U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

____________________

FORM 10-QSB

____________________



(Mark One)

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF

THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2004



[   ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)

OF THE SECURITIES EXCHANGE ACT



For the transition period from __to _



____________________



Commission File Number: 0-20430

____________________



AZCO MINING INC.

(Exact name of Registrant as specified in its charter)





|                                |                                   | 
|------------------------------- | --------------------------------- | 
|Delaware                        | 84-1094315                       
|(State or other jurisdiction of | (IRS Employer Identification No.)
|incorporation or organization)  |                                  



7239 North El Mirage Road

Glendale, AZ 85307

(Address of principal executive offices)



(623) 935-0774

(Issuers telephone number)



Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.



Yes  No X



The number of shares outstanding of each of the issuers classes of common equity was 63,963,712 shares of common stock, par value $0.002, as of July 24, 2006.



Transitional Small Business Disclosure Format (check one):



Yes   No X

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AZCO MINING INC.

INDEX TO FORM 10-QSB FILING

FOR THE QUARTER ENDED SEPTEMBER 30, 2004



TABLE OF CONTENTS



PART I

FINANCIAL INFORMATION





|                                                                               |     
|------------------------------------------------------------------------------ | ----
|                                                                               | Page
|Item 1. Financial Statements                                                   | 2   
|Consolidated Balance Sheet, September 30, 2004 (Unaudited)                     | 2   
|Consolidated Statements of Operations                                          |     
|For the Three Months Ended September 30, 2004 (Unaudited) and 2003 (Unaudited) | 3   
|Consolidated Statements of Cash Flows                                          |     
|For the Three Months Ended September 30, 2004 (Unaudited) and 2003 (Unaudited) | 4   
|Notes to the Consolidated Financial Statements (Unaudited)                     | 5   
|Item 2. Managements Discussion and Analysis and Plan of Operations            | 10  
|Item 3. Controls and Procedures                                                | 15  



PART II

OTHER INFORMATION



|                                                            |     
|----------------------------------------------------------- | ----
|                                                            | Page
|Item 2. Changes in Securities and Use of Proceeds           | 15  
|Item 4. Submission of Matters to a Vote of Security Holders | 15  
|Item 6. Exhibits                                            | 16  
|SIGNATURES                                                  | 17  
|CERTIFICATIONS                                              | 18  

























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PART I

FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS

AZCO MINING INC.

CONSOLIDATED BALANCE SHEET

SEPTEMBER 30, 2004

(UNAUDITED)





ASSETS

|                              |             
|----------------------------- | ------------
|
|CURRENT ASSESTS:              |             
|Cash and cash equivalents     | $    147,373
|Prepaid expenses              | 134,297     
|Total Current Assets          | 281,670     
|                             
|CAPITAL ASSETS:               |             
|Land                          | 60,000      
|Building, net                 | 424,956     
|                              | 484,956     
|OTHER ASSESTS:                |             
|Idle plant and equipment, net | 1,701,000   
|Restricted cash               | 178,658     
|                              | 1,879,658   
|                              |             
|                              | $  2,646,284



LIABILITIES AND STOCKHOLDERS (DEFICIT)

|                                                                                                           |               
|---------------------------------------------------------------------------------------------------------- | --------------
|CURRENT LIABILITIES:                                                                                       |               
|Accounts payable and accrued liabilities                                                                   | $      945,266
|Accrued interest payable  related party                                                                   | 301,000       
|Line of credit                                                                                             | 73,145        
|Notes payable  shareholder                                                                                | 400,000       
|Accrued lease payments payable                                                                             | 945,000       
|Accrued settlement obligations                                                                             | 150,000       
|Derivative instrument liability                                                                            | 158,438       
|Total Current Liabilities                                                                                  | 2,972,849     
|LONG TERM LIABILITIES:                                                                                     |               
|Financing lease liability                                                                                  | 2,396,781     
|Note  payable, related party                                                                               | 800,000       
|Asset retirement obligation                                                                                | 56,559        
|Total Liabilities                                                                                          | 6,226,189     
|STOCKHOLDERS (DEFICIT):                                                                                   |               
|Common stock, $.002 par value, 100,000,000 shares  authorized and 47,760,122 shares issued and outstanding | 95,520        
|Additional paid in capital                                                                                 | 33,187,799    
|Deferred stock compensation                                                                                | (19,688)      
|Accumulated (deficit)                                                                                      | (36,843,536)  
|Total Stockholders (Deficit)                                                                              | (3,579,905)   
|                                                                                                           |               
|                                                                                                           | $   2,646,284 



