FORM 10-KSB


                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                  For the fiscal year ended December 31, 1998

                                       OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934 [NO FEE REQUIRED]

       For the transition period from _______________ to _______________


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

Province of British Columbia              0-21777              Not Applicable
(State or other jurisdiction            (Commission            (IRS Employer
     of incorporation)                  File Number)         Identification No.)

                          104 South Freya, Suite 211-A
                               Green Flag Building
                            Spokane, Washington 99202
                    (Address of principal executive offices)

       Registrant's telephone number, including area code: (509) 535-4022

        Securities registered pursuant to Section 12(b) of the Act: None

           Securities registered pursuant to section 12(g) of the Act:
                         Common Stock without par value


Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or other information
statements incorporated by reference in part III of this Form 10-KSB or any
amendments to this Form 10-KSB. [X]

The issuer's revenues for its most recent fiscal year were $74,646. The
aggregate market value of the voting stock held by non-affiliates at March 2,
1999 was $9,161,822. The number of shares of common stock outstanding at such
date was 34,796,641.

Transitional Small Business Disclosure Format.  Yes [ ]  No [X]

<PAGE>


                          GOLDEN QUEEN MINING CO. LTD.
                    ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR
                             ENDED DECEMBER 31, 1998


                                TABLE OF CONTENTS


SAFE HARBOR STATEMENT

GLOSSARY

<TABLE>
<CAPTION>
                                                                                        Page

PART I

   <S>                                                                                   <C>
   Item 1: Description of Business........................................................1
   Item 2: Description of Property........................................................9
   Item 3: Legal Proceedings.............................................................12
   Item 4: Submission of Matters to a Vote of Security Holders...........................12


PART II

   Item 5: Market for Common Equity and Related Stockholder Matters......................12
   Item 6: Management's Discussion and Analysis or Plan of Operation.....................13
   Item 7: Financial Statements..........................................................17
   Item 8: Changes in and Disagreements with Accountants and Financial Disclosure........17


PART III

   Item 9: Directors and Executive Officers, Promoters and Control Persons;
                Compliance with Section 16(a) of the Exchange Act........................17
   Item 10:Executive Compensation........................................................19
   Item 11:Security Ownership of Certain Beneficial Owners and Management................22
   Item 12:Certain Relationships and Related Transactions................................24
   Item 13:Exhibits and Reports on Form 8-K..............................................25


SIGNATURES
</TABLE>

                                       i
<PAGE>


                              SAFE HARBOR STATEMENT


This report contains both historical and prospective  statements  concerning the
Company and its operations.  Historical statements are based on events that have
already happened; examples include the reported financial and operating results,
descriptions  of  pending  and  completed   transactions,   and  management  and
compensation matters.  Prospective  statements,  on the other hand, are based on
events that are reasonably  expected to happen in the future;  examples  include
the timing of projected  operations,  the likely  effect or  resolution of known
contingencies or other foreseeable events, and projected operating results.

Prospective  statements (which are known as  "forward-looking  statements" under
the Private Securities  Litigation Reform Act of 1995) may or may not prove true
with the passage of time  because of future risks and  uncertainties.  The risks
and  uncertainties  associated  with  prospective  statements  contained in this
report include, among others, the following:

THE LIKELIHOOD OF CONTINUED LOSSES FROM  OPERATIONS.  The Company has no revenue
from mining  operations and has incurred losses from inception  through December
31, 1998 of approximately $3,941,000.  This trend is expected to continue for at
least the next two years and is expected to reverse only if, as and when gold is
produced from the Soledad Mountain Project.

THE NEED FOR SIGNIFICANT  ADDITIONAL FINANCING.  The Company anticipates that it
will need approximately  $77,600,000 in additional  financing to put the Soledad
Mountain  Project into production;  an anticipated  $66,300,000 will be used for
capital  expenditures  and  $11,300,000  will be used as working capital and for
start-up   expenditures.   The  Company  expects  to  finance  development  from
additional   sales  of  common  stock,   from  bank  or  other   borrowings  or,
alternatively,  through joint development with another mining company.  However,
it has no commitment  for bank financing or for the  underwriting  of additional
stock, and it is not a party to any agreement or arrangement providing for joint
development. Whether and to what extent financing can be obtained will depend on
a number of  factors,  not the least of which is the price of gold.  Gold prices
fluctuate  widely and are  affected by  numerous  factors  beyond the  Company's
control,  such  as  the  strength  of  the  United  States  dollar  and  foreign
currencies,   global  and  regional  demand,  and  the  political  and  economic
conditions  of major  gold  producing  countries  throughout  the  world.  As of
December  31,  1998,  world gold prices  were  approximately  $287 per ounce,  a
reduction  of  approximately  2% from  prices a year  ago,  and a  reduction  of
approximately  22% from prices two years ago. If gold prices remain weak, it may
not be  economical  for the Company to put the  Soledad  Mountain  Project  into
production.

RISKS AND  CONTINGENCIES  ASSOCIATED  WITH THE MINING  INDUSTRY  GENERALLY.  The
Company  is  subject  to all of  the  risks  inherent  in the  mining  industry,
including environmental risks, fluctuating metals prices,  industrial accidents,
labor disputes,  unusual or unexpected geologic formations,  cave-ins,  flooding
and periodic interruptions due to inclement weather. These risks could result in
damage to, or  destruction  of, mineral  properties  and production  facilities,
personal  injury,  environmental  damage,  delays,  monetary  losses  and  legal
liability.  The Company is also subject to the uncertainty  about its ability to
identify and address all Year 2000 issues. Although the Company maintains or can
be expected to maintain  insurance  within  ranges of coverage  consistent  with
industry  practice,  no  assurance  can be given  that  such  insurance  will be
available at economically  feasible  premiums.  Insurance against  environmental
risks (including pollution or other hazards resulting from the disposal of waste
products generated from exploration and production  activities) is not generally
available  to the Company or other  companies in the mining  industry.  Were the
Company subjected to environmental liabilities,  the payment of such liabilities
would reduce the funds available to the Company. Were the Company unable to fund
fully the cost of remedying an  environmental  problem,  it might be required to
suspend operations or enter into interim compliance  measures pending completion
of remedial activities.

                                       ii
<PAGE>


                                    GLOSSARY

Certain terms used throughout this report are defined below.

ADVANCED MINIMUM ROYALTY. Cash royalty payments made in advance of production to
hold a mining  lease.  Advanced  minimum  royalties  are  usually but not always
credited against production royalties arising after production commences.

AG.  The symbol for silver.

AU.  The symbol for gold

AUEQ.  Gold  equivalent,  being a  measurement  of gold and silver on a combined
basis calculated to reflect the price and recovery differentials between the two
metals.

CALDERA. A large diameter crater caused by the collapse or subsidence of the
central part of a volcano, or as the result of a violent explosion.

COMPANY. Golden Queen Mining Co. Ltd., a British Columbia corporation, and its
wholly-owned subsidiary, Golden Queen Mining Company, Inc., a California
corporation.

CRETACEOUS PERIOD. A period in geologic time approximately 65 to 141 million
years ago.

DEVELOPMENT  STAGE.  Activities  related to the  preparation  of a  commercially
mineable deposit for extraction.

EXPLORATION  STAGE.  Activities  such as drilling,  bulk sampling,  assaying and
surveying related to the search for mineable deposits.

FAULT or FAULTING. A fracture in the earth's crust accompanied by a displacement
of one  side of the  fracture  with  respect  to the  other  and in a  direction
parallel to the fracture.

FLOATING CONE and INVERTED CONE. A computerized  methodology used to approximate
the shape of a near-optimal  economic open pit mine plan based on applied cutoff
grade criteria and pit slopes.

GRADE. A term used to assign value to reserves, such as ounces per ton or carats
per ton.

HDPE. High density polyethylene, which is a plastic used to create an impervious
membrane.

HEAP LEACHING.  A gold extraction  process  involving the percolation of cyanide
solution through crushed ore heaped on an impervious pad or base.

HECTARE.  A metric measurement of area equivalent to 10,000 square meters.

LINEAR KRIGING.  A geostatistical method of resource analysis.

MAGNETIC SURVEYING. A mineral exploration technique which employs a magnetometer
to  measure  the  magnetic   intensity   of  an  area  to   determine   possible
mineralization.

MERRILL-CROWE  PROCESS. A process used to recover soluble gold and silver from a
leaching  solution by  precipitating  with zinc dust after the solution has been
clarified and deoxygenated by vacuum treatment.

METALLURGY. The science and technology of extracting metals from their ores.

MIDDLE MIOCENE EPOCH. A period in geologic time approximately 6 to 22 million
years ago.

                                      iii
<PAGE>


MINERAL DEPOSIT. A mineral deposit is a mineralized underground body which has
been intersected by sufficient closely-spaced drill holes or underground
sampling to support sufficient tonnage and average grade(s) of metal(s) to
warrant further exploration or development activities. A mineral deposit is
sometimes also referred to as MINERALIZED MATERIAL or as MINERALIZED MATERIAL
inventory. A mineral deposit does not qualify as a commercially mineable ore
body (reserves) under standards promulgated by the Securities and Exchange
Commission until a final, comprehensive economic, technical and legal
feasibility study based upon test results has been concluded.

MINERALIZATION. The presence of minerals in a specific area or geological
formation.

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

OROGENIC. Of or pertaining to an orogen, which is a mountain mass that is a unit
with respect to origin or uplift.

OVERBURDEN. Waste rock and other materials which must be removed from the
surface in order to mine underlying mineralization.

PIT PHASING ANALYSIS. A method used to optimize the mining sequence in an open
pit mine design.

PLUTONIC. Originating or situated deep within the Earth.

PRODUCTION STAGE. Activities related to the actual exploitation or extraction of
a mineral deposit.

RESERVES. That part of a mineral deposit which could be economically and legally
extracted or produced at the time of determination. Reserves are subcategorized
as either PROVEN (MEASURED) RESERVES, for which (a) quantity is computed from
dimensions revealed in outcrops, trenches, workings or drill holes, and grade
and/or quality are computed from the results of detailed sampling, and (b) the
sites for inspection, sampling and measurement are spaced so closely and
geologic character is so well defined that size, shape, depth and mineral
content are well-established; or PROBABLE (INDICATED) RESERVES, for which
quantity and grade and/or quality are computed from information similar to that
used for proven (measured) reserves, yet the sites for inspection, sampling and
measurement are farther apart.

STRIPPING RATIO. The tonnage of waste material removed to allow the mining of
one ton of ore in an open pit.

TREND. The directional line of a rock bed or formation.

VOLCANICS. Rock composed of clasts or pieces that are of volcanic composition.





          [The balance of this page has been left blank intentionally.]

                                       iv
<PAGE>


                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS.

GENERAL DEVELOPMENT OF BUSINESS.  The Company was incorporated under the laws of
the Province of British  Columbia in November 1985, and is presently  engaged in
the development of mineral  properties  located in the Mojave Mining District of
Kern  County,  California  known as the Soledad  Mountain  Project.  The Company
acquired  its  initial  interest  in the  project in 1986;  since  then,  it has
acquired  additional  interests  in the area  and  explored  for gold and  other
minerals.  These  activities are conducted  through Golden Queen Mining Company,
Inc., a California corporation and wholly-owned subsidiary of the Company.

The Company first  outlined a gold deposit at the project in 1988,  although the
size of the deposit was  insufficient  to justify further  development.  Further
exploration work was conducted from 1989 through 1991.  Thereafter,  the project
remained  dormant,  until 1994 when the Company renewed  exploration  activities
with funds derived from several offshore private placements of its common stock.
A mineable ore reserve was generated as part of a feasibility study completed by
M3  Engineering  and  Technology  of Tucson,  Arizona in early 1998.  This study
estimated the mineable ore reserves, based on a gold price of $350 per ounce and
a silver price of $5.00 per ounce,  at 48.6 million  tonnes (53.6  million tons)
averaging  0.86 grams of gold per tonne (0.025 ounces per ton) and 12.7 grams of
silver  per tonne  (0.371  ounces per ton) for a gold  equivalent  grade of 1.04
grams per tonne  (0.030ounces  per ton), or a total of 1.585  million  ounces of
gold equivalent.  Based on extensive  sampling and other exploratory  activities
conducted  through 1998, an update of proven and probable  mineable ore reserves
at the project was estimated  internally at a gold price of $325 per ounce and a
silver price of $6.00 per ounce.  This reserve update totals 45.0 million tonnes
(49.6 million  tons),  at an average grade of 0.99 grams per tonne (0.029 ounces
per ton) of gold and 14.34 grams per tonne (0.42 ounces per ton) of silver for a
gold  equivalent  grade of 1.21 grams per tonne  (0.035  ounces per ton).  Total
contained ounces are estimated at 1,437,000 ounces of gold and 20,757,000 ounces
of silver, or approximately 1,748,000 ounces of gold equivalent.

The Company has  determined to develop the project using open pit mining methods
and a cyanide  heap  leach  recovery  process.  Development  plans  include  the
construction of facilities capable of mining and processing precious metals ores
at a rate of up to 5.76 million tonnes (6.35 million tons) per year for at least
nine years, followed by heap detoxification and reclamation of the project site.
The Company  previously  reported that it expected to begin  producing  gold and
silver from the  project  during the second half of 1998,  once  permitting  was
completed.  Because of the downturn in world gold prices  during the second half
of 1997, however, the Company was not able to obtain financing for construction.
As a consequence, production will be delayed until gold prices improve.

The  registered  office of the  Company is  located  at 1600 - 925 West  Georgia
Street,  Vancouver,  British  Columbia  V6C 3L2, and its  executive  offices are
located  at 104 S Freya  Street,  Suite  211-A,  Green Flag  Building,  Spokane,
Washington 99202.

PROJECT  BACKGROUND.  The Soledad  Mountain Project is located within the Mojave
Mining  District along with the nearby Cactus Gold Mine,  Standard Hill Mine and
Tropico Mine. Mining in the area dates back into the late 19th century,  but the
most  significant  production  occurred  from the 1930s to 1942 when Gold Fields
Mining  Company  of South  Africa  operated  a  272-ton  per day  cyanide  mill,
evidenced by the large piled tailings on the north slope of Soledad Mountain. No
historical operators attempted open pit mining in the project area.

The project was brought to the  Company's  attention in the  mid-1980s by George
Phelps,  who held an interest in mining  properties  in the area through  Golden
Queen Mining Company,  Inc., a California  corporation.  Management obtained and
reviewed old maps of underground  mining  activities in the project area and was
impressed  with the  horizontal  extent  to which  significant  precious  metals
extended  into the foot and hanging walls of major veins.  The Company  acquired
all of the  outstanding  shares of Golden  Queen Mining  Company,  Inc. in 1986,
thereby  obtaining Mr. Phelps' property  interests in the project area.  Shortly
thereafter,  the Company began  consolidating its land position and commenced an
initial  program  of 12  diamond  drill  holes  and  limited  underground  check
sampling.  The next phases of exploration,  lasting  through 1990,  consisted of
reverse circulation drilling and more extensive underground check sampling.

                                       1
<PAGE>


More extensive exploration  activities commenced in 1994, and by the end of 1995
a total of 587 surface  drill holes had probed the  numerous  structures  of the
project area for ore reserves. In addition,  assay information from 7,435 meters
(24,394 feet) of  underground  drilling and  cross-cuts  was used to bolster the
understanding  of surface  drilling  results  and  provide  assay data in deeper
portions of  ore-bearing  structures.  This was augmented in 1996 and 1997 by an
additional  142 surface  drill holes and the  sampling of 4,282  meters  (14,050
feet) of additional underground drilling and cross-cuts.

EXPLORATION.

GENERAL.  Several  major  drilling  campaigns  and a  program  to  resample  the
underground workings have been completed,  along with metallurgical  testing for
process  amenability.  Aerial  survey  topographic  mapping  and  collection  of
baseline data for environmental permitting have also been conducted.

High grade  precious metal  mineralization  is associated  with  steeply-dipping
epithermal  fissure veins occupying faults and fracture zones that cross-cut the
rock  units in a general  north-west  trend.  This is the ore that was mined and
processed by the previous mining  operation of Gold Fields Mining Company in the
1930s and early 1940s, but a considerable amount of this material remains and is
incorporated  into the present  reserves.  Surrounding  the veins are  siliceous
envelopes that contain lower grade, but still ore-grade, material that forms the
major portion of the reserve tonnage.

SAMPLING AND BLOCK MODEL  CONSTRUCTION.  The  economic  viability of the mineral
deposit at the Soledad Mountain Project is based on industry-accepted  and block
model computer analysis.  The Company  constructed a three dimensional  computer
model of the  project  area using  simulated  "blocks" of  mineralized  material
measuring  7.6 meters (25 feet) by 7.6 meters (25 feet) by 6.1 meters (20 feet);
substantial  data derived from drill hole samples,  underground  crosscuts,  and
other  exploratory  methods was then  introduced into the model to determine the
gold and silver  content and average  grades of the simulated  blocks.  Finally,
different  economic  variables,  such  as  metals  prices  and  mining  and  ore
processing  costs, were introduced to determine the viability of mining all or a
portion of the deposit.

The data  employed in the block  model  analysis  was  derived  from Gold Fields
Mining Company's  production  records and the Company's more recent  exploration
activities,  and consists of 103,068.4 meters (338,148 feet) of assayed material
taken  from more than  fourteen  different  vein  systems in the  district.  The
sources and extent of this data are summarized below:

           Diamond drilling                    9,403.3 meters      (30,848 feet)
           Reverse circulation drilling       80,603.4 meters     (264,447 feet)
           Old cross-cuts (1930s)              6,813.0 meters      (22,352 feet)
           Underground drilling (1930s)        4,909.7 meters      (16,108 feet)
           Recent cross-cuts (1980s)           1,339.0 meters       (4,393 feet)
                                             ----------------     -------------
                                             103,068.4 meters     (338,148 feet)
                                             ================     =============

The model is based in part on the Company's  geological  interpretation  of this
data. Rock types, high grade zones, low grade zones,  mined-out stopes and zones
of internal waste were delineated on cross sections, transferred to bench plans,
digitized,  and loaded  into the model.  Plan maps were  plotted  from the block
model to check  the block  code  assignments  and  corrections  were made  where
necessary.  High grade zones were defined as outlined  areas  containing  grades
greater than 3.43 grams per tonne (0.100 ounces per ton) of gold  equivalent and
low grade  zones  enclosing  areas that ranged from 3.43 to 0.41 grams per tonne
(0.100 to 0.012 ounces per ton) of gold equivalent.  Each mineralized  block was
then assigned a percentage for their volume of high grade,  low grade, and stope
material.  All the  remaining  blocks in the model that did not fall into one of
the described ore categories  were considered  waste.  Since ore and waste zones
were defined in the model blocks but not in the drill hole composites,  the code
of the block  penetrated by the drill hole was assigned back to the composite to
ensure a consistent one-to-one match during the grade interpolation process.

