# UNITED STATES
                                        SECURITIES AND EXCHANGE COMMISSION

# Washington, D.C. 20549

# FORM 10-K

|x | ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

# For the fiscal year
ended December 31, 2008

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

# For the transition
period from   _______           to _______

# Commission file number
                             333-129321

|GOLD RESOURCE CORPORATION                             
|------------------------------------------------------
|(Exact name of registrant as specified in its charter)

|Colorado                                                        | 84-1473173                          
|--------------------------------------------------------------- | ------------------------------------
|(State or other jurisdiction of 
incorporation or organization) | (I.R.S. Employer
Identification No.)

|222 Milwaukee Street, Suite 301, Denver, CO | 80206     
|------------------------------------------- | ----------
|(Address of principal executive offices)    | (Zip Code)

|(303) 320-7708                                      
|----------------------------------------------------
|(Registrant's telephone number, including area code)

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

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

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

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

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

Indicate by checkmark if disclosure
of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this
chapter) is not contained herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.   x

---



Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or
a smaller reporting company. See the definitions of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of
the Exchange Act.

| |                            |                             
| | -------------------------- | ----------------------------
| | Large accelerated filer  o | Accelerated filer  o        
| | Non-accelerated filer  o   | Smaller reporting company  x

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

The aggregate market value of the
Common Stock of Gold Resource Corporation held by non-affiliates as of the last business
day of the registrants most recently completed second fiscal quarter was
$118,606,778.

As of April 13, 2009, there were
41,095,489 shares of Common Stock outstanding.

DOCUMENTS INCORPORATED
BY REFERENCE:  None.

---



# TABLE OF CONTENTS

|              |  | Page
|------------- |  | ----
|
|              |  |     
|              |  |     
|PART I        |  |     
|              |  |     
|ITEM 1:       |  |     
|ITEM 1A:      |  |     
|ITEM 1B:      |  |     
|ITEM 2:       |  |     
|ITEM 3:       |  |     
|ITEM 4:       |  |     
|              |  |     
|PART II       |  |     
|              |  |     
|ITEM 5:       |  |     
|ITEM 6:       |  |     
|ITEM 7:       |  |     
|ITEM 8:       |  |     
|ITEM 9:       |  |     
|ITEM 9A(T):   |  |     
|ITEM 9B:      |  |     
|              |  |     
|PART III      |  |     
|              |  |     
|ITEM 10:      |  |     
|ITEM 11:      |  |     
|ITEM 12:      |  |     
|ITEM 13:      |  |     
|ITEM 14:      |  |     
|              |  |     
|PART IV       |  |     
|              |  |     
|ITEM 15:      |  |     
|              |  |     
|SIGNATURES    |  |     
|EXHIBIT INDEX |  |     

# ADDITIONAL INFORMATION

Descriptions
of agreements or other documents contained in this report are intended as summaries and
are not necessarily complete. Please refer to the agreements or other documents filed or
incorporated herein by reference as exhibits. Please see the exhibit index at the end
of this report for a complete list of those exhibits.

i

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# SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS

This
report contains forward-looking statements that involve risks and uncertainties. The
statements contained in this report that are not purely historical are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. When used in this report, the words
plan, target, anticipate, believe,
estimate, intend and expect and similar expressions
are intended to identify such forward-looking statements. Such forward-looking statements
include, without limitation, the statements regarding Gold Resource Corporations
strategy, future plans for production, future expenses and costs, future liquidity and
capital resources, and estimates of mineralized material. All forward-looking statements
in this report are based upon information available to Gold Resource Corporation on the
date of this report, and the company assumes no obligation to update any such
forward-looking statements. Forward looking statements involve a number of risks and
uncertainties, and there can be no assurance that such statements will prove to be
accurate. Gold Resource Corporations actual results could differ materially from
those discussed in this report. In particular, there can be no assurance that commercial
production at the El Aguila Project will be achieved in the time frames estimated,
at the rates and costs estimated, or even at all. Factors that could cause or contribute
to such differences include, but are not limited to, those discussed in the Item
1A. Risk Factors section of this Form 10-K.

In
addition to the specific factors identified under Item 1A. Risk Factors
in this report, other uncertainties that could affect the accuracy of forward-looking
statements include:

| |  | decisions
of foreign countries and banks within those countries;
| | - | ----------------------------------------------------------------

| |  | unexpected
changes in business and economic conditions;
| | - | -------------------------------------------------------

| |  | changes
in interest rates and currency exchange rates;
| | - | ------------------------------------------------------

| |  | timing
and amount of production, if any;
| | - | ----------------------------------------

| |  | technological
changes in the mining industry;
| | - | ---------------------------------------------

| |  | our
costs;
| | - | ----------

| |  | changes
in exploration and overhead costs;
| | - | ------------------------------------------

| |  | access
and availability of materials, equipment, supplies, labor and supervision, power and
water;
| | - | --------------------------------------------------------------------------------------------------

| |  | results
of current and future feasibility studies;
| | - | --------------------------------------------------

| |  | the
level of demand for our products;
| | - | -------------------------------------

| |  | changes
in our business strategy;
| | - | ---------------------------------

| |  | interpretation
of drill hole results and the geology, grade and continuity of mineralization;
| | - | ---------------------------------------------------------------------------------------------

| |  | the
uncertainty of mineralized material estimates and timing of development expenditures; and
| | - | ---------------------------------------------------------------------------------------------

| |  | commodity
price fluctuations.
| | - | -----------------------------

This list, together with the factors
identified under Item 1A. Risk Factors, is not exhaustive of the
factors that may affect any of our forward-looking statements. You should read this report
completely and with the understanding that our actual future results may be materially
different from what we expect. These forward-looking statements represent our beliefs,
expectations and opinions only as of the date of this report. We do not intend to update
these forward looking statements except as required by law. We qualify all of our
forward-looking statements by these cautionary statements.

ii

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# PART I

# ITEM 1. BUSINESS

# History and Organization

We
are engaged in the exploration of gold and silver properties, primarily in Mexico, with a
goal of production in the near future. We were organized under the laws of the State of
Colorado in 1998. We pursue exploration of gold and silver projects that we believe
feature low operating costs and have the potential to produce a high return on the capital
invested. We hold a 100% interest in four properties in Mexicos southern State of
Oaxaca. See Item 2. Properties for more information about our
properties. We are constructing a mill and a mine at our flagship property, the
El Aguila Project, which will be our first mine upon successful start-up,
which is targeted for 2009.

We
completed our IPO in August 2006 at $1.00 per share and received gross proceeds of
$4,600,000. We raised additional capital pursuant to three private placements of our
common stock; one in December 2006 for gross proceeds of $5,186,400, one in December 2007
for gross proceeds of $22,234,000 and one with two tranches which occurred in December
2008 and February 2009 for gross proceeds of $18,000,000. We used the initial IPO and the
2006 private placement funds to conduct exploration activities at the El Aguila
property. We decided to move forward with efforts to construct a mill and a mine at the
El Aguila Project on April 11, 2007. We used the funds from the 2007 private
placement to commence construction of a mine and mill at the El Aguila Project. We
anticipate using the funds provided by the most recent private placement to continue these
efforts, as well as to undertake additional exploration activities. SeeItem 7. Managements Discussion and Analysis of Financial Condition and
Results of Operation for more information.

As
discussed in more detail in Developments During 2008 below, we entered into a
strategic alliance with Hochschild Mining Holdings Limited at the end of 2008. Under the
strategic alliance, we have agreed to extend certain rights and benefits to that company
in connection with its purchase of our common stock.

Our
principal executive offices are located at 222 Milwaukee Street, Suite 301, Denver,
Colorado 80206, and our telephone number is (303) 320-7708. Our operations in Mexico are
conducted through our wholly-owned Mexican subsidiaries, Don David Gold, S.A. de C.V. and
Golden Trump Resources S. A. de C.V. We maintain a website at
www.goldresourcecorp.comand through a link on our website you can view the
periodic filings that we make with the Securities and Exchange Commission
(SEC).

Please
refer to page 16 of this report for a glossary of certain terms used herein.

# Developments During 2008

Exploration.  
          Our flagship property, the El Aguila property, was the primary focus of
          our exploration program during 2008. Using funds obtained from our private
          placement in 2007, we focused exploration drilling on three areas: the El
          Aguila near-surface mineralized area, the El Aire vein area, which is
          located along the same structural zone two kilometers from the near-surface
          mineralized area, and a new discovery of mineralization near El Aire
          which we call the La Arista area. Our drilling has shown that each of
          these areas have gold and silver mineralized material and, except for the El
          Aguila near-surface mineralized area, have base metal mineralization of
          copper, lead and zinc. As a result of encouraging exploration results and our
          belief that the mineralized material can be extracted and processed
          economically, we made a decision in 2007 to begin preparing El Aguila for
          production, targeting to begin production in 2009. A substantial amount of our
          business activities during 2008 were focused toward that goal. Additional,
          albeit limited, exploration was conducted at our El Rey property during
          2008. We completed a total of 27,000 meters (89,100 feet) in exploration
          drilling and spent approximately $22,670,000 in 2008 at our properties in
          Mexico. However, we have not established proven or probable reserves as defined
          by regulation of the SEC on our El AguilaProject or any of our other
          properties.

1

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Construction
at El Aguila Project.   The engineering firm of Lyntek Inc. of Denver, Colorado has
designed the mill and infrastructure requirements at the El AguilaProject on our
behalf. To date, we have committed or spent approximately $15,000,000 on construction of a
mill and an additional $5,000,000 on infrastructure. We estimate we will spend an
additional $5,000,000 to $6,000,000 to complete the mill facility. We anticipate that the
facility we are building will process 850 tonnes of ore per day through a flotation
circuit and 150 tonnes of ore per day through an agitated leach circuit. We are estimating
completion of the mill mid-2009, but we cannot predict the exact date since the
construction progress depends on the performance of multiple contractors.

During
2008, we received from the Mexican government permits which approved construction of the
access road, the mill facility and the tailings impoundment. We are awaiting the open pit
mine permit from the same Mexican federal agency.

We
expect that mining in the first year of production will take place at the El Aguila
near-surface mineralization open pit mine and have commenced pre-stripping of the open pit
mine area. Mining in the second year is anticipated to come from the La Arista vein
mineralized material and will require development of an underground mine.

In
October 2007, we acquired an additional parcel of land which comprises approximately five
hectares and is located adjacent to the community of San Jose de Gracia. During
2008, we completed construction of an employee housing facility for the El Aguila
Project, as well as a health clinic which will be available to employees and local
residents. The facility encompasses 10 buildings, including a cafeteria, and can house
approximately 50 people. See Item 2. Properties below for
additional information.

Strategic
Alliance with Hochschild.   In December 2008, we entered into a strategic alliance
agreement with Hochschild Mining Holdings Limited (Hochschild). Hochschild is
a Peruvian based, leading precious metals producer operating primarily in the Americas.
Hochschild is a private limited company organized under the laws of England and Wales and
an affiliate of publicly-traded Hochschild Mining plc, whose shares are traded on the
London Stock Exchange under the symbol HOC.

Pursuant
to the terms of the strategic alliance agreement, we initially sold Hochschild 1,670,000
shares of our common stock for gross proceeds of $5,010,000 in a private placement. We
also granted Hochschild an 80-day option to purchase 4,330,000 additional shares of our
common stock for gross proceeds of $12,990,000, which was exercised on February 25, 2009.
As part of the strategic alliance, we have agreed, among other things, to the following:

| |  | To
offer Hochschild a right of first refusal to participate in future equity financings
solicited by us prior to commencement of commercial production;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | To
afford it a first right of refusal to participate in any joint ventures we might pursue
with regard to any of our properties;
| | - | --------------------------------------------------------------------------------------------------------------------------------

| |  | To
grant Hochschild preemptive rights to participate in certain financing transactions; and
| | - | -------------------------------------------------------------------------------------------

| |  | To
appoint one individual nominated by Hochschild to our Board of Directors under certain
conditions.
| | - | -----------------------------------------------------------------------------------------------------

Additionally,
Hochschild has the right to purchase additional shares of our common stock in the market,
however, it has agreed to a standstill for two years where it will not exceed 40% total
ownership in our company. Certain of the rights discussed above will be forfeited by
Hochschild at such time as its percentage ownership in our company decreases below 14.5%.

2

---



# Competitive Business
Conditions

The
exploration for, and the acquisition of gold and silver properties, are subject to intense
competition. Due to our limited capital and personnel, we are at a competitive
disadvantage compared to other companies with regard to exploration and, if warranted,
development. Our present limited funding means that our ability to compete for properties
to be explored and developed is limited. We believe that competition for acquiring mineral
prospects will continue to be intense in the future.

The
availability of funds for exploration is sometimes limited, and we may find it difficult
to compete with larger and more well-known companies for capital. Our inability to develop
our mining properties due to lack of funding, even if warranted, could have a material
adverse effect on our operation and financial position.

# Government Regulations
and Permits

In
connection with mining, milling and exploration activities, we are subject to extensive
Mexican federal, state and local laws and regulations governing the protection of the
environment, including laws and regulations relating to protection of air and water
quality, hazardous waste management and mine reclamation as well as the protection of
endangered or threatened species. The department responsible for environmental protection
in Mexico is SEMARNAT, which is similar to the United States Environmental Protection
Agency. SEMARNAT has broad authority to shut down and/or levy fines against facilities
that do not comply with its environmental regulations or standards. Potential areas of
environmental consideration for mining companies, including ours if we are successful in
commencing mining operations, include, but are not limited to, acid rock drainage, cyanide
containment and handling, contamination of water courses, dust and noise.

Prior
to the commencement of any mining operations at the El Aguila Project, if any, we
have and will continue to secure various regulatory permits from federal, state and local
agencies. These governmental and regulatory permits generally govern the processes being
used to operate, the stipulations concerning air quality and water issues, and the plans
and obligations for reclamation of the properties at the conclusion of operations.
Regulations require that an environmental impact statement, known in Mexico as a
Manifiestacion de Impacto Ambiental (MIA), be prepared by a third-party
contractor for submission to SEMARNAT. We havesubmitted our MIA to SEMARNAT for
their review and it has been approved.Studies required to support the MIA include
a detailed analysis of these areas, among others: soil, water, vegetation, wildlife,
cultural resources and socio-economic impacts. Although the regulatory process in Mexico
has a public review component, proof of local community support for a project is required
to gain final MIA approval. We have received the required local community support.

We
received a federal permit granting permission to construct a road at the El Aguila
Project. We completed construction of this road during 2008. Additionally, during 2008, we
received permits allowing us to construct our mill facilities and tailings impoundment
facility. Construction of these structures is presently underway. We have applied for and
are waiting to receive a permit from SEMARNAT which will allow us to begin open pit mining
at the El Aguila Project.

We
purchased a permitted water well for the mill site at the El AguilaProject. We
believe the water provided by this well will be adequate to meet the needs for any mining
activity for the foreseeable future.

We
have obtained, and will obtain at the appropriate time, environmental permits, licenses or
approvals required for operations. We are not aware of any material violations of
environmental permits, licenses or approvals issued with respect to our operations.

3

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# Employees

We
currently have three full-time employees that serve as our executive officers. These
individuals devote all of their business time to our affairs. In addition to our executive
officers, we employ approximately 25 Mexican nationals, including one who serves as our
El AguilaProject Manager, through one of our Mexican subsidiaries. We also engage
two significant consultants, one to generally oversee our property and activities in
Mexico and one to assist with our administrative and financial affairs. Our consultant in
Mexico serves on a full-time basis and our financial consultant provides his services to
us as necessary.

# ITEM 1A. RISK FACTORS

This
report, including Managements Discussion and Analysis of Financial Condition and
Results of Operation, contains forward-looking statements that may be materially affected
by several risk factors, including those summarized below:

# Risks Relating to Our
Company

Since
we have no operating history, investors have no basis to evaluate our ability to operate
profitably.  We were organized in 1998 but have had no revenue from
operations since our inception. Our activities to date have been limited to organizational
efforts, raising financing, acquiring mining properties, conducting limited exploration
and preparation for commencing production at the El Aguila Project. We have never
produced gold or other metals and have received no revenue from operations to date. We
face all of the risks commonly encountered by other businesses that lack an established
operating history, including the need for additional capital and personnel, and intense
competition. There is no assurance that our business plan will be successful. In
particular, there can be no assurance that commercial production at our El Aguila
Project will be achieved in the time frames estimated, at the rates and costs estimated,
if at all.

We
have no proven or probable reserves, and the probability of an individual prospect having
reserves is extremely remote. Therefore, in all likelihood, our
properties do not contain any reserves, and any funds spent by us on exploration or
development could be lost.   We have not established the presence of any
proven or probable mineral reserves, as defined by the SEC, at any of our properties. The
SEC has defined a reserve as that part of a mineral deposit which could be
economically and legally extracted or produced at the time of the reserve determination.
Any mineralized material discovered by us should not be considered proven or probable
reserves.

In
order to demonstrate the existence of proven or probable reserves, it would be necessary
for us to continue exploration to demonstrate the existence of sufficient mineralized
material with satisfactory continuity and then obtain a positive feasibility study.
Exploration is inherently risky, with few properties ultimately proving economically
successful. We do not intend to pursue additional exploration for the purpose of
establishing proven or probable reserves.

Establishing
reserves requires a feasibility study demonstrating with reasonable certainty that the
deposit can be economically extracted and produced. We have not completed a feasibility
study with regard to all or a portion of any of our properties, nor do we intend to
perform such feasibility study at this time.

Since
we have no proven or probable reserves, our investment in mineral properties is not
reported as an asset in our financial statements which may have a negative impact on the
price of our stock.   We prepare our financial statements in accordance with
accounting principles generally accepted in the United States of America and intend to
report substantially all exploration and construction expenditures as expenses until we
are able to establish proven or probable reserves. If we are able to establish proven or
probable reserves, we would report development expenditures as an asset subject to future
amortization using the units-of-production method. Since it is uncertain when, if ever, we
will establish proven or probable reserves, it is uncertain whether we will ever report
these expenditures as an asset. Accordingly, our financial statements report fewer assets
and greater expenses than would be the case if we had proven or probable reserves, which
could have a negative impact on our stock price.

4

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We
may require significant additional capital to fund our business plan.   We
will require additional capital for exploration of one or more of our existing properties
or to acquire additional properties. It may be the case that we will require additional
capital in addition to the funds already raised in our private placement to fund the
completion of construction of the mill and startup of the El Aguila Project. We
will be required to hire additional staff. In addition, we may require additional working
capital to continue to fund operations pending sale of any gold or other metals. Our
ability to obtain necessary funding for these purposes, in turn, depends upon a number of
factors, including the status of the national and worldwide economy and the price of gold
and other precious metals. Capital markets worldwide have been adversely affected by
substantial losses by financial institutions, in turn caused by investments in
asset-backed securities. We may not be successful in obtaining the required financing, or
if we can obtain such financing, such financing may not be on terms that are favorable to
us. Failure to obtain such additional financing could result in delay or indefinite
postponement of further exploration or development and the possible, partial or total loss
of our potential interest in our properties.

Mineralized
material is based on interpretation and assumptions and may yield less mineral production
under actual conditions than is currently estimated.   Unless otherwise
indicated, mineralized material presented in our filings with securities regulatory
authorities, including the SEC, press releases and other public statements that may be
made from time to time are based upon estimates made by our consultants. When making
determinations about whether to advance any of our projects to development, we must rely
upon such estimated calculations as to the mineralized material on our properties. Until
mineralized material is actually mined and processed, it must be considered an estimate
only.

These
estimates are imprecise and depend on geological interpretation and statistical inferences
drawn from drilling and sampling analysis, which may prove to be unreliable. We cannot
assure you that these mineralized material estimates will be accurate or that this
mineralized material can be mined or processed profitably.

Any
material changes in estimates of mineralized material will affect the economic viability
of placing a property into production and such propertys return on capital. There
can be no assurance that minerals recovered in small scale tests will be recovered at
production scale.

The
mineralized material estimates have been determined and valued based on assumed future
prices, cut-off grades and operating costs that may prove inaccurate. Extended declines in
market prices for gold and silver may render portions of our mineralized material
uneconomic and adversely affect the commercial viability of one or more of our properties
and could have a material adverse effect on our results of operations or financial
condition.

If
we are unable to achieve gold and silver production levels anticipated from our El Aguila
Project, our financial condition and results of operation will be adversely
affected.   We are proceeding with the construction of the El Aguila
Project based on estimates of mineralized material identified in our drilling program and
estimates of gold and silver recovery based on testwork developed during our scoping
study. However, risks related to metallurgy are inherent when working with extractable
minerals. Sales of gold and silver, if any, that we realize from future mining activity
will be less than anticipated if the mined material does not contain the concentration of
gold and silver predicted by our geological exploration. This risk may be increased since
we have not sought or obtained a feasibility study or reserve report with regard to any of
our properties. If sales of gold and silver are less than anticipated, we may not be able
to recover our investment in our property and our operations may be adversely affected.

5

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Should
we successfully commence mining operations at our El Aguila Project, our ability to remain
profitable long-term will depend on our ability to identify, explore, and develop
additional properties.   Gold and silver properties are wasting assets. They
eventually become depleted or uneconomical to continue mining. The acquisition of gold and
silver properties and their exploration and development are subject to intense
competition. Companies with greater financial resources, larger staff, more experience and
more equipment for exploration and development may be in a better position than us to
compete for such mineral properties. If we are unable to find, develop, and economically
mine new properties, we most likely will not be able to be profitable on a long term
basis.

The
construction of our mine and mill are subject to all of the risks inherent in
construction.   These risks include potential delays, cost overruns,
shortages of material or labor, construction defects, and injuries to persons and
property. We have retained Lyntek, Inc. of Denver, Colorado as a consultant to act as our
general contractor for construction of the mill. We expect that Lyntek will engage a
combination of American and Mexican subcontractors and material suppliers in connection
with the project. While we anticipate taking all measures which we deem reasonable and
prudent in connection with construction of the mill, there is no assurance that the risks
described above will not cause delays or cost overruns in connection with such
construction. Any delay would postpone our anticipated receipt of revenue and adversely
affect our operations. Cost overruns would likely require that we obtain additional
capital in order to commence production. Any of these occurrences may adversely affect our
ability to generate revenues and the price of our stock.

Our
operations are subject to permitting requirements which could require us to delay, suspend
or terminate our operations.   Our operations, including our ongoing
exploration drilling program and proposed production plan at the El Aguila Project,
require permits from the government. We may be unable to obtain these permits in a timely
manner, on reasonable terms, or at all. If we cannot obtain or maintain the necessary
permits, or if there is a delay in receiving these permits, our timetable and business
plan for exploration of our property or commercial production will be adversely affected.

