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**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended **December 31, 2007**

[   ] TRANSITION REPORT PURSUANT TO 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 registrant in its charter)

|British Columbia, Canada                                             | Not Applicable     
|-------------------------------------------------------------------- | -------------------
|(State or other jurisdiction                                         | (IRS Employer      
|of incorporation or organization)                                    | Identification No.)
|                                                                     |                    
|6411 Imperial Avenue, West 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**

Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
[   ]   No [X]

Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ 
 ]   No [X]

Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Exchange Act
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X]   No [   ]

Indicate by check mark if disclosure of delinquent filers in
response to Item 405 of Regulation S-B is not containedherein, and will not
be contained, to the best of registrants knowledge, in definitive proxy or
information statements incorporated by reference in part III of this Form
10-K or any amendment to this Form 10-K. [   ]

Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. Large accelerated filer [  
]        Accelerated filer [ 
 ]        Non-accelerated filed
[   ]        Smaller reporting
company [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]

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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 the last business day of the registrants most recently completed
  second fiscal quarter: **$46,829,856 as at June 30, 2007.**

Indicate the number of shares outstanding of each of the
registrants classes of common equity, as of the latest practicable date:
**85,640,883 common shares as at March 26, 2008.**

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's Proxy Statement for the Annual
Meeting of Stockholders are incorporated by reference into Part III of this
Form 10-K, which Proxy Statement is to be filed within 120 days after the end of
the registrant's fiscal year ended December 31, 2007.

2

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Form 10-K

Table of Contents

|Part       | Item No. |                                                                                                      
|---------- | -------- | -----------------------------------------------------------------------------------------------------
|           |          |                                                                                                      
|I          | 1        | Business                                                                                             
|           |          |                                                                                                      
|           | 1A       | Risk Factors                                                                                         
|           |          |                                                                                                      
|           | 1B       | Unresolved Staff Comments                                                                            
|           |          |                                                                                                      
|           | 2        | Properties                                                                                           
|           |          |                                                                                                      
|           | 3        | Legal Proceedings                                                                                    
|           |          |                                                                                                      
|           | 4        | Submission of Matters to a Vote of Security Holders                                                  
|           |          |                                                                                                      
|II         | 5        | Market for Common Equity, Related Stockholder Matters and
      Issuer Purchases of Equity Securities
|           |          |                                                                                                      
|           | 6        | Selected Financial Data                                                                              
|           |          |                                                                                                      
|           | 7        | Managements Discussion and Analysis of Financial Condition
      and Results of Operation           
|           |          |                                                                                                      
|           | 7A       | Quantitative and Qualitative Disclosures About Market Risk                                           
|           |          |                                                                                                      
|           | 8        | Financial Statements and Supplementary Data                                                          
|           |          |                                                                                                      
|           | 9        | Changes in and Disagreements With Accountants on Accounting
      and Financial Disclosure           
|           |          |                                                                                                      
|           | 9A(T)    | Controls and Procedures                                                                              
|           |          |                                                                                                      
|           | 9B       | Other Information                                                                                    
|           |          |                                                                                                      
|III        | 10       | Directors, Executive Officers and Corporate Governance                                               
|           |          |                                                                                                      
|           | 11       | Executive Compensation                                                                               
|           |          |                                                                                                      
|           | 12       | Security Ownership of Certain Beneficial Owners and Management
      and Related Stockholder Matters 
|           |          |                                                                                                      
|           | 13       | Certain Relationships and Related Transactions and Director
      Independence                       
|           |          |                                                                                                      
|           | 14       | Principal Accountant Fees and Services                                                               
|           |          |                                                                                                      
|IV         | 15       | Exhibits, Financial Statement Schedules                                                              
|           |          |                                                                                                      
|Signatures

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PART I

FORWARD-LOOKING STATEMENTS

ALL STATEMENTS IN THIS DISCUSSION THAT ARE NOT HISTORICAL ARE
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED. STATEMENTS PRECEDED BY, FOLLOWED BY OR THAT
OTHERWISE INCLUDE THE WORDS "BELIEVES", "EXPECTS", "ANTICIPATES", "INTENDS",
"PROJECTS", "ESTIMATES", "PLANS", "MAY INCREASE", "MAY FLUCTUATE" AND SIMILAR
EXPRESSIONS OR FUTURE OR CONDITIONAL VERBS SUCH AS "SHOULD", "WOULD", "MAY" AND
"COULD" ARE GENERALLY FORWARD-LOOKING IN NATURE AND NOT HISTORICAL FACTS. THESE
FORWARD-LOOKING STATEMENTS WERE BASED ON VARIOUS FACTORS AND WERE DERIVED
UTILIZING NUMEROUS IMPORTANT ASSUMPTIONS AND OTHER IMPORTANT FACTORS THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN THE FORWARD-LOOKING
STATEMENTS. FORWARD-LOOKING STATEMENTS INCLUDE THE INFORMATION CONCERNING OUR
FUTURE FINANCIAL PERFORMANCE, BUSINESS STRATEGY, PROJECTED PLANS AND OBJECTIVES.
THESE FACTORS INCLUDE, AMONG OTHERS, THE FACTORS SET FORTH BELOW UNDER THE
HEADING "RISK FACTORS." ALTHOUGH WE BELIEVE THAT THE EXPECTATIONS REFLECTED IN
THE FORWARD-LOOKING STATEMENTS ARE REASONABLE, WE CANNOT GUARANTEE FUTURE
RESULTS, LEVELS OF ACTIVITY, PERFORMANCE OR ACHIEVEMENTS. MOST OF THESE FACTORS
ARE DIFFICULT TO PREDICT ACCURATELY AND ARE GENERALLY BEYOND OUR CONTROL. WE ARE
UNDER NO OBLIGATION TO PUBLICLY UPDATE ANY OF THE FORWARD-LOOKING STATEMENTS TO
REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE
OCCURRENCE OF UNANTICIPATED EVENTS. READERS ARE CAUTIONED NOT TO PLACE UNDUE
RELIANCE ON THESE FORWARD-LOOKING STATEMENTS. REFERENCES IN THIS FORM 10-K,
UNLESS ANOTHER DATE IS STATED, ARE TO DECEMBER 31, 2007. AS USED HEREIN, THE
"COMPANY," "GOLDEN QUEEN MINING" "WE," "US," "OUR" AND WORDS OF SIMILAR MEANING
REFER TO GOLDEN QUEEN MINING CO. LTD.

Item 1. Business.

Glossary

Certain terms used in this Form 10-K 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 U.S. 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.

Ag The chemical symbol for silver.

Au The chemical symbol for gold.

Development stage -Includes all mining companies
engaged in the preparation of a mineral 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 with 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-K.

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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 mineral 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 processed and the product(s) 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 as demonstrated by at
least a preliminary feasibility study. This study must include adequate
information on mining, metallurgy and processing, economic and other relevant
factors that demonstrate, at the time of reporting, that economic exploitation
can be justified. A mineral reserve includes diluting materials and allowance
for losses that may occur when the material is mined. Mineral reserves are
sub-divided in order of increasing confidence into probable and proven
categories.

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 exploitation. The location,
quantity, grade, geological characteristics and 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 Co.,
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 preliminary
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 preliminary feasibility study and once permitting was completed.
Because of relatively low gold prices in the late 1990s and in the early 2000s,
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.

5

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The Project remained on hold in 2007 pending completion of an
independent feasibility study and the receipt of outstanding approvals and
permits for the Project.

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 gold
and silver prices prevailing in late-2006. The review indicated reasonable
prospects for economic exploitation of the Soledad Mountain mineral deposit. The
Company had also engaged SRK Consulting (U.S.), Inc. (SRK), 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. SRK released this
Technical Report on March 6, 2006. The mineral resource estimates were confirmed
as set out in more detail below.

The Company engaged Norwest Corporation (Norwest), Vancouver
in January 2007 to prepare a further NI 43-101 compliant Technical Report to
assess mineral reserves for the Project as part of an independent feasibility
study based upon the technical work that had been completed to the end of 2006.
The results of the Norwest study were disclosed in a press release on December
14, 2007 as set out in more detail below. Past mineral reserve estimates, which
were based on the report prepared by M3 in 1998, were retracted by the Company
in 2005 on the basis that they were out of date and not supported by an
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, and possible other risks,
in order to obtain an understanding of the Project.

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.

The US dollar is used in this Form 10-K and quantities are
reported in Metric units with Imperial units in brackets.

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
19thcentury. 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 Resources

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 on the Property are rhyolite
porphyry and flow-banded rhyolite, quartz latite porphyry, pyroclastics and
siliceous vein material. Little or no clay occurs in any of the rocks and the
rocks contain upwards of 80 % Si as SiO2. Rhyolite porphyry and
flow-banded rhyolite were grouped as a single rock type for the metallurgical
test work.

6

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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 Gold Fields
between 1933 and 1942. The database contains 71,325 samples, generated from over
113,593 m (372,649 ft) 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 0.274 g/t AuEq (0.008 oz/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), 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 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 released the NI 43-101
compliant Technical Report on March 6, 2006.

Mineral resources were classified as follows:

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

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

Inferred  everything beyond measured and indicated, but with
two drill holes or cross-cuts within 91 m (300 ft) 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 these
terms are recognized and required by Canadian regulations, the US Securities and
Exchange Commission does not recognize them.

Soledad Mountain Project - Measured & Indicated Mineral
  Resources

GradeAuEq
      Gold
      SilverCategory
      t
      ton
      g/t
      oz/ton
      g/t
      oz/ton
      g/t
      oz/tonMeasured
      39,720,000
      43,692,000
      1.118
      0.033
      0.926
      0.027
      14.86
      0.43Indicated
      50,774,000
      55,851,000
      0.789
      0.023
      0.603
      0.018
      11.47
      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 feasibility of exploiting these in a mining

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operation. Under Canadian rules, estimates of an inferred
resource may not form the basis of pre-feasibility or feasibility studies except
in rare cases. Investors are cautioned not to assume that all of or part of an
inferred resource exists or will be economically exploitable.

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


Note:

|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 %.                                                                                                                    
|   | Prices used in the calculations are $450.00/oz and
      $7.50/oz for gold and silver respectively. Recoveries used in the
      calculations are 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.                                                                                                      

Infill Drilling Program

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

Mineral Reserves

The Company engaged Norwest in January 2007 to prepare a NI
43-101 compliant Technical Report to assess mineral reserves for the Project as
part of an independent feasibility study based upon the technical work that had
been completed to the end of 2006. The results of the Norwest study were
disclosed in a press release on December 14, 2007.

The mineral reserve estimates as calculated by Norwest are set
out in the table below:

Soledad Mountain Project - Proven and Probable Mineral
Reserves

Diluted GradesGold
      SilverReserve Category
      t
      ton
      g/t
      oz/ton
      g/t
      oz/tonProven
      27,705,500
      30,476,000
      0.819
      0.0239
      13.82
      0.403Probable
      18,861,800
      20,748,000
      0.535
      0.0156
      11.69
      0.341Total & Average
      46,567,300
      51,224,000
      0.703
      0.0205
      12.96
      0.378


Cautionary note to US investors concerning estimates of
proven or probable reserves:This section uses the terms proven reserves
and probable reserves. We advise US investors that these terms are defined
strictly in accordance with applicable Canadian regulations.

Sean Ennis, P.Eng., of Norwest Corporation is a Qualified
Person as described in NI 43-101 and signed the Technical Report.

The Technical Report is available on the Companys web site at
www.goldenqueen.com.

8

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The gold-equivalent cut-off grade for the calculation mineral
reserves is 0.51 g/t (0.015 oz/ton) AuEq.

Norwest allowed for ore loss of approximately 2.5 % and
approximately 15 % dilution at a zero grade in calculating the mineral
reserves.

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 (26 ft) 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.

Independent Feasibility Study Completed By Norwest
Corporation

Norwest completed a feasibility study and Technical Report in
the form prescribed under National Instrument 43-101 for the Project and the
results were released in a press release on December 14, 2007.

The following are the parameters used in the base case cash
flow projection:

- Gold and silver prices of $600.00/oz and $12.00/oz respectively
- An analysis on an all-equity basis with lease financing of the primary
  mining equipment and
- A 10 % contingency on capital and operating costs.

The Project has a projected internal rate of return (IRR) on
capital employed of 19 % before taxes with a payback of approximately 4 years.
The net present value (NPV) is $66.5million with discount rate of 5.0 % and the
undiscounted, cumulative net cash flow is $120million. The contribution of gold
and silver to gross revenues is projected to be 84 % and 16 % respectively with
an average cash operating cost per ounce of gold produced, net of silver
credits, of $420/oz. To provide a comparison, the same mining scenario without
the 10 % contingency on operating costs has an IRR of 23 % before taxes, a NPV
of $93.3million with a discount rate of 5 % and an undiscounted, cumulative net
cash flow of $158million.

The projected IRR is 38 % before taxes, the NPV is $187million
and the undiscounted, cumulative net cash flow is $290million with closing gold
and silver prices on November 30 of $783.50/oz and $13.98/oz respectively.

The projected IRR is 14 % before taxes, the NPV is $40million
and the undiscounted, cumulative net cash flow is $83million with rolling
36-month average gold and silver prices of $571.74/oz and $10.56/oz respectively
to the end of November 2007 and these are typical prices used by lenders to
assess gold and silver projects.

Detailed technical information is provided in the following
sections.

Mine Design

Norwest did a detailed mine design in 2007. Gold and silver
prices of $600.00/oz and $12.00/oz respectively were used to develop an
ultimate, open pit shell with standard modeling techniques. A total of five
mining phases were defined within this shell. Detailed waste rock removal and
ore production schedules were prepared. The waste rock

9

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management plan incorporates sequential backfilling of
mined-out phases of the open pit as required by current California regulations.

An independent consulting engineer did open pit slope stability
analyses in 1995 and these included analyses with the ultimate slopes subjected
to a maximum, credible earthquake acceleration of 0.297g. The consulting
engineer recommended an ultimate slope angle of 55o with an
indication that this angle could be safely increased to 63.4 o. The
Company drilled five diamond drill holes in 1997 specifically to obtain rock
strength parameters for further slope stability analyses. An independent
consulting engineer did slope stability analyses and confirmed the ultimate
slope angle of 55o. Norwest use an inter-ramp slope angle of
55o for the mine design done in 2007.

Disposal of waste rock will be largely in mined-out phases of
the open pit. Independent consulting engineers did waste rock dump stability
analyses in 1996 and again in 1998 and these were confirmed by Norwest in 2007.
The analyses concluded that waste rock dumps would be stable under both static
and seismic loading conditions, both during operations and after closure and
reclamation. Some sloughing of the faces of dumps could occur during significant
seismic events in the area.

Waste rock dumps will be constructed using an angle of repose
of 37o (1.3:1.0) and a specific volume of 18.1 ft3/ton
that represents a 30 % net swell after allowing for partial compaction in the
heap. Norwest has used a single lift height of 170 ft for the layout of the
dumps and designed the dumps to toe out on natural terrain with slopes of less
than 15o. It will be necessary to re-slope the dumps to
27o (2.0:1.0) as part of closure and reclamation. The toes of the
re-sloped dumps will also remain within the disturbed area boundary.

The minimum depth to groundwater is 200 feet below natural
ground level in the areas where waste rock will be disposed of and this will
therefore not have an impact on the stability of waste rock dumps.

Open Pit Operation

Standard, open pit mining methods will be used to mine ore and
waste rock. Mining operations will include drilling, blasting, loading and
hauling and it is expected that the Company will do the mining. All open pit
mining will occur in dry conditions above the water table.

Norwest determined the detailed mine equipment requirements and
the mine capital and operating costs.

Planned mining rates are 13,700 tons of ore and 26,000 tons of
waste rock per day or 5.0 million tons of ore and 9.5 million tons of waste rock
per year and these have been reduced from the earlier planned mining rates. Mine
life has increased from 7 years to 12 years. The total quantity of ore to be
mined, crushed and screened and stacked on the heap leach pads is estimated to
be 51.2 million tons. Total waste rock mined is 108.4 million tons of which 19.0
million tons is expected to be sold as aggregate and 89.4 million is expected to
be disposed of in a number of waste rock management units on site. The average
stripping ratio is 2.12:1.0.

The quantities of both ore and waste rock mined per year will
vary from year to ensure the most efficient disposal of waste rock in mined-out
phases of the open pit.