                                       2
<PAGE>


Linear kriging was used to estimate gold and silver grades in the model.  Grades
were  interpolated  for the high  grade and low grade  zones  independently,  to
maintain the integrity of each zone. The separation of high grade, low grade and
waste zones was maintained by allowing only composites coded as high grade to be
used to interpolate  high grade zones and similarly,  only low grade  composites
were used to interpolate low grade zones.  Gold equivalent  grade for each block
was calculated based on the following equation:

        AuEq = AuKrg + [(AgKrg/54.17)*(60%Ag recovery/78% Au recovery)].

This calculation was done for all blocks containing interpolated gold and silver
grades and the resulting value was stored back into the block. Mineable reserves
and all  subsequent  mine  planning  work were  based on kriged  gold and kriged
silver values.

Mineralized  material  includes all blocks within the model limits,  but with no
assumptions as to economic viability. Based on a cut-off grade of 0.41 grams per
tonne (0.012 ounces per ton) of gold  equivalent,  the  mineralized  material is
estimated to be 86,552,964  tonnes  (95,408,810  tons) averaging 0.871 grams per
tonne (0.025 ounces per ton) of gold and 14.198 grams per tonne  (0.4156  ounces
per ton) of  silver,  or 1.073  grams per tonne  (0.031  ounces per ton) of gold
equivalent.

An independent manual estimate of mineralized  material (cross section polygonal
resource  estimate) was also  completed and validates the Company's  block model
mineralized material.  The data employed in the manual estimate was also derived
from Gold Fields Mining  Company's  production  records and the  Company's  more
recent exploration activities.

The manual mineralized  material estimation is based, in part, on an independent
geological interpretation of this data. Rock types, mineralized zones, mined-out
stopes  and  zones  of  internal  waste  were   delineated  on  cross  sections.
Mineralized  polygonal  shapes were  defined as areas of at least 6.1 meters (20
feet) width and containing  grades equal to or greater than 0.34 grams per tonne
(0.010 ounces per ton) of gold  equivalent.  A polygonal  shape was drawn (along
dip)  around  each  mineralized  portion  of  a  drill  hole  or  cross  cut  to
mid-distance  to the nearest  intercept or up to 400 feet,  which ever was less.
Average gold and silver grades,  along with volume of  mineralization  were then
calculated for each polygon.

The manual estimate of mineralized  material  includes all mineralized  polygons
within the project area, but with no assumptions as to economic viability. Based
on a  cut-off  grade of 0.34  grams  per tonne  (0.010  ounces  per ton) of gold
equivalent,  the manual  estimate of mineralized  material is 82,037,406  tonnes
(90,431,233 tons) averaging 1.013 grams per tonne (0.030 ounces per ton) of gold
and 14.850 grams per tonne (0.433 ounces per ton) of silver,  or 1.224 grams per
tonne (0.036 ounces per ton) of gold equivalent.

FLOATING  CONE  AND  PIT  PHASING  ANALYSES.  A  floating  cone  analysis  is  a
computer-aided  means of designing an optimal open pit mine plan.  The "floating
cone" is an inverted  cone model that is first  superimposed  over the mine area
without  regard for practical  mining or economic  considerations.  The model is
then  refined to take into  account  cut-off  grades,  pit  outlines,  final ore
reserve  calculations,  until it resembles a mineable pit, following which it is
refined  further  to  reflect  the  smoothing  of  abrupt  changes  in pit  wall
configuration for slope stability, and the smoothing of intermediate benches and
pit floors for efficient equipment utilization and the addition of haul roads.

Once these  refinements  have been  made,  further  analysis  is  undertaken  to
determine "pit phasing" or the sequence of mining operations.  Among the factors
considered in this  analysis are haul  profiles,  load-haul  match-ups of mining
equipment,  and ore grades delivered to the crusher.  It is an iterative process
involving  a  comparison  of  multiple  scenarios  and  having  as its  goal the
maximization of production at the lowest possible cost. The analysis is critical
to the development of capital and operating costs.

The internally-generated ore reserve portion of the recently updated mineralized
material  inventory at the Soledad  Mountain  Project was calculated by applying
the  following  economic  cut-off  criteria to the  floating  cone  analyses for
preliminary pit design:  a gold price of $325 per ounce; a silver price of $6.00
per ounce;  mining  costs for waste and ore of $0.68 per tonne  ($0.62 per ton);
processing  costs of $2.24 per  tonne  ($2.03  per ton);  general/administrative

                                       3
<PAGE>


costs of $0.56 per tonne ($0.51 per ton); process recovery rates of 78% for gold
and 60% for silver; a refining  recovery rate of 100%; a design cut-off grade of
0.41 grams per tonne (0.012 ounces per ton) of gold equivalent.

An internal cut-off grade of 0.31 grams per tonne (0.009 ounces per ton) of gold
equivalent was calculated by deleting mining costs from the above on the premise
that  material  within  the pit that must be removed  needs only to support  the
incremental costs for processing to be considered ore.

ORE RESERVES.  The Soledad  Mountain Project  internally-generated  mineable ore
reserve  estimate,  classified  as proven and probable,  is 45.0 million  tonnes
(49.6  million  tons)  averaging  0.99 grams per tonne (0.029 ounces per ton) of
gold and 14.34 grams per tonne (0.42 ounces per ton) of silver.  Total contained
ounces  are  1,437,000  ounces  of gold and  20,757,000  ounces  of  silver,  or
approximately  1,748,000  ounces of gold  equivalent.  This estimate updates the
previous  estimate that was a basis for the M3 Engineering  and Technology  (M3)
feasibility  study completed in early 1998. In the M3 study,  the development of
the  computer  model  for  the  Soledad  Mountain  deposit  was  completed  as a
cooperative  effort between  Golden Queen staff and Mine Reserves  Associates of
Wheatridge,  Colorado.  The following  table sets forth  information  concerning
proven and probable  mineable ore reserves based on an average  cut-off grade of
0.41 grams per tonne (0.012 ounces per ton) of gold equivalent.

                      PROVEN AND PROBABLE RESERVE ESTIMATE

CATEGORY    ORE TONNES  AUEQ G/MT  AUEQ OZ  AU G/MT  AU OZ   AG G/MT    AG OZ
--------    ----------  ---------  -------  -------  -----   -------    -----
Proven and
probable    45,019,000    1.21    1,748,000  0.99 1,437,000   14.34  20,757,000


The Company  estimates  that the current  mineable  ore reserve will support ore
production  at a rate of up to 5.76 million  tonnes (6.35 million tons) per year
for at least  nine  years.  Considering  a  possible  four-year  period  of heap
detoxification, gold production could extend the life of the project to thirteen
years. Further extension is a possibility if additional drilling provides better
definition  of  mineable  reserves in those areas that  currently  have  limited
drilling intercepts and/or limited underground  sampling.  The average stripping
ratio is  projected  to be  approximately  4.57 to 1. The  projected  mine life,
stripping  ratios and ore  production  rates at the project are  believed by the
Company to be well within industry standards.

METALLURGY.  There are three  principal  types of ore represented in the mineral
deposit of the project: quartz latite, rhyolites and pyroclastics. Metallurgical
testing has been  performed on more than 200 samples of these ore types from the
project area over a period of ten years.

Four ore  processing  methods were evaluated in developing an operating plan for
the Soledad  Mountain  Project:  slurry cyanide  leaching,  gravity  separation,
flotation  and  heap  leaching.  Tests  confirmed  heap  leaching  as  the  best
processing  method  for the  project,  largely  because  the ore  deposit  is of
relatively  low grade.  The  location  and climate of the project  area are well
suited to heap leaching,  and the process has been successfully applied by other
mining  companies  to nearby ore bodies.  Because of the high ratio of silver to
gold in the deposits,  recovery of these metals from the leaching  solution will
be accomplished  using the Merrill-Crowe  process.  Trace elements of mercury in
the ore will be removed from the precipitate  using a mercury retort.  Test data
indicate that crush size is the most important  factor affecting metal recovery,
and that  crushing  the ore to a size of 8 mesh  (which is about the finest size
attainable without milling) will be required to realize optimal  recoveries.  It
is anticipated that the ore will be agglomerated  with cement as a binding agent
at the rate of 4.5  kilograms  of cement per tonne (10.0  pounds per ton) of ore
processed.  The  tests  indicate  average  expected  ultimate  gold  and  silver
recoveries of 80% and 65% respectively.

MINING AND ORE RECOVERY PLAN.

MINING.  Mining  at  the  Soledad  Mountain  Project  will  be  conducted  using
conventional  open pit  techniques.  It is anticipated  that  operations will be
carried  out by the  Company's  own  employees.  Open pit  mining  is  generally
associated  with a spiral  haulage ramp that is extended as the pit deepens.  At
the  project,  the  majority of the ore will be  excavated  by cutting back into
canyons or along hillsides;  the ore is not in a single pit, but in a network of
smaller  

                                       4
<PAGE>


pits,  with  frequently  overlapping  pit walls.  The current mine plan involves
initial low elevation mining for the first two years of production,  followed by
higher  elevation  mining in subsequent  years.  The road extending from the ore
stockpile area at the processing plant site up to the highest  elevations of the
mountain must be built before any excavation can begin on the highest benches in
each pit  area.  A total of about  6,400  meters  (20,992  feet) of road will be
required:  2,500 meters (8,200 feet) to facilitate the first two years of mining
at low elevations,  followed by further extensions to the highest benches of the
mountain during the remaining mine life.

The Company  plans to mine at a rate of up to 5.76 million  tonnes (6.35 million
tons) of ore per year on the basis of three eight-hour  shifts per day, 360 days
per year.  This  schedule  would  provide ore to the crusher at a rate of 16,200
tonnes  (17,881 tons) per day and an average of 74,034  tonnes  (81,715 tons) of
waste per day. All waste will be deposited on a series of dump sites east, south
and west of the pit areas.

Ground water has been reported only in the deepest gold mine workings  below 823
meters (2,699 feet) in elevation.  All open pit mining is therefore  expected to
be dry,  except for  occasional  rains and very  occasional  winter  snows.  Old
workings  from   historical   underground   mining  will  be  encountered   from
time-to-time,  but are not  expected  to  interfere  significantly  with  mining
operations.

CRUSHING,  CONVEYING  AND STACKING.  A 900 tonne (993 tons) per hour  four-stage
crushing circuit will be installed at the Soledad Mountain Project.  The primary
crushing  system  will be  comprised  of a  vibrating  grizzly  feeder  with 103
millimeter  (4.0  inch)  apertures  and a 950  millimeter  (37  inch)  by  1,250
millimeter  (49 inch) jaw crusher with a closed side setting of 103  millimeters
(4.0 inches). The grizzly undersize and the jaw crusher product will be combined
and conveyed to a secondary crushing circuit. Secondary crushing will be done in
a 2.13 meter (7 foot) short head cone crusher. Third stage crushing will be done
in two 2.13 meter (7 foot) short head cone  crushers and fourth  stage  crushing
will be done in seven 990 millimeter (38.5 inch) vertical shaft impact crushers.
Third and fourth  stage  crushing  will be done in closed  circuit with a double
deck screen  producing a final  product of 100% minus 2.36  millimeter  (8 mesh)
crushed ore.

Crushed  ore will be  combined  on a  single  belt  conveyor  for  sampling  and
agglomeration.  Cement will be added to the belt  conveyor  by a variable  speed
screw conveyor.  The belt conveyor will discharge directly into an agglomeration
drum.  Water and barren solution will be added in increments in the agglomerator
to bring the ore to an 8% moisture content. A totalizing belt scale on the final
product  belt will  control  the cement  and water  additions  and record  daily
tonnages.  The agglomeration  drum will discharge onto a conveyor that feeds the
heap conveying and stacking system.

In the primary crushing  circuit,  dust will be controlled by low pressure water
sprays. In the secondary,  tertiary and quarternary crushing circuits, dust will
be controlled by central dry bag dust collectors. Individual dry dust collectors
will be used on the cement silo and at outlying conveyor transfers.

The  agglomerated  ores will be conveyed to a radial stacking system by a series
of portable and semi-portable  conveyors. The conveying system will consist of a
series of 0.914 meter (3 foot) wide  semi-portable and portable  conveyors.  The
semi-portable  conveyors  will  transport the crushed ore to the central area of
the leach pad and the  portable  conveyors  will  transport  crushed  ore to the
stacker. The stacking system will consist of a self-propelled bin conveyor and a
39.6  meter  (130  foot)  long  radial  stacker  with a 6.1 meter (20 foot) long
slinger.  The radial  stacker will be equipped for lifting and  hydraulic  wheel
positioning. The hydraulic drive will be sized for the slopes of the leach pad.

LEACHING.  The initial  heap leach pad will be located on the north slope of the
mountain, and a second leach pad will be located on the west slope. Each will be
a side hill pad with a perimeter  dike to support the toe of the heap and create
solution storage capacity. In addition,  each is designed to minimize its effect
on the surrounding  environment,  wildlife and waters. Both pads are designed as
dedicated pads, meaning that the ore will be stacked,  leached,  rinsed and left
in place on the pads for reclamation.  The pads will be located downslope of the
proposed  mine pit along the base of Soledad  Mountain  and will be divided into
cells  to  correspond  to ore  production  and pad  capacity  requirements.  The
capacity of the pool in each cell is designed to have sufficient  storage for up
to eight hours of solution  application  and 12 hours of drain down in the event
of a pump or power  failure  and to store  the  estimated  precipitation  from a
100-year 24-hour storm event.

                                       5
<PAGE>


Leach  solution  will be  distributed  over the heap by a  system  of pipes  and
emitters.  Once the solution is applied to the ore and percolates throughout the
heap,  it will  drain  along the base of the  heap.  The  solution  flow will be
intercepted and collected by 10 centimeter (4.0 inch) diameter  perforated pipes
installed on top of the liner system and routed into one of three solid manifold
pipes. The manifold pipe will then route the solution to the solution collection
sump.  This drainage  system is designed to minimize the hydraulic  head applied
over the composite liner system and increase the rate of solution recovery.

Solution  will be  recovered  from the heap by a submerged  sump pump in the low
area of the cell. The sump pump will be used to recover  solutions to a tank and
booster pump station that will then pump solution to the solution  storage tanks
at the Merrill-Crowe  plant. The pipelines will be located within the lined cell
for  containment  in the  event of a pipe  leak.  The pad for the  pump  will be
designed to drain into the leach pad to control leaks from the pump.

The pad liner system will consist of four components: the prepared subgrade, the
liner  material,  a  solution  collection  system  on  top of  the  liner  and a
protective  overliner  material.  The prepared  subgrade  will be a  well-graded
material  prepared and compacted to a permeability of at least 10-6  centimeters
per  second.  The pad liner will be  constructed  as a composite  system.  An 80
millimeter  thick  geomembrane  HDPE  material  will overlay the  prepared  soil
subgrade,  and a leak detection  system will be installed under the geomembrane.
Protective  overliner  material  consisting of crushed ore or waste will then be
placed in a 460  millimeter  (18 inch)  thick  lift  over the lined  area.  This
protective  overliner  will serve to secure the solution  collection  piping and
provide direct access in the pad area for lightweight  vehicles and the conveyor
system.   Initial  placement  of  the  material  will  be  integrated  with  pad
construction to create a working area of sufficient  size for  production.  Pipe
laying and spreading of the overliner  will be done  thereafter,  in conjunction
with the pad loading plans.

The leach  recovery  schedule is based on three  parameters:  the  metallurgical
characteristics of the ore, physical delays in the handling of ore and solutions
and the retention of values in solution  within the heap. Once the heap has been
under  leach for a complete  leach cycle and a constant  daily  tonnage is being
stacked, estimated recoveries are as follows:

                       PERCENTAGE OF 80% GOLD, 65% SILVER

                      Days             Au               Ag
                      ----          -------          -------

                       30              83.5             79.4
                       60               5.8              7.2
                       90               3.2              4.0
                      275               5.7              7.1
                      400               1.8              2.3
                                    -------          -------
                                      100.0            100.0

The  modification  for each year's  production,  particularly in the first year,
schedule  must take into  account  the  load-to-leach  delays,  delays  from the
additional lifts and, most  importantly,  the values retained in heap solutions.
The heaps will be  detoxified  prior to closure by a rinse of a  combination  of
fresh  water and  peroxide-treated  recycled  water.  The heap will be rinsed by
cells.  Each cell is  estimated  to require a  two-year  period to  detoxify  to
required  cyanide levels.  The amount of fresh water available is limited by the
well  source  and the  other  demands  of  production:  agglomeration  and  dust
suppression.  During the  production  years,  18.9 liters (5 gallons) per second
will be available.  After mining has ceased, 37.9 liters (10 gallons) per second
will be  available.  The  addition of fresh water must be matched by the loss of
water to evaporation. Production during the detoxification period will come from
two sources.  Gold and silver will be  recovered  as a result of  extending  the
leach cycle and from the solutions  entrained in the heap that are rinsed during
the period.

RECOVERY.  The  gold  recovery  plant  at the  project  will  be a  conventional
Merrill-Crowe  circuit,  due to the high silver  content of the ore. The average
silver  content of the ore body is 14.34 grams per tonne (0.42  ounces per ton),
but the silver content of the feed will occasionally exceed 34.3 grams per tonne
(1.0 ounces per ton). During heap detoxification, when cyanide levels drop below
levels suitable for Merrill-Crowe processing, a small carbon plant will be used.

