 2003
|        |                                                                                                                                                  |                                                                                                                                     
|10.35   | Settlement Agreement dated June
      22, 2003 by and between the Registrant and Anthony Harvey and Alan
      Lindsay                           | Incorporated by reference to
      Exhibit 10.35 to Registrants 10-K/A as filed with the SEC on May
      18, 2005                 
|        |                                                                                                                                                  |                                                                                                                                     
|10.36   | Amendment to $200,000 Loan
      agreement between the Registrant and Luis Barrenchea dated September
      4, 2002                              | Incorporated by reference to
      Exhibit 10.36 to Registrants 10-K/A as filed with the SEC on May
      18, 2005                 
|        |                                                                                                                                                  |                                                                                                                                     
|10.37   | Amendment to $100,000 Loan
      agreement between the Registrant and Luis Barrenchea dated October 19,
      2002                               | Incorporated by reference to
      Exhibit 10.37 to Registrants 10-K/A as filed with the SEC on May
      18, 2005                 
|        |                                                                                                                                                  |                                                                                                                                     
|10.38   | Amendment to $100,000 Loan
      agreement between the Registrant and Luis Barrenchea dated December 3,
      2003                               | Incorporated by reference to
      Exhibit 10.38 to Registrants 10-K/A as filed with the SEC on May
      18, 2005                 
|        |                                                                                                                                                  |                                                                                                                                     
|10.39   | Employment Agreement between
      the Registrant and W. Pierce Carson dated October 7, 2003                                                     | Incorporated by reference to
      Exhibit 10.39 to Registrants 10-KSB as filed with the SEC on
      December 28, 2005            
|        |                                                                                                                                                  |                                                                                                                                     
|10.40   | Change of Control Agreement
      between the Registrant and W. Pierce Carson dated October 7, 2003                                              | Incorporated by reference to
      Exhibit 10.40 to Registrants 10-KSB as filed with the SEC on
      December 28, 2005            
|        |                                                                                                                                                  |                                                                                                                                     
|10.41   | Property Identification
      Agreement between the Registrant and W. Pierce Carson dated October 6,
      2003                                  | Incorporated by reference to
      Exhibit 10.41 to Registrants 10-KSB as filed with the SEC on
      December 28, 2005            

44

---

|Exhibit |                                                                                                                                                    |                                                                                                                                                                                                                            
|------- | -------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|No.     | Description                                                                                                                                        | Location                                                                                                                                                                                                                   
|        |                                                                                                                                                    |                                                                                                                                                                                                                            
|10.42   | Assignment and Assumption of Planet
      Lease Agreement 
      between the Registrant and Metallica Ventures LLC dated 
      August 12, 2003    | Incorporated by reference to Exhibit
      10.42 to 
      Registrants 10-KSB as filed with the SEC on 
      December 28, 2005                                                                                           
|        |                                                                                                                                                    |                                                                                                                                                                                                                            
|10.43   | Option Agreement between the Registrant
      and Metallica 
      Ventures LLC dated August 12, 2003                                              | Incorporated by reference to Exhibit
      10.43 to 
      Registrants 10-KSB as filed with the SEC on 
      December 28, 2005                                                                                           
|        |                                                                                                                                                    |                                                                                                                                                                                                                            
|10.44   | Assignment and Assumption of Planet
      Lease Agreement 
      between the Registrant and Metallica Ventures LLC dated 
      September 22, 2005 | Incorporated by reference to Exhibit
      10.44 to 
      Registrants 10-KSB as filed with the SEC on 
      December 28, 2005                                                                                           
|        |                                                                                                                                                    |                                                                                                                                                                                                                            
|10.45   | Letter Agreement between the Registrant
      and Metallica 
      Ventures LLC dated September 22, 2005                                           | Incorporated by reference to Exhibit
      10.45 to 
      Registrants 10-KSB as filed with the SEC on 
      December 28, 2005                                                                                           
|        |                                                                                                                                                    |                                                                                                                                                                                                                            
|10.46   | Securities Purchase Agreement dated
      March 21, 2006 by 
      and between the Registrant and Purchasers                                       | Incorporated by reference to Exhibits
      4.1-4.5 
      and Exhibit 99.1 to Registrants 8-K dated 
      March 21, 2006, as filed with the SEC on 
      March 23, 2006                                                
|        |                                                                                                                                                    |                                                                                                                                                                                                                            
|10.47   | Share Sale Agreement dated May
      4, 2006, by and between 
      the Registrant and Imagin Minerals, Inc. and St. Cloud 
      Mining Company   | Incorporated by reference to Exhibit
      10.1 and 
      Exhibit 99.1 to Registrants 8-K dated May 4, 
      2006, as filed with the SEC on May 10, 2006                                                                
|        |                                                                                                                                                    |                                                                                                                                                                                                                            
|10.48   | Amended Securities Purchase Agreement
      dated September 
      7, 2006 by and between the Registrant and Purchasers                            | Incorporated by reference to Exhibits
      4.1-4.4 
      and Exhibit 99.1 to Registrants 8-K dated 
      September 7, 2006, as filed with the SEC on 
      September 8, 2006, and amended on 
      September 15, 2006
|        |                                                                                                                                                    |                                                                                                                                                                                                                            
|10.49   | Real Property Purchase Agreement
      effective October 31, 
      2006, by and between Registrant and Muzz Investments, 
      LLC               | Incorporated by reference to Exhibits
      10.1 
      and 10.2 and Exhibit 99.1 to Registrants 8-K 
      dated November 3, 2006, as filed with the 
      SEC on November 6, 2006                                      
|        |                                                                                                                                                    |                                                                                                                                                                                                                            
|14.1    | Code
      of Ethics for CEO and Senior Financial Officers 
      adopted June 15, 2006                                                            | Provided
      herewith                                                                                                                                                                                                    
|        |                                                                                                                                                    |                                                                                                                                                                                                                            
|21.1    | Subsidiaries of the Registrant                                                                                                                     | Incorporated by reference to Exhibit
      21.1 to 
      the Registrants Annual Report on Form 10-K 
      for the fiscal year ended June 30, 2001 as 
      filed with the SEC on October 15, 2001                      
|        |                                                                                                                                                    |                                                                                                                                                                                                                            
|31.1    | Certification
      of Principal Executive Officer and Chief 
      Financial Officer pursuant to Rule 13a-14(a)/15d-14(a)                         | Provided
      herewith                                                                                                                                                                                                    
|        |                                                                                                                                                    |                                                                                                                                                                                                                            
|32.1    | Certification
      of Principal Executive Officer and Chief 
      Financial Officer pursuant to 18 U.S.C. Section 1350                           | Provided
      herewith                                                                                                                                                                                                    

(b) Reports on Form 8K:

On March 22, 2006, the Company
filed a Form 8-K relating to a private placement of $2,500,000 of convertible
notes.

On May 10, 2006, the Company
filed a Form 8-K relating to acquisition of the Lordsburg Mining Company and the
Summit property, New Mexico.

45

---

On September 8, 2006, the Company
filed a Form 8-K relating to an amendment of the March 22, 2006 private
placement of $2.5 million and to a private placement of an additional
$1,000,000.

On November 6, 2006, the Company filed a Form 8-K relating to
sale of real estate and buildings in Glendale, Arizona in connection with
cancellation of a financing lease.

|ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICE
|-------- | -------------------------------------

The following table discloses the
fees for professional services provided by Stark Winter Schenkein & Co., LLP
for the 2006 and 2005 fiscal years respectively:

|               |   | 2006   |  |   | 2005   | 
|-------------- | - | ------ |  | - | ------ | 
|Audit Fees (1) | $ | 52,930 |  | $ | 77,159 | 
|Tax Fees (2)   |   | -0-    |  |   | 3,500  | 

|(1) | Includes services rendered for audit of the Companys
      consolidated financial statements, review of quarterly financial
      information and assistance and issuance of consents associated with SEC
      filings.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                          
|(2) | Relates to services rendered for tax advice and
      compliance services.                                                                                                                                               

46

---

SIGNATURES

Pursuant to the requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, the small business
issuer has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on February 14, 2007.

| | AZCO MINING INC.
| | ----------------
| |                 
| | By:             
| | Name:           
| | Title:          

Pursuant to the requirements of
the Securities Exchange Act of 1934, this report has been signed by the
following persons on behalf of the small business issuer in the capacities
indicated on February 14, 2007.

|SIGNATURE             | TITLE                                
|--------------------- | -------------------------------------
|                      |                                      
|/s/ Lawrence G. Olson | Chairman of the Board                
|Lawrence G. Olson     |                                      
|                      |                                      
|/s/ W. Pierce Carson  | President and Chief Executive Officer
|W. Pierce Carson      | (Principal Executive Officer)        
|                      |                                      
|/s/ W. Pierce Carson  | Chief Financial Officer              
|W. Pierce Carson      | (Principal Financial Officer)        

47

---

|AZCO MINING INC.                           
|-------------------------------------------
|                                           
|CONSOLIDATED FINANCIAL STATEMENTS          
|                                           
|As of June 30, 2006 and for the Years Ended
|June 30, 2006 and 2005                     

F-1

---

AZCO MINING INC.