Our
properties are located in Mexico and are subject to changes in political conditions and
regulations in that country.   Our existing properties are located in Mexico.
In the past, Mexico has been subject to political and social instability, changes and
uncertainties which may cause changes to existing government regulations affecting mineral
exploration and mining activities. Civil or political unrest could disrupt our operations
at any time. Our mineral exploration and mining activities in Mexico may be adversely
affected in varying degrees by changing governmental regulations relating to the mining
industry or shifts in political conditions that increase the costs related to our
activities or maintaining our properties. Finally, Mexicos status as a developing
country may make it more difficult for us to obtain required financing for our project.

Our
business operations may be adversely affected by social and political unrest in Oaxaca.  The properties which we are currently exploring for mineralization and the
mill we are building are located in the State of Oaxaca, Mexico. Oaxaca City, the capital
of the State of Oaxaca, experienced a period of social and political unrest in 2006.
Certain civilian groups seeking political reform staged protests and demonstrations in
various locations in Oaxaca City, including schools, government offices and major
roadways. Although our property is roughly a 90 minute drive from Oaxaca City and the
civil disturbances appear to have dissipated, these events may still negatively impact our
business operations if Oaxaca experiences another such event. Our exploration and
construction program may be interrupted if we are unable to hire qualified personnel or if
we are denied access to the site where our property is located. We may also be required to
make additional expenditures to provide increased security in order to protect property or
personnel located at our exploration and construction sites. Significant delays in
exploration or increases in expenditures will likely have a material adverse affect on our
financial condition and results of operations.

6

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Our
ability to continue exploration and extract any minerals that we discover is subject to
payment of concession fees and if we fail to make these payments, we may lose our interest
in the properties.   Mining concessions in Mexico are subject to payment of
concession fees to the federal government or lease payments to the owner of the
concessions. The payments are based on the size of the property we are exploring. Our
failure or inability to pay the concession fees to the government may cause us to lose our
interest in one or more of our properties.

Our
primary exploration target is subject to a lease in favor of a third party which provides
for royalties on production.   We lease our El Aguila property from a
third party. Our lease for the El Aguilaproperty is subject to a net smelter
return royalty of 4% where production is sold in the form of gold/silver dorè and
5% where production is sold in concentrate form. The requirement to pay royalties to the
owner of the concessions at our El Aguila property will reduce our profitability,
if any, if we commence commercial production of gold or other precious metals.

Our
ability to develop our property is subject to the rights of the Ejido (local inhabitants)
to surface use for agricultural purposes.   Our ability to mine minerals is
subject to making satisfactory arrangements with the Ejido for access and surface
disturbances. Ejidos are groups of local inhabitants who were granted rights to
conduct agricultural activities on the property. We must negotiate and maintain a
satisfactory arrangement with these inhabitants in order to disturb or discontinue their
rights to farm. While we have successfully negotiated and signed such agreements to enable
us to begin construction at the El Aguila Project, our inability to maintain these
agreements could impair or impede our ability to successfully mine the properties.

The
volatility of the price of gold could adversely affect our future operations and, if
warranted, our ability to develop our properties.  The potential for
profitability of our operations, the value of our properties and our ability to raise
funding to conduct continued exploration and development, if warranted, are directly
related to the market price of gold and other precious metals. The price of gold may also
have a significant influence on the market price of our common stock and the value of our
properties. Our decision to put a mine into production and to commit the funds necessary
for that purpose must be made long before the first revenue from production would be
received. A decrease in the price of gold may prevent our property from being economically
mined or result in the writeoff of assets whose value is impaired as a result of lower
gold prices. The price of gold is affected by numerous factors beyond our control,
including inflation, fluctuation of the United States Dollar and foreign currencies,
global and regional demand, the sale of gold by central banks, and the political and
economic conditions of major gold producing countries throughout the world. During the
last five years, the average annual market price of gold has fluctuated between $406 per
ounce and $872 per ounce, based on the daily London P.M. fix, as shown in the table below:

|2004 | 2005 | 2006 | 2007 | 2008
|---- | ---- | ---- | ---- | ----
|$406 | $445 | $604 | $696 | $872

The
volatility of mineral prices represents a substantial risk which no amount of planning or
technical expertise can fully eliminate. In the event gold prices decline or remain low
for prolonged periods of time, we might be unable to develop our properties, which may
adversely affect our results of operations, financial performance and cash flows.

Competition
in the mining industry is intense, and we have limited financial and personnel resources
with which to compete.   Competition in the mining industry for desirable
properties, investment capital and personnel is intense. Numerous companies headquartered
in the United States, Canada and elsewhere throughout the world compete for properties on
a global basis. We are an insignificant participant in the gold mining industry due to our
limited financial and personnel resources. We presently operate with a limited number of
personnel and we anticipate that we will compete with other companies in our industry to
hire additional qualified personnel which will be required to successfully operate our
mine and mill site. We may be unable to attract the necessary investment capital or
personnel to fully explore and if warranted, develop our properties and be unable to
acquire other desirable properties.

7

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An
adequate supply of water may not be available to undertake mining and production at our
property.   Water rights are owned by the Mexican nation and are administered
by a Mexican government agency. This agency has granted water concessions to private
parties throughout the area defined as the Oaxaca Hydrologic Basin, however there is no
assurance that we will be granted such concessions. We have purchased water rights which
we believe will be sufficient for our anticipated production needs. However, we have no
assurance these water rights will continue to produce enough water for our activities.
Accordingly, we may not have access to the amount of water needed to operate a mine at the
property.

Since
most of our expenses are paid in Mexican pesos, and we anticipate selling any production
from our properties in United States dollars, we are subject to adverse changes in
currency values that will be difficult to prevent.   Our operations in the
future could be affected by changes in the value of the Mexican peso against the United
States dollar. At the present time, since we have no production, we have no plans or
policies to utilize forward sales contracts or currency options to minimize this exposure.
If and when these measures are implemented, there is no assurance they will be cost
effective or be able to fully offset the effect of any currency fluctuations.

Our
activities in Mexico are subject to significant environmental regulations, which could
raise the cost of doing business.   Mining operations are subject to
environmental regulation by SEMARNAT, the environmental protection agency of Mexico.
Regulations require that an environmental impact statement, known in Mexico as a
Manifiestacion de Impacto Ambiental, be prepared by a third party contractor for
submission to SEMARNAT. Studies required to support this impact statement include a
detailed analysis of many subject areas, including soil, water, vegetation, wildlife,
cultural resources and socio-economic impacts. We may also be required to submit proof of
local community support for a project to obtain final approval. Significant environmental
legislation exists in Mexico, including fines and penalties for spills, release of
emissions into the air, seepage and other environmental damage.

The
nature of mineral exploration and production activities involves a high degree of risk and
the possibility of uninsured losses.   Exploration for and the production of
minerals is highly speculative and involves greater risk than many other businesses. Many
exploration programs do not result in the discovery of mineralization, and any
mineralization discovered may not be of sufficient quantity or quality to be profitably
mined. Our operations are, and any future development or mining operations we may conduct
will be, subject to all of the operating hazards and risks normally incident to exploring
for and development of mineral properties, such as, but not limited to:

| |  | economically
insufficient mineralized material;
| | - | -----------------------------------------------

| |  | fluctuation
in production costs that make mining uneconomical;
| | - | --------------------------------------------------------------

| |  | labor
disputes;
| | - | ---------------

| |  | unanticipated
variations in grade and other geologic problems;
| | - | --------------------------------------------------------------

| |  | environmental
hazards;
| | - | ----------------------

| |  | water
conditions;
| | - | -----------------

| |  | difficult
surface or underground conditions;
| | - | --------------------------------------------

| |  | industrial
accidents;
| | - | ---------------------

| |  | metallurgic
and other processing problems;
| | - | ------------------------------------------

| |  | mechanical
and equipment performance problems;
| | - | ----------------------------------------------

| |  | failure
of pit walls or dams;
| | - | -----------------------------

| |  | unusual
or unexpected rock formations;
| | - | --------------------------------------

| |  | personal
injury, fire, flooding, cave-ins and landslides; and
| | - | -------------------------------------------------------------

| |  | decrease
in the value of mineralized material due to lower gold and silver prices.
| | - | ----------------------------------------------------------------------------------

8

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Any
of these risks can materially and adversely affect, among other things, the development of
properties, production quantities and rates, costs and expenditures, potential revenues
and production dates. We currently have no insurance to guard against any of these risks.
If we determine that capitalized costs associated with any of our mineral interests are
not likely to be recovered, we would incur a writedown of our investment in these
interests. All of these factors may result in losses in relation to amounts spent which
are not recoverable.

We
depend upon a limited number of personnel and the loss of any of these individuals could
adversely affect our business.   If any of our current executive employees,
our principal consultant in Mexico or our principal financial consultant were to die,
become disabled or leave the company, we would be forced to identify and retain
individuals to replace them. Messrs. William, David and Jason Reid and Mr. Jorge
Sanchez del Toro are our critical employees at this time. Jose Perez Reynoso is our
consultant in Mexico who oversees our properties and operations. Frank L. Jennings is a
financial consultant who provides services to us as chief financial officer. There is no
assurance that we can find suitable individuals to replace them or to add to our employee
base if that becomes necessary. We are entirely dependent on these individuals as our
critical personnel at this time. We have no life insurance on any individual at this time,
and we may be unable to hire a suitable replacement for them on favorable terms, should
that become necessary.

In
the event of a dispute regarding title to our property or any facet of our operations, it
will likely be necessary for us to resolve the dispute in Mexico, where we would be faced
with unfamiliar laws and procedures.  The resolution of disputes in foreign
countries can be costly and time consuming, similar to the situation in the United States.
However, in a foreign country, we face the additional burden of understanding unfamiliar
laws and procedures. We may not be entitled to a jury trial, as we might be in the United
States. Further, to litigate in any foreign country, we would be faced with the necessity
of hiring lawyers and other professionals who are familiar with the foreign laws. For
these reasons, we may incur unforeseen losses if we are forced to resolve a dispute in
Mexico or any other foreign country.

While
we presently believe that we have adequate internal controls over financial reporting, we
will be required to evaluate our internal controls under Section 404 of the Sarbanes-Oxley
Act of 2002 annually and any adverse results from such evaluation could result in a loss
of investor confidence in our financial reports and have a material adverse effect on the
price of our common stock.   Pursuant to Section 404 of the Sarbanes-Oxley
Act of 2002, we have furnished a report by our management on internal controls for the
fiscal year ended December 31, 2008. Such a report contains, among other matters, our
assessment of the effectiveness of our internal controls over financial reporting,
including a statement as to whether or not our internal controls are effective. This
assessment must include disclosure of any material weaknesses in our internal controls
over financial reporting identified by our management. While we believe our internal
controls over financial reporting are effective as of the date of this report, there is no
assurance that we can retain that control in the future, as our business expands. In
addition, our evaluation of the effectiveness of our internal controls will be subject to
audit by our independent registered accountants in the future and there is no assurance
that they will agree with our assessment. If we are unable to maintain the effectiveness
of our controls, or if our accountants do not agree with our assessment in the future,
investors could lose confidence in our financial reports and our stock price may decline.

We
are not registered under the Securities Exchange Act of 1934.   Our common
stock is presently registered with the SEC only under the Securities Act of 1933, as
amended. Because we have not registered our common stock under the Securities Exchange Act
of 1934, as amended (the Exchange Act), we are not required to file
information reports with the SEC, although we now voluntarily file certain reports.
Additionally, our directors and officers are not required to file reports under Section 16
of the Exchange Act. As a result, there is less information available to the public
regarding our corporate affairs and insider transactions in our common stock than other
companies that have registered common stock under the Exchange Act. In the future, we
could cease filing information reports with the SEC at any time.

9

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The
laws of the State of Colorado and our Articles of Incorporation may protect our directors
from certain types of lawsuits.   The laws of the State of Colorado provide
that our directors will not be liable to us or our shareholders for monetary damages for
all but certain types of conduct as directors of the company. Our Articles of
Incorporation permit us to indemnify our directors and officers against all damages
incurred in connection with our business to the fullest extent provided or allowed by law.
The exculpation provisions may have the effect of preventing shareholders from recovering
damages against our directors caused by their negligence, poor judgment or other
circumstances. The indemnification provisions may require us to use our limited assets to
defend our directors and officers against claims, including claims arising out of their
negligence, poor judgment, or other circumstances.

# Risks Related to Our
Common Stock

Our
stock price may be volatile and as a result you could lose all or part of your
investment.   In addition to volatility associated with over the counter
securities in general, the value of your investment could decline due to the impact of any
of the following factors upon the market price of our common stock:

| |  | Changes
in the worldwide price for gold;
| | - | ----------------------------------------

| |  | Disappointing
results from our exploration efforts;
| | - | ---------------------------------------------------

| |  | Failure
to reach commercial production or producing at rates lower than those targeted;
| | - | ---------------------------------------------------------------------------------------

| |  | Failure
to meet our revenue or profit goals or operating budget;
| | - | ----------------------------------------------------------------

| |  | Decline
in demand for our common stock;
| | - | ---------------------------------------

| |  | Downward
revisions in securities analysts estimates or changes in general market conditions;
| | - | ---------------------------------------------------------------------------------------------

| |  | Technological
innovations by competitors or in competing technologies;
| | - | ----------------------------------------------------------------------

| |  | Investor
perception of our industry or our prospects; and
| | - | ---------------------------------------------------------

| |  | General
economic trends.
| | - | ------------------------

In
addition, stock markets have experienced extreme price and volume fluctuations and the
market prices of securities have been highly volatile. These fluctuations are often
unrelated to operating performance and may adversely affect the market price of our common
stock. As a result, investors may be unable to resell their shares at a fair price.

Since
there is presently a limited trading market for our common stock, purchasers of our common
stock may have difficulty selling their shares, should they desire to do
so.   Due to a number of factors, including the lack of listing of our common
stock on a national securities exchange, the trading volume in our common stock is
limited. Our trading volume on the OTC Bulletin Board over the past three months has
averaged approximately 130,000 shares per day. As a result, the sale of a significant
amount of common stock by the selling shareholders may depress the price of our common
stock and you may lose all or a portion of your investment.

A
small number of existing shareholders own a significant amount of our common stock, which
could limit your ability to influence the outcome of any shareholder vote.  
Our executive officers and directors beneficially own approximately 24% of our common
stock as of the date of this report. Under our Articles of Incorporation and Colorado law,
the vote of a majority of the shares outstanding is generally required to approve most
shareholder action. As a result, these individuals may be able to influence the outcome of
shareholder votes for the foreseeable future, including votes concerning the election of
directors, amendments to our Articles of Incorporation or proposed mergers or other
significant corporate transactions. We have no existing agreements or plans for mergers or
other corporate transactions that would require a shareholder vote at this time. However,
shareholders should be aware that they may have limited ability to influence the outcome
of any vote in the future. See Item 12. Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters for additional
information.

10

---



Since
our common stock is not presently listed on a national securities exchange, trading in our
shares will likely be subject to rules governing penny stocks, which will
impair trading activity in our shares.   Our common stock may be subject to
rules adopted by the SEC regulating broker-dealer practices in connection with
transactions in penny stocks. Those disclosure rules applicable to penny stocks require a
broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the
rules, to deliver a standardized disclosure document required by the SEC. These rules also
require a cooling off period before the transaction can be finalized. These requirements
may have the effect of reducing the level of trading activity in any secondary market for
our common stock. Many brokers may be unwilling to engage in transactions in our common
stock because of the added disclosure requirements, thereby making it more difficult for
stockholders to dispose of their shares.

Issuances
of our stock in the future could dilute existing shareholders and adversely affect the
market price of our common stock.   We have the authority to issue up to
60,000,000 shares of common stock, 5,000,000 shares of preferred stock, and to issue
options and warrants to purchase shares of our common stock without stockholder approval.
Because our common stock is not currently listed on an exchange, we are not required to
solicit shareholder approval prior to issuing large blocks of our stock. These future
issuances could be at values substantially below the price paid for our common stock by
our current shareholders. In addition, we could issue large blocks of our common stock to
fend off unwanted tender offers or hostile takeovers without further stockholder approval.
Because we believe that trading in our common stock is limited, the issuance of our stock
may have a disproportionately large impact on its price compared to larger companies.

We
have never paid dividends on our common stock and we do not anticipate paying any in the
foreseeable future. We have not paid dividends on our common stock to date,
and we may not be in a position to pay dividends for the foreseeable future. Our ability
to pay dividends will depend on our ability to successfully develop one or more properties
and generate earnings from operations. Further, our initial earnings, if any, will likely
be retained to finance our operations. Any future dividends will depend upon our earnings,
our then-existing financial requirements and other factors, and will be at the discretion
of our Board of Directors.

# ITEM 1B. UNRESOLVED
STAFF COMMENTS

None.

# ITEM 2. PROPERTIES

We
currently have an interest in four properties, the El Aguila property, the Las
Margaritasproperty, the El Rey property and the Solaga property. We
lease claims comprising the El Aguila property and the Las Margaritas
property from an individual who serves as our consultant in Mexico and the Solaga
property from an entity partially owned by the same consultant. We own mining concessions
for the El Rey property. All of these properties are in the exploration stage and
have no proven or probable reserves. The map below shows the general location of our four
properties in Oaxaca, Mexico:

11

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# The El Aguila Project

Background.  Effective
October 14, 2002, we leased three mining concessions, El           Aguila, El
Aire and La Tehuana, totaling 1,896 hectares, from           Jose Perez
Reynoso, a consultant to our company. The lease agreement is subject           to a 4%
net smelter return royalty where production is sold in the form of           gold/silver
dore and 5% for production sold in concentrate form. We have made           periodic
advance royalty payments under the lease totaling $260,000 and no           further
advance royalty payments are due. Subject to minimum exploration           requirements,
there is no expiration term for the lease. We may terminate it at           any time upon
written notice to the lessor and the lessor may terminate it if we           fail to
fulfill any of our obligations. The El Aguila and El Aire          concessions
make up the El Aguila Project and the La Tehuana          concession makes
up the Las Margaritas property.

We
have filed for and received additional concessions for the El Aguila Project that
total an additional 8,492 hectares. These additional concessions are not part of the
concessions leased from our consultant, and bring our interest in the El Aguila
Project to an aggregate of 9,463 hectares. The mineral concessions making up the El
Aguila Project are located within the San Pedro Totolapam Ejido.

Location
and Access.The El Aguila Project is located in the Sierra Madre del Sur
of southern Mexico, in the central part of the State of Oaxaca. Access to the property is
by way of the Pan American Highway (Highway # 190), approximately 120 kilometers (75
miles) southeast of Oaxaca City, the states capital city. At the village of San
Jose de Gracia, a gravel road goes approximately four kilometers northwest to the
property. We have completed construction to upgrade this road to make it better suited for
our construction and potential mining activities.

The
climate of the El Aguila area is dry and warm to very warm with most rainfall
occurring in the summer and annual precipitation averaging only 423.7 mm (17 inches). The
average yearly temperature is 26.6 degrees centigrade (80° F). The area is very rocky
with scarce vegetation. Subsistence farming occurs and the main agricultural crop is agave
cactus that is cultivated for the production of mescal.

12

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Exploration
Activities.   The early history of activity at the El Aguila property, as known
by us, is prospecting and limited mining for gold and silver from the early 1900s to
the mid 1960s. In 1998, Mr. Perez Reynoso acquired the concessions and leased
them to Apex Silver Corporation of Denver, Colorado. Apex carried out an exploration
program involving geologic mapping, surface sampling and an 11-hole drilling program
(1,242 meters, or 4,074 feet). The results did not meet Apexs expectations so it
cancelled its lease on the property in 2002. We leased the property from Mr. Perez Reynoso
in October 2002.

In
August 2003, we entered into an exploration agreement with Canyon Resources Corporation
pertaining to our interest in the El Aguila property whereby Canyon loaned us
$500,000 for exploration costs, and subsequently converted its note into 1,200,000 shares
of our common stock in 2004. The drilling program was completed in 2004 and included
approximately 3,900 meters (12,795 feet) of drilling in 69 holes focused on one target
area of the property.

We
have carried out more recent exploration on the El AguilaProject that has included
geologic mapping, surface sampling, geochemical sampling, a geomagnetic survey and
exploratory drilling. We have drilled 4,271 holes for a total of 35,389 meters (116,784
feet), including 199 holes for 27,000 meters (89,100 feet) during 2008. Through the year
ended December 31, 2008, we have spent or incurred approximately $15,900,000 in
acquisition, exploration and related costs for the El Aguila Project.

Construction
Activities.   We made a decision in April 2007 to undertake efforts to place the El
AguilaProject into commercial production. At our request, Lyntek Inc., an engineering
firm in Denver, Colorado, has designed the mill and infrastructure requirements with an
estimated capital cost of $25,000,000. We anticipate that the facility we are building
will process 850 tonnes of ore per day through a flotation section and 150 tonnes of ore
per day through an agitated leach section. The flotation process produces a mineral
concentrate through the use of chemical conditioning agents to float or depress certain
minerals from a mineral rich foam concentrate created by agitation. We will use an
agitated leach section to produce a dore bar of gold and silver from oxide ore.

We
received the permit granting permission to construct the mill in June 2008. We have
completed the grading and site work for the facility, the concrete work and we are in the
process of erecting the buildings and structural steel. We have also completed
construction on a large and small dam for our tailings impoundment after receiving a
federal permit for the tailings facility in October 2008. While we have begun
pre-stripping activity at the near-surface open pit area, we are presently awaiting the
necessary permit from the Mexican federal agency granting us approval to begin mining the
mineralized material.

During
our first year of anticipated production, we expect that we will conduct open pit mining
at the El Aguila near-surface mineralized material area. We are targeting the La
Arista vein area for mining during our second year of production, which would require
construction of an underground mine.

We
plan to generate our own electrical power for the mill through diesel generators, although
the federal power grid, located along the Pan American Highway, may be utilized in certain
aspects of operations. We purchased a permitted water well to supply water for our mining
activities, however the water will require pumping to the site approximately 4 kilometers
away.

In
October 2007, we acquired an additional parcel of land which is approximately five
hectares in size and adjacent to the community of San Jose de Gracia. The land cost
us $152,522. We have completed construction of an employee housing facility on this parcel
that includes 10 buildings and will house approximately 50 people.

