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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON,D.C.20549

FORM 10-QSB/A(Amendment No. 1)

(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, 2007

[   ] 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)  |                                  

1128 Pennsylvania NE, Suite 200 Albuquerque, NM 87110(Address of principal executive offices)

(505) 255-4852(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 ]

Indicate by check mark whether the registrant is a shell company
(as referred in Rule 12b-2 of the Exchange Act).

Yes [   ]  No [ x ]

The number of shares outstanding of each of the issuers classes
of common equity was 71,082,286 shares of common stock, par value $0.002, as of
June 14, 2007.

Transitional Small Business Disclosure Format (check one):

Yes [   ]  No [ x ]

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Explanatory Note

This Amendment No. 1 to the Quarterly Report on Form 10-QSB/A
for the fiscal quarter ended March 31, 2007, is being filed for the purpose
correcting an error and restating the financial statements referencing the
elimination of a derivative financial liability associated with the exercise
warrants, as described in more detail in Note 3 to the Unaudited Consolidated
Financial Statements.

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|AZCO MINING INC.                    
|------------------------------------
|INDEX TO FORM 10-QSB/A              
|FOR THE QUARTER ENDED MARCH 31, 2007
|                                    
|                                    
|TABLE OF CONTENTS                   
|                                    
|PART I                              
|FINANCIAL INFORMATION               

|                  |                                                                                                                           | **Page**
|----------------- | ------------------------------------------------------------------------------------------------------------------------- | --------
|Item 1.           | Financial Statements                                                                                                      | 2       
|                  | Consolidated Balance Sheet, March
      31, 2007 (Unaudited)                                                              | 2       
|                  | Consolidated
      Statements of Operations For the Three and Nine Months Ended March 31, 2007
      and 2006 (Unaudited) | 3       
|                  | Consolidated Statements of Cash
      Flows For the Nine Months Ended March 31, 2007 and 2006 (Unaudited)                 | 4       
|                  | Notes to the Consolidated Financial
      Statements (Unaudited)                                                          | 5       
|                  |                                                                                                                           |         
|Item 2.           | Managements Discussion
      and Analysis and Plan of Operations                                                         | 12      
|                  |                                                                                                                           |         
|Item 3.           | Controls and Procedures                                                                                                   | 16      
|PART II          
|OTHER INFORMATION
|                  |                                                                                                                           |         
|Item 2.           | Changes in Securities and Use
      of Proceeds                                                                           | 16      
|                  |                                                                                                                           |         
|Item 4.           | Submission of Matters to a Vote
      of Security Holders                                                                 | 16      
|                  |                                                                                                                           |         
|Item 6.           | Exhibits                                                                                                                  | 17      
|                  |                                                                                                                          
|SIGNATURES        | 17                                                                                                                       

1

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|Part I               
|---------------------
|Financial Information

Item 1. Financial Statements

|AZCO MINING INC.
|----------------
|March 31, 2007  
|(UNAUDITED)     

|ASSETS                                                            |   | (Restated)  |  
|----------------------------------------------------------------- | - | ----------- | -
|CURRENT ASSETS:                                                   |   |             |  
|Cash and cash equivalents                                         | $ | 990,737     |  
|Prepaid expenses                                                  |   | 164,170     |  
|Total Current Assets                                              |   | 1,154,907   |  
|CAPITAL ASSETS:                                                   |   |             |  
|Mineral properties                                                |   | 282,000     |  
|Machinery
      and equipment, net                                |   | 992,745     |  
|Buildings, net                                                    |   | 37,000      |  
|                                                                  |   | 1,311,745   |  
|OTHER ASSETS:                                                     |   |             |  
|Idle plant
      and equipment, net                               |   | 1,581,000   |  
|Restricted cash                                                   |   | 178,658     |  
|Deposit                                                           |   | 2,683       |  
|Deferred financing costs                                          |   | 162,554     |  
|                                                                  |   | 1,924,895   |  
|                                                                  | $ | 4,391,547   |  
|                                                                  |   |             |  
|LIABILITIES AND STOCKHOLDERS' (DEFICIT)                           |  
|CURRENT LIABILITIES:                                              |   |             |  
|Accounts payable and accrued
      liabilities                    | $ | 989,862     |  
|Line of credit                                                    |   | 73,145      |  
|Convertible debentures payable,
      less discount of $1,799,022 |   | 1,037,225   |  
|Derivative
      instrument liabilities                           |   | 5,853,002   |  
|Total Current Liabilities                                         |   | 7,953,234   |  
|                                                                  |   |             |  
|LONG TERM LIABILITIES:                                            |   |             |  
|Asset retirement
      obligation                                 |   | 74,059      |  
|Total Liabilities                                                 |   | 8,027,293   |  
|                                                                  |   |             |  
|STOCKHOLDERS' (DEFICIT):                                          |   |             |  
|Common stock,
      $.002 par value, 100,000,000 shares           |   |             |  
|authorized and 69,616,700 shares issued and outstanding           |   | 139,234     |  
|Additional
      paid in capital                                  |   | 41,546,665  |  
|Deferred compensation                                             |   | (26,538     | )
|Accumulated
      (deficit)                                       |   | (45,295,107 | )
|Total Stockholders' (Deficit)                                     |   | (3,635,746  | )
|                                                                  | $ | 4,391,547   |  

