# UNITED STATES
                                                  SECURITIES AND EXCHANGE COMMISSION

# Washington, D.C. 20549

# FORM 10-K/A

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

# For the fiscal year
ended December 31, 2007

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

# For the transition
period from                      to

# Commission file number
333-129321

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

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

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

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

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

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

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

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

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

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

---



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

| |                                  |                                
| | -------------------------------- | -------------------------------
| | Large accelerated filer    [   ] | Accelerated filer   [   ]      
| | Non-accelerated filer     [   ]  | Smaller reporting company   [X]

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

The aggregate market value of the
Common Stock of Gold Resource Corporation held by non-affiliates as of the last business
day of the registrants most recently completed second fiscal quarter was
$71,275,830.

As of April 7, 2008, there were
34,206,952 shares of Common Stock outstanding.

DOCUMENTS INCORPORATED
BY REFERENCE:  None.

---



# TABLE OF CONTENTS

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

# ADDITIONAL INFORMATION

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

i

---



# SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS

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

In
addition to the specific factors identified under RISK FACTORS in this report,
other uncertainties that could affect the accuracy of forward-looking statements include:

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

| |  | 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.

EXPLANATORY NOTE

This amendment to Form 10-K is being
filed to amend certain financial, management and executive compensation information
contained in the original report. The following sections of our Form 10-K for the
year ended December 31, 2007 have been amended: Item 7: Managements
Discussion and Analysis of Financial Condition and Results of Operation,
Item 8: Financial Statements, Item 10: Directors, Executive Officers
and Corporate Governance, and Item 11: Executive Compensation. Except to the extent
relating to the notes to the financial statements and the additional management and
executive compensation information, the disclosure in the Form 10-K does not reflect
any events that have occurred after the Form 10-K was initially filed on
April 14, 2008. The amendment contains the entire report, as amended and restated.

ii

---



# PART I

# ITEM 1. BUSINESS

# Overview

We
are engaged in the exploration  of gold and silver mining properties,
primarily in Mexico, with a goal of production in the near future. We were organized
under the laws of the State of Colorado in 1998. We pursue exploration of gold and silver
projects that we believe feature low operating costs and have the potential to produce a
high return on the capital invested. We hold a 100% interest in four properties in
Mexicos southern State of Oaxaca. See Item 2. Properties
for more information about our properties.  We have undertaken efforts to construct
 a mill and a mine at our flagship property, the El Aguila
Project, which would be our first mine upon successful start-up, which
is targeted for 2008.

Mineral
exploration  requires significant capital, and our assets and resources are
limited. We have never received revenue from operations and have relied on equity
financing to fund our operations to date.

We
completed our IPO in August 2006 at $1.00 per share and received gross proceeds of
$4,600,000. We raised additional capital pursuant to two private placements of our common
stock; one in December 2006 for gross proceeds of $5,174,000 and one in December 2007 for
gross proceeds of $22,234,000. We used the initial IPO and the 2006 private placement
funds to explore the El Aguila property. We decided to move forward with
efforts to contruct a mill and a mine at the El Aguila Project  on April 11, 2007. We
anticipate using the funding provided by our December 2007 private placement to fund these efforts.
SeeItem 7. Managements Discussion and
Analysis of Financial Condition and Results of Operation for more information.

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

Please
refer to page 15 of this report for a glossary of certain terms used herein.

# Developments During 2007

Exploration.           Our
flagship property, the El Aguila Project, was the primary focus of           our
exploration program during 2007. Using funds obtained from our IPO and
          subsequent private placement in 2006, we focused exploration drilling on two
          limited areas, the El Aguila near-surface mineralization area and the El
Aire vein area, which are located two kilometers apart along the same
          structural zone. We also discovered a new mineralized area near El Aire          which
we call the La Arista area. All these areas have gold and silver
          mineralized material and, except for the El Aguila near-surface
          mineralization, have base metal mineralization of copper, lead and zinc. As a
          result of encouraging exploration results and our belief that the mineralized
          material can be extracted and processed economically, we made a decision to
          begin preparing El Aguila for production targeting to begin production
          later in 2008. Additional, albeit limited, exploration was conducted at our El
Rey property during 2007. We completed a total of 27,000 meters           (89,100
feet) in exploration drilling and spent approximately $5,700,000 in 2007           at our
properties in Mexico. However, we have not established proven or probable
          reserves as defined by regulation of the SEC on our El AguilaProject or
          any of our other properties.