TABLE OF CONTENTS

|REPORT OF INDEPENDENT REGISTERED
      PUBLIC ACCOUNTING FIRM | F-3       
|------------------------------------------------------------- | ----------
|FINANCIAL STATEMENTS:                                         |           
|Consolidated Balance Sheet                                    | F-4       
|Consolidated
      Statements of Operations                   | F-5       
|Consolidated Statements of Stockholders' (Deficit)            | F-6       
|Consolidated
      Statements of Cash Flows                   | F-7       
|Notes to the Consolidated Financial Statements                | F-9 - F-25

F-2

---

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Shareholders and Board of Directors
  AZCO Mining Inc.

We have audited the accompanying consolidated balance sheet of
  AZCO Mining Inc. as of June 30, 2006, and the related consolidated statements
  of operations, stockholders' (deficit), and cash flows for the years ended June
  30, 2006 and 2005. These consolidated financial statements are the responsibility
  of the Company's management. Our responsibility is to express an opinion on
  these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the
  Public Company Accounting Oversight Board (United States). Those standards require
  that we plan and perform the audits 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 by management, as well as evaluating
  the overall financial statement presentation. We believe that our audits provide
  a reasonable basis for our opinion.

The accompanying financial statements have been prepared assuming
  that the Company will continue as a going concern. As discussed in Note 2 to
  the financial statements, the Company has suffered recurring losses from operations,
  has no current source of operating revenues, and needs to secure financing to
  remain a going concern. These factors raise substantial doubt about the Company's
  ability to continue as a going concern. The financial statements do not include
  any adjustments that might result from the outcome of this uncertainty.

In our opinion, the consolidated financial statements referred
  to above present fairly, in all material respects, the financial position of
  AZCO Mining Inc. as of June 30, 2005, and the results of its operations, and
  its cash flows for the years ended June 30, 2006 and 2005, in conformity with
  accounting principles generally accepted in the United States of America.

s/s Stark Winter Schenkein & Co., LLP

Denver, Colorado
  January 31, 2007

F-3

---

|AZCOMININGINC.          
|------------------------
|CONSOLIDATEDBALANCESHEET
|JUNE 30, 2006           



|ASSETS                                                              |  
|------------------------------------------------------------------- | -
|CURRENT ASSETS:                                                     |  
|Cash and cash equivalents                                           | $
|Prepaid expenses                                                    |  
|Total Current Assets                                                |  
|                                                                    |  
|PROPERTY AND PLANT AND EQUIPMENT, net                               |  
|                                                                    |  
|OTHER ASSETS:                                                       |  
|Idle plant and equipment, net                                       |  
|Restricted cash                                                     |  
|                                                                    |  
|                                                                    |  
|                                                                    | $
|                                                                    |  
|LIABILITIES AND STOCKHOLDERS' (DEFICIT)                             |  
|                                                                    |  
|CURRENT LIABILITIES:                                                |  
|Accounts payable                                                    | $
|Accrued liabilities                                                 |  
|Line of credit                                                      |  
|Current portion of financing lease
      liability                  |  
|Derivative instrument
      liabilities                             |  
|Convertible debentures payable,
      net of discount of $2,396,719 |  
|Accrued interest
      payable, related party                       |  
|Accrued interest payable, other                                     |  
|Total Current Liabilities                                           |  
|                                                                    |  
|LONG TERM LIABILITIES:                                              |  
|                                                                    |  
|Financing lease
      liability, net of discount of $1,714,435      |  
|Note payable, related party                                         |  
|Asset retirement
      obligation                                   |  
|                                                                    |  
|                                                                    |  
|Total Liabilities                                                   |  
|                                                                    |  
|STOCKHOLDERS' (DEFICIT):                                            |  
|Common stock, $.002
      par value, 100,000,000 shares             |  
|authorized and 63,963,712 shares issued and outstanding             |  
|Additional paid
      in capital                                    |  
|Deferred compensation                                               |  
|Accumulated (deficit)                                               |  
|Total
      Stockholders' (Deficit)                                 |  
|                                                                    | $



F-4

---

|AZCOMININGINC.                      
|------------------------------------
|CONSOLIDATEDSTATEMENTS OFOPERATIONS 
|FOR THEYEARSENDEDJUNE30, 2006AND2005



|                                                                            |   | 2006       |   |   | 2005       |  
|--------------------------------------------------------------------------- | - | ---------- | - | - | ---------- | -
|SALES                                                                       | $ | 16,237     |   | $ | 54,844     |  
|                                                                            |   |            |   |   |            |  
|OPERATING COSTS AND EXPENSES:                                               |   |            |   |   |            |  
|Exploration and mining costs                                                |   | 212,489    |   |   | 136,714    |  
|General and administrative                                                  |   | 1,207,320  |   |   | 1,018,788  |  
|General and administrative - stock compensation                             |   | 2,174,670  |   |   | 252,690    |  
|Depreciation and amortization                                               |   | 24,681     |   |   | 23,482     |  
|Accretion of asset retirement obligation                                    |   | 5,000      |   |   | 5,000      |  
|                                                                            |   | 3,624,160  |   |   | 1,436,674  |  
|                                                                            |   |            |   |   |            |  
|(LOSS) FROM OPERATIONS                                                      |   | (3,607,923 | ) |   | (1,381,830 | )
|                                                                            |   |            |   |   |            |  
|OTHER INCOME (EXPENSE):                                                     |   |            |   |   |            |  
|Gain on sale of assets                                                      |   | 750        |   |   | 82,967     |  
|Interest income                                                             |   | 21,344     |   |   | 2,775      |  
|Foreign currency translation (loss)                                         |   | (2,897     | ) |   | (1,811     | )
|(Loss) gain on derivative
      instrument liabilities                      |   | (1,402,903 | ) |   | 65,721     |  
|Forgiveness of debt                                                         |   | 60,603     |   |   | -          |  
|Gain associated with conversion
      of debt                               |   | 119,667    |   |   | 36,672     |  
|Accretion of discounts on notes payable
      and financing lease liability |   | (332,571   | ) |   | (210,417   | )
|Interest expense                                                            |   | (239,438   | ) |   | (190,367   | )
|                                                                            |   | (1,775,445 | ) |   | (214,460   | )
|                                                                            |   |            |   |   |            |  
|(LOSS) BEFORE PROVISION FOR INCOME TAXES                                    |   | (5,383,368 | ) |   | (1,596,290 | )
|                                                                            |   |            |   |   |            |  
|PROVISION FOR INCOME TAXES                                                  |   | -          |   |   | -          |  
|                                                                            |   |            |   |   |            |  
|NET (LOSS)                                                                  | $ | (5,383,368 | ) | $ | (1,596,290 | )
|                                                                            |   |            |   |   |            |  
|Basic and Diluted (Loss) Per Common Share                                   | $ | (0.09      | ) | $ | (0.03      | )
|                                                                            |   |            |   |   |            |  
|Basic and Diluted - Weighted Average Number of                              |   |            |   |   |            |  
|Common Shares Outstanding                                                   |   | 60,304,242 |   |   | 47,997,503 |  

F-5

---

|AZCOMININGINC.                                       
|-----------------------------------------------------
|CONSOLIDATEDSTATEMENT OFSTOCKHOLDERS
      (DEFICIT)
|FOR THEYEARSENDEDJUNE30, 2006AND2005                 



