**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**




**Washington,
      D.C. 20549**




**FORM 10-KSB**




**ý**
            
            **ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                EXCHANGE ACT OF 1934****For
                the fiscal year ended December 31, 2006****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**


(Name
      of
      small business issuer 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**


(Issuer’s
      telephone number, including area code)





Securities
      registered pursuant to Section 12(b) of the Act:





**None**
            
            **N/A**Title
                of each class
            
            Name
                of each exchange on which
                registered




Securities
      registered pursuant to Section 12(g) of the Act:





Common
      Stock, $0.001 par value


(Title
      of
      class)




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 o No ý .




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. ý Yes o No




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




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




State
      issuer’s revenues for its most recent fiscal year:  Nil **.**




The
      aggregate market value (at the last trade price of $3.04 per share) of the
      Common Stock of Gold Resource Corporation held by non-affiliates as of
      March 30, 2007 was approximately $63,053,269. As of March 30, 2007,
      there were 28,169,552 shares of Common Stock outstanding.




**DOCUMENTS
      INCORPORATED BY REFERENCE** : 
      None.




Transitional
      Small Business Disclosure Format (check one):  o Yes ý No




*-
            1
            -*







**TABLE
      OF CONTENTS**




**PART I**ITEM
                1:
            
            DESCRIPTION
                OF BUSINESS
            3ITEM
                2:
            
            DESCRIPTION
                OF PROPERTIES
            5ITEM
                3:
            
            LEGAL
                PROCEEDINGS
            12ITEM
                4:
            
            SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY HOLDERS
            12**PART II**ITEM
                5:
            
            MARKET
                FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
            12ITEM
                6:
            
            MANAGEMENT’S
                DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
            14ITEM
                7:
            
            FINANCIAL
                STATEMENTS
            24ITEM
                8:
            
            CHANGES
                IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                DISCLOSURE
            38ITEM
                8A:
            
            CONTROL
                AND PROCEDURES
            38**PART III**ITEM
                9:
            
            DIRECTORS,
                EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
                SECTION 16(A) OF THE EXCHANGE ACT
            38ITEM
                10:
            
            EXECUTIVE
                AND DIRECTOR COMPENSATION
            40ITEM
                11:
            
            SECURITY
                OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
                STOCKHOLDER MATTERS
            42ITEM
                12:
            
            CERTAIN
                RELATIONSHIPS AND RELATED TRANSACTIONS
            44ITEM
                13:
            
            EXHIBITS
            45ITEM
                14:
            
            PRINCIPAL
                ACCOUNTANT FEES AND SERVICES
            45**SIGNATURES**
            46




**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.




**SPECIAL
      NOTE REGARDING FORWARD-LOOKING STATEMENTS**




Please
      see the note under “Item 6. Management’s Discussion and Analysis or Plan of
      Operation,” for a description of special factors potentially affecting
      forward-looking statements included in this report.


*-
            2
            -*


**PART I**




**ITEM
      1.    DESCRIPTION OF BUSINESS.**




**Overview**




We
      are an
      exploration stage company organized in Colorado on August 24, 1998 to search
      for
      gold and silver. We currently have an interest in four properties located in
      Oaxaca, Mexico. Our exploration efforts are currently focused on the *El
      Aguila* project,
      which is comprised of parcels we refer to as the *El
      Aguila* property
      and the *Las
      Margaritas* property. We also have an interest in a propect known as the *El
      Rey* property
      and we recently acquired an interest in a prospect known as the *Solaga* property.





In
      October 2002, we leased a 100% interest in mineral claims covering approximately
      1,896 hectares (4,685 acres)1 and located in the historic *San
      Jose de Gracia* mining
      district in the State of Oaxaca, which we call the *El
      Aguila* project.
      Since acquiring that interest, we have drilled approximately 10,400 meters
      (34,120 feet) of test holes in one section of the property and have encountered
      gold and silver mineralized material. We are continuing our exploration efforts
      on this property and recently commenced additional drilling on a section of
      the
      property.





In
      2005,
      we obtained some additional mineral claims in the Mexican State of Oaxaca which
      we call the *El
      Rey* property.
      In February 2007, we leased a 100% interest in a property we refer to as the *Solaga* property. We have conducted very limited exploration of these properties to
      date.





As
      an
      exploration stage mining company, our activities include, at various times
      and
      to various degrees, exploration, land acquisition, geological evaluation and
      feasibility studies of properties, and where warranted, efforts to develop
      and
      construct mining and processing facilities and to mine and process gold, silver
      and other metals and by-products.





Our
      operations in Mexico are conducted through our wholly-owned Mexican
      subsidiaries, Don David Gold, S.A. de C.V. and Golden Trump S.A. de C.V. All
      references to us or our company in this report include our
      subsidiaries.




Our
      principal executive offices are located at 222 Milwaukee Street, Suite 301,
      Denver, Colorado 80206, and our telephone number is (303) 320-7708. We maintain
      a website at www.goldresourcecorp.com .




**Recent
      Events**




On
      August
      17, 2006, we closed our initial public offering (“IPO”), from which we received
      net proceeds of $4,351,200. These proceeds enabled us to begin the third stage
      of our exploration program at the *El
      Aguila* project.
      In October 2006, we signed a contract for a minimum of 3,333 meters (10,935
      feet) of additional core drilling which commenced in November 2006, and expect
      to contract for additional drilling up to a total of 10,000 meters (32,808
      feet). In September 2006, our stock began trading on the over the counter
      Bulletin Board under the symbol “GORO.”





On
      December 7, 2006, we completed a private placement of 4,322,000 shares of our
      common stock for $1.20 per share (“Private Placement”), from which we received
      $4,928,700 in net proceeds. In connection with the Private Placement, we paid
      cash of $257,700 and issued 257,700 shares of our common stock as finders’ fees. *See* “Item
      6.
      Management’s Discussion and Analysis” for additional information regarding this
      offering.





____________________





1  Please
      see the Glossary appearing in the section titled "Item 2. Description of
      Properties" for a description of certain terms used in this report, including
      conversion of metric units.





*-
            3
            -*








**Competitive
      Business Conditions**




The
      exploration for, and the acquisition of gold and silver properties are subject
      to intense competition. Due to our recent organization, limited capital and
      personnel, we may be at a competitive disadvantage compared to other companies
      with regard to exploration and, if warranted, development. In general,
      properties with a higher grade of recoverable material or which are more readily
      minable afford the owner a competitive advantage. 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.
      Even
      though we have the right to any minerals on our claims, there is no guarantee
      we
      will be able to raise sufficient funds in the future to maintain our mineral
      claims in good standing. Therefore, if we do not have sufficient funds for
      exploration, our claims might lapse and be staked by other mining interests.
      We
      might be forced to seek a joint venture partner to assist in the exploration
      of
      our mineral claims. In this case, there is the possibility that we might not
      be
      able to pay our proportionate share of the exploration costs and might be
      diluted to an insignificant carried interest. 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.




**General
      Government Regulations**




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 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* property, if any, we will have 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. 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. A lack
      of support from the local community may make obtaining an MIA difficult. A
      risk
      analysis must also be prepared in conjunction with the MIA for approval by
      SEMARNAT.





The
      most
      significant other approvals that might be necessary for our operations would
      be
      permits to extract water from the Totolapam River and an explosives permit,
      issued by the Mexican army, to purchase, store and use explosives. In Mexico,
      water rights are managed by the Comision Nacional del Agua ("CNA"). According
      to
      Mexican water law, all users must pay for the right to use national waters
      regardless of how the rights were obtained, with the rates being determined
      by
      the availability of water and the method of extraction.





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







*-
            4
            -*





**Employees**




We
      currently have three full-time employees, two of whom serve as our executive
      officers. These individuals devote all of their business time to our affairs.
      We
      also engage two consultants, one to 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 the other as his services
      are necessary. We engage independent contractors in connection with the
      exploration of our mining properties.




**ITEM
      2.    DESCRIPTION OF PROPERTIES**




We
      currently have an interest in four properties, the *El
      Aguila* property
      and the *Las
      Margaritas* property
      which we combine as part of the *El
      Aguila* project,
      the *El
      Rey* property
      and the *Solaga* property. We lease claims comprising the *El
      Aguila* project
      from an individual who serves as our consultant in Mexico and the *Solaga* property
      from an entity partially owned by our consultant in Mexico. 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** ***El
      Aguila*** **Project**





*Background.* Effective October 14, 2002, we leased a prospective gold/silver property
      comprised of three concessions, *El
      Aguila* , *El
      Aire* and *La
      Tehuana* ,
      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.





Under
      Mexican mining laws, rights to minerals are obtained by filing concessions
      and
      fees are paid to the federal government for the privilege of holding these
      concessions. The fees are based on the size of the concession, calculated at
      the
      rate of approximately $4 per hectare every six months, based on the exchange
      rate at March 26, 2006. Based on the size of our concessions at the *El
      Aguila* project,
      this amounts to approximately $7,600 every six months.





The
      table
      below summarizes the concessions that we have leased and that give us the right
      to explore and mine the properties and the ensuing map shows their general
      location. The mineral concessions making up the *El
      Aguila* project
      are located within the *San
      Pedro Totolapam Ejido* .








**Concession**
            **Type**
            **Expediente/**
              **Titulo
                No.**
            **Hectares**
            **Acres***El
                Aire*
            Exploitation
            158272
            72.00
            177.92*El
                Aguila*
            Exploitation
            222844
            899.00
            2,221.47*La
                Tehuana*
            Exploration
            210029
            925.00
            2,285.72Total
            1,896.00
            4,685.11











*-
            5
            -*





**Location
      Map for the** ***El
      Aguila*** **and** ***El
      Rey*** **Projects**







*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.








*-
            6
            -*





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.





*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. This exploration drilling encountered some gold intercepts which
      required additional exploratory drilling in order to fully evaluate. Through
      the
      year ended December 31, 2006, we have spent or incurred approximately $1,978,200
      in acquisition, exploration and related costs for the *El
      Aguila* project,
      of which approximately $628,851 was spent during 2006.





We
      have
      carried out exploration on the project that has included geologic mapping,
      surface sampling, geochemical sampling and two rounds of exploratory drilling.
      We recently commenced a third round of exploratory drilling and have drilled
      approximately 3,700 meters (12,100 feet). We anticipate drilling an additional
      6,300 meters (20,790 feet) during spring 2007 for a total of 10,000 meters
      (32,800 feet) of core drilling. We expect to undertake a feasibility study
      in
      the near future. We have contracted for an additional drill rig to accelerate
      our current exploration program **.** The
      following table illustrates the results of our exploration program that were
      available to us through January 2007:

















[Space
      intentionally blank]





*-
            7
            -*





**EL
                  AGUILA PROJECT SELECTED DRILL HOLE
                  INTERCEPTS**
  ***Interval***
                  ***Starting
                    At***
                ***Interval***
                  ***Starting
                    At***
                ***Interval***
                  ***Length***
                ***Interval***
                  ***Length***
                ***Gold***
                ***Gold***
                ***Silver***
                ***Silver******Hole
                    No.***
                ***Drill
                    Type***
                (Meters)
                (Feet)
                (Meters)
                (Feet)
                g/t
                oz./ton
                g/t
                oz./ton301
                RC
                40
                131.2
                16
                52.5
                6.56
                0.19
                23
                0.67302
                RC
                30
                98.4
                6
                19.7
                16.65
                0.49
                112
                3.27303
                RC
                22
                72.2
                6
                19.7
                18.79
                0.55
                133
                3.88306
                RC
                4
                13.1
                4
                13.1
                14.58
                0.43
                74
                2.16and
                
                24
                78.7
                6
                19.7
                8.99
                0.26
                76
                2.22307
                RC
                18
                59
                4
                13.1
                3.91
                0.11
                84
                2.45and
                
                26
                85.3
                2
                6.6
                3.69
                0.11
                70
                2.04309
                RC
                56
                183.7
                2
                6.6
                3.79
                0.11
                37
                1.08311
                RC
                16
                52.5
                2
                6.6
                4.53
                0.13
                25
                0.73314
                RC
                6
                19.7
                2
                6.6
                6.89
                0.2
                69
                2.01326
                RC
                2
                6.6
                4
                13.1
                3.84
                0.11
                83
                2.42327
                RC
                8
                26.2
                8
                26.2
                3.54
                0.1
                136
                3.97327A
                RC
                12
                39.4
                8
                26.2
                3.97
                0.12
                78
                2.28330
                RC
                6
                19.7
                6
                19.7
                8.46
                0.25
                111
                3.24331
                RC
                50
                164
                4
                13.1
                54.71
                1.6
                701
                20.47332
                RC
                16
                52.5
                8
                26.2
                6.07
                0.18
                18
                0.53333
                RC
                2
                6.6
                2
                6.6
                3.67
                0.11
                63
                1.84and
                