1

---



Construction at El Aguila Project. The engineering firm of Lyntek, Inc. of Denver, Colorado has
designed the mill and infrastructure requirements at the El AguilaProject on our
behalf with an estimated capital cost of $20,000,000. We anticipate building a mill that
is designed to process 850 tonnes of ore per day through a flotation section and 150
tonnes of ore per day through an agitated leach section, subject to the granting of the
final permits. We received from the Mexican federal agency a permit for building a four
kilometer access road to the mill site and as of March 31, 2008, construction on this road
is underway. We are awaiting the mill permit and the open pit mine permit from the same
agency. We have purchased or ordered most, but not all, of the equipment needed for the
mill. Construction of the mill and the mine are anticipated to begin upon receipt of the
necessary permits.

We
expect that mining in the first year will be undertaken at the El Aguila
near-surface mineralization area. We anticipate constructing an open pit mine at this site
to extract the mineralized material. Mining the second year is anticipated to come from
the La Arista mineralized material and would require development of an underground
mine.

In
October 2007, we acquired an additional parcel of land which comprises approximately five
hectares and is located adjacent to the community of San Jose de Gracia. We plan to
develop this parcel for employee housing at the El Aguila Project, as well as a
health clinic which will be available to employees and local residents.

Acquisitions.           In
February 2007, we leased a 100% interest in the Solaga property, which
          includes a dormant silver mine. We have conducted no exploration at Solaga to
date.

# Competition

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

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

# Government Regulations
and Permits

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

2

---



Prior
to the commencement of any mining operations at the El Aguila Project, 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. We havesubmitted our MIA to SEMARNAT for their review.Studies required to support the MIA include a detailed analysis of these areas, among
others: soil, water, vegetation, wildlife, cultural resources and socio-economic impacts.
Although the regulatory process in Mexico has a public review component, proof of local
community support for a project is required to gain final MIA approval. We have received
local community support.

We
received a federal permit granting permission to construct a road at the El Aguila
Project, which will be integral to any mining operations. We have hired a contractor to
construct the road on the property. Additionally, we have applied for and are waiting to
receive two more permits from SEMARNAT which will allow us to begin construction of the
mine and the mill at the El AguilaProject.

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

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

# Employees

We
currently have three full-time employees, each 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. Through an outsourcing firm, we also
engage approximately 20 individuals in Mexico in connection with the exploration
 of our mining properties at this time and we expect this number to increase if
we are successful in placing our El Aguila property into production.

# ITEM 1A.    RISK FACTORS

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

# Risks Relating to Our
Company

Since
we 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, conducting limited
exploration and preparation for beginning production at the El Aguila Project. We
have never produced gold or other metals and have received no revenue from operations to
date. We face all of the risks commonly encountered by other 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. In
particular, there can be no assurance that commercial production at our El Aguila
Project will be achieved in the time frames estimated, at the rates and costs estimated,
if at all.

3

---



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

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

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

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

We
may be dependent upon receipt of additional working capital to fund our business
plan.    We may require additional capital for exploration of
one or more of our existing properties, or acquisition of additional properties. Subject
to obtaining all required permits and regulatory approvals, we may require additional
capital in addition to the funds recently raised in our private placement to fund the construction
 of the El Aguila Project. This work is anticipated to entail construction of a mill as well as other improvements to
the property and we will be required to hire additional staff. In addition, we will
require additional working capital to continue to fund operations pending sale of any gold
or other metals.