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

2

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|AZCO MINING INC.                     
|-------------------------------------
|CONSOLIDATED STATEMENTS OF OPERATIONS
|(UNAUDITED)                          

|                                                                   |   | Three Months Ended |   |   | Nine Months Ended |  
|------------------------------------------------------------------ | - | ------------------ | - | - | ----------------- | -
|                                                                   |   | March 31,          |   |   | March 31,         |  
|                                                                   |   | 2007               |   |   | 2006              |  
|                                                                   |   |                    |   |   |                   |  
|SALES                                                              | $ | -                  |   | $ | 1,205             |  
|                                                                   |   |                    |   |   |                   |  
|OPERATING COSTS AND EXPENSES:                                      |   |                    |   |   |                   |  
|Mine related costs                                                 |   | 105,995            |   |   | 41,427            |  
|General and administrative                                         |   | 348,415            |   |   | 273,403           |  
|General and administrative - stock
      compensation              |   | 8,846              |   |   | 444,362           |  
|Depreciation and
      amortization                                |   | 1,969              |   |   | 6,170             |  
|Accretion of asset retirement obligation                           |   | 1,250              |   |   | 1,250             |  
|                                                                   |   | 466,475            |   |   | 766,612           |  
|                                                                   |   |                    |   |   |                   |  
|(LOSS) FROM OPERATIONS                                             |   | (466,475           | ) |   | (765,407          | )
|                                                                   |   |                    |   |   |                   |  
|OTHER INCOME (EXPENSE):                                            |   |                    |   |   |                   |  
|(Loss) gain on sale of asset                                       |   | -                  |   |   | -                 |  
|Gain on conversion
      of debt                                   |   | -                  |   |   | -                 |  
|Gain (adjustment) on settlement
      of financing lease liability |   | (12,911            | ) |   | -                 |  
|Miscellaneous income                                               |   | 4,735              |   |   | -                 |  
|Relief of debt                                                     |   | -                  |   |   | -                 |  
|Foreign currency
      translation gain (loss)                     |   | (377               | ) |   | 38                |  
|Gain (loss) on derivative instrument
      liabilities             |   | 1,042,098          |   |   | 356,829           |  
|Interest income                                                    |   | 13,086             |   |   | 3,121             |  
|Accretion of discounts on notes
      payable and lease liability  |   | (1,093,730         | ) |   | (57,925           | )
|Interest expense                                                   |   | (223,798           | ) |   | (26,175           | )
|                                                                   |   | (270,897           | ) |   | 275,888           |  
|                                                                   |   |                    |   |   |                   |  
|(LOSS) BEFORE PROVISION FOR INCOME TAXES                           |   | (737,372           | ) |   | (489,519          | )
|                                                                   |   |                    |   |   |                   |  
|PROVISION FOR INCOME TAXES                                         |   | -                  |   |   | -                 |  
|                                                                   |   |                    |   |   |                   |  
|NET (LOSS)                                                         | $ | (737,372           | ) | $ | (489,519          | )
|                                                                   |   |                    |   |   |                   |  
|Basic and Diluted (Loss) Per Common Share                          | $ | (0.01              | ) | $ | (0.01             | )
|                                                                   |   |                    |   |   |                   |  
|Basic and Diluted - Weighted Average Number of                     |   |                    |   |   |                   |  
|Common Shares Outstanding                                          |   | 68,783,331         |   |   | 63,458,945        |  

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

3

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|AZCO MINING INC.                     
|-------------------------------------
|CONSOLIDATED STATEMENTS OF CASH FLOWS
|(UNAUDITED)                          

|                                                     |   | Nine Months Ended March 31, |  
|---------------------------------------------------- | - | --------------------------- | -
|                                                     |   | 2007                        |  
|                                                     |   | (Restated)                  |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                |   |                             |  
|Net (loss)                                           | $ | (1,967,356                  | )
|                                                     |   |                             |  
|Adjustments to reconcile
      net (loss) to         |   |                             |  
|net cash
      (used in) operating activities:       |   |                             |  
|Depreciation and amortization                        |   | 11,946                      |  
|Stock compensation                                   |   | 28,858                      |  
|Interest expense paid with issuance of stock         |   | 157,570                     |  
|Accretion of asset retirement liability              |   | 3,750                       |  
|Accretion of discount on debt liabilities            |   | 1,960,272                   |  
|Loss (gain) on sale of equipmemt                     |   | 7,500                       |  
|Relief of debt                                       |   | (893                        | )
|Gain on settlement of financing lease liability      |   | (2,870,369                  | )
|Gain on conversion of debt                           |   | -                           |  
|Foreign currency translation (gain) loss             |   | (1,179                      | )
|Deferred finance costs                               |   | 128,916                     |  
|Loss on derivative instrument liability              |   | 1,225,917                   |  
|Net change in current assets
      and liabilities:  |   |                             |  
|Prepaid expenses                                     |   | (2,308                      | )
|Deposit                                              |   | (2,683                      | )
|Accounts payable and accrued liabilities             |   | (31,596                     | )
|Accrued financing lease payable                      |   | 180,000                     |  
|Net Cash (Used in) Operating Activities              |   | (1,171,655                  | )
|                                                     |   |                             |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                |   |                             |  
|Proceeds from asset disposition                      |   | 2,500                       |  
|Fixed asset
      addition                           |   | (5,500                      | )
|Net Cash Provided by (Used in) Investing Activities  |   | (3,000                      | )
|                                                     |   |                             |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                |   |                             |  
|Proceeds
      from sale of common stock             |   | -                           |  
|Proceeds from convertible
      debenture notes      |   | 1,000,000                   |  
|Deferred
      finance costs                         |   | (100,000                    | )
|Net cash Provided by Financing Activities            |   | 900,000                     |  
|                                                     |   |                             |  
|NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS |   | (274,655                    | )
|                                                     |   |                             |  
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD       |   | 1,265,392                   |  
|                                                     |   |                             |  
|CASH AND CASH EQUIVALENTS, END OF PERIOD             | $ | 990,737                     |  

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

4

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|AZCO MINING INC.                              
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|MARCH 31, 2007                                
|(UNAUDITED)                                   

NOTE 1 NATURE OF OPERATIONS

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

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 notes to the financial
statements 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 nine-month period ended March 31, 2007,
are not necessarily indicative of the results that may be expected for the year
ended June 30, 2007. The unaudited consolidated financial statements should be
read in conjunction with the audited consolidated financial statements and notes
thereto for the fiscal year ended June 30, 2006, included in the Companys
Annual Report on Form 10-KSB, as filed with Securities and Exchange Commission.