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

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AZCO MINING INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003

(UNAUDITED)



|                                                                            |  |                 |  |               
|--------------------------------------------------------------------------- |  | --------------- |  | --------------
|                                                                            |  | 2004            |  | 2003          
|                                                                            |  |                 |  |               
|SALES                                                                       |  | $        25,986 |  | $      104,445
|                                                                            |  |                 |  |               
|OPERATING COSTS AND EXPENSES:                                               |  |                 |  |               
|Production, exploration and mine related costs                              |  | 36,715          |  | 156,734       
|General and administrative                                                  |  | 258,486         |  | 350,194       
|General and administrative - stock compensation                             |  | 137,252         |  | 6,000         
|Depreciation and amortization                                               |  | 5,771           |  | 4,488         
|Impairment of assets                                                        |  | --              |  | 5,789,613     
|Accretion of asset retirement obligation                                    |  | 1,250           |  | 1,250         
|                                                                            |  | 439,474         |  | 6,308,279     
|                                                                            |  |                 |  |               
|(LOSS) FROM OPERATIONS                                                      |  | (413,488)       |  | (6,203,834)   
|                                                                            |  |                 |  |               
|OTHER INCOME (EXPENSES):                                                    |  |                 |  |               
|Gain (loss) on sale of asset                                                |  | 28,967          |  | (9,337)       
|Interest income                                                             |  | 413             |  | 308           
|Loss on derivative instrument liability                                     |  | (11,660)        |  | (20,673)      
|Foreign currency exchange adjustment                                        |  | (1,185)         |  | --            
|Accretion of discounts on notes payable                                     |  |                 |  |               
|and lease liability                                                         |  | (50,922)        |  | (74,054)      
|Interest expense                                                            |  | (47,568)        |  | (36,000)      
|Total Other (Expenses)                                                      |  | (81,955)        |  | (139,756)     
|                                                                            |  |                 |  |               
|(LOSS) BEFORE PROVISION FOR INCOME TAXES                                    |  | (495,443)       |  | (6,343,590)   
|                                                                            |  |                 |  |               
|PROVISION FOR INCOME TAXES                                                  |  | --              |  | --            
|                                                                            |  |                 |  |               
|NET (LOSS)                                                                  |  | $    (495,443)  |  | $ (6,343,590) 
|                                                                            |  |                 |  |               
|Basic and Diluted (Loss) Per Common Share                                   |  | $(0.01)         |  | $(0.16)       
|                                                                            |  |                 |  |               
|Basic and Diluted Weighted Average Number
     of Common Shares Outstanding |  | 44,974,731      |  | 38,811,687    



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



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AZCO MINING INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003

(UNAUDITED)



|                                                                                |                |  |               
|------------------------------------------------------------------------------- | -------------- |  | --------------
|                                                                                | 2004           |  | 2003          
|CASH FLOWS FROM OPERATING ACTIVITIES:                                           |                |  |               
|Net (loss)                                                                      | $(495,443)     |  | $(6,343,590)  
|Adjustments to reconcile net (loss) to net cash (used in)
operating activities: |                |  |               
|Depreciation and amortization                                                   | 5,771          |  | 4,488         
|Stock compensation                                                              | 137,252        |  | 6,000         
|Accretion of asset retirement obligation                                        | 1,250          |  | 1,250         
|Amortization of debt discount                                                   | 50,922         |  | 74,054        
|(Gain) loss on sale of equipment                                                | (28,967)       |  | 9,337         
|Impairment loss on fixed assets                                                 | --             |  | 4,824,446     
|Impairment loss on inventory                                                    | --             |  | 965,167       
|Foreign currency exchange rate adjustment                                       | 1,185          |  | --            
|Loss on derivative instrument liability                                         | 11,660         |  | 20,673        
|Net changes in operating assets and liabilities:                                |                |  |               
|Prepaid expenses                                                                | (9,621)        |  | 44,502        
|Inventory                                                                       | --             |  | 94,979        
|Accounts payable and accrued liabilities                                        | 21,614         |  | 122,729       
|Accrued interest  related parties                                              | 36,000         |  | 36,000        
|Accrued lease payments payable                                                  | 135,000        |  | 135,000       
|Other liabilities                                                               | --             |  | (31,517)      
|Net Cash (Used in) Operating Activities                                         | (133,377)      |  | (36,482)      
|                                                                                |                |  |               
|CASH FLOWS FROM INVESTING ACTIVITIES:                                           |                |  |               
|Proceeds from sale of property and equipment                                    | 28,967         |  | 38,996        
|Capital asset addition                                                          | (10,175)       |  | --            
|Restricted cash                                                                 | --             |  | 284           
|Net Cash Provided by Investing Activities:                                      | 18,792         |  | 39,280        
|                                                                                |                |  |               
|CASH FLOWS FROM FINANCING ACTIVITIES:                                           |                |  |               
|Proceeds from sale of common stock                                              | 256,000        |  | 60,000        
|Net Cash Provided by Financing Activities                                       | 256,000        |  | 60,000        
|INCREASE IN CASH AND CASH EQUIVALENTS                                           | 141,415        |  | 62,798        
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                  | 5,958          |  | 707           
|CASH AND CASH EQUIVALENTS, END OF PERIOD                                        | $      147,373 |  | $       63,505