If
we are unable to achieve gold and silver production levels anticipated from our El Aguila
Project, our financial condition and results of operation will be adversely
affected.    We anticipate proceeding with the construction of the El AguilaProject based on estimates of mineralized material identified in our drilling program
and estimates of gold and silver recovery based on testwork developed during our scoping
study. However, sales of gold and silver, if any, that we realize from future mining
activity will be less than anticipated if the mined material does not contain the
concentration of gold and silver predicted by our geological exploration and if the
recoveries are less than predicted in our testwork. This risk may be increased since we
have not sought or obtained a feasibility study or reserve report with regard to any of
our properties. If sales of gold and silver are less than anticipated, we may not be able
to recover our investment in our property and our operations may be adversely affected.
There is no assurance that mineral recoveries in small scale laboratory tests will be
duplicated in actual mining conditions.

4

---



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

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

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

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

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

5

---



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

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

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

The
volatility of the price of gold could adversely affect our future operations and, if
warranted, our ability to develop our properties.    The 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 $364 per ounce and $696 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.

|          |           |           |           |          
|--------- | --------- | --------- | --------- | ---------
|2003
$364 | 2004
$406 | 2005
$445 | 2006
$604 | 2007
$696

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 or personnel to fully explore and if warranted, develop our properties
and be unable to acquire other desirable properties.

6

---



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

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

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

The
nature of mineral exploration and production activities involves a high degree of risk and
the possibility of uninsured losses.    Exploration for and the production of
minerals is highly speculative and involves greater risk than many other businesses. Our
operations are subject to all of the operating hazards and risks normally incident to
exploring for and development of mineral properties, such as, but not limited to:

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

| |  | environmental
pollution;
| | - | ------------------------

| |  | personal
injury, flooding and landslides;
| | - | -----------------------------------------

| |  | variations
in grades of ore;
| | - | ----------------------------

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

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

We
currently have no insurance to guard against any of these risks.  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, our
principal consultant in Mexico or our principal financial consultant were to die, become
disabled or leave the company, we would be forced to identify and retain individuals to
replace them. Messrs. William, David and Jason Reid are our only full-time employees
at this time. Jose Perez Reynoso is our consultant in Mexico who oversees our properties
and operations. Frank L. Jennings is a financial consultant who provides services to us as
chief financial officer. There is no assurance that we can find suitable individuals to
replace them or to add to our employee base if that becomes necessary. We are entirely
dependent on these individuals as our 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.

7

---



In
addition to our full-time employees and our manager in Mexico, we also engage
approximately 20 people in Mexico through an outsourcing agency. We believe these
individuals make important contributions to our company and there is no assurance we could
replace them with equally as competent personnel.

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

While
we presently believe that we have adequate internal controls over financial reporting, we
will be required to evaluate our internal controls under Section 404 of the Sarbanes-Oxley
Act of 2002 annually and any adverse results from such evaluation could result in a loss
of investor confidence in our financial reports and have a material adverse effect on the
price of our common stock.    Pursuant to Section 404 of the Sarbanes-Oxley
Act of 2002, we have furnished a report by our management on internal controls for the
fiscal year ended December 31, 2007. Such a report contains, among other matters, our
assessment of the effectiveness of our internal controls over financial reporting,
including a statement as to whether or not our internal controls are effective. This
assessment must include disclosure of any material weaknesses in our internal controls
over financial reporting identified by our management. While we believe our internal
controls over financial reporting are effective as of the date of this report, there is no
assurance that we can retain that control in the future, as our business expands. In
addition, our evaluation of the effectiveness of our internal controls will be subject to
audit by our independent registered accountants in the future and there is no assurance
that they will agree with our assessment. If we are unable to maintain the effectiveness
of our controls, or if our accountants do not agree with our assessment in the future,
investors could lose confidence in our financial reports and our stock price may decline.

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.