Basis of Presentation and Going Concern

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

The Company incurred a net loss of ($1,967,356) for the nine
months ended March 31, 2007, and has a total accumulated deficit of
($45,295,107) at March 31, 2007. To continue as a going concern, the Company is
dependent on continued fund raising for project development. However, the
Company has no commitment from any party to provide additional capital and there
is no assurance that such funding will be available when needed, or if
available, that its terms will be favorable or acceptable to the Company.

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

NOTE 2SALE OF REAL PROPERTY AND SETTLEMENT
OF FINANCING LEASE

On November 3, 2006, the Company concluded a Real Property
Purchase Agreement with Muzz Investments, LLC (Muzz) for the sale of the
Company's 60% ownership interests in real estate and buildings at its Glendale,
Arizona location. The sale included approximately five acres of land, a 5,000
sq. ft. office building and an 18,000 sq. ft. mill building. Under the
Agreement, the Company retained ownership of its mica processing equipment
installed in the mill building. In January 2007, the Company removed the
equipment and transported it to a storage site for future use. The equipment is
included in idle equipment in the accompanying financial statements. As part of
the transaction, the Company also agreed to provide for the exercise of
2,550,000 warrants granted to Muzz in 2002 and to issue 2,550,000 unregistered
shares of its common stock to Muzz. In consideration for Companys entry into
the Real Property Purchase Agreement and the issue of the unregistered stock in
settlement of the Muzz warrants, Muzz agreed to terminate the 2002 financing
lease agreement and to cancel all of the outstanding financial obligations under
the lease.

The Muzz transaction eliminates liabilities aggregating
approximately $5,575,000, consisting of debt obligations related to the lease
aggregating approximately $4,936,500 and a derivative financial liability
associated with the Muzz warrants of approximately $638,500 that was
reclassified to equity; removes a net book value of property and equipment of
approximately $533,000 and deferred lease costs of $86,100; and, in connection
with the exercise of the 2,550,000 Muzz warrants, results in an equity entry of
$1,275,000. The Company recognized a gain on the transaction of $2,883,280, net
of

5

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costs associated with the transaction, in our financial
statements for the quarter ended December 31, 2006. Additional costs
attributable to the transaction were incurred in the quarter ended March 31,
2007, aggregating $12,911, resulting in an adjusted gain of $2,870,369.

NOTE 3-SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES

Restatement of Elimination of Derivative Financial Liability
and Correction of an Error

The Company originally treated the elimination the associated
derivative financial liability as a component of the total sales transaction. A
subsequent review of EITF 00-19 disclosed that the transaction should be a
two-step transaction. The adjusted derivative financial liability at the time of
the transaction would be reclassified from a liability to equity as the
associated warrants were exercised at the time of the transaction. The Company
has herein restated the elimination of the associated derivative financial
liability to reflect EITF 00-19. The correction increased Additional Paid in
Capital on the balance sheet by $638,537 and reduced the Gain on Settlement of
Financing Lease Liability by an offsetting amount in the Statement of
Operations. Basic and diluted income (loss) per share was affected by a
reduction and an increase of $0.01 per share, respectively.

Derivative Financial Instruments

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

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

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

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

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

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 are calculated by dividing net income
(loss) by the weighted average number of common shares outstanding for the
period. Diluted earnings (loss) per share are 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.

6

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Stock-Based Compensation  Transition and
Disclosure

The Company accounts for equity instruments issued to employees
for services based on the fair value of the equity instruments issued and
accounts for equity instruments issued to other than employees based on the fair
value of the consideration received or the fair value of the equity instruments,
whichever is more reliably measurable. The Company had no stock based
compensation to employees for the nine months ended March 31, 2007 and 2006.

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.

In December 2004, FASB issued SFAS No. 123(R), Share-based
Payment (SFAS No. 123R) and requires companies to measure all stock
compensation awards using a fair value method and recognize the related
compensation cost in its financial statements. This statement replaces SFAS No.
123 Accounting for Stock Based Compensation,and supersedes ABP
Opinion No. 25, Accounting for Stock Issued to Employees.
Beginning with the Companys quarterly period that began on July 1, 2006,
the Company adopted the provisions of SFAS No. 123R and is required to expense
the fair value of employee stock options and similar awards in the financial
statements. The Company had no compensation cost relating to unvested portion of
awards granted prior to the date of adoption to recognize at the time of
adoption.

NOTE 4 - DERIVATIVE INSTRUMENT LIABILITIES

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

On September 6, 2006, the Company amended the terms of the
private placement of the senior secured convertible notes that were issued on
March 21, 2006. The common stock warrants and additional investment rights held
by the investors were also amended. In connection with the amendment, the
investors agreed to purchase in the aggregate an additional $1,000,000 of notes
under the amended terms, bringing the total outstanding principal, including
interest and liquidated damages, due under the notes to $3,781,662.