                                       6
<PAGE>


RAW  MATERIALS.  Electricity  will be  delivered  to the  project  site  using a
dedicated  line by the utility  company which  currently  supplies  power in the
vicinity.  A process water well has been developed from  underground  sources on
land  controlled  by the  Company.  Other  materials  necessary  for  mining and
processing,  such as sodium cyanide,  cement,  diesel fuel and ammonium nitrate,
are available for purchase from more than one supplier and  management  believes
that there will not be a problem in securing these materials.

PERMITTING AND ENVIRONMENTAL  ISSUES. The Soledad Mountain Project is located on
private and  federally-controlled  lands in an incorporated area of Kern County,
California.  Current  and  proposed  mining  activities  on these lands are thus
subject to extensive federal, state and local regulations. These regulations and
the Company's compliance efforts are summarized below.

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

The Company  submitted  its  combined  EIR/EIS to the Kern County  Planning  and
Development  Department in February  1996,  in  accordance  with a memorandum of
understanding  between  Kern  County and the Bureau of Land  Management  ("BLM")
which gave the county department primary  responsibility for review. The EIR/EIS
took the form of a combined  conditional use permit  application,  environmental
information statement, surface mining reclamation plan and plan of operation.

Several  comments  were  received in response to the EIR/EIS  concerning  ground
water quality and quantity,  air quality,  the effect of  development  on native
species  of  plants  and  animals,  the  visual  impact of the  project  and the
potential  hazards  associated with  transporting  supplies and chemicals to the
project site. These comments were  incorporated  into a revised EIR/EIS released
for public  comment in June 1997.  In  September  1997,  the Company  received a
favorable notice of determination  regarding the EIR/EIS, as well as approval of
its  conditional  use permit  application  and surface mining  reclamation  plan
(required by the California  Surface Mining and  Reclamation  Act and applicable
Kern County zoning  ordinances).  This was followed in November 1997 by a record
of decision from the BLM approving the Company's plan of operation under NEPA.

AIR QUALITY  ISSUES.  The project  lies within the  Southeast  Desert Air Basin,
which  is under  the  jurisdiction  of the Kern  County  Air  Pollution  Control
District.  The  district  is  empowered  to regulate  stationary  sources of air
pollution  within the basin,  pursuant to  authority  granted  under the federal
Clean Air Act.

The Area is designated as  unclassified  for PM10 emissions (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 probably  responsible for the high PM10 background levels
recorded  at several  nearby  monitoring  stations.  On-site  air  sampling  was
conducted for approximately one year with high background PM10 levels found.

Fugitive  dust,  when combined with the background  dust may cause  unacceptable
levels of PM10  emissions  off-site,  and may represent  the greatest  potential
environmental  issue. A PM10 level of 44 micrograms per cubic meter is projected
by computer modeling  utilizing a mining rate of 30 million tons per year of ore
and  waste.  This  level is  below  the  California  attainment  standard  of 50
micrograms per cubic meter and the Federal  standard of 150 micrograms per cubic
meter.  However,  the Company  believes  that it will  achieve  compliance  with
applicable  standards  by a  greater  margin,  as a result  of the fact that the
modeling  methodology  assumes worst likely case conditions which are considered
unlikely  to be  encountered  in actual  operations  and based on the use by the
Company of commonly-accepted dust control techniques in all phases of mining and
crushing.  The Company submitted an application to the Kern County Air Pollution
Control  District for  authority to  construct  the project,  and based upon the
dispersion  modeling  discussed  above, the application was approved in February
1998.

WATER  QUALITY  ISSUES.  The project is in the northern  portion of the Antelope
Valley ground water basin and  experiences  an average  annual  rainfall of less
than 14.5  centimeters (5.7 in.). There are no surface waters of any kind, other
than the periodic  runoff that follows the rare heavy rains that typically occur
during the winter months. 

                                       7
<PAGE>


Drainage in the area of the project is controlled by a series of deeply  incised
gullies and channels that  ultimately  drain to the north-west  into the Chaffee
hydrologic area. The water that does not evaporate  typically  percolates in the
Antelope  Valley  ground  water.  No water quality data is available for surface
runoff. Ground water in the bedrock underlying the area is almost certainly very
modest in quantity and is  restricted to  fractures.  The alluvial  cover on the
valley fill are known  sources of important  amounts of ground  water.  Water in
these cases is typically at 55 to 61 meters (180 to 200 feet) in depth.

Wells in the shallow alluvium are historically low yield in nature,  while those
in areas with a substantial amount of alluvial fill can be important  producers.
Water quality data is limited; however,  sufficient data is available to confirm
that the water is acceptable for the process applications proposed.

Once mining at the project has  commenced,  control of surface water in the area
will be achieved through the construction of intercept  trenches to preclude the
uncontrolled  runoff  from  coming  into  contact  with the leach heaps or other
materials  that might degrade water  quality.  Also, the heap leach process that
the Company  intends to employ does not include  direct or indirect  waste water
discharges.  Ground water  protection  from leaching  solutions will be achieved
through the use of a double liner system augmented by a leachate  collection and
recovery system.  A monitoring  system below the liner will also be incorporated
for leak detection.  Additional monitoring wells will be placed down gradient in
the direction of probable flow as an additional protective feature.

The Lahontan Water Quality Control Board is responsible for ensuring  compliance
with the federal Clean Water Act and California's  Porter-Cologne  Water Quality
Act. The Company  submitted a comprehensive  application to the control board in
June 1997,  detailing  waste  characteristics  of the  project,  the geology and
climate  of the area,  containment  facility  design  specifications,  operating
plans, drainage plans, mine closure procedures,  and post-closure maintenance of
the project site. The  application  has undergone  technical and  administrative
review, and was approved at the March 1998 meeting of the control board.

CLOSURE,  RECLAMATION  AND  BONDING  ISSUES.  Reclamation  requirements  for the
project  include  removal of all  structures,  shaping and seeding of the heaps,
seeding  of  portions  of the waste  dumps and the  ripping up or removal of all
roads.  The  mine  pits  will  require  little  or no  reclamation.  Reclamation
requirements  are influenced by the fact that the project is located in a desert
climate, with less than 14.5 centimeters (5.7 in.) of annual rainfall.

In 1996 the Company  commissioned  Bamberg  Associates  to prepare a reclamation
plan for the project.  This plan was later submitted to the Kern County Planning
and  Development  Department,  as part of the Company's  conditional  use permit
application and surface mining  reclamation plan. The reclamation plan meets the
requirements of  California's  Surface Mining and Reclamation Act and applicable
Kern County  zoning  ordinances,  and federal  requirements  designed to prevent
degradation of federal lands.

The  objective  of the  reclamation  plan is to return the  project  site to its
pre-mining  status as wildlife  habitat and open space.  The plan  obligates the
Company to demolish and remove  physical mine  structures;  neutralize the leach
pads and detoxify and dispose of leachate  solution;  recontour  the  overburden
piles,  leach pads,  roads and production  support  facilities;  and prepare the
surface of the project area for revegetation; and seed and replant the area with
native species. Reclaimed slopes must be at an angle that is stable and there is
no requirement for demonstration of re-vegetation.  Growth media (generally, the
top 5.0  centimeters  or 2 inches of cover) will be removed  from the waste dump
and heap leach sites and stockpiled for final  reclamation.  It is expected that
the growth media will contain most of the seeds  necessary for the  reclamation.
The waste dumps and heaps will be benched by bulldozer  upon the  completion  of
mining and  roadways  will be ripped up.  The growth  media will be  distributed
along the benches and in the roadways.

Understandably, a key component of the reclamation plan is neutralization of the
leach pads and detoxification and disposal of the leachate solution,  also known
as leach pad  closure.  The plan  provides  that closure will begin in the sixth
year of mine  operation and continue for  approximately  four years after active
mining has ceased.  The leach pad closure process involves four steps:  first, a
fresh water rinse is  periodically  applied to those  portions of the leach pads
that have completely leached,  furthering the natural degradation of the cyanide
solution;  next, the leachate solution is sequentially moved from one active pad
cell to another,  minimizing the amount of solution required by the system; once
leaching operations are concluded, the remaining leachate solution is chemically
neutralized using 

                                       8
<PAGE>


hydrogen peroxide,  and applied to reclaimed waste rock pile surfaces. The leach
pad surfaces are then covered with soil or other medium and revegetated. Because
the pad liners  remain  intact,  minor  quantities of seepage can be expected to
collect in the leach pad sumps; this will be pumped out periodically  during the
post-closure monitoring period and applied to revegetated areas, either directly
or after additional  neutralizing  has occurred.  Depending upon the quality and
quantity of this solution,  the pad liners eventually may be perforated to allow
direct   seepage,   thereby   alleviating  the  need  for  further  pumping  and
application.

The Company is  required  to obtain  several  bonds for the  project:  a Surface
Mining and Reclamation Act bond, to be held by Kern County, to cover the general
reclamation  of the  site,  including  the  waste  dumps,  roads,  mine pits and
building removal;  a detoxification and closure bond, to be held by the Lahontan
Regional Water Quality  Control Board,  relating to the heap back process areas;
and an "unforeseen event bond", to be held by the water quality board,  which is
intended  to bond for a  catastrophe  that would  contaminate  surface or ground
water  with  processed  water.  Since  there are no  surface  streams at Soledad
Mountain,  the bond would apply to ground water only. The amounts of these bonds
will be determined by the  regulatory  authorities  when permits are granted for
the  project.  The  Company  expects  to  meet  these  bonding  requirements  by
purchasing  surety bonds from one or more insurers.  Alternatively,  the Company
may post money  market  securities,  such as  certificates  of deposit,  or bank
letters of credit in lieu of, or in addition  to, such  surety  bonds.  Based on
currently  available  information,  the  Company  estimates  that  the  costs of
complying with environmental requirements,  including land reclamation,  will be
approximately   $3,000,000  at  the  time  production  at  the  mine  commences,
increasing to a total of $5,410,000 by the end of the life of the mine.

FACILITIES AND EMPLOYEES.  The Company's principal executive offices are located
in  a  1,200-square  foot  facility  at  104  South  Freya  Street  in  Spokane,
Washington, and its Soledad Mountain field office is located at the mine site in
Mojave,  California.  At December 31, 1998, the Company employed three full-time
management,  finance and administrative  employees at its Spokane office, and 12
full-time employees at its Mojave office.

MISCELLANEOUS.  Four of the Company's directors,  Edward G. Thompson,  Gordon C.
Gutrath,  Chester  Shynkaryk  and  Jerrold  Schramm,  are  residents  of Canada.
Consequently,  it may be difficult for United States investors to effect service
of process within the United States upon those  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.


ITEM 2.  DESCRIPTION OF PROPERTY.

LOCATION  AND  ACCESS.  The  Soledad  Mountain  Project is located in the Mojave
Mining  District  in Kern  County  in  southern  California,  approximately  2.4
kilometers (1.5 miles) from Highway 14, a paved, four-lane highway. Los Angeles,
California  is about 100  kilometers  (62 miles)  south of the  project  and the
metropolitan area of  Lancaster/Palmdale,  California is less than 35 kilometers
(22 miles) to the south by Highway 14.  Secondary paved access roads extend from
Highway 14 and encircle Soledad Mountain,  providing access to the project site.
Major  power  lines come to within a few hundred  meters of the  proposed  plant
electrical substation on the north-east corner of the project.

There  is no  source  of  naturally-occurring  water  on  the  project  site  in
quantities  deemed  sufficient  for  mining  operations.  However,  the  Company
controls  an area to the north of  Soledad  Mountain  and  because  of  previous
testing,  believes  sufficient water can be found at an estimated depth of 61 to
122 meters (200 to 400 feet). The Company also controls an alternate site to the
west of the  mountain,  and  believes  water  can be  found  there at a depth of
approximately 213 meters (699 feet).

The population centers of Mojave,  Lancaster,  Bakersfield and Los Angeles,  all
located within a 161-kilometer (100 mile) radius of the project, are sources for
the labor, supplies, material and equipment needed for the project. The Santa Fe
Railway line runs parallel to, and just east of, Highway 14. The town of Mojave,
California  provides a  

                                       9
<PAGE>


convenient railhead for delivery of large pieces of equipment.  Other aspects of
regional  infrastructure  already in place and  available to support the Soledad
Mountain Project include hospitals,  ambulance  service,  fire fighting service,
garbage disposal, schools, living accommodations, shopping, airline services and
recreational areas.

Local  climatic  conditions  reflect the high desert  environment  of the Mojave
Desert in  southern  California.  Conditions  are  variable,  with  temperatures
ranging from below freezing in the winter to more than 40.6o Celsius  (105oF) in
the summer.  Wind is a factor with  respect to  structural  stability,  as gusts
frequently  reach 100 to 130  kilometers  (62 to 81 miles)  per hour.  Flora and
fauna  are  sparse  in  the  project  area,  reflective  of  the  Mojave  Desert
environment.  No perennial  streams or springs exist in the project area and the
only surface run-off occurs during the heavy  rainstorms that are most prevalent
from December through March of each year

LAND OWNERSHIP AND MINING RIGHTS.  Golden Queen's property is west of California
State  Highway  14 and  largely  south  of  Silver  Queen  Road in Kern  County,
California  covering  all of section 6 and  portions  of  sections 5, 7 and 8 in
Township 10 North,  Range 12 West;  portions of sections 1 and 12 in Township 10
North, Range 13 West;  portions of section 18 in Township 9 North, Range 12 West
and portions of section 32 in Township 11 North, Range 12 West, all from the San
Bernardino Baseline and Meridian.  Most of the mining processing facilities will
be located in Section 6 in Township 10 North, Range 12 West. The project area is
a 497-hectare  (1,228 acres)  contiguous  block within an area of  approximately
1,012  hectares  (2,501  acres) held by the  Company.  The  project  property is
comprised of 33 patented lode mining claims,  123 unpatented lode mining claims,
one unpatented placer mining claim, one patented mill site claim, six unpatented
mill site  claims  and 379  hectares  (937  acres) of fee land.  One  hectare is
approximately 2.471 acres.

The  project  property  is  held  by the  Company  (through  its  United  States
subsidiary)  under a  variety  of  agreements  with 65  property  owners.  These
agreements include 56 mining leases, two exploration  agreements with options to
purchase and seven purchase agreements that are in various stages of completion.
Most of these agreements were entered into during the five-year period preceding
the  date of this  report,  at a total  cost  to the  Company  of  approximately
$3,800,000.

The Company  commissioned a formal title summary  covering the project  property
which was rendered in August and September 1996. It was updated in February 1998
and again in March 1999. With such a complicated  ownership history as is common
in historic  mining  districts,  it is typical for title  problems to exist with
respect to properties in the area in which the project is located. The few title
questions  which exist with respect to the property have been  determined by the
Company  to not  present  a  material  threat to the  project.  The  Company  is
attempting  to resolve the title issues of which it is currently  aware with the
assistance  of its  California  counsel,  a law firm  with  experience  in title
matters relating to properties in the Mojave Mining District.

A  comprehensive  land survey of the project  area has not yet been  undertaken.
Since 1993, the whole of the project area and much of the immediate  surrounding
area has been  segregated  from  appropriation  under the United States  General
Mining Law of 1872.  The  segregation  terminates  May 8, 2000 and is additional
protection to the Company in the event open ground exists in the project area.

The  various  property  purchase  agreements  to which  the  Company  is a party
typically  require payment by the Company of the purchase price over an extended
period of time. In most cases, a somewhat larger advance payment was made at the
time the agreement was entered into and, in some instances,  a larger payment is
due at the time the  purchase is  completed.  Certain of the  property  purchase
agreements require the payment by the Company of royalties upon the commencement
of commercial  production  from the project.  As of December 31, 1998,  $859,000
remained  to be  paid by the  Company  under  these  various  property  purchase
agreements; $52,000 of this amount is due within the ensuing twelve months.

The leases to which the Company is a party typically require payment in the form
of advance minimum royalties. With one exception,  these payments are subject to
a credit when  production  from the project  starts.  In both the leases and the
purchase agreements, applicable royalties are restricted to the property covered
by the lease or agreement,  as the case may be. 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  being a  function  of the ore  grade on the
property to which the royalty  relates.  Typically,  the royalties are 5% NSR or
less,  with an expected  average of 3.1% NSR based on the 

                                       10
<PAGE>


sliding scale royalty  percentage  and the modest grade of the deposit.  Many of
the  leases  provide  that the  royalty  payable  to the  lessor is  subject  to
adjustment in the event that the interest of such lessor in the property  leased
to the Company is greater or less than  represented by the lessor in such lease.
A number of the agreements have an additional modest royalty consideration which
applies in the event that non-mineral commodities,  such as aggregates, from the
property are sold.

In addition to these  agreements,  the Company is also obligated under the terms
of an  April  1,  1995  option  agreement  to  purchase  all of the  issued  and
outstanding  shares of a  privately-held  California  corporation  owning a 80.9
hectare (200 acre) tract of land near the Soledad  Mountain  project  site.  The
Company has paid $850,000  toward the purchase of these shares as of the date of
this report, and is obligated to pay an additional $750,000 on or before July 1,
1999. Once commercial  production  begins,  the Company is also to pay a royalty
equal to 1% of gross smelter returns.

The Company does not require  additional  properties to put the Soledad Mountain
Project  into  production,  and has no present  plans to acquire any  properties
within the mine area. The Company  continually  evaluates  other precious metals
mining  opportunities  for  possible  acquisition  or  joint  venture,  and from
time-to-time engages in exploratory discussions regarding such opportunities. As
of the date of this report,  the Company has no agreement,  undertaking or other
arrangement  with any person  regarding  the  acquisition  of mining  properties
outside the Soledad Mountain Project area.


GEOLOGY.

REGIONAL  GEOLOGY.  The  structural  history  of the  western  United  States is
complex,  with orogenic events occurring from the Late Cretaceous  Period to the
Middle  Miocene Epoch  (approximately  74.5 to 16 million years ago). The Sierra
Nevada Range and the San Bernardino  Mountains,  the principal arcs  surrounding
the Soledad Mountain area, are relatively  narrow,  with  well-defined  zones of
calc-alkaline  volcanic  and  plutonic  activity.   Deposits  of  copper,  iron,
molybdenum, tungsten, gold and silver are associated with these orogenic events.
Miocene volcanic units rest  unconformably  on Late Cretaceous  quartz monzonite
(Sierra Nevada  Batholith)  basement.  This suggests that the volcanic center at
Soledad Mountain may lie in a domed or  tectonically-elevated  area, perhaps the
topographic  margin of a caldera with the central  collapsed area represented by
the  accumulation  of  tuffaceous  sediments  south of Soledad  Mountain  in the
Rosamond Hills area.