                8
                26.2
                6
                19.7
                15.69
                0.46
                101
                2.95334
                RC
                6
                19.7
                6
                19.7
                9.4
                0.27
                25
                0.73338
                RC
                20
                65.6
                10
                32.8
                3.71
                0.11
                65
                1.9343
                RC
                60
                196.8
                14
                45.9
                6.89
                0.2
                40
                1.17349
                RC
                34
                111.5
                6
                19.7
                7.5
                0.22
                78
                2.28354
                RC
                34
                111.5
                4
                13.1
                7.5
                0.22
                68
                1.99363
                RC
                4
                13.1
                6
                19.7
                11.63
                0.34
                100
                2.92365
                RC
                0
                0
                4
                13.1
                5.73
                0.17
                10
                0.29366
                RC
                0
                0
                4
                13.1
                3.74
                0.11
                100
                2.92509
                CORE
                20
                65.6
                6
                19.7
                10.38
                0.3
                329
                9.61511
                CORE
                40
                131.2
                12
                39.4
                10.18
                0.3
                20
                0.58512
                CORE
                34.6
                113.5
                12
                39.4
                4.67
                0.14
                74
                2.16523
                CORE
                1.5
                4.9
                1
                3.3
                7.7
                0.22
                918
                26.81and
                
                6.4
                21
                8.1
                26.6
                1.39
                0.04
                146
                4.26530
                CORE
                24
                78.7
                10
                32.8
                0.96
                0.03
                387
                11.3601
                CORE
                31
                101.7
                5
                16.4
                0.82
                0.02
                72.2
                2.11602
                CORE
                27
                88.6
                1
                3.3
                1.22
                0.04
                20.2
                0.59603
                CORE
                38
                124.7
                3
                9.8
                1.22
                0.04
                34.6
                1.01603
                CORE
                45
                147.6
                6
                19.7
                3.65
                0.11
                231.7
                6.75and
                
                47
                154.2
                3
                9.8
                5.54
                0.16
                404.3
                11.79604
                CORE
                29
                95.1
                2
                6.6
                5.49
                0.16
                180.3
                5.26605
                CORE
                35
                114.8
                6
                19.7
                0.81
                0.02
                90.1
                2.63606
                CORE
                21
                68.9
                15
                49.2
                5.6
                0.16
                59.7
                1.74607
                CORE
                40
                131.2
                3
                9.8
                5.5
                0.16
                41.1
                1.2608
                CORE
                46
                150.9
                2
                6.6
                3.8
                0.11
                33.6
                0.98609
                CORE
                55
                180.4
                1
                3.3
                0.75
                0.02
                17.4
                0.51610
                CORE
                Assays
                    Pending611
                CORE
                47
                154.2
                19
                62.3
                1.45
                0.04
                22.2
                0.65and
                
                47
                154.2
                4
                
                3.9
                0.11
                77.5
                2.26612
                CORE
                69
                226.4
                2
                13.1
                3.55
                0.1
                45.6
                1.33612
                CORE
                78
                255.9
                1
                3.3
                0.04
                0
                354.0
                10.32613
                CORE
                89
                292
                1
                3.3
                0.05
                0
                97.4
                2.84RC:
                    Reverse Circulation DrillingCORE:
                    Diamond Core Drilling
   *-
            8
            -*


*Facilities* .
      The *El
      Aguila* project
      does not have any plant or equipment at this time. Rudimentary access roads
      have
      been developed to various parts of the project for exploration activities.
      The
      federal power grid is located along the Pan American Highway and could be
      utilized in operations, if any. Water would be available from the Totolapam
      River and would require pumping to any facilities. Water rights are owned by
      the
      Mexican nation and administered by the CNA, an agency of the federal government.
      The CNA has granted water concessions to private parties throughout the defined
      Oaxaca Hydrologic Basin and water concessions for development and operation
      of
      the *El
      Aguila* project,
      if any, are expected to be available.





*Geology
      and Mineralization* . The *El
      Aguila* project
      is located in the *San
      Jose de Gracia* Mining
      District in the *Sierra
      Madre del Sur* of
      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. This
      geology suggests the presence of mineralization which our exploration program
      is
      designed to test and define.





The
      deposits on the *El
      Aguila* property
      are primarily hosted in a quartz rich, stratiform zone (manto). There appear
      to
      be several manto units on the property, one main manto and one or more lower
      mantos. The main manto is conformable with the sedimentary and 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).





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 limited drilling program was carried
      out
      by us that in fact resulted in defining a central zone of continuous, shallow,
      sub-horizontal mineralization. The fact that the mineralization is relatively
      shallow would make mining less difficult and less expensive from an open pit
      mine compared to an underground mine, if we determine to develop and mine the
      property.





The
      graphic image below depicts an underground cross section of the property in
      which several holes have been drilled and an estimated area of mineralized
      material which resulted from the drilling. It illustrates the outline of an
      area
      within the cross section estimated to contain at least one gram of gold per
      ton.
      Higher grade intercepts within the outline are separately indicated. Underground
      workings are also depicted.



















[Space
      intentionally blank]





*-
            9
            -*

















*-
            10
            -*





**The** ***El
      Rey*** **Property and** ***Solaga*** **Property**





We
      have
      acquired claims in another area of the *Sierra
      Madre del Sur* region
      by filing concessions under the Mexican mining laws, referred to by us as the *El
      Rey* property. Additionally, in February 2007, we leased a 100% interest in a
      property known as the *Solaga* property. We have conducted minimal exploration on these properties to
      date.




The *El
      Rey* project
      is an exploration stage property with no known reserves and is also located
      in
      the *Sierra
      Madre del Sur* region
      of southern Mexico, approximately 64.4 kilometers (40 miles) from the *El
      Aguila* property. 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 one was to be built in the future.





The *Solaga* property
      consists of a 400 hectare property, 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 is subject to a 4% net smelter
      return royalty on any production.





**Mineral
      Concessions**





Mineral
      rights in Mexico belong to the Mexican government and are administered pursuant
      to Article 27 of the Mexican Constitution. Exploration and exploitation
      concessions may be granted or transferred to Mexican citizens and corporations.
      Our leases or concessions are held by our Mexican subsidiaries. Exploration
      concessions are granted for a term of six years, with the right to convert
      to an
      exploitation concession with a term of 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 (if the
      concession changes from exploration to exploitation) 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 in the *El
      Aguila* property
      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 of the *El
      Aguila* property. In order to begin mining at the property, we will have to secure
      surface rights agreements for all lands to be disturbed by, or adjacent to,
      any
      such proposed operation.





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.





At
      this
      time, due to the absence of any specific development plan, it is impossible
      to
      determine the potential amount of compensation that might be required to obtain
      surface rights necessary to mine our property. However, we expect such amount
      to
      be low in relation to other anticipated cost of commencing 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. Monthly rent equals
      $1,428 the first year, $1,469 the second year and $1,490 the third year, plus
      our share of operating expense escalations. We believe this space is adequate
      for our needs for the foreseeable future.








*-
            11
            -*





**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 1/1000thof
                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
                1/200thof
                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.Minerals
                or Mineralized Material:
            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.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 1000 kg.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
                System1
                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 AND RELATED STOCKHOLDER
      MATTERS**




**Market
      Information**




Effective
      September 14, 2006, our common stock began trading over the counter and is
      quoted on the OTCBB under the symbol “GORO.” The table below sets forth the high
      and low bid prices for our common stock as reflected on the OTCBB as reported
      by
      the Nasdaq Stock Market, Inc. for the period commencing September 14, 2006
      to
      date. 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.





**Year Ending**
            
            **High**
            
            **Low**December
                31, 2007First
                Quarter (to March 30)
            
            $
            3.97
            
            $
            1.30December
                31, 2006Third
                Quarter (commencing September 14)
            
            $
            1.15
            
            $
            0.90Fourth
                Quarter
            
            
            1.90
            
            
            1.00





On
      March
      30, 2007 the high and low sales price of our common stock on the OTCBB were
      $3.05 and $2.97, respectively, and we had approximately 90 holders of
      record of our common stock.





*-
            12
            -*








**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 Securities and Exchange Commission (“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.





**Recent
      Sales of Unregistered Securities; Use of Proceeds From Unregistered
      Securities**





During
      the period covered by this report, we issued an aggregate of 4,959,700 shares
      of
      our common stock and 1,200,000 options without registering those securities
      under the Securities Act of 1933, as amended (“Securities Act”). The following
      information describes the transactions not previously reported in which those
      securities were issued:





On
      October 12, 2006, we issued 250,000 shares of our common stock to an investor
      relations firm for services rendered to our company valued at $250,000, or
      $1.00
      per share. We also granted options to acquire 100,000 shares of common stock,
      50,000 of which were immediately vested, for $1.00 per share to a public
      relations consultant. The remaining 50,000 options vest upon our mutual
      agreement with this consultant to extend our contract for public relations
      services for an additional six months beyond its expiration in April 2007.
      We
      relied on the exemption provided by Section 4(2) of the Securities Act for
      each
      of these transactions.





In
      November 2006, we issued 30,000 shares of our common stock to a consultant
      performing investor relations work on our behalf. We agreed to issue 30,000
      shares of our common stock each quarter to this consultant for one year. We
      relied on the exemption provided by Section 4(2) of the Securities
      Act.





In
      each
      case where we relied on the exemption provided by Section 4(2) of the Securities
      Act, we had a preexisting relationship with the investor and the offering was
      made to a very limited number of individuals or entities. We also took steps
      to
      insure that the investors had available the same type of information that would
      be included in a registration statement. Finally, each of certificates
      representing shares issued pursuant to that exemption has been inscribed by
      the
      restrictive legend required by Rule 144.








*-
            13
            -*





**Use
      of Proceeds**





Our
      registration statement on Form SB-2, file number 333-129321, was declared
      effective by the SEC on May 15, 2006. Pursuant to this registration statement,
      we registered 7,000,000 shares of our common stock for sale by us for an
      aggregate price of $7,000,000 and 8,910,707 shares of common stock for sale
      by
      certain selling shareholders. We sold a total of 4,600,000 shares for proceeds
      net of expenses of $4,351,200 before the termination of the offering. The
      remainder of the shares registered for our account were deregistered and are
      no
      longer available for sale.





During
      the fourth quarter of 2006, we spent $473,513 of the proceeds of the public
      offering on a combination of exploration activities and general and
      administrative expenses.





**ITEM
      6.    MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
  OPERATION**




**Introduction**




The
      following discussion updates our plan of operation for the foreseeable future.
      Additional information about our exploration plans can be found in the section
      titled “Item 2. Description of Properties.”





This
      discussion also analyzes our financial condition at December 31, 2006 and
      compares it to our financial condition at December 31, 2005. This
      discussion summarizes the results of our operations for the year ended December
      31, 2006 and compares those results to the year ended December 31, 2005.





On
      February 21, 2005, we effected a two-for-one split of our outstanding common
      stock. All of the financial information included in this discussion and in
      the
      financial statements appearing in this report has been adjusted to reflect
      the
      results of that stock split.





In
      August
      2006, we closed our IPO, from which we received net proceeds of $4,351,200
      and
      in December 2006, we completed the Private Placement of our common stock for
      net
      proceeds of $4,928,700. We expect to use $4,000,000 of the proceeds from the
      offerings for exploration purposes. In October 2006, we contracted with
      Servicios de Perforacion Insemin S.A. de C.V., a Mexican subsidiary of R&R
      Incorporated and commenced the third stage of our drilling program at the *El
      Aguila* project.
      We believe the program will ultimately cover 10,000 meters (32,808 feet) of
      core
      drilling. We will be testing geological targets including areas which we believe
      have yielded favorable results during a recent geochemical survey. This drilling
      program is expected to be complete in May 2007.





On
      December 7, 2006, we completed a Private Placement of 4,322,000 shares of our
      common stock for $1.20 per share, from which we received net cash proceeds
      of
      $4,928,700. The shares were issued to United States holders pursuant to an
      exemption from registration under Section 4(2) and to offshore holders in
      accordance with Regulation S of the Securities Act. In connection with the
      Private Placement, we issued 257,700 shares of our common stock and paid a
      total
      of $257,700 to the finders.




**Plan
      of Operation**




Our
      plan
      of operation is to continue exploration of the *El
      Aguila* property
      until we discover sufficient mineralization to justify placing the property
      into
      production or alternatively, determine to abandon the lease. We also intend
      to
      undertake exploration of the *El
      Rey* property, a property that is in an earlier stage of exploration. In 2007, we
      leased a 100% interest in property we refer to as the *Solaga*
      property.  Our ultimate objective is to become a producer of gold and other
      precious metals. We are unable at this time to predict when, if ever, that
      objective will be achieved.