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

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 by Norwest, assumed a loaded downhill
ore haul to the primary crusher for the life of the mine. The intent is to
replace trucks with a downhill pipe conveyor to convey ore for a number of the
mining phases with a reduction in the number of trucks required. Ore will be
crushed by an in-pit, portable, primary crusher and fed to the pipe conveyor and
conveyed to the coarse ore stockpile. The length of the pipe conveyor will be
approximately 1500 ft. Various alternative mine designs are being explored in an
effort to make the best possible use of the pipe conveyor and detailed
engineering for this application remains to be completed.

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.

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Mineralogy, Process Development & Flow
Sheet

Studies show that gold is present as native gold and electrum
with particles ranging in size from less than 10 micron to greater than 150
micron with the silver content of the electrum as high as 25 %. Silver is also
present as the mineral acanthite (Ag2S) with some native silver,
pyrargyrite (3Ag2S.Sb2S3) and polybasite
(9Ag2S.Sb2S3). Pyrite (FeS2), galena
(PbS) and chalcopyrite (CuFeS2) are present in minor amounts with no
indicated acid-generating potential. Multi-element x-ray fluorescence analyses
show only trace quantities of mercury.

Test work done on Soledad Mountain ores from 1989 to 2006 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
% - 2.37 mm and a four-stage crushing and screening plant using vertical shaft
impact crushers in the third and fourth crushing stages was designed for the
Project in the 1990s. This approach is referred to as conventional crushing in
the following analysis. The Companys management did a review that provided new
insights into the historical test results in 2002. 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 McClelland
Laboratories, Inc. (MLI), an independent metallurgical laboratory in Sparks,
Nevada. The samples were shipped by airfreight to two HPGR manufacturers in
Germany where the 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
  historical 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 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.

The detailed analysis of the leached residues or tails
indicated that tests should be done on a high-grade and a low-grade sample to
obtain data for the complete range of expected head grades. Two rhyolite samples
were taken for this test work in April 2006. The total weight of the two samples
was approximately 2,100 kg (4,600 lb). The samples were shipped by truck to MLI
for first-stage crushing and then by airfreight to a laboratory in Germany where
the HPGR tests were done. The samples were returned to MLI and bottle roll tests
and column leach tests were started in July and completed in December 2006.
Final test results were received and analyzed in detail.

11

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The Companys management now estimates the following recoveries
based upon the tails analysis:

Primary Rock Types
    Proportion
    Gold
    Silver%
    %
    %Pyroclastics Quartz Latite Rhyolite Undefined
    10.5 21.3 68.1 0.1
    85.4 89.9 83.4 
        Average
    52.5 52.5 52.5 
        AverageTotal & Average
    100.0
    85.0
    52.5


Tests were done on leached residues from two of the column
leach tests to determine the percolation rates under load and the results of the
tests were used to design the heap and confirm heap height for 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 gold and silver extraction rates;
- Stronger agglomerates due to a more favorable overall particle size
  distribution and this will also impact the flow rates of solution through the
  heap;
- Substantially lower capital costs than a conventional crushing - screening
  plant;
- Manageable dust control with fewer transfer points;
- 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.

The HPGR consists basically of two counter-rotating rolls  one
a fixed roll and the other a floating roll. The floating roll is mounted on
and can move freely on two slides and the grinding forces are applied to the
floating roll by four hydraulic rams. Ore is choke-fed to the gap between the
rolls and comminution takes place by inter-particle crushing in the bed of
particles. The gap between the rolls is determined by the nip-in characteristics
of the feed and the total grinding force applied, which in turn depends upon the
pressures in the hydraulic system. Each roll is driven by an electric motor via
a planetary gear reducer. The total grinding force can range from 750 kN to
20,000 kN and pressures in the gap can range from 50 MPa to 250 MPa. The
unconfined compressive strength of Soledad Mountain ores ranges from 2.2 MPa to
118.9 MPa by comparison.

Comminution in the HPGR is achieved without impact and
essentially without attrition of the wear protection on the surface of the
rolls.

Merrill-Crowe Plant

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,

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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 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
a commercial plant typically range upwards of 98 %.

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

The Heap Leach Pad And The Heap

A dilute, sodium-cyanide solution will be used to extract gold
and silver in the heap leach operation. Extensive procedures will be put in
place to protect workers and the environment. The cyanide will be received in a
dissolved form by truck directly from the manufacturer and will be pumped to a
storage tank on site and from there to the process.

An independent consulting engineering firm is responsible for
the design of heap leach facility, which has been designed for zero discharge.
The design contemplates that the first heap leach pad to be constructed, the
Phase 1 pad, will be located on the northern side of Soledad Mountain. A second
heap 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. 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 1.36 t/m3(85.0
  lb/ft3) and 1.42 t/m3(88.5 lb/ft3) after
  leaching and consolidation in the heap;
- Maximum heap height is 60 m (200 ft);
- Lift height is 10 m (33 ft);
- The 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 46.5million t (51.2million ton) and
- The heap is to be constructed in 2 stages, viz. Stage 1 and Stage 2 and
  each stage is to be divided into 2 hydraulically isolated zones, i.e. 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 (18 inch) 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. A proposed overflow pond is located east and downstream of
the pump box.

Detailed site investigations were done in the area where the
Phase 1 pad will be constructed in 2004 and again in 2006. The design of the
Phase 1 pad for construction is just being 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 mile) south of
Mojave in south-central California. The metropolitan areas of Rosamond and
Lancaster lie from 14 km (9 miles) to 32 km (20 miles) to the south. Access to
site is from

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State Route 14 and Silver Queen Road, an existing paved County
road. Mojave is a railroad hub for the Burlington Northern/Santa Fe and Union
Pacific/Southern Pacific railroad lines. 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 available on site.

Water Supply

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

A detailed study of the site hydrogeology was completed in 2006
to confirm that groundwater would be a dependable source of water for the
Project. 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 PW-1 drilled by the Company indicate that, initially, two
production wells can provide the maximum estimated water requirement of 147.6
m3/h (650 gal/min). Production well PW-1 is located approximately 1km
(3,000 ft) north of the Project. A second production well was drilled
approximately 300 m (1,000 ft) north of well PW-1 and cased and tested and a
third production well can be drilled if required in the future.

Water samples taken from five monitoring wells on site indicate
that groundwater can 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

The Company filed an application for a water service connection
with Antelope Valley  East Kern Water Agency in February 2008 to provide a
backup water supply. The possibility of water banking is also being discussed.
The agency typically has more than adequate water supplies during the winter
months and this may therefore develop into an efficient use of a key resource.

Power Supply

The regional utility, Southern California Edison (SCE), will
supply power. A main power line with two sets of conductors currently reaches
the eastern property boundary. The top set of conductors carries 66 kV while the
bottom set of conductors carries 12,460 V and these are the common primary
voltages in this part of the SCE territory.

SCE provided a rate for power. The rate structure is complex
and a mix of consumption and demand charges applies to peak, mid-peak and
off-peak periods.

SCE indicates that the power factor is an absolutely critical
item in SCE territory. SCE requires a minimum operating power factor of 0.95 and
a load-sensitive capacitor bank will be installed to achieve this. SCE may also
limit the number of starts permitted for the major motors per day.

SEC will do an in-house impact study to ensure that the 66 kV
line can support the projected load. GQM will support this study by providing
information and support any work done on site.

GQM will install and own the utility tie sub-station, which
will transform the incoming voltage of 66 kV to 4.16 kV and this will be the
mine distribution voltage. Overhead transmission lines will distribute power
from the utility tie sub-station to the areas where power will be required.

A diesel-powered generator will provide standby power and this
will be set beside the Merrill-Crowe plant. Power will be available to operate
the barren and recycle solution pumps in case of power failure.

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.

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Assay Laboratory, Offices & Workshop/Warehouse

The detailed designs and capital costs estimates for all
services required for a mining operation such as an assay laboratory, 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. Manpower is expected to average 27 salaried and 129 hourly-paid workers
once the mine is in full production. 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.

Construction manpower is expected to peak at 200.

Aggregate

It is expected that a byproduct aggregate and construction
materials business can be developed once the heap leach operation is in full
production, based on the location of the Project in southern California with
close proximity to major highways and railway lines. The source of raw materials
would be quality waste rock specifically stockpiled for this purpose. The waste
rock can be classified into a range of products such as riprap, crushed stone
and sand with little further processing. Test work done in the 1990s confirmed
the suitability of these materials as aggregate and construction materials. The
waste rock could be sold over an extended mine life greater than 30 years. The
Company has received an expression of interest from 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
the Project and a range of mountains to the northwest of the Project..

A company based in Mojave 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. Initial indications are that Soledad
Mountain would be a good site and could accommodate a number of wind turbines
without interfering with the mining operation. The first step is to determine
wind speed over an extended period of time and this is where the two companies
have agreed to cooperate. The company has now erected three wind monitoring
stations on property controlled by the Company and this will complement the
information that is now being generated from the upwind meteorological station
installed just north of Silver Queen Road in 2006.

Wind power could only be a supplemental source of power for the
Project as it would still be necessary for the local utility to provide power
during periods when there is little or no wind.

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 historical and more recent mining activity. The Standard Hill,
Tropico and Cactus mines are located within a radius of 12 km (7.5 miles) of the
Property.

The Project and the immediate area surrounding the Project or a
total of approximately 9,600 acres 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 land uses and the protection
of mineral deposits, 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 was indicated due to the time
that had passed since the permits were first issued in the late 1990s and
changes that have been made in the Project.

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There have also been changes in regulations imposed by two
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 reduced in both a physical and an environmental
sense.

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 environmental setting of the Project was documented in a
number of baseline studies completed from 1990 onwards and in the certified EIR
and EIS completed in 1997. The Kern County Board of Supervisors unanimously
approved two Conditional Use Permits (CUP) for the Project in September 1997
(i.e. CUP Case No. 41, Map No. 213 and CUP Case No. 22, Map No. 214). The Bureau
of Land Management subsequently issued its Record of Decision approving the Plan
of Operations under NEPA in November 1997.

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 under a grandfathering
provision included in the regulation. The Company, therefore, pursued both a
favorable interpretation under the regulation and subsequently an amendment of
the regulation with the State Mining and Geology Board (the Board) in 2006.
These efforts were supported by Kern County officials. Both approaches were
rejected by the Board and the decision was duly recorded by the Board in January
2007.

The Company completed an Application for a revised Surface
Mining and Reclamation Plan, which was submitted to the Kern County Planning
Department (the Planning Department) in April 2007. The Planning Department
completed its review of the Application and deemed the Application complete as
set out in July 2007. The Planning Department noted that changes proposed for
the Project constituted new information that required evaluation of potential
impacts and mitigation in a supplemental EIR. The Planning Department issued a
Request for Proposal to prepare the supplemental EIR to a total of 17 qualified
consultants in October 2007. The Chambers Group was awarded the contract to
prepare the supplemental EIR. The Company signed an agreement with the Planning
Department in February 2008 and made a payment of $55,000 which is 50 % of the
cost of preparing the supplemental EIR. This agreement was approved by the Kern
County Board of Supervisors at its regular meeting on March 11, 2008.

The kickoff meeting with the Chambers Group was held on the
afternoon of March 12, 2008. The following two items are of note:

- The Company completed a number of studies and did significant work on site
  between 2005 and 2007 to document that the environmental setting for the
  Project had not changed since 1997. The studies were submitted to the Kern
  County Planning Department in August 2007
- The Bureau of Land Management has confirmed that its Record of Decision
  approving the Plan of Operations under NEPA in November 1997 remains valid and
  that no additional reviews or approvals are required before the Company can
  proceed with the Project.

There are 87 conditions of approval listed in Exhibit E to
the CUPs and this includes a requirement to reclaim historical disturbances on
the Property. Site inspections are conducted annually to verify that the Company
is in compliance with the conditions of approval. The Company was in compliance
for the year ended December 31, 2007.

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Air Quality

Background Information

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 area are responsible for high background
PM10levels recorded at several nearby monitoring stations.

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 was projected by computer modeling
for a mining rate of 27 million t (30 million ton). 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 operation based on the planned use of
commonly accepted dust control techniques in all phases of the operation.

Kern County Air Pollution Control District transferred an
Emission Reduction Credit Certificate from Cactus Gold Mines Company to the
Project in February 1999 and this remains valid.

Authority To Construct & Permit To Operate

The Company had obtained seven Authority To Construct permits
dated March 16, 2002. These permits expired on March 16, 2004 and were not
renewed due to changes anticipated in the Project.

WZI, Inc. (WZI), Bakersfield was asked to assess air quality
for the Project in February 2006 and to obtain the Authority To Construct
permits in April 2006. WZI did modeling and calculations and submitted a report
to the Kern County Air Pollution Control district in September 2006. The Company
submitted Applications for Authority to Construct permits on June 8, 2007.

The Authority To Construct permits remain outstanding.

The Authority To Construct permits are converted to a Permit To
Operate after construction has been completed and subject to inspection by the
Kern County Air Pollution Control District.

PM10Monitoring Station

The Company was required to install both upwind and downwind
PM10monitoring stations before the start of production and decided
to proceed with the upwind PM10monitoring station in May 2006 to add
to the air quality database. The station was designed by Air Sciences Inc.,
Golden, Colorado and commissioned in September 2006. The Kern County Air
Pollution Control District approved the design of the station in October 2006.
Data is being recorded on a continuous basis and five quarterly reports have now
been issued.

The equipment for the downwind PM10monitoring
station has been purchased and is in storage in Mojave.

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.

17

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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 Chaffee Hydrologic Areas
of the Antelope Hydrologic Unit.

There are no springs or intermittent streams in the immediate
area. The closest intermittent stream is approximately 5 km (3 miles) to the
west. Evaporation rates are high. Groundwater is typically found at depths of 55
to 61m (180 to 200 ft) in the area north of the Project.

The Lahontan Regional Water Quality Control Board (the
Regional Board) is responsible for ensuring compliance with the federal Clean
Water Act and Californias Porter-Cologne Water Quality Act. The Company
submitted a Report of Waste Discharge (ROWD), prepared by WZI, to the Regional
Board in June 1997. The Regional Board adopted Board Order No. 6-98-9 in March
1998 at a meeting held in Lancaster and this set the Waste Discharge
Requirements for the Project.

Revised Report Of Waste Discharge

The ROWD submitted in 1997 included a design for the heap leach
facility done before and in 1997. The Company and its consulting engineers
prepared an engineering review that set out significant differences between the
layout and designs prepared for the heap leach facility in 1997 and in 2005 and
made a presentation to the Regional Board in Victorville in May 2006. The
Regional Board requested that the Company submit a revised ROWD to reflect these
changes. The Company and its consulting engineers prepared and submitted a
revised ROWD to the Regional Board in March 2007.

The Regional Board has completed its assessment of the
revised ROWD and has prepared draft Waste Discharge Requirements for the
Project. The Regional Board will wait for confirmation from the Kern County
Planning Department that a certified supplemental EIR is available before
adopting a revised Board Order and setting Waste Discharge Requirements for the
Project.

Closure, Reclamation and Financial Assurance

Closure and reclamation will be done in accordance with the
requirements set out in the CUPs and an approved Surface Mining and Reclamation
Plan and as set out in the Board Order to be re-issued by the Regional Board.

The following general principles apply:

- Considerable experience gained in reclamation of other heap leach
  operations in the California deserts since the mid-1990s shows that
  reclamation can be completed successfully.
- The Surface Mining and Reclamation Plan will be an active plan with
  concurrent reclamation on one hand and alternative reclamation concepts to be
  sought and evaluated during the mine life on the other hand.
- Closure and reclamation can proceed once the decision has been made to
  close the mine and this can be done while gold and silver are still being
  produced from the heap leach facilities although ore is no longer being mined,
  crushed and piled on the heap.
- The site drainage plan will be re-assessed to direct and thus control
  runoff to minimize erosion.
- Public safety will be a key concern to be addressed both while mining is
  underway and as part of closure.
- Post-closure monitoring will continue until revegetation targets are met
  with the ultimate goal of establishing a productive and self-staining
  eco-system.

The following points will have an impact on closure and
reclamation costs:

- The footprint required for Project facilities has been significantly
  reduced from the earlier Project concepts.
- A road to the top of Soledad Mountain will remain for access to public
  facilities and will not be reclaimed.
- Waste rock will be disposed of in mined-out phases of the open pit as part
  of a comprehensive waste rock management plan. A planned major waste rock dump
  to the south of Soledad Mountain has been eliminated and this will
  significantly reduce the total disturbed area that must be reclaimed.
- Leached residues will be rinsed and reclaimed on a single heap leach pad.