|                                                                |  |              |  |   |         |  |   | Additional |  |   |              |   |   |             |   |   |            |  
|--------------------------------------------------------------- |  | ------------ |  | - | ------- |  | - | ---------- |  | - | ------------ | - | - | ----------- | - | - | ---------- | -
|                                                                |  | Common Stock |  |   | Paid-in |  |   | Deferred   |  |   | Accumulated  |   |   |             |  
|                                                                |  | Shares       |  |   | Amount  |  |   | Capital    |  |   | Compensation |   |   | (Deficit)   |   |   | Total      |  
|                                                                |  |              |  |   |         |  |   |            |  |   |              |   |   |             |   |   |            |  
|Balance, June 30, 2004                                          |  | 43,738,122   |  | $ | 87,476  |  | $ | 32,682,903 |  | $ | -            |   | $ | (36,348,093 | ) | $ | (3,577,714 | )
|                                                                |  |              |  |   |         |  |   |            |  |   |              |   |   |             |   |   |            |  
|Issuance of shares for services                                 |  | 1,662,000    |  |   | 3,324   |  |   | 214,616    |  |   | (105,250     | ) |   | -           |   |   | 112,690    |  
|Sale of shares for cash                                         |  | 2,560,000    |  |   | 5,120   |  |   | 250,880    |  |   | -            |   |   | -           |   |   | 256,000    |  
|Shares issued for conversion of accounts payable                |  |              |  |   |         |  |   |            |  |   |              |   |   |             |   |   |            |  
|and accrued liabilities                                         |  | 3,250,000    |  |   | 6,500   |  |   | 330,500    |  |   | -            |   |   | -           |   |   | 337,000    |  
|Related party stock compensation recognized
      on            |  |              |  |   |         |  |   |            |  |   |              |   |   |             |   |   |            |  
|conversion of accrued liabilities                               |  | -            |  |   | -       |  |   | 140,000    |  |   | -            |   |   | -           |   |   | 140,000    |  
|Net loss                                                        |  | -            |  |   | -       |  |   | -          |  |   | -            |   |   | (1,596,290  | ) |   | (1,596,290 | )
|                                                                |  |              |  |   |         |  |   |            |  |   |              |   |   |             |   |   |            |  
|Balance, June 30, 2005                                          |  | 51,210,122   |  |   | 102,420 |  |   | 33,618,899 |  |   | (105,250     | ) |   | (37,944,383 | ) |   | (4,328,314 | )
|                                                                |  |              |  |   |         |  |   |            |  |   |              |   |   |             |   |   |            |  
|Sale of shares for cash                                         |  | 6,005,578    |  |   | 12,012  |  |   | 1,021,229  |  |   | -            |   |   | -           |   |   | 1,033,241  |  
|Issuance of shares for services                                 |  | 2,295,000    |  |   | 4,590   |  |   | 1,202,960  |  |   | 105,250      |   |   | -           |   |   | 1,312,800  |  
|Shares issued for conversion of accounts payable                |  |              |  |   |         |  |   |            |  |   |              |   |   |             |   |   |            |  
|notes payable and accrued liabilities                           |  | 2,453,012    |  |   | 4,906   |  |   | 975,094    |  |   | -            |   |   | -           |   |   | 980,000    |  
|Related party stock compensation recognized
      on            |  |              |  |   |         |  |   |            |  |   |              |   |   |             |   |   |            |  
|conversion of accrued liabilities                               |  | -            |  |   | -       |  |   | 250,000    |  |   | -            |   |   | -           |   |   | 250,000    |  
|Issuance of shares for acquisition of mineral
      rights from |  |              |  |   |         |  |   |            |  |   |              |   |   |             |   |   |            |  
|the Company's President                                         |  | 2,000,000    |  |   | 4,000   |  |   | 596,000    |  |   | -            |   |   | -           |   |   | 600,000    |  
|Costs associated with issuance of warrants
      for services   |  | -            |  |   | -       |  |   | 67,266     |  |   | (55,396      | ) |   | -           |   |   | 11,870     |  
|Net (loss)                                                      |  | -            |  |   | -       |  |   | -          |  |   | -            |   |   | (5,383,368  | ) |   | (5,383,368 | )
|                                                                |  |              |  |   |         |  |   |            |  |   |              |   |   |             |   |   |            |  
|Balance, June 30, 2006                                          |  | 63,963,712   |  | $ | 127,928 |  | $ | 37,731,448 |  | $ | (55,396      | ) | $ | (43,327,751 | ) | $ | (5,523,771 | )

F-6

---

|AZCOMININGINC.                      
|------------------------------------
|CONSOLIDATEDSTATEMENTS OFCASHFLOWS  
|FOR THEYEARSENDEDJUNE30, 2006AND2005



|                                                                             |   | 2006       |   |   | 2005       |  
|---------------------------------------------------------------------------- | - | ---------- | - | - | ---------- | -
|CASH FLOWS FROM OPERATING ACTIVITIES:                                        |   |            |   |   |            |  
|Net (loss)                                                                   | $ | (5,383,368 | ) | $ | (1,596,290 | )
|                                                                             |   |            |   |   |            |  
|Adjustments to reconcile
      net (loss) from operations to                 |   |            |   |   |            |  
|net cash
      (used) in operating activities:                               |   |            |   |   |            |  
|Depreciation and amortization                                                |   | 24,681     |   |   | 23,482     |  
|Stock compensation and other non-cash expenses                               |   | 2,174,670  |   |   | 252,690    |  
|Accretion of discount on financing leasing liability and notes
      payable |   | 332,571    |   |   | 210,417    |  
|Accretion of asset retirement obligation                                     |   | 5,000      |   |   | 5,000      |  
|(Gain) on sale of assets                                                     |   | (750       | ) |   | (82,967    | )
|(Gain) on conversion of debt                                                 |   | (119,667   | ) |   | (36,672    | )
|Forgiveness of debt                                                          |   | (60,603    | ) |   | -          |  
|Foreign currency translation loss                                            |   | 2,897      |   |   | 1,811      |  
|(Gain) loss on derivative instrument liabilities                             |   | 1,402,903  |   |   | (65,721    | )
|Net change
      in current assets and liabilities:                          |   |            |   |   |            |  
|Prepaid expenses                                                             |   | (202,189   | ) |   | (14,682    | )
|Accounts payable and accrued liabilities                                     |   | 119,593    |   |   | 294,108    |  
|Accrued interest payable - related party                                     |   | 116,917    |   |   | 144,000    |  
|Accrued interest payable - other                                             |   | 49,206     |   |   | -          |  
|Accrued lease payments                                                       |   | 540,000    |   |   | 540,000    |  
|Net
      Cash (Used in) Operations                                          |   | (998,139   | ) |   | (324,824   | )
|                                                                             |   |            |   |   |            |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                        |   |            |   |   |            |  
|Proceeds from sale of property
      and equipment                           |   | 12,750     |   |   | 82,967     |  
|Purchase
      of property, plant and equipment                              |   | (2,561     | ) |   | -          |  
|Purchase of subsidiary                                                       |   | (1,300,000 | ) |   | -          |  
|Net Cash Provided by (Used in) Investing Activities                          |   | (1,289,811 | ) |   | 82,967     |  
|                                                                             |   |            |   |   |            |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                        |   |            |   |   |            |  
|Proceeds from convertible
      debentures payable                           |   | 2,500,000  |   |   | -          |  
|Proceeds
      from sale of common stock                                     |   | 1,033,241  |   |   | 256,000    |  
|Net
      Cash Provided by Financing Activities                              |   | 3,533,241  |   |   | 256,000    |  
|                                                                             |   |            |   |   |            |  
|INCREASE IN CASH AND CASH EQUIVALENTS                                        |   | 1,245,291  |   |   | 14,143     |  
|                                                                             |   |            |   |   |            |  
|CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                 |   | 20,101     |   |   | 5,958      |  
|                                                                             |   |            |   |   |            |  
|CASH AND CASH EQUIVALENTS, END OF YEAR                                       | $ | 1,265,392  |   | $ | 20,101     |  

F-7

---

|AZCOMININGINC.                      
|------------------------------------
|CONSOLIDATEDSTATEMENTS OFCASHFLOWS  
|FOR THEYEARSENDEDJUNE30, 2006AND2005



|                                                                        |   | 2006    |  |   | 2005    | 
|----------------------------------------------------------------------- | - | ------- |  | - | ------- | 
|SUPPLEMENTAL CASH FLOW INFORMATION:                                     |   |         |  |   |         | 
|Cash paid for interest                                                  | $ | 5,760   |  | $ | 1,845   | 
|                                                                        |   |         |  |   |         | 
|Cash paid for income taxes                                              | $ | -       |  | $ | -       | 
|                                                                        |   |         |  |   |         | 
|SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND                       |   |         |  |   |         | 
|FINANCING ACTIVITIES:                                                   |   |         |  |   |         | 
|Stock issued for conversion
      of accounts payable                   | $ | -       |  | $ | 37,000  | 
|                                                                        |   |         |  |   |         | 
|Stock issued for conversion
      of accrued liabilities, related party | $ | 100,000 |  | $ | 300,000 | 
|                                                                        |   |         |  |   |         | 
|Stock issued for conversion
      of note payable and notes             |   |         |  |   |         | 
|payable,
      related parties                                          | $ | 730,000 |  | $ | -       | 
|                                                                        |   |         |  |   |         | 
|Stock issued
      for conversion of accrued settlement obligation      | $ | 150,000 |  | $ | -       | 

F-8

---

|AZCO MINING INC.                              
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|JUNE 30, 2006                                 

NOTE 1 NATURE OF OPERATIONS

Azco Mining Inc. (the Company) is a mining company incorporated
  in Delaware in August 1991. Its general business strategy is to acquire, explore
  and develop mineral properties. The Companys principal assets are the
  leased Ortiz gold project in New Mexico, the 100% owned Black Canyon mica project
  in Arizona, and the 100% owned Summit silver-gold property located in New Mexico.

In November 2002, the Company ceased crushing and concentration
  activities at its Black Canyon project due to economic constraints. Limited
  marketing and sales have continued at its Glendale mica processing facility,
  while the Company looks for a joint-venture partner to help finance and operate
  the project.

In May 2006, for a cash price of $1.3 million, the Company acquired
  100% of the shares of The Lordsburg Mining Company (Lordsburg), a New Mexico
  corporation. With the acquisition of Lordsburg, the Company acquired the Summit
  project, consisting of approximately 117.6 acres of patented and approximately
  520 acres of unpatented mining claims in Grant County, New Mexico; approximately
  257 acres of patented mining claims in Hidalgo County, New Mexico; and milling
  equipment including a ball mill and floatation plant in Sierra County, New Mexico.

NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Going Concern

The financial statements have been prepared on a going concern
  basis, which contemplates the realization of assets and satisfaction of liabilities
  and commitments in the normal course of business. Should the Company be unable
  to continue as a going concern, it may be unable to realize the carrying value
  of its assets and to meet its liabilities as they become due.