The Company uses the Black-Scholes option pricing model to
value options, warrants, imbedded conversion option components and additional
investment rights that are recorded as derivative liabilities. The fair values
calculated on the original placement of senior secured convertible notes were
re-computed for the amended terms of the placement agreement for the increased
principal amount of the convertible notes and the cost of reducing the
conversion price of the existing convertible notes, warrants and additional
investment rights from $1.58 to $1.00. The aggregate fair values exceeded the
additional proceeds received and $2,400,000 was recognized as a charge to loss
on derivative liabilities in the period ended September 30, 2006. The initial
convertible notes had no carrying value and the modifications made to the notes
resulted in no additional carrying value, as the fair value of the derivative
instruments issued exceeded the proceeds received. As of the date of the
amendment, the Company re-computed the effective interest rate on the
convertible notes to accrete the carrying value of the notes to their redemption
dates, based on the revised repayment schedule and amounts.

On February 23, 2007, the Company agreed with the institutional
investors to amend the terms of the private placement of senior secured
convertible notes, additional investment rights and warrants issued March 22,
2006 and September 6, 2006. Under terms of this Amendment 2, the date by which
the Company is required to file a registration statement with the Securities and
Exchange Commission has been extended from November 5, 2006, until April 30,
2007 (filed March 23, 2007), and the date by which such registration statement
is required to be declared effective, has been extended from February 4, 2007,
until July 31, 2007. The investors agreed to forgo all liquidated damages and
penalties related to the previous deadlines. The Company agreed to seek
stockholder

7

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approval for an increase in the Companys authorized capital,
from the current authorized limit of 100 million shares, to 200 million shares,
and, if necessary, to file additional registration statements. In connection
with the amendment, the Company issued 1,750,000 warrants, giving note holders
the right to purchase common stock at a price of $1.25 per share for a period of
five years. The fair value of the derivative instruments liability for these
warrants at the time of issuance, was determined to be $1,773,013 with the
following assumptions: (1) risk free interest rate of 4.67%, (2) remaining
contractual life of 5 years, (3) expected stock price volatility of 115.5%, and
(4) expected dividend yield of zero.

The fair value of the derivative instruments liability at June
30, 2006, was determined to be $3,983,960 with the following assumptions: (1)
risk free interest rate of 5.1% to 5.24%, (2) remaining contractual life between
0.55 - 4.7 years, (3) expected stock price volatility of 114.07%, and (4)
expected dividend yield of zero. The fair market value of the derivative
instruments liability at March 31, 2007, was determined to be $5,853,002 with
the following assumptions: (1) risk free interest rate of 4.54% to 4.90%, (2)
remaining contractual life between 0 .75 - 4.9 years, (3) expected stock price
volatility of 115.04%, and (4) expected dividend yield of zero. Based upon the
change in fair value, the Company has recorded a non-cash loss on derivative
instruments for the nine-months ended March 31, 2007, of $(1,225,917) and a
corresponding increase in the derivative instruments liability. The impact of
EITF 00-19 on the financial statements as of and through March 31, 2007, was as
follows:

|                                                                 |   | Derivative      |  |   | Derivative      |          |   | Derivative Gain |  
|---------------------------------------------------------------- | - | --------------- |  | - | --------------- | -------- | - | --------------- | -
|                                                                 |   | Liability as of |  |   | Liability as of |          |   | (Loss) Through  |  
|                                                                 |   | June 30, 2006   |  |   | March 31, 2007  |          |   | March 31, 2007  |  
|Financing Lease Payable Derivative                               | $ | 1,814,990       |  | $ | --              |          | $ | 1,814,990       |  
|                                                                 |   |                 |  |   |                 |          |   |                 |  
|Convertible Debenture:                                           |   |                 |  |   |                 |          |   |                 |  
|Compound Embedded Derivatives                                    |   | 790,368         |  |   | 1,512,052       |          |   | (721,684        | )
|Additional Investment Rights                                     |   | 672,578         |  |   | 1,472,661       |          |   | (800,083        | )
|Purchase Agreement Warrants                                      |   | 706,024         |  |   | 1,489,235       |          |   | (783,211        | )
|Amendment 2 Warrants                                             |   | --              |  |   | 1,379,054       |          |   | (1,379,054      | )
|Totals                                                           | $ | 3,983,960       |  | $ | 5,853,002       |          |   | (1,869,042      | )
|                                                                 |   |                 |  |   |                 |          |   |                 |  
|Derivative Expense Related to:                                   |   |                 |  |   |                 |          |   |                 |  
|Sale of
      property for debt disposition on lease liabilities |   |                 |  |   |                 | (638,537 | )
|Convertible Debenture Issuance                                   |   |                 |  |   |                 |          |   | 1,281,662       |  
|                                                                 |   |                 |  |   |                 |          | $ | (1,225,917      | )

NOTE 5  CONVERTIBLE DEBENTURE NOTES PAYABLE

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

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

On September 6, 2006, the Company amended the terms of the
private placement of the senior secured convertible notes that

8

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were issued on March 21, 2006. The common stock warrants and
Additional Investment Rights held by the investors were also amended. Under the
terms of the amendment, the maturity of the convertible notes has been deferred
from August 31, 2007, to January 1, 2008. The convertible notes amortize over 12
equal monthly installments but the date of the first installment has been
extended from September 1, 2006, to February 1, 2007. Interest on the principal
amount outstanding will remain at the rate of 7% per annum and begins to accrue
from February 1, 2007. Interest is payable on the last day of each calendar
quarter, beginning on March 31, 2007. The price at which the holder of each
convertible note may convert the principal and accrued interest amount
outstanding under each note into shares of the Companys common stock has been
reduced from $1.58 to $1.00 per share. In connection with the amendment, the
investors agreed to purchase in the aggregate an additional $1,000,000 of notes
under the amended terms, bringing the total outstanding principal, including
interest and liquidated damages, due under the notes to $3,781,662.