8

---



# 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.    Virtually all of our presently issued and
outstanding common stock is registered with the SEC for resale by our shareholders. 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. Our trading volume on the OTC Bulletin Board over the past three months has
averaged approximately 140,000 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 28% of our common
stock as of the date of this report. Under our Articles of Incorporation and Colorado law,
the vote of a majority of the shares outstanding is generally required to approve most
shareholder action. As a result, these individuals may be able to influence the outcome of
shareholder votes for the foreseeable future, including votes concerning the election of
directors, amendments to our Articles of Incorporation or proposed mergers or other
significant corporate transactions. We have no existing agreements or plans for mergers or
other corporate transactions that would require a shareholder vote at this time. However,
shareholders should be aware that they may have limited ability to influence the outcome
of any vote in the future. See Item 12. Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters for additional
information.

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

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.

9

---



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

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

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

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

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

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

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

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

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

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

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

Issuances
of our stock in the future could dilute existing shareholders and adversely affect the
market price of our common stock.    We have the authority to issue up to
60,000,000 shares of common stock, 5,000,000 shares of preferred stock, and to issue
options and warrants to purchase shares of our common stock without stockholder approval.
Because our common stock is not currently listed on an exchange, we are not required to
solicit shareholder approval prior to issuing large blocks of our stock. These future
issuances could be at values substantially below the price paid for our common stock by
our current shareholders. In addition, we could issue large blocks of our common stock to
fend off unwanted tender offers or hostile takeovers without further stockholder approval.
Because we believe that trading in our common stock 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 earnings from operations. Further, our initial earnings, if any, will likely
be retained to finance our operations. Any future dividends will depend upon our earnings,
our then-existing financial requirements and other factors, and will be at the discretion
of our Board of Directors.

# ITEM 1B.   UNRESOLVED
STAFF COMMENTS

None.

10

---



# ITEM 2.   PROPERTIES

We
currently have an interest in four properties, the El Aguila property, the Las
Margaritasproperty, the El Rey property and the Solaga property. We
lease claims comprising the El Aguila property and the Las Margaritas
property from an individual who serves as our consultant in Mexico and the Solaga
property from an entity partially owned by 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 map below shows the general location of
our four properties in Oaxaca, Mexico:



# The El Aguila Project

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

11

---



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

Location
and Access.The El Aguila Project is located in the Sierra Madre del Sur
of southern Mexico, in the central part of the State of Oaxaca. Access to the property is
by way of the Pan American Highway (Highway # 190), approximately 120 kilometers (75
miles) southeast of Oaxaca City, the states capital city. At the village of San
Jose de Gracia, a gravel road goes approximately four kilometers northwest to the
property. We received a federal permit in February 2008 to upgrade this road and
construction is presently underway by an independent contractor.

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.

We
have carried out more recent exploration on the El AguilaProject that has included
geologic mapping, surface sampling, geochemical sampling, a geomagnetic survey and
exploratory drilling. We have drilled 4,271 holes for a total of 35,389 meters (116,784
feet), including 196 holes for 25,701 meters (84,813 feet) during 2007. Through the year
ended December 31, 2007, we have spent or incurred approximately $7,412,000 in
acquisition, exploration and related costs for the El Aguila Project.

Construction
Activities.    We made a decision in April 2007 to undertake efforts to place the El Aguila Project
into commercial production. At our request, Lyntek Inc., an engineering firm in Denver,
Colorado, has designed the mill and infrastructure requirements with an estimated capital
cost of $20,000,000. We anticipate building a mill that is designed to process 850 tonnes
of ore per day through a flotation section and 150 tonnes of ore per day through an
agitated leach section. We have purchased or ordered most, but not all, of the equipment
needed for the mill. Construction of the mill will begin upon receipt of the necessary
permits from the appropriate Mexican federal agencies.

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

12

---



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

In
October 2007, we acquired an additional parcel of land which is approximately five
hectares in size and adjacent to the community of San Jose de Gracia, together with a
permitted water well. The land and well cost us $152,522. Construction is underway at this
parcel of land for employee housing as well as a health clinic which will be available to
employees and local residents. We intend to use water from the well for drinking,
sanitation and production purposes.