The Company has incurred net losses of ($5,383,368) and ($1,596,290)
  for the years ended June 30, 2006 and 2005, respectively, and has a total accumulated
  deficit of ($43,327,751) at June 30, 2006. To continue as a going concern, the
  Company is dependent on continued fund raising for project development. However,
  the Company has no commitment from any party to provide additional capital and
  there is no assurance that such funding will be available when needed, or if
  available, that its terms will be favorable or acceptable to the Company.

The Companys financial statements do not include any adjustment
  relating to the recoverability and classification of recorded asset amounts
  and classification of liabilities that might be necessary should the Company
  be unable to continue in existence.

Principles of Consolidation

The consolidated financial statements include the accounts of
  the Company and its wholly owned subsidiaries Azco Mica, Inc., a Delaware corporation,
  and The Lordsburg Mining Company, a New Mexico corporation. All significant
  inter-company accounts and transactions have been eliminated in consolidation.

Cash and Cash Equivalents

F-9

---

The Company considers all liquid investments purchased with an
  initial maturity of three months or less to be cash equivalents.

Property, Plant and Equipment

Land, buildings and plant are carried at cost. Replacements,
  maintenance and repairs that do not improve or extend the life of the respective
  assets are expensed as incurred. Major renewals and improvements are capitalized.
  Upon retirement, sale or other disposition, the cost and accumulated amortization
  are eliminated and the gain or loss is included in operations. Property and
  equipment consists of land, mining equipment and buildings, which are recorded
  at cost. The buildings are depreciated using the straight-line method over the
  estimated useful lives of 15 to 39 years. Autos are depreciated using the straight-line
  method over the estimated useful life of 3 years. The Lordsburg mining equipment
  will be depreciated over 8 years using the straight-line method when moved and
  deployed into production processing at the Hidalgo County site.

As of June 30, 2004, the Company obtained an independent appraisal
  of certain equipment. The appraisal indicated a net realizable value of approximately
  $1,701,000. Subsequent sales of assets have reduced the carrying value to $1,689,000.
  This equipment has been classified as idle plant and equipment.

Derivative Financial Instruments

The Company does not use derivative instruments to hedge exposures
  to cash flow, market, or foreign currency risks.

The Company reviews the terms of convertible debt, equity instruments
  and other financing arrangements to determine whether there are embedded derivative
  instruments, including embedded conversion options that are required to be bifurcated
  and accounted for separately as a derivative financial instrument. Also, in
  connection with the issuance of financing instruments, the Company may issue
  freestanding options or warrants that may, depending on their terms, be accounted
  for as derivative instrument liabilities, rather than as equity. The Company
  may also issue options or warrants to non-employees in connection with consulting
  or other services they provide.

Derivative financial instruments are initially measured at their
  fair value. For derivative financial instruments that are accounted for as liabilities,
  the derivative instrument is initially recorded at its fair value and is then
  re-valued at each reporting date, with changes in the fair value reported as
  charges or credits to income. For option-based derivative financial instruments,
  the Company uses the Black-Scholes option pricing model to value the derivative
  instruments. To the extent that the initial fair values of the freestanding
  and/or bifurcated derivative instrument liabilities exceed the total proceeds
  received, an immediate charge to income is recognized, in order to initially
  record the derivative instrument liabilities at their fair value.

The discount from the face value of the convertible debt or equity
  instruments resulting from allocating some or all of the proceeds to the derivative
  instruments, together with the stated interest on the instrument, is amortized
  over the life of the instrument through periodic charges to income, usually
  using the effective interest method.

The classification of derivative instruments, including whether
  such instruments should be recorded as liabilities or as equity, is reassessed
  at the end of each reporting period. If reclassification is required, the fair
  value of the derivative instrument, as of the determination date, is reclassified.
  Any previous charges or credits to income for changes in the fair value of the
  derivative instrument are not reversed. Derivative instrument liabilities are
  classified in the balance sheet as current or non-current based on whether or
  not net-cash settlement of the derivative instrument could be required within
  12 months of the balance sheet date.

F-10

---

Reclamation Costs

The Company accounts for reclamation costs under the provisions
  of Statement of Financial Accounting Standards ("SFAS") No. 143, Accounting
  for Asset Retirement Obligations (SFAS No. 143). SFAS No. 143 addresses
  financial accounting and reporting for obligations associated with the retirement
  of tangible long-lived assets and the associated asset retirement costs. Specifically,
  the Statement requires that retirement obligations be recognized when they are
  incurred and displayed as liabilities with the initial measurement being at
  the present value of estimated third party costs. In addition, the asset retirement
  cost is capitalized as part of the assets carrying value and subsequently
  allocated to expense over the assets useful lives.

The asset retirement obligation associated with the Mica project
  consists of reclamation of disturbed property as well as the disposal and dismantling
  of related property and equipment.

The Companys asset retirement obligation through June 30,
  2006, is as follows:

|Balance at June 30, 2004                   | $ | 55,309 | 
|------------------------------------------ | - | ------ | 
|Accretion for the year ended June 30, 2005 |   | 5,000  | 
|Amount included with Lordsburg acquisition |   | 5,000  | 
|Accretion for the year ended June 30, 2006 |   | 5,000  | 
|Balance, June 30, 2006                     | $ | 70,309 | 

Revenue Recognition

The Company recognizes the sale of the product when an agreement
  of sale exists, product delivery has occurred, title has transferred to the
  customer and collectibility is reasonably assured. The price received is based
  upon terms of the contract.

Income Taxes

The Company accounts for income taxes in accordance with SFAS
  No. 109, Accounting for Income Taxes. SFAS No. 109
  requires the Company to recognize deferred tax assets and liabilities for the
  expected future tax consequences of events that have been recognized in the
  Companys financial statements or tax returns. Under this method, deferred
  tax assets and liabilities are determined based on the difference between the
  financial statements carrying amounts and tax basis of assets and liabilities
  using enacted tax rates in effect in the years in which the differences are
  expected to reverse.

Net (Loss) Per Share

SFAS No. 128, "Earnings per Share," requires dual presentation
  of basic and diluted earnings or loss per share (EPS) with a reconciliation
  of the numerator and denominator of the basic EPS computation to the numerator
  and denominator of the diluted EPS computation. Diluted EPS reflects the potential
  dilution that could occur if securities or other contracts to issue common stock
  were exercised or converted into common stock or resulted in the issuance of
  common stock that then shared in the earnings of the entity. Basic loss per
  common share is computed based on weighted average shares outstanding and excludes
  any potential dilution from stock options, warrants and other common stock equivalents
  and is computed by dividing loss available to common shareholders by the weighted
  average number of common shares outstanding for the period. Diluted net loss
  per common share reflects potential dilution. These dilutive securities are
  not considered in the calculation, as the impact of the potential shares would
  be to decrease loss per share.

F-11

---

Stock-Based Compensation  Transition and Disclosure

The Company accounts for equity instruments issued to employees
  for services based on the fair value of the equity instruments issued and accounts
  for equity instruments issued to other than employees based on the fair value
  of the consideration received or the fair value of the equity instruments, whichever
  is more reliably measurable.

The Company accounts for stock based compensation in accordance
  with SFAS 123, "Accounting for Stock-Based Compensation." The
  provisions of SFAS 123 allow companies to either expense the estimated fair
  value of stock options or to continue to follow the intrinsic value method set
  forth in Accounting Principles Board Opinion 25, "Accounting for Stock Issued
  to Employees" (APB 25") but disclose the pro forma effects on net
  income (loss) had the fair value of the options been expensed. The Company has
  elected to continue to apply APB 25 in accounting for its stock option incentive
  plans. SFAS 123R, "Share Based Payment," will be adopted at the beginning
  of the fiscal year ending June 30, 2007. The Company believes the adoption will
  not have a material affect on the financial statements.

Estimates

The preparation of financial statements in conformity with accounting
  principles generally accepted in the United States of America 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
  under different assumptions or conditions.

Significant estimates are used when accounting for the Companys
  carrying value of mineral properties and fixed assets, depreciation, accruals,
  taxes and contingencies, which are discussed in the respective notes to the
  financial statements.

Fair Value of Financial Instruments

The carrying values of cash and cash equivalents, restricted
  cash, accounts payable and accrued liabilities, line of credit, notes payable,
  convertible debentures and financing lease liabilities approximated their related
  fair values as of June 30, 2006, due to the relatively short-term nature of
  these instruments. The carrying value of the Companys long-term financing
  lease, convertible debentures and notes payable approximates the fair value
  based on the terms at which the Company could obtain similar financing.

Restricted Cash

As part of the reclamation deposit required for the Black Canyon
  mica property, the Company has restricted cash of $178,658, comprised of $50,000
  held on deposit for the Arizona State Treasurer in a one-year automatically
  renewable short-term investment; and $128,658 held as collateral against an
  irrevocable letter of credit of the same amount to the U.S. Bureau of Land Management
  (BLM). Both of the amounts will be held until all terms and conditions of the
  reclamation agreement have been fulfilled or a satisfactory replacement bond
  has been accepted.

Recent Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board (FASB)
  issued FASB Interpretation No. 48, Accounting for Uncertainty in Income
  Taxes  an interpretation of FASB No. 109(FIN 48).
  FIN 48 clarifies the accounting for uncertainty in income taxes recognized in
  a companys financial statements in

F-12

---

accordance with SFAS No. 109 and provides guidance on recognizing,
  measuring, presenting and disclosing in the financial statements tax positions
  that a company has taken or expected to take on a tax return. FIN 48 is effective
  for the Company as of July 1, 2007. The Company at this time has not evaluated
  the impact, if any, of adopting FIN 48 on its financial statements.