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

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

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

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

On February 23, 2007, the Company agreed with the institutional
investors to amend the terms of the private placement of senior secured
convertible notes, additional investment rights and warrants issued March 22,
2006 and September 6, 2006. Under terms of the amendment, the date by which the
Company is required to file a registration statement with the Securities and
Exchange Commission has been extended from November 5, 2006, until April 30,
2007, and the date by which such registration statement is required to be
declared effective, has been extended from February 4, 2007, until July 31,
2007. The investors agreed to forgo all liquidated damages and penalties related
to the previous deadlines. The Company agreed to seek stockholder approval for
an increase in the Companys authorized capital, from the current authorized
limit of 100 million shares, to 200 million shares, and, if necessary, to file
additional registration statements. In connection with the amendment, the
Company issued 1,750,000 warrants, giving note holders the right to purchase
common stock at a price of $1.25 per share for a period of five years. The
amendment also provided provisions for the Company to pay the February 1, 2007,
and March 1, 2007, monthly installments in common stock without being subject to
Equity Conditions of the Note Agreements at a reduced conversion price of $0.80
per share for the Agreement price of $1.00 per share and provisions for other
monthly principal installments made in unregistered common stock occurring after
March 20, 2007. On March 10, 2007, the Company paid the principal installments
due February 1, March 1 and April 1, 2007, aggregating $1,102,986, with

9

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the issuance of 1,102,988 of the Companys common stock. The
Company recognized interest expense of $157,570 on the conversion due to the
discount on the February 1 and March 1, 2007 conversion shares.

NOTE 6 - CONTINGENCIES AND COMMITMENTS

Royalty Agreement

The Company, in connection with a directors contribution of
capital in November 2006, granted the director a 25% net proceeds royalty
interest in the 67 unpatented mining claims located in Yavapai County, Arizona,
toward an end settlement of $600,000.

Office Lease

Effective March 1, 2007, the Company entered into a lease for
office space in Albuquerque, New Mexico, for a period of three years. The terms
of the lease provide for the following minimum rental payments:

|Fiscal year ending June 30, 2007 |  |       | $ | 10,733 | 
|-------------------------------- |  | ----- | - | ------ | 
|June 30, 2008                    |  |       |   | 32,520 | 
|June 30, 2009                    |  |       |   | 33,492 | 
|June 30, 2010                    |  |       |   | 22,770 | 
|                                 |  | Total | $ | 99,515 | 

NOTE 7 - STOCKHOLDERS (DEFICIT)

Issuances of Common Stock

On November 3, 2006, as part of Real Property Purchase
Agreement (the Agreement) with Muzz, the Company agreed to the exercise of
2,550,000 warrants granted to Muzz in 2002 and to issue 2,550,000 unregistered
shares of its common stock to Muzz at the warrant exercise price of $0.50 per
share. As part of the Agreement, Muzz agreed to terminate the 2002 financing
lease agreement and to cancel all of the outstanding financial obligations under
the lease.

On November 15, 2006, a director exercised options to purchase
1,000,000 shares of common stock at $0.10 per share and 1,000,000 shares of
common stock at $0.11 per share, in exchange for payment of accrued interest
owed and reduction of principal on the note payable to the director, aggregating
$210,000. In addition, the director agreed to contribute to capital the
remaining unpaid principal on the note of $600,000.

On March 10, 2007, the Company issued 1,102,988 shares of
common stock at an average price approximating $1.00 per share, for a principal
reduction of the convertible debenture notes payable aggregating $945,416 and
recognizing interest expense of $157,570.

Stock Options and Warrants

In connection with the private placement of the convertible
debenture notes, the Company issued warrants for 75,001 shares of common stock
as part of the financial advisory fee associated with the transaction. The
warrants have an exercise price of $1.58 and a term of three years. The warrants
were valued at $67,266 using the Black-Scholes option pricing model using a
volatility of 111.95%, risk free interest rate of 4.62% and an expected life of
3.0 years. At June 30, 2006, $55,396 of this amount was classified as deferred
compensation. During the nine-months ended March 31, 2007, $28,858 was recorded
as general and administrative stock compensation expense and the balance of
$26,538 was classified as deferred compensation at March 31, 2007.

On September 6, 2006, the Company amended the terms of the
March 21, 2006, private placement of senior secured convertible notes and in
connection with the amendment, the Company issued 1,099,159 additional common
stock warrants, extended the expiry date of the warrants to September 6, 2011,
and reduced the exercise price from $1.58 to $1.00.

On February 23, 2007, the Company issued 1,750,000 warrants in
  connection with the amendment to the convertible debenture notes, giving note
  holders the right to purchase common stock at a price of $1.25 per share for
  a period of five years.

10

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Stock option and warrant activity, both within the Plan and
outside of the Plan, for the nine months ended March 31, 2007 are as follows:

|                              |  | Stock Options |   |   | Stock Warrants | 
|----------------------------- |  | ------------- | - | - | -------------- | 
|                              |  |               |   |   | Weighted       | 
|                              |  |               |   |   | Average        | 
|                              |  | Shares        |   |   | Price          | 
|                              |  |               |   |   |                | 
|Outstanding at June 30, 2006  |  | 11,550,000    |   | $ | 0.11           | 
|Granted                       |  | ---           |   |   | ---            | 
|Canceled                      |  | ---           |   |   | ---            | 
|Expired                       |  | ---           |   |   | ---            | 
|Exercised                     |  | (2,000,000    | ) |   | ---            | 
|Outstanding at March 31, 2007 |  | 9,550,000     |   | $ | 0.11           | 