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



4

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AZCO MINING INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2004

(UNAUDITED)





NOTE 1 - BASIS OF PRESENTATION



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 asset is the 100% owned Black Canyon Mica Project (the Mica Project) in Arizona.  Azco is currently focused on financing efforts to: (1) fund the re-opening and enhancement of its Black Canyon mica project, and (2) acquire other high quality gold, silver and/or copper properties.



The unaudited interim consolidated financial statements of the Company included herein have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions for Form 10-QSB under the Security Exchange Act of 1934.  These statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.  Operating results for the three-month period ended September 30, 2004, are not necessarily indicative of the results that may be expected for the year ended June 30, 2005. The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes thereto for the fiscal year ended June 30, 2004, included in the Companys Annual Report on Form 10-KSB, as filed with Securities and Exchange Commission.



NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



Inventory



As of July 1, 2003, the Companys inventory was reduced to $0, its estimated net realizable value.  Results of operations for the quarter ended September 30, 2003, included a charge of $965,167, which represents the estimated excess of cost over net realizable value and was recorded as impairment expense.

Net (Loss) per Common Share



The Company calculates net income (loss) per share as required by Statement of Financial Accounting Standards (SFAS) No. 128, Earnings per Share.  Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period.  Diluted earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares and dilutive common stock equivalents outstanding.  During the periods when they are anti-dilutive, common stock equivalents, if any, are not considered in the computation. The impact of outstanding stock options and warrants has not been included in the computation of diluted loss per common share as it would be anti-dilutive.



Stock-Based Compensation



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.



5

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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.



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 issued 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 re-classification is required, the fair value of the derivative instrument, as of the determination date, is re-classified. 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.

Restatement and Correction of an Error



The financial statements at June 30, 2004, have been restated in the Companys annual report on Form 10-KSB for the Companys year ended June 30, 2005, to reflect the correction of an error as discussed in Note 3.



NOTE3 -RESTATEMENT AND CORRECTION OF AN ERROR



Certain financial statement balances at June 30, 2003, have been restated as of July 1, 2003, to reflect the accounting for a derivative financial instrument associated with a financing lease and free standing warrants issued with this financing instrument.



6

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Subsequent to the Companys year ended June 30, 2004, the Company evaluated warrants issued on January 16, 2002, associated with a financing lease under 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).  The evaluation of specifically identified conditions was made to determine whether the fair value of the warrants was required to be initially classified as a derivative liability rather than as equity, as previously reported. It was determined that these outstanding warrants should have been classified as a derivative liability. In accordance with EITF 00-19, warrants which are determined to be classified as a derivative liability are to be marked to market each reporting period, with the corresponding non-cash gain or loss reflected in the current period operations.



As a result of the above the following accounts were affected:



|                           |                           |                                                |                                   
|-------------------------- | ------------------------- | ---------------------------------------------- | ----------------------------------
|                           | Balances at
June 30, 2003 | (Debit)/Credit
  Transition Entry
July 1, 2003 | Corrected Balances at
July 1, 2003
|Derivative liability       | $                 --      | $           84,673                             | $           84,673                
|Additional Paid in Capital | $    32,978,633           | $    (1,093,898)                               | $     31,884,735                  
|Accumulated (Deficit)      | $  (29,485,447)           | $       1,009,225                              | $   (28,476,222)                  



NOTE 4 - PROPERTY, PLANT AND EQUIPMENT



The Company obtained an independent appraisal of certain equipment. The appraisal indicated a net realizable value of approximately $1,701,000. Accordingly, the Company recognized impairment expense of $4,824,446 during the quarter ended September 30, 2003.