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

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

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

Our
2007 drilling program identified a new area of mineralization at the El Aguila
Project that we call the La Arista area. This mineralized material is different
from the El Aguila near surface mineralization in that it is polymetallic in
character. This polymetallic mineralization contains gold and silver plus the base metals
copper, lead and zinc. The character of this mineralization is also epithermal but
considered intermediate sulfidation. We anticipate that this mineralized material would be
mined underground and mining activity in this area is targeted for year two and beyond of
our production plan.

# The El ReyProperty

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

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

13

---



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

# The Las MargaritasProperty

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

# The SolagaProperty

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

# Mineral Concessions

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

# EjidoLands and Surface
Right Acquisitions

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

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

14

---



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

# Office Facilities

Effective
October 1, 2005, we leased approximately 1,000 square feet of office space under a three
year agreement with an independent third party. 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.

# Glossary

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

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

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

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

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

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

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

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

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

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

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

15

---



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



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

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

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

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

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

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

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

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

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

Conversion Table

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

|ITEM 3. | LEGAL PROCEEDINGS
|------- | -----------------

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

|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|------- | ---------------------------------------------------

None.

16

---



# PART II

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

# Market Information

Effective
September 14, 2006, our common stock began trading over-the-counter and is quoted on the
OTC Bulletin Board under the symbol GORO. The table below sets forth the high
and low bid prices for our common stock as reflected on the OTC Bulletin Board for the
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, 2007                       |  |     
|First Quarter                           |  |      | $3.97 |     | 
|Second Quarter                          |  |      | 3.85  |     | 
|Third Quarter                           |  |      | 4.83  |     | 
|Fourth Quarter                          |  |      | 5.10  |     | 
|                                        |  |     
|December 31, 2006                       |  |     
|Third Quarter (commencing September 14) |  |      | $1.15 |     | 
|Fourth Quarter                          |  |      | 1.90  |     | 

On
April 11, 2008, the high and low sales price of our common stock on the OTC Bulletin Board
were $4.52 and $4.60, respectively, and we had approximately 150 holders of
record of our common stock.

# Penny Stock Rules

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

17

---



# Transfer Agent

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

# Dividend Policy

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

|ITEM 6. | SELECTED
FINANCIAL DATA
|------- | -----------------------

Not
required.

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

This
discussion analyzes our financial condition at December 31, 2007 and compares it to our
financial condition at December 31, 2006. This discussion also summarizes the results
of our operations for the year ended December 31, 2007 and compares those results to the
year ended December 31, 2006.

# Overview

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

We
completed our IPO in August 2006 at $1.00 per share and received gross proceeds of
$4,600,000. We raised additional capital pursuant to two private placements of our common
stock; one in December 2006 for gross proceeds of $5,186,400 and one in December 2007 for
gross proceeds of $22,234,000. We used the initial IPO and December 2006 private placement
funds to continue exploration at the El Aguilaproperty. In April 2007, we decided to move
forward with construction at the El Aguila property in an effort to commence commercial production. We
anticipate using the funding provided by our December 2007 private placement to fund construction.

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

18

---



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

In
accordance with accounting principles generally accepted in the United States, all
expenditures for exploration and evaluation of our properties to date have been expensed
as incurred. Furthermore, until mineralized material is classified as proven or probable
reserves, substantially all expenditures for mine construction have been or will be
expensed as incurred. Certain expenditures, such as for rolling stock, processing
equipment, and facilities may be capitalized, subject to our evaluation of the
expenditures as an asset with future realizable value. Since substantially all of our
expenditures to date have been expensed and we expect to expense significant
expenditures incurred during 2008, most of our investment in mining properties does not
appear as an asset on our balance sheet.

We
plan to continue exploration of the El Aguila property at the same time that we
undertake efforts to place the property into production. We also intend to continue
exploration of the El Rey property in 2008. Our ultimate objective is to become a
producer of gold, silver and possibly other associated base metals. We are unable at this
time to predict when, if ever, that objective will be achieved.