13

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Geology
and Mineralization.   The El Aguila Project is located in the San Jose de
Gracia Mining District in the Sierra Madre del Surof southern Mexico. Multiple
volcanic domes of various scales, and probably non-vented intrusive domes, dominate the
district geology. These volcanogenic features are imposed on a pre-volcanic basement of
sedimentary rocks. Gold and silver mineralization in this district is related to the
manifestations of this classic volcanogenic system and is considered epithermal in
character.

Certain
deposits on the El Aguila property are primarily hosted in a quartz rich,
stratiform zone (manto). The main manto drilled to date that forms our initial El
Aguila shallow mineralization, which we hope to mine by an open pit, is conformable
with the ryholitic volcanic rock above and below the manto. It varies in thickness from
less than two meters (6.6 feet) to more than 30 meters (98.4 feet). The gold and silver
mineralization is considered low sulfidation, epithermal in character. There appear to be
several other prospective manto units on the property.

Surface
sampling yielded anomalous gold and silver values from early district-wide exploration
where silicified zones were encountered. In addition, a small, shallow adit and winze
provided limited sampling underground, yielding indications of gold values in a
silicified, sub-horizontal manto. Based on these early anomalous exploration samples, a
drilling program was carried out by us that in fact resulted in defining a central zone of
continuous, shallow, sub-horizontal mineralized material. The fact that the mineralization
is relatively shallow will make mining less difficult and less expensive from an open pit
mine compared to an underground mine. This mineralized material at the El Aguila is
near surface and lends itself to open pit mining.

Our
2008 drilling program continued to explore a relatively new area of mineralization at the
El AguilaProject that we call the La Arista vein area, approximately two
kilometers from the mill site. This mineralized material is different from the El
Aguila near surface mineralization in that it is polymetallic in character. This
polymetallic mineralization contains gold and silver plus the base metals copper, lead and
zinc. The character of this mineralization is also epithermal but considered intermediate
sulfidation. We anticipate that this mineralized material would be mined underground and
mining activity in this area is targeted for year two and beyond of our production plan.

# The El Rey Property

We
have acquired claims in another area in the state of Oaxaca by filing concessions under
the Mexican mining laws, referred to by us as the El Rey property. These
concessions total 892 hectares. We have conducted minimal exploration and drilling on this
property to date.

The
El Rey property is an exploration stage property with no known reserves. It is
approximately 64.4 kilometers (40 miles) from the El Aguila Project. There is no
plant or equipment on the El Reyproperty. If exploration is successful, any mining
would probably require an underground mine but any mineralized material could be processed
at the El Aguila Project mill.

Limited
drilling at El Rey has encountered gold and silver mineralization up to 1 meter of
132.5 g/tonne gold (4.25 ounces/tonne) and 1.5 meters of 958 g/tonne silver. We have
drilled 12 holes for a total of 1,302 meters (4,271 feet) at the El Rey property.
Additional exploration drilling is planned.

# The Las MargaritasProperty

The
Las Margaritas property is made up of the La Tehuana concession. We leased
this in October 2002 from Mr. Reynoso. It is comprised of approximately 925 hectares
located adjacent to the El Aguila property. To date, we have conducted limited
surface sampling, but no other significant exploration activities at the property.

14

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# The Solaga Property

In
February 2007, we leased a 100% interest in a property known as the Solaga
property, which totals 618 hectares, and is located approximately 120 kilometers (75
miles) from the El Aguila project. A dormant silver mine is located on the
Solaga property which was in production as recently as the 1980s. However, we
cannot estimate if or when we will reopen the mine. The lease requires us to perform
$25,000 in additional work and is subject to a 4% net smelter return royalty on any
production. We have not conducted any exploration activities at the property.

# Mineral Concessions

Mineral
rights in Mexico belong to the Mexican government and are administered pursuant to Article
27 of the Mexican Constitution. Exploitation concessions may be granted or transferred to
Mexican citizens and corporations. Our leases or concessions are held by our Mexican
subsidiaries. Exploitation concessions have a term of 50 years and can be renewed for
another 50 years. Concessions grant the holder the right to explore and exploit all
minerals found in the ground. Maintenance of concessions requires the semi-annual payment
of mining duties (due in January and July) and the performance of assessment work, on a
calendar year basis, with assessment work reports required to be filed in the month of May
for the preceding calendar year. The amount of mining duties and annual assessment are set
by regulation and may increase over the life of the concession and include periodic
adjustments for inflation. Mining concessions are registered at the Public Registry of
Mining in Mexico City and in regional offices in Mexico.

# Ejido Lands and Surface
Right Acquisitions

Surface
lands at the El Aguila Project area are Ejido lands (agrarian cooperative
lands granted by the federal government to groups of Campesinos pursuant to Article
27 of the Mexican Constitution of 1917). Prior to January 1, 1994, Ejidos could not
transfer Ejido lands into private ownership. Amendments to Article 27 of the
Mexican Constitution in 1994 now allow individual property ownership within Ejidos
and allow Ejidos to enter into commercial ventures with individuals or entities,
including foreign corporations. We have an agreement with the local San Pedro
Totolapam Ejido allowing exploration and exploitation of mineralization at
the El Aguila Project.

Mexican
law recognizes mining as a land use generally superior to agricultural. However, the law
also recognizes the rights of the Ejidos to compensation in the event mining
activity interrupts or discontinues their use of the agricultural lands. Compensation is
typically made in the form of a cash payment to the holder of the agricultural rights. The
amount of such compensation is generally related to the perceived value of the
agricultural rights as negotiated in the first instance between the Ejidos and the
owner of the mineral rights. If the parties are unable to reach agreement on the amount of
the compensation, the decision will be referred to the government.

We
have established surface rights agreements with the San Pedro
Totolapam Ejido and the individuals impacted by our proposed operations
which allow disturbance of the surface where necessary for our proposed mining operations.

# Office Facilities

Effective
October 1, 2005, we leased approximately 1,000 square feet of office space under a three
year agreement with an independent third party. In May 2007, we amended the lease to add
approximately 300 square feet and extended the lease term through April 30, 2010.
Monthly rent payments under this lease, including parking and operating expenses, will
average $2,470 per month through April 30, 2010, when the lease expires. We believe
this space is adequate for our needs for the foreseeable future.

15

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# Glossary

|Adit: | A
more or less horizontal drive (walk-in mine) into a hill that is usually driven for the
purpose of intersecting or mining an ore body. An adit may also be driven into a hill to
intersect or connect a shaft for the purpose of dewatering. Adits were commonly driven on
a slight incline to enable loaded mine trucks to have the advantage of a downhill run
out, while the empty (lighter) truck was pushed uphill back into the hill. The incline
also allows water to drain out of the adit. An adit only becomes a tunnel if it comes out
again on the hill somewhere, like a train tunnel.
|----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Andesite: | A
gray to black volcanic rock with between about 52 to 63 weight percent silica (SiO2).
Andesite magma commonly erupts from stratovolcanoes as thick lava flows, some reaching
several km in length.
|--------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Cretaceous period: | Flowering plants appeared and dinosaurs were at their height during the Cretaceous
period. 146-65 million years ago. There was a mass extinction (the K-T extinction) at the
end of the Cretaceous, marking the end of the dinosaurs and many other species.
|------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Doré: | Unrefined
gold and silver bars usually containing more than 90% precious metal.
|----- | -------------------------------------------------------------------------------

|Epithermal: | Used
to describe gold deposits found on or just below the surface close to vents or
                      volcanoes, formed at low temperature and pressure.
|----------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------

|Felsic: | The
minerals feldspar and quartz or an igneous rock or metamorphic rock made
                      predominantly of feldspar and quartz; poor in iron and magnesium.
Light-colored.
|------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Gram: | A
metric unit of weight and mass, equal to 1/1000th of a kilogram.  One gram equals
                      .035 ounces.  One ounce equals 31.103 grams.
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------

|Hectare: | Another
metric unit of measurement, for surface area.  One hectare equals 1/200th of
                      a square kilometer, 10,000 square meters, or 2.47 acres. A hectare
is approximately                       the size of a soccer field.
|-------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Horst-graben: | Horst
and graben are formed by widespread block faults giving rise to a mountain and
                      valley topography that owes its origin in part at least to regional
block faulting.
|------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Kilometer: | Another
metric unit of measurement, for distance. The prefix kilo means 1000, so one
kilometer equals 1,000 meters, one kilometer equals 3,280.84 feet, which equals 1,093.6
yards, which equals 0.6214 miles.
|---------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Manto: | A
mineralogy term meaning a layer or stratum.
|------ | ---------------------------------------------

|Mineralized Material: | Minerals
or Any mass of host rock in which minerals of potential commercial value occur.
|--------------------- | ----------------------------------------------------------------------------------------



|Net Smelter
Return Royalty: | A share of the net revenue generated from the sale of metal produced
by the mine.
|--------------------------- | ---------------------------------------------------------------------------------

|Ore or
Ore Deposit: | Rocks that contain economic amounts of minerals in them and that are
expected to be  profitably mined.
|------------------- | ------------------------------------------------------------------------------------------------------

|Rhyolite: | A
type of volcanic lava or rock that is usually light in color: it contains greater
                      than 68% silica, by weight, and is high in potassium and sodium.
|--------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Silicified: | Is
combined or impregnated with silicon or silica.
|----------- | --------------------------------------------------

16

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|Tertiary period: | This period lasted from 65 to 1.8 million years ago. It followed the Cretaceous period
(the end of the Mesozoic Era) and the K-T extinction. Many mammals developed then,
including primitive whales, rodents, pigs, cats, rhinos, etc.
|---------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Tonne: | A
metric ton.  One tonne equals 1000kg.   It is approximately equal to 2,204.62
                      pounds.
|------ | -------------------------------------------------------------------------------------------------------------

|Volcanogenic: | Of
volcanic origin.
|------------- | -------------------

|Volcanic domes: | These are mounds that form when viscous lava is erupted slowly and piles up over
the                       vent, rather than moving away as lava flow.  The sides of most
domes are very steep                       and typically are mantled with unstable rock
debris formed during or shortly after                       dome emplacement.  Most domes
are composed of silica-rich lava which may contain                       enough
pressurized gas to cause explosions during dome extrusion.
|--------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Winze: | Secondary
or tertiary vertical or near-vertical opening sunk from a point inside a
                      mine for the purpose of connecting with a lower level or of
exploring the ground for                       a limited depth below a level.
|------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Conversion Table

|Metric System            |  | Imperial System |                         
|------------------------ |  | --------------- | ------------------------
|
|1 metre (m)              |  |                 | 3.2808 feet (ft)        
|1 kilometer (km)         |  |                 | 0.6214 mile (mi)        
|1 square kilometer (km2) |  |                 | 0.3861 square mile (mi2)
|1 square kilometer (km2) |  |                 | 100 hectares (has)      
|1 hectare (ha)           |  |                 | 2.471 acres (ac)        
|1 gram (g)               |  |                 | 0.0322 troy ounce (oz)  
|1 kilogram (kg)          |  |                 | 2.2046 pounds (lbs)     
|1 tonne (t)              |  |                 | 1.1023 tons (t)         
|1 gram/tonne (g/t)       |  |                 | 0.0292 ounce/ton (oz/t) 

# ITEM 3. LEGAL PROCEEDINGS

We
are not currently subject to any legal proceedings, and to the best of our knowledge, no
such proceeding is threatened, the results of which would have a material impact on our
properties, results of operation, or financial condition. Nor, to the best of our
knowledge, are any of our officers or directors involved in any legal proceedings in which
we are an adverse party.

# ITEM 4. SUBMISSION OF
MATTERS TO A VOTE OF SECURITY HOLDERS

None.

# PART II

# ITEM 5. MARKET FOR
COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND PURCHASES OF EQUITY SECURITIES

# Market Information

Our
common stock trades over-the-counter and is quoted on the OTC Bulletin Board under the
symbol GORO. The table below sets forth the high and low bid prices for our
common stock as reflected on the OTC Bulletin Board for the last two fiscal years.
Quotations represent prices between dealers, do not include retail markups, markdowns or
commissions, and do not necessarily represent prices at which actual transactions were
effected.

17

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|Year Ending       |  | High |       | Low | 
|----------------- |  | ---- | ----- | --- | 
|
|December 31, 2008 |  |      |       |     | 
|First Quarter     |  |      | $4.70 |     | 
|Second Quarter    |  |      | 6.09  |     | 
|Third Quarter     |  |      | 5.65  |     | 
|Fourth Quarter    |  |      | 3.88  |     | 
|                  |  |     
|December 31, 2007 |  |     
|First Quarter     |  |      | $3.97 |     | 
|Second Quarter    |  |      | 3.85  |     | 
|Third Quarter     |  |      | 4.83  |     | 
|Fourth Quarter    |  |      | 5.10  |     | 

On
April 13, 2009, the high and low sales price of our common stock on the OTC Bulletin Board
were $4.34 and $4.10, respectively, and we had approximately 116 holders of
record of our common stock.

# Penny Stock Rules

Due
to the price of our common stock, as well as the fact that we are not listed on Nasdaq or
a national securities exchange, our stock is characterized as penny stocks
under applicable securities regulations. Our stock will therefore be subject to rules
adopted by the SEC regulating broker-dealer practices in connection with transactions in
penny stocks. The broker or dealer proposing to effect a transaction in a penny stock must
furnish his customer a document containing information prescribed by the SEC and obtain
from the customer an executed acknowledgment of receipt of that document. The broker or
dealer must also provide the customer with pricing information regarding the security
prior to the transaction and with the written confirmation of the transaction. The broker
or dealer must also disclose the aggregate amount of any compensation received or
receivable by him in connection with such transaction prior to consummating the
transaction and with the written confirmation of the trade. The broker or dealer must also
send an account statement to each customer for which he has executed a transaction in a
penny stock each month in which such security is held for the customers account. The
existence of these rules may have an effect on the price of our stock, and the willingness
of certain brokers to effect transactions in our stock.

# Transfer Agent

We
have appointed Corporate Stock Transfer, Inc. (CST) as the transfer agent for
our common stock. The principal office of CST is located at 3200 Cherry Creek Drive South,
Suite 430, Denver, CO 80209 and its telephone number is (303) 282-4800.

# Dividend Policy

We
have never declared or paid dividends on our common stock. Payment of future dividends, if
any, will be at the discretion of our Board of Directors after taking into account various
factors, including the terms of any credit arrangements, our financial condition,
operating results, current and anticipated cash needs and plans for expansion. At the
present time, we are not party to any agreement that would limit our ability to pay
dividends.

# ITEM
6.  SELECTED FINANCIAL DATA

Not
required.

18

---



# ITEM 7.  
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

This
discussion analyzes our financial condition at December 31, 2008 and compares it to our
financial condition at December 31, 2007. This discussion also summarizes the results
of our operations for the year ended December 31, 2008 and compares those results to the
year ended December 31, 2007.

# Overview

We
are a company engaged in the exploration of gold and silver properties, primarily in
Mexico, with a goal of production in the near future. We pursue exploration of gold and
silver projects that we believe feature low operating costs and have the potential to
produce a high return on the capital invested. We hold a 100% interest in four properties
in Mexicos southern State of Oaxaca. See Item 2.
Properties for more information about our properties. Mineral exploration
requires significant capital and our assets and resources are limited. We have never
received revenue from operations and have relied on equity financing to fund our
operations to date.

We
completed our IPO in August 2006 at $1.00 per share and received gross proceeds of
$4,600,000. We raised additional capital pursuant to private placements of our common
stock; one in December 2006 for gross proceeds of $5,186,400 and one in December 2007 for
gross proceeds of $22,234,000. In December 2008, we entered into an agreement with
Hochschild Mining Holdings Limited (Hochschild) under which we sold a total of
6,000,000 shares of common stock and received gross proceeds of $5,010,000 during December
2008 and $12,990,000 during February 2009.

We
used funds from the IPO and December 2006 private placement to continue exploration at the
El Aguilaproperty. We used funds from the December 2007 private placement to
continue exploration at the El Aguilaproperty, to commence construction of the
open pit mine at El Aguila, and to commence construction of a processing mill. We
anticipate using the funding provided by Hochschild to continue these efforts.

We
continue to refine our capital requirements. As an exploration stage company, there is
significant uncertainty in our estimates regarding both future costs and future revenue.
We may require additional capital resources to complete our plans.

Exploration
Stage Company.  We are considered an exploration stage company for accounting purposes,
since we have not demonstrated the existence of proven or probable reserves. In accordance
with accounting principles generally accepted in the United States, all expenditures for
exploration and evaluation of our properties have been expensed as incurred. Furthermore,
unless mineralized material is classified as proven or probable reserves, substantially
all expenditures for mine construction have been or will be expensed as incurred. Certain
expenditures, such as for rolling stock or other general purpose equipment, may be
capitalized, subject to our evaluation of the possible impairment of the asset. Since
substantially all of our expenditures to date have been expensed and we expect to expense
significant expenditures during 2009, most of our investment in mining properties and
equipment does not appear as an asset on our balance sheet.

Exploration
of our properties accelerated in late 2006, and continued throughout 2007 and 2008. From
inception to December 31, 2008, we expensed approximately $16,674,000 on the exploration
and evaluation of our various properties, including approximately $15,900,000 which has
been spent on the currently active properties known as El Aguila, Las
Margaritas, El Rey and Solaga. In addition, we have expensed, from
inception to December 31, 2008, approximately $14,500,000 in design, engineering, and
construction costs, all of which apply to the El Aguila Project.

19

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# Plan of Operation

In
April 2007, we decided to move forward with construction at the El Aguila property
in an effort to commence commercial production. Our decision was made based upon drilling
data that we believe provides evidence of mineralized material in amounts sufficient to
proceed with construction activities. However, we have not commenced a feasibility study
that would allow us to classify any of our mineralized material as proven or probable
reserves, as those terms are defined by the SEC in Industry Guide 7,
Description of Property by Issuers Engaged or to Be Engaged in Significant Mining
Operations. The SEC definition of reserve is that part of a
mineral deposit which could be economically and legally extracted or produced at the time
of the reserve determination.

Our
ability to demonstrate the existence of proven or probable reserves would require us to
continue exploration drilling that demonstrated the existence of sufficient mineralized
material and to complete a positive feasibility study. A feasibility study must
demonstrate with reasonable certainty that the deposit can be legally and economically
extracted and produced. At this time, we have neither undertaken these additional
activities nor implemented plans to undertake these activities in the future. Accordingly,
the mineralized material identified by us should not be considered proven or probable
mineral reserves. Additionally, the assumptions used by us in our decision to undertake
construction of the mill and mine may prove to be inaccurate. Thus, we may never be able
to recover sufficient mineralized material to become profitable.

Anticipated
Production.  While we intend to continue exploration at the El Aguila Project
for the foreseeable future, we are moving forward with our plans to make improvements to
the property for anticipated production. This includes acquisition of equipment and
construction of a mill. We engaged Lyntek, Inc. of Denver, Colorado, on a month to month
basis, to design and build the mill at the El Aguila Project. We presently
anticipate mining by open pit and building a mill that is designed to process 850 tonnes
of ore per day through a flotation section and 150 tonnes of ore per day through an
agitated leach section. We expect the mining to be done under contract with a third party
contractor. Only after a mine and a mill are constructed and operational do we expect to
generate any revenue.

Our
primary target for production in 2009 will be gold from the near-surface mineralization at
ElAguila. Any silver contained in the mineralization will be produced as a
by-product, any revenue from which will help offset the costs of producing the gold. In
the following year, if activities go as planned, we intend to undertake production of gold
from an underground mine at the nearby La Arista vein. Our plan to construct
the underground mine includes driving a decline ramp.
 A portion of the proceeds from our equity financing in early 2009 are
dedicated for this purpose. Since we believe the La Arista vein area also contains base
metals such as copper, lead and zinc, we intend to produce those as by-products, any
revenue from which would help offset the costs of producing gold and silver. The
mineralization from both the near-surface mineralization and the anticipated underground
mine will be processed at the mill at the El Aguila Project.

From
inception to date, we have committed or spent approximately $15,000,000 on construction of
the mill and an additional $5,000,000 on infrastructure. We completed construction of a
road to the mine site to improve access and facilitate delivery of equipment and
construction of the mill and mine. We completed grading of the mill site and the concrete
foundations. Construction of the tailings facility is  underway. We are
in the process of erecting the structural steel and buildings. Substantially all of the
processing equipment has been purchased, and we anticipate that this equipment will be
transported to the site and installed during 2009. In October 2007, we acquired an
additional parcel of land which comprises approximately five hectares and is located
adjacent to the community of San Jose de Gracia. During 2008, we substantially
completed construction of an employee housing facility for the El Aguila Project,
as well as a health clinic which will be available to employees and local residents. The
facility encompasses 10 buildings, including a cafeteria, and can house approximately 50
people.

20

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We
estimate we will spend an additional $5,000,000 to $6,000,000 during 2009 to complete the
milling facilities, the funds for which were provided by an equity financing in early
2009.

Mexico
Income Taxes.  On October 1, 2007, Mexico enacted changes to its tax system
that generally took effect beginning January 1, 2008. Those changes include the creation
of a flat tax (so-called because the computation of income subject to the tax
excludes a number of the deductions generally included in a more traditional determination
of taxable income). The Mexican tax system continues to include a regular
income tax. In general, enterprises operating in Mexico will be required to pay the
greater of the tax computed under the regular tax and the flat tax. The tax is new and
some of its provisions are ambiguous. While we do not expect the flat tax to have an
effect on us for either the 2008 or 2009 tax years, we estimate that we could incur flat
tax liability beginning in tax year 2010. The flat tax computation excludes certain
deductions for operating loss carry-forwards and amortization, depletion, and depreciation
expense. Therefore, the new tax law may limit the future tax benefit that would have
otherwise been available from our investment in mineral properties.

Corporate
Overhead.  Included in our plan of operation are the expenses of overseeing
our business and paying other general and administrative expenses. These expenses
primarily include salaries and consulting fees, rent, travel and professional fees. We
currently estimate these expenses at $140,000 per month based on existing commitments and
expectations. We expect these expenses will be paid from our cash position and future
equity offerings, if necessary, until such time, if ever, we are successful in placing one
or more of our properties into production.

# Liquidity and Capital
Resources

As
of December 31, 2008, we had working capital of $1,984,183, consisting of current assets
of $3,737,468 and current liabilities of $1,753,285. This represents a decrease of
$19,298,521 from the working capital balance of $21,282,704 as of December 31, 2007.
Current assets consist primarily of cash which is deposited in short term interest bearing
accounts. Consistent with our plans, during the year ended December 31, 2008, we consumed
working capital to fund our exploration and construction activities and to a lesser
extent, general and administrative expenses.

