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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
20549

FORM 10-KSB

x ANNUAL REPORT UNDER
  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year endedDecember 31, 2005

 ̈ TRANSITION REPORT
  UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to
_______________

0-21777(Commission File Number)

GOLDEN QUEEN MINING CO.
LTD.(Name of small business issuer in its charter)

|British Columbia, Canada                                        | 84-1067416         
|--------------------------------------------------------------- | -------------------
|(State or other jurisdiction                                    | (IRS Employer      
|of incorporation or organization)                               | Identification No.)
|                                                                |                    
|6411 Imperial Avenue, Vancouver, British Columbia,
      Canada | V7W 2J5            
|(Address of principal executive offices)                        | (Zip Code)         

Issuers telephone number: (604) 921-7570

Securities registered under Section 12(b) of the Exchange Act:
None

Securities registered under section 12(g) of the Exchange Act:
Common shares without par value

Check whether the issuer is not required to file reports pursuant
  to Section 13 or 15(d) of the Exchange Act.  ̈

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 x
  No  ̈

Check if there is no disclosure of delinquent filers in response
  to Item 405 of Regulation S-B contained in this form, 
  and no disclosure will be contained, to the best of registrants knowledge,
  in definitive proxy or information 
  statements incorporated by reference in part III of this Form 10-KSB or any
  amendment to this Form 10-KSB. x

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

State issuers revenues for its most recent fiscal year:
$0.00

State the aggregate market value of the voting and non-voting
common equity held by non-affiliates computed by reference to the price at
which the common equity was sold, or the average bid and asked price of such
common equity, as of a specified date within the past 60 days. (See
definition of affiliate in Rule 12b-2 of the Exchange Act.): Approximately
$35,625,646 as at March 24, 2006.

State the number of shares outstanding of each of the issuers
classes of common equity, as of the latest practicable date: 68,390,446
common shares as at March 24, 2006.

Transitional Small Business Disclosure Format. Yes  ̈
  No x

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DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive proxy statement for the
2006 annual meeting of stockholders are incorporated by reference into Part III
of this Form 10-KSB, which definitive proxy statement is to be filed within 120
days after the end of the registrant's fiscal year ended December 31, 2005. If
the definitive proxy statement is not filed within the 120 day period, the
issuer will instead file an amendment to this Form 10-KSB disclosing the omitted
items under Part III.

2

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Form 10-KSB

Table of Contents

|Part       | Item No. |                                                                                                                        |   
|---------- | -------- | ---------------------------------------------------------------------------------------------------------------------- | --
|           |          |                                                                                                                        |   
|I          | 1        | Description of Business                                                                                                | 4 
|           |          |                                                                                                                        |   
|           | 2        | Description of Property                                                                                                | 17
|           |          |                                                                                                                        |   
|           | 3        | Legal Proceedings                                                                                                      | 19
|           |          |                                                                                                                        |   
|           | 4        | Submission of Matters to a Vote of Security Holders                                                                    | 19
|           |          |                                                                                                                        |   
|II         | 5        | Market for Common Equity, Related Stockholder Matters and
      Small Business Issuer Purchases of Equity Securities   | 19
|           |          |                                                                                                                        |   
|           | 6        | Managements Discussion and Analysis or Plan of Operation                                                              | 20
|           |          |                                                                                                                        |   
|           | 7        | Financial Statements                                                                                                   | 26
|           |          |                                                                                                                        |   
|           | 8        | Changes in and Disagreements With Accountants on Accounting
      and Financial Disclosure                             | 26
|           |          |                                                                                                                        |   
|           | 8A       | Controls and Procedures                                                                                                | 27
|           |          |                                                                                                                        |   
|           | 8B       | Other Information                                                                                                      | 27
|           |          |                                                                                                                        |   
|III        | 9        | Directors, Executive Officers, Promoters, and Control Persons;
      Compliance With Section 16(a) of the Exchange Act | 27
|           |          |                                                                                                                        |   
|           | 10       | Executive Compensation                                                                                                 | 27
|           |          |                                                                                                                        |   
|           | 11       | Security Ownership of Certain Beneficial Owners and Management
      and Related Stockholder Matters                   | 27
|           |          |                                                                                                                        |   
|           | 12       | Certain Relationships and Related Transactions                                                                         | 27
|           |          |                                                                                                                        |   
|           | 13       | Exhibits                                                                                                               | 27
|           |          |                                                                                                                        |   
|           | 14       | Principal Accountant Fees and Services                                                                                 | 27
|           |          |                                                                                                                        |   
|Signatures | 29      

3

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PART I

Item 1. Description of Business.

Glossary

Certain terms used in this Form 10-KSB are described below.
Note that the Company uses Canadian Institute of Mining (CIM) definitions for
the terms reserves, measured resources, indicated resources and inferred
resources, and American investors are cautioned that while these terms are
recognized and required by Canadian regulations, the U.S. Securities and
Exchange Commission does not recognize them.

Advance minimum royalty - Payment made before the start
of commercial production under a property agreement. Advance minimum royalties
are usually, but not always, credited against production royalties.

Ag The chemical symbol for silver.

Au The chemical symbol for gold.

Development stage -Includes all mining companies
engaged in the preparation of a deposit with reserves for production and which
are not in the production stage.

Exploration stage -Includes all mining companies
engaged in the search for or explorations of mineral deposits, which are not in
either the development or production stage.

Production stage -Includes all mining companies engaged
in the exploitation of a mineral deposit with reserves.

Fault or faulting - A fracture in the earths
crust caused by tectonic forces, accompanied by displacement along the
fracture.

Grade -A term used to assign value to resources and
reserves, such as troy ounces per ton (oz/ton) or gram per tonne (g/t). Grades
are reported both in Imperial and SI units in this Form 10-KSB.

Heap leaching A process for extracting gold and/or
silver, which typically allows dilute cyanide solutions to percolate through
crushed ore heaped on an impervious pad to dissolve the gold and/or silver.

Kriging -A geostatistical method used to assign grades
to mineral resource and mineral reserve model blocks.

Mineral deposit -A mineral deposit is a mineralized
body, which has been intersected by a sufficient number of drill holes or by
underground workings to give an estimate of grade(s) of metal(s) to warrant
further exploration or development. A mineral deposit does not qualify as a
commercially viable deposit with reserves under standards set by the Securities
and Exchange Commission until a final, comprehensive, economic, technical and
legal feasibility study has been completed.

Ore -A natural aggregate of one or more minerals which,
at a specified time and place, may be mined and sold at a profit or from which
some part may be profitably separated.

Mineral Reserve -A Mineral Reserve is the economically
mineable part of an Indicated or Measured Mineral Resource demonstrated by at
least a preliminary feasibility study. This study must include adequate
information on mining, processing, metallurgical, economic and other relevant
factors that demonstrate, at the time of reporting, that economic extraction can
be justified. A Mineral Reserve includes diluting materials and allowances for
losses that my may occur when the material is mined. Mineral Reserves are
sub-divided in order of increasing confidence into Probable Mineral Reserves and
Proven Mineral Reserves.

Mineral Resource -A Mineral Resource is a concentration
or occurrence of natural, solid, inorganic or fossilized organic material in or
on the earths crust in such form and quantity and of such a grade or quality
that it has reasonable prospects for economic extraction. The location,
quantity, grade, geological characteristics and

4

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continuity of a Mineral Resource are known, estimated or
interpreted from specific geological evidence and knowledge. Mineral Resources
are sub-divided, in order of increasing geological confidence, into Inferred,
Indicated and Measured categories.

Stripping ratio -The quantity of waste rock in tons
removed to allow the mining of one ton of ore in an open pit.

Volcanics -Rock composed of clasts or pieces that are
of volcanic composition.

General Development of Business

Golden Queen Mining Co. Ltd., (the Company) was incorporated
under the laws of the Province of British Columbia, Canada in November 1985 and
has been exploring its mineral properties (the Property) located just south of
Mojave in Kern County, in southern California.

The Company acquired its initial interest in the Property in
1985 and has since added to its holdings in the area. Work on the Property and
the Soledad Mountain project (the Project) is done by Golden Queen Mining
Company, Inc., a California corporation and the wholly owned subsidiary (the
Subsidiary) of the Company.

The Company explored for gold and silver on the Property and
did extensive engineering work on the Project between 1988 and 1999. M3
Engineering and Technology Corp. (M3), Tucson, Arizona completed a feasibility
study for the Project in 1998 with gold and silver prices of $350/oz and
$5.50/oz respectively. The Company did additional drilling and underground
sampling in 1998 and 1999.

The Company had previously reported that it expected to begin
producing gold and silver from the Project during the second half of 1998, based
on the M3 feasibility study and once permitting was completed. Because of
relatively low gold prices in the late 1990s and in the early 2000s, however,
the Company was not able to obtain financing for the Project and the Project was
therefore put on hold in late 2000. Employees were laid off and costs were
reduced to the minimum required to maintain rights to the Property. The major
landowners agreed to a 3-year moratorium on property payments or until the price
of gold improved. The Company recorded an asset impairment loss of $28,547,592
for the year ended December 31, 2000 and this asset impairment loss reduced the
carrying value of fixed assets, mineral properties, and other assets to their
estimated net realizable value.

The Project remained on hold in 2001, 2002, 2003, 2004 and
2005.

In order to update the prospects for the development of the
Project, the Company initiated a detailed review of the Project in mid-2002 to
identify new approaches that would reduce both the capital cost to the start of
production and future operating costs. The review was supported and complimented
by a substantial amount of work done by independent engineers and contractors.
The review was documented and compiled into an in-house report to assist
management in determining the prospects for development of the Project at
current gold and silver prices and this work was completed in September 2005.
The Company engaged SRK Consulting (U.S.), Inc. (SRK), of Lakewood, Colorado
in 2005 to prepare a technical report (the Technical Report) to validate and
confirm the mineral resource estimates in compliance with National Instrument
43-101 (NI 43-101), being the Canadian regulation that governs the disclosure
of technical information by natural resource companies, and this Technical
Report was released on March 6, 2006. The mineral resource estimates have now
been confirmed as set out in more detail below.

The Company has now engaged SRK to prepare a further NI 43-101
compliant Technical Report to assess the presence of mineral reserves Past
reserve estimates, which were based on the report prepared by M3 in 1998, have
been retracted by the Company on the basis that they are out of date and not
supported by a current, independent technical report. Past disclosure of mineral
reserve estimates should accordingly not be relied upon.

There are a number of risks associated with the Project and
readers are urged to consider the risks set out below in this Form 10-KSB, and
possible other risks, in order to obtain an understanding of the Project.

5

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The registered office of the Company is located at 1200 - 750
West Pender Street, Vancouver, British Columbia V6C 2T8 and its executive
offices are located at 6411 Imperial Ave., West Vancouver, BC, V7W 2J5.

Project Background

The Project is located approximately 8 km (5 miles) south of
Mojave in Kern County in southern California.

Gold mining on Soledad Mountain dates back to the late
19th century. The largest producer in the area was a syndicate
managed by Gold Fields America Development Co. (Gold Fields), a subsidiary of
Consolidated Gold Fields of South Africa. This syndicate operated an underground
mine and mill on the property from 1935 to 1942, when the mine was forced to
close by War Production Board Order L-208. Production after the war was minimal,
as costs had increased while the price of gold remained fixed at $35/oz until
1973.

Exploration & Mineral Resource Estimate

The Soledad Mountain mineral deposit is hosted in a volcanic
sequence of rhyolite porphyries, quartz latites and bedded pyroclastics that
occur on a large dome-shaped feature, called Soledad Mountain, along the margins
of a collapsed caldera. Higher grade precious metal mineralization is associated
with steeply dipping, epithermal veins, which occupy faults and fracture zones
that cross cut the rock units and generally trend northwest. The veins are
contained within siliceous envelopes of lower grade mineralization that forms
the bulk of the mineral resource.

The primary rock types that occur are rhyolite porphyry and
flow-banded rhyolite, quartz latite porphyry, pyroclastics and siliceous vein
material. The rock types will be found in different areas and phases of the open
pit. Little or no clay occurs in any of the rocks and the rocks contain upwards
of 80 % Si as SiO2. Rhyolite porphyry andflow-banded
rhyolite were grouped as a single rock type for the metallurgical test work and
management expects that if the Project is placed into production, three primary
rock types will be mined and processed at various times through the life of the
mine.

Extensive programs of mapping, diamond drilling,
reverse-circulation drilling and underground diamond drilling and channel
sampling were carried out on the property between 1985 and 1999. Company
geologists and engineers managed these programs. The geological database today
includes the results of exploration done on the property by Rosario Exploration
and Shell/Billiton and the crosscut assay data recorded on linens by a mining
syndicate managed by Gold Fields between 1933 and 1942. The database contains
71,325 samples, generated from over 113,593m (372,649ft) of drilling and
sampling of underground crosscuts.

Ore zones were shaped manually by company geologists to define
continuity with a low-grade cutoff grade of 0.274g/t AuEq (0.008oz/ton AuEq).
Prices for gold and silver of $325.00/oz and $6.00/oz and recoveries for gold
and silver of 78.0% and 60.0% respectively were used to calculate the
gold-equivalent cutoff grade for this purpose.

Mineral Resources Development, Inc. (MRDI), of San Mateo,
California, completed a detailed due diligence review of the procedures used by
the company between 1998 and 2000. This work involved statistical analyses, the
evaluation of grade capping, the design of appropriate kriging techniques and
setting criteria for the classification of resources. MRDI submitted a final
report with recommendations in May of 2000.

SRK and AMEC E&C Services, Inc. (AMEC acquired MRDI in
2000) did an exhaustive review of the database information and this included the
MRDI recommendations from 2000 and audited the geological model over a period of
five months in late 2005 and early 2006. Linear kriging was used to estimate
gold and silver grades for all blocks in the model. SRK completed work on the NI
43-101 compliant Technical Report in early March 2006.

Mineral resources were classified as follows:

Measured  first drill hole or crosscut within 21m (70ft) and a
second drill hole or crosscut within 30m (100ft).

Indicated - first drill hole or crosscut within 43m (140ft) and
a second drill hole or crosscut within 61m (200ft).

6

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Inferred  everything beyond Measured and Indicated, but with
two drill holes or cross-cuts within 91m (300ft) and this is more restrictive
than the MRDI recommendation from 2000.

Note that mineral resources are not mineral reserves and do not
have demonstrated economic viability.

Cautionary note to US Investors concerning estimates of
measured or indicated resources:This section uses the terms Measured
Resources and Indicated Resources. We advise US investors that while those
terms are recognized and required by Canadian regulations, the US Securities and
Exchange Commission does not recognize them. Investors are cautioned not to
assume that any part or all of the material in the resource categories will ever
be converted into mineral reserves.

Soledad Mountain Project - Measured & Indicated Mineral
Resources

GradeAuEq
    Gold
    SilverCategory
    t
    ton
    g/t
    oz/ton
    g/t
    oz/ton
    g/t
    oz/tonMeasured Indicated
    39,720,000 50,774,000
    43,692,000 55,851,000
    1.118 0.789
    0.033 0.023
    0.926 0.603
    0.027 0.018
    14.86 11.47
    0.43 0.33Total & Average
    90,494,000
    99,543,000
    0.912
    0.027
    0.744
    0.022
    12.96
    0.38


Cautionary note to US Investors concerning estimates of
inferred resources:This section uses the term Inferred Resources. We
advise US investors that while this term is recognized and required by Canadian
regulations, the US Securities and Exchange Commission does not recognize it.
Inferred Resources have great uncertainty as to their existence, and great
uncertainty as to the economic and legal feasibility of exploiting these in a
mining operation. It cannot be assumed that any part or all of an Inferred
Mineral Resource will ever be upgraded to a higher category. Under Canadian
rules, estimates of an Inferred Mineral Resource may not form the basis of
pre-feasibility or feasibility studies except in rare cases. Investors are
cautioned not to assume that any part or all of an Inferred Mineral Resource
exists or is economically or legally mineable.

Soledad Mountain Project - Inferred Mineral Resources

GradeAuEq
    Gold
    SilverCategory
    t
    ton
    g/t
    oz/ton
    g/t
    oz/ton
    g/t
    oz/tonInferred
    32,073,000
    35,280,000
    0.634
    0.019
    0.497
    0.015
    10.84
    0.32


|1. | AuEq is the gold-equivalent grade, which is calculated
        as follows:
        AuEq g/t = Au g/t + {(Ag/R1)xR2} g/t where                                                                                                                          
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   | R1= Au price in $/oz/Ag price in $/oz;
      R2= Ag recovery in %/Au recovery in % and prices and
      recoveries used in the calculations are $450.00/oz and $7.50/oz for gold
      and silver and 78.0% and 60.0% for gold and silver respectively.
|2. | Ore zones were shaped manually with a cutoff grade of
      0.274 g/t (0.008 oz/ton) AuEq.                                                                                                                                                             
|3. | The mineral resources were calculated with a cutoff grade
      of 0.274 g/t (0.008 oz/ton) AuEq.                                                                                                                                                      

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Infill Drilling Program

The company has prepared a drilling program with 40 drill holes
and 7,200m (23,500ft) of drilling, designed to test a portion of the material
classified as Inferred within pit shells constructed in 2000. SRK concurs in the
Technical Report that strategically targeted drilling could upgrade a
significant portion of the Inferred to the Measured or Indicated categories.

Historic Mineral Reserve Estimates

Past mineral reserve estimates, which were based on the report
prepared by M3 in 1998, have been retracted on the basis that they are out of
date and not supported by a current, independent, technical report. Past
disclosure of mineral reserve estimates should accordingly not be relied upon.
The Company has now engaged SRK to prepare a further NI 43-101 compliant
Technical Report to assess the presence of mineral reserves. Investors are
cautioned not to assume that mineral reserves exist that will be economically or
legally mineable.

Exploration Potential

Additional geological targets have been identified on the
Property. These targets are generally peripheral (east, south and west) to the
currently defined mineral resource. In the east, two additional zones of quartz
stringer veins have been mapped in the hanging wall of the Karma/Ajax vein
system. Toward the south, an extension of the Silver Queen vein system is open
and additional vein splits have been mapped on surface. Also, an extension of
the Golden Queen vein system appears to be offset by an east-west trending
fault. Initial drill results indicate widths of 8 m with good gold and silver
grades.

The exploration work to date has focused on known fault/vein
structures central to the deposit. The host volcanics associated with the
mineralization on the Property extend further to the south and have not been
fully evaluated. Further, anomalous gold values have also been found in the low
volcanic hills that protrude from the valley floor to the northwest of the
Property.

The continuity of mineralization at depth remains untested.

A number of the geological targets have been selected for
further exploration and this will depend upon the availability of funds.

Open Pit Operation

Mintec, Inc. (Mintec), Tucson, Arizona did the most recent
open pit design with the assistance of the Companys management in 2000. The
Mintec design report is dated July 2000. Gold and silver prices of $300/oz and
$5.50/oz respectively were used to develop an ultimate open pit shell with
standard modeling techniques. A total of seven mining phases were defined within
this shell. Detailed waste rock removal and ore production schedules and a waste
rock disposal plan were prepared. Mintec believes that the approach used to
develop the deposit model is adequate to take dilution into account for mine
planning purposes. The Companys management used the open pit design done in
2000 in its recent study on the prospects for the development of the Project,
which was completed in September 2005.

Slope stability analyses were done in 1995 and these included
analyses with the ultimate slopes subjected to a maximum, credible earthquake
acceleration of 0.297g. An ultimate slope angle of 55o was
recommended with indications that the ultimate slope angle could be safely
increased to 63.4o. Five diamond drill holes were drilled in 1997
specifically to obtain rock strength parameters for further slope stability
analyses. An independent consulting engineer did these analyses and confirmed
the ultimate slope angle of 55o. An ultimate slope angle of
50o was used in the open pit design done by Mintec in 2000.

The operation will be an open pit operation and it is expected
that the Company will do the mining. An independent consulting engineer
determined detailed equipment requirements and two major equipment provided
lease financing proposals. The mine operating costs were determined
in-house.

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Ore-from-waste separation will require special attention to
ensure that overall grade projections are met.