In September 2006, the FASB issued SFAS No. 157, Fair Value
  Measurements (SFAS 157). SFAS 157 defines fair value, establishes
  a framework for measuring fair value and expands disclosures about fair value
  measurements. This statement addresses how to calculate fair value measurements
  required or permitted under other accounting pronouncements. SFAS 157 is effective
  for the Company beginning July 1, 2008. The Company at this time has not evaluated
  the impact, if any, of SFAS 157 on its financial statements.

The FASB has also issued SFAS No.. 158, Employers Accounting
  for Defined Benefit Pension and Other Postretirement Plans, an amendment of
  FASB Statements No. 87, 88, 106, and 123(R), but it will not have any
  relationship to the operations of the Company at this time.

In September 2006, the SEC issued Staff Accounting Bulletin No.
  108 (SAB No. 108), which addresses the process and diversity in
  practice of quantifying financial statement misstatements resulting in the potential
  build up of improper amounts on the balance sheet. The Company will be required
  to adopt the provision of SAB No. 108 in fiscal year 2007. The Company currently
  does not believe that the adoption of SAB No. 108 will have a material impact
  on our financial statements.

NOTE 4 - PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following at June
  30, 2006:

| | Land                                    | $ | 60,000    |  
| | --------------------------------------- | - | --------- | -
| | Office building                         |   | 152,998   |  
| | Mill building                           |   | 362,394   |  
| | Patented mineral properties             |   | 283,285   |  
| | Mine processing equipment and buildings |   | 1,032,007 |  
| | Computer equipment                      |   | 2,561     |  
| | Automotive                              |   | 13,368    |  
| |                                         |   | 1,906,613 |  
| | Less: Accumulated depreciation          |   | (153,354  | )
| |                                         | $ | 1,753,259 |  

Depreciation expense for the years ended June 30, 2006 and 2005
  was $24,681 and $23,482, respectively.

The following table shows the carrying value of mineral properties
  and equipment, which are idle at June 30, 2006. The carrying value is based
  upon a third party appraisal obtained subsequent to the year ended June 30,
  2004, less any disposals of equipment:

| | Office equipment                               | $ | 139,809    |  
| | ---------------------------------------------- | - | ---------- | -
| | Glendale plant and equipment                   |   | 1,844,839  |  
| | Black Canyon crushing                          |   | 2,429,090  |  
| | Equipment                                      |   | 164,889    |  
| | Acquisition costs                              |   | 1,461,524  |  
| | Development costs                              |   | 618,306    |  
| |                                                |   | 6,658,457  |  
| | Less: Allowance for impairment and accumulated |   |            |  
| | depreciation                                   |   | (4,969,457 | )
| |                                                | $ | 1,689,000  |  

F-13

---

NOTE 5 - DERIVATIVE INSTRUMENT LIABILITIES

On March 21, 2006, the Company completed a private placement
  of senior secured convertible notes, additional investment rights and warrants
  to institutional investors for an aggregate purchase price of $2,500,000. These
  notes were evaluated using Emerging Issues Task Force (EITF) Issue
  No. 00-19, Accounting for Derivative Financial Instruments Indexed to,
  and Potentially Settled in, a Companys Own Stock (EITF 00-19)
  and it was determined that the warrants, embedded conversion and interest components
  and additional investment rights should be accounted for as derivative instrument
  liabilities. Accordingly, they are to be marked to market each reporting period,
  with the corresponding non-cash gain or loss reflected in the Companys
  current period statement of operations.

The Company uses the Black-Scholes option pricing model to value
  options, warrants, imbedded conversion option components and additional investment
  rights that are recorded as derivative liabilities. The fair value of the financing
  lease payable derivative liability at June 30, 2005, was determined to be $81,057
  with the following assumptions, (1) expected dividend yield of zero, (2) expected
  stock price volatility of 104.81 %, (3) risk free interest of 3.66 % and (4)
  remaining contractual life of 1.55 years. The fair market value of the convertible
  debenture derivative liabilities at March 21, 2006, was determined to be $2,867,211
  with the following assumptions, (1) risk free interest rates of 4.61% - 4.65%,
  (2) remaining contractual life between 1.45 - 5 years, (3) expected stock price
  volatility of 111.95% and (4) expected dividend yield of zero. The fair market
  value of the derivative liabilities at June 30, 2006, was determined to be $3,983,960
  with the following assumptions, (1) risk free interest rate of 5.1% to 5.24%,
  (2) remaining contractual life between .55 - 4.7 years, (3) expected stock price
  volatility of 114.07% and (4) expected dividend yield of zero. Based upon the
  change in fair value, the Company has recorded a non-cash loss on derivative
  instruments for the year ended June 30, 2006, of $(1,402,093) and a corresponding
  increase in the derivative instruments liability. The impact of EITF 00-19 on
  the financial statements as of and through June 30, 2006, was as follows:

|                                   |   | Derivative      |  |   |                 |  |   |                |  
|---------------------------------- | - | --------------- |  | - | --------------- |  | - | -------------- | -
|                                   |   | Liability as of |  |   | Derivative      |  |   | Derivative     |  
|                                   |   | Transition Date |  |   | Liability as of |  |   | (Loss) Through |  
|                                   |   | Or Issue date   |  |   | June 30, 2006   |  |   | June 30, 2006  |  
|Financing Lease Payable Derivative | $ | 81,057          |  | $ | 1,814,990       |  | $ | (1,733,933     | )
|                                   |   |                 |  |   |                 |  |   |                |  
|Convertible Debenture:             |   |                 |  |   |                 |  |   |                |  
|Compound Embedded Derivatives      |   | 2,016,341       |  |   | 1,462,946       |  |   | 553,395        |  
|Purchase Agreement Warrants        |   | 850,870         |  |   | 706,024         |  |   | 144,846        |  
|Totals                             | $ | 2,948,268       |  | $ | 3,983,960       |  |   | (1,035,692     | )
|                                   |   |                 |  |   |                 |  |   |                |  
|Derivative Expense Related to      |   |                 |  |   |                 |  |   |                |  
|Convertible Debenture Issuance     |   |                 |  |   |                 |  |   | (367,211       | )
|                                   |   |                 |  |   |                 |  | $ | (1,402,903     | )

NOTE 6  CONVERTIBLE DEBENTURE NOTES PAYABLE

On March 21, 2006, the Company completed a private placement
  of senior secured convertible notes, additional investment rights and warrants
  with institutional investors for an aggregate purchase price of $2,500,000.
  The convertible notes have a term of 17 months and are to be paid over 12 months
  beginning on September 1, 2006. Interest on the principal amount outstanding
  accrues at a rate of 7% per annum. The

F-14

---

Company may pay principal and accrued interest in cash or, at
  the Companys option, in shares of its common stock. The holder of each
  convertible note, at the holders option, may convert the note into the
  Companys common stock at a conversion price of $1.58 per share. The Company
  also granted additional investment rights to the investors, giving each the
  right for 12 months to purchase, under the same terms, an additional convertible
  note for 50% of the amount initially purchased. Warrants were also issued to
  the note holders, giving the right for a period of 5 years to purchase in the
  aggregate 791,139 shares of the Companys common stock at a price of $1.58
  per share. Financial advisory fees included a fee equal to 8% of the gross proceeds,
  and 75,000 warrants exercisable at $1.58 per share. In connection with the transaction,
  Azco is required within 60 days of the closing to file a registration statement
  with the Securities and Exchange Commission and within 150 days to cause the
  registration statement to be declared effective. The Company is currently in
  default of this provision.

As collateral security of the Secured Obligations, the Company
  granted the Purchasers a security interest in and Lien upon all of the Companys
  right, title and interest in and to (a) $6,000,000 in gold contained in mineralized
  materials from the Ortiz Mine Grant over which the Company holds a lease on
  the mineral estate underlying 57,267.04 acres (90 square miles) of segregated
  surface estate located 30 miles by road northeast of Albuquerque, in Townships
  12, 13 and 14 North, Ranges 7 and 8 East, N.M.P.M., Santa Fe County, New Mexico,
  which such gold is as-extracted collateral (as such term is defined
  in the New York Uniform Commercial Code) and (b) all proceeds, products and
  accessions thereof and related thereto (including, without limitation, any proceeds
  of insurance thereon), and, to the extent related to such as extracted
  collateral or such proceeds, products and accessions thereof and related
  thereto.

On September 5, 2006, the Company and the institutional investors
  agreed to amend the terms of the March 21, 2006, private placement of senior
  secured convertible notes, warrants and additional investment rights, as described
  in NOTE 14.

The components of the long-term liability are as follows as of
  June 30, 2006:

| | Convertible debentures payable           | $ | 2,500,000  |  
| | ---------------------------------------- | - | ---------- | -
| | Less: unamortized discount               |   | (2,396,719 | )
| |                                          |   |            |  
| | Net convertible debentures
      payable | $ | 103,281    |  

As of June 30, 2006, accrued interest payable on the convertible
  debentures aggregated $49,206.

