##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

|    |  |                                                                                        
|--- |  | ---------------------------------------------------------------------------------------
|[X] |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2001

OR

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

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

7239 N. El Mirage RoadGlendale, Arizona 85307(Address of principal executive offices)
(Zip Code)

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

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes X       No

Indicate the number of shares outstanding of each of the issuers classes
of common stock, as of the latest practicable date.

The Company had 30,050,621 shares of Common Stock outstanding as of May
10, 2001.





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|                                                   |  |  |  |  |  |  |  | 
|-------------------------------------------------- |  |  |  |  |  |  |  | 
|Consolidated Balance Sheets                       
|Consolidated Statements of Operations             
|Consolidated Statements of Cash Flows             
|Consolidated Statement of Stockholders' Equity    
|Notes to Interim Consolidated Financial Statements



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##### Table of Contents



AZCO MINING INC.

PART I.  FINANCIAL INFORMATION

Item 1. Financial Statements

|                                                   |  |      |   | 
|-------------------------------------------------- |  | ---- | - | 
|                                                   |  | Page |  
|                                                   |  |      |  
|Consolidated Balance Sheets                        |  |      | 3 | 
|                                                  
|                                                  
|                                                  
|                                                  
|Consolidated Statements of Operations              |  |      | 4 | 
|                                                  
|                                                  
|                                                  
|                                                  
|Consolidated Statements of Cash Flows              |  |      | 5 | 
|                                                  
|                                                  
|                                                  
|                                                  
|Consolidated Statement of Stockholders Equity     |  |      | 6 | 
|                                                  
|                                                  
|                                                  
|                                                  
|Notes to Interim Consolidated Financial Statements |  | 7    |  

-2-



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##### Table of Contents



AZCO MINING INC.
CONSOLIDATED BALANCE SHEETS







ASSETS

|                                                                                      |                                                  |                                            |  |                |             |               |  |            |             |            | 
|------------------------------------------------------------------------------------- | ------------------------------------------------ | ------------------------------------------ |  | -------------- | ----------- | ------------- |  | ---------- | ----------- | ---------- | 
|                                                                                      |                                                  |                                            |  | March 31, 2001 |             | June 30, 2000 | 
|                                                                                      |                                                  |                                            |  | (unaudited)    |             | (audited)     | 
|                                                                                      |                                                  |                                            |  |                |             |               | 
|Current assets:                                                                      
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                      | Cash and cash equivalents                        |                                            |  | $              | 838,819     |               |  | $          | 4,324,886  
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                      | Prepaids and other                               |                                            |  |                | 188,105     |               |  |            | 124,077     |           
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                      | Inventories (note 5)                             |                                            |  |                | 1,061,447   |               |  |            | 1,000,778   |           
|                                                                                      |                                                  |                                            |  |                |            
|                                                                                      |                                                  | Total current assets                       |  |                |             | 2,088,371     |  |            |             | 5,449,741  | 
|                                                                                      |                                                  |                                            |  |                |            
|Property and equipment:                                                              
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                      | Mineral properties, plant and equipment (note 2) |                                            |  |                | 10,019,417  |               |  |            | 7,933,857   |           
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                      | Capital assets                                   |                                            |  |                | 200,120     |               |  |            | 247,725     |           
|                                                                                      |                                                  |                                            |  |                |            
|                                                                                      |                                                  |                                            |  | 10,219,537     |             |               |  | 8,181,582  |            
|                                                                                      |                                                  |                                            |  |                |            
|Investments and advances                                                              |                                                  |                                            |  | 50,588         |             |               |  | 50,588     |            
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|Restricted cash                                                                       |                                                  |                                            |  | 190,400        |             |               |  | 190,400    |            
|                                                                                      |                                                  |                                            |  |                |            
|                                                                                      |                                                  | Total Assets                               |  |                | $           | 12,548,896    |  |            | $           | 13,872,311 | 
|                                                                                      |                                                  |                                            |  |                |            
|LIABILITIES AND STOCKHOLDERS EQUITY                                                 
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|Current liabilities:                                                                 
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                      | Accounts payable and accrued liabilities         |                                            |  | $              | 512,886     |               |  | $          | 566,028     |           
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                      | Short-term note payable (note 6)                 |                                            |  |                | 800,000     |               |  |            |            |           
|                                                                                      |                                                  |                                            |  |                |            
|                                                                                      |                                                  | Total current liabilities                  |  |                | $           | 1,312,886     |  |            | $           | 566,028    | 
|                                                                                      |                                                  |                                            |  |                |            
|Stockholders equity                                                                  |                                                  |                                            |  | 60,101         |             |               |  | 59,774     |            
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|Common stock: $.002 par value, 100,000,000 shares authorized:                        
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|30,050,621 shares outstanding as of March 31, 2001 and 29,887,121 as of June 30, 2000
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                      | Additional paid-in capital                       |                                            |  |                | 28,753,656  |               |  |            | 28,537,487  |           
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                      | Deficit                                          |                                            |  |                | (17,577,747 | )             |  |            | (15,290,978 | )         
|                                                                                      |                                                  |                                            |  |                |            
|                                                                                      |                                                  |                                            |  | 11,236,010     |             |               |  | 13,306,283 |            
|                                                                                      |                                                  |                                            |  |                |            
|                                                                                      |                                                  | Total liabilities and stockholders equity |  |                | $           | 12,548,896    |  |            | $           | 13,872,311 | 
|                                                                                      |                                                  |                                            |  |                |            