Ground water has been reported only in the deeper historic
underground mine openings and no seepage of water into the open pit is expected.
Underground mine openings will be encountered from time-to-time during open pit
mining and this will be allowed for in the detailed mine planning.

The open pit design done in 2000, accepted a loaded downhill
ore haul to the crushing-screening plant for the life of the mine. The intent is
now to replace the trucks with a pipe conveyor for conveying the ore to the
crushing-screening plant with a possible significant reduction in both mine
capital and operating costs.

Pipe conveyor technology is well proven in practice with
upwards of 200 installations in Europe. Regenerative braking is typically used
in all loaded downhill applications and the power generated would provide a
small portion of the power required elsewhere in the Project.

Koch Transporttechnik Ges.m.b.H. of Vienna, Austria has
submitted a proposal for a pipe conveyor for the Project based upon a site
layout prepared by the Companys management in 2003. Detailed engineering for
the fabrication and installation of the pipe conveyor remains to be completed.

Detailed planning and engineering design to confirm the feasibility
  of using a pipe conveyor to convey the ore will be considered as part of an
  independent report on the feasibility of the development of the Project.

The development of a mine on the Property requires confirmation
of the existence of mineral reserves and the ability of the Company to finance
the Project. There is no guarantee that the Project will be economically viable,
or if viable, that the Company can successfully develop the Project.

Mineralogy, Process Development & Flow Sheet

Studies done show that gold is present as native gold and
electrum ranging in size from <10 micron to >150 micron. A
semi-quantitative SEM-EDX analysis of the electrum indicates a silver content of
up to 25 %. Silver is also present as acanthite (Ag2S) with some
native silver, pyrargyrite
(3Ag2S.Sb2S3) and polybasite
(9Ag2S.Sb2S3). Multi-element
x-ray fluorescence analyses show only trace quantities of mercury.

Test work done on Soledad Mountain ores from 1989 to 2005 shows
that these ores are readily amenable to heap leaching provided the ore is
crushed and/or ground to relatively small sizes. Gold and silver recoveries of
78.0% and 60.0% respectively and a range of parameters required to design a heap
leach operation, such as agglomerate strength, percolation rates under load and
the consumption of cyanide and other reagents, were determined.

It was proposed to crush and screen ore to 100% - 8mesh or 100%
- 2.37mm and a four-stage crushing and screening plant using vertical shaft
impact crushers in the third and fourth crushing stages was designed by M3 for
the Project in 1998. A review done by the Companys management in 2002 provided
new insights into the historic test results. An alternative flow sheet was
developed for the Project in late 2002, based upon the use of a high-pressure
grinding roll (HPGR). The Company, in consultation with an independent
engineering firm experienced in HPGR design, prepared a detailed flow sheet for
the Project based on an HPGR.

Confirmation HPGR tests were required to provide the
following:

- The design parameters to both size the equipment and determine the motor
  sizes for the HPGR;
- The target particle size distributions for the full-scale operation and
- Information to finalize the flow sheet, e.g. the need to recycle edge
  material.

Samples of rhyolite ore and quartz latite ore were collected
for the HPGR tests in July 2003 and in March 2004 respectively. The samples were
crushed to 100% passing 32 mm and 35 mm respectively by a metallurgical
laboratory in Nevada. The samples were shipped by airfreight to two HPGR
manufacturers in Germany where the

9

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actual HPGR tests were done. The crushed samples were returned
to the laboratory in Nevada for confirmation leach test work. The following
conclusions were drawn based upon the results of bottle roll and column leach
tests:

- Recoveries are higher with longer leach times and this confirms the
  historic findings;
- Recoveries increase with an increase in fineness of the crushed product
  and this effect is especially pronounced for silver and
- Recoveries for the HPGR products are consistently higher and extraction
  rates are faster than those obtained from conventional crusher products  the
  evidence is that this is due to penetration of leach solution into
  micro-cracks that are created by the high specific press force applied to the
  ore particles in the HPGR.

Companys management estimates the following recoveries based
upon the results of column leach tests:

Primary Rock Types
    Proportion
    Gold
    Silver%
    %
    %Pyroclastics Quartz Latite
      Rhyolite Undefined
    10.5 21.3 68.1 0.1
    80.8 90.4 79.5 Not
      Included
    55.0 60.0 50.0 Not
      IncludedTotal & Average
    100.0
    81.9
    52.6


Tests were done on the residues from two of the column leach
tests to determine the percolation rates under load and the results of these
tests were used to design the heap and confirm the height of the heap in the
heap leach operation.

The test work shows that the HPGR is expected to have distinct
advantages over conventional crushing and screening to size and prepare
particles for heap leaching in this particular application. The indicated
benefits of using the HPGR will be:

- Higher recoveries in the heap leach operation due to micro-cracks in the
  ore particles;
- Faster extraction rates;
- Stronger agglomerates due to a more favorable overall particle size
  distribution;
- Substantially lower capital costs than a conventional crushing - screening
  plant;
- Manageable dust control as fewer pieces of equipment are required for the
  duty;
- Lower energy consumption and thus lower operating costs and
- Exceptional circuit flexibility that will readily permit future upgrades
  such as a finer HPGR feed size or the recycle of edge product.

A technical paper entitled Flow Sheet Development And Benefits
Of The HPGR was presented at the RANDOL conference held in Perth, Australia in
late-August 2005.

An independent consulting engineering firm did the design of
the crushing-screening plant and this includes the HPGR and prepared the capital
cost estimate for the construction of the plant. The detailed design of the
commercial HPGR has also been completed.

Gold and silver are typically recovered in a heap leach
operation by dissolution in a dilute cyanide solution and then by precipitation
with zinc or adsorption on activated carbon. The zinc precipitation process,
referred to as the Merrill-Crowe process after its developers, is used to
recover gold and silver when the silver to gold ratio in solution is greater
than 10 to 1. The silver to gold ratio is expected to average 15:1 for the
Project and a Merrill-Crowe precipitation plant will therefore be required. In
the Merrill-Crowe process, zinc dust is metered into the deaerated, pregnant
solution and gold and silver are precipitated as micron-sized, metallic
particles. The precipitate is dried, mixed with selected fluxes and melted in an
induction furnace. The molten mix of gold and silver, i.e. the dorè, is

10

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poured into molds. The dorè is cooled, cleaned and shipped to a
commercial refinery where gold and silver bullion are produced for final
sale.

The Merrill-Crowe process is highly efficient and recoveries in
commercial plant typically range upwards of 98%.

Cyanide will be used in the process to extract gold and silver.
Very extensive procedures will be put in place to protect the workers and the
environment. The cyanide will be received in a dissolved form by truck directly
from the manufacturer. The liquid will be pumped to a storage tank on site and
from there to the process. The cyanide will no longer be stored on site in a
solid form and mixed on site and this was always a concern in other
operations.

Independent consulting engineeing firms did detailed designs
and prepared the capital and operating cost estimates for a Merrill-Crowe plant
and this includes the refinery and for an analytical laboratory for the
Project.

The Heap Leach Pad And The Heap

The Projects heap leach facilit has been designed for zero
discharge. The design contemplates that the first leach pad to be constructed,
the Phase 1 pad, will be located on the northern side of Soledad Mountain. A
second leach pad, the Phase 2 pad, will be located on the western side of
Soledad Mountain if required. The Phase 1 pad will be a dedicated pad, i.e. ore
will be stacked, leached, rinsed and left in place on the pad for final
reclamation unless the leached and rinsed residues can be sold as aggregate. The
following are the design criteria for the Phase 1 pad:

- The pad has been designed as a permanent, single-use pad
- Dry specific weight of agglomerated ore is 1.37t/m3(85.5lb/ft3)
- Maximum heap height is 60m (Nominally 200ft)
- Lift height is 10m (Nominally 33ft)
- The nominal angle of repose of the agglomerated ore is 2.0H:1.0V
- Slopes are 2.5H:1.0V on the north and west sides and 2.0H:1.0V on the
  south and east sides
- Nominal capacity of the pad is 46.2million t
- The heap to be constructed in 2 stages, viz. Stage 1 and Stage 2 and each
  stage to be divided into 2 hydraulically isolated zones, viz. Zone 1 and Zone
  2 for a total of 4 zones

The Phase 1 pad will be lined with a composite liner consisting
of a compacted soil liner and a geomembrane. The geomembrane will in turn be
covered and protected by 45 cm of a crushed liner protection fill that will act
as a drainage layer. A network of perforated pipes will be installed in the
liner protection fill. Solution will drain by gravity to a pump box and will be
pumped to the Merrill-Crowe plant where gold and silver will be extracted from
the pregnant solution. The barren solution will be pumped to the heap with
vertical turbine pumps and drip emitters will be used on the heap to limit
evaporation losses.

An independent consulting engineering firm did a detailed site
investigation in the area where the heap leach pad will be constructed, in
October 2004. A detailed estimate of construction quantities has been
completed.

The design of the heap leach pad meets all applicable
regulatory requirements.

An independent consulting engineering firm did the heap leach
stacking study and prepared capital and operating cost estimates for the
conveying and stacking system.

Services

The Project is located approximately 8 km (5 miles) south of
Mojave. The metropolitan areas of Lancaster/Palmdale and Los Angeles lie
approximately 48 km (30 miles) and 110 km (70 miles) further to the south.
Access to site is from State Route 14 and Silver Queen Road, an existing paved
County road. The Union Pacific/Southern Pacific railroad line runs parallel to
and just east of State Route 14. Services such as a hospital, ambulance,
fire-protection, garbage and hazardous waste disposal, schools, motels and
housing, shopping, airport and recreation are available in Mojave and its
surroundings. Telephone service is currently available on site.

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Water Supply

A water supply will be required for the heap leach operation
and it is expected that groundwater will be used.

A detailed evaluation of the available groundwater was done in
1996. As many as 35 wells have been drilled in the greater Project area in the
past. Records for some of these wells plus step rate test data from production
well #1 drilled by the Company indicate that, initially, two production wells
can provide the maximum estimated water requirement of 147.6m 3/h
(650gal/min). Production well #1 is located approximately 1km north of the
Project. A second production well has been drilled approximately 300m (1,000ft)
north of well #1 and cased and tested and a third production well can be drilled
if required in the future.

A water sample taken from production well #1 and from three
monitoring wells on site indicated that groundwater could be used in the heap
leach process without pre-treatment.

An independent consulting engineering firm did the design and
prepared capital and operating cost estimates for the water supply and the
process water and firewater distribution systems

Power Supply

It is expected that power for the Project will be supplied by a
local utility via a 12.5 kV power line that has been constructed to the Property
boundary.

An independent consulting engineering firm did a detailed motor
list and estimated the power consumption for a commercial heap leach operation
and did a capital cost estimate for power supply and distribution.

Offices & Workshop/Warehouse

The detailed designs and capital costs estimates for all
services required for a mining operation such as an office, workshop and
warehouse and diesel fuel and gasoline storage have been completed.

Project Management & Operating Manpower

A management team will be assembled in Mojave to manage the
Project. The projected manpower is 28 salaried and 124 hourly-paid workers.
Indications are that skilled workers will be available locally as there are a
number of mines and quarries in production in the greater Mojave area.

Aggregate

The Company is evaluating the production and sale of aggregates
as part of the Project. The source of raw materials would be the finely crushed
and rinsed residue or sand from the heap leach operation and rock from the waste
rock dumps. The waste rock can be classified into a range of products such as
riprap, crushed stone and gravel. Test work to confirm the suitability of these
materials for use as aggregate was done in 1998 and 1999.

Environmental Issues & Permits

The area surrounding Mojave is typical of the western Mojave
Desert. The immediate vicinity of the Project is sparsely populated with
considerable historic and more recent mining activity. The Standard Hill,
Tropico and Cactus mines are located within a radius of 12km (7.5miles) of the
Property.

The Project and the immediate area surrounding the Project or a
total of approximately 9,600acres are included in the Specific Plan (the Plan)
for Soledad Mountain - Elephant Butte & Vicinity - South of Mojave. This
Plan was prepared in March 1973 and adopted by the Kern County Board of
Supervisors as Resolution 73-485 on June 18, 1973. Gold and silver mining
operations are recognized in the Plan as important past land uses and the
protection of mineral deposits,

12

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potentially of commercial value, is included in the Plan
through restriction of incompatible land uses. The Project as presently defined
is consistent with the Plan.

An independent consulting engineering firm reviewed the major
permits that were previously issued for the Project and the current regulatory
environment in California in 2005. Additional work is now required due to the
time that has passed since the permits were first issued and changes that have
been made in the Project. There have also been changes in regulations imposed by
the three levels of government. No significant environmental issues were however
identified in the review and furthermore, the footprint of the Project as
presently defined has been significantly reduced.

Environmental issues and the status of permits are summarized
in the following sections.

CEQA/NEPA

The Project is subject to the California Environmental Quality
Act (CEQA) and the National Environmental Policy Act (NEPA), each of which
requires written analysis of proposed mining activities and their effect on the
physical, biological, social and economic resources of the area. This analysis
is known under CEQA as an environmental impact report (EIR), and under NEPA as
an environmental impact statement (EIS).

The Company submitted its combined EIR/EIS to the Kern County
Planning Department (Kern County) in February 1996, in accordance with a
memorandum of understanding between Kern County and the Bureau of Land
Management (BLM), which gave Kern County, as the lead agency, primary
responsibility for the environmental reviews. The EIR/EIS took the form of a
combined Conditional Use Permit application, Environmental Information
Statement, Plan of Operations and Surface Mining Reclamation Plan as required by
the California Surface Mining and Reclamation Act.

Comments were received in response to the submission on ground
water quality and quantity, air quality, the effect of development on native
species of plants and animals, the visual impact of the project and the
potential hazards associated with transporting supplies and chemicals to site.
These comments were incorporated into a revised EIR/EIS released for public
comment in June 1997. In September 1997, the Company received a favorable notice
of determination regarding the EIR/EIS, as well as approval of its Conditional
Use Permit application and Surface Mining Reclamation Plan This was followed by
a Record Of Decision from the BLM approving the Companys Plan of Operations
under NEPA in November 1997.

Kern County, as the lead agency, approved and issued two
Conditional Use Permits (CUPs) for the Project in September 1997. Kern County
confirmed in writing in 1998 that the CUPs had been activated and would not
expire at some future date.

There are 87 conditions of approval and mitigation measures
listed in Exhibit E to the CUPs and this includes a requirement to reclaim
historic disturbances on the Property. Site inspections are conducted annually
to verify that the Company is in compliance with these conditions of approval.
The Company was in compliance for the year ended December 31, 2005.

Air Quality

The Project lies within the Southeast Desert Air Basin, which
falls under the jurisdiction of the Kern County Air Pollution Control District.
The district is charged to regulate sources of air pollution within the basin,
pursuant to authority granted under the federal Clean Air Act.

The area is designated as unclassified for PM10emissions (that portion of the total suspended particulates less than 10
microns in size) and as a non-attainment area for ozone. The typically windy
conditions and very dry nature of the general area are responsible for the high
PM10background levels recorded at several nearby monitoring
stations. Two monitoring stations were operated side-by-side, 24 hours per day
in 1990 and 1991 on site and high background PM10levels were
recorded.

13

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Fugitive dust from a mining operation on the Property, combined
with background dust, may result in unacceptable levels of PM10emissions in the surrounding areas, especially downwind, and this may
present the greatest potential environmental issue for the Project. A PM10level of 44 micrograms per cubic meter is projected by computer modeling
for a mining rate of 27 million t (30 million ton) per year of ore and waste.
This level is below the California attainment standard of 50 micrograms per
cubic meter and the Federal standard of 150 micrograms per cubic meter. However,
the Company believes that it will achieve compliance with applicable standards
by a greater margin, as the modeling methodology assumes worst-case conditions,
which are considered unlikely to be encountered in the actual mining operation
based on the use by the Company of commonly accepted dust control techniques in
all phases of the operation.

The Company will submit applications to the Kern County Air
Pollution Control District for documents known as Authority To Construct and
applications are currently being prepared.

Water Quality

The Project is located in the northern portion of the Antelope
Valley Groundwater Basin. The mean recorded annual rainfall in the surrounding
area is approximately 156 mm (6.14 in). Typical patterns of precipitation are
winter rains and summer thunderstorms and these tend to be short-lived and of
high intensity. The site is dominated by Soledad Mountain and surface drainage
patterns in the area are largely influenced by local topography. This varies
from steep, rugged hillsides at the upper elevations to a gently sloping desert
floor around the toe of Soledad Mountain. Runoff on the northern side of Soledad
Mountain is via a series of gullies or channels, which direct surface flows to
the north, northeast and northwest and eventually to the east to the Gloster and
Chaffe Hydrologic Areas of the Antelope Hydrologic Unit.

There are no springs or intermittent streams in the immediate
area. The closest intermittent stream is approximately 5km (3miles) to the west.
Evaporation rates are high. Precipitation, which does not evaporate, adds to
groundwater recharge and this is typically found at depths of 55 to 61m (180 to
200ft) in the area north of the Project.

There is no site-specific water quality data available for
surface runoff. Water quality data shows that groundwater quality can be used in
the heap leach process with no pre-treatment.

The Lahontan Water Quality Control Board (the Board) is
responsible for ensuring compliance with the federal Clean Water Act and
Californias Porter-Cologne Water Quality Act. The Company submitted an
application with the necessary supporting information to the Board in June 1997.
The application was approved and the Board issued Board Order No. 6-98-9 on
March 5, 1998, which set out the waste discharge requirements for the
Project.

The Company is currently preparing documents that will be filed
as a revision to reflect detailed changes in the heap leach operation currently
being proposed for the Project.

Closure, Reclamation and Financial Assurance

The Company commissioned an independent consulting engineering
firm to prepare a Surface Mining Reclamation Plan for the Project in 1996. The
plan met the requirements of the State and local regulations and federal
requirements designed to prevent degradation of federal lands.

Organic materials and soils, typically no more than 15mm
(6inch) will be salvaged and placed in strategic locations to allow for easy
reclamation.

Concurrent reclamation may be feasible in a number of areas and
the Company made this commitment and this is included in Exhibit B of the
CUPs.

The objective of the reclamation plan is to return the site to
its pre-mining status as wildlife habitat and open space. Under the plan, the
Company is required to remove all structures, re-contour the waste rock dumps,
rip up or otherwise reclaim access roads and prepare disturbed surfaces for
seeding with native species.

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Reclamation can proceed in most areas while gold and silver are
still being produced although ore is no longer being crushed and piled on the
heap. Leach solutions must be neutralized and the heap must be reclaimed and it
is expected that it will require approximately three years to do after mining
has ended. Cyanide concentrations in the solutions must be reduced to the weak
acid dissociable (WAD) standard of 0.2mg/L (0.2ppm) and a pH ranging from 6.0 to
8.5. The basic approach to reducing the cyanide concentrations is to allow
natural processes to occur and to do a staged rinse with fresh water. A 90-day
rinse cycle has been used successfully at other heap leach operations in the
California deserts. Hydrogen peroxide or an equivalent oxidizing agent can be
used to speed up the neutralization process as required. Excess water will be
allowed to evaporate and snow making equipment has been successfully used at
other heap leach operations to speed evaporation.

The heap will be drilled and sampled once rinsing has been
completed. It is expected that twelve holes, evenly spaced, will be adequate.
The leached and rinsed ore that remains on the heap will be reclassified as a
Class C waste and that is the target approved by Board Order No. 6-98-9.

Experience at other heap leach operations in the California
deserts shows that reclamation can be completed successfully.

The Company is required to provide financial assurance for the
Project:

- Financial assurance to be held by Kern County to cover the general
  reclamation on site.
- Financial assurance to be held by the Board to cover neutralization of
  leach solutions and
- Unforeseen events financial assurance to be held by the Board designed
  cover an unforeseen event that could contaminate surface or groundwater.

The Company provided financial assurance in October 2005 in the
form of an Irrevocable Standby Letter Of Credit backed by a Certificate Of
Deposit with Union Bank of California in the amount of $182,453. This was the
estimate approved by Kern County for reclamation of historic disturbances on the
Property.

An independent consulting engineering firm is currently doing
additional work to confirm the reclamation cost estimates for historic
disturbances. The adequacy of the financial assurance is also reassessed
annually and this will increase once mine development starts.