*Exploration* .
      Exploration carried out by us to date at the *El
      Aguila* project
      has included 143 drill holes totaling approximately 10,400 meters (34,120 feet).
      The results so far suggest the presence of mineralized material in sufficient
      grade and quantity to justify continued exploration.








*-
            14
            -*





Exploration
      at the *El
      Aguila* project
      will continue to be the central focus of our activities for the foreseeable
      future. We have budgeted $3,000,000 of the public offering proceeds and
      $1,000,000 from the Private Placement proceeds for continued exploration of
      the *El
      Aguila* property. We completed a geochemical survey of a portion of the property and
      expect to conduct additional geological studies in the future. In response
      to
      what we perceived as positive results from the geochemical survey, we signed
      a
      drilling contract in October 2006 for a minimum of 3,333 meters (10,935 feet)
      of
      additional core drilling. We have the option to expand the drilling up to 10,000
      meters (approximately 33,000 feet). This contract represents a minimum financial
      commitment of $300,000 and a maximum financial commitment of $1,000,000 over
      the
      term of the agreement. There are numerous exploration targets that will now
      be
      tested with the objective of delineating and expanding the previously identified
      mineralization. Some new targets were developed and some old targets were
      amplified by the recent geochemical survey.





We
      believe our exploration results have been positive enough to warrant conducting
      a feasibility study for the mineralization we have identified. This study is
      designed to determine the economic feasibility of placing the property into
      production and producing gold and silver. It would analyze the estimated
      quantity and quality of the mineralization discovered during the exploration
      stage, present estimates of the cost of mining and processing the material
      and
      compare the estimated sales price of the finished product. We expect that this
      study would be conducted by one or more independent engineering firms on our
      behalf, for which we estimate a cost of approximately $1,000,000. Proceeds
      from
      the Private Placement will likely fund this feasibility study. If the results
      of
      the feasibility study are positive, and assuming the availability of necessary
      capital, a decision will be made to place the property into production. The
      timing of any production would be primarily a function of the timing of
      acceptable exploration results, the availability of working capital and the
      timing of required regulatory permits.





In
      addition to our efforts at the *El
      Aguila* project,
      we will begin limited exploration at our *El
      Rey* property. The program will be staged, whereby limited funds will be initially
      spent to evaluate the property with increasing amounts spent if the results
      are
      positive.





*Capital
      Investment* .
      In
      addition to expenses of exploration, we also anticipate making infrastructure
      improvements at the *El
      Aguila* project.
      Foremost among these expenses would be the construction of an improved road
      to
      the proposed mill site and camp improvements. We estimate costs of approximately
      $1,000,000 to complete these improvements, and we would likely attempt to
      acquire the surface rights to our property prior to making capital improvements.
      We currently do not have any agreements in place regarding acquisition of the
      surface rights of either property and do not know when, if ever, such
      arrangement will be made available to us.





If
      a
      decision is made to commence mining, we would incur significant capital costs
      in
      constructing a mill and acquiring necessary equipment. At present, our cash
      position is not sufficient to fund these capital requirements and we would
      anticipate obtaining such funding through additional equity financing, although
      we have no specific plans at this time. Only after a mine and a mill are
      constructed and operational could we expect any revenue.





*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 $90,000 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 in production.





**Liquidity
      and Capital Resources**





As
      discussed in the Introduction, we completed two sales of common stock during
      2006. Cash proceeds from these sales significantly improved our liquidity and
      financial position. We received cash from financing activities of $9,339,900
      during 2006, compared to net proceeds of $1,407,500 during 2005. As a result,
      our working capital position at December 31, 2006 was $7,415,207. This
      represents an improvement of $7,257,655 when compared to our working capital
      balance of $157,552 as of December 31, 2005.





*-
            15
            -*








We
      expect
      that the proceeds from the financing activities will be used to fund our
      exploration and operating expenses. At present, we have allocated approximately
      $4,000,000 to future exploration. We do not anticipate the need to raise more
      funding in the next 12 months unless a decision is made to commence mining
      operations. The most significant of our future operating expenses include (i)
      the amount of $4,000,000 in connection with our current exploration program;
      (ii) approximately $90,000 per month for salaries and other corporate overhead;
      and (iii) legal and accounting fees associated with our status as a publicly
      traded company.





We
      have
      never received revenue from our operations. We have historically relied on
      equity financings or loans from our officers to continue funding our operations.
      We experienced net losses for the years ended December 31, 2006 and 2005 of
      $(2,686,762) and $(1,217,911), respectively. We do not believe that we are
      a
      candidate for conventional debt financing and we have not made arrangements
      to
      borrow funds for working capital requirements. We will be dependent on
      additional financing to expand our exploration efforts beyond current plans
      and
      to fund construction of gold processing facilities.





Due
      to
      our lack of proved or probable reserves at this time, all of our investment
      in
      mining properties has been expensed, and does not appear as an asset on our
      balance sheet. Since inception, our spending on acquisition, exploration and
      evaluation of various mineral properties has totaled $2,770,662. The total
      amount of expenses incurred during 2006 was $628,851, compared to $843,118
      in
      2005. Substantially all of our expenses in 2006 and 2005 were spent on the *El
      Aguila* project.





As
      of
      December 31, 2006, our working capital of $7,415,207 was comprised of current
      assets of $7,866,370 and current liabilities of $451,163. Our current assets
      consist primarily of cash which is deposited in short term interest bearing
      accounts. Current assets also include a refund of value added taxes that have
      been paid in Mexico.





Net
      cash
      used in operating activities was $1,795,858 during 2006, compared to $1,179,278
      during 2005. As more fully explained in our plan of operation, we are using
      the
      proceeds from our equity financings to increase our exploration and corporate
      efforts and we expect that our future expenditures will increase commensurate
      with the increase in exploration of the *El
      Aguila* property.





Net
      cash
      used in investing activities was $59,966 in 2006 compared to $61,600 in 2005.
      Consistent with our operating activity, we increased our purchases of office
      furniture, computer equipment, trucks and other exploration equipment.





Net
      cash
      provided by financing activities was $9,339,900 in 2006 compared to $1,407,500
      in 2005. In both years, all of the activities represent proceeds from the sale
      of common stock and the exercise of stock options.





**Results
      of Operations - Year Ended December 31, 2006 Compared to Year Ended December
      31,
      2005**





During
      the year ended December 31, 2006, we reported a net loss of $(2,686,762), or
      $(0.13) per share, compared to a net loss of $(1,217,911), or $(0.08) per share,
      for 2005. In neither year did we report any revenue except interest income.
      We
      expect to incur losses until such time, if ever, as we begin generating revenue
      from operations.





We
      are
      considered an exploration stage company for accounting purposes, since we have
      not received any revenue from operations. We are unable to predict with any
      degree of accuracy when that classification will change. Since we have not
      identified any proved or probable mineral reserves on our property, all of
      our
      exploration costs are currently expensed, contributing to our reported losses
      in
      2006 and 2005.





Total
      costs and expenses were $2,743,851 in 2006 compared to $1,224,085 in 2005,
      an
      increase of $1,519,766 or 124%. Mineral property acquisition costs approximated
      $100,000 in each year. Mineral property exploration and evaluation costs
      decreased by $210,719, from $739,570 in 2005 to $528,851 in 2006. We decreased
      our rate of spending during the first half of 2006 pending completion of our
      initial public offering. During the latter part of 2006, we began to increase
      our exploration spending and committed to an exploratory drilling contract
      for
      $300,000, with options to expand drilling up to $1,000,000. We expect to further
      increase exploration costs in 2007.





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            16
            -*








General
      and administrative expense increased in 2006 compared to 2005. Total general
      and
      administrative expense was $1,470,061 in 2006 and $286,219 in 2005, an increase
      of $1,183,842, or 414%. The main components of the increase were salaries and
      benefits, an increase of $710,056 from $140,434 to $850,490. The increase
      reflects the impact of the employment contracts with our corporate officers
      that
      went into effect on January 1, 2006, and the impact of additional personnel.
      Our
      legal and accounting expense increased $132,609, from $73,856 to $206,465,
      primarily representing the work required to prepare and audit our financial
      information for investors and to prepare the registration statements required
      to
      sell our common stock. Similarly, investor relations expenses increased from
      $11,038 to $130,583 as we disseminated information to potential investors.
      Travel expenses increased from $22,393 to $103,241. Some of the increase
      represents meetings with potential investors in the United States, Canada and
      Europe, and the remainder represents increased travel to the mineral property
      in
      Mexico.





Our
      stock
      compensation expense increased by $392,350, from $87,500 in 2005 to $479,850
      in
      2006. We issued 100,000 restricted shares of common stock valued at $1.00 per
      share to a director as partial compensation for his service to the Board of
      Directors. We issued 35,000 shares of common stock valued at $1.71 to two
      employees for their services. We issued 250,000 restricted shares of common
      stock valued at $1.10 to a firm that provided investor relation services and
      we
      issued 30,000 shares of restricted common stock valued at $1.45 to a consultant
      who provided investor relation services.





Effective
      January 1, 2006, we implemented Statement of Financial Accounting Standards
      (“SFAS”) No. 123(R), “Accounting for Stock-Based Compensation,” which requires
      us to record an expense for the grant of stock options. We granted stock options
      to purchase 1,200,000 shares of common stock, of which 1,150,000 vested in
      2006,
      at an exercise price of $1.00 per share. We used an option pricing model to
      value these options at $147,050 and recorded an expense of $147,050 **** during
      2006. There were no options granted during 2005.





Interest
      income increased to $57,089 in 2006 compared to $6,174 in 2005, an increase
      of
      $50,915, or 825%. Proceeds from our 2006 financing have been deposited in short
      term interest bearing accounts. Monthly interest earnings from invested cash
      is
      expected to decline in future months as we utilize the cash balances for
      operating and exploration activities.





**Critical
      Accounting Policies**





We
      believe the following more critical accounting policies are used in the
      preparation of our consolidated financial statements:





*Exploration
      and Development Costs.* Mineral
      property acquisition, exploration and related costs are expensed as incurred
      unless proven and probable reserves exist and the property is a commercially
      minable property. If it is determined that a mineral property can be
      economically developed, the costs incurred to develop such property, including
      costs to further delineate the ore body and develop the property for production,
      may be capitalized. In addition, we may capitalize previously expensed
      acquisition and exploration costs if it is later determined that the property
      can economically be developed. Interest costs, if any, allocable to the cost
      of
      developing mining properties and constructing new facilities would be
      capitalized until operations commence. Mine development costs incurred either
      to
      develop new ore deposits, expand the capacity of operating mines, or to develop
      mine areas substantially in advance of current production would also be
      capitalized.





All
      such
      capitalized costs, and estimated future development costs, if any, are then
      amortized using the units-of-production method over the estimated life of the
      ore body. Costs incurred to maintain current production or to maintain assets
      on
      a standby basis are charged to operations. Costs of abandoned projects are
      charged to operations upon abandonment. We evaluate, at least quarterly, the
      carrying value of capitalized mining costs and related property, plant and
      equipment costs, if any, to determine if these costs are in excess of their
      net
      realizable value and if a permanent impairment needs to be recorded. The
      periodic evaluation of carrying value of capitalized costs and any related
      property, plant and equipment costs are based upon expected future cash flows
      and/or estimated salvage value in accordance with SFAS No. 144, "Accounting
      for
      Impairment or Disposal of Long-Lived Assets."





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            17
            -*








*Property
      Retirement Obligation.* We
      implemented SFAS No. 143, "Accounting for Asset Retirement Obligations,"
      effective January 1, 2003. SFAS No. 143 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. We have determined that we have no property retirement
      obligations as of December 31, 2006.





*Stock
      Compensation.* Effective
      January 1, 2006, we implemented SFAS No. 123(R), “Accounting for Stock-Based
      Compensation,” which requires us to provide compensation costs for our stock
      option plans determined in accordance with the fair value based method
      prescribed in SFAS No. 123(R). We estimate the fair value of each stock option
      at the grant date by using the Black-Scholes option-pricing model and provides
      for expense recognition over the service period, if any, of the stock
      option.





Prior
      to
      January 1, 2006, we applied APB Opinion 25, “Accounting for Stock Issued to
      Employees,” and related interpretations in accounting for all stock option
      plans. Under APB Opinion 25, no compensation cost was recognized for stock
      options issued to employees as the exercise price of the stock options we
      granted equaled or exceeded the market price of the underlying common stock
      on
      the date of grant.




*Foreign
      Operations.* Our
      present 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 our company's investments.