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

-3-



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AZCO MINING INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)







|                               |                                    |   |                    |         |   |                   |            |         |      |   |            |           |  |   |            |         | 
|------------------------------ | ---------------------------------- | - | ------------------ | ------- | - | ----------------- | ---------- | ------- | ---- | - | ---------- | --------- |  | - | ---------- | ------- | 
|                               |                                    |   | Three Months Ended |         |   | Nine Months Ended |           
|                               |                                    |   | March 31,          |         |   | March 31,         |           
|                               |                                    |   |                    |         |   |                   |           
|                               |                                    |   | 2001               |         |   | 2000              |            |         | 2001 |   |            | 2000      | 
|                               |                                    |   |                    |         |   |                   |            |         |      |   |            |           | 
|Expenses:                     
|                              
|                              
|                              
|                              
|                               | Cost of sales                      |   | $                  | 8,800   |   |                   | $          |        |      |   | $          | 8,800     |  |   | $          |        | 
|                              
|                              
|                              
|                              
|                               | Salaries                           |   |                    | 56,739  |   |                   |            | 211,077 |      |   |            | 375,934   |  |   |            | 634,823 | 
|                              
|                              
|                              
|                              
|                               | General and administrative         |   |                    | 130,214 |   |                   |            | 309,354 |      |   |            | 500,249   |  |   |            | 826,846 | 
|                              
|                              
|                              
|                              
|                               | Exploration
and development        |   |                    | 166,134 |   |                   |            | 165,696 |      |   |            | 360,626   |  |   |            | 459,362 | 
|                              
|                              
|                              
|                              
|                               | Write-down of inventory            |   |                    | 252,888 |   |                   |            |        |      |   |            | 1,132,532 |  |   |            |        | 
|                              
|                              
|                              
|                              
|                               | Write-off
of Calgem loan           |   |                    |        |   |                   |            | 250,000 |      |   |            |          |  |   |            | 250,000 | 
|                              
|                              
|                              
|                              
|                               | Write-off
of mica project start-up |   |                    |        |   |                   |            | 947,511 |      |   |            |          |  |   |            | 947,511 | 
|                              
|                              
|                              
|                              
|                               | Amortization
and depreciation      |   |                    | 15,841  |   |                   |            | 38,971  |      |   |            | 47,605    |  |   |            | 46,234  | 
|                              
|                              
|                              
|                              
|                               | Reclamation expense                |   |                    |        |   |                   |            |        |      |   |            | 371       |  |   |            |        | 
|                               |                                    |   |                    |         |   |                   |            |         |      |   |            |          
|                               |                                    | $ | 630,616            |         |   | $                 | 1,922,609  |         |      | $ | 2,426,117  |           |  | $ | 3,164,776  |        
|                               |                                    |   |                    |         |   |                   |            |         |      |   |            |          
|Income:                       
|                              
|                              
|                              
|                              
|                               | Sales of mica                      |   | $                  | 17,600  |   |                   | $          |        |      |   | $          | 17,600    |  |   | $          |        | 
|                              
|                              
|                              
|                              
|                               | Interest income                    |   |                    | 16,083  |   |                   |            | 100,737 |      |   |            | 120,768   |  |   |            | 362,108 | 
|                              
|                              
|                              
|                              
|                               | Other income                       |   |                    | 980     |   |                   |            |        |      |   |            | 980       |  |   |            | 277,500 | 
|                               |                                    |   |                    |         |   |                   |            |         |      |   |            |          
|                               |                                    |   | 34,663             |         |   |                   | 100,737    |         |      |   | 139,348    |           |  |   | 639,608    |        
|                               |                                    |   |                    |         |   |                   |            |         |      |   |            |           | 
|Net loss                       |                                    | $ | (595,953)          |         | $ |                   | (1,821,872 | )       |      | $ | (2,286,769 | )         |  | $ | (2,525,168 | )      
|                               |                                    |   |                    |         |   |                   |            |         |      |   |            |          
|Basic loss per common share    |                                    | $ | (0.02              | )       |   | $                 | (0.06      | )       |      | $ | (0.08      | )         |  | $ | (0.08      | )      
|                              
|                              
|                              
|                              
|Diluted loss per common share  |                                    | $ | (0.02              | )       |   | $                 | (0.06      | )       |      | $ | (0.08      | )         |  | $ | (0.08      | )      
|                               |                                    |   |                    |         |   |                   |            |         |      |   |            |          
|Weighted average common shares |                                    |   | 30,021,277         |         |   |                   | 29,847,681 |         |      |   | 29,934,234 |           |  |   | 29,838,034 |        