Recent Developments

The State of California introduced backfilling requirements for
certain types of open pit, metal mines in December 2002. The Company contended
that these regulations did not apply to the Project and Kern County officials
supported this position through 2004 and 2005. The California Department of
Conservation, Office of Mine Reclamation has however recently determined that
the Project will be subject to the backfilling requirement and Kern County
officials now concur with this position. The Company is currently preparing and
will submit a revised Surface Mining Reclamation Plan for the Project and this
will incorporate backfilling.

Environmental, Safety and Health Policy

The Company has prepared an Environmental, Safety and Health
Policy and a management system to implement this Policy.

The company expects to sign the International Cyanide
Management Code. The Code was developed under the auspices of the United Nations
Environment Program and the International Council on Metals and the Environment.
The International Cyanide Management Institute, a non-profit organization,
administers the Code. Signatories to the Code commit to follow the Principles
set out in Code and to follow the Standards of Practice. Companies are expected
to design, construct, operate and decommission their facilities consistent with
the requirements of the Code and must have their operations audited by an
independent third party. Audit results are made public.

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Offices and Employees

The Companys principal executive offices are located in
Vancouver at 6411 Imperial Ave., West Vancouver, BC, V7W 2J5, Canada. The
Company employs a part-time accountant in Mojave, California.

Miscellaneous

All of the Companys directors, Edward G. Thompson, Chester
Shynkaryk, Gordon C. Gutrath, and H. Lutz Klingmann are residents of Canada.
Consequently, it may be difficult for United States investors to effect service
of process within the United States upon these directors, or to realize in the
United States upon judgments of United States courts predicated upon civil
liabilities under the United States securities laws. A judgment of a U.S. court
predicated solely upon such civil liabilities would probably be enforceable in
Canada by a Canadian court if the U.S. court in which the judgment was obtained
had jurisdiction, as determined by the Canadian court, in the matter. There is
substantial doubt whether an original action could be brought successfully in
Canada against any of such directors predicated solely upon such civil
liabilities.

Risk Factors

The following are some of the risk factors that apply to an
investment in the Company.

The Likelihood Of Continued Losses From Operations

The Company has no revenue from operations and has incurred
losses from inception through December 31, 2005 of $37,816,188. Losses are
expected to continue until such time as the Company can economically produce and
sell gold and silver from the Project. The Company held $749,825 in cash and
cash equivalents on December 31, 2005. Continued losses will require that the
Company raise additional funds by equity or debt financing, failing which it
will not be able to continue operations.

Ability To Continue As A Going Concern

The Company has had no revenues from operations since inception
  and has a deficit of $38,441,401 accumulated during the exploration stage. The
  ability of the Company to obtain financing for its ongoing activities and thus
  maintain solvency beyond 2006, will depend upon gold and silver prices and equity
  market conditions for junior resource companies, the willingness of other parties
  to lend the Company money or the ability to find a joint venture partner. While
  the Company has successfully obtained financing in the past, there can be no
  assurance that future efforts will be successful. This raises substantial doubt
  about the Companys ability to continue as a going concern.

The Need for Significant Additional Financing

If a feasibility study is completed for the Project and a
production decision is made, the Company will need significant additional
financing to develop the Project into an operating mine and estimates that this
could range as high as $55million. The Company expects to finance the
construction and to secure the necessary working capital from additional sales
of common stock, from bank or other borrowings or, alternatively, through a
joint venture. However, the Company has no commitment for bank financing or for
the underwriting of additional stock, and it is not a party to any agreement or
arrangement providing for a joint venture. Whether and to what extent project
financing can be secured will depend on a number of factors, including gold and
silver prices. Gold and silver prices fluctuate widely and are affected by
numerous factors beyond the Company's control, such as the strength of the US
dollar and foreign currencies, global and regional demand, and the political and
economic conditions of major gold producing countries. If financing is not
obtained, the Company will not be able to develop the Project and would be
forced to seek alternatives to its current business plan, including disposing of
its interests in the Property.

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There is no Current Independent Feasibility Study Confirming
the Existence of Reserves

Past mineral reserve estimates, which were based on the report
prepared by M3 in 1998, have been retracted on the basis that they are out of
date and not supported by a NI 43-101 Technical Report. Accordingly there is
presently no current, independent, technical report on the Project confirming
the existence of reserves based on current information, including current prices
for gold and silver, mining regulations, and mining technology. There is no
guarantee that an independent feasibility study prepared for the Project will
indicate that the Project is viable. Without a current independent feasibility
study, the Company will not be able to make a production decision.

Risks and Contingencies Associated with the Mining Industry
Generally

In addition to the risks noted above, the Company is subject to
all of the risks inherent in the mining industry, including environmental risks,
fluctuating metals prices, industrial accidents, labor disputes, unusual or
unexpected geologic formations, cave-ins, flooding, earth quakes and periodic
interruptions due to inclement weather. These risks could result in damage to,
or destruction of, production facilities, personal injury, environmental damage,
delays, monetary losses and legal liability. Although the Company maintains or
can be expected to maintain insurance within ranges of coverage consistent with
industry practice, no assurance can be given that such insurance will be
available at economically feasible premiums. Insurance against environmental
risks (including pollution or other hazards resulting from production) is not
generally available to the Company. Were the Company subjected to unexpected
costs, such costs would reduce the funds available to the Company for its normal
activities. Were the Company unable to fund fully the cost of remedying an
environmental problem, it might be required to suspend operations or enter into
interim compliance measures pending completion of remedial activities.

Item 2. Description of Property

Land Ownership and Mining Rights

The Company acquired its initial property interests in 1985 and
has since acquired additional properties in the area.

The Property is located west of California State Highway 14 and
largely south of Silver Queen Road in Kern County, California, covering all of
Section 6 and portions of Sections 5, 7 and 8 in Township 10 North, Range 12
West; portions of Sections 1 and 12 in Township 10 North, Range 13 West;
portions of Section 18 in Township 9 North, Range 12 West and portions of
Section 32 in Township 11 North, Range 12 West, all from the San Bernardino
Baseline and Meridian. The Project facilities will be located in Section 6.

The Company holds or controls via agreement 33 patented
lode-mining claims, 122 unpatented lode-mining claims, 1 patented millsite
claim, 6 unpatented millsite claims and 268.5hectare (663.2acres) of fee land.
The Company also owns four residential properties with buildings north of Silver
Queen Road.

The area that will be disturbed by the Project will be
approximately 497hectare (1,228acres) in size.

The Company owns or controls the properties under a variety of
agreements with 53 individual landowners, two groups of landowners and three
incorporated entities. These agreements include mining leases, exploration
agreements and purchase agreements in various stages of completion. The Company
believes that all the land required for the Project has either been secured
under one of these agreements or is controlled by the Company through ownership
of the land in fee or where the Company holds unpatented mining claims. The
purchases were made or agreements entered into from 1986 onwards, at a total
cost of approximately $3,800,000.

The Company is continuing with its efforts to purchase
additional mining claims and fee land that will secure its land position.

Significant Agreements

The following are the two significant agreements that will
require major cash payments in 2006.

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The Company acquired an option to purchase all of the issued
and outstanding shares of a privately held California corporation, the Karma
Wegmann Corporation, on April 1, 1995. Karma Wegmann Corporation holds 6
patented mining claims, 6 unpatented mining claims and 1 patented millsite. The
option agreement was successively renegotiated and a second amendment was signed
on August 10, 2001. A payment of $750,000 is now due to conclude the share
purchase under the second amendment on or before July 1 of any one year for a
period of five years from July 1, 2001 onwards. The second amendment also
requires the Company to recognize a liability of $35,000 on or before July 1,
2001 and on each successive anniversary date for up to five years. In order to
extend the termination date of the agreement, $10,000 of the liability is to be
paid in cash and the balance of $25,000 is to be accrued, without interest,
payment of which is deferred until the final share purchase payment is made.
Each July, beginning in 2001, the Company has made the required cash payment of
$10,000, accrued the liability balance of $25,000 and extended the termination
date of the agreement by one year, each year, with the current termination date
of the agreement being July 1, 2006. The full amount due is now $(750,000 +
125,000) = $875,000. The Company cannot exercise any rights, as a shareholder of
Karma Wegmann Corporation, until full payment under the option agreement and its
amendments is made. The Company is required to pay a royalty of 1% of gross
smelter returns for a period of up to 60 years, not to exceed $60,000,000, upon
commencement of commercial production.

The Company concluded an agreement to purchase 29.18 acres of
land required for the Phase 1 heap leach pad on August 1, 1996. The agreement is
with Southwestern Refining Corporation. The purchase price was $950,000 of which
$100,000 was paid in cash and $850,000 was secured by a promissory note with a
term of 180 months. The note is payable in monthly instalments of $9,275.
Interest on the outstanding balance is charged at prime rate plus 2%. A balloon
payment of the principal amount owing, if any, and accrued but unpaid interest,
if any, is due on September 1, 2011. The principal amount owing, recorded as a
long-term debt plus current maturities in the financial statements, was $612,187
as at December 31, 2005.

Title Review

The Company commissioned a formal title review of the Property
by a firm familiar with title matters in California in 1996. This title review
was updated in February 1998 and again in March 1999. A further title review was
completed by an independent landman in 2004 and no particular title problems
were identified.

Quiet Title Judgment

The ownership history is typically complex in historic mining
districts and title problems will exist. The Company obtained a Quiet Title
Judgment on May 15, 1999 and this resolved a majority of the title questions.
The effect of the Judgment was to clear the title to the interests in the
patented claims listed in the action and to cure the title defects of record,
providing security of title and thus greatly enhancing the value of the
properties.

The Company has determined that any remaining title questions
would not present a threat to the Project.

Land Survey

A formal land survey of the Property has not been
completed.

Public lands within the entire area of interest were segregated
from appropriation from 1991 onwards and the most recent segregation ended on
May 3, 2005. Records were noted on September 26, 2005.

The Company is currently re-confirming that there are no gaps
in its land holdings in the project area.

Royalties

The Company is required to make advance, minimum royalty
payments under a number of property agreements. With one exception, the Company
will receive a credit for the advance minimum royalty payments on commencement
of commercial production. Most of the royalties are of the net smelter return
(NSR) type and are based on a sliding scale, with the percentage amount of the
royalty depending upon the grade found on the particular property to which

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the royalty relates. Typically, the royalties are % NSR or
less, with an expected average of 3.1% . The agreements also typically provide
for an additional royalty if non-mineral commodities, such as aggregates, are
sold.

Property Interests Are Not In Good Standing

The Company ceased making property payments and advance,
minimum royalty payments in October 2005 after successfully concluding
moratorium agreements with a number of the landowners. The moratorium agreements
typically had a term of three years and these have now expired. After the
expiration of the moratorium agreements the Company reached an agreement with a
landowner and is making lease payments of $10,000 per year to this landowner.
The Company is also making principal and interest payments of $9,275 per month
to a second landowner under an agreement to purchase 29.18 acres of fee land.
The Company made advance, minimum royalty payments of $100,000 per year to the
second landowner in 2004. The Company did not however make the advance, minimum
royalty payment of $100,000 to the landowner in 2005 and has proposed to the
landowner that advance, minimum royalty payments be suspended until royalty
payments become due from commercial production.

The Company is technically in default of certain mineral
property agreements but is not currently in litigation with any landowner. The
Company will continue to work with its landowners in 2006. While the Company has
successfully reached agreement with its landowners in the past, there can be no
assurance that such agreements will continue into the future.

The future of the Project is dependant upon maintaining control
of the Property. Without land and mineral rights, the Company has no basis for
continuing with its activities. While each and every property has its own value
and unique purpose in the overall mine plan, the feasibility of the Project will
depend on the ability of the Company to maintain control of the Property as a
whole. A failure to keep property agreements in good standing may result in a
loss of control, which, if material to the Project, would prevent the Company
from development of the Project.

Item 3. Legal Proceedings

To the best of our knowledge, there are no legal actions
pending, threatened or contemplated against us.

Item 4. Submission of Matters to a Vote of Security
Holders

No matters were submitted to a vote of the Companys
shareholders during the fourth quarter of 2005.

PART II

Item 5. Market for Common Equity, Related Stockholder
Matters and Small Business Issuer Purchases of Equity Securities.

Market and Trading Price

The common shares of the Company are listed and traded on The
Toronto Stock Exchange under the trading symbol GQM. The high and low sales
prices of the common stock as reported by The Toronto Stock Exchange for the
calendar periods indicated are set out in the table below. All prices are
reported in Canadian dollars.

**Year ended December 31**
    High
    Low2005
    Fourth Quarter
    $0.45
    $0.34Third Quarter
    0.42
    0.28Second Quarter
    0.43
    0.30First Quarter
    0.44
    0.312004
    Fourth Quarter
    $0.54
    0.37Third Quarter
    0.51
    0.42Second Quarter
    0.86
    0.40First Quarter
    1.04
    0.47


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Exchange Rates

The following table sets forth, for the periods indicated,
certain exchange rates based on the noon buying rate in New York City for cable
transfers in Canadian dollars. Such rates are the number of Canadian dollars per
one (1) U.S. dollar and are the inverse of rates quoted by the Federal Reserve
Bank of New York for U.S. dollars per CDN$1.00. On March 22, 2006, the exchange
rate was US$1.00 per CDN$1.16678. The high and low exchange rates for each month
during the previous six months were as follows:

High
    LowFebruary 2006
    1.1577
    1.1379January 2006
    1.1794
    1.1372December 2005
    1.1754
    1.1427November 2005
    1.1977
    1.1642October 2005
    1.1923
    1.1588September 2005
    1.1936
    1.1588


The following table sets out the exchange rate information as
at each of the years ended December 31, 2005 and 2004.

Year Ended December 312005
    2004Rate at end of Period
    1.1630
    1.2020Average Rate during Period
    1.2116
    1.3015Low
    1.1467
    1.1746High
    1.2696
    1.4003


As of February 28, 2006 there were 270 holders of record of the
Companys common shares and an undetermined number of beneficial holders.

The common shares of the Company are also traded on the Pink
Sheets under the trading symbol GQMNF. The high and low sales prices of the
common stock as reported by the Pink Sheets for the calendar periods indicated
are set out in the table below. All prices are reported in U.S. dollars. Such
over-the-counter market quotations reflect inter-dealer prices, without retail
mark-up, markdown or commission and may not necessarily represent actual
transactions. The Pink Sheets has a limited and sporadic trading market and does
not constitute an established trading market.

Year ended December 31
    High
    Low2005
    Fourth Quarter
    $0.385
    $0.385Third Quarter
    0.353
    0.225Second Quarter
    0.355
    0.239First Quarter
    0.370
    0.2452004
    Fourth Quarter
    $0.422
    $0.320Third Quarter
    0.400
    0.333Second Quarter
    0.705
    0.290First Quarter
    0.825
    0.350


Dividends

The Company has not declared dividends on its common shares in
the last two fiscal years.

20

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Securities Authorized for Issuance Under Compensation
Plans

The following table sets forth information as at December 31,
2005 respecting the compensation plans under which shares of the Companys
common stock are authorized to be issued.

Plan Category
    Number of securities to be
      issued upon exercise of outstanding options, warrants and
      rights (a)
    Weighted-average exercise
      price of outstanding options, warrants and rights (b)
    Number of securities remaining
      available for future issuance under equity compensation plans
      (excluding securities reflected in column (a)) (c)Equity compensation plans approved by
      security holders
    2,040,000
    C$0.425 (US$0.365)
    750,000Equity compensation plans not approved by
      security holders
    N/a
    N/a
    N/aTotal
    2,040,000
    --
    750,000


Sales of Unregistered Securities

During the fiscal year ended December 31, 2005, there were no
sales of unregistered securities by the Company.

Purchases of Equity Securities by the Company and Affiliated
Purchasers

Neither the Company nor an affiliate of the Company purchased
common shares of the Company in the year ending December 31, 2005, other than
through the exercise of options pursuant to the Companys 1996 Stock Option
Plan.

Item 6. Managements Discussion and Analysis And Plan of
Operations

Results of Operations

The Company had no revenue from operations and the Project
remained on hold in 2005.

The Company initiated a detailed review of the Project in
mid-2002 to identify new approaches that would reduce both the capital cost to
the start of production and future operating costs to ensure a viable mining
operation at foreseeable gold and silver prices. The review has been supported
and complimented by a substantial amount of work done by independent engineers
and contractors. The technical studies were completed in September 2005.

The following is a summary of operating results since work on
the Project was accelerated in 2002:

Year Ended Dec. 31, 2005
    Year Ended Dec. 31, 2004
    Year Ended Dec. 31, 2003
    Year Ended Dec. 31, 2002
    Cumulative From Inception$
    $
    $
    $
    $General and administrative expenses
    -1,018,343
    -1,163,069
    -493,657
    -287,665
    -8,636,431Asset impairment
      loss
    -682,687
    -345,766
    0
    0
    -29,576,045Adjustment to asset
      retirement obligation
    262,265
    0
    0
    0
    262,265Miscellaneous items
    (7,515)
    0
    0
    0
    -148,139Sub-total
    -1,446,280
    -1,508,835
    -493,657
    -287,665
    -38,098,350Interest expense
    -50,069
    -294,677
    -250,904
    -60,192
    -850,043Interest income
    20,025
    31,262
    45
    254
    1,133,005Net loss
    -1,476,324
    -1,772,250
    -744,516
    -347,603
    -37,816,388


21

---

The results of operations can vary from year to year depending
upon the nature, timing and cost of activities undertaken during the year and
whether or not the Company incurs gains or losses on foreign exchange, grants
stock options or writes down the value of its property or makes other
end-of-year adjustments.

The Company incurred general and administrative expenses of
$1,018,343 for the year ended December 31, 2005, as compared to $1,163,069 for
the year ended December 31, 2004. These costs were marginally lower in 2005 and
this was primarily due to ongoing spending required to complete process
development and detailed engineering for the Project.

An asset impairment loss of $682,687 on its mineral properties
was recorded in 2005. This is discussed in detail in Note 3 of the Consolidated
Financial Statements.

An adjustment to asset retirement obligation was required in
2005 as the estimated cost of reclaiming the historic disturbances on the
Property was reduced from $572,260 in 2004 to $182,453 in 2005. The costs were
re-estimated in detail in 2005 and actual costs could still differ materially
from current estimates. The adjustment is discussed in detail in Note 10 of the
Consolidated Financial Statements.

Interest expense was $50,069 for the year ended December 31,
2005 as compared to $294,677 for the year ended December 31, 2004. The decrease
of $244,608 was primarily due to the accounting treatment of an amortization of
the equity component of the convertible debt in 2004.

Interest income was $20,025 for the year ended December 31,
2005 as compared to $31,262 for the year ended December 31, 2004. The decrease
is due to the fact that funds on deposit from the private placement, which was
concluded in January 2004, were lower as cash was used to fund operating
activities in 2005.

The Company incurred a net loss of $1,476,324 (or $0.02 per
share) for the year ended December 31, 2005, as compared to a net loss of
$1,772,250 (or $0.03 per share) for the year ended December 31, 2004.

Summary Of Quarterly Results

Results for the eight most recent quarters are set out in the
table below.

Results for the quarter ending on:
    Dec. 31, 2005
    Sept. 30, 2005
    June 30, 2005
    March 31, 2005Item
    $
    $
    $
    $Revenue Net loss for the
      quarter Net loss per share
    Nil 669,852 0.01
    Nil 207,580 0.01
    Nil 365,127 0.01
    Nil 233,765 0.00


Results for the quarter ending on:
    Dec. 31, 2004
    Sept. 30, 2004
    June 30, 2004
    March 31, 2004Item
    $
    $
    $
    $Revenue Net loss for the
      quarter Net loss per share
    Nil 837,455 0.01
    Nil 267,797 0.00
    Nil 352,093 0.01
    Nil 314,905 0.01


The results of operations can vary from quarter to quarter
depending upon the nature, timing and cost of activities undertaken during the
quarter.

22

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Transactions With Related Parties

Mr. H.L. Klingmann, the president of the Company, was paid
management fees of $110,000 and Mr. C. Shynkaryk, a director of the Company, was
paid $6,200 for consulting services during the year ended December 31, 2005.

There were no other related party transactions during the year
ended December 31, 2005.