*Foreign
      Currency Translation.* The
      local currency is the functional currency for our subsidiaries. Assets and
      liabilities are translated using the exchange rate in effect at the balance
      sheet date. Income and expenses are translated at the average exchange rate
      for
      the year. Translation adjustments are reported as a separate component of
      stockholders' equity.





*Estimates.* The
      preparation of our consolidated financial statements in conformity with
      accounting principles generally accepted in the United States of America
      requires us to make estimates and assumptions that affect the amount of assets
      and liabilities, the disclosure of contingent assets and liabilities at the
      date
      of the financial statements, and the reported amounts of revenues and expenses
      during the reporting period. Actual results could differ from those
      estimates.





**Recent
      Accounting Pronouncements**





The
      FASB
      has issued FSP EITF 00-19-2. This FSP states that the contingent obligation
      to
      make future payments or other transfers of consideration under a registration
      payment arrangement, issued as a separate agreement or included as a part of
      a
      financial instrument or other agreement, should be separately recognized and
      measured in accordance with SFAS No. 5. Also, a financial instrument subject
      to
      a registration payment arrangement should be accounted for in accordance with
      other applicable GAAP without regard to the contingent obligation to transfer
      consideration pursuant to the registration payment arrangement. This FSP was
      adopted on October 1, 2006.





In
      September 2006, the FASB issued Statement No. 157, “Fair Value
      Measurements” ** (SFAS
      No.
      157). SFAS No. 157 defines fair value, establishes a framework for measuring
      fair value in generally accepted accounting principles, and expands disclosures
      about fair value measurements. The provisions of SFAS No. 157 are effective
      for
      our fiscal year beginning January 1, 2008. We are currently determining the
      effect of this statement on our financial reporting .





In
      June
      2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in
      Income Taxes” (FIN 48). This interpretation prescribes a recognition threshold
      and measurement attribute for the financial statement recognition and
      measurement of a tax position taken or expected to be taken in a tax return. FIN
      48 requires that we recognize in our financial statements the impact of a tax
      position if that position is more likely that not of being sustained upon
      examination based on the technical merits of the position. This interpretation
      also includes guidance on derecognition, classification, interest and penalties,
      accounting in interim periods, disclosure, and transition. The provisions of
      FIN
      48 are effective January 1, 2007 with the cumulative effect reported as an
      adjustment to the opening balance of retained earnings for the fiscal year.
      We
      are currently determining the effect of this interpretation on our financial
      reporting.








*-
            18
            -*





**Risk
      Factors**




This
      report, including management’s discussion and analysis or plan 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 are a new business with 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 and conducting limited exploration.
      We
      face all of the risks commonly encountered by other new businesses, including
      the lack of an established operating history, need for additional capital and
      personnel, and intense competition. There is no assurance that our business
      plan
      will be successful.





***We have no proved 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
      will probably be lost.*** In order
      to demonstrate the existence of proved or probable reserves, it will first
      be
      necessary for us to continue exploration to demonstrate the existence of
      sufficient mineralized material followed by a positive feasibility study.
      Exploration is inherently risky, with few properties ultimately proving
      economically successful. A “reserve,” as defined by regulation of the SEC, is
      that part of a mineral deposit which could be economically and legally extracted
      or produced at the time of the reserve determination.





A
      reserve
      requires a feasibility study demonstrating with reasonable certainty that the
      deposit can be economically extracted and produced. We have not carried out
      any
      feasibility study with regard to all or a portion of any of our properties.
      Statistically, most mineral prospects do not contain reserves which can be
      economically extracted. For this reason, it is unlikely that our properties
      contain any reserves. The funds we have spent on exploration, as well as funds
      which we might spend in the future, will probably be lost.





***We
      are dependent upon receipt of additional working capital to fund our business
      plan.*** We
      may
      require additional capital for exploration of our existing properties, or
      acquisition of additional properties. If our exploration program proves
      successful, we will require significant additional capital to fund development
      of the *El
      Aguila* project
      and to construct a mill in order to place it into production. In addition,
      we
      will require additional working capital to fund operations pending sale of
      any
      gold or other precious metals.




***At
      the present time, we are totally dependent upon production of gold or other
      precious metals from four properties, raising the risk if any of those
      properties should prove unproductive.*** Since we
      have never produced gold or other precious metals from either of our properties,
      and since we have no proved or probable reserves, there is no assurance that
      gold or other precious metals can be economically produced under existing and
      future costs and expenses. If we are unable to economically produce gold from
      either or both of these properties, we would be forced to identify and invest
      substantial sums in one or more additional properties, and there is no assurance
      that such properties would be available on terms favorable to us.





***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 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.





*-
            19
            -*











***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 both 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
      Aguila* property is
      subject to a net smelter return royalty of 4% where production is sold in the
      form of gold/silver doré and 5% where production is sold in concentrate form. The requirement to pay royalties to
      the
      owner of the lease at our *El
      Aguila* property
      will reduce our profitability if we commence commercial production of gold
      or
      other precious metals.




***Our
      ability to develop our property, even if warranted by exploration results,
      is
      subject to the rights of the Ejido (local inhabitants) to surface use for
      agricultural purposes.*** If
      we are
      successful in discovering sufficient amounts of mineralized material to warrant
      production, 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 a satisfactory arrangement with
      these inhabitants in order to disturb or discontinue their rights to farm.
      Our
      inability to successfully negotiate such 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
      commercial feasibility of our properties and our ability to raise funding to
      conduct continued exploration and development if warranted, is dependent on
      the
      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 $310 per ounce and $604 per ounce, as shown in the table
      below. Although it is possible for us to protect some price fluctuations by
      hedging in certain circumstances, the volatility of mineral prices represents
      a
      substantial risk, which no amount of planning or technical expertise can
      eliminate.





**2002**
            **2003**
            **2004**
            **2005**
            **2006**$310
            $364
            $406
            $445
            $
                604





***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 may be unable to attract
      the
      necessary investment capital to fully explore and if warranted, develop our
      properties and unable to acquire other desirable properties.





***An
      adequate supply of water may not be available to complete desired development
      of
      our property.*** If we
      make a discovery sufficient to warrant putting our property into production,
      we
      will require additional amounts of water for our operations. We would be
      required to pump water from the Totolapan River to any facility we may construct
      on 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. Accordingly, we may not have access to the amount of water needed
      to operate a mine at the property.





*-
            20
            -*








***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 minerals is highly speculative and involves greater risk than many other
      businesses. Our operations are subject to all of the operating hazards and
      risks
      normally incident to exploring for mineral properties, such as, but not limited
      to:





•
            
            encountering
                unusual or unexpected formations;•
            
            environmental
                pollution;•
            
            personal
                injury, flooding and landslides;•
            
            variations
                in grades of ore;•
            
            labor
                disputes; and•
            
            decrease
                in reserves due to a lower gold
                price.





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 on our investment in such
      property interest. 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 employees or our principal consultant in Mexico 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 are our
      only
      employees at this time. Jose Perez Reynoso is our consultant in Mexico who
      oversees our properties and operations. 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 only
      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.





*-
            21
            -*








***While
      we believe 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 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 expect that we will be
      required to furnish a report by our management on internal controls for the
      fiscal year ending December 2007. Such a report must contain, among other
      matters, an 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. Such a report must also contain a statement that our auditors have
      issued an attestation report on our management’s assessment of such internal
      controls. While we believe our internal controls over financial reporting are
      effective, we are still constructing the system, processing documentation and
      performing the evaluations needed to comply with Section 404, which is both
      costly and challenging. We may not be able to complete our evaluation, testing
      and any required remediation in a timely fashion. If we are unable to assert
      that our internal controls over financial reporting are effective, or if we
      disclose significant deficiencies or material weaknesses in our internal
      controls, investors could lose confidence in the accuracy and completeness
      of
      our financial reports, which would have a material adverse effect on our stock
      price.





***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**





***The
      sale of a substantial number of shares of our common stock may cause the price
      of our common stock to decline.*** We filed
      a registration statement with the SEC that was declared effective in May 2006
      to
      qualify the resale of approximately 8,900,000 shares of common stock from time
      to time in addition to completing an IPO during which we sold 4,600,000 shares.
      A second registration statement declared effective in February 2007 qualified
      approximately 5,900,000 additional shares for resale. It is likely that market
      sales of large amounts of common stock (or the potential for those sales even
      if
      they do not actually occur) may cause the market price of our common stock
      to
      decline, which may make it difficult to sell our common stock in the future
      at a
      time and price which we deem reasonable or appropriate and may also cause you
      to
      lose all or a part of your investment.





***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.
      Since we were approved for trading on the OTCBB on September 14, 2006, our
      trading volume has averaged approximately 100,000 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 31.0% 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
      will
      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.





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            22
            -*








***A
      contract right allowing one of our largest shareholders the first opportunity
      to
      purchase any common stock offered by us in the future may result in a change
      in
      control.*** Under
      the terms of an agreement entered into with one of our largest shareholders,
      we
      are obligated to offer this entity the first right to purchase our common stock
      in any future offering until August 2008. The holder of this right is Heemskirk
      Consolidated Limited. If Heemskirk exercises this right in connection with
      any
      future offering of our common stock, the percentage interest in our company
      owned by it could increase. This may result in a change in control and could
      allow Heemskirk the ability to influence the management or policies of our
      company. For example, if Heemskirk acquires enough stock to become the holder
      of
      a majority of our outstanding voting stock, it could elect the entire Board
      of
      Directors. Even if it does not acquire an absolute majority of our stock but
      increases its voting interest in the company, it could wage a proxy battle
      and
      influence who our Board of Directors nominates as directors in the future.
      These
      and other events could have the effect of changing the way that our company
      is
      operated.





***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 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.





***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 quoted in Nasdaq or 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 will initially be 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 revenue 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.








*-
            23
            -*





**Forward-Looking
      Statements**




This
      report contains or incorporates by reference forward-looking statements within
      the meaning of the United States Private Securities Litigation Reform Act of
      1995 concerning our future business plans and strategies, the proposed
      exploration and development of our property, the receipt of working capital,
      future revenues and other statements that are not historical in nature. In
      this
      report, forward-looking statements are often identified by the words
“anticipate,” “plan,” “believe,” “expect,” “estimate,” and the like. These
      forward-looking statements reflect our current beliefs, expectations and
      opinions with respect to future events, and involve future risks and
      uncertainties which could cause actual results to differ materially from those
      expressed or implied.





In
      addition to the specific factors identified under “RISK FACTORS” above, other
      uncertainties that could affect the accuracy of forward-looking statements
      include:





•  decisions
      of foreign countries and banks within those countries;


•  technological
      changes in the mining industry;


•  our
      costs;


•  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 reserve estimates and timing of development expenditures;
      and


• commodity
      price fluctuations.





This
      list, together with the factors identified under “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.





**Prospective
      investors are urged not to put undue reliance on forward-looking
      statements.**






**ITEM
      7.    FINANCIAL STATEMENTS**


**Index
        to Financial Statements**


Report
                of Independent Registered Public Accounting Firm
            25Consolidated
                Balance Sheet at December 31,2006
            26Consolidated
                Statements of Operations for the years ended December 31, 2006 and2005,
                and for the period from Inception (August 24, 1998) to December 31,
                2006
            27Consolidated
                Statements of Changes in Shareholders’ Equity for the years ended December
                31, 2006 and2005,
                and for the period from Inception (August 24, 1998) to December 31,
                2006
            28Consolidated
                Statements of Cash Flows for the years ended December 31, 2006 and2005,
                and for the period from Inception (August 24, 1998) to December 31,
                2006
            29Notes
                to Consolidated Financial Statements
            30







*-
            24
            -*







REPORT
      OF
      INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




Board
      of
      Directors and Shareholders


Gold
      Resource Corporation


Denver,
      Colorado




We
      have
      audited the accompanying consolidated balance sheet of Gold Resource Corporation
      as of December 31, 2006 and the related consolidated statements of operations,
      changes in shareholders’ equity and cash flows for the years ended December 31,
      2006 and 2005. 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, 2006, and the results of its operations and its cash flows
      for
      the years ended December 31, 2006 and 2005, in conformity with accounting
      principles generally accepted in the United States of America.