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- The size and complexity of the crushing & screening plant has been
  significantly reduced with fewer structures that have to be dismantled and
  fewer concrete footings that have to be broken up or buried.
- The workshop and warehouse building and wash slab, security building, bulk
  fuel storage tanks, septic tank and leach field and the parking lot will find
  an approved, alternative industrial use and will not be dismantled nor does
  the site where these facilities are constructed have to be reclaimed.
- Two (or three) water supply wells will remain for future industrial or
  municipal use. The water supply infrastructure will be turned over to the
  Mojave Public Utility District to become part of the permanent facilities in
  the area.

Revegetation

Sites have been revegetated successfully elsewhere in the
California deserts, for example at the Castle Mountain Mine in San Bernardino
County, and it is expected that revegetation can be completed successfully for
the Project as per the detailed revegetation plan that has been prepared by the
Companys consulting engineers.

A summary of the proposed revegetation procedures is given
below:

- Two revegetation test plots were prepared and seeded north and south of
  Soledad Mountain in 2006 and 2007 respectively;
- Seed is being collected locally and a seed library has been established;
- Ongoing revegetation tests will be done and monitored to demonstrate that
  seed collected locally can be an effective source of seed;
- Seed collected locally will be supplemented by seed contained in growth
  media that has been stockpiled;
- Surfaces will be prepared to provide textures suitable for desert plants
  and micro-basins will be created to trap seed and moisture;
- Hand seeding has been found to be effective and aerial (crop duster or
  helicopter) seeding can be used in areas that are inaccessible by vehicle or
  foot;
- Seeded areas will not require fertilizer and watering;
- Reclamation of disturbed areas will occur as soon as possible throughout
  the mine life;
- Control of runoff to minimize erosion will be a key to successful
  revegetation and
- Quantifiable goals for density and diversity of perennial species will be
  established.

Financial Assurances

The Company will be required to provide the following financial
assurances for the Project:

- By the State of California and Kern County for general reclamation on
  site;
- By the Regional Board for rinsing and reclamation of the leached residues
  on the heap and
- Unforeseen events financial assurance required by the Regional Board to
  provide for an unforeseen event that could contaminate surface or groundwater.

The Company provided reclamation financial assurance 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 US$266,692 on August 13,
2007 and this is the current estimate for reclamation of historical disturbances
on the property. The adequacy of the financial assurance is reassessed
annually.

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

19

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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.

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.

Item 1A. Risk Factors.

The following is a brief discussion of those distinctive or
special characteristics of our operations and industry which may have a material
impact on, or constitute risk factors in respect of, our future financial
performance and in respect of an investment in our company. These risk factors
should be read in conjunction with disclosure on business and risks appearing in
this document and elsewhere.

The Likelihood Of Continued Losses From Operations

The Company has no revenue from operations and has incurred
cumulative losses from inception through December 31, 2007 of $44,732,706.
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 $2,796,190
in cash and cash equivalents on December 31, 2007. 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 $45,420,807 accumulated during the exploration stage. In
addition we have significant costs associated with ongoing operations and
advancing the Project that we are presently funding primarily through the sale
of our common shares.

The continuation of the Company as a going concern is dependent
upon the continued financial support from its shareholders, the ability of the
Company to obtain necessary equity financing to achieve its operating
objectives, confirmation of the Companys interests in the underlying properties
and the attainment of profitable operations. Management cannot provide
assurances that such plans will occur. These factors raise substantial doubt
regarding the Companys ability to continue as a going concern. These financial
statements do not include any adjustments to the recoverability and
classification of recorded asset amounts and classification of liabilities that
might be necessary should the Company be unable to continue as a going concern.

The Need for Significant Additional Financing

If approvals and permits are secured 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 $60million plus working capital.The Company
expects to finance the construction and to secure the necessary working capital
from either additional sales of common stock, from bank or other borrowings or,
alternatively, through a joint venture. However, the Company has no commitment
for the underwriting of additional stock or for a bank financing, 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 U.S. 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.

Passive Foreign Investment Company

The Company may be classified as a passive foreign investment
company. U.S. investors should seek independent advice from tax advisors to
discuss any tax consequences.

20

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We must conclude our analysis of permitting requirements
  and ensure compliance with mining laws and regulations in the State of California.

The State of California introduced backfilling requirements for
certain types of open pit, metal mines in December 2002. We are presently
updating our assessment of property reclamation requirements and costs in order
to comply with California State mining laws and regulations. The cost of
compliance with current mine reclamation requirements is presently unclear and
may however have a significant impact on the results of a feasibility study on
the property.

Our ability to obtain mine financing is likely dependant
  on the price of gold and silver remaining at current levels, which, given historical
  fluctuations, can vary significantly.

Project financing depends on current price levels for gold and
silver being sustained in the foreseeable future. The current price levels of
gold and silver have not been attained since the early 1980s and there is no
guarantee that prices will remain at the current high levels. Gold prices
historically have fluctuated widely and are affected by numerous factors outside
of our control including industrial and retail demand, central bank lending,
sales and purchases of gold, forward sales of gold by producers and speculators,
levels of gold production, short-term changes in supply and demand because of
speculative hedging activities, confidence in the global monetary system,
expectations of the future rate of inflation, the strength of the US dollar (the
currency in which the price of gold is generally quoted), interest rates and
global or regional political or economic events.

The following table summarizes the historical prices for gold
and silver as at the closing dates noted, based on the p.m. London Fix Prices:

Date
    Gold
    SilverJanuary 2, 2008
    $840.75
    $14.93January 2, 2007
    $640.75
    $13.01January 3, 2006
    $530.00
    $9.040January 4, 2005
    $427.75
    $6.390January 2, 2004
    $415.25
    $5.985January 3, 2000
    $281.50
    $5.302January 6, 1997
    $358.50
    $4.660


Our property acquisition agreements relating to the
Soledad Mountain project are not in good standing due to missed payments. We
will need to bring current or renegotiate many of these agreements, failing
which we may face losing our interests in the project, or may incur significant
increased costs associated with acquiring the property.

We are technically in default of certain mineral property
acquisition agreements with various landowners of the Soledad Mountain property.
We are continuously monitoring the status of these defaults and negotiating with
key landowners in order to protect our interests in the property. There can
however be no assurance that we will continue to be able to retain our interests
in the property through negotiations with landowners, or that the cost of
retaining our interest will not significantly increase as a result of those
negotiations. The future of the project is dependant upon maintaining control of
the property. Without land and mineral rights, we have no basis for continuing
with our 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
our ability to maintain control of the property as a whole. Our failure to keep
property agreements in good standing may result in a loss of control, which, if
material to the project, would prevent us from development of the project.

We rely extensively on the services of our President, Mr.
Lutz Klingmann, who has considerable current knowledge of our operations,
including the Soledad Mountain project, and the loss of his services would
likely result in delay and cost associated with acquiring and training
additional management.

21

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Since 2002, Mr. Lutz Klingmann, our President, has been largely
responsible for most of the operations of our company, including operations on
our Soledad Mountain project. The success of the operations on the Soledad
Mountain project as currently envisioned by management is dependent to a
significant extent on the efforts and abilities of Mr. Klingmann. Investors must
be willing to rely to a significant extent on managements discretion and
judgment. We do not maintain key employee insurance on Mr. Klingmann and the
loss of his services would likely have an adverse affect on our operations and
plan, until such time as a replacement can be located and brought current on our
plans and operations.

The notes to our financial statements raise the issue of
our ability to continue as a going concern. The going concern basis of
presentation assumes that we will continue in operation for the foreseeable
future and will be able to realize our assets and discharge our liabilities and
commitments in the normal course of business.

We have had no revenues from operations since inception, and
have a deficit of $45,420,807 accumulated during the exploration stage. In
addition we have significant ongoing costs associated with ongoing operations
and advancing the project that we are presently funding primarily through the
sale of our common shares. Our ability to obtain financing for ongoing
activities and maintain solvency or to fund a mining operation, is dependent on
equity market conditions, the market for precious metals, the willingness of
other parties to lend us money or the ability to find a joint venture partner.
There can be no assurance that we will be successful at raising these funds,
which in turn raises substantial doubt about our ability to continue as a going
concern.

Risks and Contingencies Associated with the Mining Industry
  Generally

In addition to the risks noted above, we are 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 we maintain 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 the disposal of waste
products generated from production activities) is not generally available to us
or other companies in the mining industry. If subjected to environmental
liabilities, the payment of such liabilities would reduce our available funds.
If we are unable to fund fully the cost of remedying an environmental problem,
we might be required to suspend operations or enter into interim compliance
measures pending completion of remedial activities.

Our directors are ordinarily resident outside of the
United States and accordingly it may be difficult to effect service of process
on them, or to enforce any legal judgment against them.

All of our 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.

Because our common shares will likely trade at prices below
  $5.00 per share, and because we will not be listed on a national U.S. exchange,
  there are additional regulations imposed on U.S. broker-dealers trading in our
  shares that may make it more difficult for you to resell our shares through
  a U.S. broker-dealer.

Because of U.S. rules that apply to shares with a market price
of less than $5.00 per share, known as the penny stock rules, investors in
this offering will find it more difficult to sell their securities in the
through a U.S. broker dealer. The penny stock rules will probably apply to
trades in our shares. These rules in most cases require a broker-dealer to
deliver a standardized risk disclosure document to a potential purchaser of the
securities, along with additional information including current bid and offer
quotations, the compensation of the broker-dealer and its salesperson in the
transaction, monthly account statements showing the market value of each penny
stock held in the

22

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customers account, and to make a special written determination
that the penny stock is a suitable investment for the purchaser and receive the
purchasers written agreement to the transaction.

Item 1B. Unresolved Staff Comments.

Not applicable.

Item 2. Properties.

Land Ownership and Mining Rights

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

The Company holds or controls approximately 1,000 hectares
(2,500 acres) of land in the area. The Project will result in a disturbed area
of approximately 366 hectares (905 acres) of which approximately 334 hectares
(826 acres) will be reclaimed at the end of the mine life.

The land held or controlled by the Company includes all of
Section 6 and portions of Sections 5, 7, 8 and 18, T10N, R2W, portions of
Section 1 and 12, T10N, R13W, portions of Section 18, T9N, R12W and portions of
Section 32, T11N, R12W, all from the San Bernardino Baseline and Meridian. The
Project facilities will be located in Section 6, T10N, R12W. Two production
water wells have been drilled in Section 32, T11N, R12W on land controlled by
the Company.

The Company holds or controls via mining lease agreement 33
patented lode-mining claims, 131 unpatented lode-mining claims, 1 patented
millsite claim, 7 unpatented millsite claims, 1 unpatented Placer claim and 314
hectares (777 acres) of fee land. The Company also holds four residential
properties with buildings north of Silver Queen Road.

The Company controls a number of the properties referred to
above under mining lease agreements with 57 individual landowners, two groups of
landowners and four incorporated entities. The Company believes that all the
land required for the Project is either controlled under one of the mining lease
agreements or is held by the Company through ownership of the land in fee held
as unpatented mining claims or millsites. The mining lease agreements were
entered into from 1986 onwards.

The Company is continuing with its efforts to purchase
additional fee land that will secure its land position in the area.

23

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---



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Significant Agreements

The Company previously held an option to purchase all of the
issued and outstanding shares of a privately held California corporation, the
Karma Wegmann Corporation. The Company exercised its rights and made full
payment of $875,000 under the option agreement and its amendments on June 26,
2006. Karma Wegmann Corporation held 6 patented mining claims, 6 unpatented
mining claims and 1 patented millsite and these were transferred to the
Subsidiary. 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. Karma Wegmann Corporation was dissolved
on August 27, 2007.

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
was 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 was payable in monthly instalments of
$9,275. Interest on the outstanding balance was charged at prime rate plus 2%. A
balloon payment of the principal amount owing, if any, and accrued but unpaid
interest, if any, was due on September 1, 2011. The principal amount owing,
recorded as a long-term debt plus current maturities in the financial
statements, was $549,040 as at December 31, 2006. The Company reached an
agreement with Southwestern Refining Corporation and made a balloon payment of
$700,725 to retire the long-term debt in full and final settlement of the
outstanding obligation. Full reconveyance of the promissory note was recorded in
the Kern County Official Records on November 1, 2007.

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

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.

A U.S. mineral surveyor also licensed in California has just
completed a survey of the patented and unpatented lode mining claims in Section
6, T10N, R2W and Section 32, T11N, R12W. Calculations are still underway and a
claim status map will be prepared. A record of survey will also be filed with
Kern County once the work has been completed. The Company has confirmed 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 the mining lease 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 ore grades on the particular
property to which the royalty relates. Weighted average royalty rates will range
from a low of 2.7 % to a high of 4.7 % depending upon the area being mined at
current gold and silver prices. The agreements also typically provide for an
additional royalty if non-mineral commodities, such as aggregates, are sold.

24

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Property Interests Are Not In Good Standing

The Company ceased making property payments and advance,
minimum royalty payments in 2000 after successfully concluding moratorium
agreements with a number of the landowners. The moratorium agreements 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 made
advance, minimum royalty payments of $100,000 to a landowner, Southwestern
Refining Corporation, for 2004. The Company did not however make the advance,
minimum royalty payment of $100,000 to Southwestern Refining Corporation in
2005. The Company reached an agreement with Southwestern Refining Corporation on
an amendment of the mining lease agreement to extend this for a further twenty
years and paid $100,000 for advance minimum royalties owed for 2005. No advance,
minimum royalty payments were due for 2006 and 2007 under the amendment and the
advance, minimum royalty payments will again be due from April 2008 onwards.

The Company is technically in default of certain lease
agreements but is not currently in litigation with any landowner. The Company
will continue to work with its landowners in 2008. 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 developing 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 2007.

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 traded on 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
    Low2007
    Fourth Quarter
    $0.91
    $0.71Third Quarter
    0.92
    0.65Second Quarter
    1.04
    0.72First Quarter
    1.10
    0.802006
    Fourth Quarter
    $1.09
    $0.59Third Quarter
    0.99
    0.54Second Quarter
    1.04
    0.73First Quarter
    0.95
    0.36


25

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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 26, 2008, the exchange
rate was US$1.00 per CDN$1.0180. The high and low exchange rates for each month
during the previous six months were as follows:

High
    LowFebruary 2008
    1.0188
    0.9717January 2008
    1.0294
    0.9905December 2007
    1.0216
    0.9784November 2007
    1.0007
    0.9168October 2007
    1.0002
    0.9496September 2007
    1.0546
    0.9959


The following table sets out the exchange rate information as
at each of the years ended December 31, 2007 and 2006.

Year Ended December 312006
    2007Rate at end of Period
    1.1652
    0.9881Average Rate during Period
    1.1340
    1.0742Low
    1.0989
    0.9168High
    1.1726
    1.1852


As of March 26, 2008, there were 267 registered 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 traded on 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
    Low2007
    Fourth Quarter
    $0.92
    $0.74Third Quarter
    0.87
    0.62Second Quarter
    0.91
    0.66First Quarter
    0.93
    0.672006
    Fourth Quarter
    $0.94
    $0.52Third Quarter
    0.88
    0.49Second Quarter
    0.92
    0.64First Quarter
    0.81
    0.31


Dividends

The Company has not declared dividends on its common shares
since inception.

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Securities Authorized for Issuance Under Compensation Plans

The following table sets forth information as at December 31,
2007 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
    2,590,000
    C$0.59
    200,000Equity compensation plans not approved by security
      holders
    N/A
    N/A
    N/ATotal
    2,590,000
    --
    200,000


Sales of Unregistered Securities

During the fiscal year ended December 31, 2007, 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, 2007, other than
through the exercise of options pursuant to the Companys 1996 Stock Option
Plan.

Item 6. Selected Financial Data.

Not Applicable.

Item 7. Managements Discussion and Analysis of Financial
Condition and Results of Operation.

The following discussion of the operating results and financial
position of the Company should be read in conjunction with the audited
consolidated financial statements for the year ended December 31, 2007 and the
notes thereto.

The Companys financial statements have been prepared and
presented in accordance with U.S. GAAP since January 1, 2004. Previously the
Company had reported in Canada in accordance with Canadian GAAP and in the
United States in accordance with U.S. GAAP. The change to U.S. GAAP has not
resulted in any material differences in the presentation of the financial
statements of the Company for the year ended December 31, 2007.