We
have never received revenue from gold or other mineral sales. We currently expect to
commence sales of gold and silver upon commissioning of our El Aguila processing
facility during 2009, but we cannot guarantee that we will meet our expected timetable.

We
have historically relied on equity financings or loans (including loans from our officers)
to continue funding our operations. From inception through December 31, 2008, we received
$43,722,867 in cash, services and other consideration through issuance of our common
stock. As of December 31, 2008, we did not have any outstanding debt, as all previous
borrowings have been repaid or converted into equity. We believe that we will continue to
fund our future working capital requirements through the sale of equity, and eventually
through cash flow from operations, and we have not made arrangements to borrow funds for
working capital requirements.

On
December 5, 2008, we entered into a subscription agreement and a strategic alliance
agreement with Hochschild Mining Holdings Limited (Hochschild). Under the
terms of the subscription agreement, we sold 1,670,000 restricted shares of common stock
to Hochschild in December 2008 at $3.00 per share for total cash proceeds of
$5,010,000. The strategic alliance agreement granted Hochschild an option to purchase an
additional 4,330,000 shares of our restricted common stock at a price of $3.00 per share
for total cash proceeds of $12,990,000 and Hochschild exercised the option on February 25,
2009. The strategic alliance agreement provided that if Hochschild exercised its option,
we agreed to use at least $5,000,000 of the total $18,000,000 cash proceeds to fund
exploration activities on the El Aguila Project, and the balance of the proceeds
would be used as follows: $10,000,000 for development and construction of the mine and
mill for the El Aguila Project, and $3,000,000 for our working capital and other
investments in the El Aguila Project.

21

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Our
most significant sources of funds during 2008 were cash balances on hand at December 31,
2007 of $22,007,216 and proceeds from the Hochschild transaction in December 2008. Our
most significant source of funds for 2009 is expected to be proceeds that we received in
February 2009 from the sale of 4,330,000 shares of common stock to Hochschild.

Our
most significant expenditures for 2008 were for the construction of the mill and
associated infrastructure. We spent approximately $4,300,000 on the engineering and
construction of the mill, including the tailings dam, and we purchased $6,400,000 of
processing equipment that will be installed at the mill. Infrastructure costs included
$2,000,000 for the completion of the road and installation of a water line. We spent
$1,800,000 on the construction of a camp for the mine workers. In addition, we spent
$4,400,000 on drilling as we continued our exploration drilling program to further
delineate the area of mineralized material.

Our
most significant expenditures for 2009 are expected to be completion of the El
Aguila facilities approximating $5,000,000 to $6,000,000 and additional exploration
drilling of $2,000,000.

Furthermore,
we continue to incur operating expenses approximating $140,000 per month for salaries and
other corporate overhead. We expect to continue depleting our working capital until such
time, if ever, we successfully commence production and generate cash flow from the
production and sale of gold and other metals.

Although
we expect to commence gold production during 2009, it is uncertain if we will be
successful. Furthermore, the amount of revenue generated during the start-up phase of a
mining operation is difficult to predict and tends to be highly variable. Our costs to
enter the production phase may be greater than we anticipate. We may require additional
funding to complete our existing plans and we would be dependent upon additional financing
to expand our exploration efforts. We may seek additional funding during the next twelve
months.

Net
cash used in operating activities was $23,005,822 during the year ended December 31, 2008,
compared to $6,908,890 during 2007, an increase of $16,096,932. We accelerated our
expenditures in 2008 consistent with our plan to commence production during 2009.

Net
cash used in investing activities for capital expenditures was $657,816 for the year ended
December 31, 2008, compared to $456,152 for the year ended December 31, 2007. Although
most of our exploration stage expenditures are recorded as an expense rather than an
investment, we capitalize the acquisition cost of land and mineral rights and certain
equipment that has alternative future uses or significant salvage value, including rolling
stock, furniture, and electronics. During 2008, our most significant capital expenditures
were for a bulldozer and several vehicles.

Net
cash provided by financing activities was $5,191,000 for the year ended December 31, 2008,
consisting of $5,010,000 proceeds from the Hochschild strategic alliance discussed above
and proceeds of $181,000 from the exercise of stock options. For the year ended December
31, 2007, financing activities provided cash of $21,712,000 from the sale of common stock.
We completed a private placement during December 2007 whereby we sold 5,558,500 shares of
our common stock at $4.00 per share for which we received gross proceeds of $22,234,000.
We agreed to pay finders fees consisting of cash and stock to certain individuals
and entities. We issued 263,900 shares of our common stock and paid cash fees of $522,000
to the finders, resulting in net cash proceeds of $21,712,000.

The
balance of cash and equivalents decreased to $3,534,578 as of December 31, 2008, from
$22,007,216 as of December 31, 2007, a net decrease in cash of $18,472,638. We expect to
continue depleting our cash until such time, if ever, we successfully commence production
and generate cash flow from the production and sale of gold and other metals.

22

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# Results of Operations
 Year Ended December 31, 2008 Compared to Year Ended December 31, 2007

For
the year ended December 31, 2008, we reported a net loss of $26,015,203, or $(0.76) per
share, compared to a net loss of $8,076,342, or $(0.28) per share for 2007. We expect to
incur losses until such time, if ever, we begin generating significant revenue from
operations.

In
neither year did we report any revenue from the sale of gold or other minerals. Our only
revenue since inception has consisted of interest income. We currently expect to commence
sales of gold and silver upon commissioning of our El Aguila processing facility
during 2009, but we cannot guarantee that we will meet our expected timetable.

Total
costs and expenses were $26,348,812 in 2008 compared to $8,318,855 in 2007, an increase of
$18,029,957 or 217%. The additional expenditures reflect our increasing activities at the
El Aguila Project. Mineral property costs, including exploration and evaluation,
increased $2,439,625 from $5,731,771 for the year ended December 31, 2007 to $8,171,396
for the year ended December 31, 2008. We continued our exploration of the El Aguila
property. We conducted limited exploration on the El Rey property.

Engineering
and construction costs were $14,501,461 in 2008 compared to nil in 2007. As more fully
described in the preceding discussions of our expenditures, we commenced construction of
the mine and mill site and other infrastructure during 2008.

General
and administrative expense for the year ended December 31, 2008 increased to $3,552,007
compared to $2,539,604 during 2007, an increase of $1,012,403 or 40%. As explained below, there was a significant increase
 in non-cash stock option compensation, partially reduced by decreases in other items.

General
and administrative expense includes recognition of non-cash compensation expense for
grants of stock options and grants of common stock.

The component of general
and administrative expense representing  non-cash stock option compensation expense was
$1,956,806 for the year ended December 31, 2008, compared to $99,482 for 2007.  We use an option pricing model to estimate the value of stock
options granted to officers, directors, employees and consultants. It is difficult to
estimate the value of options that we grant. The options are subject to significant
restrictions and cannot be purchased or sold on the open market. Therefore, there is no
objective and independent valuation measurement for them. We use the Black-Scholes-Merton
model, which requires considerable judgment selecting the subjective assumptions that are
critical to the results produced by the model, to calculate the estimated fair value. We
record the estimated fair value as an expense on a pro-rata basis over the vesting period
of the options.

During
2008, we granted a total of 1,320,000 stock options with an estimated value of $2,508,114.
We granted options to officers and directors to purchase 1,000,000 shares of common stock
at an exercise price of $3.40 per share, all of which vested immediately. We also granted
stock options to an investor relations consultant to purchase 50,000 shares of common
stock at an exercise price of $4.45 per share, all of which vested immediately. We also
granted options to employees covering 270,000 shares of common stock at a weighted average
price of $3.91. Those options will vest over the next three years.

During
the year ended December 31, 2007, we granted stock options to a public relations
consultant to purchase 50,000 shares of common stock at an exercise price of $3.68 per
share, all of which vested in 2007. The estimated fair value of those options was $83,192.

The component of general
and administrative expense  representing a non-cash expense for grants of common stock
 was $42,470 for the year ended December 31, 2008, compared to $630,968 for 2007.
Shares of common stock issued by us in exchange for services are recorded as an expense,
the amount of which is determined by reference to the market prices of our stock reported
by the OTC Bulletin Board.

During
the year ended December 31, 2008, we issued 10,000 shares of common stock valued at
$42,470 as partial compensation for investor relations services. During the year ended
December 31, 2007, we issued 185,000 shares of common stock valued at $630,968 as partial
compensation for consulting services.

23

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Cash
compensation costs included in general and administrative expense decreased to $716,057
during 2008 from $880,098 during 2007. Certain cash compensation attributed to 2007 was
replaced by non-cash compensation during 2008. Professional fees increased to $368,975 in
2008 compared to $234,154 in 2007, an increase of $134,821, which reflects our increasing
activities. Investor relations expenses decreased to $167,732 during 2008 from $342,083
during 2007. There were investor relations costs associated with the private placement in
December 2007 that were not repeated in 2008.

Interest
income increased to $333,609 for the year ended December 31, 2008 compared to $242,513 for
2007, an increase of $91,096, or 38%, representing higher deposits in short term interest
bearing accounts pending utilization in our exploration, construction and operating
activities.

Our
mining operations are located in Mexico and we primarily transact business in Mexican
pesos. Our reporting currency is the US dollar. Changes in the rate of currency exchange
between the Mexican peso and the US dollar create translation gains and losses, which are
reported as a component of other comprehensive income. For the years ended December 31,
2008 and 2007, we recorded currency translation gains (losses) of $63,536 and ($89,939),
respectively.

# Off-Balance Sheet
Arrangements

As
of and subsequent to December 31, 2008, we have no off-balance sheet arrangements.

# Critical Accounting
Policies

Estimates.
  
          The preparation of financial statements in conformity with accounting principles
          generally accepted in the United States (US GAAP) requires
          management to make estimates and assumptions that affect the reported amount of
          assets and liabilities and disclosure of contingent assets and liabilities at
          the date of the financial statements and the reported amounts of expenses during
          the reporting period. Management routinely makes judgments and estimates about
          the effects of matters that are inherently uncertain. Management bases its
          estimates on historical experience and on various other factors that are
          believed to be reasonable under the circumstances, the results of which form the
          basis for making judgments about the carrying values of assets and liabilities
          that are not readily apparent from other sources. Estimates and assumptions are
          revised periodically and the effects of revisions are reflected in the financial
          statements in the period it is determined to be necessary. Actual results could
          differ from these estimates.

We
believe that application of the following accounting policies, which are critical to our
financial position and results of operations, requires significant judgments and estimates
on the part of management.

Proven
and Probable Reserves.The definition of proven and probable
reserves is set forth in SEC Industry Guide 7. Proven reserves are reserves for which (a)
quantity is computed from dimensions revealed in outcrops, trenches, workings or drill
holes; 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 the geologic
character is so well defined that size, shape, depth and mineral content of reserves are
well-established. Probable reserves are reserves for which quantity and grade and/or
quality are computed from information similar to that used for proven reserves, but the
sites for inspection, sampling, and measurement are farther apart or are otherwise less
adequately spaced. The degree of assurance, although lower than that for proven reserves,
is high enough to assume continuity between points of observation. In addition, reserves
cannot be considered proven and probable until they are supported by a feasibility study,
indicating that the reserves have had the requisite geologic, technical and economic work
performed and are economically and legally extractable at the time of the reserve
determination.

24

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Mineral
Acquisition Costs.  The costs of acquiring land and mineral
rights are considered tangible assets pursuant to EITF Issue No. 04-2, Whether
Mineral Rights are Tangible or Intangible Assets. Significant acquisition payments
are capitalized. General, administrative and holding costs to maintain an exploration
property are expensed as incurred. If a mineable ore body is discovered, such costs are
amortized when production begins using the units-of-production method. If no mineable ore
body is discovered or such rights are otherwise determined to have diminished value, such
costs are expensed in the period in which the determination is made.

Exploration
Costs.  Exploration costs are charged to expense as incurred.
Costs to identify new mineral resources, to evaluate potential resources, and to convert
mineral resources into proven and probable reserves are considered exploration costs.

Design,
Construction, and Development Costs.  Certain costs to design
and construct mine and processing facilities may be incurred prior to establishing proven
and probable reserves. Under these circumstances, we classify the project as an
exploration stage project and expense substantially all costs, including design,
engineering, construction, and installation of equipment. Certain types of equipment,
which have alternative uses or significant salvage value, may be capitalized. After a
project is determined to contain proven and probable reserves, costs incurred
prospectively can be capitalized. Such costs include development drilling to further
delineate the ore body, removing overburden during the pre-production phase, building
access ways, constructing facilities, and installing equipment. Interest costs, if any,
incurred during the development phase would be capitalized until the assets are ready for
their intended use. The cost of start-up activities and on-going costs to maintain
production are expensed as incurred. Costs of abandoned projects are charged to operations
upon abandonment.

After
a project commences commercial production, amortization and depletion of capitalized costs
is computed on a unit-ofproduction basis over the expected life of the project based
on estimated recoverable gold equivalent ounces.

Impairment
of Long-Lived Assets.  We evaluate our long-lived assets
for impairment in accordance with Statement of Financial Accounting Standards
(SFAS) No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets (SFAS 144), and EITF Issue No. 04-3,
Mining Assets: Impairment and Business Combinations. If impairment indicators
exist, we perform additional analysis to quantify the amount by which capitalized costs
exceed recoverable value. The periodic evaluation of capitalized costs is based upon
expected future cash flows, including estimated salvage values. As of December 31, 2008,
our mineral resources do not meet the definition of proven or probable reserves or value
beyond proven and probable reserves and any potential revenue has been excluded from the
cash flow assumptions. Accordingly, recoverability of capitalized cost is based primarily
on estimated salvage values.

Property
Retirement Obligation.  We follow SFAS No 143, Accounting
for Asset Retirement Obligations (SFAS 143), which requires the
fair value of a liability for an asset retirement obligation to be recognized in the
period that it is incurred if a reasonable estimate of fair value can be made. The
associated asset retirement costs are capitalized as part of the carrying amount of the
long-lived asset.

Stock
Based Compensation.  We account for stock-based compensation in accordance
with SFAS No. 123 (Revised 2004), Share Based Payment (SFAS
123R), which requires the recognition of compensation costs for stock options
determined in accordance with a fair value based methodology. We estimate the fair value
of stock options at their grant date by using the Black-Scholes-Merton option pricing
model and provides for expense recognition over the vesting period, if any, of the stock
option.

Foreign
Currency Translation.   The local currency, the Mexican peso, is the functional currency
for our subsidiaries. Current assets and liabilities are translated using the exchange
rate in effect at the balance sheet date. Other assets and liabilities are translated
using historical rates. Revenues and expenses are translated at the average exchange rate
for the year. Translation adjustments are reported as a separate component of
shareholders equity.

25

---



Income
Taxes.   We account for income taxes under SFAS No. 109,
Accounting for Income Taxes (SFAS 109). SFAS 109
requires recognition of deferred tax assets and liabilities for temporary
differences  and the effect of net operating losses based upon the
enacted tax rates in effect for the year in which the differences are expected
to reverse. Temporary differences are differences between the tax basis of
assets and liabilities and their reported amounts in the financial statements
that will result in taxable or deductible amounts in future years. A valuation
allowance is established when necessary to reduce deferred tax assets to the
amount expected to be realized.

FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes-an Interpretation of
FASB Statement No. 109 (FIN 48), clarifies the accounting for uncertainty in
income taxes recognized in an entitys financial statements in accordance with SFAS
109, and prescribes a recognition threshold and measurement attributes for financial
statement disclosure of tax positions taken or expected to be taken on a tax return. Under
FIN 48, the impact of an uncertain income tax position on the income tax return must be
recognized at the largest amount that is more-likely-than-not to be sustained upon audit
by the relevant taxing authority. An uncertain income tax position will not be recognized
if it has less than a 50% likelihood of being sustained. Additionally, FIN 48 provides
guidance on derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition.

# Recent Accounting
Pronouncements

We
monitor pronouncements issued by the various authoritative sources that serve to define
and clarify US GAAP, including statements issued by the Financial Accounting Standards
Board (FASB), the SEC, and the Emerging Issues Task Force (EITF),
among others.

In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business
Combinations (SFAS 141R). This statement replaces
FAS No. 141, which was effective July 1, 2001. The statement provides guidance
for how the acquirer recognizes and measures the identifiable assets acquired, liabilities
assumed and any non-controlling interest in the acquiree. SFAS 141R provides for how
the acquirer recognizes and measures the goodwill acquired in the business combination or
a gain from a bargain purchase. The statement provides for disclosures to enable users to
be able to evaluate the nature and financial effects of the business combination. The
provisions of SFAS 141R are effective for the first annual reporting period beginning
on or after December 15, 2008, and must be applied prospectively to business combinations
completed after that date. Early adoption is prohibited. Management is currently
evaluating the impact of adopting this statement.

In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements (SFAS 160), which becomes
effective for annual periods beginning after December 15, 2008. This standard establishes
accounting and reporting standards for ownership interests in subsidiaries held by parties
other than the parent, the amount of consolidated net income attributable to the parent
and to the noncontrolling interest, changes in a parents ownership interest and the
valuation of retained non-controlling equity investments when a subsidiary is
deconsolidated. This statement also establishes reporting requirements that provide
sufficient disclosures that clearly identify and distinguish between the interests of the
parent and the interests of the non-controlling owners. Management is currently evaluating
the impact of adopting this statement.

In
March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments
and Hedging Activities  an Amendment of FASB Statement No. 133 (SFAS
161), which becomes effective for periods beginning after November 15, 2008. This
standard changes the disclosure requirements for derivative instruments and hedging
activities. Entities are required to provide enhanced disclosures about (a) how and why an
entity uses derivative instruments, (b) how derivative instruments and related hedged
items are accounted for under SFAS 133 and its related interpretations, and (c) how
derivative instruments and related hedged items affect an entitys financial
position, financial performance, and cash flows. Management is currently evaluating the
impact of adopting this statement.

26

---



In
May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles (SFAS 162), which identifies the sources of
accounting and the framework for selecting the principles to be used in the preparation of
financial statements that are presented in conformity with US GAAP. SFAS 162 will be
effective 60 days following the SECs approval of the Public Company Accounting
Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in
Conformity with Generally Accepted Accounting Principles. Management does not expect
this statement to change any of our existing accounting principles.

There
were various other accounting standards and interpretations issued recently, none of which
are expected to a have a material impact on our consolidated financial position,
operations or cash flows.

# ITEM 8.   FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA

| | Index
to Financial Statements:
| | ------------------------------

| | Managements
Report on Internal Controls over Financial Reporting
| | -----------------------------------------------------------------

| | Report
of Independent Registered Public Accounting Firm
| | -------------------------------------------------------

| | Consolidated
Balance Sheets at December 31, 2008 and 2007
| | ---------------------------------------------------------

| | Consolidated
Statements of Operations for the years ended December 31, 2008 and 2007, and for the
period from Inception (August 24, 1998) to December 31, 2008
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Consolidated
Statement of Changes in Shareholders Equity (Deficit) for the period from Inception
(August 24, 1998) to December 31, 2008
| | ----------------------------------------------------------------------------------------------------------------------------------------

| | Consolidated
Statements of Cash Flows for the years ended December 31, 2008 and 2007, and for the
period from Inception (August 24, 1998) to December 31, 2008
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Notes
to Consolidated Financial Statements
| | ------------------------------------------

27

---



# GOLD RESOURCE
CORPORATION MANAGEMENTS
REPORT ON INTERNAL CONTROLS OVER FINANCIAL REPORTING

Our management is responsible for
establishing and maintaining adequate internal control over financial reporting.

The Securities Exchange Act of 1934
defines internal control over financial reporting in Rules 13a-15(f) and 15d-15(f) as a
process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles and includes those policies and procedures
that:

| |  | Pertain to the maintenance of records that in reasonable detail accurately and fairly
reflect the transactions and disposition of assets;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------

| |  | Provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting
principles, and that our receipts and expenditures are being made only in accordance with
authorizations of management and our directors; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Provide reasonable assurance regarding prevention and timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material effect on our
financial statements.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Internal control systems, no matter
how well designed, have inherent limitations. Therefore, even those systems that are
determined to be effective provide only reasonable assurance with respect to financial
statement preparation and presentation. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

Management assessed the effectiveness
of our internal control over financial reporting based on criteria for effective internal
control over financial reporting described in Internal Control  Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on its assessment, management
concluded that we maintained effective internal control over financial reporting as of
December 31, 2008.

28

---





# REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and
ShareholdersGold Resource CorporationDenver, Colorado

We have audited the accompanying
consolidated balance sheets of Gold Resource Corporation as of December 31, 2008 and 2007,
and the related consolidated statements of operations, changes in shareholders
equity and cash flows for the years ended December 31, 2008 and 2007, and the period
August 24, 1998 (inception) to December 31, 2008. These consolidated financial statements
are the responsibility of the Companys management. Our responsibility is to express
an opinion on these consolidated financial statements based upon our audits.

We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated 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, the consolidated
financial statements referred to above present fairly, in all material respects, the
financial position of Gold Resource Corporation as of December 31, 2008 and 2007, and the
results of its operations and its cash flows for the years ended December 31, 2008 and
2007, and the period August 24, 1998 (inception) to December 31, 2008, in conformity with
accounting principles generally accepted in the United States of America.