NOTE 7 - FINANCING LEASE LIABILITY

In January 2002, the Company completed a financing lease transaction.
  Under the terms of the transaction, the Company sold a 40 percent ownership
  in the Companys mica processing facility located in Glendale, Arizona.
  Subsequently, the Company leased the property back for an initial period of
  10 years, with an option to repurchase the 40 percent ownership. Monthly payments
  under the financing agreement were $45,000 per month for fiscal 2006 and 2005.
  The Company was in default under the terms of the financing lease transaction
  at June 30, 2006. Subsequent to the Companys year-end, the Company negotiated
  an agreement to resolve the issue, as described in NOTE 14. At June 30, 2006,
  the Company was past due $1,890,000 for accrued lease payments.

In connection with this transaction, the Company issued a warrant
  to purchase 2,550,000 shares of the Companys common stock at $.50 per
  share. This warrant vested in January 2002 and is exercisable through January
  16, 2007. The fair value of the warrant as determined at the time of issuance,
  of $2,593,898, was recorded as a discount on the financing liability and is
  being accreted annually. During the years ended June

F-15

---

30, 2006 and 2005, the Company recognized accretion of the discount
  on the liability of $229,290 and $210,417, respectively.

The components of the long-term liability are as follows as of
  June 30, 2006:

| | Total financing lease liability | $ | 4,500,000  |  
| | ------------------------------- | - | ---------- | -
| | Less: unamortized discount      |   | (1,714,435 | )
| |                                 |   |            |  
| | Net financing lease liability   | $ | 2,785,565  |  

NOTE 8 - NOTES PAYABLE

In 2001, the Company received one-year loans totaling $400,000,
  bearing interest at 12% per annum. As of December 21, 2005, the Company was
  in default on these loans and accrued interest aggregating $139,667. On December
  21, 2005, the Company agreed to convert the $400,000 12% notes and accrued interest
  due into 500,000 shares of the Companys common stock, with a value of
  $420,000 on the date of the transaction. As a result, the Company recognized
  a gain on the debt conversion of $119,667 during fiscal 2006.

NOTE 9 - NOTES PAYABLE, RELATED PARTY

In March 2001, the Company received an unsecured loan of $800,000
  from a director, due March 15, 2004, as amended and secured by an interest in
  all of Azco's accounts receivable, inventory, equipment and real property. On
  March 15, 2006, the director agreed to extend the delinquent note for a period
  of 18 months, until September 15, 2007, with an annual interest rate of 12%.
  On March 15, 2006, the Company issued 300,000 shares of restricted common stock
  for the exercise of warrants at $0.70 per share to the director in exchange
  for payment of accrued interest owed on the note payable amounting to $160,000
  at the time of the exercise and a reduction of principal on the note payable
  of $50,000. Subsequent to the fiscal year ended, the Company and director negotiated
  an agreement for the payoff of the note and accrued interest as described in
  NOTE 14.

Note payable, related party, at June 30, 2006, is summarized
  as follows:

| | Note payable, related party  noncurrent
      
      12% note payable to a director of the Company. Principal and accrued interest
      due September 2007. Note is secured by the Companys accounts receivable,
      inventory, equipment and real property. | $ | 750,000 | 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------- | 

As of June 30, 2006, accrued interest was payable on the note
  payable, related party, is $26,250.

NOTE 10 - LINE OF CREDIT

In January 2003, the Company obtained an Equity Line of Credit
  (ELOC). The ELOC accrues interest at 24% per year and was due March
  17, 2003. As of June 30, 2006, a balance of $73,145 plus accrued interest of
  $57,715 is currently outstanding. The Company is continuing to negotiate financing
  arrangements with the lender to resolve this outstanding balance.

NOTE 11 - STOCKHOLDERS (DEFICIT)

Issuances of Common Stock

F-16

---

During the fiscal year ended June 30, 2005, the Company sold
  2,560,000 common shares for aggregate cash proceeds of $256,000.

On June 3, 2005, the Company entered into an investor relations
  agreement with a party providing for specific activities and provided for compensation
  to the consultant of 1,000,000 shares of the Companys common stock for
  six months services from date of the agreement. Under the terms of the agreement,
  the Company will issue as compensation an additional 250,000 shares of the Companys
  common stock for each of the three-month periods beginning December 3, 2005
  and March 3, 2006. During the fiscal year ended June 30, 2005, the Company issued
  312,000 common shares to the finder at an aggregate value of $54,440, based
  on the fair market value on the transaction dates. The amount has been recorded
  as general and administrative-stock compensation expense.

During the fiscal year ended June 30, 2005, the Company issued
  1,350,000 shares of common stock for investor relations and consulting services
  rendered at an aggregate value of $163,500, based on the fair market value on
  the transaction dates. At June 30, 2005, $105,250 of this amount was classified
  as deferred compensation and was expensed in fiscal 2006 and the balance of
  $58,250 has been recorded as general and administrative-stock compensation expense.

During the fiscal year ended June 30, 2005, the Company issued
  to related parties 3,000,000 shares of common stock for accrued wages and accrued
  interest with an aggregate value of $440,000, based on the fair market value
  on the transaction dates. The total reduction of accrued liabilities amounted
  to $300,000 and the balance of $140,000 has been recorded as general and administrative-stock
  compensation expense.

During the fiscal year ended June 30, 2005, the Company issued
  to unrelated parties 250,000 shares of common stock for payment of accounts
  payable with an aggregate value of $37,000, based on the fair market value on
  the transaction dates. The total reduction to accounts payable was $73,672 and
  the balance of $36,672 has been recorded as gain on conversion of debt.

During the fiscal year ended June 30, 2006, the Company sold
  6,005,578 common shares for aggregate cash proceeds of $1,033,241.

During the fiscal year ended June 30, 2006, the Company issued
  2,295,000 shares of common stock for investor relations and financial consulting
  services rendered at an aggregate value of $1,207,550, based on the fair market
  value on the transaction dates. This amount has been recorded as general and
  administrative stock compensation expense.

On November 15, 2004, the Company agreed with iCapital to settle
  the approximately $150,000 owed, by the issue of up to 500,000 shares of its
  common stock to be held by the Company and released to iCapital in six $25,000
  increments over a period of six months beginning December 1, 2005, the number
  of shares to be released monthly to be calculated on the basis of the average
  market price of the Companys stock for the week prior to the shares being
  released. A total of 153,012 shares were issued during the period December 1,
  2005, and May 1, 2006, in full satisfaction of the Agreement.

On September 22, 2005, the Company issued 750,000 shares each
  to the President and to a director, for a total of 1,500,000 shares of common
  stock with an aggregate value of $450,000, based on the fair market value on
  the transaction date. The shares were issued to reduce accrued wages and accrued
  interest payable of $100,000 each for a total of $200,000 and the balance of
  $250,000 was recorded as general and administrative stock compensation expense.

F-17

---

On September 22, 2005, the Company issued 2,000,000 shares of
  common stock at a market value of $600,000 on the date of the transaction, to
  its President, for the rights, title and interest in and to the lease with New
  Planet Copper Mining Company. The Board of Directors believes the fair value
  of the lease is equal to the purchase price. However, there are no established
  reserves and the Company cannot predict the economic viability of the project
  nor reasonably estimate its future cash flows. Therefore, the value assigned
  to the transaction has been recorded as general and administrative stock compensation
  expense.

On November 28, 2005, a consultant was awarded 50,000 shares
  of the Companys common stock with a fair market value of $25,000 on the
  date of the transaction. The consultant is the son of the Companys President
  and Chief Executive Officer who subsequently became an employee in May 2006.

On December 21, 2005, the Company issued 500,000 shares of common
  stock at a market value of $420,000 on the date of the transaction for payment
  of notes payable and related accrued interest to a shareholder, which aggregated
  $539,667. The Company recognized a gain of $119,667 on the conversion of debt
  to equity.

Warrants

In connection with the private placement of the convertible debenture
  notes, the Company issued warrants for 75,001 shares of common stock as part
  of the financial advisory fee associated with the transaction. The warrants
  have an exercise price of $1.58 and a term of three years. The warrants were
  valued at $67,266 using the Black-Scholes option pricing model using a volatility
  of 111.95%, risk free interest rate of 4.62% and an expected life of 3.0 years.
  At June 30, 2006, $55,396 of this amount was classified as deferred compensation
  and the balance of $11,870 has been recorded as general and administrative stock
  compensation expense.

On March 15, 2006, a director exercised warrants to purchase
  300,000 shares of common stock at $0.70 per share in exchange for a reduction
  of accrued interest and principal on the note payable to the director, aggregating
  $210,000.

On March 21, 2006, the Company issued 791,141 five year warrants
  at an exercise price of $1.58 under the terms of the private placement of senior
  secured convertible notes to the debenture holders. The warrants issued to the
  debenture holders were valued as financial derivates as described in NOTE 5.

Stock Options

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

In addition to options under the Plan, the Company also has issued
  options outside of the Plan and these options are exercisable over various terms
  up to a maximum of ten years.