Financial Instruments

The fair value of the Companys cash and cash equivalents,
accounts receivable and accounts payable, amounts due to related parties and
current maturities of long-term debt is estimated to approximate their carrying
values. It is managements opinion that the Company is not exposed to
significant interest, currency or credit risk arising from the use of these
financial instruments.

Liquidity and Capital Resources

The Company held $749,825 in cash and cash equivalents on
December 31, 2005.

The Company closed a private placement with one independent
investor for an aggregate of 7,200,000 units at C$0.50 per unit for gross
proceeds of approximately $3,000,000 (C$3,600,000) on January 31, 2006. The
Company paid a finders fee of 2.0% or C$72,000.

The following warrants are currently outstanding pursuant to
the two most recent private placements::

No. of Warrants
    Exercise Price
    Expiry DatePrivate placement of January
      2004
    8,000,000
    C$0.60/share
    June 1, 2006*Private placement of January 2006
    7,200,000
    C$0.60/share
    Jan. 26, 2008


*These warrants had an original exercise price of C$0.62 if
exercised in the first year and C$0.75 if exercised in the second year with a
two-year life to expire on January 27, 2006. Subsequent to December 31, 2005 the
warrants were repriced to C$0.60 and the expiry date extended to June 1,
2006.

These outstanding warrants represent an important, potential
source of cash for the Company.

Management plans to control costs and it is not expected that
additional cash will be required beyond cash currently on hand to complete the
independent feasibility study for the Project, to conclude a major purchase of
shares in a private California corporation, the Karma-Wegmann Corporation, for
$875,000 due on July 1, 2006 and for general corporate purposes to the end of
2006.

Continued losses from operations in the future, will require
that the Company raise additional funds by equity or debt financing, failing
which it will not be able to continue operations. Further, the Company will need
significant additional financing to develop the Project into an operating mine
once the feasibility study has been completed and a production decision has been
made and estimates that this could range as high as $55million plus working
capital.

The Company expects to finance construction and secure the
necessary working capital from additional sales of common stock, from bank or
other borrowings or, alternatively, through a joint venture. The Company does
not currently have commitments for the sale of common stock or for bank
financing and is not a party to any agreement or arrangement providing for a
joint venture. Whether and to what extent project financing can be secured, will
depend upon a number of factors, not the least of which are gold and silver
prices. Gold and silver prices fluctuate widely and are affected by numerous
factors beyond the control of the Company. This is discussed in more detail
under Plan of Operationsbelow.

The Company had Canadian and US deferred tax assets of
approximately C$3.4million and $19.9million respectively on December 31, 2005.
The Company has provided a 100% valuation allowance for these deferred tax

23

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assets as management cannot determine that it is more likely
than not that the Company will receive the benefit of the asset.

Some of the conditions noted above raise substantial doubt
about the ability of the Company to continue as a going concern and our auditors
provide further comments in their audit report on the Companys financial
statements. The ability of the Company to obtain financing for its ongoing
activities and thus maintain solvency beyond 2006, will depend upon gold and
silver prices and equity market conditions for junior resource companies, the
willingness of other parties to lend the Company money or the ability to find a
joint venture partner. While the Company has successfully obtained financing in
the past, there can be no assurance that future efforts will be successful.

Plan of Operations

The Company engaged SRK in 2005 to prepare a NI 43-101
Technical Report to validate and confirm the mineral resource estimates and this
Technical Report was released on March 6, 2006 and the mineral resources have
been confirmed as set out in this Form 10-KSB above.

The Company has now engaged SRK to prepare a NI 43-101
Technical Report to assess mineral reserves as part of an independent
feasibility study based upon the technical work that was completed in September
2005. This Technical Report is to be completed as soon as is practical and this
is a priority for the Company.

The Company plans to put the Project into production as an open
pit heap leach operation and to construct facilities to process ore at a rate of
5.7million t (6.3million ton) per year for an initial life of mine of 7.1
years.

The Company is working with independent consulting engineers
and contractors to prepare applications with supporting information to reflect
detailed changes currently being proposed for the Project. These applications
will be filed with various regulatory authorities in the second quarter of 2006
as revisions to approvals and permits that were granted in the late 1990s.

If a feasibility study is completed for the Project and a
production decision is made, the Company will need significant additional
financing to develop the Project into an operating mine and estimates that this
could range as high as $55million plus working capital. The Company believes
that financing for the Project can be secured if gold and silver prices remain
at or above $450.00/oz and $7.50/oz respectively. Gold and silver prices
averaged $444.85/oz and $7.31/oz in 2005 and prices have seen a relatively
narrow range around $550.00/oz and $10.00/oz in March 2006 respectively.

It is not expected that the Company will hedge any of its gold
or silver production.

Aggregate

It is expected that an aggregate business can be developed on
the Property once the heap leach operation is in full production. The source of
raw materials would be the finely crushed and rinsed residue from the heap leach
operation and rock from the waste rock dumps. The waste rock can be classified
into a range of products such as riprap, crushed stone and gravel. Test work to
confirm the suitability of these materials for use as aggregate was done in 1998
and 1999. The Company has received an expression of interest form an aggregate
producer with experience in southern California markets and this is being
actively pursued.

Wind Power

A large number of wind turbines are located in an area between
Mojave and Bakersfield.

A company based in Tehachapi has investigated the feasibility
of using Soledad Mountain as a base for a commercial installation of wind
turbines and has had discussions with the Company. The company has had a wind
monitoring station on Soledad Mountain for a year and has indicated that Soledad
Mountain would be a very good site and could accommodate 8 to 12 wind turbines
without interfering with the mining operation. The Company is

24

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now actively pursuing this as a supplemental source of power
for the Project although it would still be necessary for the local utility to
provide power during periods when there is little or no wind.

Risk

There are a number of risks associated with the Project and
readers are urged to consider the risks set out in this Form 10-KSB above, and
other risks, in order to obtain an understanding of the Project.

Outstanding Share Data

The number of shares issued and outstanding and the fully
diluted share position are set out in the table below.

Item
    No. of Shares
    Exercise Price
    Expiry DateShares issued and
      outstanding on Dec. 31, 2005
    61,190,449
    Not
      Applicable
    Not ApplicableShares issued on
      January 31, 2006
    7,200,000
    Not
      Applicable
    Not ApplicableDirector and
      employee stock options
    1,580,000
    $0.35
      to $0.50
    9/05/07 & 1/02/10Shares to be issued
      on conversion of note
    652,174
    U.S.$0.23
    NoneWarrants issued
      pursuant to private placement
    8,000,000
    C0.60
    June 1, 2006Warrants issued
      pursuant to private placement
    7,200,000
    C0.60
    Jan. 26, 2008Shares to be issued
      as a finders fee
    100,000
    Not
      Applicable
    Not ApplicableBonus shares to be issued to H.L. Klingmann
    300,000
    None
    NoneFully diluted on March 31, 2006
    86,222,623


The number of shares issued and outstanding was 61,190,449 on
December 31, 2005, 61,080,449 on December 31, 2004 and 51,902,189 on December
31, 2003. As at March 31, 2006 the company had 68,390,446 shares issued and
outstanding.

The Companys authorized share capital is 100,000,000 common
shares with no par value.

Critical Accounting Policies

The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make a wide
variety of estimates and assumptions that affect (i) the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities as of
the date of the financial statements, and (ii) the reported amounts of revenues
and expenses during the reporting periods covered by the financial statements.
Our management routinely makes judgments and estimates about the effect of
matters that are inherently uncertain. As the number of variables and
assumptions affecting the future resolution of the uncertainties increases,
these judgments become even more subjective and complex. The most significant
accounting policies that are most important to the portrayal of our current
financial condition and results of operations relate to mineral properties and
exploration and development expenditures. Other accounting policies are
disclosed in the Consolidated Financial Statements.

Mineral Properties

Mineral properties includes the cost of advance minimum royalty
payments, the cost of capitalized property leases, payments in shares, and the
cost of property acquired either by cash payment or the issuance of term debt.
Expenditures for exploration on specific properties with no proven reserves are
written-off as incurred. Mineral property costs will be amortized against future
revenues or charged to operations at the time the related property is determined
to have an impairment in value.

Carrying value of mineral interests

The cost of acquiring mineral property interests is
capitalized. Capitalized acquisition costs are expensed in the period in which
it is determined that the mineral property has no future economic value.
Capitalized amounts may also be written down if future cash flows, including
potential sales proceeds related to the property, are estimated to

25

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be less than the carrying value of the property. We review the
carrying value of mineral property interests periodically, and whenever events
or changes in circumstances indicate that the carrying value may not be
recoverable, reductions in the carrying value of each property would be recorded
to the extent the carrying value of the investment exceeds the propertys
estimated fair value. See also Note 3 of the Consolidated Financial
Statements..

Exploration and development expenditures

Exploration and development expenditures are expensed as
incurred. Once a mineral reserve has been established, all development costs
will be capitalized and charged to operations on a unit-of-production method
based on estimated recoverable reserves.

Asset Retirement Obligations

Effective January 1, 2003, the Company retroactively adopted
SFAS No. 143, Accounting for Asset Retirement Obligations. The Company records
the fair value of an asset retirement obligation as a liability in the period in
which it incurs a legal obligation associated with the retirement of tangible
long-lived assets that result from the acquisition, construction, development,
and/or normal use of the assets. The obligation is measured initially at fair
value using present value methodology, and the resulting costs capitalized into
the carrying amount of the related asset. In subsequent periods, the liability
will be adjusted for any changes in the amount or timing of the underlying
future cash flows. Capitalized asset retirement costs are depreciated on the
same basis as the related asset and the discount accretion of the liability is
included in determining the results of operations.

Estimates

The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Management has made significant estimates in several areas
including the recoverability of mineral properties. Actual results could differ
from those estimates

Valuation of Long-lived Assets.

Statement of Financial Accounting Standards ("SFAS") No. 144
requires recognition of impairment of long-lived assets in the event the net
book value of such assets exceeds the estimated undiscounted future cash flows
attributable to such assets. It requires that those long-lived assets to be
disposed of by sale are to be measured at the lower of carrying amount or fair
value less cost of sale whether reported in continuing operations or in
discontinued operations. In accordance with the provisions of SFAS No. 144,
management of the Company reviews the carrying value of its mineral properties
on a regular basis. Estimated undiscounted future cash flow from the mineral
properties is compared with the current carrying value in order to determine if
an impairment exists. Reductions to the carrying value, if necessary, are
recorded to the extent the net book value of the property exceeds the estimate
of future discounted cash flow or liquidation value.

Item 7. Financial Statements.

The Consolidated Financial Statements of the Company and the
notes thereto are attached to this report following the signature page.

Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.

None.

26

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Item 8A. Controls and Procedures

The Company maintains disclosure controls and procedures that
are designed to ensure that information required to be disclosed in its reports
filed pursuant to the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the rules and forms
promulgated under such Act, and that such information is accumulated and
communicated to management, including its President and principal financial
officer, as appropriate, to allow timely decisions regarding required
disclosure.

In connection with this annual report, management carried out
an evaluation, under the supervision and with the participation of the
management, including the President and principal accounting officer, of the
effectiveness of the design and operation of the Companys disclosure controls
and procedures pursuant to Exchange Act Rule 13a-14. Based upon the foregoing,
the President and principal accounting officer concluded that the Companys
disclosure controls and procedures are effective in connection with the filing
of this Annual Report on Form 10-KSB as at December 31, 2005.

There were no significant changes in our internal controls or
in other factors that could significantly affect these controls subsequent to
the date of their evaluation, including any significant deficiencies or material
weaknesses of internal controls that would require corrective action.

Item 8B. Other Information

None.

PART III

Information with respect to Items 9 through 12 and Item 14 is
set forth in the definitive Proxy Statement to be filed with the Securities and
Exchange Commission on or before April 30, 2006 and is incorporated herein by
reference. If the definitive Proxy Statement cannot be filed on or before April
30, 2006, the issuer will instead file an amendment to this Form 10-KSB
disclosing the information with respect to Items 9 through 12.

Item 13. Exhibits

(a) Exhibits

ExhibitNo.
    Description of Exhibit
    Manner of
      Filing3.1
      Certificate of Incorporation, Articles of Incorporation,
      Memorandum, and all current amendments thereto of the registrant under the
      Company Act of British Columbia, as amended.
      Incorporated by reference to Exhibit 3.1 to the Form
      10-SB of the Company, filed with the SEC on November 21, 1996 and
      amendments thereto (the Form 10-SB)10.1
      Lease dated October 20, 1994 between the Subsidiary and
      William J. Warner with respect to certain property within the project
      area.
      Incorporated by reference to Exhibit 10.5 to the Form 10-
      SB10.2
      Lease dated September 19, 1994 between the Subsidiary and
      Western Centennials, Inc., with respect to certain property within the
      project area.
      Incorporated by reference to Exhibit 10.6 to the Form 10-
      SB10.3
      Stock option purchase agreement dated April 1, 1995
      between the Subsidiary and Grace W. Meehl, Madge W. Wolff, Stephen G.
      Wegmann, Michael L. Wegmann, John G. Hodgson, Virginia L. Sigl, Patrick L.
      Wolff and George P. Wolff with respect to the acquisition by the
      Subsidiary of an option to purchase all of the outstanding shares of KWC.
      Incorporated by reference to Exhibit 10.8 to the Form 10-
      SB 27


---

10.4
      Purchase agreement
          dated March 29, 1996 between the Subsidiary and the Meehl Family Trust
          and others with respect to the acquisition by the Subsidiary of certain
          property within the project area.
      Incorporated by
          reference to Exhibit 10.10 to the Form 10- SB10.5
      Purchase agreement
          dated August 1, 1996 between the Subsidiary and Southwestern Refining
          Corporation with respect to the acquisition by the Subsidiary of certain
          property and mill tailings within the project area.
      Incorporated by
          reference to Exhibit 10.12 to the Form 10- SB10.6
      1996 Stock option
          plan of the registrant, as amended.
      Incorporated by
          reference to Exhibit 10.13 to the Form 10- SB10.7
      Amendment
          dated August 10, 2001 to Stock option purchase agreement dated April
          1, 1995 between the Subsidiary and Grace W. Meehl, Madge W. Wolff, Stephen
          G. Wegmann, Michael L. Wegmann, John G. Hodgson, Virginia L. Sigl, Patrick
          L. Wolff and George P. Wolff with respect to the acquisition by the
          Subsidiary of an option to purchase all of the outstanding shares of
          KWC.
      Filed
          herewith10.8
      Guarantee
          Agreement dated August 10, 2001 between the Company and Grace W. Meehl,
          Madge W. Wolff, Stephen G. Wegmann, Michael L. Wegmann, John G. Hodgson,
          Virginia L. Sigl, Patrick L. Wolff and George P. Wolff with respect
          to the acquisition by the Subsidiary of an option to purchase all of
          the outstanding shares of KWC.
      Filed
          herewith21.1
      Subsidiaries of the
          Registrant.
      Incorporated by
          reference to Exhibit 24.0 to the Form 10-SB23.1
      Consent
          of BDO Dunwoody, LLP
      Filed
          herewith23.2
      Consent
          of Fred Fest
      Filed
          herewith23.3
      Consent
          of Peter I. Clarke
      Filed
          herewith23.4
      Consent
          of Larry B. Smith
      Filed
          herewith31.1
      Rule
          13a-14(a)/15(d)-14(a) Certification
      Filed
          herewith32.1
      Section
          1350 Certification
      Filed
          herewith 28


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SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

**GOLDEN QUEEN MINING CO. LTD.**

|By: | */s/ H. Lutz Klingmann*                     | 
|--- | ------------------------------------------- | 
|    | H. Lutz Klingmann                           | 
|    | President and Chief Executive
      Officer | 
|    |                                             | 
|    | Date: March 31, 2006                        | 

In accordance with the Exchange Act, this report has been
signed by the following persons on behalf of the registrant and in the
capacities indicated on the dates indicated.

|Signature               |  | Title                                                 | Date          
|----------------------- |  | ----------------------------------------------------- | --------------
|                        |  |                                                       |               
|                        |  |                                                       |               
|*/s/ H. Lutz Klingmann* |  | President, Chief Executive
      Officer and Director | March 31, 2006
|H. Lutz Klingmann       |  |                                                       |               
|                        |  |                                                       |               
|                        |  |                                                       |               
|*/s/ Edward Thompson*   |  | Chairman of the Board and
      Director              | March 31, 2006
|Edward Thompson         |  |                                                       |               
|                        |  |                                                       |               
|                        |  |                                                       |               
|*/s/ Chester Shynkaryk* |  | Secretary and Director                                | March 31, 2006
|Chester Shynkaryk       |  |                                                       |               
|                        |  |                                                       |               
|                        |  |                                                       |               
|*/s/ Gordon Gutrath*    |  | Director                                              | March 31, 2006
|Gordon Gutrath          |  |                                                       |               

29

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|                      | BDO Dunwoody LLP              | 600 Cathedral Place
|--------------------- | ----------------------------- | -------------------
|Chartered Accountants | 925 West Georgia Street      
|                      | Vancouver, BC, Canada V6C 3L2
|                      | Telephone: (604) 688-5421    
|                      | Telefax: (604) 688-5132      
|                      | E-mail: vancouver@bdo.ca     
|                      | www.bdo.ca                   

Report of Independent Registered Public Accounting Firm

To the Shareholders of 
  Golden Queen Mining Co. Ltd. 
  (an exploration stage company) 
  Vancouver, B.C.

We have audited the accompanying consolidated balance sheets
  of Golden Queen Mining Co. Ltd. (an exploration stage company), as of December
  31, 2005 and 2004, and the consolidated statements of loss, changes in shareholders
  equity, and cash flows for the years then ended. We have also audited the statements
  of loss, changes in shareholders equity (capital deficit), and cash flows
  for the period from inception (November 21, 1985) through December 31, 2005,
  except that we did not audit these financial statements for the period from
  inception (November 21, 1985) through May 31, 1996; those statements were audited
  by other auditors whose report dated July 12, 1996, expressed an unqualified
  opinion on those statements. These financial statements are the responsibility
  of the Companys management. Our responsibility is to express an opinion
  on these consolidated financial statements based on our audits. Our opinion,
  insofar as it relates to the amounts for the period from inception (November
  21, 1985) through May 31, 1996, is based solely on the report of the other auditors.

We conducted our audits in accordance with the standards of the
  Public Company Accounting Oversight Board (United States). Those standards require
  that we plan and perform the audits to obtain reasonable assurance about whether
  the consolidated financial statements are free of material misstatement. The
  Company is not required to have, nor were we engaged to perform, an audit of
  its internal control over financial reporting. Our audits included consideration
  of internal control over financial reporting as a basis for designing audit
  procedures that are appropriate in the circumstances, but not for the purpose
  of expressing an opinion on the effectiveness of the Companys internal
  control over financial reporting. Accordingly, we express no such opinion. An
  audit also includes assessing the accounting principles used and significant
  estimates made by management, as well as evaluating the overall financial statement
  presentation. We believe that our audits provide a reasonable basis for our
  opinion.

In our opinion, based on our audits and the report of other auditors,
  the consolidated financial statements referred to above present fairly, in all
  material respects the financial position of Golden Queen Mining Co. Ltd. (an
  exploration stage company), as of December 31, 2005 and 2004, and the results
  of its operations and its cash flows for the years then ended and for the period
  from inception (November 21, 1985) through December 31, 2005, in conformity
  with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming
  that the Company will continue as a going concern. As discussed in Note 1 to
  the consolidated financial statements, the Company has had no revenues since
  inception and has been unable to obtain the necessary financing to complete
  current exploration activities or exit the exploration stage. Also, the Company
  has a $38,441,401 deficit accumulated during the exploration stage as of December
  31, 2005. These conditions raise substantial doubt about the Companys
  ability to continue as a going concern. Managements plans in regard to
  these matters are also described in Note 1. The financial statements do not
  include any adjustments that might result from the outcome of this uncertainty.
  As discussed in Note 3, the Company has retroactively restated the cash flow
  statement to present mineral property expenditures as operating activities rather
  than investing activities.