SITE GEOLOGY. Soledad Mountain is a moderately-eroded silicic volcanic center of
Middle-to-Late  Miocene epoch  (approximately 21.5 million to 16.9 million years
ago) and is interpreted as part of a large caldera.  Volcanics consist of felsic
flows,  tuffs and  breccias  with  rock  types  ranging  from  quartz  latite to
rhyolite.  Faults  have  disrupted  all major rock  types with the major  faults
trending N10oE to N40oW. The faults dip from 70o to 99o near the surface and 45o
to 60o at depth.  On the north-east side of the project area, the faults tend to
dip toward the  north-east,  while the faults on the south-west side tend to dip
towards the south-west. From east to west, the principal veins crop out within a
north-west  trending  belt about 1,219 meters  (3,998 feet) wide and about 1,981
meters (6,498 feet) long.

The mountain consists of coalescing and  interpenetrating  volcanic domes, along
with lava flows and pyroclastic ash-fall tuffs and flows.  Volcanic compositions
range  from  quartz  latite to  rhyolites  with ages  ranging  from 21.5 to 16.9
million years. Other past gold producing structures in the district show similar
characteristics  to Soledad  Mountain.  Common  features are an  epithermal  hot
spring style of mineralization, host rocks consisting of calc-alkaline volcanics
and  structurally  controlled  mineralization.  The gold mines within the Mojave
Mining District appear to line the rim of a collapsed caldera. The center of the
caldera  is  south-east  of  Soledad  Mountain,  north of the  Tropico  Mine and
south-east of the Cactus Gold Mine.

The  Standard  Hill Mine,  north-east  of Soledad  Mountain,  consists of faults
filled with quartz  veins that  cross-cut  quartz  monzonite  and quartz  latite
volcanics.  The veins strike north to  north-west  with shallow dips towards the
east and  north-east,  respectively.  This deposit  represents a  mineralization
lower in the system than Soledad Mountain.  The Tropico Mine, seven miles to the
south,  consists of Cretaceous quartz monzonite  overlain by volcanics of quartz
latite  flow-banded  rhyolite and rhyolite  porphyry similar to those of Soledad
Mountain.  The veins  strike east to west and dip 65 to 70 degrees to the south.
Quartz veins fill pre-mineral  faults, with movement continuing during and

                                       11
<PAGE>


after mineralization.  The Cactus Gold Mine, five miles to the west, consists of
quartz latite to rhyolite flows, resting unconformably on quartz monzonite.  The
strikes of the veins vary from  north-east to  north-west  with the dips varying
from  the  south-east  to   north-east.   Mineralization   is  associated   with
quartz-filled   faults,   fault   breccia  and  zones  of   silicification   and
argillization of the wall rock.

The mineralized faults at Soledad Mountain show two distinct dip directions. The
faults on the north-east portion of Soledad Mountain dip 60 to 80 degrees to the
north-east.  Faults on the south-west  portion of Soledad  Mountain dip 60 to 85
degrees to the  south-west.  The area between these sets of faults  represents a
vent axis  trending  north-west,  forming an elevated  crest with an  underlying
competent  root system.  Upon the collapse of the caldera,  block faulting along
the slopes was deflected  away from the vent axis and its competent root system.
Mineralization  occurs in a series of epithermal veins,  faults and shear zones.
Vein widths vary up to fifteen meters and are  consistent  along strike and down
dip.  Some of them have been  mined to a  vertical  depth of 305  meters  (1,000
feet).  Testing  has shown that the  principal  ore  minerals  are native  gold,
electrum and a suite of silver minerals consisting of acanthite,  native silver,
pyrargyrite  and  polybasite  in a gangue of oxidized,  brecciated,  quartz with
minor pyrite. Traces of sphalerite, chalcopyrite and galena are also present.

The lateral extent of mineralization in the different  volcanic units at Soledad
Mountain  varies.  Mineralization  of the volcanic flow units of quartz  latite,
flow-banded rhyolite and porphyitic rhyolite is generally confined to faults and
fault breccias and shows a weak lateral  potential for  mineralization  into the
wall rock.  Where  mineralized  faults and veins  cross-cut the middle and upper
pyroclastic  units,  a wider halo of  mineralization  into the host rock occurs.
This indicates penetration of hydrothermal solutions into the more permeable and
porous tuffaceous units of the Soledad Mountain complex.

The  Company  believes  the  geology of the  Soledad  Mountain  Project  area is
conducive to its intended operations.


ITEM 3.  LEGAL PROCEEDINGS.

A wholly-owned  subsidiary of the Company has been named in a complaint filed on
December 9, 1997  (although  the Company did not become  aware of the  complaint
until  September of 1998) in the Superior  Court of the state of California  for
the county of Kern. The principal parties in the complaint are George Creque, Jr
(plaintiff)  and Cactus Gold Mines  Company,  Inc.  (defendant).  The  complaint
contains a claim for unspecified  compensatory and punitive  damages  associated
with the introduction of various toxic  substances into the general  environment
by a mining property located  approximately five miles from the Soledad Mountain
project and unrelated to the Company. The Company believes that the complaint is
without merit; and, furthermore, is not applicable to the Company.


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 1998.


                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.

PRICE  RANGE OF COMMON  SHARES.  The Common  stock of the  Company is listed and
traded on The Toronto Stock  Exchange.  The  following  table sets out the price
range of the common  stock as  reported by The Toronto  Stock  Exchange  for the
calendar periods indicated. All prices are reported in Canadian dollars.

     Year Ended December 31, 1997                       High              Low

     First Quarter                     C$               3.95             1.90
     Second Quarter                                     3.02             1.90
     Third Quarter                                      2.50             1.50
     Fourth Quarter                                     2.05             0.50

                                       12
<PAGE>


     Year Ended December 31, 1998                       High              Low

     First Quarter                     C$                .90              .54
     Second Quarter                                      .89              .39
     Third Quarter                                       .92              .36
     Fourth Quarter                                      .69              .36

DIVIDEND  POLICY AND RECORD.  The Company has never paid dividends on its common
stock.  The  Company's  present  policy is to retain any earnings for use in its
business  and it does not intend to pay  dividends  on the  common  stock in the
foreseeable future. Payment of any cash dividends in the future will depend upon
the earnings and  financial  condition  of the  Company,  any  covenants in loan
documents  and other  factors the board of directors of the Company may consider
to be  appropriate.  As of December 31, 1998 there were 287 holders of record of
the Company's common stock.

SALES OF  UNREGISTERED  SECURITIES.  Sales of  securities by the Company in 1998
which were not registered under the Securities Act were as follows:

(a)  On February  28,  1998,  1,834,300  of  unregistered  common  shares of the
     Company were issued upon the exercise of warrants, which were issued on May
     23,  1996,  at a price of C$0.68 per share for gross  proceeds  of $879,264
     (C$1,247,324).  The shares were  issued to a small  group of  sophisticated
     investors  with  exemptions  granted under Section 4(2) and Regulation S of
     the Securities Act.

(b)  On May 14, 1998,  5,236,000 of  unregistered  common  shares of the Company
     were  issued at a price of  C$0.68  per share  for  aggregate  proceeds  of
     $2,437,753  (C$3,525,256).  The  shares  were  issued  to a small  group of
     investors  with  exemptions  granted under Section 4(2) and Regulation S of
     the Securities Act.


ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.


STATEMENTS OF OPERATIONS AND DEFICIT AND CHANGES IN FINANCIAL POSITION DATA.

RESULTS OF OPERATIONS.

OVERVIEW.  During the periods  indicated in the discussion  which  follows,  the
Company has been in the exploration  and  development  stage of its business and
therefore has earned no revenue from its operations.  Variations in the level of
expenses between periods have been as a result of the nature, timing and cost of
the  activities  undertaken in the various  periods.  Financing of the continued
exploration and development of the Soledad  Mountain project during such periods
has been  obtained  through the sale of shares of common stock of the Company in
predominantly offshore transactions, and through borrowings. Please see "Plan of
Operations" below.

Operating results of the Company are summarized as follows:


                            Year Ended          Year Ended   Cumulative Since
                     December 31, 1998   December 31, 1997          Inception
                     --------------------------------------------------------
General and
  administrative
  expense                  $ 1,001,062         $ 1,095,943        $ 4,238,862
Interest expense                20,583              96,320            323,485
Interest income                 74,646             154,704            940,370
Net loss                      (971,595)         (1,047,869)        (3,940,503)

                                       13
<PAGE>


For the  year  ended  December  31,  1998,  the  Company  incurred  general  and
administrative  expenses of  $1,001,062,  as compared to $1,095,943 for the year
ended December 31, 1997. The decrease is primarily due to decreased expenditures
for marketing and professional fees.  Interest expense for the year was $20,583,
as compared to $96,320 for the year ended December 31, 1997. The decrease is due
to the interest  bearing  convertible  debentures  being  converted to 2,017,941
common shares on March 18, 1998.  Interest  income for the year was $74,646,  as
compared to $154,704 for the year ended  December 31, 1997.  The decrease is due
to a decrease in the Company's average cash balance during the year. As a result
of the foregoing  factors,  the Company  incurred a net loss of $971,595 for the
year ended  December 31, 1998, as compared to a net loss of  $1,047,869  for the
year ended December 31, 1997.

LIQUIDITY AND CAPITAL RESOURCES.

GENERAL.  The Company  acquired the Soledad Mountain Project in 1986. Since then
it has  solidified its land position,  conducted  several  drilling and sampling
programs  to  delineate  ore  reserves,  and taken  steps to secure  permits and
approvals  necessary to production  activities.  The Company previously reported
that it expected to begin  producing gold and silver from the project during the
second half of 1998, once  permitting was completed.  Because of the downturn in
world gold prices during the second half of 1997,  however,  the Company was not
able to obtain financing for construction. As a consequence,  production will be
delayed until gold prices improve.

The Company has had no reported revenues from operations since inception, and is
in the  exploration  or  development  stage.  During the period  from  inception
through  December  31,  1998,  the  Company  has used  $3,233,000  in  operating
activities, primarily as a result of cumulative losses of $3,941,000. During the
same period,  the Company has used  $26,514,000 in investing  activities;  these
consisted of $25,217,000 in expenditures related to the Soledad Mountain Project
and  fixed  asset  purchases  of  $1,306,000.   These  operating  and  investing
activities were financed by net borrowings of $2,672,000 under various long-term
debt arrangements and from the sale of $28,273,000 of equity securities.

At December 31, 1998, the Company held $1,197,000 in cash and cash  equivalents.
As is  discussed  below  under the  heading  "Plan of  Operations",  significant
additional  funds  will be  needed  to put the  Soledad  Mountain  Project  into
production.  These funds are  expected to come from  additional  sales of common
stock and from bank or other borrowings.  Alternatively,  the Company may decide
to enter into a joint  development  or other  similar  arrangement  with another
mining  company to develop the  project.  The Company does not have a commitment
for bank financing or for the  underwriting  of additional  shares of its common
stock, and is not party to any agreement or arrangement  providing for the joint
development  of  the  Soledad  Mountain  Project.  Whether  and to  what  extent
additional  or  alternative  financing  options are pursued by the Company  will
depend on a number of  important  factors,  including  the  results  of  further
development activities at the Soledad Mountain Project,  management's assessment
of the financial  markets,  the overall capital  requirements for development of
the  project,  and the  price of gold.  Gold  prices  fluctuate  widely  and are
affected by numerous  factors beyond the Company's  control,  such as inflation,
the  strength of the United  States  dollar and foreign  currencies,  global and
regional  demand,  and the  political  and  economic  conditions  of major  gold
producing  countries  throughout the world. As of December 31, 1998,  world gold
prices  were  approximately  $287 per ounce.  The project is not  economical  at
current world gold prices and will not be economical until prices strengthen.

On May 23, 1996, the Company issued 5,500,000  special  warrants,  at a price of
$1.37 (C$2.50) per warrant, and received aggregate gross proceeds of $10,004,000
(C$13,750,000).  Each special  warrant was  exercisable  for one share of common
stock of the Company and one-half of a warrant which,  under its original terms,
entitled the holder to purchase one-half additional share of common stock of the
Company  at the price of C$2.90  at any time  prior to  November  28,  1997.  On
November 18, 1997,  the exercise  price of these warrants was reduced to C$1.525
and the exercise period extended to February 28, 1998, and on February 19, 1998,
the exercise  price was further  reduced to, C$0.68 per share.  Warrants for the
purchase  of  1,834,300  shares  of  common  stock  were  thereafter  exercised,
generating gross proceeds of $879,264 (C$1,247,324) to the Company.

On May 14, 1998, the Company  completed a private  placement of 5,236,000 common
shares at an issue price of $0.47  (C$0.68) per share for aggregate  proceeds of
$2,439,753 (C$3,525,256).

                                       14
<PAGE>


YEAR ENDED  DECEMBER 31,  1998.  During the year ended  December  31, 1998,  the
Company  used  $1,093,000  in operating  activities,  primarily as a result of a
$972,000  net loss during the year.  $3,248,000  of this amount was  provided by
financing  activities,  and consisted primarily of $3,297,000 raised through the
sale  of  equity  securities.  $2,085,000  was  used  in  investing  activities:
$1,770,000 of this amount was expended on exploration,  $303,000 was expended on
property  acquisitions and $13,000 was expended on fixed asset  purchases.  As a
result of the  foregoing,  the Company's cash balance  increased by $70,000,  to
$1,197,000, at December 31, 1998.

YEAR ENDED  DECEMBER 31,  1997.  During the year ended  December  31, 1997,  the
Company  used  $937,000  in  operating  activities,  primarily  as a result of a
$1,048,000  net loss during the year.  $5,079,000 of this amount was provided by
financing  activities,  and consisted primarily of $5,444,000 raised through the
sale  of  equity  securities.  $8,450,000  was  used  in  investing  activities:
$6,882,000 of this amount was expended on  exploration,  $1,020,000 was expended
on property acquisitions and $548,000 was expended on fixed asset purchases.  As
a result of the foregoing,  the Company's cash balance  decreased by $4,309,000,
to $1,127,000, at December 31, 1997.


PLAN OF OPERATIONS.

PROPOSED  ACTIVITIES AND ESTIMATED COSTS. As is more  specifically  disclosed in
Item 1 of this report,  the Company has substantially  completed  exploration of
the Soledad  Mountain  Project and intends to develop the project as an open pit
gold and silver mine employing a cyanide heap leach recovery system. Development
plans include the  construction  of  infrastructure  and processing  facilities,
mining by open pit methods and processing  precious  metals ores at a rate of up
to 5.76  million  tonnes (6.35  million  tons) per year for at least nine years.
Concurrent  heap  detoxification  will be employed by reclamation of the project
site.

The initial  capital costs of bringing the project into production are estimated
to be  $78,000,000;  these  include  costs  associated  with the purchase of all
necessary facilities and equipment,  construction costs, start-up costs, working
capital  and  contingency  costs over a  projected  thirteen-month  construction
period.  The Company  presently  cannot secure the financing needed to bring the
project  into  production,  and will not be able to do so unless gold prices and
the conditions in the gold equity markets improve.  Based on the current project
cost  information,  the Company believes world gold prices would have to achieve
sustained  levels of $325 per ounce or better  before  such  financing  could be
obtained.  The Company believes it is  well-positioned  to obtain this financing
when market conditions improve.

The Company estimates that total average operating costs will be $6.03 per tonne
($5.47 per ton) of ore processed, based on a stripping ratio of 4.57 to 1. These
operating  costs  consist  of mining  costs of $3.74 per tonne  ($3.39 per ton),
processing   costs  of  $1.73  per  tonne   ($1.57  per  ton)  and  general  and
administrative  costs of $0.56  per tonne  ($0.51  per ton).  The  Company  also
estimates  that average  annual  production  rates of 130,000 ounces of gold and
1,500,000  ounces of silver can be  maintained  for at least nine  years,  at an
average cash cost  (consisting of operating and royalty costs) of $176 per ounce
of gold, net of silver credits.

These  development plans are based on a February 1998 feasibility study that was
updated by the Company in December  1998,  The early 1998 study was prepared for
the Company by M3  Engineering  and  Technology  Corporation  incorporating  the
results of the Company's 1997 drilling  program.  The updated study included the
results of the 1998 program. The study was commissioned by the Company to obtain
project financing,  and to provide basic project  engineering  information.  Ore
reserve  estimates  and mine design  features  incorporated  into the study were
prepared by Mine Reserves Associates,  in collaboration with the Company;  basic
engineering   information  was  prepared  by  Batemen  Engineering,   Inc.,  and
supplemented by M3 Engineering and Technology. The total cost of the feasibility
study and update was $1,549,618.

The M3  Engineering  and  Technology  study  modifies and  supersedes an earlier
feasibility  study  completed  in  January  1997 by  Pincock,  Allen and Holt of
Lakewood, Colorado, based on the Company's estimate of ore reserves prior to the
1997  drilling  program and a different  throughput  design.  The Pincock  study
included  initial designs of the crushing  plant,  ore heap,  solution  handling
systems,  haul  roads  and  associated  surface  infrastructure  at the  Soledad
Mountain Project, and was prepared at a cost of $2,000,000.

                                       15
<PAGE>


Pending  successful  completion of a US$3.5 million  financing  during the first
half of 1999,  a work  program  is planned  that  includes  up to 25,000  meters
(82,020  feet) of  exploration  drilling and studies  relative to exploring  the
development  of an aggregates  business.  Following  completion of the 1999 work
program,  the mineralized  material inventory and ensuing ore reserve estimation
is planned to be fully audited by an independent consultant.

At December  31, 1998,  the Company had a deferred  tax asset of $582,000,  from
which the Company has provided a 100% valuation  allowance as management  cannot
determine  that it is more  likely than not that the  Company  will  receive the
benefit of the asset.