/s/
                Stark Winter Schenkein & Co., LLPMarch
                27, 2007Denver,
                Colorado







*-
            25
            -*







**GOLD
      RESOURCE CORPORATION AND SUBSIDIARIES**


**(An
      Exploration Stage Company)**


**CONSOLIDATED
      BALANCE SHEET**


**As
      of December 31, 2006**







ASSETSCurrent
                assets:Cash
                and cash equivalents
            
            
            
            
            $
            7,660,258Refundable
                tax payments
            
            
            
            
            
            193,271Other
                current assets
            
            
            
            
            
            12,841Total
                current assets
            
            
            
            
            
            7,866,370Investment
                in mineral properties
            
            -Property
                and equipment, net
            
            96,279Other
                assets
            
            1,469Total
                assets
            
            
            
            
            $
            7,964,118LIABILITIES
                AND SHAREHOLDERS' EQUITYCurrent
                liabilities:Accounts
                payable and accrued expenses
            
            
            
            
            $
            451,163Total
                current liabilities
            
            
            
            
            
            451,163Shareholders'
                equity:Preferred
                stock - $0.001 par value, 5,000,000 shares authorized:No
                shares issued or outstanding
            
            
            
            
            
            -Common
                stock - $0.001 par value, 60,000,000 shares authorized:28,139,552
                shares issued and outstanding
            
            
            
            
            
            28,139Additional
                paid-in capital
            
            
            
            
            
            14,062,002Accumulated
                (deficit) during the exploration stage
            
            
            
            
            
            (6,596,869
            )Other
                comprehensive income:Currency
                translation adjustment
            
            
            
            
            
            19,683Total
                shareholders' equity
            
            
            
            
            
            7,512,955Total
                liabilities and shareholders' equity
            
            
            
            
            $
            7,964,118







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





*-
            26
            -*







**GOLD
      RESOURCE CORPORATION AND SUBSIDIARIES**


**(An
      Exploration Stage Company)**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**For
      the years ended December 31, 2006 and 2005**


**and
      for the period from Inception (August 24, 1998) to December 31,
      2006**




*Inception**(August
                  24, 1998) to**2006*
              
              *2005*
              
              *December
                  31, 2006*Revenues:Gold
                  sales
              
              $
              -
              
              $
              -
              
              $
              -Costs
                  and Expenses:Property
                  exploration and evaluation
              
              
              528,851
              
              
              739,570
              
              
              2,311,991Property
                  acquisition
              
              
              100,000
              
              
              103,548
              
              
              458,681Management
                  contract - U. S. Gold, related party
              
              
              -
              
              
              -
              
              
              752,191General
                  and administrativeSalaries
                  and benefits
              
              
              850,490
              
              
              140,434
              
              
              990,924Legal
                  and accounting
              
              
              206,465
              
              
              73,856
              
              
              318,551Investor
                  relations
              
              
              130,583
              
              
              11,038
              
              
              152,985Travel
                  related
              
              
              103,241
              
              
              22,393
              
              
              178,005All
                  other general and administrative
              
              
              179,282
              
              
              38,498
              
              
              258,902Stock
                  Based CompensationStock
                  awards
              
              
              479,850
              
              
              87,500
              
              
              1,067,350Grant
                  of stock options
              
              
              147,050
              
              
              -
              
              
              147,050Depreciation
              
              
              18,039
              
              
              7,248
              
              
              25,287Total
                  costs and expenses
              
              
              2,743,851
              
              
              1,224,085
              
              
              6,661,917Operating
                  (loss)
              
              
              (2,743,851
              )
              
              (1,224,085
              )
              
              (6,661,917
              )Other
                  income:Interest
                  income
              
              
              57,089
              
              
              6,174
              
              
              65,048(Loss)
                  before income taxes
              
              
              (2,686,762
              )
              
              (1,217,911
              )
              
              (6,596,869
              )Provision
                  for income taxes
              
              
              -
              
              
              -
              
              
              -Net
                  (loss)
              
              
              (2,686,762
              )
              
              (1,217,911
              )
              
              (6,596,869
              )Other
                  comprehensive income:Currency
                  translation gain (loss)
              
              
              19,544
              
              
              200
              
              
              19,683Net
                  comprehensive (loss)
              
              $
              (2,667,218
              )
              $
              (1,217,711
              )
              $
              (6,577,186
              )Net
                  (loss) per common share:Basic
                  and Diluted
              
              $
              (0.13
              )
              $
              (0.08
              )Weighted
                  average shares outstanding:Basic
                  and Diluted
              
              
              20,218,659
              
              
              16,164,715
 The
        accompanying notes are an integral part of these consolidated financial
        statements.







*-
            27
            -*







**GOLD
      RESOURCE CORPORATION AND SUBSIDIARIES**


**(An
      Exploration Stage Company)**


**CONSOLIDATED
      STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)**


**For
      the period from Inception (August 24, 1998) to December 31, 2006**




Number
                  of
              
              Par
                  Value of
              
              Additional
              
              
              
              Comprehensive
              
              TotalCommon
              
              Common
              
              Paid
                  - in
              
              Accumulated
              
              Income
              
              Shareholders'Shares
              
              Shares
              
              Capital
              
              (Deficit)
              
              (Loss)
              
              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
              )
              
              -
              
              
              -
              
              
              1,400Net
                  (loss)
              
              
              -
              
              
              -
              
              
              -
              
              
              (1,657
              )
              
              -
              
              
              (1,657
              )Balance,
                  December 31, 1998
              
              
              2,800,000
              
              
              2,800
              
              
              (1,400
              )
              
              (1,657
              )
              
              -
              
              
              (257
              )Shares
                  for contributed capital at$0.005
                  per share - related parties
              
              
              1,000,000
              
              
              1,000
              
              
              (500
              )
              
              -
              
              
              -
              
              
              500Net
                  (loss)
              
              
              -
              
              
              -
              
              
              -
              
              
              (663
              )
              
              -
              
              
              (663
              )Balance,
                  December 31, 1999
              
              
              3,800,000
              
              
              3,800
              
              
              (1,900
              )
              
              (2,320
              )
              
              -
              
              
              (420
              )Shares
                  issued for management contractat
                  $0.17 per share - related party
              
              
              1,226,666
              
              
              1,226
              
              
              202,578
              
              
              -
              
              
              -
              
              
              203,804Net
                  (loss)
              
              
              -
              
              
              -
              
              
              -
              
              
              (205,110
              )
              
              -
              
              
              (205,110
              )Balance,
                  December 31, 2000
              
              
              5,026,666
              
              
              5,026
              
              
              200,678
              
              
              (207,430
              )
              
              -
              
              
              (1,726
              )Shares
                  issued for management contractat
                  $0.14 per share - related party
              
              
              1,333,334
              
              
              1,334
              
              
              187,053
              
              
              -
              
              
              -
              
              
              188,387Conversion
                  of debentures at$0.25
                  per share - related parties
              
              
              200,000
              
              
              200
              
              
              49,800
              
              
              -
              
              
              -
              
              
              50,000Sale
                  of shares for cash at $0.25 per share
              
              
              820,000
              
              
              820
              
              
              204,180
              
              
              -
              
              
              -
              
              
              205,000Net
                  (loss)
              
              
              -
              
              
              -
              
              
              -
              
              
              (346,498
              )
              
              -
              
              
              (346,498
              )Balance,
                  December 31, 2001
              
              
              7,380,000
              
              
              7,380
              
              
              641,711
              
              
              (553,928
              )
              
              -
              
              
              95,163Shares
                  issued for cash at $0.25 per share
              
              
              392,000
              
              
              392
              
              
              97,608
              
              
              -
              
              
              -
              
              
              98,000Shares
                  issued for cash at $0.17 per share
              
              
              1,351,352
              
              
              1,351
              
              
              223,322
              
              
              -
              
              
              -
              
              
              224,673Net
                  (loss)
              
              
              -
              
              
              -
              
              
              -
              
              
              (788,629
              )
              
              (17
              )
              
              (788,646
              )Balance,
                  December 31, 2002
              
              
              9,123,352
              
              
              9,123
              
              
              962,641
              
              
              (1,342,557
              )
              
              (17
              )
              
              (370,810
              )Shares
                  issued for cash at $0.25 per share
              
              
              577,000
              
              
              577
              
              
              143,673
              
              
              -
              
              
              -
              
              
              144,250Share
                  issuance costs forgiven
              
              
              -
              
              
              -
              
              
              25,327
              
              
              -
              
              
              -
              
              
              25,327Net
                  (loss)
              
              
              -
              
              
              -
              
              
              -
              
              
              (496,046
              )
              
              29
              
              
              (496,017
              )Balance,
                  December 31, 2003
              
              
              9,700,352
              
              
              9,700
              
              
              1,131,641
              
              
              (1,838,603
              )
              
              12
              
              
              (697,250
              )Shares
                  issued for cash at $0.25 per share
              
              
              608,000
              
              
              608
              
              
              151,392
              
              
              -
              
              
              -
              
              
              152,000Shares
                  issued in repayment of loan relatedto
                  exploration agreement at$0.42
                  per share
              
              
              1,200,000
              
              
              1,200
              
              
              498,800
              
              
              -
              
              
              -
              
              
              500,000Shares
                  issued as stock grant at$0.25
                  per share
              
              
              600,000
              
              
              600
              
              
              149,400
              
              
              -
              
              
              -
              
              
              150,000Net
                  (loss)
              
              
              -
              
              
              -
              
              
              -
              
              
              (853,593
              )
              
              (73
              )
              
              (853,666
              )Balance,
                  December 31, 2004
              
              
              12,108,352
              
              
              12,108
              
              
              1,931,233
              
              
              (2,692,196
              )
              
              (61
              )
              
              (748,916
              )Stock
                  grant at $0.25 per share
              
              
              1,750,000
              
              
              1,750
              
              
              435,750
              
              
              -
              
              
              -
              
              
              437,500Stock
                  option exercised at $0.25 per share
              
              
              10,000
              
              
              10
              
              
              2,490
              
              
              -
              
              
              -
              
              
              2,500Stock
                  issued for cash at $0.25 per share
              
              
              276,000
              
              
              276
              
              
              68,724
              
              
              -
              
              
              -
              
              
              69,000Stock
                  issued for satisfaction of payablesat
                  $0.25 per share
              
              
              1,280,000
              
              
              1,280
              
              
              318,720
              
              
              -
              
              
              -
              
              
              320,000Shares
                  issued for cash at $0.47 per share
              
              
              2,728,500
              
              
              2,729
              
              
              1,272,271
              
              
              -
              
              
              -
              
              
              1,275,000Shares
                  issued for cash at $0.50 per share
              
              
              122,000
              
              
              122
              
              
              60,878
              
              
              -
              
              
              -
              
              
              61,000Shares
                  issued for cash at $0.50 per share
              
              
              30,000
              
              
              30
              
              
              14,970
              
              
              -
              
              
              -
              
              
              15,000Net
                  (loss)
              
              
              -
              
              
              -
              
              
              -
              
              
              (1,217,911
              )
              
              200
              
              
              (1,217,711
              )Balance,
                  December 31, 2005
              
              
              18,304,852
              
              
              18,305
              
              
              4,105,036
              
              
              (3,910,107
              )
              
              139
              
              
              213,373Stock
                  options exercised at $0.25 per share
              
              
              240,000
              
              
              240
              
              
              59,760
              
              
              -
              
              
              -
              
              
              60,000Stock
                  options granted
              
              
              -
              
              
              -
              
              
              147,050
              
              
              -
              
              
              -
              
              
              147,050Director
                  stock grant at $1.00 per share
              
              
              100,000
              
              
              100
              
              
              99,900
              
              
              -
              
              
              -
              
              
              100,000Shares
                  issued for cash at $1.00 per share,net
                  of issuance costs
              
              
              4,600,000
              
              
              4,600
              
              
              4,346,600
              
              
              -
              
              
              -
              
              
              4,351,200Shares
                  issued for investor relationsservices
                  at $1.14 per share
              
              
              280,000
              
              
              280
              
              
              319,720
              
              
              -
              
              
              -
              
              
              320,000Shares
                  issued for cash at $1.20 per share,
              
              
              
              
              
              
              
              
              
              
              
              -
              
              
              -net
                  of issuance costs
              
              
              4,322,000
              
              
              4,322
              
              
              4,924,378
              
              
              -
              
              
              -
              
              
              4,928,700Shares
                  issued for investment banking
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -services
                  at $1.20 per share
              
              
              257,700
              
              
              257
              
              
              (257
              )
              
              -
              
              
              -
              
              
              -Employee
                  stock grants at $1.71 per share
              
              
              35,000
              
              
              35
              
              
              59,815
              
              
              -
              
              
              -
              
              
              59,850Net
                  (loss)
              
              
              -
              
              
              -
              
              
              -
              
              
              (2,686,762
              )
              
              19,544
              
              
              (2,667,218
              )Balance,
                  December 31, 2006
              
              
              28,139,552
              
              $
              28,139
              
              $
              14,062,002
              
              $
              (6,596,869
              )
              $
              19,683
              
              $
              7,512,955




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







*-
            28
            -*





**GOLD
      RESOURCE CORPORATION AND SUBSIDIARIES**


**(An
      Exploration Stage Company)**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**For
      the years ended December 31, 2006 and 2005**