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

-4-



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AZCO MINING INC.
CONSOLIDATED STATEMENTS OF CASH
FLOWS (Unaudited)







|                                                 |                                                |                                          |            |                   |            |   |            |            |          |  
|------------------------------------------------ | ---------------------------------------------- | ---------------------------------------- | ---------- | ----------------- | ---------- | - | ---------- | ---------- | -------- | -
|                                                 |                                                |                                          |            | Nine Months Ended |           
|                                                 |                                                |                                          |            | March 31,         |           
|                                                 |                                                |                                          |            |                   |           
|                                                 |                                                |                                          |            | 2001              |            |   | 2000       |           
|                                                 |                                                |                                          |            |                   |            |   |            |           
|Cash flows from operating activities:           
|                                                
|                                                
|                                                
|                                                
|                                                 | Net loss                                       |                                          | $          | (2,286,769        | )          |   | $          | (2,525,168 | )       
|                                                
|                                                
|                                                
|                                                
|                                                 | Adjustments to reconcile net loss to net cash 
|                                                
|                                                
|                                                
|                                                
|                                                 | used in operations:                           
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                | Depreciation and amortization            |            |                   | 59,482     |   |            |            | 46,234   |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                | Gain on sale of Mali assets              |            |                   |           |   |            |            | (277,500 | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                | Gain
on sale of furniture and equipment  |            |                   | (980       | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                | Write-off of Calgem loan                 |            |                   |           |   |            |            | 250,000  |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                | Write-down of inventory                  |            |                   | 1,132,532  |   |            |            |         |  
|                                                
|                                                
|                                                
|                                                
|                                                 | Changes in assets and liabilities, net:       
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                | Prepaid and other assets                 |            |                   | 55,577     |   |            |            | (68,696  | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                | Inventories                              |            |                   | (1,193,201 | ) |            |            |         |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                | Accounts payable and accrued liabilities |            |                   | (53,142    | ) |            |            | (249,473 | )
|                                                 |                                                |                                          |            |                   |            |  
|Net cash used for operating activities           |                                                |                                          | (2,286,501 | )                 |            |   | (2,824,603 | )         
|                                                 |                                                |                                          |            |                   |            |  
|Cash flows from investing activities:           
|                                                
|                                                
|                                                
|                                                
|                                                 | Purchases of capital assets                    |                                          |            |                  |            |   |            | (146,452   | )       
|                                                
|                                                
|                                                
|                                                
|                                                 | Purchase
of mine property, plant and equipment |                                          |            | (2,097,437        | )          |   |            | (3,261,882 | )       
|                                                
|                                                
|                                                
|                                                
|                                                 | Proceeds from sale of Mali assets              |                                          |            |                  |            |   |            | 277,500    |         
|                                                
|                                                
|                                                
|                                                
|                                                 | Proceeds
from sale of furniture and equipment  |                                          |            | 980               |            |   |            |           |         
|                                                
|                                                
|                                                
|                                                
|                                                 | Investments and advances                       |                                          |            |                  |            |   |            | (250,000   | )       
|                                                 |                                                |                                          |            |                   |            |  
|Net cash used for investing activities           |                                                |                                          | (2,096,457 | )                 |            |   | (3,380,834 | )         
|                                                 |                                                |                                          |            |                   |            |  
|Cash
flows from financing activities:           
|                                                
|                                                
|                                                
|                                                
|                                                 | Proceeds from loan                             |                                          |            | 800,000           |            |   |            |           |         
|                                                
|                                                
|                                                
|                                                
|                                                 | Proceeds from exercise of options              |                                          |            | 96,891            |            |   |            | 23,218     |         
|                                                 |                                                |                                          |            |                   |            |  
|Net
cash provided by financing activities:       |                                                |                                          | 896,891    |                   |            |   | 23,218     |           
|                                                 |                                                |                                          |            |                   |            |  
|Net decrease in cash and cash equivalents        |                                                |                                          | (3,486,067 | )                 |            |   | (6,182,219 | )         
|                                                
|                                                
|                                                
|                                                
|Cash and cash equivalents at beginning of period |                                                |                                          | 4,324,886  |                   |            |   | 12,106,173 |           
|                                                 |                                                |                                          |            |                   |            |  
|Cash and cash equivalents at end of period       |                                                | $                                        | 838,819    |                   |            | $ | 5,923,954  |           
|                                                 |                                                |                                          |            |                   |            |  