NOTE 5  DERIVATIVE FINANCIAL LIABILITY



The Company uses the Black-Scholes option-pricing model to value options and warrants, and the embedded conversion option components of any bifurcated embedded derivative instruments that are recorded as derivative liabilities.



The warrant derivative associated with the financing lease, at the time it was issued, January 16, 2002, was determined to be $1,093,898 and at June 30, 2004, $146,778.  The fair value of the warrant derivative liability at September 30, 2004, was determined to be $158,438 using the following assumptions, expected dividend yield of zero, expected stock price volatility of 107.01 %, risk free interest of 2.89 % and remaining contractual life of 2.29 years. Based upon this change in fair value, the Company has recorded a non-cash loss on derivative financial instruments during the quarter ended September 30, 2004, of $11,660 and a corresponding increase in the derivative liability.



NOTE 6 - STOCKHOLDERS (DEFICIT)



Issuances of Common Stock



In August 2003, the Company entered into an agreement with a third party ("Finder") whereby the Company will pay a finder's fee for the introduction to the Company of accredited investors with whom the Finder has a pre-existing substantive relationship and who subscribe to private placement purchases of the Company's common stock.  The fee is one share of common stock for every five shares of common stock investors introduced to the Company by the Finder, purchased from the Company.



During the quarter ended September 30, 2004, the Company sold 2,560,000 shares of common stock at $0.10 per share for aggregate cash proceeds of $256,000.





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During the quarter ended September 30, 2004, the Company issued 312,000 shares of common stock with an aggregate market value of $54,440, based on the fair value market value on the transaction dates, as a finders fee under the August 2003 agreement.



On July 1, 2004, the Company issued 150,000 shares of common stock for investor relations services to be provided over a period of 24 months, with an aggregate market value on the transaction date of $22,500. During the quarter ended September 30, 2004, $2,812 was expensed as general and administrative-stock compensation and the remainder of $19,688 is classified as deferred stock compensation.



On September 23, 2004, the Company issued 1,000,000 shares of common stock with an aggregate value of $180,000, based on the fair market value on the transaction date. The total reduction of accrued wages amounted to $100,000 and the balance of $80,000 has been recorded as general and administrative stock compensation expense.



Stock Options and Warrants



In July 2004, the Company granted at total of 3,000,000 stock options at an exercise price of $0.10 per share 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 vest on the date of grant.



The fair value of option grants during the three months ended September 30, 2004, were estimated as of the date of grant utilizing the Black-Scholes option-pricing model with the following average assumptions for all grants, expected life of options of 3 years, volatility of 106%, risk-free interest rate of two and one-half percent (2.5%), and a zero percent (0%) dividend yield. The pro forma stock based compensation presented below is comprised of $210,000 recognized on the options granted in the current quarter and $36,459 recognized on option grants on October 7, 2003, that became vested in the current period.



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



|                                                                                                    |                                  |  |              
|--------------------------------------------------------------------------------------------------- | -------------------------------- |  | -------------
|                                                                                                    | Three Months Ended September 30,
|                                                                                                    | 2004                             |  | 2003         
|                                                                                                    | (Unaudited)                      |  | (Unaudited)  
|Net (loss), as reported                                                                             | $(495,443)                       |  | $ (6,343,590)
|Deduct  stock-based compensation expense determined under the fair value method, net of tax effect | (246,459)                        |  | --           
|                                                                                                    |                                  |  |              
|Pro forma net (loss)                                                                                | $(741,902)                       |  | $(6,343,590) 
|                                                                                                    |                                  |  |              
|(Loss) per share:                                                                                   |                                  |  |              
|Net (loss) per share, as reported                                                                   | $(0.01)                          |  | $(0.16)      
|                                                                                                    |                                  |  |              
|Net (loss) per share, pro forma                                                                     | $(0.02)                          |  | $(0.16)      



Options to purchase 11,500,000 of the Companys common stock were outstanding under the Companys Stock Option Plan and non-plan at September 30, 2004.  These options are exercisable between $0.10 and $0.11 per common share at varying dates through October 2013.



No warrants were issued during the quarter ended September 30, 2004.  Warrants to purchase 2,900,000 of the Companys common stock were outstanding at September 30, 2004.  These warrants are exercisable



8

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between $0.50 and $2.50 per common share at varying dates through April 2007.