**and
      for the period from Inception (August 24, 1998) to December 31,
      2006**




*Inception**(August
                  24, 1998) to**2006*
              
              *2005*
              
              *December
                  31, 2006*Cash
                  flows from operating activities:Net
                  (loss)
              
              $
              (2,686,762
              )
              $
              (1,217,911
              )
              $
              (6,596,869
              )Adjustments
                  to reconcile net (loss) to net cashused
                  by operating activities:Depreciation
              
              
              18,039
              
              
              7,248
              
              
              25,287Stock
                  compensation
              
              
              626,900
              
              
              87,500
              
              
              1,214,400Management
                  fee paid in stock
              
              
              -
              
              
              -
              
              
              392,191Related
                  party payable paid in stock
              
              
              -
              
              
              320,000
              
              
              320,000Foreign
                  currency translation adjustment
              
              
              19,544
              
              
              200
              
              
              19,683Issuance
                  cost forgiven
              
              
              -
              
              
              -
              
              
              25,327Changes
                  in operating assets and liabilities:Operating
                  assets
              
              
              (191,135
              )
              
              (11,446
              )
              
              (206,112
              )Accounts
                  payable and accrued liabilites
              
              
              426,326
              
              
              20,093
              
              
              451,163Other
                  liabilities - related parties
              
              
              (8,770
              )
              
              (384,962
              )
              
              -Other
              
              
              -
              
              
              -
              
              
              (4,569
              )Total
                  adjustments
              
              
              890,904
              
              
              38,633
              
              
              2,237,370Net
                  cash (used in) operating activities
              
              
              (1,795,858
              )
              
              (1,179,278
              )
              
              (4,359,499
              )Cash
                  flows from investing activities:Capital
                  expenditures
              
              
              (59,966
              )
              
              (61,600
              )
              
              (121,566
              )Net
                  cash (used in) investing activities
              
              
              (59,966
              )
              
              (61,600
              )
              
              (121,566
              )Cash
                  flows from financing activities:Cash
                  proceeds from initial public stock offering
              
              
              4,351,200
              
              
              -
              
              
              4,351,200Cash
                  proceeds from other sales of stock
              
              
              4,928,700
              
              
              1,405,000
              
              
              7,177,623Cash
                  proceeds from exercise of options
              
              
              60,000
              
              
              2,500
              
              
              62,500Proceeds
                  from debentures - founders
              
              
              -
              
              
              -
              
              
              50,000Proceeds
                  from exploration funding agreement - Canyon Resources
              
              
              -
              
              
              -
              
              
              500,000Net
                  cash provided by financing activities
              
              
              9,339,900
              
              
              1,407,500
              
              
              12,141,323Net
                  increase in cash and equivalents
              
              
              7,484,076
              
              
              166,622
              
              
              7,660,258Cash
                  and equivalents at beginning of year
              
              
              176,182
              
              
              9,560
              
              
              -Cash
                  and equivalents at end of year
              
              $
              7,660,258
              
              $
              176,182
              
              $
              7,660,258Supplemental
                  Cash Flow InformationInterest
                  paid
              
              $
              -
              
              $
              -
              
              $
              -Income
                  taxes paid
              
              $
              -
              
              $
              -
              
              $
              -Non-cash
                  investing and financing activities:Conversion
                  of Canyon Resources funding intocommon
                  stock
              
              $
              -
              
              $
              -
              
              $
              500,000Conversion
                  of founders debentures intocommon
                  stock
              
              $
              -
              
              $
              -
              
              $
              50,000




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







*-
            29
            -*





**GOLD
      RESOURCE CORPORATION AND SUBSIDIARIES**


**(An
      Exploration Stage Company)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**December
      31, 2006**







**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. The Company has not generated any revenues from operations.
      The
      consolidated financial statements included herein are expressed in United States
      dollars, the Company's functional currency.




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




**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.




**Exploration
      and Development Costs:** Mineral
      property acquisition, exploration and related costs are expensed as incurred
      unless proven and probable reserves exist and the property is a commercially
      minable property. When it has been determined that a mineral property can be
      economically developed, the costs incurred to develop such property, including
      costs to further delineate the ore body and develop the property for production,
      may be capitalized. In addition, the Company may capitalize previously expensed
      acquisition and exploration costs if it is later determined that the property
      can economically be developed. Interest costs, if any, allocable to the cost
      of
      developing mining properties and to constructing new facilities are capitalized
      until operations commence. Mine development costs incurred either to develop
      new
      ore deposits, expand the capacity of operating mines, or to develop mine areas
      substantially in advance of current production are also capitalized. All such
      capitalized costs, and estimated future development costs, are then amortized
      using the units-of-production method over the estimated life of the ore body.
      Costs incurred to maintain current production or to maintain assets on a standby
      basis are charged to operations. Costs of abandoned projects are charged to
      operations upon abandonment. The Company evaluates, at least quarterly, the
      carrying value of capitalized mining costs and related property, plant and
      equipment costs, if any, to determine if these costs are in excess of their
      net
      realizable value and if a permanent impairment needs to be recorded. The
      periodic evaluation of carrying value of capitalized costs and any related
      property, plant and equipment costs are based upon expected future cash flows
      and/or estimated salvage value in accordance with Statement of Financial
      Accounting Standards (SFAS) No. 144, "Accounting for Impairment or Disposal
      of Long-Lived Assets."




**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
              4
                  to 5 yearsOffice
                  furniture and equipment
              5
                  to 10 yearsComputer
                  hardware and software
              3
                  yearsExploration
                  equipment
              6
                  to 8 years





*-
            30
            -*


**GOLD
        RESOURCE CORPORATION AND SUBSIDIARIES**
 **(An
        Exploration Stage Company)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
        31, 2006**





**Property
      Retirement Obligation:** The
      Company implemented SFAS 143, "Accounting for Asset Retirement
      Obligations," effective January 1, 2003. SFAS 143 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 property
      retirement obligations as of December 31, 2006.




**Stock
      Option Plans:** Effective
      January 1, 2006, the Company implemented SFAS 123, “Accounting for Stock-Based
      Compensation,” requiring the Company to provide compensation costs for the
      Company’s stock option plans determined in accordance with the fair value based
      method prescribed in SFAS 123, as amended. The Company estimates the fair value
      of each stock option at the grant date by using the Black-Scholes option-pricing
      model and provides for expense recognition over the service period, if any,
      of
      the stock option.





Prior
      to
      January 1, 2006, the Company applied APB Opinion 25, “Accounting for Stock
      Issued to Employees,” and related interpretations in accounting for all stock
      option plans. Under APB Opinion 25, no compensation cost was recognized for
      stock options issued to employees as the exercise price of the Company's stock
      options granted equaled or exceeded the market price of the underlying common
      stock on the date of grant.





**Per
      Share Amounts:** SFAS 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 (20,218,659
      for
      2006 and 16,164,715 for 2005) . 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. As of December 31, 2006 and 2005,
      stock options are not considered in the computation of diluted earnings per
      share as their inclusion would be antidilutive.




**Income
      Taxes:** The
      Company accounts for income taxes under SFAS 109, "Accounting for Income
      Taxes". 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.




**Use
      of Estimates:** The
      preparation of the Company's consolidated financial statements in conformity
      with generally accepted accounting principles requires the Company's management
      to make estimates and assumptions that affect the amounts of assets and
      liabilities, the disclosure of contingent assets and liabilities at the date
      of
      the financial statements, and the reported amounts of revenues and expenses
      during the reporting period. Actual results could differ from those estimates.




**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's operations
      have been and in the future may be, affected to various degrees by changes
      in
      environmental regulations, including those for future site restoration and
      reclamation costs. The Company's business 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 107,
      "Disclosures About Fair Value of Financial Instruments," requires disclosure
      of
      fair value information about financial instruments. Fair value estimates
      discussed herein are based upon certain market assumptions and pertinent
      information available to management as of December 31, 2006.




The
      respective carrying value of certain on-balance-sheet financial instruments
      approximate their fair values. These financial instruments include cash, cash
      equivalents, refundable tax payments, 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 periodically 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.







*-
            31
            -*





**GOLD
        RESOURCE CORPORATION AND SUBSIDIARIES**
 **(An
        Exploration Stage Company)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
        31, 2006**





**Foreign
      Operations:** The
      Company's present 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 exchange rates. Revenues and expenses are
      translated at the average exchange rate for the year. Translation adjustments
      are reported as a separate component of stockholders' equity.




**Recent
      Pronouncements:** The
      FASB has issued FSP EITF 00-19-2. This FSP states that the contingent obligation
      to make future payments or other transfers of consideration under a registration
      payment arrangement, issued as a separate agreement or included as a part of
      a
      financial instrument or other agreement, should be separately recognized and
      measured in accordance with SFAS 5. Also, a financial instrument subject to
      a
      registration payment arrangement should be accounted for in accordance with
      other applicable GAAP without regard to the contingent obligation to transfer
      consideration pursuant to the registration payment arrangement. This FSP was
      adopted on October 1, 2006.





In
      September 2006, the FASB issued Statement No. 157, “Fair Value
      Measurements” ** (SFAS
      157). SFAS 157 defines fair value, establishes a framework for measuring fair
      value in generally accepted accounting principles, and expands disclosures
      about
      fair value measurements. The provisions of SFAS 157 are effective for the
      Company’s fiscal year beginning January 1, 2008. We are currently determining
      the effect of this statement on our financial reporting





In
      June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in
      Income Taxes” (FIN 48). This interpretation prescribes a recognition threshold
      and measurement attribute for the financial statement recognition and
      measurement of a tax position taken or expected to be taken in a tax return.
      FIN
      48 requires that the Company recognize in its financial statements the impact
      of
      a tax position if that position is more likely that not of being sustained
      upon
      examination based on the technical merits of the position. This interpretation
      also includes guidance on derecognition, classification, interest and penalties,
      accounting in interim periods, disclosure, and transition. The provisions of
      FIN
      48 are effective January 1, 2007 with the cumulative effect reported as an
      adjustment to the opening balance of retained earnings for the fiscal year.
      We
      are currently determining the effect of this interpretation on our financial
      reporting.




**2.     Mineral
      Properties**




**El
      Aguila**




Effective
      November 1, 2002, the Company, through its subsidiary, Don David Gold S.A.
      de C.V. leased a prospective gold/silver property located in the state of
      Oaxaca, Mexico, designated the "El Aguila" property, from Jose Perez
      Reynoso, a consultant to the Company. The El Aguila property is an
      exploration stage property and incorporates approximately 4,685 acres as of
      December 31, 2006. The lease agreement for El Aguila is subject to a
      4% net smelter return royalty to the lessor where production is sold in the
      form
      of gold/silver dore and 5% for production sold in concentrate form. The lease
      agreement required the Company to make periodic advance royalty payments at
      various times through October, 2006. Aggregate advance royalties paid under
      this
      lease were $260,000 through December 31, 2006.




Through
      December 31, 2006, the Company has spent or incurred approximately
      $1,978,000 in acquisition, exploration and related costs for El Aguila of which
      approximately $629,000 was spent in 2006.







*-
            32
            -*




**GOLD
        RESOURCE CORPORATION AND SUBSIDIARIES**
 **(An
        Exploration Stage Company)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
        31, 2006**


**3.     Property
      and Equipment**




At
      December 31, 2006, property and equipment consisted of the following:






Trucks
                and autos
            
            $
            60,203Office
                furniture and equipment
            
            
            50,693Exploration
                equipment
            
            
            10,670Subtotal
            
            
            121,566Accumulated
                depreciation
            
            
            (25,287
            )Total
            
            $
            96,279





**4.     Income
      Taxes**




At
      December 31, 2006, the Company has tax loss carryforwards approximating
      $5,800,000 that expire at various dates through 2026. The principal difference
      between the net loss for book purposes and the net loss for income tax purposes
      relates to the $320,000 payment in shares to US Gold Corporation ("US Gold")
      which is deductible for tax purposes when recognized as income by US Gold,
      and
      non cash compensation expense recorded for grants in the form of common stock
      shares or options to purchase common stock shares. The non-deductible amount
      of
      such compensation was $1,523,000.




The
      tax effects of temporary differences that give rise to significant portions
      of
      the deferred tax assets and deferred tax liabilities at December 31, 2006,
      are presented below:




Deferred
                tax assets:Net
                operating loss carryforwards
            
            $
            1,972,000Less
                valuation allowance
            
            
            (1,972,000
            )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 $900,000
      during 2006.