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

-5-



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AZCO MINING INC.
CONSOLIDATED STATEMENT OF
STOCKHOLDERS EQUITY (Unaudited) (expressed in U.S. dollars)







|                       |  |              |            |  |        |   |        |  |            |  |  |         |  |   |            |  |  |   |             |  
|---------------------- |  | ------------ | ---------- |  | ------ | - | ------ |  | ---------- |  |  | ------- |  | - | ---------- |  |  | - | ----------- | -
|                       |  | Common Stock |            |  |        |   |        |  | Additional | 
|                       |  |              |            |  |        |   |        |  | Paid-In    | 
|                       |  | Shares       |            |  | Amount |   |        |  |            |  |  | Capital |  |   | Deficit    | 
|                       |  |              |            |  |        |   |        |  |            |  | 
|                       |  |              |            |  |        |  
|Balance June 30, 2000  |  |              | 29,887,121 |  |        | $ | 59,774 |  |            |  |  |         |  | $ | 28,537,487 |  |  | $ | (15,290,978 | )
|                      
|                      
|                      
|                      
|Exercise of options    |  |              | 163,500    |  |        |   | 327    |  |            |  |  |         |  |   | 96,564     |  |  |   |            |  
|                      
|                      
|                      
|                      
|Warrants (note 6)      |  |              |           |  |        |   |       |  |            |  |  |         |  |   | 119,605    |  |  |   |            |  
|                      
|                      
|                      
|                      
|Net loss               |  |              |           |  |        |   |       |  |            |  |  |         |  |   |           |  |  |   | (2,286,769  | )
|                       |  |              |            |  |        |   |        |  |            |  |  |         |  |   |            | 
|Balance March 31, 2001 |  |              | 30,050,621 |  |        | $ | 60,101 |  |            |  |  |         |  | $ | 28,753,656 |  |  | $ | (17,577,747 | )
|                       |  |              |            |  |        |   |        |  |            |  |  |         |  |   |            | 

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

-6-



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##### Table of Contents



Azco Mining Inc.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)







Note 1. Basis of Presentation and Going Concern

In the opinion of management the accompanying interim financial statements
contain all material adjustments consisting only of normal recurring
adjustments necessary to present fairly the financial position, the results of
operations and the cash flows of the Company and its consolidated subsidiaries
for the interim period. Users of financial information produced for interim
periods are encouraged to refer to the footnotes contained in the Annual Report
on Form 10-K when reviewing interim financial results.

Azco Mining Inc. (Azco or the Company) is a U.S. mining company with a
general business strategy to acquire and develop mineral properties amenable to
low cost production. The Company is currently focused on producing high
quality muscovite mica from its 100% owned Black Canyon mica project located in
Arizona, which is in the start-up, product testing and marketing phase. The
Company also has a 30% interest in a corporate joint venture with Phelps Dodge
Corporation to develop the Piedras Verdes copper project located in Sonora,
Mexico.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue to operate as a going concern.The Company
requires additional funds to continue operations, including development of the
Mica project and exploration of its mineral properties. Management is actively
seeking additional financing and joint venture agreements, however there is no
assurance that these efforts will be successful on terms acceptable to the
Company. These matters raise substantial doubt about the Companys ability to
continue as a going concern. These consolidated financial statements do not
include the adjustments that would be necessary, including a provision of
impairment for plant and equipment which could be significant, should the
Company be unable to continue as a going concern.

In addition, if the Mica project does not achieve commercial production levels
or if the Company is unable to successfully market the mica product during the
next 12 months, the Company will need increased additional financing to meet
its operating expenses.