/s/ BDO Dunwoody LLP

Chartered Accountants 
  Vancouver, Canada 
  March 10, 2006

F-1

---

|                      | BDO Dunwoody LLP              | 600 Cathedral Place
|--------------------- | ----------------------------- | -------------------
|Chartered Accountants | 925 West Georgia Street      
|                      | Vancouver, BC, Canada V6C 3L2
|                      | Telephone: (604) 688-5421    
|                      | Telefax: (604) 688-5132      
|                      | E-mail: vancouver@bdo.ca     
|                      | www.bdo.ca                   

Auditors Report

To the Shareholders of 
  Golden Queen Mining Co. Ltd. 
  (An Exploration Stage Company)

We have audited the Consolidated Balance Sheets of Golden Queen
  Mining Co. Ltd. (an exploration stage company) as of December 31, 2005 and 2004
  and the Consolidated Statements of Loss, Changes in Shareholders Equity
  (Capital Deficit) and Cash Flows for the years then ended. We have also audited
  the Consolidated Statements of Loss, Changes in Shareholders Equity (Capital
  Deficit) and Cash Flows from inception (November 21, 1985) through December
  31, 2005. These financial statements are the responsibility of the Companys
  management. Our responsibility is to express an opinion on these consolidated
  financial statements based on our audits.

We conducted our audits in accordance with Canadian generally
  accepted auditing standards. Those standards require that we plan and perform
  the audits to obtain reasonable assurance whether the financial statements are
  free of material misstatement. An audit includes examining, on a test basis,
  evidence supporting the amounts and disclosures in the financial statements.
  An audit also includes assessing the accounting principles used and significant
  estimates made by management, as well as evaluating the overall financial statement
  presentation.

In our opinion, these consolidated financial statements present
  fairly, in all material respects, the financial position of the Company as at
  December 31, 2005 and 2004 and the results of its operations and its cash flows
  for the years then ended and for the period from inception (November 21, 1985)
  through December 31, 2005, in accordance with United States generally accepted
  accounting principles.

/s/ BDO Dunwoody LLP

Chartered Accountants

Vancouver, Canada 
  March 10, 2006

F-2

---

|GOLDEN QUEEN MINING CO. LTD.  
|------------------------------
|(an exploration stage company)
|Consolidated Balance Sheets   
|(U.S. dollars)                

|                                                          |   | December 31, |   |   | December 31, |  
|--------------------------------------------------------- | - | ------------ | - | - | ------------ | -
|                                                          |   | 2005         |   |   | 2004         |  
|Assets (Note 1)                                           |   |              |   |   |              |  
|                                                          |   |              |   |   |              |  
|Current assets:                                           |   |              |   |   |              |  
|Cash and cash equivalents                                 | $ | 749,825      |   | $ | 1,350,356    |  
|Receivables                                               |   | 25,543       |   |   | 20,332       |  
|Prepaid expenses and other current assets                 |   | 20,846       |   |   | 23,815       |  
|                                                          |   |              |   |   |              |  
|Total current assets                                      |   | 796,214      |   |   | 1,394,503    |  
|                                                          |   |              |   |   |              |  
|Property and equipment, net (Note 2)                      |   | 230,355      |   |   | 250,282      |  
|Mineral properties (Notes 3, 4,
      10 and 11)          |   | -            |   |   | 682,687      |  
|Reclamation bond (Note 3)                                 |   | 182,453      |   |   | 572,260      |  
|                                                          |   |              |   |   |              |  
|                                                          | $ | 1,209,022    |   | $ | 2,899,732    |  
|                                                          |   |              |   |   |              |  
|Liabilities and Shareholders Equity                      |   |              |   |   |              |  
|                                                          |   |              |   |   |              |  
|Current liabilities:                                      |   |              |   |   |              |  
|Accounts payable                                          | $ | 108,717      |   | $ | 62,476       |  
|Royalty and mining rights payable (Note 4)                |   | 197,484      |   |   | 172,484      |  
|Accrued liabilities                                       |   | 32,161       |   |   | 26,272       |  
|Current maturities of long-term debt (Note 6)             |   | 63,147       |   |   | 30,222       |  
|Convertible notes (Note 7)                                |   | 150,000      |   |   | 150,000      |  
|Total current liabilities                                 |   | 551,509      |   |   | 441,454      |  
|                                                          |   |              |   |   |              |  
|Long-term debt, less current maturities (Note 6)          |   | 549,040      |   |   | 688,372      |  
|Asset retirement obligations (Note 10)                    |   | 91,016       |   |   | 345,766      |  
|                                                          |   |              |   |   |              |  
|Total liabilities                                         |   | 1,191,565    |   |   | 1,475,592    |  
|                                                          |   |              |   |   |              |  
|Commitments and contingencies (Notes
      4, 10 and 11)  |   |              |   |   |              |  
|                                                          |   |              |   |   |              |  
|Shareholders equity:                                     |   |              |   |   |              |  
|Preferred shares, no par, 3,000,000 shares                |   |              |   |   |              |  
|authorized; no shares outstanding                         |   | -            |   |   | -            |  
|Common shares, no par, 100,000,000 shares                 |   |              |   |   |              |  
|authorized; 61,190,449 and 61,080,449
      shares issued |   |              |   |   |              |  
|and outstanding (Note 8)                                  |   | 37,886,484   |   |   | 37,865,435   |  
|Additional paid-in capital                                |   | 572,374      |   |   | 523,782      |  
|Deficit accumulated during the exploration stage          |   | (38,441,401  | ) |   | (36,965,077  | )
|                                                          |   |              |   |   |              |  
|Total shareholders equity                                |   | 17,457       |   |   | 1,424,140    |  
|                                                          |   |              |   |   |              |  
|                                                          | $ | 1,209,022    |   | $ | 2,899,732    |  

See Accompanying Summary of Accounting Policies and Notes to Consolidated
  Financial Statements.

F-3

---

|GOLDEN QUEEN MINING CO. LTD.   
|-------------------------------
|(an exploration stage company) 
|Consolidated Statements of Loss
|(U.S. dollars)                 

|                                          |   |              |   |   |              |   |   | Cumulative        |  
|----------------------------------------- | - | ------------ | - | - | ------------ | - | - | ----------------- | -
|                                          |   |              |   |   |              |   |   | Amounts From      |  
|                                          |   |              |   |   |              |   |   | Date of Inception |  
|                                          |   |              |   |   |              |   |   | (November 21,     |  
|                                          |   | Year Ended   |   |   | Year Ended   |   |   | 1985) through     |  
|                                          |   | December 31, |   |   | December 31, |   |   | December 31,      |  
|                                          |   | 2005         |   |   | 2004         |   |   | 2005              |  
|                                          |   |              |   |   |              |   |   |                   |  
|General and administrative expense        | $ | (1,018,343   | ) | $ | (1,163,069   | ) | $ | (8,636,431        | )
|Asset impairment loss (Note 3, 10)        |   | (682,687     | ) |   | (345,766     | ) |   | (29,576,045       | )
|Adjustment to asset retirement obligation |   |              |   |   |              |   |   |                   |  
|on changes in cash flow estimates (Note   |   | 262,265      |   |   | -            |   |   | 262,265           |  
|10)                                       |   |              |   |   |              |   |   |                   |  
|Accretion expense                         |   | (7,515       | ) |   | -            |   |   | (7,515            | )
|Gain on settlement of debt                |   | -            |   |   | -            |   |   | 136,627           |  
|Abandoned mineral interests               |   | -            |   |   | -            |   |   | (277,251          | )
|                                          |   | (1,446,280   | ) |   | (1,508,835   | ) |   | (38,098,350       | )
|                                          |   |              |   |   |              |   |   |                   |  
|Interest expense                          |   | (50,069      | ) |   | (294,677     | ) |   | (850,843          | )
|Interest income                           |   | 20,025       |   |   | 31,262       |   |   | 1,133,005         |  
|Net loss                                  | $ | (1,476,324   | ) | $ | (1,772,250   | ) | $ | (37,816,188       | )
|                                          |   |              |   |   |              |   |   |                   |  
|Net loss per share  basic and diluted    | $ | (0.02        | ) | $ | (0.03        | ) |   |                   |  
|                                          |   |              |   |   |              |   |   |                   |  
|Weighted average shares outstanding       |   | 60,846,130   |   |   | 59,895,891   |   |   |                   |  

See Accompanying Summary of Accounting Policies and Notes to Consolidated
  Financial Statements.

F-4

---

|GOLDEN QUEEN MINING CO. LTD.                                                      
|----------------------------------------------------------------------------------
|(an exploration stage company)                                                    
|Consolidated Statements of Changes in Shareholders
      Equity (Capital Deficit)
|(U.S. dollars)                                                                    

|                                          |  |            |  |   |           |  |   |              |  |   |            |  |   | Deficit           |   |   | Total           |  
|----------------------------------------- |  | ---------- |  | - | --------- |  | - | ------------ |  | - | ---------- |  | - | ----------------- | - | - | --------------- | -
|                                          |  |            |  |   |           |  |   |              |  |   | Additional |  |   | Accumulated       |   |   | Shareholders   |  
|From the Date of Inception (November      |  | Common     |  |   |           |  |   | Stock        |  |   | Paid-in    |  |   | During the        |   |   | Equity (Capital |  
|21, 1985)
      through December 31, 2005 |  | Shares     |  |   | Amount    |  |   | Subscription |  |   | Capital    |  |   | Exploration Stage |   |   | Deficit)        |  
|                                          |  |            |  |   |           |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|November 21, 1985                         |  |            |  |   |           |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Issuance of common shares for cash        |  | 1,425,001  |  | $ | 141,313   |  | $ | -            |  | $ | -          |  | $ | -                 |   | $ | 141,313         |  
|Net loss for the year                     |  | -          |  |   | -         |  |   | -            |  |   | -          |  |   | (15,032           | ) |   | (15,032         | )
|                                          |  |            |  |   |           |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Balance, May 31, 1986                     |  | 1,425,001  |  |   | 141,313   |  |   | -            |  |   | -          |  |   | (15,032           | ) |   | 126,281         |  
|                                          |  |            |  |   |           |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Issuance of common shares for cash        |  | 550,000    |  |   | 256,971   |  |   | -            |  |   | -          |  |   | -                 |   |   | 256,971         |  
|Issuance of common shares for mineral     |  |            |  |   |           |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|property                                  |  | 25,000     |  |   | 13,742    |  |   | -            |  |   | -          |  |   | -                 |   |   | 13,742          |  
|Net loss for the year                     |  | -          |  |   | -         |  |   | -            |  |   | -          |  |   | (58,907           | ) |   | (58,907         | )
|                                          |  |            |  |   |           |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Balance, May 31, 1987                     |  | 2,000,001  |  |   | 412,026   |  |   | -            |  |   | -          |  |   | (73,939           | ) |   | 338,087         |  
|                                          |  |            |  |   |           |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Issuance of common shares for cash        |  | 1,858,748  |  |   | 1,753,413 |  |   | -            |  |   | -          |  |   | -                 |   |   | 1,753,413       |  
|Net income for the year                   |  | -          |  |   | -         |  |   | -            |  |   | -          |  |   | 38,739            |   |   | 38,739          |  
|                                          |  |            |  |   |           |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Balance, May 31, 1988                     |  | 3,858,749  |  |   | 2,165,439 |  |   | -            |  |   |            |  |   | (35,200           | ) |   | 2,130,239       |  
|                                          |  |            |  |   |           |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Issuance of common shares for cash        |  | 1,328,750  |  |   | 1,814,133 |  |   | -            |  |   | -          |  |   | -                 |   |   | 1,814,133       |  
|Issuance of common shares for mineral     |  |            |  |   |           |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|property                                  |  | 100,000    |  |   | 227,819   |  |   | -            |  |   | -          |  |   | -                 |   |   | 227,819         |  
|Net loss for the year                     |  | -          |  |   | -         |  |   | -            |  |   | -          |  |   | (202,160          | ) |   | (202,160        | )
|                                          |  |            |  |   |           |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Balance, May 31, 1989                     |  | 5,287,499  |  |   | 4,207,391 |  |   | -            |  |   | -          |  |   | (237,360          | ) |   | 3,970,031       |  
|                                          |  |            |  |   |           |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Issuance of common shares for cash        |  | 1,769,767  |  |   | 2,771,815 |  |   | -            |  |   | -          |  |   | -                 |   |   | 2,771,815       |  
|Issuance of common shares for mineral     |  |            |  |   |           |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|property                                  |  | 8,875      |  |   | 14,855    |  |   | -            |  |   | -          |  |   | -                 |   |   | 14,855          |  
|Net loss for the year                     |  | -          |  |   | -         |  |   | -            |  |   | -          |  |   | (115,966          | ) |   | (115,966        | )
|                                          |  |            |  |   |           |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Balance, May 31, 1990                     |  | 7,066,141  |  |   | 6,994,061 |  |   | -            |  |   | -          |  |   | (353,326          | ) |   | 6,640,735       |  
|                                          |  |            |  |   |           |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Net income for the year                   |  | -          |  |   | -         |  |   | -            |  |   | -          |  |   | 28,706            |   |   | 28,706          |  
|                                          |  |            |  |   |           |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Balance, May 31, 1991                     |  | 7,066,141  |  |   | 6,994,061 |  |   | -            |  |   | -          |  |   | (324,620          | ) |   | 6,669,441       |  
|                                          |  |            |  |   |           |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Net loss for the year                     |  | -          |  |   | -         |  |   | -            |  |   | -          |  |   | (157,931          | ) |   | (157,931        | )
|                                          |  |            |  |   |           |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Balance, May 31, 1992                     |  | 7,066,141  |  |   | 6,994,061 |  |   | -            |  |   | -          |  |   | (482,551          | ) |   | 6,511,510       |  
|                                          |  |            |  |   |           |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Net loss for the year                     |  | -          |  |   | -         |  |   | -            |  |   | -          |  |   | (285,391          | ) |   | (285,391        | )
|                                          |  |            |  |   |           |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Balance, May 31, 1993                     |  | 7,066,141  |  |   | 6,994,061 |  |   | -            |  |   | -          |  |   | (767,942          | ) |   | 6,226,119       |  
|                                          |  |            |  |   |           |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Issuance of common shares for cash        |  | 5,834,491  |  |   | 1,536,260 |  |   | -            |  |   | -          |  |   | -                 |   |   | 1,536,260       |  
|Share issuance costs                      |  | -          |  |   | -         |  |   | -            |  |   | -          |  |   | (18,160           | ) |   | (18,160         | )
|Issuance of common shares for mineral     |  | 128,493    |  |   | 23,795    |  |   | -            |  |   | -          |  |   | -                 |   |   | 23,795          |  
|property                                  |  |            |  |   |           |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Net loss for the year                     |  | -          |  |   | -         |  |   | -            |  |   | -          |  |   | (158,193          | ) |   | (158,193        | )
|                                          |  |            |  |   |           |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Balance, May 31, 1994                     |  | 13,029,125 |  |   | 8,554,116 |  |   | -            |  |   | -          |  |   | (944,295          | ) |   | 7,609,821       |  
|                                          |  |            |  |   |           |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Issuance of common shares for cash        |  | 648,900    |  |   | 182,866   |  |   | -            |  |   | -          |  |   | -                 |   |   | 182,866         |  
|Net loss for the year                     |  | -          |  |   | -         |  |   | -            |  |   | -          |  |   | (219,576          | ) |   | (219,576        | )
|                                          |  |            |  |   |           |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Balance, May 31, 1995                     |  | 13,678,025 |  |   | 8,736,982 |  |   | -            |  |   | -          |  |   | (1,163,871        | ) |   | 7,573,111       |  
|                                          |  |            |  |   |           |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Issuance of common shares for cash        |  | 2,349,160  |  |   | 2,023,268 |  |   | -            |  |   | -          |  |   | -                 |   |   | 2,023,268       |  
|Issuance of common shares for debt        |  | 506,215    |  |   | 662,282   |  |   | -            |  |   | -          |  |   | -                 |   |   | 662,282         |  
|Issuance of 5,500,000 special warrants    |  | -          |  |   | 9,453,437 |  |   | -            |  |   | -          |  |   | -                 |   |   | 9,453,437       |  
|Special warrants issuance costs           |  | -          |  |   | -         |  |   | -            |  |   | -          |  |   | (100,726          | ) |   | (100,726        | )
|Net loss for the year                     |  | -          |  |   | -         |  |   | -            |  |   | -          |  |   | (426,380          | ) |   | (426,380        | )

F-5

---

|GOLDEN QUEEN MINING CO. LTD.                                                      
|----------------------------------------------------------------------------------
|(an exploration stage company)                                                    
|Consolidated Statements of Changes in Shareholders
      Equity (Capital Deficit)
|(U.S. dollars)                                                                    