Stock option and warrant activities for the quarter ended September 30, 2004, were as follows:



|                                  |               |          |                |  |           |      
|--------------------------------- | ------------- | -------- | -------------- |  | --------- | -----
|                                  | Stock Options |          | Stock Warrants
|                                  |               | Weighted |                |  | Weighted 
|                                  |               | Average  |                |  | Exercise 
|                                  | Shares        |          | Price          |  | Shares    | Price
|                                  |               |          |                |  |           |      
|Outstanding at June 30, 2004      | 8,500,000     |          | $0.11          |  | 2,900,000 | $0.56
|Granted                           | 3,000,000     |          | 0.10           |  | ---       | ---  
|Canceled                          | ---           |          | ---            |  | ---       | ---  
|Expired                           | --            |          | ---            |  | ---       | ---  
|Exercised                         | ---           |          | ---            |  | ---       | ---  
|                                  |               |          |                |  |           |      
|Outstanding at September 30, 2004 | 11,500,000    |          | $ 0.11         |  | 2,900,000 | $0.56



Stock options and warrants exercisable at September 30, 2004, are as follows:





|                    |          |                      |           |  |             |  |          |  |          |  |           |  |             |  |          |  |  |  |  |  |  |  |  |  |  |  |  | 
|------------------- | -------- | -------------------- | --------- |  | ----------- |  | -------- |  | -------- |  | --------- |  | ----------- |  | -------- |  |  |  |  |  |  |  |  |  |  |  |  | 
|Exercisable Options |          | Exercisable Warrants
|                    |          |                      |           |  | Weighted    |  |          |  |          |  |           |  | Weighted    |  |         
|                    |          |                      |           |  | Average     |  |          |  |          |  |           |  | Average     |  |         
|                    |          |                      |           |  | Remaining   |  | Weighted |  |          |  |           |  | Remaining   |  | Weighted
|                    | Exercise |                      |           |  | Contractual |  | Average  |  | Exercise |  |           |  | Contractual |  | Average 
|                    | Price    |                      |           |  | Life        |  | Exercise |  | Price    |  |           |  | Life        |  | Exercise
|                    | Range    |                      | Number    |  | (In Years)  |  | Price    |  | Range    |  | Number    |  | (In Years)  |  | Price   
|                    | $0.10    |                      | 6,000,000 |  | 4.68        |  | $0.10    |  | $ 0.70   |  | 300,000   |  | 1.46        |  | $ 0.70  
|                    | $ 0.11   |                      | 3,000,000 |  | 7.35        |  | $0.11    |  | $ 0.50   |  | 2,550,000 |  | 2.30        |  | $ 0.50  
|                    |          |                      | 9,000,000 |  |             |  | $ 0.11   |  | $ 2.50   |  | 50,000    |  | 2.52        |  | $ 2.50  
|                    |          |                      |           |  |             |  |          |  |          |  | 2,900,000 |  |             |  | $ 0.56  



NOTE 7 NOTES PAYABLE, RELATED PARTY

As of June 30, 2004, the Company had a note payable to a shareholder and director in the amount of $800,000 due March 2004 and accrued interest payable on the note in the amount of $196,000.  Subsequent to year-end, the director/shareholder extended the due date of the note payable to September 2007 at an annual interest rate of 12%.  In addition,in March 2006, the director exercised warrants to purchase 300,000 shares of common stock of the Company at $0.70 per share, in exchange for payment of accrued interest owed on the note payable aggregating $160,000 and reduction in principle of $50,000. Accordingly, the note payable balance was classified as long-term.

NOTE 8  COMMITMENTS AND CONTINGENCIES

iCapital



On June 25, 2002, Azco received a demand for arbitration filed by iCapital Corporation seeking $144,000 in relief due to failure to pay under a June 26, 2001, Financial Consulting Agreement.  In September 2003, the American Arbitration Association awarded iCapital Corporation $144,000 in addition to $6,000 in attorneys fees and costs as full settlement of the claims submitted for arbitration.  Under the terms of the



9

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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 of up to 500,000 unregistered 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.  As of the date of this filing, all shares have been issued and the obligation settled in full.

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).  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.



NOTE 8  SUBSEQUENT EVENTS



Issuance of Equity



Subsequent to September 30, 2004, and through June 30, 2005, the Company issued 250,000 shares of common stock aggregating $37,000 pursuant to accounts payable conversion agreements with two entities aggregating $73,672. The Company recognized a gain associated with the conversion of accounts payable aggregating $36,672.



Subsequent to September 30, 2004, and through June 30, 2005, the Company issued in the aggregate 1,200,000 shares of common stock aggregating $141,000 pursuant to consulting and investor relations service agreements.