Note 2. Black Canyon Mica Project (Arizona)

During the quarter ended March 31, 2001 there was no production at the
Companys Glendale, Arizona mica processing facility due to the ongoing
relocation and enhancement of the mica ore concentration circuit at the Black
Canyon mine site. Completion of the relocation and enhancement of the
concentration circuit will require funds in excess of the Companys current
available resources.

-7-



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##### Table of Contents



Azco Mining Inc.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Continued)

Detail of mica project mineral properties, plant and equipment is as follows:

|                                          |  |           |            |   |          |   |           |  
|----------------------------------------- |  | --------- | ---------- | - | -------- | - | --------- | -
|                                          |  | March 31, |            |   | June 30, |  
|                                          |  | 2001      |            |   | 2000     |  
|                                          |  |           |            |   |          |  
|Acquisition of mineral properties         |  | $         | 2,219,996  |   |          | $ | 2,219,996 |  
|                                         
|                                         
|                                         
|                                         
|Mining and processing plant and equipment |  |           | 6,771,618  |   |          |   | 4,714,375 |  
|                                         
|                                         
|                                         
|                                         
|Development costs                         |  |           | 1,104,966  |   |          |   | 1,064,772 |  
|                                         
|                                         
|                                         
|                                         
|Accumulated amortization                  |  |           | (77,163    | ) |          |   | (65,286   | )
|                                          |  |           |            |   |          |  
|Total                                     |  | $         | 10,019,417 |   |          | $ | 7,933,857 |  

Note 3. Piedras Verdes Project (Mexico)

The Company owns a 30% interest in Cobre del Mayo, S.A. de C.V. (Cobra del
Mayo), a Mexican corporation which leases the Piedras Verdes property. The
remaining 70% interest is owned by Minera Phelps Dodge Mexico S. de R.L. de
C.V. (MPDM), a subsidiary of Phelps Dodge Corporation. The property consists
of approximately 640 hectares and is located in southern Sonora State, Mexico.

Note 4. Mali Project (Northwestern Africa)

The Company is currently in a joint venture with Randgold Resources Limited
(Randgold) whereby Randgold has the right to earn up to 75% of the Companys
interest in West Africa Gold and Exploration S.A. (WAG). To earn this
interest Randgold has agreed, over a 36-month period commencing August 5, 1998,
to conduct exploration on the WAG property concessions at a minimum cost of $2
million, to determine if there is a viable economic gold resource, as defined
in the joint venture agreement, of at least one million ounces of gold. If
this requirement is satisfied, Randgold must prepare a bankable feasibility
study with respect to such resource for WAG within 12 months in order to earn
its interest therein.

-8-



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##### Table of Contents



Azco Mining Inc.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Continued)

Note 5. Inventories

|                |  |           |           |  |          |   |           | 
|--------------- |  | --------- | --------- |  | -------- | - | --------- | 
|                |  | March, 31 |           |  | June, 30 |  
|                |  | 2001      |           |  | 2000     |  
|                |  |           |           |  |          |  
|Broken ore      |  | $         | 814,107   |  |          | $ | 839,146   | 
|               
|               
|               
|               
|Work-in-process |  |           | 187,540   |  |          |   | 123,033   | 
|               
|               
|               
|               
|Finished goods  |  |           | 59,800    |  |          |   | 38,599    | 
|                |  |           |           |  |          |  
|Total           |  | $         | 1,061,447 |  |          | $ | 1,000,778 | 

During the three-month and the nine-month periods ended March 31, 2001 the
Company expensed $ 252,888 and $1,132,532, respectively, as inventory
write-downs representing mica project operating costs incurred in excess of the
estimated value of inventories produced during the quarter.

Note 6. Short-term note payable and warrants

On March 14, 2001, the Company received an unsecured loan from a related party
with an interest rate equal to the prime rate plus one percentage point, due on
March 14, 2002. In connection with this loan, the Company issued a warrant to
purchase 300,000 shares of the Companys common stock at $.70 per share. This
warrant vests in September 2001 and is excercisable until September 2006.

Note 7. Contingencies and Contracts

Termination of Management Agreements

In October 2000, the Company notified Mr. Alan Lindsay and Mr. Anthony Harvey
of its intention to not renew the contracts with each of their personal
management companies pursuant to which Mr. Lindsay was employed by the Company
as Chief Executive Officer and President and Mr. Harvey was employed by the
Company as Executive Vice President and Secretary. These contracts were
scheduled to expire in February 2001. Mr. Lindsay ceased serving as an officer
of the Company on October 25, 2000 and resigned as a director of the Company on
November 27, 2000. Mr. Harvey ceased serving as an officer of the Company on
October 25, 2000, but remains a director of the Company and its wholly owned
subsidiary, Azco Mica, Inc. Messrs. Lindsay and Harvey have demanded payment
of termination fees of $297,675 each, pursuant to their personal management
company contracts. The Company has disputed its obligation to pay these
amounts and, in December 2000, filed a declaratory judgment action in United
States District Court for the district of Arizona to determine its duties in
this regard. No accrual has been made for the termination fees because the
Company does not believe it is probable that the fees will have to be paid.