The Soledad Mountain Project

The Company is proposing to develop a gold-silver, open pit,
heap leach operation on its Property located just outside the town of Mojave in
Kern County in southern California. Every element of the Project has been
rethought and reengineered over the past four years in an effort to find sound
technical and cost-effective solutions that will 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. This phase of the technical work was completed toward the end
of 2006.

27

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Results of Operations

The Company had no revenue from operations and the Project
remained on hold in 2007 pending completion of an independent feasibility study
and the receipt of outstanding approvals and permits for the Project.

The Company incurred general and administrative expenses of
$1,907,159 for the year ended December 31, 2007, as compared to $4,119,828 for
the year ended December 31, 2006. These costs were higher in 2006 due to
non-cash charges of $814,810 for stock-based compensation and $889,117 relating
to a change of warrant terms and a write-off of mineral property acquisition
cost in the amount of $875,000.

The following is a list of the significant costs that were
incurred in 2007:

| | a. | Total payments of $800,725 to Southwestern Refining
      Corporation to retire a promissory note and to make an advance minimum
      royalty payment owing from 2005.                                                          
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b. | Total payments of $221,683 to three property owners for
      11.56 hectare (28.55 acres) of fee land.                                                                                                                           
| | c. | The annual maintenance fee paid in lieu of assessment was
      $19,590 for 2007/2008.                                                                                                                                           
| | d. | Insurance premiums were $31,166 for 2007/2008.                                                                                                                                                                                   
| | e. | Legal fees of $107,588 were incurred in 2007 (2006 
      $323,550).                                                                                                                                                            
| | f. | Approximately $1,040,000 (2006 - $1,064,048) was charged
      by consulting engineers for detailed technical work related to approvals
      and permits and for ongoing engineering work for the Project during the
      year.
| | g. | Total payments of $74,887 to Air Sciences Inc. for work
      on the meteorological station and reporting.                                                                                                                       
| | h. | Annual fees of $22,890 paid to the California State Water
      Resources Control Board.                                                                                                                                         
| | i. | A total of $43,863 to Rio Rico Land Survey for the legal
      survey on the Property.                                                                                                                                           
| | j. | Fees of $14,900 to the Kern County Planning Department to
      continue processing the Application for a revised Surface Mining and
      Reclamation Plan, which was filed by the Company in April 2007.                       
| | k. | Total payments of $42,673 to a local contractor for
      cleanup work on site.                                                                                                                                                  
| | l. | Two water quality assessment and monitoring wells were
      drilled along Silver Queen Road at a cost of $81,849.                                                                                                               
| | m. | Total payments of Cdn.$310,393 to Norwest Corporation for
      work on the independent feasibility study and ongoing engineering
      support.                                                                                 
| | n. | Total accounting fees and audit fees of
    Cdn.$126,325.                                                                                                                                                                        
| | o. | Toronto Stock Exchange sustaining fees of
    Cdn.$16,761.                                                                                                                                                                       

Interest income of $160,375 (2006 - $188,581) was lower by
$28,206 as there was less cash on deposit during the year. There was no interest
expense during the year (2006  $62,225) as the promissory note on which
interest was being paid, was retired by agreement with Southwestern Refining
Corporation.

A summary of operating results for the past five years is set
out in the table below:

|                                    |               |               |               |               |               | From       
|----------------------------------- | ------------- | ------------- | ------------- | ------------- | ------------- | -----------
|Results for the year ending on:     | Dec. 31, 2007 | Dec. 31, 2006 | Dec. 31, 2005 | Dec. 31, 2004 | Dec. 31, 2003 | Inception  
|Item                                | $             | $             | $             | $             | $             | $          
|General and administrative expenses | -1,907,159    | -4,119,828    | -1,018,343    | -1,163,069    | -493,657      | -14,633,418
|Asset impairment loss               | -246,283      | -875,000      | -682,687      | -345,766      | 0             | -30,697,328
|Adjustment to asset retirement      |               |               |               |               |               |            
|obligation                          | -1,485        | -30,590       | 262,265       | 0             | 0             | 230,190    
|Miscellaneous items                 | -11,930       | -10,944       | 7,515         | 0             | 0             | -171,013   
|Sub-total                           | -2,166,857    | -5,036,362    | -1,446,280    | -1,508,835    | -493,657      | -45,301,569
|Interest expense                    | 0             | -62,255       | -50,069       | -294,677      | -250,904      | -913,098   
|Interest income                     | 160,375       | 188,581       | 20,025        | 31,262        | 45            | 1,481,961  
|Net loss                            | -2,006,482    | -4,910,036    | -1,476,324    | -1,772,250    | -744,516      | -44,732,706

The Company incurred a net loss of $2,006,482 (or $0.03 per
share) for the year ended December 31, 2007, as compared to a net loss of
$4,910,036 (or $0.07 per share) for the year ended December 31, 2006.

28

---

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.

Summary Of Quarterly Results

A summary of operating results for the eight most recent
quarters is set out in the table below:

Results for
      the quarter ending on:
    Dec. 31, 2007
    Sept. 30, 2007
    June 30, 2007
    March 31, 2007Item
    $
    $
    $
    $Revenue Net (income) loss for the quarter Net loss
      per share
    Nil 1,001,548 0.01
    Nil -117,884 0.00
    Nil 798,478 0.01
    Nil 324,340 0.00


Results for
      the quarter ending on:
    Dec. 31, 2006
    Sept. 30, 2006
    June 30, 2006
    March 31, 2006Item
    $
    $
    $
    $Revenue Net loss for the quarter Net loss per share
    Nil 3,081,401 0.04
    Nil 428,719 0.01
    Nil 1,292,137 0.02
    Nil 107,779 0.00


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

Reclamation Financial Assurance And Asset Retirement
Obligations

The Company provided reclamation financial assurance 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 US$266,692 on August 13,
2007 and this is the current estimate for reclamation of historical disturbances
on the property. The reclamation financial assurance increased by $21,355 from
the amount of $245,337 provided in 2006. The adequacy of the financial assurance
is reassessed annually.

The asset retirement obligation accrual is estimated at
$145,965 and this is shown as a liability on the consolidated balance sheet. The
actual obligation could differ materially from these estimates.

Long-term Debt

The Company purchased 29.18 acres real property from
Southwestern Refining Corporation in 1996. 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 was payable in monthly instalments of
$9,275. Interest on the outstanding balance was charged at prime rate plus 2%. A
balloon payment of the principal amount owing, if any, and accrued but unpaid
interest, if any, was due on September 1, 2011. The principal amount owing had
been recorded as long-term debt on the balance sheet as per the detail provided
in the table below:

Dec. 31, 2006
    
    
    Dec. 31, 2005Note payable to Southwestern Refining
      Corporation
    $
    700,725
    
    $
    612,187Current maturities
    
    700,725
    
    
    63,147Long-term debt less current maturities
    
    -
    
    $
    549,040


Subsequent to the year ended December 31, 2006, the Company
reached an agreement with Southwestern Refining Corporation to retire the
long-term debt with a final payment of $700,725 in full and final settlement of
the outstanding obligation. The long-term debt was therefore reclassified as
current maturity of long-term debt on the balance sheet.

29

---

Off-balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

Transactions With Related Parties

Mr. H.L. Klingmann, the president of the Company, was paid
management fees of $126,450 and Mr. C. Shynkaryk, a director of the Company, was
paid $18,000 for consulting services during the year ended December 31,
2007.

Four directors of the Company were paid director fees of
Cdn.$2,000 and one director was paid director fees of $2,000 for the year ended
December 31, 2007.

There were no other related party transactions during the year
ended December 31, 2007.

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. It was not
practical to determine a fair value for the convertible notes.

Commitments and Contractual obligations

The Company is required to issue 300,000 shares to the
President of the Company. The issuance of the shares is subject to the
completion of feasibility study and the decision to place the property into
commercial production. In addition to the 300,000 shares, the Company has also
agreed to issue 100,000 common shares as finders fees to a party upon
commencement of commercial production on the property.

The Company is also 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 of its property.

Liquidity and Capital Resources

The Company held $2,796,190 (2006 - $5,513,580) in cash and
cash equivalents on December 31, 2007. The actual cash used to fund operating
activities was $2,092,962 in 2007 as compared to $2,149,652 in 2006.

A director exercised a total of 100,000 options at C$0.35 per
share for proceeds of $30,853 in July 2006.

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

| |                                   | No. of Warrants | Exercise Price | Expiry Date  
| | --------------------------------- | --------------- | -------------- | -------------
| | Private placement of January 2006 | 7,200,000       | C$0.60/share   | Jan. 26, 2008

See also the Subsequent Event note below.

Management plans to control costs and it is not expected that
additional cash will be required (prior to securing production financing) beyond
cash currently on hand for ongoing work on approvals and permits for the
Project, for additional property purchases, for ongoing work on site and for
general corporate purposes to the end of 2009.

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 approvals and permits have been secured and a production decision has
been made and estimates that this could range as high as $60million in addition
to the working capital required.

30

---

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 Outlookbelow.

The Company had Canadian and U.S. deferred tax assets of
approximately $9,370,000 at December 31, 2007. The Company has provided a 100 %
valuation allowance for these deferred tax 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 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 2009, 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.

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 |                |                   
|---------------------------------------------------- | ------------- | -------------- | ------------------
|Shares issued and outstanding on Dec. 31, 2005       | 61,190,449    |                |                   
|Shares issued on January 31, 2006                    | 7,200,000     |                |                   
|Shares issued on conversion of two warrants          | 978,260       |                |                   
|Shares issued on conversion of promissory note       | 652,174       |                |                   
|Shares issued on conversion of warrants              | 8,000,000     |                |                   
|Shares issued upon exercise of stock options in 2006 | 100,000       |                |                   
|Shares issued upon exercise of stock options in 2007 | 290,000       |                |                   
|Shares issued for acquisition of property            | 30,000        |                |                   
|Shares issued on conversion of warrants              | 7,200,000     |                |                   
|Shares issued and outstanding on March 31, 2008      | 85,640,883    | Exercise Price | Expiry Date       
|Directors and employee stock options                 | 2,300,000     | C$0.35 &       | 9/02/10 & 20/04/11
|                                                     |               | C$0.77         |                   
|Shares to be issued as a finders fee                 | 100,000       | Not Applicable | Not Applicable    
|Bonus shares to be issued to H.L. Klingmann          | 300,000       | None           | None              
|Fully diluted on March 31, 2008                      | 88,340,883    |                |                   

The number of shares issued and outstanding was 78,120,883 on
December 31, 2006, 61,190,449 on December 31, 2005, 61,080,449 on December 31,
2004 and 51,902,189 on December 31, 2003.

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

Outlook

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
4.5million t (5.0million ton) per year and these have been reduced from the
earlier planned mining rates. Mine life has increased from 7 years to 12
years.

The Company is actively working with the Kern County Planning
Department to expedite the review process and the supplemental EIR.

31

---

Management is evaluating financing options with a view to
making a production decision as soon as approvals and permits have been
secured.

If approvals and permits are secured 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 $60million plus working capital. The Company believes
that financing for the Project can be secured if gold and silver prices remain
at or above $600.00/oz and $12.50/oz respectively and these are the prices used
for the feasibility study base case cash flow projections. Gold and silver
prices averaged $696.05/oz and $13.40/oz in 2007 and closing prices on March 26,
2008 were $933.50/oz and $17,99/oz respectively.

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

Subsequent Event

Warrants were exercised to acquire 7,200,000 common shares of
the Company at an exercise price of Cdn.$0.60 for total proceeds to the Company
of Cdn.$4,320,000 on January 23, 2008.

Application of Critical Accounting Estimates

The financial statements of our company have been prepared in
accordance with generally accepted accounting principles in the United States.
Because a precise determination of many assets and liabilities is dependent upon
future events, the preparation of financial statements for a period necessarily
involves the use of estimates which have been made using careful judgment.

The financial statements have, in managements opinion, been
properly prepared within reasonable limits of materiality and within the
framework of the significant accounting policies summarized below:

Mineral Property and Exploration Costs

Exploration costs are expensed as incurred. Development costs
are expensed until it has been established that a mineral deposit is
commercially mineable and a production decision has been made by our company to
implement a mining plan and develop a mine, at which point the costs
subsequently incurred to develop the mine on the property prior to the start of
mining operations are capitalized.

Our company capitalizes the cost of acquiring mineral property
interests, including undeveloped mineral property interests, until the viability
of the mineral interest is determined. Capitalized acquisition costs are
expensed if it is determined that the mineral property has no future economic
value. Exploration stage mineral interests represent interests in properties
that are believed to potentially contain (i) other mineralized material such as
measured, indicated or inferred resources with insufficient drill hole spacing
to qualify as proven and probable mineral reserves and (ii) other mine-related
or greenfield exploration potential that are not an immediate part of measured
or indicated resources. Our companys mineral rights are generally enforceable
regardless of whether proven and probable reserves have been established. Our
company has the ability and intent to renew mineral rights where the existing
term is not sufficient to recover undeveloped mineral interests.

Capitalized amounts (including capitalized development costs)
are also written down if future cash flows, including potential sales proceeds,
related to the mineral property are estimated to be less than the propertys
total carrying value. Management of our company reviews the carrying value of
each mineral property periodically, and whenever events or changes in
circumstances indicate that the carrying value may not be recoverable.
Reductions in the carrying value of a property would be recorded to the extent
that the total carrying value of the mineral property exceeds its estimated fair
value. A write down of $246,283 in mineral property interests was recorded in
the year ended December 31, 2007.

Asset Retirement Obligations

In accordance with Statement of Financial Accounting Standards
No. 143, Accounting for Asset Retirement Obligations (''SFAS 143''), the fair
value of an asset retirement cost, and corresponding liability, should be
recorded as part of the cost of the related long-lived asset and subsequently
allocated to expense using a systematic and

32

---

rational method. Our company has recorded an asset retirement
obligation to reflect its legal obligations related to future abandonment of its
mineral property using estimated expected cash flow associated with the
obligation and discounting the amount using a credit-adjusted, risk-free
interest rate. At least annually, our companies reassess the obligation to
determine whether a change in any estimated obligation is necessary. Our company
has evaluated whether there are indicators that suggest the estimated cash flows
underlying the obligation have materially changed. At December 31, 2007, an
asset retirement obligation of $145,965 was made in the December 31, 2007
financial statements.

Stock-based Compensation

Management has made significant assumptions and estimates
determining the fair market value of stock-based compensation granted to
employees and non-employees. These estimates have an effect on the stock-based
compensation expense recognized and the additional paid-in capital and share
capital balances on our companys Balance Sheet. The value of each option award
is estimated on the date of grant using the Black-Scholes option-pricing model.
For non-employees, such amount is revalued on a quarterly basis. To date,
substantially all of our stock option grants have been to directors. Increases
in our share price will likely result in increased stock option compensation
expense. The Black-Scholes option-pricing model requires the input of subjective
assumptions, including the expected term of the option award and stock price
volatility. The expected term of options granted for the purposes of the
Black-Scholes calculation is the term of the award. These estimates involve
inherent uncertainties and the application of management judgment.

Recently Issued Accounting Standards

FIN 48-In June 2006, the Financial Accounting
Standards Board ("FASB") issued interpretation No. 48, "Accounting for
Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109 (FAS No.
109)" ("FIN 48"). This interpretation prescribes a recognition threshold and
measurement attribute for tax positions taken or expected to be taken in a tax
return. This interpretation also provides guidance on de-recognition,
classification, interest and penalties, accounting in interim periods,
disclosure and transition. The evaluation of a tax position in accordance with
this interpretation is a two-step process. In the first step, recognition, the
Company determines whether it is more-likely-than-not that a tax position will
be sustained upon examination, including resolution of any related appeals or
litigation processes, based on the technical merits of the position. The second
step addresses measurement of a tax position that meets the more-likely-than-not
criteria. The tax position is measured at the largest amount of benefit that is
greater than 50 percent likely of being realized upon ultimate settlement.
Differences between tax positions taken in a tax return and amounts recognized
in the financial statements will generally result in a) an increase in a
liability for income taxes payable or a reduction of an income tax refund
receivable, b) a reduction in a deferred tax asset or an increase in a deferred
tax liability or c) both a and b. Tax positions that previously failed to meet
the more-likely-than-not recognition threshold should be recognized in the first
subsequent financial reporting period in which that threshold is met. Previously
recognized tax positions that no longer meet the more-likely-than-not
recognition threshold should be de-recognized in the first subsequent financial
reporting period in which that threshold is no longer met. Use of a valuation
allowance as described in FAS No. 109 is not an appropriate substitute for the
de-recognition of a tax position. The requirement to assess the need for a
valuation allowance for deferred tax assets based on sufficiency of future
taxable income is unchanged by this interpretation. This Interpretation is
effective for fiscal years beginning after December 15, 2006. Effective on
January 1, 2007, the Company adopted this new pronouncement. Based on our
assessment of FIN 48, we concluded that the adoption of FIN 48, as of January 1,
2007, had no significant impact on our results of operations or financial
position, and required no adjustment to the opening balance sheet accounts. Our
year-end analysis supports the same conclusion, and we do not have an accrual
for uncertain tax positions as of December 31, 2007. If interest and penalties
were to be assessed, we would charge interest to interest expense, and penalties
to other operating expense. It is not anticipated that unrecognized tax benefits
would significantly increase or decrease within 12 months of the reporting date.