April 9, 2009Denver,
Colorado

29

---



# GOLD RESOURCE
CORPORATION AND SUBSIDIARIES                          (An Exploration Stage Company)
                           CONSOLIDATED BALANCE SHEETS 
as of December 31, 2008 and 2007

|                                                                      | 2008 |  | 2007 |            
|--------------------------------------------------------------------- | ---- |  | ---- | -----------
|
|ASSETS                                                                |      |  |      |            
|                                                                      |      | 
|Current assets:                                                       |      | 
|Cash and cash equivalents                                             |      |  | $    | 3,534,578  
|Other current assets                                                  |      |  |      | 202,890    
|                                                                      |      |  |      |            
|Total current assets                                                  |      |  |      | 3,737,468  
|                                                                      |      |  |      |            
|                                                                      |      | 
|Land and mineral rights                                               |      |  |      | 226,610    
|Property and equipment - net                                          |      |  |      | 812,219    
|Other assets                                                          |      |  |      | 4,721      
|                                                                      |      |  |      |            
|Total assets                                                          |      |  | $    | 4,781,018  
|                                                                      |      |  |      |            
|LIABILITIES AND SHAREHOLDERS' EQUITY                                  |      | 
|                                                                      |      | 
|Current liabilities:                                                  |      | 
|Accounts payable and accrued expenses                                 |      |  | $    | 1,753,285  
|                                                                      |      |  |      |            
|Total current liabilities                                             |      |  |      | 1,753,285  
|                                                                      |      |  |      |            
|Shareholders' equity:                                                 |      | 
|Preferred stock - $0.001 par value, 5,000,000 shares authorized:      |      | 
|no shares issued and outstanding                                      |      |  |      |           
|Common stock - $0.001 par value, 60,000,000 shares authorized:        |      | 
|36,087,556 and 34,146,952 shares issued and outstanding, respectively |      |  |      | 36,088     
|Additional paid-in capital                                            |      |  |      | 43,686,779 
|(Deficit) accumulated during the exploration stage                    |      |  |      | (40,688,414
|Other comprehensive income:                                           |      | 
|Currency translation adjustment                                       |      |  |      | (6,720     
|                                                                      |      |  |      |            
|Total shareholders' equity                                            |      |  |      | 3,027,733  
|                                                                      |      |  |      |            
|Total liabilities and shareholders' equity                            |      |  | $    | 4,781,018  
|                                                                      |      |  |      |            

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

30

---



# GOLD RESOURCE
CORPORATION AND SUBSIDIARIES  (An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS for the years
ended December 31, 2008 and 2007,  and for the period from Inception (August 24, 1998)
to December 31, 2008

|                                                | 2008 |  | 2007 |             | Inception
(August 24, 1998) to
December 31, 2008 |  
|----------------------------------------------- | ---- |  | ---- | ----------- | ------------------------------------------------ | -
|
|Revenues:                                       |      |  |      |             |                                                  |  
|Gold sales                                      |      |  | $    |            |                                                  | $
|                                                |      |  |      |             |                                                  |  
|Costs and Expenses:                             |      | 
|Property exploration and evaluation             |      |  |      | 8,171,396   |                                                  |  
|Other mineral property costs                    |      |  |      |            |                                                  |  
|Engineering and construction                    |      |  |      | 14,501,461  |                                                  |  
|Management contract - U. S. Gold, related party |      |  |      |            |                                                  |  
|General and administrative                      |      |  |      | 3,552,007   |                                                  |  
|Depreciation                                    |      |  |      | 123,948     |                                                  |  
|                                                |      |  |      |             |                                                  |  
|Total costs and expenses                        |      |  |      | 26,348,812  |                                                  |  
|                                                |      |  |      |             |                                                  |  
|Operating (loss)                                |      |  |      | (26,348,812 | )                                                |  
|                                                |      | 
|Other income:                                   |      | 
|Interest income                                 |      |  |      | 333,609     |                                                  |  
|                                                |      |  |      |             |                                                  |  
|(Loss) before income taxes                      |      |  |      | (26,015,203 | )                                                |  
|                                                |      | 
|Provision for income taxes                      |      |  |      |            |                                                  |  
|                                                |      |  |      |             |                                                  |  
|Net (loss)                                      |      |  |      | (26,015,203 | )                                                |  
|                                                |      | 
|Other comprehensive income:                     |      | 
|Currency translation gain (loss)                |      |  |      | 63,536      |                                                  |  
|                                                |      |  |      |             |                                                  |  
|Net comprehensive (loss)                        |      |  | $    | (25,951,667 | )                                                | $
|                                                |      |  |      |             |                                                  |  
|Net (loss) per common share:                    |      | 
|Basic and Diluted                               |      |  | $    | (0.76       | )                                                | $
|                                                |      |  |      |            
|Weighted average shares outstanding:            |      | 
|Basic and Diluted                               |      |  |      | 34,393,854  |                                                  |  
|                                                |      |  |      |            

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

31

---



# GOLD RESOURCE
CORPORATION  (An Exploration Stage Company) CONSOLIDATED STATEMENT OF
CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)For the period from Inception
(August 24, 1998) to December 31, 2008

|                                           | Number of
Common
Shares |  | Par Value of
Common
Shares |           | Additional
Paid - in
Capital |   | Accumulated
(Deficit) |  | Comprehensive
Income
(Loss) |         | Total
Shareholders'
Equity (Deficit) |  
|------------------------------------------ | ----------------------- |  | -------------------------- | --------- | ---------------------------- | - | --------------------- |  | --------------------------- | ------- | ------------------------------------ | -
|
|Balance at Inception, August 24, 1998      |                         |  |                            |          |                              | $ |                      |  | $                           |        |                                      | $
|                                           |                         | 
|Shares for contributed capital at          |                         | 
|$0.005 per share - related parties         |                         |  |                            | 2,800,000 |                              |   | 2,800                 |  |                             | (1,400  | )                                    |  
|Net (loss)                                 |                         |  |                            |          |                              |   |                      |  |                             |        |                                      |  
|                                           |                         |  |                            |           |                              |   |                       |  |                             |         |                                      |  
|Balance, December 31, 1998                 |                         |  |                            | 2,800,000 |                              |   | 2,800                 |  |                             | (1,400  | )                                    |  
|                                           |                         | 
|Shares for contributed capital at          |                         |  |                            |           |                              |   |                       |  |                             |         |                                      |  
|$0.005 per share - related parties         |                         |  |                            | 1,000,000 |                              |   | 1,000                 |  |                             | (500    | )                                    |  
|Net (loss)                                 |                         |  |                            |          |                              |   |                      |  |                             |        |                                      |  
|                                           |                         |  |                            |           |                              |   |                       |  |                             |         |                                      |  
|Balance, December 31, 1999                 |                         |  |                            | 3,800,000 |                              |   | 3,800                 |  |                             | (1,900  | )                                    |  
|                                           |                         | 
|Shares issued for management contract      |                         | 
|at $0.17 per share - related party         |                         |  |                            | 1,226,666 |                              |   | 1,226                 |  |                             | 202,578 |                                      |  
|Net  (loss)                                |                         |  |                            |          |                              |   |                      |  |                             |        |                                      |  
|                                           |                         |  |                            |           |                              |   |                       |  |                             |         |                                      |  
|Balance, December 31, 2000                 |                         |  |                            | 5,026,666 |                              |   | 5,026                 |  |                             | 200,678 |                                      |  
|                                           |                         | 
|Shares issued for management contract      |                         |  |                            |           |                              |   |                       |  |                             |         |                                      |  
|at $0.14 per share - related party         |                         |  |                            | 1,333,334 |                              |   | 1,334                 |  |                             | 187,053 |                                      |  
|Conversion of debentures at                |                         | 
|$0.25 per share - related parties          |                         |  |                            | 200,000   |                              |   | 200                   |  |                             | 49,800  |                                      |  
|Sale of shares for cash at $0.25 per share |                         |  |                            | 820,000   |                              |   | 820                   |  |                             | 204,180 |                                      |  
|Net (loss)                                 |                         |  |                            |          |                              |   |                      |  |                             |        |                                      |  
|                                           |                         |  |                            |           |                              |   |                       |  |                             |         |                                      |  
|Balance, December 31, 2001                 |                         |  |                            | 7,380,000 |                              |   | 7,380                 |  |                             | 641,711 |                                      |  
|                                           |                         | 
|Shares issued for cash at $0.25 per share  |                         |  |                            | 392,000   |                              |   | 392                   |  |                             | 97,608  |                                      |  
|Shares issued for cash at $0.17 per share  |                         |  |                            | 1,351,352 |                              |   | 1,351                 |  |                             | 223,322 |                                      |  
|Net (loss)                                 |                         |  |                            |          |                              |   |                      |  |                             |        |                                      |  
|                                           |                         |  |                            |           |                              |   |                       |  |                             |         |                                      |  
|Balance, December 31, 2002                 |                         |  |                            | 9,123,352 |                              |   | 9,123                 |  |                             | 962,641 |                                      |  

32

---



|                                           |  |  |  |            |  | 
|------------------------------------------ |  |  |  | ---------- |  | 
|Shares issued for cash at $0.25 per share  |  |  |  | 577,000    |  | 
|Share issuance costs forgiven              |  |  |  |           |  | 
|Net (loss)                                 |  |  |  |           |  | 
|                                           |  |  |  |            |  | 
|Balance, December 31, 2003                 |  |  |  | 9,700,352  |  | 
|                                           |  | 
|Shares issued for cash at $0.25 per share  |  |  |  | 608,000    |  | 
|Shares issued in repayment of loan related |  | 
|to exploration agreement at                |  | 
|$0.42 per share                            |  |  |  | 1,200,000  |  | 
|Shares issued as stock grant at            |  | 
|$0.25 per share                            |  |  |  | 600,000    |  | 
|Net (loss)                                 |  |  |  |           |  | 
|                                           |  |  |  |            |  | 
|Balance, December 31, 2004                 |  |  |  | 12,108,352 |  | 
|                                           |  | 
|Stock grant at $0.25 per share             |  |  |  | 1,750,000  |  | 
|Stock option exercised at $0.25 per share  |  |  |  | 10,000     |  | 
|Stock issued for cash at $0.25 per share   |  |  |  | 276,000    |  | 
|Stock issued for satisfaction of payables  |  | 
|at $0.25 per share                         |  |  |  | 1,280,000  |  | 
|Shares issued for cash at $0.47 per share  |  |  |  | 2,728,500  |  | 
|Shares issued for cash at $0.50 per share  |  |  |  | 122,000    |  | 
|Shares issued for cash at $0.50 per share  |  |  |  | 30,000     |  | 
|Net (loss)                                 |  |  |  |           |  | 
|                                           |  |  |  |            |  | 
|Balance, December 31, 2005                 |  |  |  | 18,304,852 |  | 
|                                           |  | 
|Stock options exercised at $0.25 per share |  |  |  | 240,000    |  | 
|Stock options granted                      |  |  |  |           |  | 
|Director stock grant at $1.00 per share    |  |  |  | 100,000    |  | 
|Shares issued for cash at $1.00 per share, |  | 
|net of issue costs                         |  |  |  | 4,600,000  |  | 
|Shares issued for investor relations       |  | 
|services at $1.14 per share                |  |  |  | 280,000    |  | 
|Shares issued for cash at $1.20 per share, |  | 
|net of issue costs                         |  |  |  | 4,322,000  |  | 
|Shares issued for investment banking       |  | 
|services at $1.20 per share                |  |  |  | 257,700    |  | 
|Employee stock grants at $1.71 per share   |  |  |  | 35,000     |  | 
|Net (loss)                                 |  |  |  |           |  | 
|                                           |  |  |  |            |  | 
|Balance, December 31, 2006                 |  |  |  | 28,139,552 |  | 

33




|                                           |  |  |  |            |  |  
|------------------------------------------ |  |  |  | ---------- |  | -
|Shares issued for investor relations       |  | 
|services at weighted average price         |  | 
|of $3.39 per share                         |  |  |  | 170,000    |  |  
|Shares issued for consulting services in   |  | 
|Mexico at $3.68 per share                  |  |  |  | 15,000     |  |  
|Stock options granted                      |  |  |  |           |  |  
|Shares issued for cash at $4.00 per share, |  | 
|net of issue costs                         |  |  |  | 5,558,500  |  |  
|Shares issued for investment banking       |  | 
|services                                   |  |  |  | 263,900    |  |  
|Net (loss)                                 |  |  |  |           |  |  
|                                           |  |  |  |            |  |  
|Balance, December 31, 2007                 |  |  |  | 34,146,952 |  |  
|                                           |  | 
|Stock options granted                      |  |  |  |           |  |  
|Shares issued for investor relations       |  | 
|services at $4.25 per share                |  |  |  | 10,000     |  |  
|Stock options exercised at $1.00 per share |  |  |  | 260,604    |  |  
|Shares issued for cash at $3.00 per share  |  |  |  | 1,670,000  |  |  
|Net (loss)                                 |  |  |  |           |  |  
|                                           |  |  |  |            |  |  
|Balance, December 31, 2008                 |  |  |  | 36,087,556 |  | $
|                                           |  |  |  |            |  |  

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

34

---



# GOLD RESOURCE
CORPORATION AND SUBSIDIARIES  (An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS for the years ended
December 31, 2008 and 2007,  and for the period from Inception (August 24, 1998) to
December 31, 2008

|                                                     | 2008 |  | 2007 |             | Inception
(August 24, 1998) to
December 31, 2008 |  
|---------------------------------------------------- | ---- |  | ---- | ----------- | ------------------------------------------------ | -
|
|Cash flows from operating activities:                |      |  |      |             |                                                  |  
|Net (loss)                                           |      |  | $    | (26,015,203 | )                                                | $
|                                                     |      |  |      |             |                                                  |  
|Adjustments to reconcile net (loss) to net cash      |      | 
|used by operating activities:                        |      | 
|Depreciation                                         |      |  |      | 123,948     |                                                  |  
|Stock compensation                                   |      |  |      | 1,999,276   |                                                  |  
|Management fee paid in stock                         |      |  |      |            |                                                  |  
|Related party payable paid in stock                  |      |  |      |            |                                                  |  
|Foreign currency translation adjustment              |      |  |      | 63,536      |                                                  |  
|Issuance cost forgiven                               |      |  |      |            |                                                  |  
|Changes in operating assets and liabilities:         |      | 
|Operating assets                                     |      |  |      | (162,212    | )                                                |  
|Accounts payable and accrued liabilites              |      |  |      | 984,833     |                                                  |  
|Other                                                |      |  |      |            |                                                  |  
|                                                     |      |  |      |             |                                                  |  
|Total adjustments                                    |      |  |      | 3,009,381   |                                                  |  
|                                                     |      |  |      |             |                                                  |  
|Net cash (used in) operating activities              |      |  |      | (23,005,822 | )                                                |  
|                                                     |      |  |      |             |                                                  |  
|Cash flows from investing activities:                |      | 
|Capital expenditures                                 |      |  |      | (657,816    | )                                                |  
|                                                     |      |  |      |             |                                                  |  
|Net cash (used in) investing activities              |      |  |      | (657,816    | )                                                |  
|                                                     |      |  |      |             |                                                  |  
|Cash flows from financing activities:                |      | 
|Cash proceeds from initial public stock offering     |      |  |      |            |                                                  |  
|Cash proceeds from other sales of stock              |      |  |      | 5,010,000   |                                                  |  
|Cash proceeds from exercise of options               |      |  |      | 181,000     |                                                  |  
|Proceeds from debentures - founders                  |      |  |      |            |                                                  |  
|Proceeds from exploration funding agreement - Canyon |      | 
|Resources                                            |      |  |      |            |                                                  |  
|                                                     |      |  |      |             |                                                  |  
|Net cash provided by financing activities            |      |  |      | 5,191,000   |                                                  |  
|                                                     |      |  |      |             |                                                  |  
|                                                     |      | 
|Net increase (decrease) in cash and equivalents      |      |  |      | (18,472,638 | )                                                |  
|                                                     |      | 
|Cash and equivalents at beginning of period          |      |  |      | 22,007,216  |                                                  |  
|                                                     |      |  |      |             |                                                  |  
|Cash and equivalents at end of Period                |      |  | $    | 3,534,578   |                                                  | $
|                                                     |      |  |      |             |                                                  |  
|Supplemental Cash Flow Information                   |      | 
|Interest paid                                        |      |  | $    |            |                                                  | $
|                                                     |      |  |      |             |                                                  |  
|Income taxes paid                                    |      |  | $    |            |                                                  | $
|                                                     |      |  |      |             |                                                  |  
|Non-cash investing and financing activities:         |      | 
|Conversion of Canyon Resources funding into          |      | 
|common stock                                         |      |  | $    |            |                                                  | $
|                                                     |      |  |      |             |                                                  |  
|Conversion of founders debentures into               |      | 
|common stock                                         |      |  | $    |            |                                                  | $
|                                                     |      |  |      |             |                                                  |  

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

35

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# GOLD RESOURCE
CORPORATION AND SUBSIDIARIES (An Exploration Stage
Company) NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS December 31, 2008 and
2007

# 1.     Summary
of Significant Accounting Policies

Basis
of Presentation.    Gold Resource Corporation (the
Company) was organized under the laws of the State of Colorado on
August 24, 1998. The Company has been engaged in the exploration for precious and
base metals, primarily in Mexico, as an exploration stage company. It plans to develop
mineral properties and ultimately become a producer of gold, silver, and base metals. The
Company has not generated any revenues from operations. The consolidated financial
statements included herein are expressed in United States dollars, the Companys
reporting currency. The accounting policies conform to accounting principles generally
accepted in the United States of America (US GAAP), as promulgated by the
Financial Accounting Standards Board (FASB), the Securities and Exchange
Commission (SEC), and the Emerging Issues Task Force (EITF), among
others.

Basis
of Consolidation.    The consolidated financial statements include
the accounts of the Company and its wholly owned Mexican subsidiaries, Don David Gold S.A.
de C.V. and Golden Trump Resources S.A. de C.V. The expenditures of Don David Gold and
Golden Trump Resources are generally incurred in Mexican pesos. Significant intercompany
accounts and transactions have been eliminated.

Reclassifications.Certain amounts previously presented for prior periods have been
          reclassified to conform with the current presentation. The reclassifications had
          no effect on net loss, total assets or total shareholders equity.

Estimates.    The
preparation of financial statements in conformity with US GAAP requires management to make
estimates and assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of expenses during the reporting period. Management routinely
makes judgments and estimates about the effects of matters that are inherently uncertain.
Estimates that are critical to the accompanying consolidated financial statements include
the identification and valuation of proven and probable reserves, classification of
expenditures as either an asset or an expense, valuation of deferred tax assets, and the
likelihood of loss contingencies Management bases its estimates and judgements on
historical experience and on various other factors that are believed to be reasonable
under the circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from other
sources. Estimates and assumptions are revised periodically and the effects of revisions
are reflected in the financial statements in the period it is determined to be necessary.
Actual results could differ from these estimates.

Statements
of Cash Flows.    The Company considers cash in banks, deposits in
transit, and highly liquid debt instruments purchased with original maturities of three
months or less to be cash and cash equivalents.

Proven
and Probable Reserves.    The definition of proven and probable
reserves is set forth in SEC Industry Guide 7. Proven reserves are reserves for which (a)
quantity is computed from dimensions revealed in outcrops, trenches, workings or drill
holes; 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 the geologic
character is so well defined that size, shape, depth and mineral content of reserves are
well-established. Probable reserves are reserves for which quantity and grade and/or
quality are computed from information similar to that used for proven reserves, but the
sites for inspection, sampling, and measurement are farther apart or are otherwise less
adequately spaced. The degree of assurance, although lower than that for proven reserves,
is high enough to assume continuity between points of observation. In addition, reserves
cannot be considered proven and probable until they are supported by a feasibility study,
indicating that the reserves have had the requisite geologic, technical and economic work
performed and are economically and legally extractable at the time of the reserve
determination.

As
of December 31, 2008, none of the Companys mineral resources met the definition of
proven or probable reserves.

36

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Mineral
Acquisition Costs.    The costs of acquiring land and mineral
rights are considered tangible assets pursuant to EITF Issue No. 04-2, Whether
Mineral Rights are Tangible or Intangible Assets. Significant acquisition payments
are capitalized. General, administrative and holding costs to maintain an exploration
property are expensed as incurred. If a mineable ore body is discovered, such costs are
amortized when production begins using the units-of-production method. If no mineable ore
body is discovered or such rights are otherwise determined to have diminished value, such
costs are expensed in the period in which the determination is made.

Exploration
Costs.    Exploration costs are charged to expense as incurred.
Costs to identify new mineral resources, to evaluate potential resources, and to convert
mineral resources into proven and probable reserves are considered exploration costs.

Design,
Construction, and Development Costs.    Certain costs to design
and construct mine and processing facilities may be incurred prior to establishing proven
and probable reserves. Under these circumstances, the Company classifies the project as an
exploration stage project and expenses substantially all costs, including design,
engineering, construction, and installation of equipment. Certain types of equipment,
which have alternative uses or significant salvage value, may be capitalized. After a
project is determined to contain proven and probable reserves, costs incurred
prospectively can be capitalized. Such costs include development drilling to further
delineate the ore body, removing overburden during the pre-production phase, building
access ways, constructing facilities, and installing equipment. Interest costs, if any,
incurred during the development phase would be capitalized until the assets are ready for
their intended use. The cost of start-up activities and on-going costs to maintain
production are expensed as incurred. Costs of abandoned projects are charged to operations
upon abandonment.

After
a project commences commercial production, amortization and depletion of capitalized costs
is computed on a unit-ofproduction basis over the expected life of the project based
on estimated recoverable gold equivalent ounces.

Impairment
of Long-Lived Assets.   The Company evaluates its long-lived
assets for impairment in accordance with Statement of Financial Accounting Standards
(SFAS) No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets (SFAS 144), and EITF Issue No. 04-3,
Mining Assets: Impairment and Business Combinations. If impairment indicators
exist, the Company performs additional analysis to quantify the amount by which
capitalized costs exceed recoverable value. The periodic evaluation of capitalized costs
is based upon expected future cash flows, including estimated salvage values. As of
December 31, 2008, the Companys mineral resources do not meet the definition of
proven or probable reserves or value beyond proven and probable reserves and any potential
revenue has been excluded from the cash flow assumptions. Accordingly, recoverability of
capitalized cost is based primarily on estimated salvage values.

Property
and Equipment.    All items of property and equipment are carried
at cost not in excess of their estimated net realizable value. Normal maintenance and
repairs are charged to earnings while expenditures for major maintenance and betterments
are capitalized. Gains or losses on disposition are recognized in operations.

Depreciation.    Depreciation
of property and equipment is computed using straight-line methods over the estimated
economic lives, as follows:

|                               | 
|------------------------------ | 
|
|Trucks and autos               | 
|Office furniture and equipment | 
|Computer hardware and software | 
|Exploration equipment          | 

Property
Retirement Obligation.    The Company follows
SFAS No. 143, Accounting for Asset Retirement Obligations,
(SFAS 143), which requires the fair value of a liability for an asset
retirement obligation to be recognized in the period that it is incurred if a reasonable
estimate of fair value can be made. The associated asset retirement costs are capitalized
as part of the carrying amount of the long-lived asset. The Company has determined that it
has no material property retirement obligations as of December 31, 2008.