Subsequent to September 30, 2004, and through June 30, 2005, a director and the Companys President and Chief Executive Officer agreed to accept an aggregate of 2,000,000 shares of the Company's common stock as payment of $100,000 of accrued interest on a note payable and $100,000 of accrued salary, respectively. The issued shares were valued at market value on the date of the transactions and aggregated $260,000.  Stock compensation was recognized on the conversions aggregating $60,000.



ITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS AND PLAN OF OPERATION



THIS FORM 10-QSB MAY CONTAIN CERTAIN FORWARD-LOOKING STATEMENTS AS SUCH TERM IS DEFINED IN THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND 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,



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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.  THESE STATEMENTS BY THEIR NATURE INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES, CERTAIN OF WHICH ARE BEYOND THE REGISTRANTS CONTROL, AND ACTUAL RESULTS MAY DIFFER MATERIALLY DEPENDING ON A VARIETY OF IMPORTANT FACTORS, INCLUDING UNCERTAINTY RELATED TO ACQUISITIONS, GOVERNMENTAL REGULATION, MANAGING AND MAINTAINING GROWTH, THE OPERATIONS OF THE COMPANY AND ITS SUBSIDIARIES, VOLATILITY OF STOCK PRICE AND ANY OTHER FACTORS DISCUSSED IN THIS AND OTHER REGISTRANT FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. THE COMPANY DOES NOT INTEND TO UNDERTAKE TO UPDATE THE INFORMATION IN THIS FORM 10-QSB IF ANY FORWARD-LOOKING STATEMENT LATER TURNS OUT TO BE INACCURATE. THE FOLLOWING SHOULD BE READ IN CONJUNCTION WITH THE INFORMATION PRESENTED IN THE COMPANYS ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED JUNE 30, 2004.



GENERAL



Azco Mining Inc. is a U.S. mining company, incorporated in August 1991 in the state of Delaware, with a general business strategy to acquire and develop mining properties amenable to low cost production.  Azco is currently focused on financing efforts to: (1) fund the re-opening and enhancement of its Black Canyon mica project located in Arizona, and (2) acquire high quality gold, silver and/or copper properties.



RESTATEMENT AND CORRECTION OF AN ERROR



Certain financial statement balances at June 30, 2003, have been restated as of July 1, 2003, to reflect the accounting for a derivative financial instrument associated with a financing lease and free standing warrants issued with this financing instrument.



Subsequent to the year ended June 30, 2004, the Company evaluated warrants issued on January 16, 2002, associated with a financing lease under 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).  The evaluation of specifically identified conditions was made to determine whether the fair value of the warrants was required to be initially classified as a derivative liability rather than as equity, as previously reported. It was determined that these outstanding warrants should have been classified as a derivative liability. In accordance with EITF 00-19, warrants which are determined to be classified as a derivative liability are to be marked to market each reporting period, with the corresponding non-cash gain or loss reflected in the current period operations.



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As a result of the above, the following accounts were affected:



(Debit)      Credit

Balances at

Transition Entry     Corrected Balances at

June 30, 2003

July 1, 2003

July 1, 2003

Derivative Liability                 $              --

$       84,673

$       84,673

Additional Paid in Capital        $ 32,978,633           $(1,093,898)

$ 31,884,735

Accumulated (Deficit)           $(29,485,447)          $  1,009,225

$(28,476,222)



CHANGES INCRITICAL ACCOUNTING ESTIMATES



The preparation of our consolidated financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions 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 amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Management routinely makes judgments and estimates about the effects of matters that are inherently uncertain. Note 2, Significant Accounting Policies in the Notes to the Consolidated Financial Statements in our Form 10-KSB for the year ended June 30, 2004, describes our significant accounting policies which are reviewed by management on a regular basis.The Companys critical accounting estimates are those where the Company has made the most difficult, subjective or complex judgments in making estimates, and/or where these estimates can significantly impact the financial results under different assumptions and conditions. The critical accounting estimates are:



Derivative Financial Instruments



In connection with the issuance of debt or equity instruments, we may issue options or warrants to purchase common stock. In certain circumstances, these 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.



RESULTS OF OPERATIONS



Operating Results for the Three Months Ended September 30, 2004 and 2003



Sales

Sales decreased $78,459 for the quarter ended September 30, 2004, to $25,986 as compared to $104,445 for the quarter ended September 30, 2003.  The decrease in sales is a result of reduced sales of mica-filled plastic pellets.  The mica sold was sourced from inventory. The Company continues to process and sell inventoried mica into the cosmetic and reinforced plastic industries, while it seeks financing to resume production.