SFAS 141 (revised 2007) - On December 4, 2007, the FASB issued
SFAS No. 141 (Revised 2007), Business Combinations (SFAS No.141). Statement
No. 141R will significantly change the accounting for business combinations.
Under Statement No. 141R, an acquiring entity will be required to recognize all
the assets acquired and liabilities assumed in a transaction at the
acquisition-date fair value with limited exceptions. Statement No. 141R will
change the accounting treatment for certain specific items, including:

33

---

- Acquisition costs will be generally expensed as incurred;
- Non-controlling interests (formerly known as minority interests - see
  Statement No. 160 discussion below) will be valued at fair value at the
  acquisition date;
- Acquired contingent liabilities will be recorded at fair value at the
  acquisition date and subsequently measured at either the higher of such amount
  or the amount determined under existing guidance for non-acquired
  contingencies;
- In-process research and development will be recorded at fair value as an
  indefinite-lived intangible asset at the acquisition date;
- Restructuring costs associated with a business combination will be
  generally expensed subsequent to the acquisition date; and
- Changes in deferred tax asset valuation allowances and income tax
  uncertainties after the acquisition date generally will affect income tax
  expense.

Statement No. 141R also includes a substantial number of new
disclosure requirements. Statement No. 141R applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008. Earlier
adoption is prohibited. Accordingly, a calendar year-end company is required to
record and disclose business combinations following existing GAAP until January
1, 2009. The Company is currently evaluating the impact of the provisions of
SFAS No. 141R.

SFAS 160, Non-controlling Interests in Consolidated Financial
Statements - An Amendment of ARB No. 51 (SFAS No. 160). In December 4, 2007,
the FASB issued FASB Statement No. 160, Non-controlling Interests in
Consolidated Financial Statements - An Amendment of ARB No. 51. SFAS No. 160
establishes new accounting -and reporting standards for the non-controlling
interest in a subsidiary and for the deconsolidation of a subsidiary.
Specifically, this statement requires the recognition of a non-controlling
interest (minority interest) as equity in the consolidated financial statements
and separate from the parent equity. The amount of net income attributable to
the non-controlling interest will be included in consolidated net income on the
face of the income statement. SFAS No. 160 clarifies that changes in a parents
ownership interest in a subsidiary that do not result in deconsolidation are
equity transactions, if the parent retains its controlling financial interest.
In addition, this statement requires that a parent recognize a gain or loss in
net income when a subsidiary is deconsolidated. Such gain or loss will be
measured using the fair value of the non-controlling equity investment on the
deconsolidation date. SFAS No. 160 also includes expanded disclosure
requirements regarding the interests of the parent and its non-controlling
interest.

Statement No. 160 is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15, 2008. Like
Statement No. 141R discussed above, earlier adoption is prohibited. The Company
is currently evaluating the impact of the provisions of SFAS No. 160.

SFAS 159 - On February 15, 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial Liabilities, including
an amendment of FASB Statement No. 115 (SFAS 159). SFAS 159 creates a fair
value option allowing an entity to irrevocably elect fair value as the initial
and subsequent measurement attribute for certain financial assets and financial
liabilities, with changes in fair value recognized in earnings as they occur.
SFAS 159 also requires an entity to report those financial assets and financial
liabilities measured at fair value in a manner that separates those reported
fair values from the carrying amounts of assets and liabilities measured using
another measurement attribute on the face of the statement of financial
position. Lastly, SFAS 159 requires an entity to provide information that would
allow users to understand the effect on earnings of changes in the fair value on
those instruments selected for the fair value election. SFAS 159 is effective
for fiscal years beginning after November 15, 2007, with early adoption
permitted. The Company is currently evaluating the impact SFAS 159 will have on
the Companys consolidated balance sheets and statements of loss.

In September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements. SFAS 157 defines fair value, establishes a framework for
measuring fair value in accordance with generally accepted accounting
principles, and expands disclosures about fair value measurements. The
provisions of SFAS 157 are effective for fiscal years beginning after November
15, 2007. The Company is currently evaluating the impact of the provisions of
SFAS 157.

34

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Item 7A. Quantitative and Qualitative Disclosures About
Market Risk.

None.

Item 8. Financial Statements and Supplementary Data.

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

Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.

None.

Item 9A(T). Controls and Procedures.

Managements Evaluation of Disclosure Controls and
Procedures

Our management, including our principal executive officer who
is also our principal financial officer, evaluated the effectiveness of our
disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e))
as of the end of the period covered by this report. Based on that evaluation,
our principal executive officer and principal financial officer concluded that
as of the end of the period covered by this report, we have maintained effective
disclosure controls and procedures in all material respects, including those
necessary to ensure that information required to be disclosed in reports filed
or submitted with the SEC (i) is recorded, processed, and reported within the
time periods specified by the SEC, and (ii) is accumulated and communicated to
management, including our principal executive officer and principal financial
officer, as appropriate to allow for timely decision regarding required
disclosure.

There have been no changes in our internal control over
financial reporting that occurred during the last fiscal quarter that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.

Managements Report on Internal Control over Financial
Reporting

Our management is responsible for establishing and maintaining
effective internal control over financial reporting as defined in Rule 13a-15(f)
under the Securities Exchange Act of 1934. The Companys internal control
over financial reporting is designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles.

Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Therefore, even
those systems determined to be effective can provide only reasonable assurance
with respect to financial statement preparation and presentation.

Management assessed the effectiveness of the Companys internal
control over financial reporting as of December 31, 2007 using the criteria set
forth in Internal Control  Integrated Frameworkissued by the Committee
of Sponsoring Organizations of the Treadway Commission. Based on this
assessment, management believes that, as of December 31, 2007, the Companys
internal control over financial reporting was not effective based on those
criteria. Based on the assessment, management has noted the following in regards
to its internal controls:

| | a) | The Company needs to reassess and improve internal
      controls for compliance with Canadian Multilateral Instrument 52-109 and
      Item 404 under the U.S. Sarbanes Oxley Act; and
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                        
| | b) | The Companys procedure for recording and reporting
      changes in the US dollar to Canadian dollar exchange rate needs to be
      improved upon.                                   

35

---

The Companys management has and continues to take action to
correct the known deficiencies and it plans to remain vigilant and to implement
improvements, as needed, to ensure that its internal control over financial
reporting is effective. These efforts include formalizing the assessment process
by identifying and scheduling periodic internal testing of the various systems
and process involved in its internal control over financial reporting.

This annual report does not include an attestation report of
the Companys registered public accounting firm regarding internal control over
financial reporting. Managements report was not subject to attestation by the
Companys registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the Company to provide only
managements report in this annual report.

Item 9B. Other Information

None.

PART III

Information with respect to Items 10 through 14 is set forth in
the definitive Proxy Statement to be filed with the Securities and Exchange
Commission on or before May 1, 2008 and is incorporated herein by reference. If
the definitive Proxy Statement cannot be filed on or before May 1, 2008, the
issuer will instead file an amendment to this Form 10 K disclosing the
information with respect to Items 10 through 14.

PART IV

Item 15. Exhibits

(a) Exhibits

|Exhibit | Description of Exhibit                                                                                                                                                                                   |  | Manner of Filing                                                                                                                                                             
|------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|No.     |                                                                                                                                                                                                          |  |                                                                                                                                                                              
|        |                                                                                                                                                                                                          |  |                                                                                                                                                                              
|3.1     | 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- SB                                                                                                         
|        |                                                                                                                                                                                                          |  |                                                                                                                                                                              
|10.2    | 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- SB                                                                                                         
|        |                                                                                                                                                                                                          |  |                                                                                                                                                                              
|10.3    | 1996 Stock option
        plan of the registrant, as amended.                                                                                                                                            |  | Incorporated
        by reference to Exhibit 10.13 to the Form 10- SB                                                                                                        
|        |                                                                                                                                                                                                          |  |                                                                                                                                                                              
|21.1    | Subsidiaries
        of the Registrant.                                                                                                                                                                  |  | Incorporated
        by reference to Exhibit 24.0 to the Form 10- SB                                                                                                         
|        |                                                                                                                                                                                                          |  |                                                                                                                                                                              
|23.1    | Consent
        of BDO Dunwoody, LLP                                                                                                                                                                     |  | Filed
        herewith                                                                                                                                                       
|        |                                                                                                                                                                                                          |  |                                                                                                                                                                              
|23.2    | Consent
        of SRK Consulting (U.S.), Inc.                                                                                                                                                           |  | Filed
        herewith                                                                                                                                                       
|        |                                                                                                                                                                                                          |  |                                                                                                                                                                              
|23.3    | Consent
        of Norwest Corporation                                                                                                                                                                   |  | Filed
        herewith                                                                                                                                                       
|        |                                                                                                                                                                                                          |  |                                                                                                                                                                              
|31.1    | Rule
        13a-14(a)/15(d)-14(a) Certification                                                                                                                                                         |  | Filed
        herewith                                                                                                                                                       
|        |                                                                                                                                                                                                          |  |                                                                                                                                                                              
|32.1    | Section
        1350 Certification                                                                                                                                                                       |  | Filed
        herewith                                                                                                                                                       

36

---

SIGNATURES

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

GOLDEN QUEEN MINING CO. LTD.

By:   /s/ H. Lutz
Klingmann         H. Lutz
Klingmann          President
and Chief Executive Officer

Date:
April 2, 2008



Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.

|Signature                   | Title                                                   | Date         
|--------------------------- | ------------------------------------------------------- | -------------
|                            |                                                         |              
|                            |                                                         |              
|                            | President, Principal Executive
      Officer, Principal | April 2, 2008
|/s/ H. Lutz
      Klingmann | Financial Officer, and Director                         |              
|H. Lutz Klingmann           |                                                         |              
|                            |                                                         |              
|                            |                                                         |              
|/s/ Edward
      Thompson   | Chairman of the Board and
      Director                | April 2, 2008
|Edward Thompson             |                                                         |              
|                            |                                                         |              
|                            |                                                         |              
|/s/ Chester
      Shynkaryk | Secretary and Director                                  | April 2, 2008
|Chester Shynkaryk           |                                                         |              
|                            |                                                         |              
|                            |                                                         |              
|/s/ Gordon Gutrath          | Director                                                | April 2, 2008
|Gordon Gutrath              |                                                         |              
|                            |                                                         |              
|                            |                                                         |              
|/s/ Landon Clay             | Director                                                | April 2, 2008
|Landon Clay                 |                                                         |              

37

---

| | BDO
      DunwoodyLLP Chartered Accountants | 600
      Cathedral Place 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,
2007 and 2006, 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 statements of loss, changes in shareholders equity (capital
deficit), and cash flows for the period from inception (November 21, 1985)
through December 31, 2007, 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., as of December 31, 2007 and 2006, 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, 2007, 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 had a $45,420,807
deficit accumulated during the exploration stage as of December 31, 2007. 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.

/s/ BDO Dunwoody LLP

Chartered Accountants Vancouver, Canada March 26, 2008

---

GOLDEN QUEEN MINING CO. LTD. (an exploration stage company)Consolidated Balance Sheets(US dollars)

|                                                       |   | December 31, |   |   | December 31, |  
|------------------------------------------------------ | - | ------------ | - | - | ------------ | -
|                                                       |   | 2007         |   |   | 2006         |  
|Assets (Note 1)                                        |   |              |   |   |              |  
|                                                       |   |              |   |   |              |  
|Current
      assets:                                  |   |              |   |   |              |  
|Cash and cash equivalents                              | $ | 2,796,190    |   | $ | 5,513,580    |  
|Receivables                                            |   | 43,543       |   |   | 32,238       |  
|Prepaid expenses and other current assets              |   | 21,445       |   |   | 20,168       |  
|                                                       |   |              |   |   |              |  
|Total current assets                                   |   | 2,861,178    |   |   | 5,565,986    |  
|                                                       |   |              |   |   |              |  
|Property and equipment, net (Note 2)                   |   | 218,067      |   |   | 224,204      |  
|Reclamation
      financial assurance (Note 3)         |   | 266,692      |   |   | 245,337      |  
|                                                       |   |              |   |   |              |  
|                                                       | $ | 3,345,937    |   | $ | 6,035,527    |  
|                                                       |   |              |   |   |              |  
|Liabilities and Shareholders
      Equity             |   |              |   |   |              |  
|                                                       |   |              |   |   |              |  
|Current
      liabilities:                             |   |              |   |   |              |  
|Accounts payable                                       | $ | 135,949      |   | $ | 208,251      |  
|Royalty and mining rights payable                      |   | 72,484       |   |   | 179,983      |  
|Accrued liabilities                                    |   | 81,751       |   |   | 50,000       |  
|Current maturities of long-term debt (Note 6)          |   | -            |   |   | 700,725      |  
|                                                       |   |              |   |   |              |  
|Total
      current liabilities                        |   | 290,184      |   |   | 1,138,959    |  
|                                                       |   |              |   |   |              |  
|Asset
      retirement obligations (Note 8)            |   | 145,965      |   |   | 132,550      |  
|                                                       |   |              |   |   |              |  
|Total
      liabilities                                |   | 436,149      |   |   | 1,271,509    |  
|                                                       |   |              |   |   |              |  
|Commitments
      and contingencies (Notes 4, 8 and 9) |   |              |   |   |              |  
|                                                       |   |              |   |   |              |  
|Shareholders equity:                                  |   |              |   |   |              |  
|Common shares, no par value, 100,000,000 shares        |   |              |   |   |              |  
|authorized; 78,440,883 (2006 - 78,120,883) shares      |   |              |   |   |              |  
|issued and outstanding (Note 7)                        |   | 44,493,478   |   |   | 44,341,226   |  
|Additional
      paid-in capital                       |   | 3,837,117    |   |   | 3,837,117    |  
|Deficit accumulated during the exploration stage       |   | (45,420,807  | ) |   | (43,414,325  | )
|                                                       |   |              |   |   |              |  
|Total shareholders equity                             |   | 2,909,788    |   |   | 4,764,018    |  
|                                                       |   |              |   |   |              |  
|                                                       | $ | 3,345,937    |   | $ | 6,035,527    |  
|                                                       |   |              |   |   |              |  
|Subsequent Event (Note 12)                             |   |              |   |   |              |  

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

---

GOLDEN QUEEN MINING CO. LTD.(an exploration stage company)Consolidated Statements of Loss(US dollars)

|                                           |   |              |   |   |              |   |   | Cumulative        |  
|------------------------------------------ | - | ------------ | - | - | ------------ | - | - | ----------------- | -
|                                           |   |              |   |   |              |   |   | Amounts From      |  
|                                           |   |              |   |   |              |   |   | Date of Inception |  
|                                           |   |              |   |   |              |   |   | (November 21,     |  
|                                           |   | Year Ended   |   |   | Year Ended   |   |   | 1985) through     |  
|                                           |   | December 31, |   |   | December 31, |   |   | December 31,      |  
|                                           |   | 2007         |   |   | 2006         |   |   | 2007              |  
|                                           |   |              |   |   |              |   |   |                   |  
|General and administrative expenses        | $ | (1,907,159   | ) | $ | (4,119,828   | ) | $ | (14,633,418       | )
|Asset impairment loss (Notes 3 and 4)      |   | (246,283     | ) |   | (875,000     | ) |   | (30,697,328       | )
|Adjustment to asset retirement obligation  |   |              |   |   |              |   |   |                   |  
|on changes in cash flow estimates (Note 8) |   | (1,485       | ) |   | (30,590      | ) |   | 230,190           |  
|Accretion expense (Note 8)                 |   | (11,930      | ) |   | (10,944      | ) |   | (30,389           | )
|Gain on settlement of debt                 |   | -            |   |   | -            |   |   | 136,627           |  
|Abandoned mineral interests                |   | -            |   |   | -            |   |   | (277,251          | )
|                                           |   |              |   |   |              |   |   |                   |  
|                                           |   | (2,166,857   | ) |   | (5,036,362   | ) |   | (45,301,569       | )
|                                           |   |              |   |   |              |   |   |                   |  
|Interest expense                           |   | -            |   |   | (62,255      | ) |   | (913,098          | )
|Interest income                            |   | 160,375      |   |   | 188,581      |   |   | 1,481,961         |  
|                                           |   |              |   |   |              |   |   |                   |  
|Net loss                                   | $ | (2,006,482   | ) | $ | (4,910,036   | ) | $ | (44,732,706       | )
|                                           |   |              |   |   |              |   |   |                   |  
|Net loss per share - basic and diluted     | $ | (0.03        | ) | $ | (0.07        | ) |   |                   |  
|                                           |   |              |   |   |              |   |   |                   |  
|Weighted average common shares             |   |              |   |   |              |   |   |                   |  
|outstanding                                |   | 78,339,184   |   |   | 73,658,571   |   |   |                   |  