37

---



Stock
Based Compensation.   The Company accounts for stock-based compensation in accordance
with SFAS No. 123 (Revised 2004), Share Based Payment (SFAS
123R), which requires the recognition of compensation costs for stock options
determined in accordance with a fair value based methodology. The Company estimates the
fair value of stock options at their grant date by using the Black-Scholes-Merton option
pricing model and provides for expense recognition over the vesting period, if any, of the
stock option.

Per
Share Amounts.  SFAS No. 128, Earnings Per
Share, provides for the calculation of Basic and Diluted
earnings per share. Basic earnings per share includes no dilution and is computed by
dividing income available to common shareholders by the weighted-average number of shares
outstanding during the period (34,393,854 for 2008 and 28,645,038 for 2007). Diluted
earnings per share reflect the potential dilution of securities that could share in the
earnings of the Company, similar to fully diluted earnings per share. Potentially dilutive
securities, such as common stock options, are excluded from the calculation when their
effect would be anti-dilutive. For the period ended December 31, 2008, outstanding options
to purchase 3,683,000 shares of common stock would have an anti-dilutive effect and were
therefore excluded from the calculation.

Income
Taxes.  The Company accounts for income taxes under
SFAS No. 109, Accounting for Income Taxes
(SFAS 109). SFAS 109 requires recognition of deferred tax
assets and liabilities for temporary differences and the effect of net operating
losses based upon the enacted tax rates in effect for the year in which the
differences are expected to reverse. Temporary differences are differences
between the tax basis of assets and liabilities and their reported amounts in
the financial statements that will result in taxable or deductible amounts in
future years. A valuation allowance is established when necessary to reduce
deferred tax assets to the amount expected to be realized.

FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes-an Interpretation of
FASB Statement No. 109 (FIN 48), clarifies the accounting for uncertainty in
income taxes recognized in an entitys financial statements in accordance with SFAS
109, and prescribes a recognition threshold and measurement attributes for financial
statement disclosure of tax positions taken or expected to be taken on a tax return. Under
FIN 48, the impact of an uncertain income tax position on the income tax return must be
recognized at the largest amount that is more-likely-than-not to be sustained upon audit
by the relevant taxing authority. An uncertain income tax position will not be recognized
if it has less than a 50% likelihood of being sustained. Additionally, FIN 48 provides
guidance on derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The Company adopted the provisions of FIN 48 on
January 1, 2007, which did not have a material impact on the consolidated financial
statements.

Business
Risks.  The Company continually reviews the mining and political
risks it encounters in its operations. It mitigates the likelihood and potential severity
of these risks through the application of high operating standards. The Company may be
affected to various degrees by changes in environmental regulations, including those for
future site restoration and reclamation costs. The mining industry is subject to extensive
licensing, permitting, governmental legislation, control and regulations. The Company
endeavors to be in compliance with these regulations at all times.

Fair
Value of Financial Instruments.    SFAS No. 107,
Disclosures About Fair Value of Financial Instruments, requires disclosure of
fair value information about financial instruments. SFAS No. 157, Fair
Value Measurements (SFAS 157), defines fair value, establishes a
framework for measuring fair value in accordance with generally accepted accounting
principles, and expands disclosures about fair value measurements. Fair value estimates
discussed herein are based upon certain market assumptions and pertinent information
available to management as of December 31, 2008.

The
respective carrying value of certain on-balance-sheet financial instruments approximate
their fair values. These financial instruments include cash, cash equivalents, prepaid
expenses, accounts payable and accrued liabilities. Fair values were assumed to
approximate carrying values for these financial instruments since they are short term in
nature and their carrying amounts approximate fair value, or they are receivable or
payable on demand.

Concentration
of Credit Risk.  The Companys operating cash balances are
maintained in two primary financial institutions and currently exceed federally insured
limits. The Company believes that the financial strength of these institutions mitigates
the underlying risk of loss. To date, these concentrations of credit risk have not had a
significant impact on the Companys financial position or results of operations.

38

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Foreign
Operations.  The Companys present mining activities are in
Mexico. As with all types of international business operations, currency fluctuations,
exchange controls, restrictions on foreign investment, changes to tax regimes, political
action and political instability could impair the value of the Companys investments.

Foreign
Currency Translation.  The local currency, the Mexican peso, is
the functional currency for the Companys subsidiaries. Current assets and current
liabilities are translated using the exchange rate in effect at the balance sheet date.
Other assets and liabilities are translated using historical rates. Revenues and expenses
are translated at the average exchange rate for the year. Translation adjustments are
reported as a separate component of shareholders equity.

Recent
Pronouncements.  In December 2007, the FASB issued SFAS
No. 141 (revised 2007), Business Combinations
(SFAS 141R). This statement replaces FAS No. 141, which was
effective July 1, 2001. The statement provides guidance for how the acquirer recognizes
and measures the identifiable assets acquired, liabilities assumed and any non-controlling
interest in the acquiree. SFAS 141R provides for how the acquirer recognizes and
measures the goodwill acquired in the business combination or a gain from a bargain
purchase. The statement provides for disclosures to enable users to be able to evaluate
the nature and financial effects of the business combination. The provisions of
SFAS 141R are effective for the first annual reporting period beginning on or after
December 15, 2008, and must be applied prospectively to business combinations completed
after that date. Early adoption is prohibited. Management is currently evaluating the
impact of adopting this statement.

In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements (SFAS 160), which becomes
effective for annual periods beginning after December 15, 2008. This standard establishes
accounting and reporting standards for ownership interests in subsidiaries held by parties
other than the parent, the amount of consolidated net income attributable to the parent
and to the noncontrolling interest, changes in a parents ownership interest and the
valuation of retained non-controlling equity investments when a subsidiary is
deconsolidated. The Statement also establishes reporting requirements that provide
sufficient disclosures that clearly identify and distinguish between the interests of the
parent and the interests of the non-controlling owners. Management is currently evaluating
the impact of adopting this statement.

In
March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments
and Hedging Activities  an Amendment of FASB Statement No. 133 (SFAS
161), which becomes effective for periods beginning after November 15, 2008. This
standard changes the disclosure requirements for derivative instruments and hedging
activities. Entities are required to provide enhanced disclosures about (a) how and why an
entity uses derivative instruments, (b) how derivative instruments and related hedged
items are accounted for under SFAS 133 and its related interpretations, and (c) how
derivative instruments and related hedged items affect an entitys financial
position, financial performance, and cash flows. Management is currently evaluating the
impact of adopting this statement.

In
May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles (SFAS 162), which identifies the sources of
accounting and the framework for selecting the principles to be used in the preparation of
financial statements that are presented in conformity with US GAAP. SFAS 162 will be
effective 60 days following the SECs approval of the Public Company Accounting
Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in
Conformity with Generally Accepted Accounting Principles. Management does not expect
this statement to change any of the Companys existing accounting principles.

There
were various other accounting standards and interpretations recently issued, none of which
are expected to a have a material impact on the Companys consolidated financial
position, operations or cash flows.

# 2.     Mineral
Properties

The
Company currently has an interest in four properties, the El Aguila project, the
El Rey property, the Las Margaritas property, and the Solaga
property.

39

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The
El Aguila Project.   Effective October 14, 2002, the Company leased three mining
concessions, El Aguila, El Aire, and La Tehuana, from Jose Perez
Reynoso, a consultant to the Company. The lease agreement is subject to a 4% net smelter
return royalty where production is sold in the form of gold/silver dore and 5% for
production sold in concentrate form. The Company has made periodic advance royalty
payments under the lease totaling $260,000 and no further advance royalty payments are
due. Subject to minimum exploration requirements, there is no expiration term for the
lease. The Company may terminate it at any time upon written notice to the lessor and the
lessor may terminate it if the Company fails to fulfill any of its obligations. The El
Aguila and El Aire concessions make up the El Aguila project and the
La Tehuana concession makes up the Las Margaritasproperty.

The
Company has filed for and received additional concessions for the El Aguila project
that total an additional 8,492 hectares. These additional concessions are not part of the
concessions leased from the consultant, and bring the Companys interest in the El
Aguila project to an aggregate of 9,463 hectares. The mineral concessions making up
the El Aguila project are located within the Mexican State of Oaxaca.

The
El Rey Property.   The Company has acquired claims in another area in the state
of Oaxaca by filing concessions under the Mexican mining laws, referred to as the El
Rey property. These concessions total 892 hectares and are subject to a 2% royalty on
production payable to Mr. Reynoso. The Company has conducted minimal exploration and
drilling on this property to date.

The
El Rey property is an exploration stage property with no known reserves. It is
approximately 64.4 kilometers (40 miles) from the El Aguila Project. There is no
plant or equipment on the El Rey property. If exploration is successful, any mining
would probably require an underground mine but any mineralized material could be processed
at the El Aguila Project mill if it is successfully constructed.

The
Las Margaritas Property.   The Las Margaritas property is made up of the
La Tehuana concession, and is an exploration stage property with no known reserves.
The Company leased this property in October 2002 from Mr. Reynoso. It is comprised of
approximately 925 hectares located adjacent to the El Aguila property. To date, the
Company has conducted limited surface sampling, but no other significant exploration
activities at the property.

The
Solaga Property.   In February 2007, the Company leased a 100% interest in a
property known as the Solaga property from an entity partially owned by Mr.
Reynoso. The property totals 618 hectares, and is located approximately 120 kilometers (75
miles) from the El Aguila project. The property is an exploration property with no
known reserves. A dormant silver mine is located on the Solaga property which was
in production as recently as the 1980s, however the Company cannot estimate if or
when it will reopen the mine. The lease requires the Company to perform $25,000 in
additional work and is subject to a 4% net smelter return royalty on any production. The
Company has not conducted any exploration activities at the property.

# 3.     Property
and Equipment

At December
31, 2008, property and equipment consisted of the following:

|                               | 2008 |  | 2007 |          
|------------------------------ | ---- |  | ---- | ---------
|
|Trucks and autos               |      |  | $    | 291,876  
|Office furniture and equipment |      |  |      | 137,678  
|Exploration equipment          |      |  |      | 570,794  
|                               |      |  |      |          
|Subtotal                       |      |  |      | 1,000,348
|Accumulated depreciation       |      |  |      | (188,129 
|                               |      |  |      |          
|Total                          |      |  | $    | 812,219  
|                               |      |  |      |          

40

---



# 4.     Income
Taxes

Loss
before income taxes, segregated as to the U. S. and foreign components, is as follows:

|        | 2008 |  | 2007 |            
|------- | ---- |  | ---- | -----------
|
|U. S.   |      |  | $    | (12,697,644
|Foreign |      |  |      | (13,317,559
|        |      |  |      |            
|Total   |      |  | $    | (26,015,203
|        |      |  |      |            

At
December 31, 2008, the Company has tax loss carryforwards for U. S. tax purposes
approximating $8,810,000, which primarily expire from 2026 to 2028. The principle
difference between the net loss reported for book purposes and the loss reported for tax
purposes relates to the taxation of foreign subsidiaries. Secondly, stock based
compensation expenses are generally deductible in different periods and in different
amounts than the expense recognized for book purposes. Finally, certain expenditures for
property and equipment are capitalized for tax purposes, but not for book purposes.

The
tax effects of temporary differences that give rise to significant portions of the
deferred tax assets at December 31, 2008 and 2007 are presented below:

|                                | 2008 |  | 2007 |            
|------------------------------- | ---- |  | ---- | -----------
|
|Deferred tax assets:            |      |  |      |            
|Tax loss carryforward - U. S.   |      |  | $    | 2,996,000  
|Tax loss carryforward - Foreign |      |  |      | 7,877,000  
|Stock based compensation        |      |  |      | 814,000    
|Property and equipment          |      |  |      | 2,188,000  
|                                |      |  |      |            
|Total deferred tax assets       |      |  |      | 13,875,000 
|Valuation allowance             |      |  |      | (13,875,000
|                                |      |  |      |            
|Net deferred tax asset          |      |  | $    |           
|                                |      |  |      |            

At
this time, the Company is unable to determine if it will be able to benefit from its
deferred tax asset. There are limitations on the utilization of net operating loss
carryforwards, including a requirement that losses be offset against future taxable
income, if any. In addition, there are limitations imposed by certain transactions which
are deemed to be ownership changes. Accordingly, a valuation allowance has been
established for the entire deferred tax asset. The change in the valuation allowance was
approximately $8,893,000 during 2008.

A
reconciliation of taxes reported at the Companys effective tax rate and the U. S.
federal statutory tax rate is comprised of the following components:

|                                      | 2008 |  | 2007 |           
|------------------------------------- | ---- |  | ---- | ----------
|
|Tax at statutory rates                |      |  | $    | (8,845,000
|Increase (reduction) in taxes due to: |      | 
|Stock based compensation              |      |  |      |          
|Valuation allowance                   |      |  |      | 8,845,000 
|                                      |      |  |      |           
|Tax provision                         |      |  | $    |          
|                                      |      |  |      |           

# 5.     Shareholders
Equity (Deficit)

Effective
February 21, 2005, the Company declared and effected a 100% forward stock split where
one additional share of common stock, par value $.001, was issued for each common share
outstanding as of that date. All of the financial information in the financial statements
has been adjusted to reflect this two-for-one stock split.

The
Company was formed on August 24, 1998 by William W. Reid and David C. Reid (the
Founders). During 1998 and 1999, the Founders received 3,800,000 shares of
common stock valued at $1,900 for administrative and organization expenses paid on behalf
of the Company. The Company remained generally inactive through 1999.

41

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Commencing
July 1, 2000, the Company and US Gold, a publicly traded Colorado corporation,
entered into a management contract whereby US Gold provided general management of the
business activities of the Company through December 31, 2001. Under this management
contract, US Gold was issued 2,560,000 shares of common stock of the Company. The
2,560,000 shares were valued at $392,191 or approximately $0.15 per share. Through this
arrangement, the Company benefited from experienced management without the need to
raise cash funding for the related cost of such management and administration. The Company
was, however, responsible for all additional funding needed.

During
2001, the Founders made convertible debenture loans to the Company and then converted
$50,000 in convertible debentures into 200,000 shares of common stock of the Company at a
conversion price of $0.25 per share.

In
September 2001, the Company commenced the sale of its common shares under exemptions
offered by federal and state securities regulations. During 2001 the Company sold 820,000
shares at $0.25 (a total of $205,000).

During
2002, the Company sold 392,000 shares at $0.25 per share (a total of $98,000) to various
parties and 1,351,352 shares at approximately $0.17 per share (a total of $224,673) to an
institutional investor, RMB International (Dublin) Limited (RMB).

During
2003, the Company sold 577,000 shares at $0.25 per share raising net proceeds of $144,250.
Effective September 30, 2003, US Gold acquired the RMB shares in exchange for US Gold
shares, and terminated the obligation of the Company to pay RMB approximately $25,327 in
transaction costs, which was added back into paid-in-capital.

During
2004, the Company sold 608,000 shares at $0.25 per share raising net proceeds of $152,000.
Also during 2004, the Company issued 1,200,000 shares valued at approximately $0.42 per
share to Canyon Resource Corporation for repayment of a loan for funding of exploration
cost at the El Aguila property. Also during 2004, the Company made a stock grant of
600,000 shares valued at $0.25 per share or $150,000 to Jose Perez Reynoso, a consultant
of the Company.

Effective
January 2, 2005, the Company made common stock awards to its two executive officers
and a consultant of an aggregate 1,750,000 shares for services performed during 2004 and
2005. The shares were valued at $437,500 (or $0.25 per share) which was recorded as stock
based compensation expense of $350,000 in 2004 and $87,500 in 2005. In this issuance of
common stock, William W. Reid received 1,000,000 shares, David C. Reid received
500,000 shares and William F. Pass received 250,000 shares. Also effective January 2,
2005, a stock option issued to William F. Pass covering 400,000 shares of common
stock at exercise price of $0.25 per share was reduced by 250,000 shares leaving 150,000
shares remaining subject to option.

During
2005 an individual exercised stock options for 10,000 shares for $2,500. In June 2005, the
Company issued 1,280,000 shares to US Gold Corporation in satisfaction of $320,000 owed
for a prior year management contract.

During
2005, the Company sold 428,000 shares to individual investors for cash proceeds of
$145,000 (276,000 shares at $0.25 per share and 152,000 shares at $0.50 per share).

In
addition, during July and August 2005, the Company closed transactions under a
Subscription Agreement and Stock Purchase Option Agreement with Heemskirk Consolidated
Limited (Heemskirk), an Australian global mining house, whereby Heemskirk
purchased 2,000,000 shares of common stock of the Company at $0.50 per share. A
finders fee of 140,000 shares was paid to a third party (resulting in a net value of
$0.47 per share). Heemskirk had previously purchased (in April, 2005) 150,000 shares of
common stock at $0.50 per share and the Company had paid a finders fee of 10,500
shares. The Company agreed to give Heemskirk a first right of offer for any financings,
including sale of equity, the Company may pursue. In a similar transaction during August
2005, the Company sold 400,000 shares to another investor raising $200,000 and paid a
finders fee to a third party of 28,000 shares. These transactions resulted in the
issuance of 2,728,500 shares for net cash proceeds of $1,275,000 ($0.47 per share).

42

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During
2006, the Company sold 4,600,000 shares of common stock at $1.00 per share in a public
offering under a Form SB-2 registration statement that was declared effective on May 15,
2006. The Company received cash proceeds of $4,351,200 (net of finders fees of
$248,800).

During
2006, the Company completed a private placement of 4,322,000 shares of common stock at
$1.20 per share, and received net cash proceeds of $4,928,700, after deducting
finders fees of $257,700. The Company also issued 257,700 shares of common stock as
finders fees in connection with this private placement.

During
2006, the Company received cash proceeds of $60,000 pursuant to the exercise of options to
purchase 240,000 shares at $0.25 per share.

In
May 2006, the Company made a common stock award of 100,000 shares to a director. These
shares were valued at $100,000. In December 2006, the Company made a common stock award of
35,000 shares to two employees. These shares were valued at $59,850. In October 2006, the
Company issued 250,000 shares of restricted common stock in exchange for investor
relations services. These shares were valued at $275,000.

Pursuant
to a contract effective November 1, 2006, the Company agreed to issue shares of common
stock to a consultant performing investor relations work on its behalf. The 30,000 shares
issued in  2006 were valued at $1.50 per share, or $45,000. The 30,000 shares
issued in February 2007 were valued at $2.428 per share, or $72,840. The 30,000 shares
issued in May 2007 were valued at $3.39 per share or $101,670. In November 2007, 30,000
shares were issued at a value of $4.14 per share or $124,310, and 20,000 shares were
issued at a value of $4.235 per share or $84,703. The Company agreed to issue an
additional 10,000 shares for services performed during December 2007 valued at $4.375 per
share or $43,745.

On
May 1, 2007, the Company entered into an investor relations contract for international
investors that required the issuance of 50,000 shares of restricted common stock during
the second quarter of 2007. These shares were valued at $148,500.

On
October 2, 2007, the Company agreed to issue 15,000 shares of common stock for consulting
services performed in Mexico. These shares were valued at $3.68 per share, or $55,200, and
were recorded as stock compensation during the year ended December 31, 2007.

On
December 5, 2007, the Company completed the sale of 5,558,500 shares of common stock in a
private placement for a price of $4.00 per share, for aggregate gross proceeds of
$22,234,000. In connection with the private placement, the Company agreed to pay
finders fees of $522,000 in cash and 263,900 shares of common stock.

Effective
January 13, 2008, the Company agreed to issue 10,000 restricted shares of common stock for
investor relations consulting services. The 10,000 shares were valued at $4.247 per share
or $42,470.

During
the year ended December 31, 2008, a director of the Company exercised options to purchase
100,000 shares of the Companys common stock at the exercise price of $1.00 per share
for total cash proceeds of $100,000.

Effective
July 28, 2008, an officer exercised options to purchase 87,000 shares of common stock at
$1.00 per share. The officer elected the cashless exercise method for payment,
under which he immediately surrendered 19,333 shares of common stock that he would have
otherwise been entitled to. These shares were valued at $4.50 per share, for a total
valuation of $87,000. The transaction resulted in a net increase of 67,667 common shares
outstanding.

Effective
October 12, 2008, a consultant exercised options to purchase 81,000 shares of restricted
common stock at $1.00 per share for cash proceeds of $81,000. In addition, the consultant
exercised options to purchase 19,000 shares using the cashless exercise method
of payment, under which he immediately surrendered 7,063 shares of common stock that he
would have otherwise been entitled to receive. The 7,063 shares were valued at $2.69 per
share, for a total valuation of $19,000 and resulting in a net issuance of 11,937 shares.
As a result of both transactions, common shares outstanding increased by 92,937 shares.

43

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On
December 5, 2008, the Company entered into a subscription agreement and a strategic
alliance agreement with Hochschild Mining Holdings Limited (Hochschild). Under
the terms of the subscription agreement, the Company sold 1,670,000 restricted shares of
its common stock to Hochschild at $3.00 per share for total cash proceeds of $5,010,000.
Under the terms of the strategic alliance agreement, the Company granted Hochschild an
option to purchase an additional 4,330,000 shares of its restricted common stock at a
price of $3.00 per share for total cash proceeds of $12,990,000. The option expired on
March 1, 2009, eighty days after the closing of the subscription agreement. As discussed
in Note 10 below, the option was exercised on February 25, 2009. The strategic alliance
agreement also contains a number of additional covenants between the parties.

# 6.     Stock
Options

The
Company has a non-qualified stock option and stock grant plan under which equity awards
may be granted to key employees, directors and others (the Plan). The Plan is
administered by the Board of Directors which determines the terms pursuant to which any
option is granted. The maximum number of common shares subject to grant under the Plan is
6,000,000.

The
fair value of each option award is estimated on the date of grant using the
Black-Scholes-Merton option pricing model. The option pricing model requires the input of
subjective assumptions which are based on several different criteria. Expected volatility
is based on the historical price volatility of the Companys common stock. Expected
dividend yield is assumed to be nil, as the Company has not paid dividends since
inception. Forfeitures are assumed to be zero, as the Company has not experienced
forfeitures during its history. The expected life is estimated in accordance with Staff
Accounting Bulletin No. 107, Share-Based Payment for plain vanilla options.
Risk free interest rates are based on US government obligations with a term approximating
the expected life of the option.

The
fair value of stock option grants is amortized over the respective vesting period. Total
non-cash compensation expense related to stock options included in general and
administrative expense for the years ended December 31, 2008 and 2007 was $1,956,806 and $99,482,
respectively. The estimated unrecognized compensation cost from unvested options as of
December 31, 2008 was approximately $551,000, which is expected to be recognized over the
remaining vesting period of 2.4 years.