|                                        |  |            |  |  |            |  |  |              |   |  |                 |   |  | Deficit           |   |  | Total           |  
|--------------------------------------- |  | ---------- |  |  | ---------- |  |  | ------------ | - |  | --------------- | - |  | ----------------- | - |  | --------------- | -
|                                        |  |            |  |  |            |  |  |              |   |  |                 |   |  | Accumulated       |   |  | Shareholders   |  
|From the Date of Inception (November    |  | Common     |  |  |            |  |  | Stock        |   |  | Additional      |   |  | During the        |   |  | Equity (Capital |  
|21, 1985) through December 31, 2005     |  | Shares     |  |  | Amount     |  |  | Subscription |   |  | Paid-in Capital |   |  | Exploration Stage |   |  | Deficit)        |  
|                                        |  |            |  |  |            |  |  |              |   |  |                 |   |  |                   |   |  |                 |  
|Balance, May 31, 1996                   |  | 16,533,400 |  |  | 20,875,969 |  |  | -            |   |  | -               |   |  | (1,690,977        | ) |  | 19,184,992      |  
|                                        |  |            |  |  |            |  |  |              |   |  |                 |   |  |                   |   |  |                 |  
|Issuance of common shares for cash      |  | 18,000     |  |  | 10,060     |  |  | -            |   |  | -               |   |  | -                 |   |  | 10,060          |  
|Issuance of common shares for special   |  | 5,500,000  |  |  | -          |  |  | -            |   |  | -               |   |  | -                 |   |  | -               |  
|warrants                                |  |            |  |  |            |  |  |              |   |  |                 |   |  |                   |   |  |                 |  
|Special warrants issuance costs         |  | -          |  |  | -          |  |  | -            |   |  | -               |   |  | (123,806          | ) |  | (123,806        | )
|Net loss for the period                 |  | -          |  |  | -          |  |  | -            |   |  | -               |   |  | (348,948          | ) |  | (348,948        | )
|                                        |  |            |  |  |            |  |  |              |   |  |                 |   |  |                   |   |  |                 |  
|Balance, December 31, 1996              |  | 22,051,400 |  |  | 20,886,029 |  |  | -            |   |  | -               |   |  | (2,163,731        | ) |  | 18,722,298      |  
|Issuance of common shares for cash      |  | 157,000    |  |  | 157,050    |  |  | -            |   |  | -               |   |  | -                 |   |  | 157,050         |  
|Issuance of 3,500,000 special warrants  |  | -          |  |  | 5,287,315  |  |  | -            |   |  | -               |   |  | -                 |   |  | 5,287,315       |  
|Issuance of common shares for special   |  | 3,500,000  |  |  | -          |  |  | -            |   |  | -               |   |  | -                 |   |  | -               |  
|warrants                                |  |            |  |  |            |  |  |              |   |  |                 |   |  |                   |   |  |                 |  
|Options to non-employee directors       |  | -          |  |  | -          |  |  | -            |   |  | 70,200          |   |  | -                 |   |  | 70,200          |  
|Special warrants issuance costs         |  | -          |  |  | -          |  |  | -            |   |  | -               |   |  | (163,313          | ) |  | (163,313        | )
|Net loss for the year                   |  | -          |  |  | -          |  |  | -            |   |  | -               |   |  | (1,047,869        | ) |  | (1,047,869      | )
|                                        |  |            |  |  |            |  |  |              |   |  |                 |   |  |                   |   |  |                 |  
|Balance, December 31, 1997              |  | 25,708,400 |  |  | 26,330,394 |  |  | -            |   |  | 70,200          |   |  | (3,374,913        | ) |  | 23,025,681      |  
|Issuance of common shares upon          |  | 1,834,300  |  |  | 857,283    |  |  | -            |   |  | -               |   |  | -                 |   |  | 857,283         |  
|exercise of warrants                    |  |            |  |  |            |  |  |              |   |  |                 |   |  |                   |   |  |                 |  
|Issuance of common shares through       |  |            |  |  |            |  |  |              |   |  |                 |   |  |                   |   |  |                 |  
|conversion of debt                      |  | 2,017,941  |  |  | 1,000,000  |  |  | -            |   |  | -               |   |  | -                 |   |  | 1,000,000       |  
|Share issuance costs                    |  | -          |  |  | -          |  |  | -            |   |  | -               |   |  | (6,060            | ) |  | (6,060          | )
|Issuance of common shares for cash      |  | 5,236,000  |  |  | 2,439,753  |  |  | -            |   |  | -               |   |  | -                 |   |  | 2,439,753       |  
|Options and re-priced options to non-   |  |            |  |  |            |  |  |              |   |  |                 |   |  |                   |   |  |                 |  
|employee directors                      |  | -          |  |  | -          |  |  | -            |   |  | 107,444         |   |  | -                 |   |  | 107,444         |  
|Net loss for the year                   |  | -          |  |  | -          |  |  | -            |   |  | -               |   |  | (971,595          | ) |  | (971,595        | )
|                                        |  |            |  |  |            |  |  |              |   |  |                 |   |  |                   |   |  |                 |  
|Balance, December 31, 1998              |  | 34,796,641 |  |  | 30,627,430 |  |  | -            |   |  | 177,644         |   |  | (4,352,568        | ) |  | 26,452,506      |  
|                                        |  |            |  |  |            |  |  |              |   |  |                 |   |  |                   |   |  |                 |  
|Issuance of 13,250,000 special warrants |  | -          |  |  | 3,350,915  |  |  | -            |   |  | -               |   |  | -                 |   |  | 3,350,915       |  
|Special warrants issuance costs         |  | -          |  |  |            |  |  | -            |   |  | -               |   |  | (166,620          | ) |  | (166,620        | )
|Issuance of common shares for           |  |            |  |  |            |  |  |              |   |  |                 |   |  |                   |   |  |                 |  
|special warrants                        |  | 13,250,000 |  |  | -          |  |  | -            |   |  | -               |   |  | -                 |   |  | -               |  
|Net loss for the year                   |  | -          |  |  | -          |  |  | -            |   |  | -               |   |  | (564,657          | ) |  | (564,657        | )
|Balance, December 31, 1999              |  | 48,046,641 |  |  | 33,978,345 |  |  | -            |   |  | 177,644         |   |  | (5,083,845        | ) |  | 29,072,144      |  
|                                        |  |            |  |  |            |  |  |              |   |  |                 |   |  |                   |   |  |                 |  
|                                        |  |            |  |  |            |  |  |              |   |  |                 |   |  |                   |   |  |                 |  
|Cumulative effect of change in          |  | -          |  |  | -          |  |  | -            |   |  | (177,644        | ) |  | -                 |   |  | (177,644        | )
|accounting for stock options            |  |            |  |  |            |  |  |              |   |  |                 |   |  |                   |   |  |                 |  
|Stock subscription                      |  | -          |  |  | -          |  |  | 200,000      |   |  | -               |   |  | -                 |   |  | 200,000         |  
|Net loss for the year                   |  | -          |  |  | -          |  |  | -            |   |  | -               |   |  | (28,708,276       | ) |  | (28,708,276     | )
|Balance, December 31, 2000              |  | 48,046,641 |  |  | 33,978,345 |  |  | 200,000      |   |  | -               |   |  | (33,792,121       | ) |  | 386,224         |  
|                                        |  |            |  |  |            |  |  |              |   |  |                 |   |  |                   |   |  |                 |  
|                                        |  |            |  |  |            |  |  |              |   |  |                 |   |  |                   |   |  |                 |  
|Issuance of common shares through       |  | 406,250    |  |  | 65,000     |  |  | -            |   |  | -               |   |  | -                 |   |  | 65,000          |  
|conversion of debt                      |  |            |  |  |            |  |  |              |   |  |                 |   |  |                   |   |  |                 |  
|Issuance of common shares for           |  | 1,538,462  |  |  | 200,000    |  |  | (200,000     | ) |  | -               |   |  | -                 |   |  | -               |  
|conversion of stock subscription        |  |            |  |  |            |  |  |              |   |  |                 |   |  |                   |   |  |                 |  
|Share issuance costs                    |  | -          |  |  | -          |  |  | -            |   |  | -               |   |  | (3,337            | ) |  | (3,337          | )
|Net loss for the year                   |  | -          |  |  | -          |  |  | -            |   |  | -               |   |  | (262,059          | ) |  | (262,059        | )
|Balance, December 31, 2001              |  | 49,991,353 |  |  | 34,243,345 |  |  | -            |   |  | -               |   |  | (34,057,517       | ) |  | 185,828         |  

F-6

---

|GOLDEN QUEEN MINING CO. LTD.                                                      
|----------------------------------------------------------------------------------
|(an exploration stage company)                                                    
|Consolidated Statements of Changes in Shareholders
      Equity (Capital Deficit)
|(U.S. dollars)                                                                    

|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   | Deficit           |   |   | Total           |  
|----------------------------------------- |  | ---------- |  | - | ---------- |  | - | ------------ |  | - | ---------- |  | - | ----------------- | - | - | --------------- | -
|                                          |  |            |  |   |            |  |   |              |  |   | Additional |  |   | Accumulated       |   |   | Shareholders   |  
|From the Date of Inception (November      |  | Common     |  |   |            |  |   | Stock        |  |   | Paid-in    |  |   | During the        |   |   | Equity (Capital |  
|21, 1985)
      through December 31, 2005 |  | Shares     |  |   | Amount     |  |   | Subscription |  |   | Capital    |  |   | Exploration Stage |   |   | Deficit)        |  
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Issuance of common shares through         |  | 290,000    |  |   | 37,234     |  |   | -            |  |   | -          |  |   | -                 |   |   | 37,234          |  
|exercise of options                       |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Issuance of common shares through         |  | 1,520,836  |  |   | 243,334    |  |   | -            |  |   | -          |  |   | -                 |   |   | 243,334         |  
|exercise of warrants                      |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Stock option compensation                 |  | -          |  |   | -          |  |   | -            |  |   | 21,456     |  |   | -                 |   |   | 21,456          |  
|Share issuance costs                      |  | -          |  |   | -          |  |   | -            |  |   | -          |  |   | (4,216            | ) |   | (4,216          | )
|Net loss for the year                     |  | -          |  |   | -          |  |   | -            |  |   | -          |  |   | (347,603          | ) |   | ( 347,603       | )
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Balance, December 31, 2002                |  | 51,802,189 |  |   | 34,523,913 |  |   | -            |  |   | 21,456     |  |   | (34,409,336       | ) |   | 136,033         |  
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Issuance of common shares through         |  | 100,000    |  |   | 24,379     |  |   | -            |  |   | -          |  |   | -                 |   |   | 24,379          |  
|exercise of options                       |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Equity component of convertible notes     |  | -          |  |   | -          |  |   | -            |  |   | 375,000    |  |   | -                 |   |   | 375,000         |  
|Stock option compensation                 |  | -          |  |   | -          |  |   | -            |  |   | 127,326    |  |   | -                 |   |   | 127,326         |  
|Net loss for the year                     |  | -          |  |   | -          |  |   | -            |  |   | -          |  |   | (744,516          | ) |   | (744,516        | )
|Balance, December 31, 2003                |  | 51,902,189 |  |   | 34,548,292 |  |   | -            |  |   | 523,782    |  |   | ( 35,153,852      | ) |   | (81,778         | )
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Issuance of common shares for cash        |  | 8,000,000  |  |   | 3,036,282  |  |   | -            |  |   | -          |  |   | -                 |   |   | 3,036,282       |  
|Issuance of common shares for             |  | 978,260    |  |   | 225,000    |  |   | -            |  |   | -          |  |   | -                 |   |   | 225,000         |  
|convertible notes (Note 7)                |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Issuance of common shares through         |  | 200,000    |  |   | 55,861     |  |   | -            |  |   | -          |  |   | -                 |   |   | 55,861          |  
|exercise of options (Note 8)              |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Share issuance costs                      |  | -          |  |   | -          |  |   | -            |  |   | -          |  |   | (38,975           | ) |   | (38,975         | )
|Net loss for the year                     |  | -          |  |   | -          |  |   | -            |  |   | -          |  |   | (1,772,250        | ) |   | (1,772,250      | )
|Balance, December 31, 2004                |  | 61,080,449 |  |   | 37,865,435 |  |   | -            |  |   | 523,782    |  |   | (36,965,077       | ) |   | 1,424,140       |  
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Issuance of common shares through         |  | 110,000    |  |   | 21,049     |  |   | -            |  |   | -          |  |   | -                 |   |   | 21,049          |  
|exercise of options (Note 8)              |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Stock option compensation                 |  | -          |  |   | -          |  |   | -            |  |   | 48,592     |  |   | -                 |   |   | 48,592          |  
|Net loss for the year                     |  | -          |  |   | -          |  |   | -            |  |   | -          |  |   | (1,476,324        | ) |   | (1,476,324      | )
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Balance, December 31, 2005                |  | 61,190,449 |  | $ | 37,886,484 |  | $ | -            |  | $ | 572,374    |  | $ | (38,441,401,      | ) | $ | 17,457          |  

See Accompanying Summary of Accounting Policies and Notes to Consolidated
  Financial Statements.

F-7

---

|GOLDEN QUEEN MINING CO. LTD.         
|-------------------------------------
|(an exploration stage company)       
|Consolidated Statements of Cash Flows
|(U.S. dollars)                       

|                                   |   |              |   |   |              |   |   | Cumulative Amounts     |  
|---------------------------------- | - | ------------ | - | - | ------------ | - | - | ---------------------- | -
|                                   |   |              |   |   |              |   |   | From Date of Inception |  
|                                   |   | Year Ended   |   |   | Year Ended   |   |   | (November 21, 1985)    |  
|                                   |   | December 31, |   |   | December 31, |   |   | through December 31,   |  
|                                   |   | 2005         |   |   | 2004         |   |   | 2005                   |  
|Operating activities               |   |              |   |   |              |   |   | (Restated)*            |  
|                                   |   |              |   |   |              |   |   |                        |  
|Net loss                           | $ | (1,476,324   | ) | $ | (1,772,250   | ) | $ | (37,816,188            | )
|Adjustments to reconcile net       |   |              |   |   |              |   |   |                        |  
|loss to cash used in operating     |   |              |   |   |              |   |   |                        |  
|activities:                        |   |              |   |   |              |   |   |                        |  
|Asset impairment loss              |   | 682,687      |   |   | 345,766      |   |   | 29,576,045             |  
|Abandoned mineral interests        |   | -            |   |   | -            |   |   | 277,251                |  
|Amortization and depreciation      |   | 19,927       |   |   | 12,187       |   |   | 437,362                |  
|Amortization of debt discount      |   | -            |   |   | 196,000      |   |   | 375,000                |  
|Adjustment to asset retirement     |   | (262,265     | ) |   |              |   |   | (262,265               | )
|obligation based on changes in     |   |              |   |   |              |   |   |                        |  
|cash flow estimates                |   |              |   |   |              |   |   |                        |  
|Accretion expense                  |   | 7,515        |   |   |              |   |   | 7,515                  |  
|Gain on disposition of             |   |              |   |   |              |   |   |                        |  
|property and equipment             |   | -            |   |   | -            |   |   | (10,032                | )
|Stock option compensation          |   |              |   |   |              |   |   |                        |  
|(Note 9)                           |   | 48,592       |   |   | -            |   |   | 197,374                |  
|Mineral property                   |   |              |   |   |              |   |   |                        |  
|expenditures                       |   | -            |   |   | -            |   |   | (22,395,449            | )
|Changes in assets and liabilities: |   |              |   |   |              |   |   |                        |  
|Receivables                        |   | (5,211       | ) |   | (15,464      | ) |   | (25,543                | )
|Prepaid expenses and other         |   |              |   |   |              |   |   |                        |  
|current assets                     |   | 2,969        |   |   | 217          |   |   | (107,756               | )
|Accounts payable and accrued       |   |              |   |   |              |   |   |                        |  
|liabilities                        |   | 52,130       |   |   | 10,129       |   |   | 140,878                |  
|Royalty and mining rights          |   |              |   |   |              |   |   |                        |  
|payable                            |   | 25,000       |   |   | 25,000       |   |   | 197,484                |  
|                                   |   |              |   |   |              |   |   |                        |  
|Cash used in operating activities  |   | (904,980     | ) |   | (1,198,415   | ) |   | (29,408,324            | )
|                                   |   |              |   |   |              |   |   |                        |  
|Investing activities:              |   |              |   |   |              |   |   |                        |  
|Purchase of mineral properties     |   | -            |   |   | -            |   |   | (5,268,409             | )
|Deposits on mineral properties     |   | -            |   |   | -            |   |   | (1,017,551             | )
|Release (purchase) of reclamation  |   |              |   |   |              |   |   |                        |  
|bond                               |   | 389,807      |   |   | (572,260     | ) |   | (182,453               | )
|Purchase of property and           |   |              |   |   |              |   |   |                        |  
|equipment                          |   | -            |   |   | -            |   |   | (1,313,838             | )
|Proceeds from sale of property     |   |              |   |   |              |   |   |                        |  
|and equipment                      |   | -            |   |   | -            |   |   | 47,153                 |  
|                                   |   |              |   |   |              |   |   |                        |  
|Cash (used in) provided by         |   | 389,807      |   |   | (572,260     | ) |   | (7,735,098             | )
|investing activities               |   |              |   |   |              |   |   |                        |  
|                                   |   |              |   |   |              |   |   |                        |  
|Financing activities:              |   |              |   |   |              |   |   |                        |  
|Borrowing under long-term debt     |   | -            |   |   | -            |   |   | 3,766,502              |  
|Payment of long-term debt          |   | (106,407     | ) |   | (43,008      | ) |   | (1,342,033             | )
|Proceeds from convertible debt     |   | -            |   |   | -            |   |   | 440,000                |  

See Accompanying Summary of Accounting Policies and Notes to Consolidated
  Financial Statements.

F-8

---

|GOLDEN QUEEN MINING CO. LTD.         
|-------------------------------------
|(an exploration stage company)       
|Consolidated Statements of Cash Flows
|(U.S. dollars)                       

|                                         |   |              |   |   |              |   |   | Cumulative Amounts      |  
|---------------------------------------- | - | ------------ | - | - | ------------ | - | - | ----------------------- | -
|                                         |   |              |   |   |              |   |   | From Date of            |  
|                                         |   | Year Ended   |   |   | Year Ended   |   |   | Inception (November     |  
|                                         |   | December 31, |   |   | December 31, |   |   | 21, 1985) through       |  
|                                         |   | 2005         |   |   | 2004         |   |   | December
      31, 2005 |  
|                                         |   |              |   |   |              |   |   | (Restated)*             |  
|                                         |   |              |   |   |              |   |   |                         |  
|Issuance of common shares for
      cash |   | 21,049       |   |   | 3,092,143    |   |   | 16,705,041              |  
|Share issuance costs                     |   | -            |   |   | (38,975      | ) |   | (625,213                | )
|Issuance of special warrants             |   | -            |   |   | -            |   |   | 18,091,667              |  
|Issuance of common shares upon           |   |              |   |   |              |   |   |                         |  
|exercise of warrants                     |   | -            |   |   | -            |   |   | 857,283                 |  
|                                         |   |              |   |   |              |   |   |                         |  
|Cash provided by (used in) financing     |   |              |   |   |              |   |   |                         |  
|activities                               |   | (85,358      | ) |   | 3,010,160    |   |   | 37,893,247              |  
|                                         |   |              |   |   |              |   |   |                         |  
|Net change in cash and cash              |   |              |   |   |              |   |   |                         |  
|equivalents                              |   | (600,531     | ) |   | 1,239,485    |   |   | 749,825                 |  
|                                         |   |              |   |   |              |   |   |                         |  
|Cash and cash equivalents,               |   |              |   |   |              |   |   |                         |  
|beginning balance                        |   | 1,350,356    |   |   | 110,871      |   |   | -                       |  
|                                         |   |              |   |   |              |   |   |                         |  
|Cash and cash equivalents,               |   |              |   |   |              |   |   |                         |  
|ending balance                           | $ | 749,825      |   | $ | 1,350,356    |   | $ | 749,825                 |  
|                                         |   |              |   |   |              |   |   |                         |  
|Supplemental disclosures of cash         |   |              |   |   |              |   |   |                         |  
|flow information:                        |   |              |   |   |              |   |   |                         |  
|                                         |   |              |   |   |              |   |   |                         |  
|Cash paid during period for:             |   |              |   |   |              |   |   |                         |  
|Interest                                 | $ | 71,636       |   | $ | 98,677       |   | $ | 1,135,889               |  
|Income taxes                             | $ | -            |   | $ | -            |   | $ | -                       |  
|                                         |   |              |   |   |              |   |   |                         |  
|Non-cash financing and                   |   |              |   |   |              |   |   |                         |  
|investing activities:                    |   |              |   |   |              |   |   |                         |  
|Stock option compensation (Note 9)       | $ | 48,592       |   | $ | -            |   | $ | 197,374                 |  
|Exchange of notes for common             |   |              |   |   |              |   |   |                         |  
|shares                                   | $ | -            |   | $ | -            |   | $ | 1,727,282               |  
|Exchange of note for future              |   |              |   |   |              |   |   |                         |  
|royalty payments                         | $ | -            |   | $ | -            |   | $ | 150,000                 |  
|Common shares issued for mineral         |   |              |   |   |              |   |   |                         |  
|property                                 | $ | -            |   | $ | -            |   | $ | 280,211                 |  
|Mineral property acquired                |   |              |   |   |              |   |   |                         |  
|through the issuance of long-            |   |              |   |   |              |   |   |                         |  
|term debt                                | $ | -            |   | $ | -            |   | $ | 1,084,833               |  
|Common shares issued upon                |   |              |   |   |              |   |   |                         |  
|conversion of convertible debt           |   |              |   |   |              |   |   |                         |  
|(Note 7)                                 | $ | -            |   | $ | 225,000      |   | $ | 225,000                 |  
|Asset retirement obligations             | $ | (254,750     | ) | $ | 345,766      |   | $ | 91,016                  |  
|* See Note 3                             |   |              |   |   |              |   |   |                         |  

See Accompanying Summary of Accounting Policies and Notes to Consolidated
  Financial Statements.

F-9

---

|GOLDEN QUEEN MINING CO. LTD   
|------------------------------
|(an exploration stage company)
|Summary of Accounting Policies
|(U.S. dollars)                

Nature of Business. Golden Queen Mining Co. Ltd.
  (Golden Queen or the Company) is engaged in acquiring
  and maintaining gold mining properties for exploration, future development and
  production. The Company was formed on November 21, 1985. Since its inception,
  the Company has been in the exploration stage. Planned activities involve bringing
  to production a precious metals mine located in Kern County, California.

Principles of Consolidation.These consolidated
  financial statements include the accounts of Golden Queen, a British Columbia
  corporation, and its wholly-owned subsidiary, Golden Queen Mining Company, Inc.
  (the Subsidiary), a United States (State of California) corporation.
  The underlying value of the Companys mineral properties is dependent on
  the existence and economic recovery of mineral reserves, confirmation of the
  Companys interest in the underlying mineral claims, the ability to obtain
  necessary financing to complete the development, and future profitable production
  or proceeds from the disposition thereof.

Generally Accepted Accounting Principles. The consolidated
  financial statements have been prepared in accordance with accounting principles
  generally accepted in the United States of America. Differences from Canadian
  generally accepted accounting principles are disclosed in Note 13.

Cash and Cash Equivalents. For purposes
  of balance sheet classification and the statements of cash flows, the Company
  considers all highly liquid investments purchased with an original maturity
  of three months or less to be cash equivalents.