Stock options and warrants outstanding and exercisable at March
31, 2007, are as follows:

|OUTSTANDING AND     | OUTSTANDING AND     
|------------------- | --------------------
|EXERCISABLE OPTIONS | EXERCISABLE WARRANTS
|                    |                     
|Exercise            |                     
|Price               |                     
|Range               | Number              
|$0.10               | 5,000,000           
|$0.11               | 4,500,000           
|$1.24               | 50,000              
|                    | 9,550,000           

NOTE 8  SUBSEQUENT EVENTS

In April 2007, Company paid the principal installment on the
convertible notes payable due May 1, 2007, of $315,140, with the issuance of
315,140 shares of the Companys common stock. The Company paid accrued interest
aggregating $39,340 with the issuance of 42,728 shares of the Companys common
stock. Also, the Company issued and additional 51,839 shares of the Companys
common stock to true-up the stock issued for the principal payments for March
and April 2007. The aggregate value of shares was $41,497 and this amount will
be charged to interest expense in the quarter ending June 30, 2007.

In May 2007, Company paid the principal installment on the
convertible notes payable due June 1, 2007, of $315,140, with the issuance of
315,140 shares of the Companys common stock. The Company issued and additional
157,584 shares of the Companys common stock to true-up the stock issued for the
principal payment for May 2007. The aggregate value of shares was $110,309 and
this amount will be charged to interest expense in the quarter ending June 30,
2007.

On April 18, 2007, the Company entered into a marketing
agreement (the BMM Agreement) with BullMarketMadness.com, LLC (BMM). The
initial term of the contract is for one year. The BMM Agreement provides for
cash payments aggregating $64,000, arrangement for an initial delivery of 50,000
shares of the Companys common stock, a two year option for 200,000 shares of
the Companys common stock at an exercise price of $1.25 and the arrangement for
delivery of an additional 50,000 shares of the Companys common stock should the
Company be successful in gaining a listing on the American Stock Exchange within
the term of the BMM Agreement. The BMM Agreement also provides for a finders
fee agreement should BBM introduce an entity to the Company that would result in
an acquisition, merger or combination.

On April 25, 2007, the Board of Directors (the Board)
appointed Dr. John E. Frost to the Board, effective May 7, 2007. The Board also
approved for inclusion into a proxy statement, an increase in the authorized
capital to 200 million shares, authorization of a preferred share class of
stock, authorization of a stock option plan for employees, key personnel and
directors, and authorization for a change in the Companys name. The Board also
approved the issuance to Ryan Carson of a 50,000 five-year stock option with an
exercise price of $0.74, the closing price on the date of grant.

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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 COMPANYS EXPECTATIONS OR BELIEFS,
INCLUDING BUT NOT LIMITED TO, STATEMENTS CONCERNING THE COMPANYS OPERATIONS,
ECONOMIC PERFORMANCE, FINANCIAL CONDITION, GROWTH AND ACQUISITION STRATEGIES,
INVESTMENTS, AND FUTURE OPERATIONAL PLANS. FOR THIS PURPOSE, ANY STATEMENTS
CONTAINED HEREIN THAT ARE NOT STATEMENTS OF HISTORICAL FACT MAY BE DEEMED TO BE
FORWARD-LOOKING STATEMENTS. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING,
WORDS SUCH AS MAY, WILL, EXPECT, BELIEVE, ANTICIPATE, INTENT,
COULD, ESTIMATE, MIGHT, PLAN, PREDICT OR CONTINUE OR THE NEGATIVE OR
OTHER VARIATIONS THEREOF OR COMPARABLE TERMINOLOGY ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. THESE STATEMENTS BY THEIR NATURE INVOLVE SUBSTANTIAL
RISKS AND UNCERTAINTIES, CERTAIN OF WHICH ARE BEYOND THE COMPANY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, 2006.

GENERAL

Azco Mining Inc. (the Company, our or we) 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. We currently are focused on financing efforts to: (1)
conduct engineering studies on our Summit silver-gold property located in New
Mexico, (2) conduct further studies on our Ortiz gold project located in New
Mexico, (3) fund the re-opening and enhancement of our Black Canyon mica project
located in Arizona and (4) acquire high quality gold, silver and/or copper
properties.

Basis of Presentation and Going Concern

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

The Company incurred a net loss of ($1,967,356) for the nine
months ended March 31, 2007, and has a total accumulated deficit of
($45,295,107) at March 31, 2007. To continue as a going concern, we are
dependent on continued fund raising for project development. However, we have no
commitment from any party to provide additional capital and there is no
assurance that such funding will be available when needed, or if available, that
its terms will be favorable or acceptable to the Company. We have $990,737 cash
on hand at March 31, 2007. We will be required to raise additional capital in
equity or financing transactions in order to satisfy our expected cash
expenditures and deploy our current business strategies. At March 31, 2007,
based upon our current working capital utilization rate, we have working capital
to fund approximately seven months of operations.

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

12

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Derivative Financial Instruments

In connection with the issuance of debt or equity instruments,
we may issue options or warrants to purchase our 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. Company 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, we determined 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, our current
common stock price and expected dividend yield, and the expected volatility of
our 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 our financial statements.

RESULTS OF OPERATIONS

Operating Results for the Three Months Ended March 31, 2007
and 2006

Sales

We had sales of $0 for the quarter ended March 31, 2007, as
compared to $1,205 for the quarter ended March 31, 2006. The decrease in sales
is a result of cessation of sales of mica-filled plastic pellets. The mica was
sourced from inventory from prior production that had no carrying value. The
Company has no mica pellets available for sale and is not actively marketing the
mica pellets.

Operating Costs and Expenses

Mine related costs increased in the quarter ended March 31,
2007, to $105,995 from $41,427 for the comparable quarter ended in 2006, or an
increase of $64,568. This increase in the current quarter is mainly attributable
to increased costs incurred on the Summit site aggregating $75,459 and offset by
a decrease in property taxes of $5,800, and reduced costs incurred on the Ortiz
site.