On October 7, 2003, the Company granted five (5) year options
  to a director to purchase an aggregate of 1,500,000 shares of common stock at
  $0.11 per share, the market price of the stock on the date of the grant. On
  the grant date, 750,000 of the options vested and 250,000 of the remaining options
  vest every six months from the date of grant. The options were valued at $105,000
  using the Black-Scholes option pricing model and will be amortized to expense
  over the term of the vesting. The options were valued using a volatility of

F-18

---

102.64%, risk free interest rate of 3.00% and an expected life
  of 3.5 years. On the same date, the Company granted ten (10) year options to
  the President, CEO, and director to purchase 4,000,000 shares of common stock
  at $0.11 per share, the market price of the stock on the date of the grant.
  On the grant date, 1,000,000 the options vested and 1,000,000 of the remaining
  options vest every six months from the date of grant. Using Black-Scholes option
  pricing model with a volatility of 102.64%, risk free interest rate of 3.00%
  and an expected life of 5.0 years, the options were valued at $280,000 and were
  amortized to expense over the term of the vesting.

On April 8, 2004, the Company granted five (5) year options to
  a director and to the President, CEO and director, to purchase an aggregate
  of 3,000,000 shares of common stock at $0.10 per share, the market price of
  the stock on the date of the grant. The options vested on the date of grant.
  The options were valued at $210,000 using the Black-Scholes option pricing model
  and were expensed in the period granted. The options were valued using a volatility
  of 107.33%, risk free interest rate of 2.50% and an expected life of 3.0 years.

In July 2004, the Company granted at total of 3,000,000 stock
  options at an exercise price of $0.10 per share, the market price of the stock
  on the date of grant, to the chairman of the board of directors and to the President
  and CEO of the Company. The options have a term of five years and vested on
  the date of grant. The fair value of the option grants were estimated at $210,000
  as of the date of grant utilizing the Black-Scholes option pricing model with
  the following average assumptions, expected life of options of 3 years, volatility
  of 106%, risk-free interest rate of 2.5%, and 0% dividend yield. The options
  were expensed in the period granted.

In May 2006, the Company granted a five (5) year option to purchase
  50,000 shares of common stock to an employee, who is the son of the Companys
  President and Chief Executive Officer, as part of an employment agreement. The
  option exercise price is $1.24 per share, the closing price on the date of grant
  and the options vested on the date of grant. The options were valued at $50,971
  using the Black-Scholes option pricing model and are reflected in the pro forma
  table below in the period granted. The options were valued using a volatility
  of 114.027%, a risk free interest rate of 5.1%, an expected life of 5.0 years
  and 0% quarterly dividends.

Stock option and warrant activity, both within the Plan and outside
  of the Plan, for the years ended June 30, 2006 and 2005 are as follows:

|                             |  | Stock Options |  |          | Stock Warrants | 
|---------------------------- |  | ------------- |  | -------- | -------------- | 
|                             |  |               |  | Weighted |                | 
|                             |  |               |  | Average  |                | 
|                             |  | Shares        |  | Price    |                | 
|                             |  |               |  |          |                | 
|Outstanding at June 30, 2004 |  | 8,500,000     |  | $0.11    |                | 
|Granted                      |  | 3,000,000     |  | $0.10    |                | 
|Canceled                     |  | ---           |  | ---      |                | 
|Expired                      |  | ---           |  | ---      |                | 
|Exercised                    |  | ---           |  | ---      |                | 
|Outstanding at June 30, 2005 |  | 11,500,000    |  | $0.10    |                | 
|Granted                      |  | 50,000        |  | $1.24    |                | 
|Canceled                     |  | ---           |  | ---      |                | 
|Expired                      |  | ---           |  | ---      |                | 
|Exercised                    |  | ---           |  | ---      |                | 
|Outstanding at June 30, 2006 |  | 11,550,000    |  | $0.11    |                | 

F-19

---

Stock options and warrants outstanding and exercisable at June
  30, 2006, are as follows:

|Outstanding and Exercisable Options | Outstanding and Exercisable Warrants
|----------------------------------- | ------------------------------------
|                                    |                                     
|                                    |                                     
|                                    |                                     
|Exercise                            |                                     
|Price                               |                                     
|Range                               | Number                              
|$0.10                               | 6,000,000                           
|$0.11                               | 5,500,000                           
|$1.24                               | 50,000                              
|                                    | 11,550,000                          

Stock-Based Compensation

The following table illustrates the pro forma effect on net (loss)
  and net (loss) per share if the Company had applied the fair value recognition
  provisions of SFAS No. 148, Accounting For Stock-Based Compensation -
  Transition & Disclosure, An Amendment To FASB Statement No. 123, to
  stock-based employee compensation.

|                                                     |   | Year Ended June 30, |  
|---------------------------------------------------- | - | ------------------- | -
|                                                     |   | 2006                |  
|                                                     |   |                     |  
|Net (loss), as reported                              | $ | (5,383,368          | )
|Deduct  stock-based compensation expense determined |   |                     |  
|under the
      fair value method, net of tax effect |   | (50,971             | )
|Pro forma net (loss)                                 | $ | (5,434,339          | )
|                                                     |   |                     |  
|(Loss) per share:                                    |   |                     |  
|Net (loss)
      per share, as reported              | $ | (0.09               | )
|                                                     |   |                     |  
|Net (loss)
      per share, pro forma                | $ | (0.09               | )

NOTE 12 - INCOMETAXES

The income tax benefit differs from the amount computed by applying
  the U.S. federal income tax rate of 34% to net (loss) before taxes for the fiscal
  years ended June 30:

| |                                           |   | 2006       |   |   | 2005     |  
| | ----------------------------------------- | - | ---------- | - | - | -------- | -
| | Tax benefit at the federal statutory rate | $ | 1,830,345  |   | $ | 551,429  |  
| | State tax                                 |   | 375,113    |   |   | 113,011  |  
| | Expiration of state operating losses      |   | (296,364   | ) |   | (324,858 | )
| | Increase in valuation allowance           |   | (1,909,094 | ) |   | (339,582 | )
| | Income tax expense                        | $ | ---        |   | $ | ---      |  

F-20

---

The components of the deferred tax asset and deferred tax liability
  at June 30, 2006 are as follows:

| | Deferred Tax Asset                            |   |             |  
| | --------------------------------------------- | - | ----------- | -
| | Federal net operating loss carry forwards     | $ | 12,749,491  |  
| | State net operating loss carry
      forwards |   | 2,008,079   |  
| | Valuation allowance                           |   | (14,757,570 | )
| | Net deferred tax asset                        | $ | ---         |  

At June 30, 2006, the Company had net operating loss carry forwards
  for Arizona income tax purposes of approximately $28.8 million (2005- $27.7
  million). These losses expire in varying amounts through June 30, 2011.

At June 30, 2006, the Company had net operating loss carry forwards
  for federal income tax purposes of approximately $40.3 million (2005 - $32.1
  million). These losses expire between June 30, 2019 and June 30, 2026.

NOTE 13 - CONTINGENCIES AND COMMITMENTS

Eagle River International Ltd. Litigation

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

Montgomery Equity Partners, Ltd. Litigation

On June 27, 2006, Montgomery Equity Partners, Ltd. (Montgomery)
  filed an action against the Company in the Superior Court of New Jersey, alleging
  it is the assignee of a promissory note executed in January 2003 by the Company
  in favor of Cornell Capital Partners, LP (Cornell Capital) and seeking
  a judgment for unpaid principal of $73,145 on the ELOC, unpaid interest of $57,522
  and award of attorneys fees and expenses pursuant to the terms of the
  note. On September 29, 2006, the Company filed an answer and counterclaim against
  Montgomery, Cornell Capital and their affiliate, Yorkville Advisors, LLC, denying
  liability and asserting claims for fraudulent inducement and breach of good
  faith and fair dealing. The Companys claims arise out of a June 2002 transaction
  underlying the note, and seek a declaration that the note is invalid, unspecified
  damages and other relief. Management intends to pursue the Companys claims.
  The Company has recorded the amounts due under the line of credit and accrued
  interest payable.

Employment Agreements

On October 7, 2003, the Company entered into employment and change
  of control agreements with its President and Chief Executive Officer. The employment
  agreement describes, among other things, the officers duties, compensation
  levels and benefits. The agreement provides for annual salary of $180,000 adjusted
  by the CPI. The term of the agreement is from October 16, 2003, through and
  including October 15, 2006, and then automatically extends through October 15,
  2008, and thereafter on a yearly basis unless terminated on 90 days prior notice.
  The change of control agreement provides that if there is a change of control
  of the Company and the officer leaves the employment of the Company, for reason
  other than discharge for cause, death, or disability, within six months after
  such change of control, the officer shall receive a lump sum cash payment of
  299% of the base amount as defined in IRC Section 280G (b) (3),

F-21

---

subject to certain limitations of the Internal Revenue Code.
  In addition, the officer will continue to be covered by the Companys medical,
  health, life and dental plans for 24 months after such cessation of employment.

On May 2, 2006, the Company entered into an employment agreement
  with an attorney who is the son of the Companys President and Chief Executive
  Officer which provides a salary of $5,000 per month and a monthly per diem of
  $1,000. In connection with full-time employment, the Company granted 50,000
  options under its stock option plan at an exercise price of $1.24 per share,
  the closing price on May 2, 2006.