The Company is currently  evaluating the production and sale of aggregates  from
the Soledad  Mountain  Project.  The Company believes waste rock and leached ore
have several construction-related applications, and that the project's proximity
to major north-south and east-west railroad lines enhances the potential of such
a business.  Neither  the  feasibility  studies  referred to above nor any other
revenue  and cost  figures  contained  in this report  take such  business  into
account.

NEW ACCOUNTING  PRONOUNCEMENTS.  In June 1998 the Financial Accounting Standards
Board issued Statement of Financial  Accounting Standards No. 133 Accounting for
Derivative  Instruments and Hedging  Activities  ("SFAS No. 133").  SFAS No. 133
requires  companies to recognize  all  derivative  contracts as either assets or
liabilities  in the balance sheet and to measure them at fair value.  If certain
conditions are met, a derivative may be specifically  designated as a hedge, the
objective  of which is to match the  timing of gain or loss  recognition  on the
hedging  derivative with the recognition of (i) the changes in the fair value of
the hedged asset or liability that are  attributable to the hedged risk, or (ii)
the earnings effect of the hedged forecasted  transaction.  For a derivative not
designated as a hedging instrument,  the gain or loss is recognized as income in
the period of change.  SFAS No. 133 is  effective  for all fiscal  quarters  and
fiscal years  beginning  after June 15,  1999.  Based on its current and planned
future activities relative to derivative instruments,  the Company believes that
the  adoption  of SFAS No. 133 on  January  1, 2000 will not have a  significant
effect on its financial statements.

In June  1998 the  Accounting  Standards  Executive  Committee  of the  American
Institute  of  Certified  Public  Accountants  issued  Statement of Position 98,
Reporting on the Costs of Start-up  Activities  ("SOP 98-5").  SOP 98-5 requires
all  start-up  and  organizational  costs to be  expensed as  incurred.  It also
requires all remaining historically  capitalized amounts of these costs existing
at the date of adoption to be expensed and reported as the cumulative  effect of
a change in  accounting  principle.  SOP 98-5 is effective  for all fiscal years
beginning after December 31, 1998. The Company believes that the adoption of SOP
98-5 on  January  1, 2000 will not have a  significant  effect on its  financial
statements.

In February 1999 the Financial  Accounting  Standards Board issued  Statement of
Financial  Accounting  Standards  No. 135,  Rescission  of Financial  Accounting
Standards Board No. 75 and Technical Corrections ("SFAS 135"). SFAS 135 rescinds
SFAS 75 and amends  Statement of Financial  Accounting  Standards  Board No. 35.
SFAS 135 also amends other  existing  authoritative  literature  to make various
technical corrections, clarify meanings, or describe applicability under changed
conditions.  SFAS 135 is effective  for financial  statements  issued for fiscal
years ending after February 15, 1999. The Company  believes that the adoption of
SFAS 135 will not have a significant effect on its financial statements.

THE YEAR 2000 ISSUE. An issue exists for all companies that rely on computers as
the year  2000  approaches.  The year  2000  problem  is the  result of the past
practice  in the  computer  industry  of using two  digits  rather  than four to
identify the applicable year. This practice can result in incorrect results when
computers  perform  arithmetic  operations,  comparisons  or data field  sorting
involving  years later than 1999.  The Company has  reviewed  its  business  and
processing  systems and determined that the majority of the systems,  consisting
mostly of microcomputers  and financial and computer aided design  applications,
are already year 2000  compliant.  The Company  continues to work with  internal
staff and  outside  consultants  to address the scope of the year 2000 issue and
implement necessary solutions.

The  Company is also  making  inquiries  of its  suppliers  on which the current
development  activities and potential  operations of the business are critically
dependent to determine their year 2000  readiness.  An analysis of the

                                       16
<PAGE>


responses  from  suppliers  and vendors  received so far  indicates  substantial
compliance  with  year  2000  issues,  so that  any  effect  of a third  party's
non-compliance is expected to be immaterial to the Company as a whole.

In the last year, the Company has expended approximately $2,000 on its year 2000
review, included with general and administrative expense. It has budgeted $2,000
over the next year to upgrade,  gather  information,  and further  integrate its
business systems in order to avoid disruption of its operations,  liquidity, and
financial condition due to the year 2000 problem.


ITEM 7.  FINANCIAL STATEMENTS.

See the Consolidated  Financial  Statements of the Company and the notes thereto
at pages 28 through 43 of this report.


ITEM 8.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
         FINANCIAL DISCLOSURE.

None.

                                    PART III

ITEM 9.  DIRECTORS,   EXECUTIVE   OFFICERS,   PROMOTERS  AND  CONTROL   PERSONS;
         COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

The  names,  ages,  business  experience  for at least the past  five  years and
positions of the directors  and executive  officers of the Company as of January
31, 1999 are as  follows.  The  Company's  board of  directors  consists of five
directors.  All directors  serve until the next annual  meeting of the Company's
stockholders  or until their  successors  are elected and  qualified.  Executive
officers of the Company are appointed by the board of directors.

<TABLE>
<CAPTION>
NAME AND AGE OF DIRECTOR OR
EXECUTIVE OFFICER              POSITION WITH THE COMPANY              PRINCIPAL OCCUPATION
-------------------------------------------------------------------------------------------------------
<S>                         <C>                                    <C>
Steven W. Banning (1)       President, Chief Executive Officer     Officer of the Company.
Age:  47                    and Director

Bernard F. Goodson          Vice President -  Administration  and  Officer of the Company
Age:  61                    Controller

Richard W. Graeme           Vice President - Operations            Officer of the Company
Age:  57

Gordon C. Gutrath (1)       Director                               President of Atled Exploration
Age:  61                                                           Management Ltd.

Jerrold W. Schramm (2)      Director                               Partner, Lawson Lundell Lawson &
Age:  38                                                           McIntosh (barristers and solicitors)

Chester Shynkaryk (2)       Secretary and Director                 President of Visionary Mining
Age   54                                                           Corporation  (a mineral exploration
                                                                   company)

Edward G. Thompson (2)      Director and Chairman of the Board     President of E.G. Thompson Mining
Age:  62                                                           Consultants Inc.
</TABLE>

(1)      Member of the audit committee of the board of directors.
(2)      Member of the compensation committee of the board of directors.

                                       17
<PAGE>


BIOGRAPHICAL INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS.

STEVEN W. BANNING has been president and chief executive  officer of the Company
since 1995.  From 1986 through 1995, he was employed by Pegasus Gold Inc.,  last
serving as its vice president of operations.  Mr. Banning graduated from Montana
College  of  Mineral  Science  and  Technology  in 1974 with a degree in mineral
dressing engineering. He is also a director of Emgold Mining Corporation.

BERNARD F. GOODSON has been vice president of  administration  and controller of
the  Company  since  April  1996.  From May 1991 to  January  1996,  he was vice
president of finance of Pintlar Corporation,  a mining company  headquartered in
Kellogg, Idaho. Mr. Goodson graduated from Lewis and Clark State College in 1981
with a degree in management technology.

RICHARD W. GRAEME has been vice  president of  operations  of the Company  since
February  1996.  From  January  1994 to February  1996,  he was  principal  mine
engineer for Mine Development Associates, and from January 1991 to January 1994,
he served as chief  executive  officer of Mining  Remedial  Recovery  Corp.  Mr.
Graeme  graduated  from the  University  of  Arizona  in 1972  with a degree  in
geological engineering. He is also a director of Nevada Star Resources.

GORDON C. GUTRATH has been a director of the Company since 1987.  Since November
1995, he has also served as chairman of Queenstake  Resources,  which he founded
in 1977; he served as its president  from 1977 until  November 1995. Mr. Gutrath
is a professional  geologist and a registered  professional  engineer in British
Columbia.  He graduated from the  University of British  Columbia in 1960 with a
degree in geology. Mr. Gutrath is President of Atled Exploration Management Ltd.
and serves on the board of directors of AME Resource  Capital  Corp.,  Americana
Gold & Diamond Holdings, Inc. and Visionary Mining Corporation.

JERROLD W. SCHRAMM has been a director of the Company  since 1996.  He is also a
partner in the law firm Lawson Lundell Lawson & McIntosh, a position he has held
since February 1994, and for  approximately six and one-half years prior to that
was an associate of the firm.  He obtained an  undergraduate  degree in commerce
from the  University  of  British  Columbia  in 1983 and a law  degree  from the
University of Toronto in 1986.

CHESTER  SHYNKARYK has been a director of the Company since 1985,  and from 1985
to 1995, served as its president. In 1996 he was elected Secretary.  Also, since
1996,  he has served as  president of Visionary  Mining  Corporation,  a mineral
exploration  company.  He also  serves as a Director of Pacific  Star  Resources
Corporation and Markatech Industries Corporation.

EDWARD G.  THOMPSON  has been a director  of the  Company  since  1994,  and was
elected its chairman  effective  January 29, 1997. Since 1990 he has also served
as president of E.G.  Thompson  Mining  Consultants,  Inc.,  which he owns.  Mr.
Thompson  graduated  from the  University  of  Toronto  in 1959 with a degree in
mining  geology  and in 1960  earned a degree in  economic  geology.  He is also
president  of  Consolidated  Thompson-Lundmark  Gold  Mines  Ltd.,  and  Sparton
Resources,  Inc. He also serves on the Board of  Directors  of Adrian  Resources
Ltd., Aurogin Resources,  Dakota Mining,  Freewest Resources (Canada),  Geomaque
Explorations  Ltd.,  Laminco  Resources,  Inc.,  Western Troy Capital Resources,
Inc.,  Orvana  Minerals  Corporation,  Visionary  Mining  Corporation  and Windy
Mountain Exploration, Ltd.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING  COMPLIANCE.  Based solely upon its
review of Forms 3 and 4, as  amended,  furnished  to it during  its most  recent
fiscal year, and Forms 5, as amended, furnished to it with respect to such year,
the Company  believes all  directors  and  executive  officers  timely filed all
reports  required  to be filed  pursuant  to  section  16(a)  of the  Securities
Exchange Act of 1934.


          [The balance of this page has been left blank intentionally.]

                                       18
<PAGE>


ITEM 10.  EXECUTIVE COMPENSATION.

SUMMARY COMPENSATION TABLE.

The following table discloses  compensation  received by the Company's president
and  chief  executive   officer,   its  vice  president  of  administration  and
controller, and its vice president of operations for the year ended December 31,
1998, the year ended December 31, 1997,  the  seven-month  period ended December
31, 1996 and the prior fiscal year ended May 31, 1996.  The Company had no other
executive officers during 1998.


<TABLE>
<CAPTION>
ANNUAL COMPENSATION                                           LONG-TERM COMPENSATION

                                                               OTHER      SECURITIES
                                                               ANNUAL     UNDERLYING
          EXECUTIVE                                            COMPEN-     OPTIONS/
           OFFICER                      YEAR      SALARY       SATION        SARS
---------------------------------------------------------------------------------------
<S>                                     <C>        <C>           <C>        <C>    
Steven W. Banning (2)                   1998    $ 220,000     $  3,600(3)
President &Chief Executive Officer      1997      220,000        3,600            -
                                        1996      116,667        2,100      190,000(4,9)
                                        1996      100,000        1,800      810,000

Bernard F. Goodson(5)                   1998       86,000        3,600(3)         -
Vice President Administration &         1997       86,000        3,600            -
Controller                              1996       46,669        2,100            -
                                        1996        6,667          300      100,000(6,9)

Richard W. Graeme (7)                   1998      125,000            -            -
Vice President of Operations            1997      125,000            -            -
                                        1996       64,167            -            -
                                        1996       36,667            -      200,000(8,9)
</TABLE>

(1)  The  first  two years  shown in the  foregoing  table for each of the named
     executive officers covers the year ended December 31, 1998 and December 31,
     1997  respectively.  The third and fourth  years shown in the table are for
     the  seven-month  period ended December 31, 1996 and the year ended May 31,
     1996, respectively.
(2)  Mr.  Banning was  employed by the Company for six months  during the fiscal
     year ended May 31, 1996.
(3)  Represents automobile allowances paid to Mr. Banning and Mr. Goodson.
(4)  These  options  were  granted  pursuant  to  the  terms  of  Mr.  Banning's
     employment   agreement:   options  for  the  purchase  of  680,000  shares,
     exercisable  at C$1.35 per share were granted on December 1, 1995;  options
     for the purchase of an additional 130,000 shares, exercisable at C$1.51 per
     share were  granted on February  21,  1996;  and  options to  purchase  the
     remaining 190,000 shares,  exercisable at C$2.43 per share, were granted in
     November 1996 following  shareholder  approval to certain amendments to the
     Company's stock option plan.
(5)  Mr.  Goodson was  employed  by the Company for one month  during the fiscal
     year ended May 31, 1996.
(6)  These options were granted on May 21, 1996 and were  exercisable  at C$3.00
     per share.
(7)  Mr.  Graeme was not  employed  by the Company  until  February 1, 1996 and,
     accordingly,  was employed by the Company for four months during the fiscal
     year ended May 31, 1996.
(8)  These  options were granted on February  21, 1996 and were  exercisable  at
     C$1.51 per share.
(9)  On June 2, 1998,  the  exercise  price on all options  priced  greater than
     C$1.00 was changed to C$1.00.

TABLE OF AGGREGATE  OPTIONS  EXERCISED DURING THE FISCAL YEAR ENDED DECEMBER 31,
1998 AND FISCAL  YEAR-END  OPTION VALUES.  The following  table sets out certain
information  with  respect to options to purchase  shares of the common stock of
the Company  exercised  during the year ended December 31, 1998 by the Company's
named  executive  officers,  and options held by such persons at the end of such
year. Values are set forth in Canadian  dollars,  which is the currency in which
the options are  denominated.  At December 31, 1998,  each  Canadian  dollar was
approximately equal to $1.5333.

                                       19
<PAGE>


<TABLE>
<CAPTION>
                                                                         VALUE OF UNEXERCISED IN-THE
                                                UNEXERCISED OPTIONS AT         MONEY OPTIONS AT
                                                  DECEMBER 31, 1998           DECEMBER 31, 1998
                                                         (#)                         (C$)
-----------------------------------------------------------------------------------------------------
                      SECURITIES  AGGREGATE
                     ACQUIRED ON    VALUE 
                       EXERCISE   REALIZED
NAME                     (#)        (C$)      EXERCISABLE   UNEXERCISABLE   EXERCISABLE/UNEXERCISABLE
-----------------------------------------------------------------------------------------------------
<S>                       <C>         <C>      <C>                 <C>             <C>
Steven W. Banning         0           0        1,000,000           0               (See Note 1)
Bernard F. Goodson        0           0          100,000           0               (See Note 1)
Richard W. Graeme         0           0          200,000           0               (See Note 1)
</TABLE>

(1)  The closing  price of the common stock of the Company on The Toronto  Stock
     Exchange on December 31, 1998 was C$0.52 ($0.34).  None of the options were
     in-the-money at such date, and consequently, none had any value.

TABLE OF OPTIONS  GRANTED  DURING THE YEAR ENDED  DECEMBER 31, 1998.  No options
were granted to the named executive  officers during the year ended December 31,
1998.


TERMINATION OF EMPLOYMENT, CHANGE IN RESPONSIBILITIES AND EMPLOYMENT CONTRACTS.

EMPLOYMENT AGREEMENTS WITH STEVEN W. BANNING,  BERNARD F. GOODSON AND RICHARD W.
GRAEME. The Company has entered into employment agreements with Mr. Banning, its
president  and chief  executive  officer,  Mr.  Goodson,  its vice  president of
administration and controller,  and Mr. Graeme, its vice president of operations
in May 1996.  The  agreements  with Mr.  Goodson and Mr.  Graeme were amended in
March 1997 and the agreement with Mr. Banning was amended  effective in December
1998.

Each  agreement  provides  for the payment of salary and  bonuses,  the grant of
options to purchase  shares of common stock,  and the provision of certain other
benefits,  including those offered to employees generally.  Mr. Banning receives
an annual  salary of $220,000  pursuant  to his  employment  agreement  with the
Company.  Mr.  Goodson and Mr.  Graeme  receive  annual  salaries of $86,000 and
$125,000, respectively, pursuant to their agreements.

The  employment  agreements  also  provide  for  compensation  in the  event the
employee is terminated  other than for cause;  should this occur, the Company is
required to pay the  terminated  employee an amount equal to 24 months'  salary.
The agreements provide that if there is a "change in control" (as defined in the
agreements)  of the  Company  and  the  employee's  employment  is  subsequently
terminated  (unless such  termination  is for cause or by the employee for other
than "good  reason" as defined in the  agreements),  the employee is entitled to
receive a lump sum  severance  payment  equal to two times the  employee's  then
current annual base salary,  plus continued  benefits for a period of 24 months.
The  agreements  also  provide  that  any  existing  stock  options  held by the
terminated  employee vest  immediately  upon termination and may be exercised by
the employee for three months thereafter.  The employment  agreements are for an
unspecified period. Each provides that the employee may terminate his employment
upon six months' prior notice to the Company.

CONSULTING  AGREEMENT  WITH  ERIC  E.  KINNEBERG.  Pursuant  to the  terms  of a
consulting  agreement  dated  February 1, 1996  between the  Subsidiary  and Mr.
Kinneberg,  Mr.  Kinneberg has agreed to serve as a consultant to the Subsidiary
with  respect to  financial  and  related  matters,  and to  perform  such other
consulting  services  to the  Subsidiary,  as the  Subsidiary  may  propose.  As
consideration for such services,  the Subsidiary has agreed to pay Mr. Kinneberg
at the rate of $1,000 per day for services  rendered  and has further  agreed to
reimburse him for  out-of-pocket  expenses  incurred in the  performance  of his
services. The consulting agreement obligates Mr. Kinneberg to submit invoices to
the  Subsidiary no less often than  monthly,  specifying  the services  rendered
during the month,  and allows the Company to deduct $325 per month from  amounts
otherwise  payable  to Mr.  Kinneberg  for  use of the  Company's  offices.  The
consulting  agreement  with  Mr.  Kinneberg  is for a term of one  month  and is
thereafter 

                                       20
<PAGE>


renewable,  unless  terminated  either by the  Company  or Mr.  Kinneberg,  on a
month-to-month basis. Since February 1, 1996, the Company has paid Mr. Kinneberg
approximately $190,560 pursuant to the agreement.