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Azco Mining Inc.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Continued)

Litigation

On January 22, 1999, the trustee (Petitioner) in bankruptcy proceedings against
Eagle River served a petition, in the Quebec Superior Court, District of Hull,
upon the Company in order to recover assets from the Company. The Petitioner
alleges that, through the Companys involvement with Eagle River in the Mali
Project, the Company is guilty of contractual breaches in excess of $3,400,000.
In managements opinion this claim is unfounded although the eventual outcome
of the case is not yet determinable. No accrual has been made for this claim
because the Company does not believe it is probable that liability will be
assessed against the Company.

Note 8. Outstanding Options

At March 31, 2001, 2,765,500 options to purchase shares of the Companys common
stock were outstanding under the Companys Stock Option Plan. These options are
exercisable between $0.48 and $3.00 per common share at varying dates through
2004.

Pro forma information regarding net income and earnings per share is required
by SFAS No. 123, and has been determined as if the Company had accounted for
its Stock Option Plan under the fair value based method of SFAS No. 123. The
fair value of these options was estimated at the date of grant using a
Black-Scholes options valuation model with the following weighted-average
assumptions for the 9 months period ended March 31, 2001: risk-free interest
4.61%, no dividend, volatility factor of the expected market price of the
Companys stock of 0.62, and an expected life of 5 years.

Note 9. Segment information

The Company has one operating sector: mica production and the exploration and
development of mineral properties. Geographical segment information is as
follows:

|               |                        |  |     |            |  |       |  |        |       |  |  |            | 
|-------------- | ---------------------- |  | --- | ---------- |  | ----- |  | ------ | ----- |  |  | ---------- | 
|               |                        |  | USA |            |  | Other |  |        | Total | 
|               |                        |  | $   |            |  | $     |  |        | $     | 
|               |                        |  |     |            |  |       |  |        |       | 
|March 31, 2001
|              
|              
|              
|              
|               | Property and equipment |  |     | 10,219,537 |  |       |  | -      |       |  |  | 10,219,537 | 
|               |                        |  |     |            |  |       |  |        |      
|June 30, 2000 
|              
|              
|              
|              
|               | Property and equipment |  |     | 8,127,420  |  |       |  | 54,162 |       |  |  | 8,181,582  | 
|               |                        |  |     |            |  |       |  |        |      

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Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations

Managements Discussion and Analysis of Financial Condition and Results of
Operations contains statements concerning trends and other forward-looking
information, within the meaning of the federal securities laws. Such
forward-looking statements are subject to uncertainties and factors relating to
our operations and business environment, all of which are difficult to predict
and many of which are beyond our control. We believe that the following
factors, among others, could affect our future performance and cause actual
results to differ materially from those expressed or implied by forward-looking
statements made by us or on our behalf: (1) 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; (2) the lack of commercial
acceptance of our mica product; (3) changes in environmental laws; (4) problems
regarding availability of materials and equipment; (5) 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; and (6) our lack of necessary financial resources
to complete development of the mica product, complete relocation of the mica
processing equipment to the Black Canyon mica mine site, successfully market
our mica product and fund our other capital requirements.

References to we, us, our, and Azco Mining, refer to Azco Mining Inc. and
its subsidiaries, on a consolidated basis, unless the context otherwise
requires.

General

We were formed in 1988. In December 1995 we sold our Sanchez copper project
and a 70% interest in our Mexican copper project, the Piedras Verdes, to Phelps
Dodge Corporation for $40 million. All material revenues since the sale have
been a result of interest earned on the proceeds of the sale of these assets.

We are currently focused on the start up of our recently constructed operating
facilities to produce high quality muscovite mica from our 100% owned Black
Canyon mica project located near Phoenix, Arizona.

We are continuing our mica marketing efforts in the cosmetic industry but
lead-time required in product testing has been longer than anticipated.
Testing of our mica in the formulation of plastic compounds has been
encouraging and we are in the process of toll extruding batches of mica filled
plastic pellets for marketing purposes. Negotiations continue with mineral
brokers on the sales of our feldspathic sand.

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Results of Operations

Three Months ended March 31, 2001 compared to Three Months ended
March 31, 2000.