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

---

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

|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   | Deficit     |   |   | Total         |  
|----------------------------------------- |  | ---------- |  | - | ---------- |  | - | ------------ |  | - | ---------- |  | - | ----------- | - | - | ------------- | -
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   | Accumulated |   |   | Shareholders |  
|                                          |  |            |  |   |            |  |   |              |  |   | Additional |  |   | During the  |   |   | Equity        |  
|From the Date of Inception (November      |  | Common     |  |   |            |  |   | Stock        |  |   | Paid-in    |  |   | Exploration |   |   | (Capital      |  
|21, 1985)
      through December 31, 2007 |  | Shares     |  |   | Amount     |  |   | Subscription |  |   | Capital    |  |   | 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     |  |            |  |   |            |  |   |              |  |   |            |  |   |             |   |   |               |  
|property                                  |  | 128,493    |  |   | 23,795     |  |   | -            |  |   | -          |  |   | -           |   |   | 23,795        |  
|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      | )
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   |             |   |   |               |  
|Balance, May 31, 1996                     |  | 16,533,400 |  | $ | 20,875,969 |  | $ | -            |  | $ | -          |  | $ | (1,690,977  | ) | $ | 19,184,992    |  

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

---

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

|                                          |  |            |  |   |            |  |   |              |   |   |            |   |   | Deficit     |   |   | Total         |  
|----------------------------------------- |  | ---------- |  | - | ---------- |  | - | ------------ | - | - | ---------- | - | - | ----------- | - | - | ------------- | -
|                                          |  |            |  |   |            |  |   |              |   |   |            |   |   | Accumulated |   |   | Shareholders |  
|                                          |  |            |  |   |            |  |   |              |   |   | Additional |   |   | During the  |   |   | Equity        |  
|From the Date of Inception (November      |  | Common     |  |   |            |  |   | Stock        |   |   | Paid-in    |   |   | Exploration |   |   | (Capital      |  
|21, 1985)
      through December 31, 2007 |  | Shares     |  |   | Amount     |  |   | Subscription |   |   | Capital    |   |   | Stage       |   |   | Deficit)      |  
|                                          |  |            |  |   |            |  |   |              |   |   |            |   |   |             |   |   |               |  
|Balance, carried forward from previous    |  |            |  |   |            |  |   |              |   |   |            |   |   |             |   |   |               |  
|page                                      |  | 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     |  |            |  |   |            |  |   |              |   |   |            |   |   |             |   |   |               |  
|warrants                                  |  | 5,500,000  |  |   | -          |  |   | -            |   |   | -          |   |   | -           |   |   | -             |  
|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     |  |            |  |   |            |  |   |              |   |   |            |   |   |             |   |   |               |  
|warrants                                  |  | 3,500,000  |  |   | -          |  |   | -            |   |   | -          |   |   | -           |   |   | -             |  
|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            |  |            |  |   |            |  |   |              |   |   |            |   |   |             |   |   |               |  
|exercise of warrants                      |  | 1,834,300  |  |   | 857,283    |  |   | -            |   |   | -          |   |   | -           |   |   | 857,283       |  
|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            |  |            |  |   |            |  |   |              |   |   |            |   |   |             |   |   |               |  
|accounting for stock options              |  | -          |  |   | -          |  |   | -            |   |   | (177,644   | ) |   | -           |   |   | (177,644      | )
|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         |  |            |  |   |            |  |   |              |   |   |            |   |   |             |   |   |               |  
|conversion of debt                        |  | 406,250    |  |   | 65,000     |  |   | -            |   |   | -          |   |   | -           |   |   | 65,000        |  
|Issuance of common shares for             |  |            |  |   |            |  |   |              |   |   |            |   |   |             |   |   |               |  
|conversion of stock subscription          |  | 1,538,462  |  |   | 200,000    |  |   | (200,000     | ) |   | -          |   |   | -           |   |   | -             |  
|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       |  

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

---

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

|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   | Deficit     |   |   | Total         |  
|----------------------------------------- |  | ---------- |  | - | ---------- |  | - | ------------ |  | - | ---------- |  | - | ----------- | - | - | ------------- | -
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   | Accumulated |   |   | Shareholders |  
|                                          |  |            |  |   |            |  |   |              |  |   | Additional |  |   | During the  |   |   | Equity        |  
|From the Date of Inception (November      |  | Common     |  |   |            |  |   | Stock        |  |   | Paid-in    |  |   | Exploration |   |   | (Capital      |  
|21, 1985)
      through December 31, 2007 |  | Shares     |  |   | Amount     |  |   | Subscription |  |   | Capital    |  |   | Stage       |   |   | Deficit)      |  
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   |             |   |   |               |  
|Balance, carried forward from previous    |  |            |  |   |            |  |   |              |  |   |            |  |   |             |   |   |               |  
|page                                      |  | 49,991,353 |  | $ | 34,243,345 |  | $ | -            |  | $ | -          |  | $ | (34,057,517 | ) | $ | 185,828       |  
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   |             |   |   |               |  
|Issuance of common shares through         |  |            |  |   |            |  |   |              |  |   |            |  |   |             |   |   |               |  
|exercise of options                       |  | 290,000    |  |   | 37,234     |  |   | -            |  |   | -          |  |   | -           |   |   | 37,234        |  
|Issuance of common shares through         |  |            |  |   |            |  |   |              |  |   |            |  |   |             |   |   |               |  
|exercise of warrants                      |  | 1,520,836  |  |   | 243,334    |  |   | -            |  |   | -          |  |   | -           |   |   | 243,334       |  
|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         |  |            |  |   |            |  |   |              |  |   |            |  |   |             |   |   |               |  
|exercise of options                       |  | 100,000    |  |   | 24,379     |  |   | -            |  |   | -          |  |   | -           |   |   | 24,379        |  
|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             |  |            |  |   |            |  |   |              |  |   |            |  |   |             |   |   |               |  
|convertible notes                         |  | 978,260    |  |   | 225,000    |  |   | -            |  |   | -          |  |   | -           |   |   | 225,000       |  
|Issuance of common shares through         |  |            |  |   |            |  |   |              |  |   |            |  |   |             |   |   |               |  
|exercise of options                       |  | 200,000    |  |   | 55,861     |  |   | -            |  |   | -          |  |   | -           |   |   | 55,861        |  
|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         |  |            |  |   |            |  |   |              |  |   |            |  |   |             |   |   |               |  
|exercise of options                       |  | 110,000    |  |   | 21,049     |  |   | -            |  |   | -          |  |   | -           |   |   | 21,049        |  
|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        |  
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   |             |   |   |               |  
|Issuance of common shares through         |  |            |  |   |            |  |   |              |  |   |            |  |   |             |   |   |               |  
|private placement (Note 7)                |  | 7,200,000  |  |   | 1,614,716  |  |   | -            |  |   | 1,520,899  |  |   | -           |   |   | 3,135,615     |  
|Issuance of common shares through         |  |            |  |   |            |  |   |              |  |   |            |  |   |             |   |   |               |  
|exercise of options                       |  | 100,000    |  |   | 30,853     |  |   | -            |  |   | -          |  |   | -           |   |   | 30,853        |  
|Issuance of common shares through         |  |            |  |   |            |  |   |              |  |   |            |  |   |             |   |   |               |  
|exercise of warrants                      |  | 8,978,260  |  |   | 4,659,173  |  |   | -            |  |   | -          |  |   | -           |   |   | 4,659,173     |  
|Issuance of common shares for             |  |            |  |   |            |  |   |              |  |   |            |  |   |             |   |   |               |  
|convertible notes (Note 7)                |  | 652,174    |  |   | 150,000    |  |   | -            |  |   | 39,917     |  |   | -           |   |   | 189,917       |  
|Stock option compensation (Note 7)        |  | -          |  |   | -          |  |   | -            |  |   | 814,810    |  |   | -           |   |   | 814,810       |  
|Modification of warrants (Note 7)         |  | -          |  |   | -          |  |   | -            |  |   | 889,117    |  |   | -           |   |   | 889,117       |  
|Share issuance costs (Note 7)             |  | -          |  |   | -          |  |   | -            |  |   | -          |  |   | (62,888     | ) |   | (62,888       | )
|Net loss for the year                     |  | -          |  |   | -          |  |   | -            |  |   | -          |  |   | (4,910,036  | ) |   | (4,910,036    | )
|Balance, December 31, 2006                |  | 78,120,883 |  |   | 44,341,226 |  |   | -            |  |   | 3,837,117  |  |   | (43,414,325 | ) |   | 4,764,018     |  
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   |             |   |   |               |  
|Issuance of common shares for exercise    |  |            |  |   |            |  |   |              |  |   |            |  |   |             |   |   |               |  
|of options (Note 7)                       |  | 290,000    |  |   | 127,652    |  |   | -            |  |   | -          |  |   | -           |   |   | 127,652       |  
|Issuance of common shares for property    |  |            |  |   |            |  |   |              |  |   |            |  |   |             |   |   |               |  
|(Note 7)                                  |  | 30,000     |  |   | 24,600     |  |   | -            |  |   | -          |  |   | -           |   |   | 24,600        |  
|Net loss for the year                     |  | -          |  |   | -          |  |   | -            |  |   | -          |  |   | (2,006,482  | ) |   | (2,006,482    | )
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   |             |   |   |               |  
|Balance, December 31, 2007                |  | 78,440,883 |  | $ | 44,493,478 |  | $ | -            |  | $ | 3,837,117  |  | $ | (45,420,807 | ) | $ | 2,909,788     |  

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

---

GOLDEN QUEEN MINING CO. LTD.(an exploration stage company)Consolidated Statements of Cash Flows(US dollars)

|                                    |   |              |   |   |              |   |   | Cumulative        |  
|----------------------------------- | - | ------------ | - | - | ------------ | - | - | ----------------- | -
|                                    |   |              |   |   |              |   |   | Amounts From Date |  
|                                    |   |              |   |   |              |   |   | of Inception      |  
|                                    |   | Year Ended   |   |   | Year Ended   |   |   | (November 21,     |  
|                                    |   | December 31, |   |   | December 31, |   |   | 1985) through     |  
|                                    |   | 2007         |   |   | 2006         |   |   | December 31, 2007 |  
|Operating activities:               |   |              |   |   |              |   |   |                   |  
|Net loss                            | $ | (2,006,482   | ) | $ | (4,910,036   | ) | $ | (44,732,706       | )
|Adjustments to reconcile net        |   |              |   |   |              |   |   |                   |  
|loss to cash (used in) operating    |   |              |   |   |              |   |   |                   |  
|activities:                         |   |              |   |   |              |   |   |                   |  
|Asset impairment loss               |   | 246,283      |   |   | 875,000      |   |   | 30,697,328        |  
|Abandoned mineral interests         |   | -            |   |   | -            |   |   | 277,251           |  
|Amortization and depreciation       |   | 6,137        |   |   | 6,151        |   |   | 449,650           |  
|Amortization of debt discount       |   | -            |   |   | -            |   |   | 375,000           |  
|Adjustment to asset retirement      |   |              |   |   |              |   |   |                   |  
|obligation based on changes in cash |   |              |   |   |              |   |   |                   |  
|flow estimates                      |   | 1,485        |   |   | 30,590       |   |   | (230,190          | )
|Accretion expense                   |   | 11,930       |   |   | 10,944       |   |   | 30,389            |  
|Gain on disposition of              |   |              |   |   |              |   |   |                   |  
|property and equipment              |   | -            |   |   | -            |   |   | (10,032           | )
|                                    |   |              |   |   |              |   |   |                   |  
|Stock option compensation (Note 7)  |   | -            |   |   | 814,810      |   |   | 1,012,184         |  
|Financing charges related to        |   |              |   |   |              |   |   |                   |  
|modification of warrants term       |   | -            |   |   | 889,117      |   |   | 889,117           |  
|Mineral property expenditures       |   | -            |   |   | -            |   |   | (22,395,449       | )
|Changes in assets and liabilities:  |   |              |   |   |              |   |   |                   |  
|Receivables                         |   | (11,305      | ) |   | (6,695       | ) |   | (43,543           | )
|Prepaid expenses and other          |   |              |   |   |              |   |   |                   |  
|current assets                      |   | (1,277       | ) |   | 678          |   |   | (108,355          | )
|Accounts payable and accrued        |   |              |   |   |              |   |   |                   |  
|liabilities                         |   | (40,551      | ) |   | 157,290      |   |   | 257,617           |  
|                                    |   |              |   |   |              |   |   |                   |  
|Royalty and mining rights payable   |   | (107,499     | ) |   | (17,501      | ) |   | 72,484            |  
|                                    |   |              |   |   |              |   |   |                   |  
|Cash used in operating activities   |   | (1,901,279   | ) |   | (2,149,652   | ) |   | (33,459,255       | )
|                                    |   |              |   |   |              |   |   |                   |  
|Investing activities:               |   |              |   |   |              |   |   |                   |  
|Purchase of mineral properties      |   | (221,683     | ) |   | (875,000     | ) |   | (6,365,092        | )
|Deposits on mineral properties      |   | -            |   |   | -            |   |   | (1,017,551        | )
|Purchase of reclamation financial   |   |              |   |   |              |   |   |                   |  
|assurance                           |   | (21,355      | ) |   | (62,884      | ) |   | (266,692          | )
|Purchase of property and            |   |              |   |   |              |   |   |                   |  
|equipment                           |   | -            |   |   | -            |   |   | (1,313,838        | )
|Proceeds from sale of property      |   |              |   |   |              |   |   |                   |  
|and equipment                       |   | -            |   |   | -            |   |   | 47,153            |  
|                                    |   |              |   |   |              |   |   |                   |  
|Cash used in investing activities   |   | (243,038     | ) |   | (937,884     | ) |   | (8,916,020        | )

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

---

GOLDEN QUEEN MINING CO. LTD.(an exploration stage company)Consolidated Statements of Cash Flows (Continued)(US dollars)

|                                         |   |              |   |   |              |   |   | Cumulative        |  
|---------------------------------------- | - | ------------ | - | - | ------------ | - | - | ----------------- | -
|                                         |   |              |   |   |              |   |   | Amounts From Date |  
|                                         |   |              |   |   |              |   |   | of Inception      |  
|                                         |   | Year Ended   |   |   | Year Ended   |   |   | (November 21,     |  
|                                         |   | December 31, |   |   | December 31, |   |   | 1985) through     |  
|                                         |   | 2007         |   |   | 2006         |   |   | December 31, 2007 |  
|                                         |   |              |   |   |              |   |   |                   |  
|Financing activities:                    |   |              |   |   |              |   |   |                   |  
|Borrowing under long-term debt           |   | -            |   |   | 151,685      |   |   | 3,918,187         |  
|Payment of long-term debt                |   | (700,725     | ) |   | (63,147      | ) |   | (2,105,905        | )
|Proceeds from convertible debt           |   | -            |   |   | -            |   |   | 440,000           |  
|Issuance of common shares for
      cash |   | -            |   |   | 3,135,615    |   |   | 19,840,656        |  
|Share issuance costs                     |   | -            |   |   | (62,888      | ) |   | (688,101          | )
|Issuance of special warrants             |   | -            |   |   | -            |   |   | 18,091,667        |  
|Issuance of common shares upon           |   |              |   |   |              |   |   |                   |  
|exercise of stock options                |   | 127,652      |   |   | 30,853       |   |   | 158,505           |  
|Issuance of common shares upon           |   |              |   |   |              |   |   |                   |  
|exercise of warrants                     |   | -            |   |   | 4,659,173    |   |   | 5,516,456         |  
|                                         |   |              |   |   |              |   |   |                   |  
|Cash provided by (used in) financing     |   |              |   |   |              |   |   |                   |  
|activities                               |   | (573,073     | ) |   | 7,851,291    |   |   | 45,171,465        |  
|                                         |   |              |   |   |              |   |   |                   |  
|Net change in cash and cash              |   |              |   |   |              |   |   |                   |  
|equivalents                              |   | (2,717,390   | ) |   | 4,763,755    |   |   | 2,796,190         |  
|                                         |   |              |   |   |              |   |   |                   |  
|Cash and cash equivalents,               |   |              |   |   |              |   |   |                   |  
|beginning balance                        |   | 5,513,580    |   |   | 749,825      |   |   | -                 |  
|                                         |   |              |   |   |              |   |   |                   |  
|Cash and cash equivalents,               |   |              |   |   |              |   |   |                   |  
|ending balance                           | $ | 2,796,190    |   | $ | 5,513,580    |   | $ | 2,796,190         |  

Supplemental Cash Flows Information (See Note 11)

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

---

GOLDEN QUEEN MINING CO. LTD. (an exploration stage
company) Summary of Accounting Policies (US 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 the Mojave Mining District, 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 and, until its dissolution on August 27, 2007, the Karma Wegmann
Corporation (See Note 4).