Anticipated
Production.    While we intend to continue exploration at the El Aguila Project
for the foreseeable future, we are moving forward with our plans to make improvements to the
property for anticipated production. This will include acquisition of equipment and construction of a
mill. We presently anticipate mining by open pit and building a mill that is designed to
process 850 tonnes of ore per day through a flotation section and 150 tonnes of ore per
day through an agitated leach section, subject to receiving the necessary permits. Based
on preliminary estimates, which we continue to refine, we expect to require $20,000,000 to
construct a mill and prepare the property for production. Only after a mine and a mill are
constructed and operational could we expect any revenue.

We
have engaged Lyntek, Inc. of Denver, Colorado, on a month to month basis to design and
build the mill at the El AguilaProject. This design work is substantially complete
and we have already purchased much of the equipment such as the ball mill, float cells and
the crushing plant. We are in the process of ordering the balance of the equipment. We
have applied for permits from the Mexican government which will allow us to commence
construction of the mill, however, we have not received approval to date. We remain
optimistic that upon receipt of such approval in the near future, we will be able to
complete construction and commence production during the second half of 2008. We expect
the mining to be done under contract with a third party contractor.

Our
primary target for production in 2008 will be gold from the near-surface mineralization at
El Aguila. Any silver contained in the mineralization will be produced as a
by-product, the revenue from which will help offset the costs of producing the gold. In
the following year, if activities go as planned, we intend to undertake production of gold
from an underground mine at the nearby El Airevein.Since we believe that
area contains base metals such as copper, lead and zinc, we intend to produce those as
by-products, the revenue from which would help offset the costs of producing the gold. The
mineralization from both the near-surface mineralization and the anticipated underground
mine will be processed at the proposed mill at the El Aguila Project.

19

---



Additional
Capital Investment.   In addition to expenses of exploration and constructing
a mill, we also anticipate making infrastructure improvements at the El Aguila Project.
Foremost among these expenses is the construction of a four kilometer access road to the
proposed mill site and mining camp improvements, which will be necessary to enter the
production phase. We recently received a permit from the appropriate Mexican federal
agency to build the road and construction is underway. We purchased five hectares of land
for the camp location, together with a permitted water well, for a price of $152,522. We
estimate costs of approximately $750,000 to complete the road and $1,500,000 to build the
camp for employee housing. We commenced these capital improvements in the first quarter of
2008.

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

# Liquidity and Capital
Resources

As
of December 31, 2007, we had working capital of $21,282,704, consisting of current assets
of $22,051,156 and current liabilities of $768,452. This represents an increase of
$13,867,497 from the working capital balance of $7,415,207 as of December 31, 2006.

We expect that substantially all of the proceeds from the financing activities will be used to
fund the further exploration of our mining properties and to continue the implementation of our business
plan.    Our most significant expenditures for 2008 are expected to be the design and construction costs
of the mine site, the mill site, including processing equipment, and the camp site for our mine
workers.  We have budgeted $20,000,000 for construction of the mine, the mill and related facilities,
and to complete the other activities necessary to place the property into production. The significant
components of our budget include approximately $7,500,000 of processing equipment for the mill and
infrastructure costs of $5,000,000, including construction of employee housing, access roads, water
supply and mill site preparation.  We will continue to refine the estimate as work progresses and as we
receive actual bids from contractors for the construction activities.  We may need to raise additional
funds to complete the mill construction.  In addition, we anticipate spending approximately $5,000,000
on exploratory drilling and other exploration activities to further delineate the area of mineralized
material.  Furthermore, we continue to incur operating expenses, including (a) approximately $140,000
per month for salaries and other corporate overhead; and (b) legal and accounting fees associated with
our status as a public company.  Our drilling and other exploratory activities are somewhat flexible and
can be adjusted to better match our capital resources during the year.  However, we believe that it
would be beneficial to accelerate the timing of these activities, and thus we believe that we will need
to obtain additional funding during 2008 to continue both our exploration and construction plans.