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Operating Costs and Expenses



Production costs decreased in the quarter ended September 30, 2004, to $36,715 from $156,734 for the comparable quarter ended in 2003, or a decrease of $120,019.  This decrease in the current quarter was due to continuing curtailment of processing operations at the Glendale plant.



General and administrative decreased to $258,486 for the quarter ended September 30, 2004, from $350,194 for the comparative quarter ended September 30, 2003, a decrease of $91,708.  This decrease in the current quarter was a result of continued administrative cutbacks and reductions of accounting, legal and consulting fees instituted as cost saving measures.



Effective July 1, 2003, the Company obtained an independent appraisal of the plant and equipment.  The appraisal indicated a net realizable value of approximately $1,701,000.  Accordingly, the Company recognized impairment expense of $4,824,446.  The Company also recorded an impairment loss on inventory of $965,167, for a total impairment of assets of $5,789,613.



Other Income and Expenses



Other income and expenses for the quarter ended September 30, 2004, were $(81,955) as compared to $(139,756) for the comparable period ended September 30, 2003.  The decrease in expenses incurred in the current period of $57,801 is mainly attributable to the reduction of accretion of discounts on notes payable and lease liability amounting to $23,132, an increase in gain on sale of assets aggregating $38,304 and a decrease in loss on derivative liability of $9,013. These decreases in the current period were offset by an increase in interest expenses of $11,568 for the current period.



Gain (Loss) on Derivative Financial Instruments

The Company recognized a loss on derivative financial instruments of $11,660 for the quarter ended September 30, 2004, as compared to a loss of $20,673 for the prior year comparable period. The losses 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. 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.



PLAN OF OPERATIONS



Liquidity and Capital Resources



The Company will require significant additional working capital to continue with the deployment of its business strategies. The Company also will require additional working capital funds for continuing payments for necessary corporate personnel and related general and administrative expenses.



As of September 30, 2004, the Company had cash-on-hand of $147,373, a negative working capital of $2,691,179
 and an accumulated deficit of $36,843,536.



Azco is continuing to seek funding for its mica project.  The Company anticipates financing these efforts during fiscal 2005 with minimal proceeds of the sale of mica-filled plastic pellets and mica powder, including cosmetic grade mica and from the sale of unused equipment.  In addition, the Company intends to obtain interim funding during fiscal 2005 by the sale of unregistered common stock to accredited investors.



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To the extent that additional capital is raised through the sale of equity or equity related securities, the issuance of such securities could result in the dilution of the current shareholders.



If and when financing is procured and production resumes, the Company expects that it will require a minimum of 12 months lead 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.



During the remainder of the Companys current fiscal year, the Company will concentrate on raising the necessary working capital through equity financing and acceptable debt facilities to insure the Companys ability to implement its business strategies.  The Company intends to seek to have the Companys securities quoted on the OTC Bulletin Board in 2006, which may provide a better ability to attract investors.  The Company is in process of completing the Companys Securities Act filings to facilitate this process.



We can make no assurance, however, that the Company will be able to have access to the capital markets in the future, or that the financing will be available on terms acceptable to satisfy the Companys anticipated cash requirements for operations.  The Companys inability to access various capital markets or acceptable financing could have a material effect on the Companys results of operations and deployment of the Companys business strategies and severely threaten the Companys ability to operate as a going concern.



Factors Affecting Future Operating Results



In an effort to bring the mica project to commercial production, fund the Companys corporate commitments and initiate an exploration program, Azco anticipates the need for at least $5.7 million of additional financing during the next 36 months, in order to fund the following anticipated uses:



|                                        |           
|--------------------------------------- | ----------
|Mica project operating losses           | $1,200,000
|Mica project capital expenditures       | 2,800,000 
|Corporate overhead and related expenses | 1,200,000 
|Exploration program                     | 500,000   
|Total funds required                    | $5,700,000



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 mica project revenues or with equity

components.



Management has developed a plan to place the Company on an improved financial footing.  Important elements of the plan include becoming compliant in the filing of the Companys annual and quarterly financial statements, raising of interim funding to provide for corporate survival, restructuring of debt with secured creditors and arrangement of funding of $4.0-$6.0 million.  An important priority has been to bring the financial reports current. The Company anticipates providing for interim financing of the Companys activities by selling mica, on a limited basis, to key customers in the plastics and cosmetic industries.  The Company has received verbal, non-binding expressions of interest for a larger project financing once the Company becomes compliant in the filing of its financial statements and its stock resumes trading on the Over the Counter Bulletin Board.  The Company will continue discussions with secured creditors concerning restructuring of debt and believe such restructuring may be possible in conjunction with a major project financing if such financing can be arranged.