Generally Accepted Accounting Principles. The
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America.

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 less
accumulated depreciation. 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, and the cost of property acquired either by cash payment, the
issuance of term debt or common shares. 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.
The Company reviews 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 future development costs will be
capitalized and charged to operations on a unit-of-production method based on
estimated recoverable reserves.

---

GOLDEN QUEEN MINING CO. LTD (an exploration stage
company) Summary of Accounting Policies (US dollars)

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.

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 US 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, 2007 and
December 31, 2006 were $0.99 and $1.166 stated in Canadian dollars per one US
dollar respectively. The average rates of exchange during the years ended
December 31, 2007 and December 31, 2006 were $1.07 and $1.13 respectively.

Loss Per Share.The Company computes and
discloses loss per share in accordance with SFAS No. 128, Earnings per Share
(SFAS 128), which requires dual presentation of basic loss per share and
diluted loss per share on the face of all income statements presented for all
entities with complex capital structures. Basic loss per share is computed as
net loss divided by the weighted average number of common shares outstanding for
the period. Diluted loss per share reflects the potential dilution that could
occur from common shares issuable through stock options and warrants. Since the
Companys stock options and warrants are anti-dilutive for all periods
presented, there is no difference between basic and diluted loss per share as
presented. A total of 9,500,000 and 9,790,000 common shares were issuable
pursuant to such stock options and warrants at December 31, 2007 and 2006,
respectively.

Asset Retirement Obligations.The Company
follows the requirements of SFAS No. 143, Accounting for Asset Retirement
Obligations (SFAS No. 143). 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,
reclamation reserves and valuation of stock options. Actual results could differ
from those estimates.

Fair Value of Financial Instruments. The
  carrying amounts 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 financial assurance 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.

---

GOLDEN QUEEN MINING CO. LTD. (an exploration stage
company) Summary of Accounting Policies (US dollars)

Stock Option PlanUnder the 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, 2007 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.

New Accounting PronouncementsFIN 48-In
June 2006, the Financial Accounting Standards Board ("FASB") issued
interpretation No. 48, "Accounting for Uncertainty in Income Taxes-an
interpretation of FASB Statement No. 109 (FAS No. 109)" ("FIN 48"). This
interpretation prescribes a recognition threshold and measurement attribute for
tax positions taken or expected to be taken in a tax return. This interpretation
also provides guidance on de-recognition, classification, interest and
penalties, accounting in interim periods, disclosure and transition. The
evaluation of a tax position in accordance with this interpretation is a
two-step process. In the first step, recognition, the Company determines whether
it is more-likely-than-not that a tax position will be sustained upon
examination, including resolution of any related appeals or litigation
processes, based on the technical merits of the position. The second step
addresses measurement of a tax position that meets the more-likely-than-not
criteria. The tax position is measured at the largest amount of benefit that is
greater than 50 percent likely of being realized upon ultimate settlement.
Differences between tax positions taken in a tax return and amounts recognized
in the financial statements will generally result in a) an increase in a
liability for income taxes payable or a reduction of an income tax refund
receivable, b) a reduction in a deferred tax asset or an increase in a deferred
tax liability or c) both a and b. Tax positions that previously failed to meet
the more-likely-than-not recognition threshold should be recognized in the first
subsequent financial reporting period in which that threshold is met. Previously
recognized tax positions that no longer meet the more-likely-than-not
recognition threshold should be de-recognized in the first subsequent financial
reporting period in which that threshold is no longer met. Use of a valuation
allowance as described in FAS No. 109 is not an appropriate substitute for the
de-recognition of a tax position. The requirement to assess the need for a
valuation allowance for deferred tax assets based on sufficiency of future
taxable income is unchanged by this interpretation. This Interpretation is
effective for fiscal years beginning after December 15, 2006.

Effective on January 1, 2007, the Company adopted this new pronouncement.
  Based on our assessment of FIN 48, we concluded that the adoption of FIN 48,
  as of January 1, 2007, had no significant impact on our results of operations
  or financial position, and required no adjustment to the opening balance sheet
  accounts. Our year-end analysis supports the same conclusion, and we do not
  have an accrual for uncertain tax positions as of December 31, 2007. As a result,
  tabular reconciliation of beginning and ending balances would not be meaningful.
  If interest and penalties were to be assessed, we would charge interest to interest
  expense, and penalties to other operating expense. It is not anticipated that
  unrecognized tax benefits would significantly increase or decrease within 12
  months of the reporting date. For additional information, see note 5.

SFAS 141 (revised 2007) - On December 4, 2007, the FASB issued
SFAS No. 141 (Revised 2007), Business Combinations (SFAS No.141). Statement
No. 141R will significantly change the accounting for business combinations.
Under Statement No. 141R, an acquiring entity will be required to recognize all
the assets acquired and liabilities assumed in a transaction at the
acquisition-date fair value with limited exceptions. Statement No. 141R will
change the accounting treatment for certain specific items, including:

- Acquisition costs will be generally expensed as incurred;
- Non-controlling interests (formerly known as minority interests - see
  Statement No. 160 discussion below) will be valued at fair value at the
  acquisition date;
- Acquired contingent liabilities will be recorded at fair value at the
  acquisition date and subsequently measured at either the higher of such amount
  or the amount determined under existing guidance for non- acquired
  contingencies;
- In-process research and development will be recorded at fair value as an
  indefinite-lived intangible asset at the acquisition date;

---

GOLDEN QUEEN MINING CO. LTD. (an exploration stage
company) Summary of Accounting Policies (US dollars)

New Accounting Pronouncements - Continued

- Restructuring costs associated with a business combination will be
  generally expensed subsequent to the acquisition date; and
- Changes in deferred tax asset valuation allowances and income tax
  uncertainties after the acquisition date generally will affect income tax
  expense.

Statement No. 141R also includes a substantial number of new
disclosure requirements. Statement No. 141R applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008. Earlier
adoption is prohibited. Accordingly, a calendar year-end company is required to
record and disclose business combinations following existing GAAP until January
1, 2009. The Company is currently evaluating the impact of the provisions of
SFAS No. 141R.

SFAS 160, Non-controlling Interests in Consolidated Financial
Statements - An Amendment of ARB No. 51 (SFAS No. 160). In December 4, 2007,
the FASB issued FASB Statement No. 160, Non-controlling Interests in
Consolidated Financial Statements - An Amendment of ARB No. 51. SFAS No. 160
establishes new accounting -and reporting standards for the non-controlling
interest in a subsidiary and for the deconsolidation of a subsidiary.
Specifically, this statement requires the recognition of a non-controlling
interest (minority interest) as equity in the consolidated financial statements
and separate from the parent equity. The amount of net income attributable to
the non-controlling interest will be included in consolidated net income on the
face of the income statement. SFAS No. 160 clarifies that changes in a parents
ownership interest in a subsidiary that do not result in deconsolidation are
equity transactions, if the parent retains its controlling financial interest.
In addition, this statement requires that a parent recognize a gain or loss in
net income when a subsidiary is deconsolidated. Such gain or loss will be
measured using the fair value of the non-controlling equity investment on the
deconsolidation date. SFAS No. 160 also includes expanded disclosure
requirements regarding the interests of the parent and its non-controlling
interest.

Statement No. 160 is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15, 2008. Like
Statement No. 141R discussed above, earlier adoption is prohibited. The Company
is currently evaluating the impact of the provisions of SFAS No. 160.

SFAS 159 - On February 15, 2007, the FASB issued SFAS No. 159,
  The Fair Value Option for Financial Assets and Financial Liabilities, including
  an amendment of FASB Statement No. 115 (SFAS 159). SFAS 159 creates
  a fair value option allowing an entity to irrevocably elect fair value as the
  initial and subsequent measurement attribute for certain financial assets and
  financial liabilities, with changes in fair value recognized in earnings as
  they occur. SFAS 159 also requires an entity to report those financial assets
  and financial liabilities measured at fair value in a manner that separates
  those reported fair values from the carrying amounts of assets and liabilities
  measured using another measurement attribute on the face of the statement of
  financial position. Lastly, SFAS 159 requires an entity to provide information
  that would allow users to understand the effect on earnings of changes in the
  fair value on those instruments selected for the fair value election. SFAS 159
  is effective for fiscal years beginning after November 15, 2007, with early
  adoption permitted. The Company is currently evaluating the impact SFAS 159
  will have on the Companys consolidated balance sheets and statements of
  loss.

In September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements. SFAS 157 defines fair value, establishes a framework for
measuring fair value in accordance with generally accepted accounting
principles, and expands disclosures about fair value measurements. The
provisions of SFAS 157 are effective for fiscal years beginning after November
15, 2007. The Company is currently evaluating the impact of the provisions of
SFAS 157.

---

GOLDEN QUEEN MINING CO. LTD. (an exploration stage
company) Notes to Consolidated Financial Statements (US 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 $45,420,807 accumulated during the exploration stage.

These financial statements have been prepared on a going
concern basis, which assumes the Company will continue to realize its assets and
discharge its liabilities and commitments in the normal course of business. The
Company has not generated revenues and has accumulated losses of
$45,420,807since inception and is unlikely to generate earnings in the immediate
or foreseeable future. The continuation of the Company as a going concern is
dependent upon the continued financial support from its shareholders, the
ability of the Company to obtain necessary equity financing to achieve its
operating objectives, confirmation of the Companys interests in the underlying
properties and the attainment of profitable operations. Management cannot
provide assurances that such plans will occur. These factors raise substantial
doubt regarding the Companys ability to continue as a going concern. These
financial statements do not include any adjustments to the recoverability and
classification of recorded asset amounts and classification of liabilities that
might be necessary should the Company be unable to continue as a going concern.

2. Property and Equipment

Property and equipment consists of:

|                              |   | December 31, 2007 |   |   | December 31, 2006 |  
|----------------------------- | - | ----------------- | - | - | ----------------- | -
|                              |   |                   |   |   |                   |  
|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, cost  |   | 417,486           |   |   | 417,486           |  
|                              |   |                   |   |   |                   |  
|Less accumulated depreciation |   | (199,419          | ) |   | (193,282          | )
|                              |   |                   |   |   |                   |  
|Property and equipment, net   | $ | 218,067           |   | $ | 224,204           |  

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 Property. The Companys investment in mineral properties in the amount of
$28,997,281 (2006 - $28,737,584) was fully provided for by the year ended
December 31, 2007.

|                                         |   | December 31, 2007 |   |   | December 31, 2006 |  
|---------------------------------------- | - | ----------------- | - | - | ----------------- | -
|                                         |   |                   |   |   |                   |  
|Exploration and development expenditures | $ | 21,015,506        |   | $ | 21,015,506        |  
|                                         |   |                   |   |   |                   |  
|Properties                               |   | 5,235,021         |   |   | 4,988,738         |  
|                                         |   |                   |   |   |                   |  
|Advance minimum royalty                  |   | 2,387,574         |   |   | 2,387,574         |  
|                                         |   |                   |   |   |                   |  
|Asset retirement obligations             |   | 359,180           |   |   | 345,766           |  
|                                         |   |                   |   |   |                   |  
|Asset impairment loss                    |   | (28,997,281       | ) |   | (28,737,584       | )
|                                         |   |                   |   |   |                   |  
|Total                                    | $ | -                 |   | $ | -                 |  

As at December 31, 2007, the Company had provided reclamation
financial assurance to Kern County totaling $266,692 (2006 - $245,337). This
deposit earns interest at 0.4% per annum and is not available for working
capital purposes.

During the year ended December 31, 2007 the Company acquired
mineral property interests for cash payments of $221,683 and the issue of 30,000
common shares valued at $24,600.

---

GOLDEN QUEEN MINING CO. LTD. (an exploration stage
company) Notes to Consolidated Financial Statements (US 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 size of the Property. 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 did 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 suspended all
terms and obligations of the Company as set forth in the original agreement and
the first amendment. Further, the amendment required 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 was to be paid in cash, and the balance of
$25,000 was to be accrued, without interest, payment of which was deferred until
the final stock purchase payment is made. Each July, beginning in 2001, the
Company 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 termination date of the agreement on July 1, 2006.

The Company concluded the purchase of shares for an amount of
$875,000 before the due date of July 1, 2006. The properties owned by Karma
Wegmann Corporation were transferred to Golden Queen Mining Co., Inc. and
management determined to write down the amount of $875,000 in 2006, the Karma
Wegmann Corporation was wound-up on August 27, 2007.

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 from the Property. As of December 31,
2007, the Company has not incurred any royalty as the Property has not been in
production.

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:

|                                                        |   | 2007       |   |   | 2006       |  
|------------------------------------------------------- | - | ---------- | - | - | ---------- | -
|                                                        |   |            |   |   |            |  
|Net operating and capital losses                        | $ | 8,223,900  |   | $ | 8,512,500  |  
|Property, plant and equipment                           |   | 240,600    |   |   | 250,900    |  
|Mineral properties and deferred exploration
      costs |   | 842,000    |   |   | 523,100    |  
|Asset retirement obligations                            |   | 49,500     |   |   | 45,000     |  
|Undeducted financing costs                              |   | 14,000     |   |   | 23,500     |  
|Valuation allowance                                     |   | (9,370,000 | ) |   | (9,355,000 | )
|                                                        |   |            |   |   |            |  
|Deferred tax assets (liabilities)                       | $ | -          |   | $ | -          |  

The tax benefit of net operating losses carried forward and the
associated valuation allowance were reduced by $288,000 (2006 - $189,500),
representing the tax effect of losses which expired in the year.

---

GOLDEN QUEEN MINING CO. LTD. 
  (an exploration stage company) 
  Notes to Consolidated Financial Statements 
  (US dollars)

5. Income Taxes - Continued

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

|                                                      |   | 2007     |   |   | 2006       |  
|----------------------------------------------------- | - | -------- | - | - | ---------- | -
|                                                      |   |          |   |   |            |  
|Income benefit at CDN statutory rate                  | $ | (683,000 | ) | $ | (1,675,300 | )
|Foreign income taxes at other than CDN statutory rate |   | (1,000   | ) |   | 1,500      |  
|Non-deductible stock option compensation              |   | -        |   |   | 581,800    |  
|Effect of reduction in statutory rate                 |   | 353,300  |   |   | -          |  
|Other difference                                      |   | 27,700   |   |   | 298,500    |  
|Increase in valuation allowance                       |   | 303,000  |   |   | 793,500    |  
|                                                      |   |          |   |   |            |  
|Future income tax recovery                            | $ | -        |   | $ | -          |  

The Companys future tax assets include approximately $50,000
(2006 - $65,900) 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 valuation allowance as at December 31, 2007 was
increased by $nil (2006 - $21,700), representing the tax effect of the
unamortized share issuance costs incurred in the period.

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, 2007 and December 31, 2006.