REPORT ON  REPRICING  OF OPTIONS.  On January 28,  1998,  the board of directors
approved a resolution  reducing,  to C$1.00 per share, the exercise price of all
outstanding  options  held by  directors  and  employees  of the  Company or its
subsidiaries  having a greater  exercise price.  The resolution was proposed and
adopted by the board in  recognition of  historically  low gold prices and their
effect on the market price of the  Company's  common  stock,  and out of concern
that the  Company  could  lose key  employees  during  a  critical  stage of its
development  in the absence of such an incentive.  The  repricing  provision was
approved by the Company's stockholders and The Toronto Stock Exchange.

COMPENSATION OF DIRECTORS.  The Company's articles of incorporation provide that
the  directors  are  entitled  to be paid  reasonable  travel,  hotel  and other
expenses  incurred by them in the performance of their duties as directors.  The
articles  also  provide  that  if a  director  is  called  upon to  perform  any
professional  or other services for the Company that are outside of the ordinary
duties of a director,  the director may be paid  remuneration to be fixed by the
directors,  and such  remuneration  may be in addition to or in substitution for
any other remuneration the director may be entitled to receive.

The Company does not pay directors'  fees, and while it has no written policy or
standard  arrangement in this regard,  its current policy is to grant options to
its directors pursuant to the stock option plan described below. Generally, each
director has been granted  options to purchase an aggregate of 115,000 shares of
common stock, and such additional options as the plan's  compensation  committee
deems appropriate, taking into account the responsibilities and contributions of
the  directors.  During the year ended  December 31, 1998,  the Company  granted
options  to  purchase  25,000  shares  of  its  common  stock  to  each  of  its
non-employee  directors.  The options are  exercisable  on or before January 28,
2003, at an exercise  price of C$1.00 per share.  Furthermore,  on June 2, 1998,
the previously granted options were repriced to C$1.00 per share for all options
with an exercise price which exceeded  C$1.00 per share.  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.

STOCK OPTION PLAN. The shareholders of the Company approved the establishment of
a stock option plan for directors, officers and employees of the Company and its
subsidiaries  in  November  1992.  A maximum  of 10% of the  number of shares of
common stock issued and outstanding  from time to time are reserved for issuance
pursuant  to options  granted  under the plan,  and no person is  entitled to be
granted  options  constituting  more than 5% of the  number of then  outstanding
shares.

The exercise  price of each option granted under the plan is not to be less than
the market  price of the common  stock on The Toronto  Stock  Exchange as of the
date of grant.  All  options  granted  under the plan expire not later than five
years after the date of grant. The options are not  transferable,  other than by
will or other testamentary instrument or pursuant to the laws of succession.  If
an optionee is dismissed,  removed or otherwise ceases to be a director, officer
or  employee of the  Company or its  subsidiaries  (other than for cause or as a
result of his or her  death),  then his or her  unexercised  options  terminate;
termination  is  effective  on the  normal  expiration  date of the  unexercised
options  or 30 days  after the  person's  relationship  with the  Company or its
subsidiaries  has ended,  whichever  is  earlier.  In the event an  optionee  is
dismissed  as a  director,  officer  or  employee  of the  Company or one of its
subsidiaries for cause, all unexercised options terminate immediately.

In  February  1996 the board of  directors  approved an  amendment  to the plan,
replacing the current  "rolling  maximum"  limitation on the number of shares of
common stock  issuable  pursuant to options  granted under the plan with a fixed
maximum of 3,300,000  shares of common  stock.  The  directors  also  approved a
"vesting"  amendment to the plan which  provided  that  one-third of the options
granted to officers  and  employees  of the Company and its  subsidiaries  would
vest,  or  become  exercisable,  on the  date of grant  and  that an  additional
one-third would vest on each of the next two anniversaries of the date of grant.
These  amendments were approved by the stockholders of the Company at the annual
general meeting held on November 13, 1996, and were also  subsequently  approved
by The Toronto Stock Exchange.

                                       21
<PAGE>


The  plan  is  administered  by  the  compensation  committee  of the  board  of
directors, currently comprised of directors Schramm, Shynkaryk and Thompson.

Options to Purchase  Securities.  As at December 31, 1998, options to acquire an
aggregate  of  2,195,000  shares  of common  stock  were  outstanding  under the
Company's stock option plan, as follows:


<TABLE>
<CAPTION>
                                                                           NUMBER OF   EXERCISE PRICE
                                                                            COMMON      PER COMMON 
                                                                          SHARES UNDER     SHARE
     CLASS OF OPTIONEES             DATE OF GRANT       EXPIRY DATE        OPTION (1)        C$
-----------------------------------------------------------------------------------------------------
<S>                                <C>                <C>                    <C>           <C>  
Executive officers of Golden       December 1, 1995   December 1, 2000       680,000       $1.00
  Queen (three persons)            February 21, 1996  February 21, 2001      330,000       $1.00
                                   May 21, 1996       May 21, 2001           100,000       $1.00
                                   October 4, 1996    October 4, 2001        190,000       $1.00

Directors of Golden Queen who      August 24, 1994    August 24, 1999        100,000       $0.55
  are not also executive officers  September 21, 1994 September 21, 1999      90,000       $1.00
  of Golden Queen (four persons)   December 2, 1994   December 2, 1999        70,000       $1.00
                                   February 21, 1996  February 21, 2001       20,000       $1.00
                                   January 29, 1997   January 29,2002        130,000       $1.00
                                   January 28, 1998   January 28, 2003       100,000       $1.00

Executive officers of the          February 21, 1996  February 21, 2001       90,000       $1.00
  Subsidiary who are not also
  executive officers or directors
  of Golden Queen (one person)

All other employees of the         August 24, 1994    August 24, 1999         30,000       $0.55
  Subsidiary (nine persons)        July 20, 1995      July 20, 2000           60,000       $1.00
                                   June 27, 1996      June 27, 2001           50,000       $1.00
                                   November 19, 1996  February 19, 2000       85,000       $1.00
                                   March 25, 1997     June 25, 2000           70,000       $1.00
</TABLE>

(1)  Consists  of all  shares of common  stock  issuable  upon the  exercise  of
     options  granted as at  December  31,  1998.  including  those that had not
     vested at such date.


ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The following  table sets forth as of January 31, 1999, the names of, and number
of shares of common stock of the Company beneficially owned by, persons known to
the Company to own more than five percent (5%) of the  Company's  common  stock;
the names of,  and  number of shares  beneficially  owned by each  director  and
executive officer of the Company; and the number of shares beneficially owned by
all  directors and executive  officers as a group.  At such date,  the number of
shares of  common  stock of the  Company's  outstanding  or  deemed  outstanding
pursuant to presently  exercisable options,  warrants and conversion  privileges
was 37,043,309 shares.

                                       22
<PAGE>


<TABLE>
<CAPTION>
                                      AMOUNT AND NATURE OF BENEFICIAL
                                        OWNERSHIP (ALL DIRECT UNLESS
       NAME OF OWNER                           OTHERWISE NOTED)        PERCENT OF CLASS
---------------------------------------------------------------------------------------
<S>                                               <C>                        <C>  
Steven W. Banning (1), (2)                        1,062,000                  2.97%
  104 S Freya, Suite 211-A
  Spokane, WA 99202
Bernard F. Goodson (3)                              100,000                  0.29%
  104 S Freya, Suite 211-A
  Spokane, WA 99202
Richard W. Graeme (4)                               200,000                  0.57%
  11847 Gempen Street
  Mojave, CA 93501
Gordon C. Gutrath (1), (5)                          220,000                  0.63%
  1111 Melville Street, Suite 250
  Vancouver, B.C. V6E 3V6
Jerrold W. Schramm (1), (6)                         115,000                  0.33%
  925 W Georgia Street, Suite 1600
  Vancouver, B.C. V6C 3L2
Chester Shynkaryk (1), (7)                          414,508                  1.18%
  900 W Hastings Street, Suite 700
  Vancouver, B.C. V6C 1E5
Edward G. Thompson (1), (8)                         213,300                  0.61%
  55 University Ave., Suite 1210
  Toronto, ON M5J 2H7
All directors and executive officers
  as a group (7 persons)                          2,324,808                  6.34%

Harris Clay (10)                                  2,554,139                  7.34%
Landon T. Clay (11)                               3,279,122                  9.42%
Goodman and Company (12)                          5,621,800                 16.16%
</TABLE>

(1)  A director of the Company.
(2)  Includes presently exercisable options for the purchase of 1,000,000 shares
(3)  Includes presently exercisable options for the purchase of 100,000 shares.
(4)  Includes presently exercisable options for the purchase of 200,000 shares.
(5)  Includes presently exercisable options for the purchase of 115,000 shares
(6)  Includes presently exercisable options for the purchase of 115,000 shares.
(7)  Includes presently exercisable options for the purchase of 200,000 shares.
(8)  Includes presently exercisable options for the purchase of 155,000 shares.
(9)  See notes 2 through 8 above.
(10) Consists of:  1,178,672  shares held directly by Mr. Clay;  577,250  shares
     held by Arctic Coast Petroleum Ltd., with which Mr. Clay is affiliated; and
     798,217 shares held by the estate of an individual of which Mr. Clay is the
     executor. Harris Clay and Landon T. Clay are brothers.
(11) Consists of:  2,671,095  shares held directly by Mr. Landon T. Clay;  4,663
     shares held by the LTC Corp.  Profit Sharing and Retirement  Plan, of which
     Mr. Clay is a trustee; 26,114 shares held by LTC Corp., with which Mr. Clay
     is affiliated; and 577,250 shares held by Arctic Coast Petroleum Ltd., with
     which Mr. Clay is  affiliated.  In  addition,  Mr. Clay is related to three
     charitable trusts, The Landon T. Clay Charitable Lead Trust Dated 11/30/83,
     The Landon T. Clay  Charitable  Lead Trust II and the Monadnock  Charitable
     Lead Annuity  Trust which hold an aggregate of 6,439,842  shares.  Mr. Clay
     has no  beneficial  interest  in the  trusts,  and  does  not  directly  or
     indirectly exercise control over the direction of the trusts, and therefore
     disclaims beneficial ownership of these shares.
(12) Goodman and Company is a Canadian  investment  dealer.  The shares noted in
     this table are held by  various  funds  that are  managed  by  Goodman  and
     Company.

                                       23
<PAGE>


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

TRANSACTIONS  WITH LANDON T. CLAY AFFILIATES.  On March 19, 1996, the Subsidiary
issued two  debentures  in the aggregate  principal  amount of $1,000,000 to the
Landon T. Clay  Charitable  Lead Trust II and the Landon T. Clay Charitable Lead
Trust dated  11/30/83.  The  debentures  accrued  interest at a rate of 9.5% per
annum and matured  March 19, 1998.  Each was  convertible  into shares of common
stock of the  Company,  at the option of the holder,  at a  conversion  price of
C$2.00 ($1.46) per share,  subject to customary  "anti-dilution"  provisions set
out in the debenture instruments.

Mr. Clay agreed to convert the  debentures  into shares of common stock provided
the conversion  price was reduced to C$0.68 ($0.49) to reflect the current price
of the stock.  If the  debentures  were converted into shares of common stock at
the reduced  conversion  price, an aggregate of 2,017,941 shares of common stock
would be issued,  compared to 686,100 shares at the stated  conversion price. On
January 28,  1998,  the board of directors  approved a  resolution  reducing the
conversion price, which was subsequently approved by The Toronto Stock Exchange.
On March 18, 1998 the debentures were converted to common shares.

In May 1998, the Company  completed a private  placement of 5,236,000  shares of
common stock at a price of C$0.68  ($0.47) per share.  Of these shares,  800,000
were issued to The Landon T. Clay Charitable Lead Trust,  600,000 were issued to
The Landon T. Clay Charitable Lead Trust II, 2,000,000 shares were issued to the
Monadnock  Charitable Lead Annuity Trust and 800,000 shares were issued directly
to Landon T. Clay.

TRANSACTIONS  WITH LAWSON  LUNDELL  LAWSON &  MCINTOSH.  Jerrold W.  Schramm,  a
director of Golden Queen is a partner of the law firm of Lawson Lundell Lawson &
McIntosh,  counsel to the Company.  During the year ended December 31, 1998, the
year ended December 31, 1997 and the seven-month period ended December 31, 1996,
the Company paid Lawson Lundell Lawson & McIntosh $46,649, $104,749 and $133,841
for legal  services  rendered on behalf of the Company  and its  subsidiary.  No
members of the firm of Lawson  Lundell  Lawson & McIntosh other than Mr. Schramm
owned any  shares of  common  stock of the  Company,  or  rights or  options  to
purchase such stock, at December 31, 1998.








          [The balance of this page has been left blank intentionally.]

                                       24
<PAGE>

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K.


EXHIBITS.  The  following  exhibits are filed as part of this  report.  Exhibits
previously filed are incorporated by reference, as noted.

     EXHIBIT

       3.1        Certificate  and Articles of  Incorporation  of the registrant
                  under  the  Company  Act  of  British  Columbia,  as  amended.
                  Previously   filed  as   Exhibit   3.1  to  the   registrant's
                  registration  statement  on Form  10-SB  and  incorporated  by
                  reference herein.

      10.1        Warrant  Indenture  dated May 23, 1996 between the  registrant
                  and Montreal  Trust  Company of Canada as trustee.  Previously
                  filed  as  Exhibit  10.1  to  the  registrant's   registration
                  statement on Form 10-SB and incorporated by reference herein.

      10.2        Employment agreement dated April 2, 1996 among the registrant,
                  Castle Group, Inc. and Steven W. Banning.  Previously filed as
                  Exhibit  10.2 to the  registrant's  registration  statement on
                  Form 10-SB and incorporated by reference herein.

      10.3        Employment  agreement dated May 8, 1996 between the registrant
                  and Richard W. Graeme. Previously filed as Exhibit 10.3 to the
                  registrant's   registration   statement   on  Form  10-SB  and
                  incorporated by reference herein.

      10.4        Employment agreement dated May 24, 1996 between the registrant
                  and Bernard F.  Goodson.  Previously  filed as Exhibit 10.4 to
                  the  registrant's  registration  statement  on Form  10-SB and
                  incorporated by reference herein.

      10.5        Lease  dated  October  20, 1994  between  the  Subsidiary  and
                  William J. Warner with respect to certain  property within the
                  project  area.   Previously  filed  as  Exhibit  10.5  to  the
                  registrant's   registration   statement   on  Form  10-SB  and
                  incorporated by reference herein.

      10.6        Lease dated  September  19, 1994  between the  Subsidiary  and
                  Western  Centennials,  Inc., with respect to certain  property
                  within the project area.  Previously  filed as Exhibit 10.6 to
                  the  registrant's  registration  statement  on Form  10-SB and
                  incorporated by reference herein.

      10.7        Purchase  agreement dated March 8, 1995 between the Subsidiary
                  and William and Dorothy Meier with respect to the  acquisition
                  by the Subsidiary of certain property within the project area.
                  Previously   filed  as  Exhibit   10.7  to  the   registrant's
                  registration  statement  on Form  10-SB  and  incorporated  by
                  reference herein.

      10.8        Stock option  purchase  agreement  dated April 1, 1995 between
                  the Subsidiary and Grace W. Meehl, Madge W. Wolff,  Stephen G.
                  Wegmann,  Michael L.  Wegmann,  John G.  Hodgson,  Virginia L.
                  Sigl, Patrick L. Wolff and George P. Wolff with respect to the
                  acquisition  by the Subsidiary of an option to purchase all of
                  the  outstanding  shares of KWC.  Previously  filed as Exhibit
                  10.8 to the registrant's  registration statement on Form 10-SB
                  and incorporated by reference herein.

      10.9        Purchase  agreement  dated  September  22,  1995  between  the
                  Subsidiary  and the Paveen  Gupta  Medical  Corporate  Defined
                  Benefit  Pension Plan with respect to the  acquisition  by the
                  Subsidiary  of  certain  property  within  the  project  area.
                  Previously   filed  as  Exhibit   10.9  to  the   registrant's
                  registration  statement  on Form  10-SB  and  incorporated  by
                  reference herein.

      10.10       Purchase agreement dated March 29, 1996 between the Subsidiary
                  and the Meehl  Family  Trust and  others  with  respect to the
                  acquisition by the Subsidiary of certain  property  within the
                  project  area.  

                                       25

<PAGE>


                  Previously   filed  as  Exhibit  10.10  to  the   registrant's
                  registration  statement  on Form  10-SB  and  incorporated  by
                  reference herein.

      10.11       Mineral exploration  agreement and option to lease or purchase
                  dated  January 25,  1996  between  the  Soledad-Mojave  Mining
                  Syndicate  and the  Subsidiary  with respect to the  potential
                  acquisition  by the  Subsidiary of 129.5  hectares of fee land
                  within the project area.  Previously filed as Exhibit 10.11 to
                  the  registrant's  registration  statement  on Form  10-SB and
                  incorporated by reference herein.

      10.12       Purchase agreement dated August 1, 1996 between the Subsidiary
                  and  Southwestern  Refining  Corporation  with  respect to the
                  acquisition  by the  Subsidiary  of certain  property and mill
                  tailings within the project area.  Previously filed as Exhibit
                  10.12 to the registrant's registration statement on Form 10-SB
                  and incorporated by reference herein.

      10.13       Stock  option plan of the  registrant,  as  amended.  Filed as
                  Exhibit 10.13 to the  registrant's  registration  statement on
                  Form 10-SB and incorporated by reference herein.

      10.14       Management  agreement  dated June 30, 1986, as amended January
                  30, 1990, between the registrant and Chester Shynkaryk.  Filed
                  as Exhibit 10.14 to the registrant's registration statement on
                  Form 10-SB and incorporated by reference herein.

      10.15       Forms of debentures issued by the registrant to Landon T. Clay
                  Charitable  Lead Trust II and Landon T. Clay  Charitable  Lead
                  Trust dated  November 30, 1983.  Filed as Exhibit 10.15 to the
                  registrant's   registration   statement   on  Form  10-SB  and
                  incorporated by reference herein.