Property and Equipment.Property and equipment
  are stated at the lower of cost or net realizable value. Depreciation is provided
  by the straight-line method over the estimated service lives of the respective
  assets, which range from 5 to 30 years, as follows:

Buildings
      20 yearsFurniture and Fixtures
      5 yearsEquipment
      5 yearsAutomobiles
      3 to 5 yearsRental Properties
      30 years


Mineral Properties.Mineral properties includes
  the cost of advance minimum royalty payments, the cost of capitalized property
  leases, payments in shares, and the cost of property acquired either by cash
  payment or the issuance of term debt. Expenditures for exploration on specific
  properties with no proven reserves are written-off as incurred. Mineral property
  costs will be amortized against future revenues or charged to operations at
  the time the related property is determined to have an impairment in value.

Carrying value of mineral interests.The
  cost of acquiring mineral property interests is capitalized. Capitalized acquisition
  costs are expensed in the period in which it is determined that the mineral
  property has no future economic value. Capitalized amounts may also be written
  down if future cash flows, including potential sales proceeds related to the
  property are estimated to be less than the carrying value of the property. We
  review the carrying value of mineral property interests periodically, and whenever
  events or changes in circumstances indicate that the carrying value may not
  be recoverable, reductions in the carrying value of each property would be recorded
  to the extent the carrying value of the investment exceeds the propertys
  estimated fair value (Note 3).

Exploration and development expenditures. Exploration
  and development expenditures are expensed as incurred. Once a mineral reserve
  has been established, all development costs will be capitalized and charged
  to operations on a unit-of-production method based on estimated recoverable
  reserves.

Valuation of Long-lived Assets. Statement of Financial
  Accounting Standards ("SFAS") No. 144 requires recognition of impairment of
  long-lived assets in the event the net book value of such assets exceeds the
  estimated undiscounted future cash flows attributable to such assets. It requires
  that those long-lived assets to be disposed of by sale are to

F-10

---

|GOLDEN QUEEN MINING CO. LTD   
|------------------------------
|(an exploration stage company)
|Summary of Accounting Policies
|(U.S. dollars)                

be measured at the lower of carrying amount or fair value
  less cost of sale whether reported in continuing operations or in discontinued
  operations. In accordance with the provisions of SFAS No. 144, management of
  the Company reviews the carrying value of its mineral properties on a regular
  basis. Estimated undiscounted future cash flow from the mineral properties is
  compared with the current carrying value in order to determine if an impairment
  exists. Reductions to the carrying value, if necessary, are recorded to the
  extent the net book value of the property exceeds the estimate of future discounted
  cash flow or liquidation value.

Foreign Currency Translation.Golden
  Queen has adopted the United States dollar as its reporting currency for its
  financial statements prepared after May 21, 1996 as the United States dollar
  is the currency of the primary economic environment in which Golden Queen and
  the Subsidiary conduct business and is considered the appropriate functional
  currency for the Companys operations. Balances held in Canadian dollars
  are re-measured into the functional currency in accordance with SFAS No. 52,
  Foreign Currency Translation, (SFAS 52). Assets and
  liabilities in foreign currencies are generally translated into dollars at the
  rates ruling at the balance sheet date. Revenues and expenses are translated
  at average rates for the year. Where amounts denominated in a foreign currency
  are converted into dollars by remittance or repayment, the realized exchange
  differences are included in other income. The exchange rates prevailing at December
  31, 2005 and December 31, 2004 were $1.16 and $1.20, respectively stated
  in Canadian dollars per one U.S. dollar. The average rates of exchange during
  the years ended December 31, 2005 and December 31, 2004 were $1.21 and $1.30
  respectively.

Net Loss Per Share.The Company computes
  and discloses earnings and loss per share in accordance with SFAS No. 128, Earnings
  per Share (SFAS 128), which requires dual presentation of
  basic earnings per share and diluted earnings per share on the face of all income
  statements presented for all entities with complex capital structures. Basic
  earnings per share is computed as net income (loss) divided by the weighted
  average number of common shares outstanding for the period. Diluted earnings
  per share reflects the potential dilution that could occur from common shares
  issuable through stock options, warrants and convertible debt. Since the Companys
  convertible debt, stock options and warrants are antidilutive for all periods
  presented, only basic earnings per share is presented. A total of 9,692,175
  and 11,322,610 common shares were issuable pursuant to such stock options, warrants,
  and convertible debt at December 31, 2005 and 2004, respectively.

Asset Retirement Obligations: Effective
  January 1, 2003, the Company retroactively adopted SFAS No. 143, Accounting
  for Asset Retirement Obligations. The Company records the fair value of
  an asset retirement obligation as a liability in the period in which it incurs
  a legal obligation associated with the retirement of tangible long-lived assets
  that result from the acquisition, construction, development, and/or normal use
  of the assets. The obligation is measured initially at fair value using present
  value methodology, and the resulting costs capitalized into the carrying amount
  of the related asset. In subsequent periods, the liability will be adjusted
  for any changes in the amount or timing of the underlying future cash flows.
  Capitalized asset retirement costs are depreciated on the same basis as the
  related asset and the discount accretion of the liability is included in determining
  the results of operations.

Estimates.The preparation of financial
  statements in conformity with generally accepted accounting principles requires
  management to make estimates and assumptions that affect the reported amounts
  of assets and liabilities and disclosure of contingent assets and liabilities
  at the date of the financial statements and the reported amounts of revenues
  and expenses during the reporting period. Significant estimates have been made
  by management in several areas including the recoverability of mineral properties.
  Actual results could differ from those estimates.

Fair Value of Financial Instruments.
  The carrying amount reported in the balance sheets for cash and cash equivalents,
  receivables, accounts payable and accrued expenses approximates fair value because
  of the immediate or short-term maturity of these financial instruments. The
  fair value of the reclamation bond and the long-term debt approximate carrying
  value because the stated interest rates reflect recent market conditions or
  because the rates are variable in nature. The fair value of the convertible
  notes is not practical to determine.

F-11

---

|GOLDEN QUEEN MINING CO. LTD   
|------------------------------
|(an exploration stage company)
|Summary of Accounting Policies
|(U.S. dollars)                

Stock Option Compensation. The Company has adopted
  the disclosure only provisions of SFAS No. 123, Accounting for Stock-Based
  Compensation and has elected to continue to measure compensation cost
  for employees under Accounting Principles Board (APB) Opinion No.
  25, including interpretations provided in Interpretation (FIN) No.
  44. Generally, under APB No. 25 compensation expense is recognized for the difference
  between the market price of the underlying common stock and the exercise price
  of the stock options on the grant date. Effective from the date of the modification,
  the Company regularly remeasures compensation expense for the options where
  there has been a substantive change or modification to such options.

The Company has not adopted the fair value method of accounting
  under SFAS No. 148 for stock-based compensation to employees. Consequently,
  related pro forma information as required under SFAS No. 123 has been disclosed
  below in accordance with SFAS No. 148.

| |                                                         |   | Fore the year ended |  
| | ------------------------------------------------------- | - | ------------------- | -
| |                                                         |   | December 31         |  
| |                                                         |   | 2005                |  
| | Net loss, as reported                                   | $ | (1,476,324          | )
| | Deduct: Total stock-based employee compensation expense |   |                     |  
| | determined under fair-value based
      method          |   | (242,958            | )
| | Pro-forma net loss                                      | $ | (1,719,282          | )
| | Loss per share:                                         |   |                     |  
| | Basic and diluted  as reported                         | $ | (0.02               | )
| | Basic and diluted  pro-forma                           | $ | (0.03               | )

New Accounting Pronouncements.

During June 2005, the FASB issued SFAS No. 154, Accounting for
  Changes and Error Corrections. The new standard requires that entities which
  make a voluntary change in accounting principle apply that change retroactively
  to prior period financial statements, unless this would be impracticable. For
  changes in methods of depreciation, amortization or depletion for long-lived
  assets, the change must be accounted for prospectively, as a change in estimate.
  SFAS No. 154 is effective for the Companys 2006 financial statements and
  is not expected to materially impact earnings.

In December 2004, the Financial Accounting Standards Board (FASB)
  issued (SFAS) No. 123R (revised 2004), Share-Based Payment.
  SFAS No. 123(R) requires the Company to measure all employee stock-based compensation
  awards using a fair value method and record such expense in its consolidated
  financial statements. In addition, SFAS No. 123(R) requires additional accounting
  related to the income tax effects and additional disclosure regarding the cash
  flow effects resulting from share-based payment arrangements. For public entities
  that do not file as a small business issuer, SFAS No. 123(R) is effective for
  the first annual reporting period beginning after December 15, 2005.

The Company is assessing the effect the implementation of these
  standards will have on the Companys financial statements.

F-12

---

|GOLDEN QUEEN MINING CO. LTD.              
|------------------------------------------
|(an exploration stage company)            
|Notes to Consolidated Financial Statements
|(U.S. dollars)                            

1. Financial Condition and Ability to Continue as a Going
  Concern.

The Company has had no revenues from operations since inception,
  and has a deficit of $38,441,401 accumulated during the exploration stage.

The Company has been negotiating payment schedules with all landowners,
  and has been negotiating the necessary financing to complete current development
  activities to exit the exploration stage.

Management plans to control current costs and does not anticipate
  requiring additional financing to fund Company activities over the next 12 months.
  In addition, management plans to secure equity and/or debt or joint venture
  financing to fund construction of the operating facility at the Soledad Property
  (Soledad) once the feasibility study has been concluded and a production
  decision has been made.

The ability of the Company to obtain financing for its ongoing
  activities and thus maintain solvency or to fund construction of the operation
  facility at Soledad, is dependent on equity market conditions, the market for
  precious metals, the willingness of other parties to lend the Company money
  or the ability to find a joint venture partner. While the Company has been successful
  at certain of these efforts in the past, there can be no assurance that current
  efforts will be successful. This raises substantial doubt about the Companys
  ability to continue as a going concern.

These financial statements do not reflect the outcome of these
  uncertainties.

2. Property and Equipment.

Property and equipment consists of:

|                              |   | December 31, 2005 |   |   | December 31, 2004 |  
|----------------------------- | - | ----------------- | - | - | ----------------- | -
|                              |   |                   |   |   |                   |  
|Buildings                     | $ | 26,360            |   | $ | 26,360            |  
|Furniture and fixtures        |   | 56,090            |   |   | 56,090            |  
|Automobiles                   |   | 21,401            |   |   | 21,401            |  
|Rental properties             |   | 313,635           |   |   | 313,635           |  
|Property and equipment, gross |   | 417,486           |   |   | 417,486           |  
|Less accumulated depreciation |   | (187,131          | ) |   | (167,204          | )
|Property and equipment, net   | $ | 230,355           |   | $ | 250,282           |  

F-13

---

|GOLDEN QUEEN MINING CO. LTD.              
|------------------------------------------
|(an exploration stage company)            
|Notes to Consolidated Financial Statements
|(U.S. dollars)                            

3. Mineral Properties.

The Company formerly capitalized amounts which were paid to acquire
  property rights and for professional services rendered in the exploration, drilling,
  sampling, engineering and other related technical, managerial and professional
  services toward the evaluation and development of its mining claims in the Mojave
  Mining District, Kern County, California. The Companys investment in mineral
  properties consisted of the following:

|                                         |   | December 31, 2005 |   |   | December 31, 2004 |  
|---------------------------------------- | - | ----------------- | - | - | ----------------- | -
|                                         |   |                   |   |   |                   |  
|Exploration and development expenditures | $ | 21,015,506        |   | $ | 21,015,506        |  
|Properties                               |   | 4,113,738         |   |   | 4,113,738         |  
|Advance minimum royalty                  |   | 2,387,574         |   |   | 2,387,574         |  
|Asset retirement obligations             |   | 345,766           |   |   | 345,766           |  
|Asset impairment loss                    |   | (27,862,584       | ) |   | (27,179,897       | )
|Total                                    | $ | -                 |   | $ | 682,687           |  

In December 2005, the Company determined that its carrying
  value of mineral properties was impaired due to an inability to secure adequate
  financing which would allow the assets to be employed for their intended use.
  In 2005 the Company recorded a $682,687 (2004  $345,766) asset impairment
  loss on mineral properties.

As at December 31, 2005, the Company had a reclamation bond with
  the County of Kern totaling $182,453 (2004 - $572,260). This deposit earns interest
  at 1.875% per annum and is not available for working capital purposes.

In years prior to 2004, the Company reported mineral property
  expenditures as investing cash flows on the Statement of Cash Flows. In 2005
  the Company retroactively restated its Statement of Cash Flows to report these
  as operating cash flows. The effect on the cumulative amount from Date of Inception
  through December 31, 2004 on the Statement of Cash Flows has been restated as
  follows;

|                                  |   | As previously reported |   |   | As adjusted |  
|--------------------------------- | - | ---------------------- | - | - | ----------- | -
|                                  |   |                        |   |   |             |  
|Cash used in operating activities | $ | (6,107,895             | ) | $ | (28,503,344 | )
|Cash used in investing activities |   | (30,520,354            | ) |   | (8,124,905  | )

F-14

---

|GOLDEN QUEEN MINING CO. LTD.              
|------------------------------------------
|(an exploration stage company)            
|Notes to Consolidated Financial Statements
|(U.S. dollars)                            

4. Other Assets.

On April 1, 1995, the Company acquired, through the Subsidiary,
  an option to purchase all of the issued and outstanding shares of a privately
  held California corporation holding an interest in a previously uncontracted
  tract of land, which expanded the Soledad site. The option called for an initial
  non-refundable payment of $100,000 in exchange for access to the property to
  evaluate the presence of mineral reserves for a period of nine months. At the
  end of the nine-month period, the Company chose to exercise its option to purchase
  the shares of the corporation by making the initial purchase payment of $250,000.
  This was followed by a second payment of $500,000 on July 1, 1997. An additional
  $750,000 was due upon reaching sustained production or July 1, 1999, whichever
  came first. In June 1999, the Subsidiary and the private corporation amended
  the original agreement to allow for a one-year extension in exchange for $75,000
  which was paid by the Subsidiary on June 30, 1999. The Company extended the
  amended agreement to July 2001 with another extension payment on July 7, 2000
  of $75,000. These extension payments do not apply to the overall purchase price.

The Company anticipated its inability to make the extension payment
  scheduled for July 1, 2001, and on August 10, 2001, signed a second amendment
  to the original stock purchase agreement. This amendment suspends all terms
  and obligations of the Company as set forth in the original agreement and the
  first amendment. Further, the amendment requires the Company to recognize a
  liability of $35,000, on or before July 1, 2001, and on each successive anniversary
  date for up to five years. To extend the termination date of the agreement,
  $10,000 of the liability is to be paid in cash, and the balance of $25,000 is
  to be accrued, without interest, payment of which is deferred until the final
  stock purchase payment is made. Each July, beginning in 2001, the Company has
  made the required cash payments of $10,000, accrued the liability balances of
  $25,000, and extended the termination date of the agreement by one year, each
  year, with the current termination date of the agreement being July 1, 2006.

The Company has no legal obligation to continue making payment
  and cannot exercise its rights as a shareholder of the corporation until full
  payment under the option is made. Upon commencement of commercial production,
  if any, the Company would be required to pay a royalty of 1% of gross smelter
  returns for a period of up to 60 years, not to exceed $60,000,000.

5.Income Taxes.

The tax effects of the temporary differences that give rise to
  the Company's deferred tax assets and liabilities are as follows:

| |                                                         |   | 2005       |   |   | 2004       |  
| | ------------------------------------------------------- | - | ---------- | - | - | ---------- | -
| |                                                         |   |            |   |   |            |  
| | Net operating and capital losses                        | $ | 7,722,900  |   | $ | 7,330,400  |  
| | Property, plant and equipment                           |   | 261,800    |   |   | 268,200    |  
| | Mineral properties and deferred exploration
      costs |   | 705,100    |   |   | 663,000    |  
| | Asset retirement obligations                            |   | 30,900     |   |   | 117,600    |  
| | Undeducted financing costs                              |   | 8,600      |   |   | 11,100     |  
| | Valuation allowance                                     |   | (8,729,300 | ) |   | (8,390,300 | )
| |                                                         |   |            |   |   |            |  
| | Deferred tax assets (liabilities)                       | $ | -          |   | $ | -          |  

F-15

---

|GOLDEN QUEEN MINING CO. LTD.              
|------------------------------------------
|(an exploration stage company)            
|Notes to Consolidated Financial Statements
|(U.S. dollars)                            

5. Income Taxes. - Continued

The tax benefit of net operating losses carried forward and the
  associated valuation allowance were reduced by $110,500 (2004 - $1,319,000),
  representing the tax effect of losses which expired in the year.

The provision for income taxes differs from the amount established
  using the statutory income tax rate as follows:

| |                                                       |   | 2005     |   |   | 2004     |  
| | ----------------------------------------------------- | - | -------- | - | - | -------- | -
| |                                                       |   |          |   |   |          |  
| | Income benefit at CDN statutory rate                  | $ | (503,700 | ) | $ | (631,300 | )
| | Foreign income taxes at other than CDN statutory rate |   | 800      |   |   | 13,700   |  
| | Non-deductible stock option compensation              |   | 17,800   |   |   | 69,800   |  
| | Effect of reduction in statutory rate                 |   | 35,600   |   |   | -        |  
| | Increase in valuation allowance                       |   | 449,500  |   |   | 547,800  |  
| |                                                       |   |          |   |   |          |  
| | Future income tax recovery                            | $ | -        |   | $ | -        |  

The Companys future tax assets include approximately $Nil
  (2004 - $40,500) related to deductions for share issue costs in excess of amounts
  deducted for financial reporting purposes. If and when the valuation allowance
  related to these amounts is reversed, the Company will recognize this benefit
  as an adjustment to share capital as opposed to income tax expense in the Statement
  of Loss.

The Company evaluates its valuation allowance requirements based
  on projected future operations. When circumstances change and this causes a
  change in managements judgment about the recoverability of future tax
  assets, the impact of the change on the valuation allowance is reflected in
  current income. As management of the Company does not currently believe that
  it is more likely than not that the Company will receive the benefit of this
  asset, a valuation allowance equal to the future tax asset has been established
  at both December 31, 2005 and December 31, 2004.

As at December 31, 2005, the Company had net operating loss carry-forwards
  available to reduce taxable income in future years as follows:

| | Country                 | Amount      | Expiration Dates
| | ----------------------- | ----------- | ----------------
| |                         |             |                 
| | United States - Federal | $19,880,000 | 2006 - 2024     
| |                         |             |                 
| | Canada ($C)             | $3,420,000  | 2006- 2015      

These financial statements do not reflect the potential effect
  on future income taxes of the application of these losses.

F-16

---

|GOLDEN QUEEN MINING CO. LTD.              
|------------------------------------------
|(an exploration stage company)            
|Notes to Consolidated Financial Statements
|(U.S. dollars)                            

6. Long-Term Debt.

Long-term debt consists of the following:

|                                                          |   | December
      31, 2005 |  |   | December
      31, 2004 | 
|--------------------------------------------------------- | - | ----------------------- |  | - | ----------------------- | 
|Note due to a corporation, payable in monthly             |   |                         |  |   |                         | 
|installments of $9,275, including interest
      at prime |   |                         |  |   |                         | 
|plus 2% estimated to mature in July
      2011 and        |   |                         |  |   |                         | 
|collateralized by mineral property.
      *               | $ | 612,187                 |  | $ | 718,594                 | 
|                                                          |   |                         |  |   |                         | 
|Current maturities                                        |   | 63,147                  |  |   | 30,222                  | 
|                                                          |   |                         |  |   |                         | 
|Long-term debt, less current maturities                   | $ | 549,040                 |  | $ | 688,372                 | 

|* | In June of 2000, an agreement effective September 30,
        2000 was signed by the note holder which allowed for the deferment of
        principal and interest payments on the note in exchange for monthly payments
        of $4,000 over a period of three years or until the Company obtains production
        financing, whichever is sooner. These payments were reflected as interest
        expense in the financial statements. The Company continued making $4,000
        per month payments through February 2004. In April 2004, the Company made
        a lump sum payment equal to four monthly payments on the original note
        plus late payment interest charges per the agreement, after which the
        Company was no longer in default in connection with its payments. In May
        2004, the Company began making principal and interest payments of $9,275
        per month according to the terms of the original agreement. The following
        schedule shows the maturity of the debts under the continuing agreement:
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Year ending December 31, |   | Amount  | 
| | ------------------------ | - | ------- | 
| |                          |   |         | 
| | 2006                     | $ | 63,147  | 
| | 2007                     |   | 68,558  | 
| | 2008                     |   | 74,433  | 
| | 2009                     |   | 80,260  | 
| | 2010                     |   | 86,543  | 
| | Thereafter               |   | 239,246 | 
| |                          | $ | 612,187 | 

7. Convertible Notes.

In July 2003, the Company issued convertible promissory notes
  for aggregate proceeds of $375,000 to three independent parties. The notes are
  due on demand, bearing interest at the rate of 6.5% per annum and convertible
  into 1,630,435 units at a rate of $0.23. Each unit consists of one common share
  and one non-transferable detachable share purchase warrant entitling the holder
  to purchase one additional common share of the Company at an exercise price
  of $0.32, exercisable for two years. Interest has been and will be waived on
  conversion. In June 2004, 978,260 units with a $225,000 face value were converted
  into common shares, leaving 652,175 units outstanding at December 31, 2004 and
  2005.