During
the year ended December 31, 2007, the Company granted stock options to a public
relations consultant to purchase 50,000 shares of common stock at an exercise
price of $3.68 per share and a term of two years. The options vested upon
issuance. The grant date fair value was calculated as $83,192 ($1.66 per option)
using the following assumptions: expected life of two years, stock price of
$3.68 at date of grant, dividend yield of 0%, interest rate of 4%, and
volatility of 80%.

Effective
February 22, 2008, grants covering 1,000,000 shares of common stock were issued to
officers and directors at an exercise price of $3.40 and a term of ten years. The options
vested upon issuance. The grant date fair value was calculated as $1,803,400 ($1.80 per
option) using the following assumptions: expected life of five years, stock price of $3.40
at date of grant, dividend yield of 0%, interest rate of 2.1%, and volatility of 61%.

During
the year ended December 31, 2008, the Company granted options to employees covering
270,000 shares of common stock at exercise prices ranging from $3.74 to $4.51 and a term
of ten years. The options vest over a three year period. The grant date fair value was
calculated as $637,434 ($2.36 per option) using the following assumptions: expected life
of six years, stock price equal to exercise price at date of grant, dividend yield of 0%,
interest rate of 3.38%, and volatility of 61%.

Effective
January 9, 2008, the Company entered into an investor relations consulting services
contract which included the issuance of options to purchase 50,000 shares of common stock
at an exercise price of $4.45 and a term of eighteen months. The options vested upon
issuance. The grant date fair value was calculated as $67,280 ($1.35 per option) using the
following assumptions: expected life of eighteen months, stock price of $4.45 at date of
grant, dividend yield of 0%, interest rate of 2.1%, and volatility of 61%.

44

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The
weighted average grant date fair value of options granted was $1.90 per option during 2008
and $1.66 per option during 2007. The weighted average grant date fair value of options
vested was $1.78 per option during 2008 and $0.94 per option during 2007.

The
following table summarizes annual activity for all stock options for each of the two years
ended December 31, 2008:

|                               | Number of Shares |  | Weighted
Average
Exercise
Price |           | Aggregate
Intrinsic Value |  | Number of
Shares
Exercisable | 
|------------------------------ | ---------------- |  | ------------------------------- | --------- | ------------------------- |  | ---------------------------- | 
|
|Outstanding, January 1, 2007   |                  |  |                                 | 2,600,000 |                           |  | $0.60                        | 
|Granted                        |                  |  |                                 | 50,000    |                           |  | $3.68                        | 
|                               |                  |  |                                 |           |                          
|Outstanding, December 31, 2007 |                  |  |                                 | 2,650,000 |                           |  | $0.65                        | 
|Granted                        |                  |  |                                 | 1,320,000 |                           |  | $3.54                        | 
|Exercised                      |                  |  |                                 | (287,000) |                           |  | $1.00                        | 
|                               |                  |  |                                 |           |                          
|Outstanding, December 31, 2008 |                  |  |                                 | 3,683,000 |                           |  | $1.66                        | 
|                               |                  |  |                                 |           |                          

The
following table summarizes information about outstanding stock options as of December 31,
2008:

|Exercise Prices |  | Number of Shares |  | Remaining Contractual Life

                    (in years) |  | Weighted Average Exercise Price |  | Number Exercisable
|--------------- |  | ---------------- |  | ---------------------------------------------------------- |  | ------------------------------- |  | ------------------
|$0.25           |  | 1,400,000        |  | 5.0                                                        |  | $0.25                           |  | 1,400,000         
|$1.00           |  | 913,000          |  | .2                                                         |  | $1.00                           |  | 913,000           
|$3.40           |  | 1,000,000        |  | 9.2                                                        |  | $3.40                           |  | 1,000,000         
|$3.68-$4.45     |  | 100,000          |  | .6                                                         |  | $4.06                           |  | 100,000           
|$3.74 -$4.51    |  | 270,000          |  | 9.6                                                        |  | $3.91                           |  |                  
|                |  | 3,683,000        |  |                                                            |  | $1.66                           |  | 3,413,000         
|                |  |                  |  |                                                            |  |                                 |  |                   

# 7.     Rental
Expense and Commitments and Contingencies

In
May 2007, the Company amended its lease on office space in Denver, Colorado to increase
the space and extend the term of the lease to April 2010. Required payments approximate
$2,470 per month. Remaining minimum lease obligations for future calendar years will be
$29,640 in 2009 and $9,880 in 2010. Rent expense for 2008 and 2007 was $29,900 and $27,000, respectively.

Effective
January 1, 2008, the Company entered into amended employment agreements with William
W. Reid, President and Chief Executive Officer, and David C. Reid, Vice President. The
employment agreements have a three year term and increase William Reids base salary
to $300,000 annually and increase David Reids base salary to $212,000 annually. In
addition, the period for severance payments under certain circumstances was increased to
35 months.

Effective
January 1, 2008, the Company executed a formal written employment agreement with Jason D.
Reid, who will serve as Vice President of Corporate Development for a three year term at
an annual base salary of $150,000.

The
employment agreements all provide that the officers are each eligible to receive incentive
compensation such as stock options or bonuses solely in the discretion of the Board of
Directors. Each officer is entitled to certain payments in the event his employment is
terminated under certain circumstances. If the Company terminates the agreement
without cause, or the officer terminates the agreement with good
reason, the Company would be obligated to pay 35 months of compensation in
accordance with its regular pay periods. Termination of the employment contract by an
officer with good reason includes a change in control.

45

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# 8.    Related
Party Transactions

Jose
Perez Reynoso.    The Company has certain contractual business
arrangements with Jose Perez Reynoso, a Mexican national and consultant to the Company.
Mr. Reynoso has been retained as a full-time consultant to the Company at $9,000 per
month through July 2007 and $10,000 per
month effective August 2007 under a month-to-month arrangement. The Company also leased
the El Aguila Property from Mr. Reynoso under terms which required advance
royalty payments to Mr. Reynoso aggregating $260,000.

# 9.     General and
Administrative Expenses

General
and administrative expenses included the following for the years ended December 31, 2008
and 2007 and for the period from inception (August 24, 1998) through December 31, 2008:

|                       | 2008 |  | 2007 |           | Inception to
December 31, 2008 |  
|---------------------- | ---- |  | ---- | --------- | ------------------------------ | -
|
|Salaries and benefits  |      |  | $    | 716,057   |                                | $
|Legal and accounting   |      |  |      | 368,975   |                                |  
|Investor relations     |      |  |      | 167,732   |                                |  
|Travel related         |      |  |      | 91,520    |                                |  
|Stock awards           |      |  |      | 42,470    |                                |  
|Grant of stock options |      |  |      | 1,956,806 |                                |  
|Other                  |      |  |      | 208,447   |                                |  
|                       |      |  |      |           |                                |  
|                       |      |  | $    | 3,552,007 |                                | $
|                       |      |  |      |           |                                |  

46

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# 10.    Subsequent
Events

On
February 25, 2009, Hochschild exercised its option to purchase an additional 4,330,000
shares of the Companys restricted common stock at $3.00 per share for total cash
proceeds of $12,990,000.

Subsequent
to December 31, 2008, the Company issued shares of common stock pursuant to the exercise
of stock options by an officer and a director. The options were exercised using the cashless
exercise method for payment, whereby each individual immediately surrendered shares
of common stock that he would have otherwise been entitled to. In the aggregate, the
individuals exercised 913,000 options and immediately surrendered 235,067 shares of
common stock, resulting in net issuance of 677,933 shares of common stock. The Company
received no cash proceeds in the transactions.

47

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# ITEM 9. CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

There
have been no changes in our accountants during the last two fiscal years, and we have not
had any disagreements with our existing accountants during that time.

# ITEM 9A(T). CONTROLS AND
PROCEDURES

(a)
       
          We maintain a system of controls and procedures designed to ensure that
          information required to be disclosed by us in reports that we file or submit
          under the Securities Exchange Act of 1934, as amended, is recorded, processed,
          summarized and reported, within time periods specified in the SECs rules
          and forms and to ensure that information required to be disclosed by us in the
          reports that we file or submit under the Securities Exchange Act of 1934, as
          amended, is accumulated and communicated to our management, including our Chief
          Executive Officer and Principal Financial Officer, or persons performing similar
          functions, as appropriate to allow timely decisions regarding required
          disclosure. As of December 31, 2008, under the supervision and with the
          participation of our Chief Executive Officer and Principal Financial Officer,
          management has evaluated the effectiveness of the design and operation of our
          disclosure controls and procedures. Based on that evaluation, the Chief
          Executive Officer and the Principal Financial Officer concluded that our
          disclosure controls and procedures were effective.

As
permitted by applicable SEC rules, this report does not include an attestation report of
our independent registered public accounting firm regarding internal control over
financial reporting. Managements report, which is included in Item 8 above, was not
subject to attestation by our registered public accounting firm pursuant to temporary
rules of the SEC that permit us to provide only managements report in this annual
report.

(b)       
          There were no changes in our internal control over financial reporting during
          the quarter ended December 31, 2008 that materially affected, or are reasonably
          likely to materially affect, our internal controls over financial reporting.

# ITEM 9B. OTHER
INFORMATION

None.

# PART III

# ITEM 10. DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

# Directors and Executive
Officers

The
following individuals presently serve as our officers and directors:

|Name              |  | Age |  | Positions With the Company |  | Board Position
Held Since                         | 
|----------------- |  | --- |  | -------------------------- |  | ------------------------------------------------- | 
|
|William W. Reid   |  |     |  | 60                         |  | President, Chief Executive Officer and Director   | 
|                  |  |     | 
|David C. Reid     |  |     |  | 59                         |  | Vice President, Secretary, Treasurer and Director | 
|                  |  |     | 
|Bill M. Conrad    |  |     |  | 52                         |  | Director                                          | 
|                  |  |     | 
|Isac Burstein     |  |     |  | 42                         |  | Director                                          | 
|                  |  |     | 
|Frank L. Jennings |  |     |  | 58                         |  | Chief Financial Officer                           | 
|                  |  |     | 
|Jason D. Reid     |  |     |  | 36                         |  | Vice President of Corporate Development           | 

48

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Each
of our directors is serving a term which expires at the next annual meeting of
shareholders and until his successor is elected and qualified or until he resigns or is
removed. Our officers serve at the will of our Board of Directors.

Messrs.
          William and David Reid should be considered founders of our company, as each has
          taken initiative in the organization of our business. William Reid and David
          Reid are brothers. Jason Reid is the son of William Reid.

The
following information summarizes the business experience of each of our officers and
directors for at least the last five years:

William
W. Reid.   Mr. Reid has served as a director and our President and Chief Executive
Officer since our inception in 1998. Since August 2005, Mr. Reid has devoted all of his
business time to our affairs, averaging 40 hours per week. Mr. Reid received a Bachelor of
Science in physics in 1970 and a Masters in Economic Geology in 1972 from Purdue
University. From 1977 to August 18, 2005, he served as the President, Chief Executive
Officer and Chairman of the Board of Directors of US Gold Corporation, a Colorado
corporation engaged in the exploration of gold mining properties. During his tenure with
US Gold, that entity acquired, developed and produced gold from five different mines, but
has not produced any revenue since 1990.

David
C. Reid.   Mr. David Reid has served as a director and our Vice President since our
inception in 1998. Since August 2005, he has devoted all of his time to our business and
affairs, also averaging 40 hours per week. From 1977 to August 18, 2005, he was the Vice
President and a director of US Gold during the time that it acquired, developed and
produced gold. Mr. Reid received a Bachelor of Science degree in geology from Ball State
University in 1972.

Bill
M. Conrad.   Mr. Conrad was elected to the Board of Directors on June 1, 2006. From its
inception in 2005 until September 2008, Mr. Conrad served as the vice-president and
secretary of Brishlin Resources, Inc., formerly Blue Star Energy, Inc. and now known as
Synergy Resources Corporation, a Colorado corporation engaged in the energy industry. Mr.
Conrad continues to serve as a director of Synergy Resources, a position he has held since
the companys inception. From February 2002 until June 2005, Mr. Conrad served as
president and a director of Wyoming Oil & Minerals, Inc., and from May 2000 until
April 2003, he served as vice president and a director of New Frontier Energy, Inc. The
securities of Wyoming Oil & Mineral, now known as Sun Motor International Inc., New
Frontier Energy, and Synergy Resources are quoted on the OTC Bulletin Board. In 1990, Mr.
Conrad co-founded MCM Capital Management Inc. and has served as vice president since that
time.

Isac
Burstein.   Isac Burstein was appointed to the Board of Directors on April 1, 2009. Mr.
Burstein is presently the Corporate Manager of Business Development for Hochschild Mining
Plc, where he has been employed since 1995. Prior to his current position, Mr. Burstein
served as Manager for Project Evaluation, Exploration Manager for Mexico, and Exploration
Geologist for Hochschild. He holds a BSc in Geological Engineering from the Universidad
Nacional de Ingenieria, an MSc in Geology from the University of Missouri and an MBA from
Krannert School of Management, Purdue University. Mr. Burstein was nominated as a director
by Hochschild and appointed to the Board pursuant to the terms of our strategic alliance
agreement with Hochschild.

49

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Frank
L. Jennings.   Mr. Jennings was appointed to serve as our principal financial officer on
June 1, 2006. He is primarily responsible for financial reporting of our company and with
our CEO, oversight of our internal controls. Mr. Jennings serves our company on a
part-time basis as his services are deemed necessary. Since 2001, Mr. Jennings has been a
financial consultant and provides management and financial consulting services primarily
to smaller public companies. From 2000 to 2005, he served as the chief financial officer
and a director of Global Casinos, Inc., a publicly traded Utah corporation, and from 2001
to 2005, he served as the chief financial officer and a director of OnSource Corporation,
now known as Ceragenix Pharmaceuticals, Inc., a publicly traded Delaware corporation.
During his tenure with Global Casinos and Ceragenix Pharmaceuticals, each company was
engaged in the gaming industry and each had common stock quoted on the OTC Bulletin Board.

Jason
D. Reid.   Mr. Reid was promoted to Vice President of Corporate Development effective
January 2, 2008. He is responsible for formulating corporate growth strategies, retail and
institutional marketing of our securities, assisting the CEO with oversight of our
financing requirements and overseeing our investor relations programs. Mr. Reid joined our
company in May 2006 as the Corporate Development Assistant. Mr. Reid received a Bachelor
of Science degree in Anthropology with an emphasis on Archaeology in 1995 from Fort Lewis
College. From 1993 until he joined our company, Mr. Reid served as president of Reid
Farrier, Inc., formerly known as Reid Fencing, Inc., a business he founded which focused
operations in the equine and construction industries.

# Other Significant
Employees or Consultants

In
addition to our officers and directors, we also utilize the services of the following
significant consultants:

Jose
Perez Reynoso.   Mr. Reynoso, a Mexican national, has served our company as a full time
consultant since 2002. In that capacity, he oversees all our operations in Mexico, and
provides advice in relations with the Mexican Government, primarily related to permitting,
personnel and mine development. From 1995 to 2002, he was a consulting geologist for
mining companies operating in Mexico. Mr. Reynoso received an undergraduate degree in
geology and engineering in 1974 and a masters degree in economic geology in 1979
from the National University of Mexico. We leased the El Aguila property from Mr.
Reynoso in 2002.

Jorge
Luis Sanchez Del Toro.   In August 2008, Mr. Sanchez, a Mexican national, accepted a
position with our Mexican subsidiary, Golden Trump Resources, to serve as the Project
Manager for the El Aguila Project. Mr. Sanchez has over 33 years of experience in
the mining industry and is responsible for overseeing the entire El Aguila Project,
including our labor relations and construction progress. From 2001 until he joined our
company, Mr. Sanchez was the general manager for Ingenieria Y Trituracion, a company that
consulted with various companies regarding open pit and underground mining operations and
crushing plants. Mr. Sanchez graduated from the University of Autonoma of Mexico with a
degree in mining engineering in 1975.

# Section 16(a) Beneficial
Ownership Reporting Compliance

We
are not registered under the Securities Exchange Act of 1934, as amended, and are not
subject to the reporting requirements of Section 16(a).

50

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# Code of Ethics

We
have not yet adopted a written Code of Ethics, however, we believe our executive officers
conduct themselves honestly and ethically with respect to our business affairs. As the
company is still in the process of organizing its formal corporate governance structure,
we may adopt a formal Code of Ethics in the near future.

# Changes in Procedures by
which Security Holders May Recommend Nominees to the Board

The
Board will consider, but is not bound by, shareholder recommendations and is not required
to nominate such individuals for positions on the Board. Any security holder who wishes to
recommend a prospective director nominee should do so in writing by sending a letter to
the Board of Directors. The letter should be signed, dated and include the name and
address of the security holder making the recommendation, information to enable the Board
to verify that the security holder was the holder of record or beneficial owner of the
companys securities as of the date of the letter, and the name, address and resume
of the potential nominee. Specific minimum qualifications for directors and director
nominees which the Board believes must be met in order to be so considered include, but
are not limited to, management experience, exemplary personal integrity and reputation,
sound judgment, and sufficient time to devote to the discharge of his or her duties. There
have been no changes to the procedures by which a security holder may recommend a nominee
to the Board.

# Audit Committee

The
Audit Committee, comprised of Bill Conrad as chairman and William Reid, recommends the
selection and appointment of our independent registered public accounting firm to the
Board of Directors and reviews the proposed scope, content and results of the audit
performed by the accountants and any reports and recommendations made by them. Only Mr.
Conrad meets the definition of independent as defined in Rule 4200(a)(15) of
the Marketplace Rules of the NASDAQ Stock Market, Inc. (Marketplace Rules),
since William Reid also serves as our Chairman and Chief Executive Officer. As of the date
of this report, the Audit Committee has not adopted a formal charter, however the
committee expects to do so in the near future.

Our
Board of Directors has determined that Bill Conrad, the chairman of the Audit Committee,
qualifies as an audit committee financial expert in that he has (i) an understanding of
generally accepted accounting principles and financial statements; (ii) the ability to
assess the general application of such principles in connection with the accounting for
estimates, accruals and reserves; (iii) experience preparing, auditing, analyzing or
evaluating financial statements that present a breadth and level of complexity of
accounting issues that are generally comparable to the breadth and complexity of issues
that can reasonably be expected to be raised by our financial statements, or experience
actively supervising one or more persons engaged in such activities; (iv) an understanding
of internal controls over financial reporting; and (v) an understanding of the audit
committee functions. Mr. Conrad acquired these attributes through experience in analyzing
financial statements of companies, and through his experience as an executive officer of
other publicly traded companies.

# ITEM 11. EXECUTIVE AND
DIRECTOR COMPENSATION

The
following table summarizes the total compensation for the two fiscal years ended
December 31, 2008 of our executive officers:

51

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# Summary Compensation
Table

|Name and
Principal Position |  | Year |      | Salary |  | Bonus |         | Stock
Awards |   | Option
Awards (2) |  | Non-Equity
Incentive Plan
Compensation |   | All
Other
Compensation |   | Total     | 
|--------------------------- |  | ---- | ---- | ------ |  | ----- | ------- | ------------ | - | ----------------- |  | -------------------------------------- | - | ---------------------- | - | --------- | 
|
|William W. Reid,            |  |      | 2008 |        |  | $     | 300,000 |              | $ | 100,000           |  | $                                      |  |                        | $ | 450,848   | 
|Chairman,                   |  |      | 2007 |        |  | $     | 240,000 |              | $ | 150,000           |  | $                                      |  |                        | $ |          | 
|Chief Executive Officer and |  |     
|President (1)               |  |     
|                            |  |     
|David C. Reid,              |  |      | 2008 |        |  | $     | 212,000 |              | $ | 100,000           |  | $                                      |  |                        | $ | 450,848   | 
|Vice President and          |  |      | 2007 |        |  | $     | 170,000 |              | $ | 100,000           |  | $                                      |  |                        | $ |          | 
|Director (1)                |  |     
|                            |  |     
|Jason D. Reid               |  |      | 2008 |        |  | $     | 150,000 |              | $ | 100,000           |  | $                                      |  |                        | $ |  721,357 | 
|Vice President,             |  |      | 2007 |        |  | $     | 100,000 |              | $ | 75,000            |  | $                                      |  |                        | $ |         | 
|Corporate                   |  |     
|Development                 |  |     

(1)    
The executive officer did not receive additional compensation for his service as
a director of our company. (2)     Valued in accordance with SFAS 123(R). All of the
options awarded in 2008 vested immediately. Please refer to Note 6 to the
consolidated financial statements filed with this report for certain assumptions
made in connection with these estimates.

Effective
January 1, 2008, in light of our successful progress to date and the more intense workload
required as a result of our companys construction and financing activities, we
amended our employment agreements with Messrs. William and David Reid, and memorialized
our employment arrangement with Jason Reid into a written agreement. Each employment
agreement is effective for a three-year term. Pursuant to the terms of the agreements,
William Reid is entitled to an annual salary of $300,000, David Reid is entitled to an
annual salary of $212,000 and Jason Reid is entitled to an annual salary of $150,000. Each individual also participates in health and other insurance programs that we
maintain. The employment agreements are automatically renewable for one-year terms on each
successive anniversary of the expiration date unless either party gives notice to the
other that they do not wish to renew the agreement, not less than 120 days prior to
expiration.

Pursuant
to the terms of the employment agreements, the employee would be entitled to certain
payments in the event their employment is terminated under certain circumstances. If we
terminate the agreement without cause, or if the executive officer terminates the
agreement with good reason, we would be obligated to pay thirty-five
months of compensation in accordance with our regular pay schedule. Termination by
an executive officer with good reason includes a change in control.

In
2008 and 2007, each of our executive officers was awarded a cash bonus. We do not maintain
a bonus plan and the awards were granted at the discretion of the Board of Directors. The
Compensation Committee of the Board recommended that bonuses were merited primarily
because each officer made a significant individual contribution in an effort to advance
our property toward production and to secure the requisite funding. The awards for each of
Messrs. William and David Reid were approved by the disinterested members of the Board.

52

---



On
February 22, 2008, we granted stock options to each of our executive officers in
accordance with our Non-Qualified Stock Option and Stock Grant Plan. William and David
Reid each received 250,000 options and Jason Reid received 400,000 options to purchase
shares of our common stock for $3.40 per share. The options vested immediately and expire
10 years from the date of grant. The value of these awards, determined in accordance with
SFAS 123(R), is included in each officers total compensation as set forth in the
table above.