Property Identification Agreement

On October 6, 2003, the Company entered into a confidential property
  identification agreement with its current President and Chief Executive Officer.
  Under terms of the agreement, the current officer, on the basis of his prior
  knowledge, provided a list of 24 specific mineral properties with potential
  for exploration and development that might represent attractive acquisition
  opportunities for the Company. The Company agreed to pay compensation to the
  current officer in the form of a royalty of 1.0% of the value of future production,
  if any that is derived from identified properties that the Company acquires.
  In the event an identified property is acquired and subsequently sold, the Company
  agreed to pay the current officer an amount equal to 10.0% of the value of the
  sale. The Ortiz gold property that was acquired in August 2004 and the Summit
  silver- gold project are two of the 24 properties identified and are subject
  to the property identification agreement.

Title to Mineral Properties

Although the Company has taken steps, consistent with industry
  standards, to verify title to mineral properties in which it has an interest,
  these procedures do not guarantee the Companys title. Such properties
  may be subject to prior agreements or transfers and title may be affected by
  undetected defects.

New Planet Project

On August 12, 2003 the Company assigned, for the sum of $5,000,
  its right, title and interest in and to its lease with New Planet Copper Mining
  Company to Metallica Ventures, LLC, a corporation controlled by the Companys
  President and Chief Executive Officer. The Company retained an option to purchase
  25% of the New Planet lease for an amount equal to 25% of the expenditures on
  the property from the date of assignment through the date of the exercise of
  the option. On September 22, 2005, Metallica Ventures LLC reassigned to the
  Company, for consideration of $10,000 and the issue of 2,000,000 shares of the
  Companys common stock to its President, its right, title and interest
  in and to the lease with New Planet Copper Mining Company. The Company is obligated
  to a $1,500 monthly rental payment on the property.

Ortiz Gold Project

On August 1, 2004, the Company entered into an option and lease
  agreement with Ortiz Mines, Inc., a New Mexico corporation, whereby the Company
  acquired exclusive rights for exploration, development and mining of gold and
  other minerals on 57,267 acres (approximately 90 square miles) of the Ortiz
  Mine Grant in Santa Fe County, New Mexico. The Company paid an initial sum of
  $20,000 for a six-month option, and on February 1, 2005, paid the additional
  sum of $30,000 in order to exercise the option and enter into the lease and
  also to satisfy the obligation of the first years lease payment. On February
  1, 2006, the Company paid $71,184 for the second years lease payment (through
  January 31, 2007). On February 1, 2007, the Company paid the amount due of $100,218
  through January 31, 2008. The lease provides for an initial term of seven years
  (12 years in certain circumstances), continuing year-to-year thereafter for
  so long as the Company is producing gold or other leased minerals in commercial
  quantities and otherwise is performing its obligations under the lease. Among
  other terms, the lease provides for annual lease payments that escalate

F-22

---

per acre of ground the Company retains under lease; a sliding-scale
  production royalty varying from 3% to 5% depending on the price of gold; the
  requirement that the Company comply with governmental permitting and other regulations;
  and other terms common in mining leases of this type. The Ortiz gold project
  is subject to the property identification agreement between the Company and
  its President and Chief Executive Officer.

The minimum and maximum future payments due on this lease are
  as follows for the next five years and thereafter:

| | Payment Due         | Minimum Due | Maximum      
| | ------------------- | ----------- | -------------
| | Date                | ($)         | Due
      ($)
| |                     |             |              
| | Feb 1, 2007         | 73,967      | 100,218      
| | Feb 1, 2008         | 81,801      | 171,801      
| | Feb 1, 2009         | 42,934      | 200,434      
| | Feb 1, 2010         | 30,000      | 171,801      
| | Feb 1, 2011 forward | 30,000      | 171,801      

Summit Silver-Gold Project

The Summit project is subject to two underlying royalties and
  a net proceeds interest as follows: (1) a 7.5% royalty on net smelter returns
  toward an end price of $1,250,000; (2) a 5% royalty on net smelter returns toward
  an end price of $4,000,000 less any amount paid under the royalty described
  in (1); and (3) a net proceeds interest of 5% of net proceeds from sales of
  unbeneficiated mineralized rock until such time as the royalties described in
  (1) and (2) have been satisfied, and 10% of such net proceeds thereafter toward
  an end price of $2,400,000. The Company is obligated to pay quarterly minimum
  royalty payments aggregating $1,808 under the aforementioned (1) underlying
  royalty agreement.

NOTE 14 - SUBSEQUENT EVENTS

Amendment of Convertible Debenture Notes

On September 6, 2006, the Company amended the terms of the private
  placement of the senior secured convertible notes that were issued on March
  21, 2006 (see NOTE 6). The common stock warrants and Additional Investment Rights
  held by the investors were also amended.

Under the terms of the amendment, the maturity of the convertible
  notes has been deferred from August 31, 2007 to January 1, 2008. The convertible
  notes amortize over 12 equal monthly installments but the date of the first
  installment has been extended from September 1. 2006, to February 1, 2007. Interest
  on the principal amount outstanding will remain at the rate of 7% per annum
  and begins to accrue from February 1, 2007. Interest is payable on the last
  day of each calendar quarter, beginning on March 31, 2007. The price at which
  the holder of each convertible note may convert the principal and accrued interest
  amount outstanding under each note into shares of the Companys common
  stock has been reduced from $1.58 to $1.00 per share. In connection with the
  amendment, the investors purchased in the aggregate an additional $1,000,000
  of notes under the amended terms, bringing the total outstanding principal,
  including interest and liquidated damages, due under the notes to $3,781,662.

In connection with the amendment, the Company issued additional
  common stock warrants, increasing the number of warrants held by the investors
  to 1,890,300, extended the expiry of those warrants to September 6, 2011 and
  reduced the exercise price of the warrants from $1.58 to $1.00.

F-23

---

The Company also granted to the investors Additional Investment
  Rights, increasing the Rights held by the investors, so that they may purchase
  up to an additional $1,890,830 of convertible notes, under the same terms and
  conditions as the amended notes. The Additional Investment Rights are exercisable
  for a period of 12 months following the date of a registration statement. Upon
  exercise of the Rights, the holders will also receive 945,416 warrants to purchase
  common stock. The conversion price of the notes issuable on exercise of the
  Additional Investment Rights and the warrants issuable under the Additional
  Investment Rights, has been reduced from $1.58 to $1.00.

The Company is required to register for resale the shares of
  common stock issuable upon conversion of the convertible notes and upon exercise
  of the warrants. The Company has agreed to file a registration statement with
  the Securities and Exchange Commission within 60 days of the date of the amendment
  and to cause the registration statement to be declared effective within 150
  days of the date of the amendment. If the Company does not meet these required
  dates, or does not maintain the effectiveness of the registration statement,
  it is required to pay penalties of 1% per month of the principal amount of the
  notes outstanding. The Company is currently in default of the provision to file
  the registration statement.

The Company used the Black-Scholes option model to determine
  the fair value of the additional warrants and Additional Investment Rights issued,
  the fair value of the embedded conversion option related to the increased principal
  amount of the convertible notes and the cost of reducing the conversion price
  of the existing convertible notes, warrants and Additional Investment Rights
  from $1.58 to $1.00. Because these aggregate fair values exceed the additional
  proceeds received by approximately $2,400,000, the difference will be recognized
  as a charge to income in the quarter ended September 30, 2006. Because the convertible
  note had no net initial carrying value and the modifications made to the notes
  resulted in no additional carrying value (because the fair value of the additional
  derivative instruments issued exceeded the proceeds received), the Company will
  re-compute, as of the date of the amendment, the effective interest rate on
  the convertible notes to accrete the value of the notes to their redemption
  dates, based on the revised repayment schedule and amounts.

Sale of Property and Settlement of Financing Lease

On November 3, 2006, the Company concluded a Real Property Purchase
  Agreement with Muzz Investments, LLC (Muzz) for the sale of the
  Companys 60% ownership interests in real estate and buildings at its Glendale,
  Arizona location. The sale includes approximately five acres of land, a 5,000
  sq. ft. office building and an 18,000 sq. ft. mill building. Under the Agreement,
  the Company retains ownership of its mica processing equipment currently installed
  in the mill building. The equipment will be removed and transported to a storage
  site for future use. As part of the transaction, the Company also agreed to
  provide for the exercise of 2,550,000 warrants granted to Muzz in 2002 and to
  issue 2,550,000 unregistered shares of its common stock at $0.50 per share to
  Muzz. In consideration for the Companys entry into the Real Property Purchase
  Agreement and the issue of the unregistered stock in settlement of the Muzz
  warrants, Muzz agreed to terminate the 2002 financing lease agreement and to
  cancel all of the outstanding financial obligations under the lease. The Company
  estimates it will realize a gain on the transaction in the range of $3.5 million
  to $4.0 million.

Settlement of Outstanding Note Payable

On November 15, 2006, the Company agreed to allow a director
  to exercise warrants to purchase 2,000,000 shares of common stock at $0.10 per
  share, in exchange for payment of accrued interest owed of $60,000 and reduction
  of principal on the note payable of $150,000 to the director, aggregating $210,000.
  In addition, the director agreed to contribute to capital the remaining unpaid
  principal on the note of $600,000.

In connection with the directors contribution of capital
  described above, the Company granted the director a 25% net proceeds royalty
  interest in the 67 unpatented mining claims located in Yavapai County, toward
  an end settlement of $600,000.

F-24

---