Salaries expense was $56,739 for the three months ended March 31, 2001 compared
to $211,077 for the three months ended March 31, 2000. The decrease in
salaries expense was due to the non-renewal of the contracts with the personal management companies of Messrs.
Lindsay and Harvey, and the closure of the Vancouver office.

General and administrative expense was $130,214 for the three months ended
March 31, 2001 compared to $309,354 for the three months ended March 31, 2000.
The decrease was due to the closure of the Vancouver office and decreased
investor relations activity.

Income for the three months ended March 31, 2001 was $34,663 compared to
$100,737 for the three months ended March 31, 2000. The decrease in income for
the current period was due to largely reduced interest income.

The net loss for the three months ended March 31, 2001 was $595,953 compared to
a net loss of $1,821,872 for the three months ended March 31, 2000. The
decreased net loss was primarily the result of the $947,511 write-off of mica project
start-up costs and the $250,000 write-off of the Calgem loan in the period ended
March 31, 2000, which was partially offset by the $252,888 write-down of inventory in the period ended March 31, 2001.

Nine Months ended March 31, 2001 compared to Nine Months ended
March 31, 2000.

Salaries expense was $375,934 for the nine months ended March 31, 2001 compared
to $634,823 for the nine months ended March 31, 2000. The decrease in salaries
expense was due to the closure of the Vancouver office and, and the non-renewal
of the contracts with the personal management companies of Messrs. Lindsay and
Harvey.

General and administrative expense was $500,249 for the nine months ended March
31, 2001 compared to $826,846 for the nine months ended March 31, 2000. The
decrease was due to our decreased corporate and investor relations activity.

Exploration and development expense was $360,626 for the nine months ended
March 31, 2001 compared to $459,362 for the nine months ended March 31, 2000.
The decrease was due to our decreased exploration efforts in general.

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During the nine months ended March 31, 2001, $1,132,532 in operating costs were
expensed as a write-down of inventory values. This was offset during the nine
months ended March 31, 2000 by a $250,000 write-off of the Calgem loan and a
$947,511 write-off of mica project start-up costs.

Income for the nine months ended March 31, 2001 was $139,348 compared to
$639,608 for the nine months ended March 31, 2000. The decrease in income for
the current period is due to reduced interest income and a non-recurring gain
of $277,500 on the sale of Mali exploration camp assets in the period ended
March 31, 2000.

The net loss for the nine months ended March 31, 2001 was $2,286,769
compared to a net loss of $2,525,168 for the nine months ended
March 31, 2000. The decrease in net loss was primarily the result of the
non-recurring $947,511 write-off of the mica project start-up costs, and the
$250,000 write-off of the Calgem loan in the period ended March 31, 2000,
as well as, the reduced general administrative expense and salaries expense
discussed above. These reductions were partially offset
by the $1,132,532 write-down of inventory in the 2001 period.

FINANCIAL CONDITION

As of March 31, 2001 we had unrestricted cash of $838,819.

In March 2001, Lawrence G. Olson, jointly with his wife, made an unsecured loan
to the us 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. Interest
on the loan is payable in monthly installments and all principal and accrued
interest is due in full on March 14, 2002. In connection with this loan, we
issued to Mr. Olson a warrant to purchase 300,000 shares of our common stock at
$0.70 per share, the closing market price on the American Stock Exchange on the
business day preceding the date of issuance.

We believe that for the current fiscal year ended June 30, 2001 and through the
first half of fiscal 2002, we will need additional financing to fund our
operating and capital requirements. In particular, we anticipate the need for
at least $2 million of additional financing during the next 12 months, in order
to fund the following expected uses:

|                                                |                             |   |         |           | 
|----------------------------------------------- | --------------------------- | - | ------- | --------- | 
|Mica project operating costs                    |                             | $ | 600,000 |          
|                                               
|                                               
|                                               
|                                               
|Mica project capital expenditures               |                             |   | 650,000 |          
|                                               
|                                               
|                                               
|                                               
|Corporate overhead and other operating expenses |                             |   | 450,000 |          
|                                               
|                                               
|                                               
|                                               
|Exploration and development                     |                             |   | 300,000 |          
|                                                |                             |   |        
|                                                | Total Expected Use of Funds |   | $       | 2,000,000 | 

If our mica project does not achieve commercial production levels or if we are
unable to successfully market the mica product during the next 12 months, we
will need increased additional funding to meet our operating expenses.