General and administrative increased to $348,415 for the
quarter ended March 31, 2007, from $273,403 for the comparative quarter ended
March 31, 2006, an increase of $75,012. The increase in the current quarter is
mainly attributable to increases in consulting and investor relation expenses of
$77,026, an increase in accounting and legal fees of $75,600, an increase in
financing fees of $51,184 and corporate office relocation expense of $5,000.
These increases were mainly offset by a decrease in rent expense on leased
property of $135,000, which was attributable to the financing lease.

General and administrative stock compensation decreased to
$8,846 for the quarter ended March 31, 2007, from $444,362 for the comparative
quarter ended March 31, 2006, a decrease of $435,516. This decrease is
attributable to no new stock compensation transactions in the areas of investor
relations and related parties in the current quarter.

Other Income and Expenses

Other income and expenses for the quarter ended March 31, 2007,
were $(270,897) as compared to $275,888 for the comparable quarter ended March
31, 2006. The increase in other expenses incurred in the current quarter of
$(546,785) is mainly attributable to the increase in accretion of discounts on
notes payable and lease liability aggregating $(1,035,805) and interest expense
of $(197,623), mainly consisting of interest recognized on debt conversion, and
was offset in the current period by an increased gain on derivative instruments
liability of $685,269.

Gain on Derivative Financial Instruments

13

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We recognized a gain on derivative financial instruments of
$1,042,098 for the quarter ended March 31, 2007, as compared to a gain of
$356,829 for the prior year comparable period. The non-cash gain arises from
adjustments to record the derivative financial instruments at fair values in
accordance with current accounting standards. The derivative financial
instruments arose in connection with a financing lease and convertible
debentures. The financing lease derivative was eliminated in the quarter ending
December 31, 2006, under a Real Property Purchase Agreement. Otherwise, we
generally do not use derivative financial instruments for other purposes, such
as hedging cash flow or fair-value risks. The increase in the derivative gain in
the quarter ended March 31, 2007, is mainly attributable to changes in the
market price of our common stock, which is a component of the calculation model,
and offset by the issuance of 1,750,000 additional warrants to the debenture
note holders. We use the Black-Scholes option pricing model to estimate the fair
value of this derivative. Because Black-Scholes uses the Companys stock price,
changes in the stock price will result in volatility in the earnings in future
periods as the Company continues to reflect the derivative financial instruments
at fair values.

Operating Results for the Nine Months Ended March 31, 2007
and 2006

Sales

We had sales for the nine months ended March 31, 2007, of
$7,201 as compared to $7,100 for the nine months ended March 31, 2006. Sales are
a result of sales of mica-filled plastic pellets. The mica was sourced from
inventory from prior production that had no carrying value. The Company has no
mica pellets available for sale and is not actively marketing the mica
pellets.

Operating Costs and Expenses

Mine related costs increased for the nine months ended March
31, 2007, to $234,656 from $137,877 for the comparable nine month period ended
in 2005, or an increase of $96,779. This increase in the current nine month
period is mainly attributable to increased costs incurred on the Summit site
aggregating $121,977 and was offset by decreased costs incurred at the Ortiz
site aggregating $30,355.

General and administrative increased to $995,669 for the nine
months ended March 31, 2007, from $841,356 for the comparative nine month period
ended March 31, 2006, an increase of $154,313. The increase in the current
nine-month period is mainly attributable to increases in legal and accounting
fees aggregating $152,770, payroll burden of $27,992, insurance costs of $8,970,
filing fees of $8,066, consulting and investor relation expenses of $49,366,
corporate office relocation expense of $5,000 and financing costs of $130,918.
These increases were mainly offset by decreases office expenses aggregating
$6,724 and a decrease in rent on leased property of $225,000 that was
attributable to the financing lease.

General and administrative stock compensation decreased to
$28,857 for the nine months ended March 31, 2007, from $1,802,141 for the
comparative nine months ended March 31, 2006, a decrease of $1,773,284. This
decrease is attributable to no new stock compensation transactions in the area
of investor relations and related parties in the current nine months ended March
31, 2007.

Other Income and Expenses

Other income and expenses for the nine months ended March 31,
2007, were $(699,679) as compared to $(990,347) for the comparable nine months
ended March 31, 2006. The increase in other income incurred in the current
nine-month period of $290,668 is mainly attributable to the gain on settlement
of a financing lease liability aggregating $2,870,369 and increased interest
income of $41,805. The increased income was offset by increased accretion of
discounts on notes payable and lease liability of $ (1,790,164), increased
interest expense of $(321,339), an increase loss on derivative instruments
liability of $ (351,891), a decrease in relief of debt of $(37,496) and a
decrease in gain on conversion of debt of $(119,667).

Gain (loss) on Derivative Financial
Instruments

We recognized a loss on derivative financial instruments of
$(1,225,917) for the nine months ended March 31, 2007, as compared to a loss of
$(874,026) for the prior year comparable nine-month period. The non-cash loss
arises from adjustments to record the derivative financial instruments at fair
values in accordance with current accounting standards. The derivative financial
instruments arose in connection with a financing lease and convertible
debentures. The financing lease

14

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derivative was eliminated in our quarter ended December 31,
2006, under a Real Property Purchase Agreement. Otherwise, we generally do not
use derivative financial instruments for other purposes, such as hedging cash
flow or fair-value risks. The increase in the derivative loss in the nine months
ended March 31, 2007, is mainly attributable to additional funds raised and
changes to the terms and conditions of the senior secured convertible notes that
were issued on March 21, 2006, and to an additional 1,750,000 warrants issued to
the debenture note holders in February 2007. We use the Black-Scholes option
pricing model to estimate the fair value of this derivative. Because
Black-Scholes uses the Companys stock price, changes in the stock price will
result in volatility in the earnings in future periods as the Company continues
to reflect the derivative financial instruments at fair values.