      10.16       Consulting  agreement  dated  February  1,  1996  between  the
                  registrant  and Eric E.  Kinneberg.  Filed as Exhibit 10.16 to
                  the  registrant's  registration  statement  on Form  10-SB and
                  incorporated by reference herein.

      10.17       Amendment to employment agreement dated March 28, 1997 between
                  the registrant and Richard W. Graeme filed as Exhibit 10.17 to
                  the registrant's  registration statement on Form 10KSB for the
                  year ended  December  31, 1997 and  incorporated  by reference
                  herein.

      10.18       Amendment to employment agreement dated March 28, 1997 between
                  the  registrant  and Bernard F. Goodson filed as Exhibit 10.18
                  to the registrant's  registration  statement on Form 10KSB for
                  the year ended December 31, 1997 and incorporated by reference
                  herein.

      21.0        Subsidiaries  of the Registrant.  Previously  filed as Exhibit
                  24.0 to the registrant's  registration statement on Form 10-SB
                  and incorporated by reference herein.

      24.0        Power of attorney and consent on Form F-X. Previously filed as
                  Exhibit  24.0 to the  registrant's  registration  statement on
                  Form 10-SB and incorporated by reference herein.

      27.0        Financial Data Schedule. Filed herewith.

      99.0        Report of  MacKay &  Partners  with  respect  to May 31,  1996
                  financial  statements of the registrant  filed as Exhibit 99.0
                  to the registrant's  registration  statement on Form 10KSB and
                  incorporated by reference herein.


FORM 8-K REPORTS. No reports on Form 8-K were filed by the registrant during the
fourth quarter of 1998.

                                       26

<PAGE>

Report of Independent Auditors


To the Shareholders of
Golden Queen Mining Co. Ltd.
Vancouver, B.C.


We have audited the  accompanying  consolidated  balance  sheets of Golden Queen
Mining Co. Ltd. (a development  stage company) as of December 31, 1998 and 1997,
and the consolidated  statements of loss,  changes in shareholders'  equity, and
cash flows for the years then  ended.  We have also  audited the  statements  of
loss,  shareholders'  equity  and  cash  flows  for the  period  from  inception
(November  21, 1985)  through  December  31, 1998,  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 generally accepted auditing standards
in the United  States.  Those  standards  require  that we plan and  perform the
audits  to  obtain  reasonable  assurance  whether  the  consolidated  financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our  opinion,  based on our  audit  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, 1998 and 1997, and the results of its operations and its cash flows
for the years then ended and the  period  from  inception  (November  21,  1985)
through  December 31, 1998, in conformity  with  generally  accepted  accounting
principles in the United States.





BDO Dunwoody LLP
Chartered Accountants


February 8, 1999
(Except for Note 10, March 12, 1999)
Vancouver, British Columbia

                                       27

<PAGE>

                          GOLDEN QUEEN MINING CO. LTD.
                          (A DEVELOPMENT STAGE COMPANY)
                           CONSOLIDATED BALANCE SHEETS
                                 (U.S. DOLLARS)


<TABLE>
<CAPTION>

                                                             December 31,    December 31,
                                                                1998            1997
                                                            ------------    ------------
<S>                                                         <C>             <C>         
Assets
  Current assets:
   Cash and cash equivalents                                $  1,197,029    $  1,127,234
   Receivables                                                    12,692          14,798
   Prepaid expenses and other current assets                      72,942          77,773
                                                            ------------    ------------

   Total current assets                                        1,282,663       1,219,805

   Property and equipment, net (Note 1)                        1,090,536       1,164,651
   Mineral properties (Notes 2, 5 and 8)                      24,148,316      22,104,335
   Other assets (Note 3)                                         921,576         892,928
                                                            ------------    ------------

                                                            $ 27,443,091    $ 25,381,719
                                                            ============    ============


Liabilities and Shareholders' Equity

  Current liabilities:
   Accounts payable                                         $     87,201    $    384,388
   Accrued liabilities                                            43,948          69,427
   Current maturities of long-term debt (Note 5)                  51,686          45,034
                                                            ------------    ------------
  Total current liabilities                                      182,835         498,849

  Long-term debt, less current maturities (Notes 5 and 6)        807,750       1,857,189
                                                            ------------    ------------

  Total liabilities                                              990,585       2,356,038
                                                            ------------    ------------

  Commitments and contingencies (Notes 3 and 8)

Shareholders' equity:
  Preferred shares, no par, 3,000,000 shares
   authorized; no shares outstanding                                  --              --
  Common shares, no par, 100,000,000 shares
   authorized; 34,796,641 and 25,708,400
   shares issued (Notes 6 and 7)                              30,805,074      26,400,594
  Deficit accumulated during the development stage            (4,352,568)     (3,374,913)
                                                            ------------    ------------

  Total shareholders' equity                                  26,452,506      23,025,681
                                                            ------------    ------------

                                                            $ 27,443,091    $ 25,381,719
                                                            ============    ============


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

</TABLE>

                                       28

<PAGE>


                          GOLDEN QUEEN MINING CO. LTD.
                          (A DEVELOPMENT STAGE COMPANY)
                         CONSOLIDATED STATEMENTS OF LOSS
                                 (U.S. DOLLARS)


<TABLE>
<CAPTION>

                                                                                    Cumulative
                                                                             Amounts From Date
                                                                                  of Inception
                                       Year Ended                                (November 21,
                                      December 31,        Year Ended             1985) through
                                          1998        December 31, 1997      December 31, 1998
                                      ------------    ------------------     -----------------
<S>                                   <C>             <C>                    <C>              
General and administrative expense    $  1,001,062    $        1,095,943     $       4,238,862
Interest expense                            20,583                96,320               323,485
Interest income                            (74,646)             (154,704)             (940,370)
Other expense, net                          24,596                10,310                41,275
Abandoned mineral interests                     --                    --               277,251
                                      ------------    ------------------     -----------------

Net loss                              $   (971,595)   $       (1,047,869)    $      (3,940,503)
                                      ============    ==================

Net loss per share                    $      (0.03)   $            (0.04)
                                      ============    ==================

Weighted average shares outstanding     32,179,179            23,325,823
                                      ============    ==================


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

</TABLE>

                                       29

<PAGE>

                          GOLDEN QUEEN MINING CO. LTD.
                          (A DEVELOPMENT STAGE COMPANY)
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                                 (U.S. DOLLARS)


<TABLE>
<CAPTION>


  From the Date of                                           Deficit
     Inception                                             Accumulated
(November 21, 1985)                                         During the      Total
      through                 Common                       Development   Shareholders'
 December 31, 1998            Shares            Amount        Stage         Equity
--------------------------------------------------------------------------------------
<S>                          <C>              <C>          <C>           <C>
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

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

</TABLE>

                                       30

<PAGE>

                          GOLDEN QUEEN MINING CO. LTD.
                          (A DEVELOPMENT STAGE COMPANY)
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                                 (U.S. DOLLARS)

<TABLE>
<CAPTION>


 From the Date of                                            Deficit
    Inception                                              Accumulated
(November 21, 1985)                                         During the      Total
     through                   Common                      Development   Shareholders'
 December 31, 1998             Shares        Amount           Stage         Equity
------------------------------------------------------------------------------------
<S>                          <C>           <C>              <C>            <C>      
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             --      1,536,620
Share issue 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 issue
  cost                               --            --       (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

Issuance of common
  shares for cash                18,000        10,060             --         10,060
Issuance of common
  shares for special
  warrants                    5,500,000            --             --             --
Special warrants issue
  cost                               --            --       (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

</TABLE>
                  See Accompanying Summary of Accounting Policies
                 and Notes to Consolidated Financial Statements.

                                       31

<PAGE>

                          GOLDEN QUEEN MINING CO. LTD.
                          (A DEVELOPMENT STAGE COMPANY)
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                                 (U.S. DOLLARS)

<TABLE>
<CAPTION>


  From the Date of                                     Deficit
     Inception                                       Accumulated
 (November 21, 1985)                                  During the      Total
      through                Common                   Development  Shareholders'
  December 31, 1998          Shares         Amount      Stage         Equity
--------------------------------------------------------------------------------
<S>                          <C>           <C>         <C>            <C>       
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 issue
  cost                            --            --      (163,313)       (163,313)
Net loss for the year             --            --    (1,047,869)     (1,047,869)
                          ------------------------------------------------------
Balance, December 31,
1997                      25,708,400    26,400,594    (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 cost               --            --        (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 period           --            --      (971,595)       (971,595)
                          ------------------------------------------------------
Balance, December 31,     34,796,641   $30,805,074   $(4,352,568)   $ 26,452,506
  1998                    ======================================================

</TABLE>

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

                                       32

<PAGE>

                          GOLDEN QUEEN MINING CO. LTD.
                          (A DEVELOPMENT STAGE COMPANY)
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (U.S. DOLLARS)


                Increase (Decrease) in Cash and Cash Equivalents

<TABLE>
<CAPTION>

                                                                    Cumulative Amounts
                                                                        From Date of 
                                      Year Ended     Year Ended     Inception (November 
                                      December 31,   December 31,    21, 1985) through 
                                         1998            1997        December 31,1998
                                      -----------    -----------    ------------------
<S>                                   <C>            <C>            <C>          
Operating activities
 Net loss                             $  (971,595)   $(1,047,869)   $ (3,940,503)
 Adjustments to reconcile net
  loss to cash used in operating
  activities:
    Abandoned mineral interests                --             --         277,251
    Amortization and depreciation          86,969         66,962         195,841
    Loss on disposition of property
     and equipment                             --             --          10,949
 Options to directors                     107,444         70,200         177,644
 Changes in assets and liabilities:
    Receivables                             2,106        118,366         (12,692)
    Prepaid expenses and other
     current assets                         4,831        (22,170)        (72,942)
    Accounts payable and accrued
     liabilities                         (322,666)      (122,944)        131,149
                                      -----------    -----------    ------------

Cash used in operating activities      (1,092,911)      (937,455)     (3,233,303)
                                      -----------    -----------    ------------

Investment activities:
 Deferred exploration and
  development expenditures             (1,769,780)    (6,881,711)    (19,631,275)
 Purchase of mineral properties          (274,201)      (480,946)     (4,664,081)
 Deposits on mineral properties           (28,648)      (539,428)       (921,576)
 Purchase of property and
  equipment                               (12,854)      (548,303)     (1,305,818)
 Proceeds from sale of property
  and equipment                                --             --           8,492
                                      -----------    -----------    ------------

Cash used in investment
  activities                           (2,085,483)    (8,450,388)    (26,514,258)
                                      -----------    -----------    ------------

 Financing activities:
 Borrowing under long-term debt                --             --       3,766,502
 Payment of long-term debt                (42,787)      (202,472)     (1,094,784)

</TABLE>
                      See Accompanying Summary of Accounting
             Policies and Notes to Consolidated Financial Statements.

                                       33

<PAGE>

                          GOLDEN QUEEN MINING CO. LTD.
                          (A DEVELOPMENT STAGE COMPANY)
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (U.S. DOLLARS)


                Increase (Decrease) in Cash and Cash Equivalents

<TABLE>
<CAPTION>

                                                                                  Cumulative Amounts
                                                                                     From Date of
                                                      Year Ended     Year Ended  Inception (November
                                                     December 31,   December 31,  21, 1985) through
                                                         1998           1997      December 31, 1998
                                                     -----------    -----------   ------------------

<S>                                                    <C>              <C>          <C>       
  Issuance of common shares for cash                   2,439,753        157,050      13,086,902
  Share issuance costs                                    (6,060)      (163,313)       (412,065)
  Issuance of special warrants                                --      5,287,315      14,740,752
  Issuance of common shares upon
   exercise of warrants                                  857,283             --         857,283
                                                     -----------    -----------    ------------
Cash provided by financing activities                  3,248,189      5,078,580      30,944,590
                                                     -----------    -----------    ------------

Net change in cash and cash
  equivalents                                             69,795     (4,039,263)      1,197,029

Cash and cash equivalents,
  beginning balance                                    1,127,234      5,436,497              --
                                                     -----------    -----------    ------------

Cash and cash equivalents,
  ending balance                                     $ 1,197,029    $ 1,127,234    $  1,197,029
                                                     ===========    ===========    ============

Supplemental disclosures of cash flow information:

Cash paid during period for:
  Interest                                           $   126,458    $   199,114    $    675,177
  Income taxes                                       $        --    $        --    $         --

Non-cash financing and investing activities:
  Exchange of notes for common
   shares                                            $ 1,000,000    $        --    $  1,662,282
  Exchange of note for future
   royalty payments                                  $        --    $        --    $    150,000
  Common shares for mineral property                 $        --    $        --    $    280,211
  Mineral property acquired
   through the issuance of long-
   term debt                                         $        --    $        --    $  1,084,833


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

</TABLE>

                                       34

<PAGE>

                           GOLDEN QUEEN MINING CO. LTD
                          (A DEVELOPMENT STAGE COMPANY)
                         SUMMARY OF ACCOUNTING POLICIES


NATURE OF BUSINESS AND PRINCIPLES OF CONSOLIDATION. 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 development stage.  Planned activities involve bringing to operation
a precious metals mine located in Kern County,  California.  These  consolidated
financial  statements  include the accounts of Golden Queen, a British  Columbia
corporation, and its wholly-owned subsidiary,  Golden Queen Mining Company, Inc.
(the "Subsidiary"), a United States (State of California) corporation.

The underlying  value of the Company's  mineral  properties and related deferred
exploration  and  development  expenditures  is dependent on the  existence  and
economic recovery of ore reserves, confirmation of the Company's interest in the
underlying mineral claims, the ability to obtain necessary financing to complete
the  development,   and  future  profitable  production  or  proceeds  from  the
disposition thereof.

GENERALLY ACCEPTED ACCOUNTING PRINCIPLES.  The consolidated financial statements
have been prepared in accordance with generally accepted  accounting  principles
in the United States.

FISCAL-YEAR  CHANGE.  The board of directors  approved a change in the Company's
fiscal  year-end from May 31 to December 31,  effective  calendar year beginning
January  1, 1997.  A  seven-month  fiscal  transition  period  from June 1, 1996
through  December 31, 1996  preceded the start of the new  calendar-year  cycle.
Fiscal  years  presented  and  referred  to  in  these  consolidated   financial
statements  and notes  thereto are on a December  31  fiscal-year  basis  unless
otherwise noted.

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 cost. Depreciation
is provided by the  straight-line  method with a half-year  convention  over the
estimated service lives of the respective  assets,  which range from 5 to 29 1/2
years.

MINERAL  PROPERTIES.  Mineral  properties  include  the cost of advance  minimum
royalty payments,  the cost of capitalized property leases, share payments,  and
the cost of property  acquired  either by cash  payment or the  issuance of term
debt. Expenditures for exploration and development on specific proven properties
are also capitalized.  These costs will be amortized against subsequent revenues
or charged to operations at the time the related  property is determined to have
an impairment of value.

In accordance with the provisions of Statement of Financial Accounting Standards
("SFAS")  No. 121,  "Accounting  for  Impairment  of  Long-lived  Assets and for
Long-lived  Assets to be Disposed  Of",  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.  Reductions to the carrying  value,  if necessary,  are
recorded to the extent the net book value of the  property  exceeds the estimate
of future undiscounted cash flow.

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 remeasured into the functional currency in
accordance with SFAS No. 52, "Foreign Currency Translation," ("SFAS 52"). Assets
and liabilities in foreign  currencies are generally  translated into dollars at
the rates ruling at the balance sheet date. Revenues and expenses are translated
at average rates for the year.  Where amounts  denominated in a foreign currency
are converted  into dollars by remittance  or repayment,  the realized  exchange
differences are included in

                                       35

<PAGE>

other  income.  The  exchange  rates  prevailing  at both  December 31, 1998 and
December 31, 1997 were 1.53 and 1.43 respectively. The average rates of exchange
during the year ended  December  31, 1998 and the year ended  December  31, 1997
were 1.48 and 1.39 respectively.

NET LOSS PER SHARE.  The Company  computes and  discloses  earnings and loss per
share in accordance with SFAS No. 128,  "Earnings per Share" ("SFAS 128"), which
requires dual  presentation of basic earnings per share and diluted earnings per
share on the face of all  income  statements  presented  for all  entities  with
complete capital structures.  Basic earnings per share is computed as net income
divided by the weighted  average  number of common  shares  outstanding  for the
period.  Diluted  earnings per share reflects the potential  dilution that could
occur  from  common  shares  issuable   through  stock  options,   warrants  and
convertible  debt.  Since the Company's stock options,  warrants and convertible
debt are anti-dilutive for all periods presented,  only basic earnings per share
is presented.  A total of 2,195,000 common shares were issuable pursuant to such
stock  options at December 31, 1998 and a total of 2,300,000  common shares were
issuable pursuant to such stock options at December 31, 1997.

ENVIRONMENTAL  AND  RECLAMATION  COSTS.  The  Company  currently  has no  active
reclamation  projects,  but expenditures  relating to ongoing  environmental and
reclamation  programs  would either be expensed as incurred or  capitalized  and
depreciated  depending on the status of the related  mineral  property and their
future economic benefits. The recording of provisions generally commences when a
reasonably  definitive  estimate  of cost  and  remaining  project  life  can be
determined.

ESTIMATES.  The preparation of financial statements in conformity with generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  effect 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.
Actual results could differ from those estimates.

FAIR VALUE OF FINANCIAL INSTRUMENTS. The carrying amount reported in the balance
sheets for cash and cash equivalents,  accounts receivable, accounts payable and
accrued  expenses  approximate fair value because of the immediate or short-term
maturity  of these  financial  instruments.  The fair  value of  long-term  debt
approximates  its  carrying  value  because the stated rates of the debt reflect
recent market conditions or because the rates are variable in nature.