Under the Cobre del Mayo shareholders' agreement, we are obligated to fund 30%
of the development expenses incurred in connection with the Piedras Verde
project. The type, amount and timing of development are determined at the sole
discretion of Phelps Dodge. During the three months and nine months ended
March 31, 2001 our share of these development costs was $109,500 and $148,500,
respectively. We expect that our share of the required development costs
during the next 12 months will be approximately $250,000, which amount is
included in our expected uses of funds, above. The required amount could be
more, perhaps substantially more, if Minera Phelps Dodge accelerates the rate
of development. If we cannot fund our share of

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these development expenses, our interest in Cobre del Mayo will be diluted
under the terms of the shareholders' agreement.

In conjunction with the departure of Alan Lindsay and Anthony Harvey on October
25, 2000, we may be obliged to pay termination fees under the terms of the
management agreements between us and the personal management companies pursuant
to which we employed each of Messrs. Lindsay and Harvey. Messrs. Lindsay and
Harvey have demanded payment of termination fees of $297,675 each, pursuant to
their personal management company contracts. We have disputed any obligation
to pay these amounts and, in December 2000, filed a declaratory judgement
action in the United States District Court for the District of Arizona to
determine our duties in this regard. This litigation is pending. See
Item 1 of Part II, below.

We are currently exploring various financing and joint venture alternatives to
fund our operations and capital requirements for the next 12 months. We do not
presently have any commitments to provide such necessary additional financing
and there is no assurance that we will be successful in obtaining such
financing on terms acceptable to us or at all. If we cannot obtain such
financing in the amounts required, we (i) may be unable to fund our required
development expense of the Piedras Verdes project, resulting in substantial
dilution of our interest, (ii) may be forced to delay or terminate the
development and marketing of our mica product, thereby hindering or eliminating
our expected primary source of future revenue, (iii) may be required to
eliminate substantially all business activities to conserve cash, or (iv) may
seek protection under the U.S. bankruptcy laws.

Item 3: Quantitative and Qualitative Disclosures about Market Risk

None.

PART II. OTHER INFORMATION

Item 1: Legal Proceedings

On December 8, 2000, we filed a declaratory judgment action in the United
States District Court for the District of Arizona, Docket No. CIV 00-2334 PHX
SRB, against each of Anthony R. Harvey, ARH Management, Ltd., Alan Lindsay and
Alan Lindsay & Associates, Ltd. The action seeks a declaratory judgment
regarding our obligation to pay termination fees under the management
agreements between us and each of ARH Management, Ltd. and Alan Lindsay &
Associates, Ltd., as a result of our non-renewal of such agreements. We
employed Mr. Lindsay as Chief Executive Officer and President pursuant to the
management agreement between us and Alan Lindsay & Associates, Ltd. We
employed Mr. Harvey as Executive Vice President and Secretary pursuant to the
management agreement between us and ARH Management, Ltd. Upon the non-renewal
of these management agreements, Messrs. Lindsay and Harvey each demanded payment
of a termination fee equal to $297,675 pursuant to the terms of their
respective

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management agreement. We asserted in the complaint that these termination fee
provisions are unfair and unbalanced, if not unconscionable, and should not
have been included in the management agreements, and would not have been so
included had Messrs. Lindsay and Harvey caused Azco Mining to obtain
independent legal counsel to advise Azco Mining with regard to the provisions
of the management agreements. We further asserted that the inclusion of the
termination fee provisions was a breach by Messrs. Lindsay and Harvey of their
fiduciary duties to Azco Mining as directors and executive officers and
constituted misconduct. Mr. Lindsay no longer serves as an executive officer
or director. Mr. Harvey no longer serves as an executive officer, but remains
a director of the Company and its wholly owned subsidiary, Azco Mica, Inc. On
January 8, 2001, the named defendants filed an answer and counterclaim seeking
damages for breach of contract, violation of Arizona Revised Statutes Section
23-353 for failing to pay wages and compensation due and unjust enrichment.
The litigation is pending.



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SIGNATURES

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

|      |  |              |  |  |  |     |  |  |                                                                                |                              
|----- |  | ------------ |  |  |  | --- |  |  | ------------------------------------------------------------------------------ | -----------------------------
|      |  |              |  |  |  |     |  |  |                                                                                | AZCO MINING INC.
(Registrant)
|     
|Date: |  | May 14, 2001 |  |  |  | BY: |  |  | /s/ Lawrence G. Olson
Lawrence G. OlsonCEO, President and Chairman            
|     
|Date: |  | May 14, 2001 |  |  |  | BY: |  |  | /s/ Ryan A. Modesto
Ryan A. Modesto
Vice President Finance,Corporate Secretary

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