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If the Company is unable to procure such additional funding, the Company may be required to eliminate substantially all business activities to conserve cash or may need to seek protection under the U.S. bankruptcy laws.



Off-Balance sheet Arrangements

During the three months ended September 30, 2004, the Company did not engage in any off-balance sheet arrangements as defined in Item 303(c) of the SECs Regulation S-B.



ITEM 3  CONTROLS AND PROCEDURES



The Companys Chief Executive Officer and also the Chief Financial Officer have evaluated the Registrants disclosure controls and procedures within 90 days of the filing date of this quarterly report.  Based upon this evaluation, the Companys Chief Executive Officer and Chief Financial Officer have concluded that the Companys disclosure controls and procedures pursuant to Exchange Act Rules 13a-15 and 15d-15 as of the end of the period covered by this report are effective in ensuring that material information required to be disclosed is included in the reports that it files with the Securities and Exchange Commission and were timely recorded, processed and reported within the time periods specified in the Securities and Exchange commission rules and forms.



There were no significant changes in the Companys internal controls or, to the knowledge of the management of the Company, in other factors that could significantly affect these controls subsequent to the evaluation date.



PART II

OTHER INFORMATION



ITEM 2.

UNREGISTERED SALE AND OTHER DISTRIBUTIONS OF EQUITY SECURITIES AND USE OF PROCEEDS



During the quarter ended September 30, 2004, the Company sold 2,560,000 shares of restricted common stock at $0.10 per share with an aggregate value of $256,000.



During the quarter ended September 30, 2004, the Company issued 312,000 shares of restricted common stock with an aggregate market value of $54,440 as a finders fee under the August 2003 agreement.



During the quarter ended September 30, 2004, the Company issued 150,000 shares of restricted common stock for services with an aggregate market value of $22,500.



On September 23, 2004, the Company issued 1,000,000 shares of unregistered common stock with an aggregate value of $180,000, based on the fair market value on the transaction date. The total reduction of accrued wages amounted to $100,000 and the balance of $80,000 has been recorded as general and administrative stock compensation expense.



In July 2004, the Company granted a total of 3,000,000 stock options at an exercise price of $0.10 per share 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 vest on the date of grant.



Proceeds received from the sale of common stock were utilized as working capital for operations.



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



None.



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ITEM 6.     EXHIBITS



(a)

The following exhibits are filed as part of this report:



31.1 Certification of Chief Executive officer and Chief accounting Officer of Periodic Report pursuant to Rule 13a-14a and Rule 15d-14(a).



32.1 Certification of Chief Executive officer and Chief accounting Officer pursuant to 18 U.S.C.  Section 1350.









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SIGNATURES



In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



|                      |                                                                                                                                     
|--------------------- | ------------------------------------------------------------------------------------------------------------------------------------
|Dated:  July 26, 2006 | AZCO MINING INC,

By:  /s/ Pierce Carson
Pierce Carson
Chief Executive Officer, President,
Director and Principal Accounting Officer









































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CERTIFICATION FOR QUARTERLY REPORTS ON FORM 10-QSB



I, Pierce Carson, certify that:



1.

I have reviewed this quarterly report on Form 10-QSB of Azco Mining Inc. (Registrant) for the quarter ended September 30, 2004;



2.

Based on my knowledge, this quarterly report does not contain any untrue statement of a material factor omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;



3.

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this quarterly report;



4.

The Registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and we have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and

5.   The Registrants other certifying officer and I have disclosed, based on our most recent evaluation,   to the Registrants auditors and the audit committee of Registrants board of directors (or persons performing the equivalent function):

(a)

All significant deficiencies in the design or operation of internal controls which could adversely affect the Registrants ability to record, process, summarize and report financial information; and



(b)  Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrants internal control over financial reporting.





Date:  July 26, 2006

By: /s/ Pierce Carson

Pierce Carson

Chief Executive Officer, President, Director

and Principal Accounting Officer





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CERTIFICATION





Pursuant to 18 U.S.C. § 1350, the undersigned officer of Azco Mining Inc. (the Company) hereby certifies that the Companys Quarterly Report on Form 10-Q for the quarter ended September 30, 2004, (the Report) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.





Date:  July 26, 2006



By: /s/ Pierce Carson

Pierce Carson

Chief Executive Officer, President, Director

and Principal Accounting Officer





























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