A
      reconciliation of the tax provision for 2006 and 2005 at statutory rates is
      comprised of the following components:




**2006**
            
            **2005**Tax
                at statutory rates
            
            $
            (914,000
            )
            $
            (421,000
            )Book
                to tax adjustments:Stock
                and option grants
            
            
            217,000
            
            
            30,000Net
                operating loss
            
            
            697,000
            
            
            391,000Tax
                provision
            
            $
            -
            
            $
            -







*-
            33
            -*




**GOLD
        RESOURCE CORPORATION AND SUBSIDIARIES**
 **(An
        Exploration Stage Company)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
        31, 2006**




**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 this report has been adjusted to reflect the effect of this
      two-for-one stock split and the increase in authorized shares.




The
      Company was formed 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.
      The Company remained generally inactive through 1999.




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 $.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 $.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 $.25 per share to various parties, and as noted
      above, Founders converted debenture debt of $50,000 into 200,000 shares at
      $.25
      per share.




During
      2002, the Company sold 392,000 shares at $.25 per share ($98,000) to various
      parties and 1,351,352 shares at approximately $.17 per share ($224,673) to
      an
      institutional investor, RMB International (Dublin) Limited ("RMB").




During
      2003, the Company sold 577,000 shares at $.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.





In
      August 2003, the Company entered into an exploration agreement with Canyon
      Resources Corporation, a public company with shares traded on the American
      Stock
      Exchange under symbol "CAU" ("Canyon"), whereby Canyon had the right to earn
      a
      50% interest in the El Aguila property from the Company in exchange for funding
      $3.5 million in exploration and development costs at the El Aguila
      property, or alternatively, Canyon could receive 1,200,000 shares of the common
      stock of the Company for funding $500,000 for exploration drilling at El Aguila.
      The $500,000 funding from Canyon was structured as a non-interest bearing loan.
      The drilling programs were completed in 2003 and included approximately 12,939
      feet of drilling focused on one target area of the property. This exploration
      drilling encountered some mineralization which will require additional
      exploration drilling in order to fully evaluate. Effective September 1,
      2004, Canyon elected to convert its loan of $500,000 into 1,200,000 shares
      of
      common stock of the Company.




Also,
      during 2004, the Company sold 608,000 shares at $.25 per share raising net
      proceeds of $152,000. Additionally, the Company made a stock grant of 600,000
      shares at $.25 per share or $150,000 to a consultant of the Company, Jose Perez
      Reynoso.




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 distribution 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 agreement with William F. Pass covering 400,000 shares of
      common stock at exercise price of $.25 per share was reduced by 250,000 shares
      leaving 150,000 shares remaining subject to option.





*-
            34
            -*





**GOLD
        RESOURCE CORPORATION AND SUBSIDIARIES**
 **(An
        Exploration Stage Company)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
        31, 2006**


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 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, subject to the prior rights of Canyon discussed above. 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).




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 fair market value of $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 fair market value of $275,000. The Company
      entered into an investor relations contract that required the issuance of 30,000
      shares of restricted common stock during 2006. These shares were valued at
      fair
      market value of $45,000.





The
      Company may continue to raise capital through the sale of its common shares
      and
      may also seek other funding or corporate transactions to achieve its business
      objectives.




As
      of December 31, 2006, the Founders beneficially own a total of 8,131,145
      shares or approximately 29% of the outstanding shares.




The
      Company has a non-qualified stock option and stock grant plan under which stock
      options and stock grants may be granted to key employees, directors and others
      (the "Plan"). Options to purchase shares under the Plan must be granted at
      fair
      value as of the date of the grant. A total of 6,000,000 common shares have
      been
      reserved under the Plan.





Effective
      January 1, 2006, the Company implemented the rules of SFAS 123(R), “Accounting
      for Stock-Based Compensation,” which requires the Company to expense as
      compensation the value of grants and options under the Company's stock option
      plan as determined in accordance with the fair value based method prescribed
      in
      SFAS 123(R). The Company estimates the fair value of each stock option at the
      grant date by using the Black-Scholes option-pricing model.





*-
            35
            -*




**GOLD
        RESOURCE CORPORATION AND SUBSIDIARIES**
 **(An
        Exploration Stage Company)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
        31, 2006**





During
      the year ended December 31, 2006, stock options were granted to purchase
      1,200,000 shares of common stock. Grants covering 1,100,000 shares were issued
      to an employee and a director at an exercise price of $1.00 and a term of
      thirty-three months. All options vested in 2006. Stock option compensation
      expense of $141,350 was recorded based upon a fair value calculation using
      the
      following assumptions: expected life of 2.75 years, stock price of $1.00 at
      date
      of grant, dividend yield of 0%, and interest rate of 5%. Grants covering 100,000
      shares were issed to a service provider with an exercise price of $1.00 per
      share and a term of twenty-four months. Options covering 50,000 shares vested
      in
      2006 and options covering 50,000 shares are expected to vest in 2007. Stock
      option compensation expense of $5,700 was recorded based upon a fair value
      calculation using the following assumptions: expected life of two years, stock
      price of $1.00 at date of grant, dividend yield of 0%, and interest rate of
      5%.





Prior
      to Juanuary 1, 2006, the Company applied APB Opinion 25, “Accounting for Stock
      Issued to Employees”, and disclosed pro-forma information regarding net income
      and earnings per share as if stock based compensation cost had been determined
      using a fair value based method. No stock options were granted in 2005, thus
      pro-forma net (loss) and (loss) per share were the same as the actual amounts
      repted.







**2006**
            
            **2005****Shares**
            
            **Weighted**
              **Average**
              **Exercise**
              **Prices**
            
            **Shares**
            
            **Weighted**
              **Average**
              **Exercise**
              **Prices**Outstanding,
                beginning of year
            
            
            1,640,000
            
            $
            .25
            
            
            1,900,000
            
            $
            .25Granted
            
            
            1,200,000
            
            $
            1.00
            
            
            ---
            
            $
            ---Terminated
            
            
            ---
            
            $
            ---
            
            
            (250,000
            )
            $
            .25Exercised
            
            
            (240,000
            )
            
            .25
            
            
            (10,000
            )
            
            .25Outstanding,
                end of year
            
            
            2,600,000
            
            $
            .60
            
            
            1,640,000
            
            $
            .25Options
                exercisable, end of year
            
            
            2,550,000
            
            $
            .59
            
            
            1,640,000
            
            $
            .25Weighted
                average fair value of Option granted during year
            
            $
            .13
            
            
            
            
            $
            ---






**6.     Rental
      Expense and Commitment and Contingencies**




In
      September 2005, the Company entered into a 3 year lease on office space in
      Denver, Colorado. Required payments approximate $1,500 per month. Remaining
      minimum lease obligations for future calendar years will be $17,700 in 2007
      and
      $13,400 in 2008. Rent expense for 2006 was $17,000.





Effective
      January 1, 2006, the Company entered into employment agreements with its
      executive officers which extend for a three-year term. Pursuant to the terms
      of
      those agreements, William Reid is being paid $240,000 and David Reid is being
      paid $170,000 annually. Each individual also participates in health and other
      insurance programs that the Company maintains. The employment agreements are
      automatically renewable for one-year terms 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 his employment is terminated under certain
      circumstances. If the Company terminates the agreement without cause, or either
      executive officer terminates the agreement "with good reason," the Company
      would
      be obligated to pay two years of compensation in accordance with its regular
      pay
      periods. Termination by an executive officer with good reason includes a change
      in control.





*-
            36
            -*




**GOLD
        RESOURCE CORPORATION AND SUBSIDIARIES**
 **(An
        Exploration Stage Company)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
        31, 2006**




We
      signed a drilling contract in October 2006 for a minimum of 11,000 feet of
      additional core drilling. We have the option to expand the drilling up to 10,000
      meters (approximately 33,000 feet). This contract represents a minimum financial
      commitment of $300,000 and a maximum financial commitment of $1,000,000 over
      the
      term of the agreement. There are numerous exploration targets that will now
      be
      tested with the objective of delineating and expanding the previously identified
      mineralization.





**7.     Related
      Party Transactions:**




US
      Gold—




Effective
      July 1, 2000, the Company and US Gold entered into a management contract
      whereby US Gold provided general management of the business activities of the
      Company through December 31, 2001 in exchange for 2,560,000 shares of
      common stock of the Company valued at $392,191 or approximately $.15 per share,
      representing the actual allocated internal costs recorded by US Gold in its
      performance of the contract. Effective January 1, 2002, the Company and US
      Gold entered into a second Management Contract with a duration of one year
      (the
      "2002 Management Contract"). Under the 2002 Management Contract, US Gold
      provided general management of the business activities of the Company through
      December 31, 2002 in exchange for payment of $30,000 per month to US Gold.
      The Company paid US Gold $30,000 under the 2002 Management Contract and owed
      US
      Gold $330,000 at December 31, 2004. In June 2005, the Company paid
      $10,000 and issued 1,280,000 shares to US Gold Corporation in satisfaction
      of
      $320,000 owed.




In
      July 2005, in connection with a change in control of US Gold, the
      employment agreements of Messrs. William Reid, David Reid and William Pass
      with that entity were terminated. In partial payment of the obligations of
      US
      Gold under those agreements, that entity transferred all its shares in the
      company to the two former US Gold employees and Mr. Pass and US Gold no
      longer owns an interest in our Company.




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 $7,000 per month during
      2005 and increased to $9,000 per month effective November 2006 under a
      month-to-month arrangement. The Company also leased the El Aguila Property
      from Mr. Reynoso, paying him $5,000 advance royalty during 2002, $25,000 in
      2003, $20,000 in 2004, $105,000 in 2005, and $100,000 in 2006. Also as noted
      in
      Footnote 5 above, Mr. Reynoso was granted a stock bonus of 600,000 common
      shares valued at $.25 per share for $150,000 during 2004.




Other—




During
      2005, the executive officers and Mr. Reynoso made certain cash advances to
      the Company to allow payment of certain obligations. The net amount of such
      advances was $8,770 as of December 31, 2005, all of which was repaid during
      2006.




During
      2006, Messrs. William Reid and David Reid each loaned $160,000 to the Company.
      The loans were non-interest bearing and due on demand. These loans were paid
      in
      full during September, 2006.






**8.   Subsequent
      Events—**





Subsequent
      to December 31, 2006, we issued 30,000 shares of our common stock to a
      consultant performing investor relations work on our behalf.





In
      February 2007, the Company leased a 100% interest in the Solaga property,
      subject to a 4% net smelter return royalty on any production.











*-
            37
            -*







**ITEM
      8.    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
      8A.    CONTROLS AND PROCEDURES**




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, as appropriate to allow timely
      decisions regarding required disclosure. As of December 31, 2006, 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 Principal Financial Officer
      concluded that our disclosure controls and procedures were
      effective.




There
      were no changes in our internal control over financial reporting during the
      quarter ended December 31, 2006, that materially affected, or is reasonably
      likely to materially affect, our internal controls over financial
      reporting.







**PART
      III**




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




**Directors
      and Executive Officers**




The
      following individuals presently serve as our officers and
      directors:




**Board****Name
                and**
            
            
            
            
            
            **Position****Municipality
                of Residence**
            
            **Age**
            
            **Positions
                With the Company**
            
            **Held
                Since**William
                W. Reid
              Denver,
                Colorado
            
            58
            
            President,
                Chief Executive Officer and Director
            
            1998David
                C. Reid
              Denver,
                Colorado
            
            57
            
            Vice
                President, Secretary, Treasurer and Director
            
            1998Bill
                M. Conrad
              Colorado
                Springs, Colorado
            
            50
            
            Director
            
            2006Frank
                L. Jennings
              Longmont,
                Colorado
            
            56
            
            Chief
                Financial Officer,
            
            N/A




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





*-
            38
            -*










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.





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. Mr. Conrad is
      presently the vice-president, secretary and a director of Blue Star Energy,
      Inc., a private Colorado corporation engaged in the energy industry. Prior
      to
      that, he served as president and a director of Wyoming Oil & Minerals, Inc.,
      a publicly traded Wyoming corporation, and New Frontier Energy, Inc., a publicly
      traded Colorado corporation, both engaged in the oil and gas industry. The
      securities of Wyoming Oil & Mineral and New Frontier Energy are quoted on
      the OTCBB.





***Frank
      L. Jennings*** .
      Mr.
      Jennings was appointed to serve as our principal financial officer to replace
      William F. Pass, who resigned from that position effective June 1, 2006. 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 Corporaton, 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.




**Other
      Significant Employees or Consultants**





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





***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. 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.





**Board
      Committees**




Our
      Board
      of Directors established a standing Audit, Compensation and Nominating Committee
      during 2006.





*Audit
      Committee.* The
      Audit Committee, comprised of Bill Conrad as chairman and William Reid,
      recommends the selection and appointment of our independent accountants 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.





*-
            39
            -*





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.