Gain on Settlement of Financing Lease Liability

On November 3, 2006, we recognized a gain aggregating
$2,883,280 on a Real Property Purchase Agreement transaction with Muzz
Investments, LLC for the sale of the Company's 60% ownership interests in real
estate and buildings at its Glendale, Arizona location. The gain was reduced in
the quarter ended March 31, 2007, by additional costs incurred aggregating
$12,911 that was attributable to the transaction resulting in a net gain at
March 31, 2007, of $2,870,369.

PLAN OF OPERATIONS

Liquidity and Capital Resources

To continue with the deployment of our business strategies, we
will require significant additional working capital. We also will require
additional working capital funds for continuing payments for necessary corporate
personnel, and related general and administrative expenses.

As of March 31, 2007, we had cash-on-hand of $990,737, a
working capital deficit of $6,798,327, which is mainly attributable to non-cash
derivative instrument liabilities of $5,853,002, and an accumulated (deficit) of
$(45,295,107). The improved cash position and working capital at March 31, 2007,
is a direct result of the Company completing a secured convertible debenture
debt facility on March 21, 2006, and a modification and additional funding
received under the facility on September 6, 2006. At March 31, 2007, based upon
our current working capital utilization rate, we have working capital to fund
approximately seven months of operations.

We currently are pursuing a joint venture or sale of the mica
operation. Management has determined that in the long run it would be
significantly more beneficial for the Company to deploy its resources in the
area of precious metals based upon the current and projected market trends in
this area.

During the period ended September 30, 2006, we amended the
senior secured convertible notes, additional investment rights and warrants and
received additional funding of $1,000,000. We incurred fees and expenses
associated with the amendment of $100,000.

We anticipate that our operations through fiscal 2007 will be
funded from the balance of proceeds from these placements, from sale of our
securities and possibly through the exercise of certain options and warrants.
While we believe that we will be able to finance our continuing activities,
there is no assurance of success in this regard or in our ability to obtain
continued financing through capital markets, joint ventures, or other acceptable
arrangements. If managements plans are not successful, operations and liquidity
may be adversely impacted. In the event that we are unable to obtain additional
required capital, we may be forced to reduce our exploration and operating
expenditures or to cease development operations altogether.

Pursuant to the terms and conditions of our convertible
debenture notes, we filed a SB-2 Registration Statement with the Securities
Exchange Commission (SEC) on March 26, 2007. The Registration Statement is in
process of review by the SEC.

Factors Affecting Future Operating Results

Management has developed a plan to place the Company on an
improved financial footing. An important element of the plan includes continuing
to raise interim funding to provide for deployment of operations on our various
property sites and restructuring of debt with secured creditors. An important
priority has been to bring the financial reports current. The

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Company completed a $2,500,000 debt facility on March 21, 2006,
to provide for interim financing of the Companys activities and initial
deployment of the Companys business strategies. This debt facility was amended
on September 6, 2006, and provided an additional funding of $1,000,000. During
the quarter ended December 31, 2006, we eliminated significant debt with secured
creditors.

During the period ended December 31, 2006, we finalized a Real
Property Purchase Agreement with Muzz Investments, LLC (Muzz) for the sale of
our 60% ownership interest in real estate and buildings at our Glendale, Arizona
location. Under the terms of the agreement, Muzz agreed to terminate the 2002
financing lease agreement and to cancel all of the outstanding financial
obligations under the lease.

During the period ended December 31, 2006, a director exercised
options to purchase 1,000,000 shares of common stock at $0.10 per share and
1,000,000 shares of common stock at $0.11 per share, in exchange for payment of
accrued interest owed and reduction of principal on the note payable to the
director, aggregating $210,000. In addition, the director agreed to contribute
to capital the remaining unpaid principal on the note of $600,000.

If we are able to continue to secure additional interim
financing on terms acceptable to the Company and to obtain additional required
project financing, we will be in a position to deploy our business plan on
mining operations.

.

Off-Balance Sheet Arrangements

During the three and nine months ended March 31, 2007, we did
not engage in any off-balance sheet arrangements defined in Item 303(c) of the
SECs Regulation S-B.

ITEM 3  CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as
amended (the Exchange Act) that are designed to ensure that information
required to be disclosed by us in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the Securities and Exchange Commission's rules and forms,
and is accumulated and communicated to our management as appropriate to allow
timely decisions regarding required disclosure. Under the supervision of, and
the participation of, our management, including our Chief Executive Officer, we
have conducted an evaluation of our disclosure controls and procedures as of
March 31, 2007. Based on this evaluation, our Chief Executive Officer has
concluded that our disclosure controls and procedures are effective.

During the quarter ended March 31, 2007, there were no changes
in our internal controls over financial reporting that have materially affected,
or are reasonably likely to materially affect, our internal controls over
financial reporting.

PART IIOTHER INFORMATION

ITEM 2 - UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF
PROCEEDS

On March 10, 2007, we issued 1,102,988 shares of common stock
at an average price approximating $1.00 per share, for a principal reduction of
the convertible debenture notes payable aggregating $945,416 and recognizing
interest expense of $157,570.

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                                                            
| |     |                                                                 
| |     | 32.1                                                            

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: June 18, 2007 | AZCO MINING INC,
|-------------------- | ----------------
|                     |                 
|                     | By:             
|                     |                 
|                     |                 
|                     |                 

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