As at December 31, 2007, 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 | $ | 20,200,000 |  |  | 2008 - 2027      | 
| |                         |   |            |  |  |                  | 
| | Canada (C$)             | $ | 5,200,000  |  |  | 2008 - 2027      | 

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

Uncertain Tax Positions

On January 1, 2007, we adopted FASB Interpretation No. 48,
"Accounting for Uncertainty in Income Taxes" ("FIN 48"). FIN 48 prescribes a
recognition threshold and measurement attribute for the recognition and
measurement of tax positions taken or expected to be taken in income tax
returns. FIN 48 also provides guidance on de-recognition of income tax assets
and liabilities, classification of current and deferred income tax assets and
liabilities, and accounting for interest and penalties associated with tax
positions.

The Company or one of its subsidiaries files income tax returns
in the U.S. federal jurisdiction, various state and foreign jurisdictions. All
our tax returns are subject to tax examinations by U.S. federal and state tax
authorities, or examinations by foreign tax authorities until respective statue
of limitation. We currently have no tax years under examination.

---

GOLDEN QUEEN MINING CO. LTD. 
  (an exploration stage company) 
  Notes to Consolidated Financial Statements 
  (US dollars)

5. Income Taxes - Continued

Uncertain Tax Positions  Continued

Effective on January 1, 2007, the Company adopted this new
pronouncement. Based on our assessment of FIN 48, we concluded that the adoption
of FIN 48, as of January 1, 2007, had no significant impact on our results of
operations or financial position, and required no adjustment to the opening
balance sheet accounts. Our year-end analysis supports the same conclusion, and
we do not have an accrual for uncertain tax positions as of December 31, 2007.
As a result, tabular reconciliation of beginning and ending balances would not
be meaningful. If interest and penalties were to be assessed, we would charge
interest to interest expense, and penalties to other operating expense. It is
not anticipated that unrecognized tax benefits would significantly increase or
decrease within 12 months of the reporting date.

6. Long-Term Debt

Long-term debt consists of the following:

|                                                         |   | December 31, 2007 |  |   | December 31, 2006 | 
|-------------------------------------------------------- | - | ----------------- |  | - | ----------------- | 
|Note due to a corporation, payable in monthly            |   |                   |  |   |                   | 
|instalments of $9,275, including interest
      at prime |   |                   |  |   |                   | 
|plus 2% estimated to mature in July 2011 and             |   |                   |  |   |                   | 
|collateralized by real property. *                       | $ | -                 |  | $ | 700,725           | 
|                                                         |   |                   |  |   |                   | 
|Current maturities                                       |   | -                 |  |   | 700,725           | 
|                                                         |   |                   |  |   |                   | 
|Long-term debt, less current maturities                  | $ | -                 |  | $ | -                 | 

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 obtained production financing,
whichever was 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.

|* | During the year ended December 31, 2007, management of
      the Company has negotiated a settlement with this debt holder to repay the
      entire balance.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------

7. Share capital

Common shares

In November 2007, the Company issued 30,000 common shares at
$24,600 (C$0.81 per share, the closing price at the date of agreement) for the
acquisition of a property in Mojave, Kern County, California.

In 2007, stock options were exercised and the Company issued
290,000 common shares at C$0.50 per share for proceeds of $127,652 (C$145,000).

In July 2006, stock options were exercised and the Company
issued 100,000 common shares at C$0.35 per share for proceeds of $30,853
(C$35,000).

In June 2006, warrants were exercised and the Company issued
8,000,000 common shares at C$0.60 per share for proceeds of $4,346,130
(C$4,800,000).

---

GOLDEN QUEEN MINING CO. LTD. 
  (an exploration stage company) 
  Notes to Consolidated Financial Statements 
  (US dollars)

7. Share capital  Continued

Common shares - Continued

In May 2006, the Company issued 652,174 common shares to settle
the Companys convertible notes in the amount of $150,000.

In April 2006, warrants were exercised and the Company issued
978,260 common shares at C$0.36 per share for proceeds of $313,043 (C$352,174).

In February 2006, 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 $3,135,615 (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 cash finders fee of 2% being $62,888
(C$72,000).

During 2006, the holder of a convertible debt, a shareholder of
the Company, converted the $150,000 into 652,174 common shares of the Company.
In accordance with the terms of the agreement, the debt holder agreed to waive
the interest accrual upon conversion and as a result the Company had reversed
the total interest payable of $39,917 and recorded the amount as additional
paid-in capital in Shareholders Equity.

Management calculated and assigned a total fair value of
$1,520,899 (C$1,748,160) to the 7,200,000 warrants attached to the units using
the Black-Scholes option pricing model with the following weighted average
assumptions of:

Risk-free interest rate
    3.86%Expected volatility
    98%Expected life of warrant
    2 yearsDividend yield
    0%Weighted Average Fair Value per Warrant
    $0.21


The fair value of the warrants was recorded as additional
paid-in capital on the Consolidated Statements of Changes in Shareholders
Equity.

Stock options

As disclosed in the Summary of Accounting Policies, the Company
adopted SFAS No.123R commencing on January 1, 2006. Effective with the adoption
SFAS No.123R, the Company has elected to use the Black-Scholes option pricing
model to determine the fair value of stock options granted. In accordance with
SFAS No. 123R for employees, the compensation expense is amortized on a
straight-line basis over the requisite service period which approximates the
vesting period. Compensation expense for stock options granted to non-employees
is amortized over the contract services period or, if none exists, from the date
of grant until the options vest. Compensation associated with unvested options
granted to non-employees is re-measured on each balance sheet date using the
Black-Scholes option pricing model.

The expected volatility of options granted has been determined
using the method described under SFAS No. 123R using the historical stock price.
The Company uses historical data to estimate option exercise, forfeiture and
employee termination within the valuation model. For non-employees, the expected
term of the options approximates the full term of the options. The risk-free
interest rate is based on a treasury instrument whose term is consistent with
the expected term of the stock options. The Company has not paid and does not
anticipate paying dividends on its common stock; therefore, the expected
dividend yield is assumed to be zero. In addition, SFAS No. 123R requires
companies to utilize an estimated forfeiture rate when calculating the expense
for the reporting period. Based on its best estimate, management applied the
estimated forfeiture rate of Nil in determining the expense recorded in the
accompanying Consolidated Statement of Loss.

---

GOLDEN QUEEN MINING CO. LTD. 
  (an exploration stage company) 
  Notes to Consolidated Financial Statements 
  (US dollars)

7. Share capital  Continued

Stock options - Continued

The following is a summary of stock option activity during the
year ended December 31, 2007 and 2006:

Weighted AverageShares
    Exercise Price per ShareOptions outstanding, January
      1, 2006
    2,040,000
    C$0.43Granted
    1,200,000
    C$0.77Exercised
    (100,000)
    C$0.35Expired
    (550,000)
    C$0.55Options outstanding, December
      31, 2006
    2,590,000
    C$0.56Exercised
    (290,000)
    C$0.50Options outstanding and
      exercisable,December 31, 2007
    2,300,000
    C$0.57


For the year ended December 31, 2006, the Board of Directors
granted a total of 1,200,000 options to four directors. These options vested at
the grant date with weighted average exercise price of C$0.77 per share. The
weighted average fair value of these options on the date of grant was $0.68
(C$0.77) per share or an aggregate fair value of US$814,810 (C$925,920).

Management estimated the fair value of the above 1,200,000
stock options at the grant date by using the Black-Scholes option-pricing model
with the following weighted average assumptions used for grants in 2006:

Risk-free interest rate
    4.27%Expected volatility
    134%Expected life of option
    5 yearsDividend yield
    0%


As of December 31, 2007 the aggregate intrinsic value of the
outstanding exercisable options was approximately $617,580 (C$623,000). The
total intrinsic value of 290,000 options exercised during 2007 was approximately
$133,726 (C$134,900).

There is no unamortized compensation expense as at December 31,
2007 and 2006 as all the outstanding options vested at the grant date.

The following table summarizes information about stock options
outstanding and exercisable at December 31 2007:

Weighted
    WeightedNumber
    Average
    AverageOutstanding and
    Contractual Life
    ExerciseExercisable
    (Years)
    Price1,100,000
    2.09
    C$0.351,200,000
    3.30
    C$0.772,300,000
    2.72
    C$0.57


The stock-based compensation amounts included in the
accompanying Consolidated Statements of Loss for December 31, 2007 was $Nil
(2006 - $814,810).

---

GOLDEN QUEEN MINING CO. LTD. 
  (an exploration stage company) 
  Notes to Consolidated Financial Statements 
  (US dollars)

7. Share capital  Continued

Warrants

During 2006, the Board of Directors approved the extension of
  978,260 warrants that expired in 2005. The warrants were reissued with an expiry
  date of July 1, 2006 at an exercise price of $0.32 (C$0.43) per share. Management
  calculated the fair value of these extended warrants using the Black Scholes
  option pricing model with the following weighted average assumptions:

Risk-free interest rate
    3.96%Expected volatility
    88%Expected life of warrant
    73 daysDividend yield
    0%


The fair value of each extended warrant was $0.36 (C$0.41) . As
the warrants expired in 2005, the total fair value of $349,600 (C$397,271) has
been recorded as an expense on the Consolidated Statements of Loss and as an
additional paid-in capital in Shareholders Equity. On July 1, 2006, all
warrants were exercised into 978,260 common shares of the Company.

In January 2006, the Board of Directors also extended the life
to June 1, 2006 and reduced the exercise price from C$0.75 to C$0.60 per share
on 8,000,000 warrants. In accordance with SFAS No. 123R, management is required
to value the instrument and record the incremental value of the warrants over
the expected life of the instruments. Management calculated the fair value of
the modified warrants using the Black-Scholes option pricing model with the
following weighted average assumptions:

Risk-free interest rate
    3.54%Expected volatility
    96%Expected life of warrant
    140 daysDividend yield
    0%


The fair value of each modified warrant was $0.07 (C$0.08) . A
total incremental fair value of $539,517 (C$627,200) has been recorded as an
expense on the Consolidated Statements of Loss and as additional paid-in capital
in Shareholders Equity.

The following is a summary of warrant activity during the year
ended December 31, 2006 and 2007:

|                                            |  |            |   |  | Weighted Average         |  |  | Average Contractual Life | 
|------------------------------------------- |  | ---------- | - |  | ------------------------ |  |  | ------------------------ | 
|                                            |  | Shares     |   |  | Exercise Price per Share |  |  | (Years)                  | 
|Warrants, January 1, 2005                   |  | 8,978,260  |   |  | C$0.58                   |  |  | 0.95                     | 
|Granted                                     |  | -          |   |  |                          |  |  | -                        | 
|Expired                                     |  | (978,260   | ) |  | C$0.38                   |  |  | 0.50                     | 
|Warrants outstanding, December 31, 2005     |  | 8,000,000  |   |  | C$0.60                   |  |  | 0.50                     | 
|Granted                                     |  | 8,178,260  |   |  | C$0.58                   |  |  | 0.94                     | 
|Exercised                                   |  | (8,978,260 | ) |  | C$0.58                   |  |  | 0.50                     | 
|Warrants outstanding and
      exercisable, |  |            |   |  |                          |  |  |                          | 
|December 31, 2006 and 2007                  |  | 7,200,000  |   |  | C$0.60                   |  |  | 1.07                     | 

---

GOLDEN QUEEN MINING CO. LTD. 
  (an exploration stage company) 
  Notes to Consolidated Financial Statements 
  (US dollars)

8. Asset Retirement Obligations

The Company is required to provide Kern County and the State
Office of Mine Reclamation with a revised reclamation cost estimate once per
year. The financial assurance is adjusted once the cost estimate is approved
(Note 3).

The Company estimated its asset retirement obligation based on
its understanding of the requirements to reclaim, and clean up its Property. The
Company estimated that total payments of approximately $376,357 over three years
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% (the credit-adjusted risk-free rate), and an inflation rate of
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, 2007 |  |   | December 31, 2006 | 
|----------------------------- | - | ----------------- |  | - | ----------------- | 
|Beginning of the year         | $ | 132,550           |  | $ | 91,016            | 
|Change in cash flow estimates |   | 1,485             |  |   | 30,590            | 
|Accretion expense             |   | 11,930            |  |   | 10,944            | 
|End of the year               | $ | 145,965           |  | $ | 132,550           | 

9. Commitments and Contingencies

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

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

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 also
has an arrangement with another landowner to make advance minimum royalty
payments of $100,000 per year and these advance royalty payments will be applied
against any future production royalties.

In 2007, the Company reached an agreement with one of the
landowners to amend the terms of the lease agreement. Under the terms of the
amendment, the Company has been granted an extension of twenty years to the
lease and has paid $100,000 owed from 2005. In addition, the Company is not
required to pay advance royalty during the two year period until April 23, 2008
and the Company will receive a credit representing 50% of all advance royalty
paid and use it against the future production royalties.

The Company has agreed to issue 100,000 common shares as a
finders fee upon commencement of commercial production on the Property in
connection with certain property acquisitions.

In a prior year, 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 the Property into commercial production, a bonus of
150,000 common shares is to be issued. Upon commencement of commercial
production on the Property, a bonus of 150,000 common shares is to be issued. As
at December 31, 2007, the milestones had not been reached and no accrual was
made in connection with these arrangements.

---

GOLDEN QUEEN MINING CO. LTD. 
  (an exploration stage company) 
  Notes to Consolidated Financial Statements 
  (US dollars)

10. Related Party Transactions

Except as noted elsewhere in these financial statements,
related party transactions are disclosed as follows:

For the year ended December 31, 2007, $126,450 (2006 -
$111,116) was paid to Mr. H. L. Klingmann for services as President of the
Company, and $18,000 (2006 - $21,597) 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, 2007, $Nil (2006 - $8,752) was
owed and included in accounts payable to Mr. H.L. Klingmann for services as
President of the Company.

For the year ended December 31, 2007, four directors of the
Company were paid $1,861 (C$2,000) and one director was paid $2,000 in director
fees.

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.

11. Supplementary disclosures of cash flow information

|                                         |   |                   |  |   |                   |  |   | Cumulative Amounts     |  
|---------------------------------------- | - | ----------------- |  | - | ----------------- |  | - | ---------------------- | -
|                                         |   |                   |  |   |                   |  |   | From Date of Inception |  
|                                         |   |                   |  |   |                   |  |   | (November 21, 1985     | )
|                                         |   | Year ended        |  |   | Year ended        |  |   | through December 31,   |  
|                                         |   | December 31, 2007 |  |   | December 31, 2006 |  |   | 2007                   |  
|                                         |   |                   |  |   |                   |  |   |                        |  
|Cash paid during period for:             |   |                   |  |   |                   |  |   |                        |  
|Interest                                 | $ | -                 |  | $ | 57,022            |  | $ | 1,192,911              |  
|Income taxes                             | $ | -                 |  | $ | -                 |  | $ | -                      |  
|                                         |   |                   |  |   |                   |  |   |                        |  
|Non-cash financing and                   |   |                   |  |   |                   |  |   |                        |  
|investing
      activities:              |   |                   |  |   |                   |  |   |                        |  
|Stock option compensation (Note
      8) | $ | -                 |  | $ | 814,810           |  | $ | 197,374                |  
|Financing
      charges related to       |   |                   |  |   |                   |  |   |                        |  
|modification of warrants term            | $ | -                 |  | $ | 889,117           |  | $ | 889,117                |  
|Exchange of
      notes for common       |   |                   |  |   |                   |  |   |                        |  
|shares                                   | $ | -                 |  | $ | -                 |  | $ | 1,727,282              |  
|Exchange of note
      for future        |   |                   |  |   |                   |  |   |                        |  
|royalty payments                         | $ | -                 |  | $ | -                 |  | $ | 150,000                |  
|Common shares
      issued for mineral   |   |                   |  |   |                   |  |   |                        |  
|property                                 | $ | 24,600            |  | $ | -                 |  | $ | 304,811                |  
|Mineral property
      acquired through  |   |                   |  |   |                   |  |   |                        |  
|the issuance of long-term debt           | $ | -                 |  | $ | -                 |  | $ | 1,084,833              |  
|Common shares
      issued upon          |   |                   |  |   |                   |  |   |                        |  
|conversion of convertible debt           | $ | -                 |  | $ | 189,917           |  | $ | 414,917                |  
|Asset retirement
      obligations       | $ | -                 |  | $ | -                 |  | $ | 91,016                 |  

---

GOLDEN QUEEN MINING CO. LTD. 
  (an exploration stage company) 
  Notes to Consolidated Financial Statements 
  (US dollars)

12. Subsequent Event

Subsequent to December 31, 2007, warrants were exercised and
the Company issued 7,200,000 shares at C$0.60 per share for proceeds of
$4,203,400 (C$4,320,000).

---