In
addition to our executive officers, we engage two consultants on a regular basis. Jose
Perez Reynoso is the manager of our operations in Mexico and is paid at the rate of
$10,000 per month. Frank Jennings, our financial consultant, is paid on an hourly basis.
We do not have a written agreement with either consultant.

# Outstanding Equity
Awards at Fiscal Year-End

The
following table summarizes the amount of our executive officers equity-based
compensation outstanding at the fiscal year ended December 31, 2008:

|                | Option Awards                                                      | Stock Awards                                                     
|--------------- | ------------------------------------------------------------------ | -----------------------------------------------------------------
|Name            | Number of Securities Underlying Unexercised Options Exercisable(1) | Number of Securities Underlying Unexercised Options Unexercisable
|                | (#)                                                                | (#)                                                              
|William W. Reid | 400,000                                                            | 0                                                                
|William W. Reid | 400,000                                                            | 0                                                                
|David C. Reid   | 400,000                                                            | 0                                                                
|David C. Reid   | 200,000                                                            | 0                                                                
|Jason D. Reid   | 513,000                                                            | 0                                                                
|William W. Reid | 250,000                                                            | 0                                                                
|David C. Reid   | 250,000                                                            | 0                                                                
|Jason D. Reid   | 400,000                                                            | 0                                                                

---

(1)    
          The options vested immediately as of the date of grant.

In
2003, William and David Reid each received a stock option award of 400,000 options to
purchase shares of common stock for $0.25 per share. The options vested immediately and
expire 10 years from the date of grant. In 2004, William Reid received a stock option
award of 400,000 additional options and David Reid received a stock option award of
200,000 additional options to purchase common stock for $0.25 per share. Each option award
vested immediately and expires 10 years from the date of grant. Messrs. William and David
Reid have not exercised any of these options.

On
May 30, 2006, Jason Reid was granted 600,000 options to purchase our common stock for
$1.00 per share prior to March 3, 2009 upon accepting employment as Corporate Development
Assistant. The options vested immediately. Jason Reid exercised 87,000 options during 2008
and as of December 31, 2008, 513,000 options remained outstanding. Mr. Reid exercised the
remainder of these options subsequent to the end of the fiscal year.

53

---



On
February 22, 2008, we granted stock options to each of our executive officers. William and
David Reid each received 250,000 options and Jason Reid received 400,000 options to
purchase shares of our common stock for $3.40 per share. The options vested immediately
and expire 10 years from the date of grant. These options were given as additional
compensation to these individuals in recognition of their efforts to build value for the
company.

# Director Compensation

In
June 2006, we retained Bill Conrad to serve on our Board of Directors. At the time of his
appointment, Mr. Conrad received a stock grant of 100,000 shares of unrestricted common
stock valued at $1.00 per share and options to acquire up to 500,000 shares of stock
exercisable on or before March 3, 2009 for $1.00 per share, all of which immediately
vested. Mr. Conrad exercised 100,000 options during 2008 and exercised the remaining
options subsequent to the end of the fiscal year.

Mr.
          Conrad receives a retainer fee of $5,000 per month. On February 22, 2008, we
          also granted to Mr. Conrad 100,000 additional stock options to purchase shares
          of our common stock for $3.40 per share. The options vested immediately and
          expire 10 years from the date of grant. This option was awarded to Mr. Conrad in
          recognition of his significant contribution to building value for the company.

In
2008, Mr. Conrad also received a cash bonus of $25,000, which was granted at the
discretion of the disinterested members of the Board of Directors upon the recommendation
of the disinterested member of the Compensation Committee. Mr. Conrad received the award
in recognition of his board committee service, including service as the chairperson of the
audit committee, which the Board determined exceeded the amount of time and effort
anticipated at the time of his appointment. The Board believed that Mr. Conrad should be
adequately compensated for his time and effort. The table below summarizes the
compensation of our only director who is not also one of our executive officers and whose
compensation is not disclosed in the Summary Compensation Table, for the fiscal year ended
December 31, 2008:

|Name           |  | Fees Earned
or Paid in
Cash |   | Stock
Awards |  | Option
Awards |   | Non-Equity
Incentive Plan
Compensation |   | All
Other
Compensation |  | Total               | 
|-------------- |  | --------------------------- | - | ------------ |  | ------------- | - | -------------------------------------- | - | ---------------------- |  | ------------------- | 
|Bill M. Conrad |  |                             | $ | 60,000       |  | $             |  |                                        | $ | 180,339 (2)            |  | $    
             | 

---

|(1) | Valued in accordance with SFAS 123(R). Please refer to Note 6 to the
          consolidated financial statements filed with this report for certain assumptions
          made in connection with these estimates. Mr. Conrad received 100,000 options
          which vested immediately in 2008.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Mr. Conrad received a cash bonus of $25,000 for his service during 2008.
|--- | ------------------------------------------------------------------------

All
directors are reimbursed for reasonable and necessary expenses incurred in their
capacities as such.

# Compensation Committee
Interlocks and Insider Participation

The
Compensation Committee is comprised of David Reid and Bill Conrad. During the last
completed fiscal year, David Reid served as our executive vice president.

54

---



# ITEM 12. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

As
of April 13, 2009, there are a total of 41,095,489 shares of our common stock outstanding,
our only class of voting securities currently outstanding. The following table describes
the ownership of our voting securities by: (i) each of our officers and directors; (ii)
all of our officers and directors as a group; and (iii) each shareholder known to us to
own beneficially more than 5% of our common stock. Unless otherwise stated, the address of
each of the individuals is our address, 222 Milwaukee Street, Suite 301, Denver, Colorado
80206. All ownership is direct, unless otherwise stated.

In
calculating the percentage ownership for each shareholder, we assumed that any options
owned by an individual exercisable within 60 days is exercised, but not the options owned
by any other individual.

|Name and Address of                                                                      |  | Shares Beneficially Owned
|---------------------------------------------------------------------------------------- |  | -------------------------
|
|William W. Reid(1)                                                                       |  |                          
|                                                                                         |  |                          
|David C. Reid(1)                                                                         |  |                          
|                                                                                         |  |                          
|Bill M. Conrad(2)                                                                        |  |                          
|                                                                                         |  |                          
|Isac Burstein  (2)                                                                       |  |                          
|                                                                                         |  |                          
|Frank Jennings (3)                                                                       |  |                          
|                                                                                         |  |                          
|Jason Reid (3)                                                                           |  |                          
|                                                                                         |  |                          
|Beth Reid                                                                                |  |                          
|                                                                                         |  |                          
|Tocqueville Asset Management, L.P.

40 West 57th Street, 19th Floor
New York, NY  10019  |  |                          
|                                                                                         |  |                          
|Hochschild Mining Holdings Limited

Calle La Colonia 180           
Surco, Lima 33, Peru |  |                          
|                                                                                         |  |                          
|All officers and directors as a group (6 persons)                                        |  |                          

---

|(1) | Officer
and director.
|--- | ---------------------

|(2) | Director.
|--- | ---------

|(3) | Officer.
|--- | --------

|(4) | Includes
options to purchase 1,050,000 shares which are currently exercisable.
|--- | ------------------------------------------------------------------------------

|(5) | Includes
1,458,438 shares owned by the reporting person's spouse, of which he disclaims beneficial
     ownership.
|--- | ------------------------------------------------------------------------------------------------------------------

|(6) | Includes
options to purchase 850,000 shares which are currently exercisable.
|--- | ----------------------------------------------------------------------------

|(7) | Includes
options to purchase 100,000 shares which are currently exercisable.
|--- | ----------------------------------------------------------------------------

|(8) | Includes
options to purchase 400,000 shares which are currently exercisable.
|--- | ----------------------------------------------------------------------------

|(9) | Includes
200,682 shares owned by the reporting person's spouse, of which he disclaims beneficial
ownership.
|--- | -----------------------------------------------------------------------------------------------------------

|(10) | Includes
2,196,844 shares and 1,050,000 shares underlying options owned by the reporting person's
spouse,      of which she disclaims beneficial ownership.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------

# Equity Incentive Plan

Our
Non-Qualified Stock Option and Stock Grant Plan (also as referred to as the
Plan) was adopted by us effective March 4, 1999. The Plan, as amended,
terminates by its terms on February 28, 2019. Under the Plan, as approved by shareholders
on March 4, 2005, a total of 6,000,000 shares of common stock are reserved for issuance
thereunder. Set forth below is information as of December 31, 2008 with respect to
compensation plans (including individual compensation arrangements) under which our equity
securities are authorized for issuance.

55

---

# Non-Qualified Stock
Option and Stock Grant Plan Information

|Plan Category                                          |  | Number of
securities to be
issued upon
exercise of
outstanding
9ptions, warrants
and rights
(a) |  | Weighted-
average exercise
price of
outstanding
options,
warrants and
rights
(b) |  | Number of
securities remaining
available for future
issuance under
equity compensation
plans (excluding
securities reflected
in column (a))
(c) | 
|------------------------------------------------------ |  | ----------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------- | 
|Equity compensation plans approved by shareholders     |  |                                                                                                 |  | 3,583,000                                                                        |  | $ 1.60                                                                                                                                          | 
|Equity compensation plans not approved by shareholders |  |                                                                                                 |  | 100,000                                                                          |  | $  4.07                                                                                                                                         | 
|                                                       |  |                                                                                                 |  |                                                                                  |  |                                                                                                                                                
|TOTAL                                                  |  |                                                                                                 |  | 3,683,000                                                                        |  |                                                                                                                                                 | 
|                                                       |  |                                                                                                 |  |                                                                                  |  |                                                                                                                                                

Under
the Plan, non-qualified stock options and/or grants of our common stock may be issued to
key persons. Key persons include officers, directors, employees, consultants and others
providing service to us. The Plan was established to advance the interests of our company
and our stockholders by affording key persons, upon whose judgment, initiative and efforts
we may rely for the successful conduct of our businesses, an opportunity for investment in
our company and the incentive advantages inherent in stock ownership in our company. This
Plan gives our Board of Directors broad authority to grant options and make stock grants
to key persons selected by the Board while considering criteria such as employment
position or other relationship with us, duties and responsibilities, ability,
productivity, length of service or association, morale, interest in us, recommendations by
supervisors, and other matters, and to set the option price, term of option, and other
broad authorities. Options may not be granted at less than the fair market value at the
date of grant and may not have a term in excess of 10 years.

Options
granted under the Plan do not generally give rise to taxable income to the recipient or
any tax consequence to us, since the Plan requires that the options be issued at a price
not less than the fair market value of the common stock on the date of grant. However,
when an option is exercised, the holder is subject to tax on the difference between the
exercise price of the option and the fair market value of the stock on the date of
exercise. We receive a corresponding deduction for income tax purposes. Recipients of
stock grants are subject to tax on the fair market value of the stock on the date of grant
and we receive a corresponding deduction. The foregoing is intended as a summary of the
income tax consequences to an individual recipient of an option or stock grant, and should
not be construed as tax advice. Holders of stock options or common stock should consult
their own tax advisors.

Shares
issued upon exercise of options or upon stock grants under the Plan are restricted
securities as defined under the Securities Act unless a registration statement
covering such shares is effective. Restricted shares cannot be freely sold and must be
sold pursuant to an exemption from registration (such as Rule 144) which exemptions
typically impose conditions on the sale of the shares.

# Changes in Control

We
entered into a Strategic Alliance Agreement with Hochschild, a significant shareholder of
our company, in 2008. Pursuant to the terms of the Strategic Alliance, Hochschild has the
right to acquire up to, but not exceed, 40% of our common stock in the market over the
next two years. We also agreed to appoint up to two nominees of Hochschild to our Board of
Directors, depending upon its level of ownership. Hochschild has a right of first refusal
to participate in future financing transactions, and after the expiration of a two-year
standstill provision, Hochschild is not restricted from acquiring additional shares of our
common stock, which may result in a change in control of our company.

56

---



# ITEM 13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

# Certain Relationships
and Related Transactions

None.

# Director Independence

Bill
Conrad is our only independent director under the definition set forth in Rule 4200(a)(15)
of the Marketplace Rules. William Reid, our chief executive officer, is a member of the
Audit Committee and the Nominating Committee, and does not meet the independence standards
for committee members set forth in the Marketplace Rules. David Reid, our executive vice
president, is a member of the Nominating and Compensation Committee, and does not meet the
independence standards for committee members set forth in the Marketplace Rules.

# ITEM 14. PRINCIPAL
ACCOUNTING FEES AND SERVICES

The
following table sets forth fees paid to (or accrued to) our principal accounting firm of
Stark Winter Schenkein & Co., LLP for the two years ended December 31, 2008:

|                   | 2008 |  | 2007 |       
|------------------ | ---- |  | ---- | ------
|
|Audit Fees         |      |  | $    | 31,750
|Audit Related Fees |      |  |      | 6,030 
|Tax Fees           |      |  |      | 6,900 
|All Other Fees     |      |  |      |      
|                   |      |  |      |       
|Total Fees         |      |  | $    | 44,680
|                   |      |  |      |       

It
is the policy of the Audit Committee to engage the principal accounting firm selected to
conduct the financial audit for our company and to confirm, prior to such engagement, that
such principal accounting firm is independent of our company. All services of the
independent registered accounting firm reflected above were approved by the Audit
Committee.

57

---



# PART IV

# ITEM 15. EXHIBITS,
FINANCIAL STATEMENT SCHEDULES

The
following exhibits are filed with or incorporated by referenced in this report:

|Item No. | Description
|-------- | -----------

|3.1 | Articles
of Incorporation of the Company as filed with the Colorado Secretary of State on
                   August 24, 1998 (incorporated by reference from our registration
statement on Form SB-2 filed                    on October 28, 2005, Exhibit 3.1, File
No. 333-129321).
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.1.1 | Articles
of Amendment to the Articles of Incorporation as filed with the Colorado Secretary of
                   State on September 16, 2005 (incorporated by reference from our
registration statement on Form                    SB-2 filed on October 28, 2005, Exhibit
3.1.1, File No. 333-129321).
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.2 | Bylaws
of the Company dated August 28, 1998 (incorporated by reference from our registration
                   statement on Form SB-2 filed on October 28, 2005, Exhibit 3.2, File
No. 333-129321).
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4 | Specimen
stock certificate (incorporated by reference from our amended registration statement
                   on Form SB-2/A filed on March 27, 2006, Exhibit 4, File No.
333-129321).
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.1 | Exploitation
and Exploration Agreement between the Company and Jose Perez Reynoso dated
                   October 14, 2002 (incorporated by reference from our registration
statement on Form SB-2 filed                    on October 28, 2005, Exhibit 10.1, File
No. 333-129321).
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.2 | Non-Qualified
Stock Option and Stock Grant Plan (incorporated by reference from our
                   registration statement on Form SB-2 filed on October 28, 2005, Exhibit
10.2, File No.                    333-129321).
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.3 | Form
of Stock Option Agreement (incorporated by reference from our registration statement on
                   Form SB-2 filed on October 28, 2005, Exhibit 10.3, File No.
333-129321).
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.4 | Employment
Agreement between the Company and William W. Reid (incorporated by reference from
                   our amended registration statement on Form SB-2/A filed on March 27,
2006, Exhibit 10.8, File                    No. 333-129321).
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.5 | Employment
Agreement between the Company and David C. Reid (incorporated by reference from our
                   amended registration statement on Form SB-2/A filed on March 27, 2006,
Exhibit 10.9, File No.                    333-129321).
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.6 | Form
of Subscription Agreement between the Company and investors in the December 2007 private
                   placement (incorporated by reference from our report on Form 8-K dated
December 5, 2007,                    Exhibit 10.1, File No. 333-129321).
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.7 | Amended
Employment Agreement between the Company and William W. Reid (incorporated by
                   reference from our report on Form 10-Q filed on November 19,2008,
Exhibit 10.1, File No.                    333-129321).
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

58

---



|10.8 | Amended
Employment Agreement between the Company and David C. Reid (incorporated by reference
                   from our report on Form 10-Q filed on November 19,2008, Exhibit 10.2,
File No. 333-129321).
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.9 | Employment
Agreement between the Company and Jason D. Reid (incorporated by reference from our
                   report on Form 10-Q filed on November 19,2008, Exhibit 10.3, File No.
333-129321).
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.10 | Strategic
Alliance Agreement between the Company and Hochschild Mining Holdings Limited
                   (incorporated by reference from our report on Form 8-K dated December
5, 2008, Exhibit 10.1,                    File No. 333-129321).
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.11 | Subscription
Agreement between the Company and Hochschild Mining Holdings Limited dated
                   December 5, 2008 (incorporated by reference from our report on Form
8-K dated December 5,                    2008, Exhibit 10.2, File No. 333-129321).
|----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.12 | Subscription
Agreement between the Company and Hochschild Mining Holdings Limited dated
                   February 25, 2009 (incorporated by reference from our report on Form
8-K dated February 25,                    2009, Exhibit 10.2, File No. 333-129321).
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|21 | Subsidiaries
of the Company (incorporated by reference from our amended registration statement
                   on Form SB-2/A filed on January 20, 2006, Exhibit 21, File No.
333-129321).
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|31.1* | Certification
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for William W. Reid.
|----- | --------------------------------------------------------------------------------------------

|31.2* | Certification
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Frank L. Jennings.
|----- | ----------------------------------------------------------------------------------------------

|32* | Certification
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for William W. Reid
                   and Frank L. Jennings.
|--- | -------------------------------------------------------------------------------------------------------------------------------------

---

* filed herewith

59

---



# SIGNATURES

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

|                      | GOLD RESOURCE CORPORATION                                                        
|--------------------- | ---------------------------------------------------------------------------------
|                      |                                                                                  
|Dated: April 14, 2009 | /s/ William W. Reid                                                              
|                      | By: William W. Reid, Chairman of the Board,
President and Chief Executive Officer

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

|                      |                                                                     |               
|--------------------- | ------------------------------------------------------------------- | --------------
|/s/ William W. Reid   | Chairman of the Board,
President and   
Principal Executive Officer | April 14, 2009
|William W. Reid l     |                                                                     |               
|                      |                                                                     |               
|/s/ Frank L. Jennings | Principal Financial Officer and Principal Accounting Officer        | April 14, 2009
|Frank L. Jennings     |                                                                     |               
|                      |                                                                     |               
|/s/ David C. Reid     | Director                                                            | April 14, 2009
|David C. Reid         |                                                                     |               
|                      |                                                                     |               
|/s/ Bill M. Conrad    | Director                                                            | April 14, 2009
|Bill M. Conrad        |                                                                     |               

60

---



# EXHIBIT INDEX

|Item No. | Description
|-------- | -----------

|3.1 | Articles
of Incorporation of the Company as filed with the Colorado Secretary of State on
                   August 24, 1998 (incorporated by reference from our registration
statement on Form SB-2 filed                    on October 28, 2005, Exhibit 3.1, File
No. 333-129321).
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.1.1 | Articles
of Amendment to the Articles of Incorporation as filed with the Colorado Secretary of
                   State on September 16, 2005 (incorporated by reference from our
registration statement on Form                    SB-2 filed on October 28, 2005, Exhibit
3.1.1, File No. 333-129321).
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.2 | Bylaws
of the Company dated August 28, 1998 (incorporated by reference from our registration
                   statement on Form SB-2 filed on October 28, 2005, Exhibit 3.2, File
No. 333-129321).
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4 | Specimen
stock certificate (incorporated by reference from our amended registration statement
                   on Form SB-2/A filed on March 27, 2006, Exhibit 4, File No.
333-129321).
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.1 | Exploitation
and Exploration Agreement between the Company and Jose Perez Reynoso dated
                   October 14, 2002 (incorporated by reference from our registration
statement on Form SB-2 filed                    on October 28, 2005, Exhibit 10.1, File
No. 333-129321).
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.2 | Non-Qualified
Stock Option and Stock Grant Plan (incorporated by reference from our
                   registration statement on Form SB-2 filed on October 28, 2005, Exhibit
10.2, File No.                    333-129321).
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.3 | Form
of Stock Option Agreement (incorporated by reference from our registration statement on
                   Form SB-2 filed on October 28, 2005, Exhibit 10.3, File No.
333-129321).
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.4 | Employment
Agreement between the Company and William W. Reid (incorporated by reference from
                   our amended registration statement on Form SB-2/A filed on March 27,
2006, Exhibit 10.8, File                    No. 333-129321).
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.5 | Employment
Agreement between the Company and David C. Reid (incorporated by reference from our
                   amended registration statement on Form SB-2/A filed on March 27, 2006,
Exhibit 10.9, File No.                    333-129321).
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.6 | Form
of Subscription Agreement between the Company and investors in the December 2007 private
                   placement (incorporated by reference from our report on Form 8-K dated
December 5, 2007,                    Exhibit 10.1, File No. 333-129321).
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.7 | Amended
Employment Agreement between the Company and William W. Reid (incorporated by
                   reference from our report on Form 10-Q filed on November 19,2008,
Exhibit 10.1, File No.                    333-129321).
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

61

---



|10.8 | Amended
Employment Agreement between the Company and David C. Reid (incorporated by reference
                   from our report on Form 10-Q filed on November 19,2008, Exhibit 10.2,
File No. 333-129321).
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.9 | Employment
Agreement between the Company and Jason D. Reid (incorporated by reference from our
                   report on Form 10-Q filed on November 19,2008, Exhibit 10.3, File No.
333-129321).
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.10 | Strategic
Alliance Agreement between the Company and Hochschild Mining Holdings Limited
                   (incorporated by reference from our report on Form 8-K dated December
5, 2008, Exhibit 10.1,                    File No. 333-129321).
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.11 | Subscription
Agreement between the Company and Hochschild Mining Holdings Limited dated
                   December 5, 2008 (incorporated by reference from our report on Form
8-K dated December 5,                    2008, Exhibit 10.2, File No. 333-129321).
|----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.12 | Subscription
Agreement between the Company and Hochschild Mining Holdings Limited dated
                   February 25, 2009 (incorporated by reference from our report on Form
8-K dated February 25,                    2009, Exhibit 10.2, File No. 333-129321).
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|21 | Subsidiaries
of the Company (incorporated by reference from our amended registration statement
                   on Form SB-2/A filed on January 20, 2006, Exhibit 21, File No.
333-129321).
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|31.1* | Certification
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for William W. Reid.
|----- | --------------------------------------------------------------------------------------------

|31.2* | Certification
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Frank L. Jennings.
|----- | ----------------------------------------------------------------------------------------------

|32* | Certification
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for William W. Reid
                   and Frank L. Jennings.
|--- | -------------------------------------------------------------------------------------------------------------------------------------

---

* filed herewith

62

---