NEW ACCOUNTING  PRONOUNCEMENTS.  In June 1998 the Financial Accounting Standards
Board issued Statement of Financial  Accounting Standards No. 133 Accounting for
Derivative  Instruments and Hedging  Activities  ("SFAS No. 133").  SFAS No. 133
requires  companies to recognize  all  derivative  contracts as either assets or
liabilities  in the balance sheet and to measure them at fair value.  If certain
conditions are met, a derivative may be specifically  designated as a hedge, the
objective  of which is to match the  timing of gain or loss  recognition  on the
hedging  derivative with the recognition of (i) the changes in the fair value of
the hedged asset or liability that are  attributable to the hedged risk, or (ii)
the earnings effect of the hedged forecasted  transaction.  For a derivative not
designated as a hedging instrument,  the gain or loss is recognized as income in
the period of change.  SFAS No. 133 is  effective  for all fiscal  quarters  and
fiscal years  beginning  after June 15,  1999.  Based on its current and planned
future activities relative to derivative instruments,  the Company believes that
the  adoption  of SFAS No. 133 on  January  1, 2000 will not have a  significant
effect on its financial statements.

In June  1998 the  Accounting  Standards  Executive  Committee  of the  American
Institute  of  Certified  Public  Accountants  issued  Statement of Position 98,
Reporting on the Costs of Start-up  Activities  ("SOP 98-5").  SOP 98-5 requires
all  start-up  and  organizational  costs to be  expensed as  incurred.  It also
requires all remaining historically  capitalized amounts of these costs existing
at the date of adoption to be expensed and reported as the cumulative  effect of
a change in  accounting  principle.  SOP 98-5 is effective  for all fiscal years
beginning after December 31, 1998. The Company believes that the adoption of SOP
98-5 on  January  1, 2000 will not have a  significant  effect on its  financial
statements.

In February 1999 the Financial  Accounting  Standards Board issued  Statement of
Financial  Accounting  Standards  No. 135,  Rescission  of Financial  Accounting
Standards Board No. 75 and Technical Corrections ("SFAS 135"). SFAS 135 rescinds
SFAS 75 and amends  Statement of Financial  Accounting  Standards  Board No. 35.
SFAS 135

                                       36

<PAGE>

also amends other existing  authoritative  literature to make various  technical
corrections,   clarify  meanings,   or  describe   applicability  under  changed
conditions.  SFAS 135 is effective  for financial  statements  issued for fiscal
years ending after February 15, 1999. The Company  believes that the adoption of
SFAS 135 will not have a significant effect on its financial statements.

RECLASSIFICATIONS. Certain amounts in the December 31, 1997 financial statements
have been reclassified to conform to the December 31, 1998 presentation.


          [The balance of this page has been left blank intentionally.]

                                       37

<PAGE>

                          GOLDEN QUEEN MINING CO. LTD.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.       PROPERTY AND EQUIPMENT.

Property and equipment consists of:


                               December 31,  December 31,
                                   1998         1997
                                ----------   ----------
Building                        $  145,948   $  145,948
Furniture and fixtures              74,186       74,186
Equipment                          256,387      243,533
Automobiles                        129,986      129,986
Rental properties                  707,600      707,600
                                ----------   ----------
                                 1,314,107    1,301,253
Less accumulated depreciation      223,571      136,602
                                ----------   ----------

Property and equipment, net     $1,090,536   $1,164,651
                                ==========   ==========

2.       MINERAL PROPERTIES.

The Company has capitalized the amounts which have been 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 certain mining claims known as
the  Soledad  Property  ("Soledad"),   Mojave  Mining  District,   Kern  County,
California.

The Company's investment in mineral properties consists of the following:


                                                     December 31,  December 31,
                                                         1998          1997
                                                     -----------   -----------
Deferred exploration and development expenditures,
   beginning of period                               $16,681,550   $ 9,799,839
Costs capitalized during the period:
   Engineering                                           154,547     1,226,118
   Geology/drilling                                      445,660     3,739,064
   Permitting/environmental                               91,314       671,362
   Metallurgical testing                                  69,191        96,582
   Other direct costs                                  1,009,068     1,148,585
                                                     -----------   -----------
Deferred exploration and development expenditures,
   end of period                                      18,451,330    16,681,550

Properties                                             3,813,008     3,813,270
Advance minimum royalty                                1,883,978     1,609,515
                                                     -----------   -----------

Mineral properties                                   $24,148,316   $22,104,335
                                                     ===========   ===========

                                       38

<PAGE>

OTHER ASSETS.

On April 1, 1995,  the Company  acquired 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  located near the Soledad
site.  The option  called for an initial  non-refundable  payment of $100,000 in
exchange  for access to the property for a period of nine months to evaluate the
presence of mineral reserves.  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  is due upon  reaching
sustained  production or July 1, 1999, whichever comes first. The Company has no
legal  obligation to continue  making payment and cannot perfect its rights as a
shareholder of the corporation until full payment under the option is made. Upon
commencement of commercial  production,  the Company will pay a royalty of 1% of
gross smelter returns for a period of up to 60 years, not to exceed $60,000,000.

4.   INCOME TAXES.

At December 31, 1998 and December 31, 1997,  the Company had deferred tax assets
of approximately $587,000 and $364,000,  respectively,  principally arising from
net operating loss  carryforwards  for income tax purposes offset by development
costs expended for income tax purposes but capitalized  for financial  reporting
purposes.  As  management of the Company  cannot  determine if it is more likely
than not that the Company  will  receive the benefit of this asset,  a valuation
allowance equal to the deferred tax asset has been  established at both December
31, 1998 and December 31, 1997.

As at  December  31,  1998,  the Company had net  operating  loss  carryforwards
available to reduce taxable income in future years as follows:

       Country                      Amount          Expiration Dates
       -------                ------------          ----------------
       United States          $ 16,000,000               2002 - 2008
       Canada                 $  1,100,000               1999 - 2005

The  potential  effect  on  future  income  taxes  which  may  result  from  the
application  of  these  losses  has  not  been  reflected  in  these   financial
statements.



          [The balance of this page has been left blank intentionally]

                                       39

<PAGE>

5.     LONG-TERM DEBT.

Long-term debt consists of the following:

<TABLE>
<CAPTION>

                                                              December 31, 1998   December 31, 1997
                                                            -----------------------------------------
<S>                                                           <C>                  <C>         
Note due to a corporation,  payable in monthly
   installments  of  $9,275,  including  interest
   at prime plus 2% (9.75% at December  31,  1998),
   estimated to mature in June 2012 and  collateralized
   by mineral property.                                       $     803,230        $    826,694

9% note due an  individual,  payable in monthly
   installments of $600 including interest,
   maturing June 2006, collateralized 
   by mineral property.                                              39,139              42,638

10%  note  due  to  a  collective  group  of
   individuals,  payable in monthly  installments
   of $1,500  including  interest,  maturing
   at the earlier of April 1999 or  commencement
   of production,  collateralized
   by mineral property.                                              13,067              28,891

Non-interest bearing note payable to an individual,
  due on July 1, 1999, secured by a grant deed,
  collateralized by well and related water rights.                    4,000               4,000

Debentures  convertible  at the option of the holders
   into common  shares  which were  retired  through
   the  issuance  of  2,017,941  common  shares
   on March 18, 1998.                                                    --           1,000,000
                                                              -------------        ------------

Total long-term debt                                                859,436           1,902,223
Current maturities                                                   51,686              45,034
                                                              -------------        ------------

Long-term debt, less current maturities                       $     807,750        $  1,857,189
                                                              =============        ============
</TABLE>

Scheduled long-term maturities at December 31, 1998 are as follows:

     Year ending December 31,                     Amount
                                              ----------
     1999                                     $   51,686
     2000                                         35,877
     2001                                         39,763
     2002                                         44,070
     2003                                         48,844
     Thereafter                               $  639,196
                                               ---------
                                              $  859,436
                                              ==========

6.       SHARE CAPITAL.

On January 28, 1998,  the  conversion  price of the  debentures in the principal
amount of $1,000,000 was reduced from C$2.00 per share to C$0.68 per share. Such
conversion price reduction was approved by The Toronto Stock Exchange.  On March
18, 1998, the  convertible  debentures  were  converted  into  2,017,941  common
shares.

                                       40

<PAGE>

On February 19, 1998, the exercise  price of the common share purchase  warrants
issued by the Company  pursuant to a special warrant  offering  completed in May
1996 was reduced to C$0.68 per share from C$1.525 per share. Such exercise price
reduction  was  approved  by The  Toronto  Stock  Exchange.  In 1998,  1,834,300
warrants were  exercised at $0.49  (C$0.68) for  1,834,300  common  shares.  The
Company received net proceeds of $857,283 (C$1,216,142).

On May 14, 1998, the Company  completed a private  placement of 5,236,000 common
shares at an issue price of $0.47  (C$0.68) per share for aggregate net proceeds
of $2,439,753  (C$3,525,256).  The net proceeds of the private placement will be
used to fund ongoing  capital  expenditures  at the Company's  Soledad  Mountain
Project and for general corporate purposes.

On May 29, 1997, the Company issued  3,500,000  special warrants in exchange for
$5,287,315.  All of the special  warrants  were  exercised on September 6, 1997,
without any additional payment for 3,500,000 common shares.

7.       STOCK OPTION PLAN.

Under its amended  1996 stock  option  plan,  the  Company may grant  options to
purchase up to  3,300,000  shares of common  stock to  officers,  directors  and
employees.  The exercise price for all stock options is the closing price of the
Company's  common  shares (in Canadian  dollars) as traded on The Toronto  Stock
Exchange on the date of grant. Options issued to directors who are not employees
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 issued and outstanding as of
December  31,  1998  expire  at a date  determined  by the  Company's  Board  of
Directors,  not exceeding five years from the date of grant,  or after 39 months
from the date of grant if not specified.

On January 28, 1998,  additional  stock  options to purchase up to 25,000 shares
were granted to each of the Company's five non-employee  directors.  The options
are exercisable at the price of C$1.00 per share and expire on January 28, 2003.

Also, on January 28, 1998, the exercise price of all outstanding options held by
directors and employees of the Company and its subsidiary with an exercise price
of more than C$1.00 per share was reduced to C$1.00 per share. The Toronto Stock
Exchange  approved the repricing of the options subject to shareholder  approval
and, at the Annual  General  meeting of  shareholders  held on June 2, 1998, the
shareholders approved the repricing.

The following is a summary of all stock option activity:

<TABLE>
<CAPTION>
                                                            Year Ended                      Year Ended
                                                        December 31, 1998                December 31, 1997
                                                      Shares     Price Range           Shares    Price Range
                                                ---------------------------------------------------------------
<S>                                                  <C>         <C>                 <C>         <C>       
Options outstanding, beginning of period             2,300,000  C$0.55-3.20           2,257,000  C$0.55-3.00
Options granted                                        125,000  C$1.00                  200,000  C$2.70-3.20
Options exercised                                           --           --            (157,000) C$0.55-1.51
Options expired                                       (230,000) C$0.55-1.00(1)
                                                ---------------------------------------------------------------
Options outstanding, end of period                   2,195,000  C$0.55-1.00(1)        2,300,000  C$0.55-3.20

Options exercisable                                  2,171,668  C$0.55-1.00(1)        2,018,334  C$0.55-3.20

</TABLE>

(1)  Reflective of the June 1998 repricing.

                                       41

<PAGE>

The following  table  summarizes  information  about  fixed-price  stock options
outstanding at December 31, 1998:

<TABLE>
<CAPTION>
                                                 OPTIONS OUTSTANDING                    OPTIONS EXERCISABLE
                                                 -------------------                    -------------------
                                             Weighted-          Weighted-                           Weighted-
                           Number             Average            Average            Number           Average
  Range of Prices        Outstanding      Contractual Life    Exercise Price      Exercisable      Exercise Price
----------------------------------------------------------------------------------------------------------------------
<S>                          <C>                <C>                <C>               <C>               <C>  
C$0.55                       130,000            0.7               C$0.55             130,000          C$0.55
C$1.00                     2,065,000            2.1               C$1.00           2,041,668          C$1.00
----------------------------------------------------------------------------------------------------------------------
C$0.55 - $1.00             2,195,000            2.0               C$0.97           2,171,668          C$0.97

</TABLE>

The Company accounts for stock-based  compensation plans by applying APB Opinion
No. 25, Accounting for Stock Issued to Employees,  and related  Interpretations.
Under APB Opinion No. 25, because the exercise  price of the Company's  employee
stock options  approximates the market price of the underlying stock at the date
of grant, no compensation cost is recognized. The weighted average fair value at
date of grant for options  granted to  employees in 1998 and 1997 was C$1.00 and
C$3.20 per option.

SFAS Statement No. 123, "Accounting for Stock-Based  Compensation" ("SFAS 123"),
requires the Company to provide pro forma  information  regarding net income and
earnings per share as if compensation  cost for the Company's stock option plans
had been determined in accordance with the fair value based method prescribed in
SFAS 123. The Company estimates the fair value of each stock option at the grant
date  by  using  the  Black-Scholes  option-pricing  model  with  the  following
weighted-average assumptions used for grants in 1998 and 1997, respectively:  no
dividend  yield for each year;  expected  volatility  of 51 and 40 percent;  and
risk-free interest rates of 5.0 percent.

Under the accounting  provisions of FAS 123, the Company's net loss and loss per
share would have been adjusted to the pro forma amounts indicated below:

                                     Year Ended                 Year Ended
                              December 31, 1998          December 31, 1997
                              -----------------          -----------------
     Net loss:
       As reported              $  (971,595)               $(1,047,869)
       Pro forma                $(1,231,452)               $(1,108,669)

     Loss per share:
       As reported              $     (0.03)               $     (0.04)
       Pro forma                $     (0.04)               $     (0.05)


8.       COMMITMENTS AND CONTINGENCIES.

The Company's  investment in mineral  properties  includes an exclusive lease to
explore,  develop and mine the Soledad site.  The lease is for a minimum  twenty
year period, continuing on as long as the property remains in production subject
to  processing  a  minimum  of 12,000  tons of ore per  year.  The lease is also
subject to production  royalties of 3% to 7.5% of net smelter returns  depending
on the quality of ore eventually extracted.  All advance minimum royalties paid,
amounting  to  $100,000  per year,  are applied  against  any future  production
royalties.   The  Company  has  agreed  to  issue  100,000  common  shares  upon
commencement  of  commercial  production  in  connection  with certain  property
acquisitions.

The  Company  has entered  into  various  exploration  right,  lease  option and
property  acquisition  agreements on the above claims. The lease agreements have
various terms and expiration dates, and require annual payments of approximately
$275,000.  All are subject to a sliding  scale  royalty on net  smelter  returns
beginning at 3%.

During  the year  ended  May 31,  1996,  the  Company  entered  into  employment
contracts with three of its executive  officers.  The agreements provide for the
payment of salary and bonus,  the  granting  of options,  and  certain  employee

                                       42

<PAGE>

benefits.  The agreements also contain provisions for lump-sum payments based on
the employee's  salary upon  termination for reasons other than for cause, up to
an aggregate amount of $862,000.

On  September  19,  1994,  the Company  entered  into a mining  lease  agreement
granting  exclusive  exploration and development  rights on property adjacent to
claims  previously  described.  The term of the  agreement  is for 20 years  and
consideration  included  a cash  payment of $30,000  and  annual  minimum  lease
payments of $10,000.

On November 8, 1995,  the Company  signed an option to purchase  certain  mining
claims and millsites  for a total  purchase  price of $65,000.  $13,000 has been
paid and a note  payable for $52,000 at 10% interest  with  monthly  payments of
$1,500 is outstanding.  All principal will be due in three years or at the start
of  production,  whichever  occurs first.  The Company will pay a 3% net smelter
return royalty not to exceed $500,000.

On December 30, 1994,  the Company  signed an amendment to a September  25, 1989
agreement of purchase for certain  leasehold  interests and  unpatented  claims.
Under the terms of the amendment,  the outstanding  balance on the $150,000 note
was canceled and production  royalty  granted on all products  produced from the
property  up  to a  maximum  payment  of  $300,000  plus  simple  interest.  The
outstanding balance on the canceled note was credited to mineral properties.

The Company is involved in various  lawsuits  arising in the ordinary  course of
business.  Management of the Company is of the opinion that the outcome of these
lawsuits  will have no material  impact on the  Company's  financial  condition,
results of operations or liquidity.

9.       RELATED PARTY TRANSACTIONS.

Jerrold W.  Schramm,  a director of Golden Queen is a partner of the law firm of
Lawson Lundell Lawson & McIntosh, counsel to the Company. During the years ended
December 31, 1998 and 1997,  the Company paid Lawson  Lundell  Lawson & McIntosh
$46,649 and $104,749  respectively  on behalf of the Company and its subsidiary.
No  members  of the firm of Lawson  Lundell  Lawson &  McIntosh  other  than Mr.
Schramm owned any shares of common stock of the Company, or rights or options to
purchase such stock at December 31, 1998.

9.       SUBSEQUENT EVENTS.

On January 19, 1999,  additional  stock  options to purchase up to 75,000 shares
were granted to a  non-employee  director.  The options are  exercisable  at the
price of C$0.50 per share and expire on January 19, 2004.

On March 12, 1999 in  connection  with a private  placement  the Company  issued
13,250,000  special warrants,  exchangeable into common shares of the Company at
no additional  cost, at C$0.40 per warrant for gross  proceeds of  approximately
$3,478,000   (C$5,300,000).   At  closing,   the  Company  paid  agent  fees  of
approximately $121,730 (C$185,500) and issued broker warrants to purchase common
stock at a  conversion  price of  C$0.60.  The  Company  received  approximately
$671,280  (C$1,022,900) on March 12, 1999 and the remaining funds were placed in
escrow to be released 50% pending  shareholder  approval of the  transaction and
50% upon receipt of the final prospectus.

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<PAGE>

                                   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/ STEVEN W. BANNING
     ---------------------
     Steven W. Banning, its President
         
     Date:  March 19, 1999


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.


By:  /s/ GORDON C. GUTRATH
     ---------------------
     Gordon C. Gutrath, a Director

     Date:

By:  /s/ JERROLD W. SCHRAMM
     ----------------------
     Jerrold W. Schramm, a Director

     Date:

By:  /s/ EDWARD G. THOMPSON
     ----------------------
     Edward G. Thompson, a Director

     Date:

By:  Chester Shynkaryk
     ----------------------
     Chester Shynkaryk, a Director

     Date:

By:  /s/ BERNARD F. GOODSON
     ----------------------
     Bernard F. Goodson, its Principal
     Financial and Accounting Officer

     Date:

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