F-17

---

|GOLDEN QUEEN MINING CO. LTD.              
|------------------------------------------
|(an exploration stage company)            
|Notes to Consolidated Financial Statements
|(U.S. dollars)                            

7. Convertible Notes. - Continued

The Company calculated the fair value of the equity component
  feature of the convertible promissory notes based upon the fair value of the
  underlying securities. The fair value of the underlying securities was estimated
  on the date of commitment of the contractual obligation, using the Black-Scholes
  option-pricing model, with the following assumptions:

Expected dividend yield
      0.00%Expected stock price volatility
      181%Risk-free interest rate
      1.37%Expected life of warrants
      2 years


The equity component was amortized to interest expense on a straight-line
  basis over the original term of the convertible promissory notes. Included in
  operations for the year ended December 31, 2005 was $ Nil (2004 - $196,000)
  in interest expense related to the amortization of the equity component on the
  convertible promissory notes.

The convertible promissory notes are summarized as follows:

|                                    |   | Face     |   |   |          |   |   | Carrying |  
|----------------------------------- | - | -------- | - | - | -------- | - | - | -------- | -
|                                    |   | Amount   |   |   | Discount |   |   | Value    |  
|Issuance in 2003                    | $ | 375,000  |   | $ | (375,000 | ) | $ | -        |  
|Amortization of equity component    |   | -        |   |   | 179,000  |   |   | 179,000  |  
|Balance, December 31, 2003          |   | 375,000  |   |   | (196,000 | ) |   | 179,000  |  
|Amortization of equity component    |   | -        |   |   | 196,000  |   |   | 196,000  |  
|Conversion of notes                 |   | (225,000 | ) |   | -        |   |   | (225,000 | )
|                                    |   |          |   |   |          |   |   |          |  
|Balance, December 31, 2005 and 2004 | $ | 150,000  |   | $ | -        |   | $ | 150,000  |  

8. Common Shares.

In February 2005 stock options were exercised and the Company
  issued 110,000 common shares at C$0.23 per share for proceeds of US$21,049 (C$
  25,258).

In January 2004, the Company entered into private placement agreements
  with 10 independent investors to issue an aggregate of 8,000,000 units at C$0.50
  per unit for gross proceeds of US$3,036,282 (C$4,000,000). Each unit was comprised
  of one share and one share purchase warrant. Each warrant entitles the holder
  to purchase during a two year period one common share at a price of C$0.62 in
  the first year and C$0.75 in the second year.

In 2004, three shareholders exercised an aggregate of 200,000
  options for common shares ranging from C$0.20 to C$0.50 per share for net proceeds
  of US$55,861 (C$68,750).

Subsequent to the year ended December 31, 2005 the Company entered
  into a private placement agreement with one independent investor to issue an
  aggregate of 7,200,000 units at C$0.50 per unit for gross proceeds of approximately
  US$3,000,000 (C$3,600,000). Each unit comprised of one share and one share purchase
  warrant. Each warrant entitles the holder to purchase during a two year period
  one common share at a price of C$0.60. The Company paid a finders fee
  of 2% or C$72,000

The following is a summary of warrant activity during the years
  ended December 31, 2005 and 2004:

F-18

---

|GOLDEN QUEEN MINING CO. LTD.              
|------------------------------------------
|(an exploration stage company)            
|Notes to Consolidated Financial Statements
|(U.S. dollars)                            

8. Common Shares. - Continued

The following table summarizes information about warrants outstanding
  at December 31, 2005:

| |                                         |  | Year Ended        |   |  | Year Ended        |  
| | --------------------------------------- |  | ----------------- | - |  | ----------------- | -
| |                                         |  | December 31, 2005 |   |  | December 31, 2004 |  
| |                                         |  | Shares            |   |  | Price
      Range |  
| | Warrants outstanding, beginning of year |  | 8,978,260         |   |  | C$0.38  0.60     |  
| | Warrants granted                        |  | -                 |   |  |                   |  
| | Warrants expired                        |  | (978,260          | ) |  | C$0.38            |  
| | Warrants outstanding, end of year       |  | 8,000,000         |   |  | C$0.60            | *

|                |             | Average          |               
|--------------- | ----------- | ---------------- | --------------
|                | Number      | Contractual Life | Average       
|Range of Prices | Outstanding | (Years)          | Exercise Price
|C$0.0.60        | 8,000,000   | 0.50             | C$0.60*       

*These warrants had an original exercise price of C$0.62 if exercised
  in the first year and C$0.75 if exercised in the second year with a two-year
  life to expire on January 27, 2006. Subsequent to December 31, 2005 the warrants
  were repriced to C$0.60 and the expiry date extended to June 1, 2006.

9. Stock Option Plan.

Under its amended 1996 stock option plan, the Company may grant
  options to purchase up to 3,300,000 shares of common stock to officers, directors
  and employees. The exercise price for all stock options is the closing price
  of the Companys common shares in Canadian dollars as traded on the Toronto
  Stock Exchange on the date of grant. Options issued to directors vest immediately.
  For all other options, the right to exercise vests over a two year period in
  equal increments on the date of grant and on each of the first two anniversaries
  of such date. All stock options granted and outstanding as at December 31, 2005
  expire at a date determined by the Companys Board of Directors, not exceeding
  five years from the date of grant, or after 39 months from the date of grant
  if not specified.

On February 1, 2005 stock options to purchase up to 1,200,000
  share at C$0.35 per share were granted to four directors.

The following is a summary of stock option activity during the
  years ended December 31, 2005 and 2004:

|                                       |  | Year Ended        |   |  | Year Ended        | 
|-------------------------------------- |  | ----------------- | - |  | ----------------- | 
|                                       |  | December 31, 2005 |   |  | December 31, 2004 | 
|                                       |  | Shares            |   |  | Price
      Range | 
|Options outstanding, beginning of year |  | 1,040,000         |   |  | C$0.13-0.55       | 
|Options granted                        |  | 1,200,000         |   |  | C$0.35            | 
|Options exercised                      |  | (110,000          | ) |  | C$0.23            | 
|Options expired / cancelled            |  | (90,000           | ) |  | C$0.13            | 
|Options outstanding, end of year       |  | 2,040,000         |   |  | C$0.35-0.55       | 
|Options exercisable                    |  | 2,040,000         |   |  | C$0.35-0.55       | 

F-19

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|GOLDEN QUEEN MINING CO. LTD.              
|------------------------------------------
|(an exploration stage company)            
|Notes to Consolidated Financial Statements
|(U.S. Dollars)                            

9. Stock Option Plan. - Continued

The following table summarizes information about stock options
  outstanding at December 31, 2005:

|                |             | Weighted-        | Weighted-       
|--------------- | ----------- | ---------------- | ----------------
|                | Number      | Average          | Average Exercise
|Range of Prices | Outstanding | Contractual Life | Price           
|                |             | (Years)          |                 
|C$0.35          | 1,200,000   | 4.09             | C$0.35          
|C$0.50          | 290,000     | 1.35             | C$0.50          
|C$0.55          | 550,000     | .10              | C$0.55*         
|                | 2,040,000   | 2.65             | C$0.43          

* Subsequent to the year ended December 31, 2005 these options
  expired unexercised.

The Company estimates the fair value of each stock option at
  the grant date by using the Black-Scholes options-pricing model with the following
  weighted-average assumptions used for grants in 2005: no dividend yield and
  weighted average expected option life of 5 years; expected weighted average
  volatility of 130%; and weighted average risk-free interest rate of 3.95% .
  No stock options were granted by the Company during 2004.

Based on the above assumptions, the fair value all options issued
  during 2005 was US$291,550 (C$0.29 per share). During 2005, the Company, using
  the Black-Scholes option-pricing model with the above-noted assumptions estimated
  the fair value of 200,000 (2004  Nil) stock options granted for non-director
  services as $48,592 (2004 - $Nil) which was recognized as compensation expense
  in the Consolidated Statement of Loss.

F-20

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|GOLDEN QUEEN MINING CO. LTD.              
|------------------------------------------
|(an exploration stage company)            
|Notes to Consolidated Financial Statements
|(U.S. Dollars)                            

10. Asset Retirement Obligations

During 2005, the Company received additional information regarding
  the required reclamation and clean-up activities and decreased its estimated
  asset retirement costs by approximately $215,000. During 2004, the Company received
  additional information regarding the required reclamation and clean-up activities
  and increased its estimated costs by approximately $399,000, which is expected
  to be incurred evenly over 3 years commencing when production is completed and
  Soledad is closed. This change in estimate resulted in the recognition of additional
  asset retirement obligations and a corresponding capitalization to the resource
  property as at December 31, 2004 of $345,766, being the discounted present value
  of the estimated reclamation costs. At the end of the year, the Company evaluated
  the future recoverability of its resource property and wrote down the carrying
  amount of the resource property by the full amount of the additional asset retirement
  obligations of $345,766 Actual results could materially differ from these estimates.

The Company estimated its asset retirement obligation based on
  its understanding of the requirements to reclaim, and clean up its mine site.
  The Company estimated that annual payments of approximately $61,000 (2004 -
  $133,000) for a period of 3 years for a total of approximately $183,000 (2004
  - $399,000) commencing in 2017 would be required to complete the retirement
  obligations. In determining the estimated initial present value of the obligation,
  a discount factor of 9.0% (2004  4.75%) (the credit-adjusted risk-free
  rate), and an inflation rate of 3.0% (2004 3.0%) were used. The asset
  portion of the retirement obligation was written off in 2004. The asset retirement
  obligation accrual required management to make significant estimates and assumptions.
  Actual results could materially differ from these estimates. The liability for
  accrued asset retirement obligations is comprised as follows:

|                              |   | December
      31, 2005 |   |   | December
      31, 2004 | 
|----------------------------- | - | ----------------------- | - | - | ----------------------- | 
|Beginning of the year         | $ | 345,766                 |   | $ | -                       | 
|Recognition of new obligation |   | -                       |   |   | 345,766                 | 
|Change in cash flow estimates |   | (262,265                | ) |   | -                       | 
|Accretion expense             |   | 7,515                   |   |   | -                       | 
|End of the year               | $ | 91,016                  |   | $ | 345,766                 | 

11. Commitments and Contingencies.

The Company has acquired a number of properties outright and
  has acquired exclusive rights to explore, develop and mine Soledad under various
  agreements with landowners.

Agreements are typically subject to sliding scale royalties on
  net smelter returns and these range from 1 % to 7.5 %.

The Company has agreed to issue 100,000 common shares upon commencement
  of commercial production on Soledad in connection with certain property acquisitions.

In October 2000, the Company ceased making property payments
  and advance, minimum royalty payments after successfully concluding moratorium
  agreements with a number of the landowners. The moratorium agreements typically
  had a term of three years and these have now expired. After the expiration of
  the moratorium agreements the Company reached an agreement with a landowner
  and is making lease payments of $10,000 per year to this landowner. The Company
  is also making advance minimum royalty payments of $100,000 per year to another
  landowner and these advance payments will be applied against any future production
  royalties. The Company did not make the advance, minimum royalty payment of
  $100,000 to the landowner in 2005. The Company is technically in default of
  certain mineral property agreements but is not currently in litigation with
  any landowner.

F-21

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|GOLDEN QUEEN MINING CO. LTD.              
|------------------------------------------
|(an exploration stage company)            
|Notes to Consolidated Financial Statements
|(U.S. Dollars)                            

11. Commitments and Contingencies. - Continued

The Company will continue to work with its landowners in 2006.
  While the Company has successfully reached agreement with its landowners in
  the past, there can be no assurance that such agreement will continue into the
  future.

In 2004, the Company entered into an agreement with the President
  of the Company to issue 300,000 bonus shares upon the completion of certain
  milestones. Upon receipt by the Company of a bankable feasibility study and
  the decision to place Soledad into commercial production, a bonus of 150,000
  common shares is to be issued. Upon commencement of commercial production on
  Soledad, a bonus of 150,000 common shares is to be issued. As at December 31,
  2005, the milestones had not been reached and no accrual was made in connection
  with these arrangements.

12. Related Party Transactions.

For the year ended December 31, 2005, $110,000 (2004 - $82,600)
  was paid to Mr. H. L. Klingmann for services as President of the Company, and
  $6,200 (2004 - $5,800) was paid to Mr. Chester Shynkaryk for consulting services
  to the Company. No other compensation was paid or given during the year for
  services rendered by the directors in such capacity, and no additional amounts
  were payable at year-end under any standard arrangements for committee participation
  or special assignments.

For the year ended December 31, 2005, $7,200 (2004 - $6,600)
  was owed and included in accounts payable to Mr. H.L. Klingmann for services
  as President of the Company.

The above noted transactions were in the normal course of operations,
  and were measured at the exchange amount, which is the amount of consideration
  established and agreed to by the related parties.

13. Canadian GAAP Reconciliation

The Company prepares its consolidated financial statements in
  accordance with accounting principles generally accepted in the United States
  (U.S. GAAP), which differ in certain respects from the principles
  that the Company would have followed had its consolidated financial statements
  been prepared in accordance with accounting principles generally accepted in
  Canada (Canadian GAAP). The major measurement differences between
  the U.S. and Canadian GAAP and their effects on the consolidated financial statements
  are provided below.

The amounts in the consolidated statement of loss that differ
  significantly from those reported under U.S. GAAP are as follows:

|                                              |   | 2005       |   |   | 2004       |  
|--------------------------------------------- | - | ---------- | - | - | ---------- | -
|                                              |   |            |   |   |            |  
|Net loss per US GAAP                          | $ | (1,476,324 | ) | $ | (1,772,250 | )
|Adjustments related to:                       |   |            |   |   |            |  
|Asset retirement
      obligation (b)         |   | -          |   |   | 345,766    |  
|Accretion expense (b)                         |   | -          |   |   | (16,073    | )
|Stock option compensation
      (a)           |   | (242,958   | ) |   | -          |  
|                                              |   |            |   |   |            |  
|Net loss per Canadian GAAP                    | $ | (1,719,282 | ) | $ | (1,442,557 | )
|                                              |   |            |   |   |            |  
|Loss per share per Canadian GAAP              |   |            |   |   |            |  
|Basic and diluted                             | $ | (0.03      | ) | $ | (0.02      | )
|                                              |   |            |   |   |            |  
|Shareholders equity per US and Canadian GAAP | $ | 17,457     |   | $ | 1,424,140  |  

F-22

---

|GOLDEN QUEEN MINING CO. LTD.              
|------------------------------------------
|(an exploration stage company)            
|Notes to Consolidated Financial Statements
|(U.S. Dollars)                            

13. Canadian GAAP Reconciliation  Continued

(a) Stock option compensation

The Company has adopted the disclosure requirements of SFAS No.
  123, Accounting for Stock-Based Compensation (SFAS 123) and as permitted
  under SFAS 123, applies Accounting Principles Board Opinion No. 25, Accounting
  for Stock Issued to Employees (APB 25) and related interpretations
  in accounting for its stock option plans. SFAS No. 148, Accounting for Stock-Based
  Compensation  Transition and Disclosure  an amendment of FASB Statement
  No. 123, requires disclosure of pro forma amounts to reflect the impact if the
  Company had elected to adopt the optional recognition provisions of SFAS 123
  for its stock option plans and employee stock purchase plans as disclosed in
  Note 9.

Under Canadian GAAP, the Canadian Institute of Chartered Accountants
  (CICA) Section 3870 (CICA 3870), issued in December
  2001, established standards for the recognition, measurement and disclosure
  of stock-based compensation, and other stock-based payments. Under the provisions
  of CICA 3870, prior to January 1, 2004, companies could either measure the compensation
  cost of equity instruments issued under employee compensation after January
  1, 2002 plans using a fair value-based method or could recognize compensation
  cost using another method, such as the intrinsic value-based method. However,
  if another method was applied, pro forma disclosure of net income or loss and
  earnings or loss per share was required in the financial statements as if the
  fair value-based method had been applied. Effective January 1, 2004, CICA 3870
  requires that all stock-based compensation be measured and expensed using a
  fair value-based methodology.

For the year ended December 31, 2005, the fair value of each
  option grant was estimated on the date of grant using the Black-Scholes option-pricing
  model with the assumptions as outlined in Note 9. During 2005, the Company,
  using the Black-Scholes option-pricing model with assumptions as outlined in
  Note 9 estimated the fair value of 1,000,000 (2004  Nil) stock options
  granted for director services as $242,958 (2004 - $Nil) which would have been
  recognized as compensation expense in the Consolidated Statement of Loss under
  Canadian GAAP. .As there were no stock options granted during fiscal year 2004,
  no compensation expense was recorded in the year under both US and Canadian
  GAAP.

(b) Asset retirement obligation

The Company adopted SFAS No. 143, Accounting for Asset
  Retirement Obligations as at January 1, 2003. At that time, the Company
  estimated that the costs of the reclamation of the Soledad property would be
  nominal As a result, no asset retirement liability was accrued as at December
  31, 2003. During 2004, the Company received additional information regarding
  the required reclamation and clean-up activities and increased their estimated
  costs by approximately $399,000 and recorded additional asset retirement obligations
  in 2004 as a result of this change in estimate in accordance with SFAS No. 143.
  At the end of the year, the Company evaluated the future recoverability of its
  resource property and wrote down the carrying amount of the resource property
  by the full amount of the additional asset retirement obligations of $345,766.

Under Canadian GAAP, effective January 1, 2004, the Company retroactively
  adopted CICA 3110, Asset Retirement Obligations. The Company retroactively
  recorded the fair value of an asset retirement obligation as a liability in
  the period in which it incurred a legal obligation associated with the retirement
  of tangible long-lived assets that result from the acquisition, construction,
  development, and/or normal use of the assets.

F-23

---

|GOLDEN QUEEN MINING CO. LTD.              
|------------------------------------------
|(an exploration stage company)            
|Notes to Consolidated Financial Statements
|(U.S. Dollars)                            

13. Canadian GAAP Reconciliation  Continued

(b) Asset retirement obligation - Continued

The obligation was initially measured at fair value using
  present value methodology, and the resulting costs capitalized into the carrying
  amount of the related asset. In recording the estimated initial present value
  of the obligations, the Company used a discount factor of 4.875% (the credit-adjusted
  risk-free rate). The Companys retirement obligations related to Soledad
  were incurred when the Company initially commenced exploration in 1988. Accordingly,
  the asset retirement obligations and the related asset would have been initially
  recorded at its fair value in 1998 and recorded an annual accretion of interest
  on the liability. In 2000, at the same time that the Company recorded an impairment
  reserve on the property, the asset portion of the retirement obligations was
  also written-off.

The effect of the retroactive restatement under Canadian GAAP
  was to increase the net loss for 2003 by $13,286, and to increase liabilities
  and accumulated deficit at December 31, 2003 by $329,693, shown for comparative
  purposes.

During 2005 the asset retirement obligation was adjusted for
  a change in estimated cash flows (Note 10). The resulting difference resulted
  in an adjustment to the asset retirement obligation. No GAAP difference was
  created based on this change.

14. Comparative Figures

Certain financial statement line items from prior years have
  been reclassified to conform with the current year's presentation. These reclassifications
  had no effect on the net loss and accumulated deficit as previously reported.

F-24

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