*Nominating
      Committee.* The
      Nominating Committee is responsible for identifying potential candidates for
      the
      Board of Directors. The committee will establish qualifications for candidacy,
      assess potential candidates and make recommendations to the board, based upon
      the committee’s assessment of the candidate’s past business and management
      experience, their special expertise in an area of strategic interest to our
      business, the candidate’s ability to devote sufficient time and attention to our
      business, and their willingness to serve and actively contribute to our
      business. The Nominating Committee is comprised of two members, being David
      Reid
      as chairman, and William Reid. None of the members of the Nominating Committee
      are independent within the meaning of Rule 4200(a)(15) of the Marketplace Rules
      since both members are also our executive officers.





*Compensation
      Committee.* The
      Compensation Committee, comprised of Bill Conrad as chairman and David Reid,
      is
      responsible for reviewing the compensation of our executive officers and
      directors on an ongoing basis. In performing this function, the Compensation
      Committee may consider, among other things, the types of compensation and
      amounts paid to executives and directors of public companies of equivalent
      size,
      stage of development in the industry and activity levels. The findings of this
      compensation review are used to determine an appropriate level of compensation
      for the executives and directors, reflecting the need to maintain
      competitiveness and recruit and retain qualified personnel within the context
      of
      our financial and other resources. Mr. Conrad qualifies as independent under
      Rule 4200(a)(15) of the Marketplace Rules.





**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).





**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 putting its formal corporate
      governance structure into place, we plan to adopt a formal Code of Ethics in
      the
      near future.




**ITEM
      10.    EXECUTIVE AND DIRECTOR COMPENSATION**




The
      following table summarizes the total compensation for the last two years of
      all
      persons who served as our chief executive officer during 2006 and the other
      executive officer who was serving at fiscal year end December 31, 2006 (“Named
      Executive Officers”) for the periods indicated. Our company did not award cash
      bonuses, stock awards, stock options or non-equity incentive plan compensation
      to any Named Executive Officer during the past two fiscal years, thus these
      items are omitted from the table below:








*-
            40
            -*





**Summary
      Compensation Table**








**Name and**
              **Principal Position**
            
            **Year**
            
            **Salary**
            
            **All**
              **Other**
              **Compensation**
            
            **Total**William
                W. Reid
            
            
            2006
            
            $
            240,000
            
            $
            —
            
            $
            240,000Chairman,
                C.E.O.
            
            
            2005
            
            $
            60,000
            
            $
            9,600(2)
            
            $
            69,600and
                President(1)David
                C. Reid,
            
            
            2006
            
            $
            170,000
            
            $
            —
            
            $
            170,000Vice
                President and
            
            
            2005
            
            $
            42,500
            
            $
            9,600(2)
            
            $
            52,100Director(1)


__________________




(1)  The
      executive officer was not paid any additional compensation for his service
      as a
      director of our company.


(2)  The
      executive officer was paid this amount as a consultant during the year.





Effective
      January 1, 2006, we entered into employment agreements with our executive
      officers which extend for a three-year term. Pursuant to the terms of those
      agreements, William Reid receives $240,000 and David Reid receives $170,000
      annually as salary. 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 anniversary of the effective 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 either executive
      officer terminates the agreement “with good reason,” we would be obligated to
      pay two years of compensation in accordance with our regular pay periods.
      Termination by an executive officer with good reason includes termination after
      a “change in control.”





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 $9,000 per month. Frank Jennings, our financial consultant,
      is
      paid on an hourly basis, which we expect will not exceed $3,000 per month in
      the
      aggregate. We do not have a written agreement with either consultant.





In
      June
      2006, we retained Bill Conrad to serve on our Board of Directors. Mr. Conrad
      is
      independent under the definition set forth in Rule 4200(a)(15) of the
      Marketplace Rules. In return for his service on our Board and its
      committees, **** Mr.
      Conrad receives cash compensation in the amount of $3,000 per month and also
      received a stock grant of 100,000 shares of our common stock, valued at $1.00
      per share and options to acquire up to 500,000 shares of stock on or before
      March 9, 2009 for $1.00 per share. 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, 2006:





**Director
      Compensation Table**





**Name**
            
            **Fees
                Earned or**
              **Paid
                in Cash**
            
            
            **Stock**
              **Awards**
            
            **Option**
              **Awards**
            
            **All**
              **Other**
              **Compensation**
            
            **Total**Bill
                M. Conrad
            
            $
                21,000
            
            
            $
                100,000
            
            $
                64,250(1)
            $
                  —
            
            
            $
                185,250


_________________





(1)  Calculated
      in accordance with SFAS 123(R).








*-
            41
            -*





All
      officers and directors are reimbursed for reasonable and necessary expenses
      incurred in their capacities as such. Our company presently does not maintain
      a
      non-equity incentive compensation plan, thus such item has been omitted from
      the
      table above.





**Outstanding
      Equity Awards at Fiscal Year-End**





The
      following table summarizes the amount of our Named Executive Officers’
equity-based compensation outstanding at the year ended December 31, 2006.
      Our
      company did not issue stock awards to our Named Executive Officers during the
      past two fiscal years, thus the information is omitted in the table below:





**Option
                Awards****Name**
            
            
            
            
            
            **Equity
                Incentive Plan Awards: Number of Securities Underlying Unexercised
                Unearned Options**
            
            **Option
                Exercise Price**
            
            **Option
                Expiration Date****Number
                of Securities Underlying Unexercised Options**
              (Exercisable)
            **Number
                of Securities Underlying Unexercised Options**
              (Unexercisable)**(#)**
            
            **(#)**
            
            **(#)**
            
            **($)**William
                W. Reid
            
            400,000
            
            0
            
            0
            
            $0.25
            
            10/9/2013William
                W. Reid
            
            400,000
            
            0
            
            0
            
            $0.25
            
            4/22/2014David
                C. Reid
            
            400,000
            
            0
            
            0
            
            $0.25
            
            10/9/2013David
                C. Reid
            
            200,000
            
            0
            
            0
            
            $0.25
            
            4/22/2014




We
      did
      not grant any options to our executive officers during 2006 or 2005. During
      the
      year ended December 31, 2004, we granted options to acquire a total of 700,000
      shares of our common stock to our officers and a consultant, which represented
      100% of the options we granted to our employees in that year. Our executive
      officers did not exercise any stock options awarded in prior years during
      2006.





**ITEM
      11.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
      MANAGEMENT AND RELATED STOCKHOLDER MATTERS**




As
      of
      March 26, 2007, there are a total of 28,169,552 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 and exercisable within 60 days are exercised,
      but
      not the options owned by any other individual.





*-
            42
            -*











**Name
                and Address of******
            **Shares
                Beneficially Owned****Beneficial
                Owner**
            **Number******
            **Percentage
                (%)**William
                W. Reid(1)
            4,559,806(4)(5)
            15.7%David
                C. Reid(1)
            4,191,539(6)
            14.6%Bill
                M. Conrad(2)
            577,000(7)
            2.0%Frank
                Jennings(3)
            0
            0.0%Beth
                Reid
            4,559,806(8)
            15.7%25
                Downing Street, #1-501Denver,
                CO 80218All
                officers and directors as a group(4
                persons)
            9,328,345(4)(5)(6)(7)
            31.0%


____________________




(1) Officer
      and director.


(2) Director.


(3)  Officer.


(4)
      Includes options to purchase 800,000 shares which are currently
      exercisable.


(5)
      Includes 1,540,200 shares owned by the reporting person's spouse, of which
      he
      disclaims beneficial ownership.


(6)
      Includes options to purchase 600,000 shares which are currently
      exercisable.


(7)
      Includes options to purchase 500,000 shares which are currently
      exercisable.


(8)
      Includes 3,019,606 shares owned by the reporting person's spouse, of which
      she
      disclaims beneficial ownership.





**Changes
      in Control**




One
      of
      our shareholders, Heemskirk Consolidated Limited, holds the first right to
      acquire any stock offered by us until August 2008. While we presently have
      no
      plans to issue additional stock, to the extent we do and this entity exercises
      its right to acquire all or a portion of that stock, its percentage ownership
      interest in our company may increase. This may result in a change in
      control.





**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 terminates by its
      terms on March 3, 2009. 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 in the table below is information as of December 31,
      2006
      with respect to compensation plans (including individual compensation
      arrangements) under which our equity securities are authorized for issuance.
      During 2006, we issued 135,000 shares of common stock and 1,100,000 options
      pursuant to the Plan.








*-
            43
            -*





**Non-Qualified
      Stock Option and Stock Grant Plan Information**




**Plan Category**
            
            **Number of**
              **securities to be**
              **issued upon**
              **exercise of**
              **outstanding**
              **options, warrants**
              **and rights**
              **(a)**
            
            **Weighted-**
              **average exercise**
              **price of**
              **outstanding**
              **options,**
              **warrants and**
              **rights**
              **(b)**
            
            **Number of**
              **securities remaining**
              **available for future**
              **issuance under**
              **equity compensation**
              **plans (excluding**
              **securities reflected**
              **in column (a))**
              **(c)**Equity
                compensation plans
              approved
                by shareholders
            
            
            2,500,000
            
            
            $0.58
                per share
            
            
            3,115,000Equity
                compensation plans
              not
                approved by shareholders
            
            
            0
            
            
            —
            
            
            0TOTAL
            
            
            2,500,000
            
            
            
            
            
            3,115,000





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.





**ITEM
      12.    CERTAIN RELATIONSHIPS AND RELATED
      TRANSACTIONS**





During
      2005 and 2006, William Reid and David Reid each advanced money to us to meet
      short-term working capital requirements. The loans were represented by
      promissory notes totaling $160,000, which were non-interest bearing and due
      on
      demand. We used the proceeds of the IPO to repay the notes in 2006.







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**ITEM
      13.    EXHIBITS**




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




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
            Lease
                Agreement dated September 2005 (incorporated by reference from our
                registration statement on Form SB-2 filed on October 28, 2005, Exhibit
                10.4, File No. 333-129321).





10.5
            Agreement
                dated July 28, 2003 between the Company and Canyon Resources Corporation
                (incorporated by reference from our registration statement on Form
                SB-2
                filed on October 28, 2005, Exhibit 10.5, File No. 333-129321).





10.6
            Agreement
                dated August 2, 2005 between the Company and Heemskirk Consolidated
                Limited (incorporated by reference from our registration statement
                on Form
                SB-2 filed on October 28, 2005, Exhibit 10.6, File No.
                333-129321).





10.7
            Agreement
                dated August 15, 2005 by and between the Company and Heemskirk
                Consolidated Limited (incorporated by reference from our registration
                statement on Form SB-2 filed on October 28, 2005, Exhibit 10.7, File
                No.
                333-129321).




10.8
            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).





10.9
            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).





10.10
            Promissory
                Note in favor of David C. Reid (incorporated by reference from our
                amended
                registration statement on Form SB-2/A filed on May 1, 2006, Exhibit
                10.10,
                File No. 333-129321).





10.11
            Promissory
                Note in favor of William W. Reid (incorporated by reference from
                our
                amended registration statement on Form SB-2/A filed on May 1, 2006,
                Exhibit 10.11, File No. 333-129321).





10.12
            Form
                of Subscription Agreement between the Company and investors in the
                November 2006 private placement (incorporated by reference from our
                report
                on Form 8-K dated December 7, 2006, Exhibit 10.1, 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.








**ITEM
      14.    PRINCIPAL ACCOUNTANT FEES AND
      SERVICES**




The
      following table sets forth fees paid to (or accrued to) our principal accounting
      firm of Stark Winter Schenkein & Co., LLP in last two years ended
      December 31, 2006:




**2006**
            
            **2005**Audit
                Fees
            
            $
            28,675
            
            $
            16,000Audit
                Related Fees
            
            
            0
            
            
            0Tax
                Fees
            $
            1,500
            
            0All
                Other Fees
            
            0
            
            0Total
                Fees
            
            $
            30,175
            
            $
            16,000




It
      is the
      policy of the Audit Committee of our Board of Directors 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 principal accounting firm
      reflected above were approved by the Audit Committee.





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            45
            -*





**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/s/
                William W. ReidDated:
                March 28, 2007
            By:
                William W. Reid, Chairman of the Board,
              President
                and Chief Executive Officer/s/
                Frank L. JenningsDated:
                March 30, 2007
            By:
                Frank L. Jennings, Chief Financial Officer,Principal
                Accounting 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,
            March 28,
                2007William
                W. Reid
            President
                andChief
                Executive Officer/s/
                Frank L. Jennings
            
            Chief
                Financial
            March 30,
                2007Frank
                L. Jennings
            Officer
                and PrincipalAccounting
                Officer/s/
                Bill M. Conrad
            
            Director
            March 30,
                2007Bill
                M. Conrad





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