We
expect that substantially all of the proceeds from the financing activities will be used
to fund the further exploration  of our mining properties and to continue
the implementation of our business plan. Our most significant expenditures are expected to
be the design and construction costs of the mine site, the mill site, including processing
equipment, and the camp site for our mine workers. In addition, we are continuing our
exploratory drilling program to further delineate the area of mineralized content.
Furthermore, we continue to incur operating expenses, including (a) approximately $140,000
per month for salaries and other corporate overhead; and (b) legal and accounting fees
associated with our status as a public  company. We believe that we will need to
obtain additional funding during 2008 to continue our construction plans.

We
have never received revenue from gold or other mineral sales. We have historically relied
on equity financings or loans (including loans from our officers) to continue funding our
operations. From inception through December 31, 2007, we received $36,532,591 in cash,
services and other consideration through issuance of our common stock. As of December 31,
2007, we did not have any outstanding debt financing, as all previous borrowings have been
repaid or converted into equity. 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 may require
additional funding to complete construction of metal processing facilities.

20

---



Although
we believe we have identified sufficient mineralized content to proceed with  construction
plans, our assets do not meet the definition of proven or probable reserves set forth in
Industry Guide 7 of the SEC. Accordingly, we have expensed all exploration and
evaluation costs and our investment in mineral properties does not appear as an asset on
our balance sheet. During the year ended December 31, 2007, we spent $5,731,771 on
acquisition, exploration and evaluation activities. This compares to $628,851 spent during
2006. Exploration of our properties accelerated in late 2006 and throughout 2007 following
successful completion of our IPO in 2006 and subsequent private placements in 2006 and
2007. From inception to December 31, 2007, we have spent $8,502,443 on the acquisition and
exploration of our various properties, including approximately $7,880,000 which has been
spent on the currently active properties known as El Aguila, Las Margaritas,
El Rey and Solaga.

Net
cash used in operating activities was $6,908,890 during the year ended December 31, 2007,
compared to $1,795,858 during 2006. As more fully explained in the overview above, we
accelerated exploration and improvement of our mining properties with the proceeds from
our common stock offerings. In addition, cash spent on general and administrative expenses
increased during 2007 compared to 2006, primarily in support of increasing exploration and
business development activities.

Net
cash used in investing activities was $456,152 in 2007 compared to $59,966 in 2006. During
2007, we commenced the acquisition of certain assets to be used in the improvement of our
mine site and began the acquisition of processing equipment.

# Results of Operations
 Year Ended December 31, 2007 Compared to Year Ended December 31, 2006

For
the year ended December 31, 2007 we reported a net loss of $8,076,342, or $(0.28) per
share, compared to a net loss of $2,686,762, or $(0.13) per share for 2006. 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 mineral sales.

Total
costs and expenses were $8,318,855 in 2007 compared to $2,743,851 in 2006, an increase of
$5,575,004 or 203%. Mineral property costs for the year ended December 31, 2007, including
acquisition and exploration costs, increased $5,102,920 from $628,851 in 2006 to
$5,731,771 in 2007. The increase reflects our increasing exploration  and
construction activities at our various properties located in and around the El
Aguila Project. During the latter part of 2006, we began to increase our exploration
spending and committed to an initial exploratory drilling contract for $300,000. We
subsequently expanded our drilling program and aggregate drilling costs during 2007 were
approximately $2,700,000.

General
and administrative expense for the year ended December 31, 2007 increased to $1,809,154
compared to $1,470,061 during 2006. The increase of $339,093 primarily reflects increased
wage and salary costs of approximately $30,000, an increase of $28,000 in legal and
accounting fees associated with SEC reporting requirements, and $211,500 of investor
relations expenses necessary to disseminate information to potential and existing
investors. Travel expenses increased from $103,241 to $173,559. The increase represents
increased travel to the mineral properties in Mexico, as well as meetings with investors.

21

---



We
incurred stock compensation expenses of $730,450 for the year ended December 31, 2007
compared to $626,900 for 2006. During 2007, we issued 170,000 restricted shares of common
stock as partial compensation for investor relations services valued at a weighted average
price of $3.39. We also issued 15,000 shares of common stock valued at $3.68 per share in
recognition of consulting services performed in Mexico. The cost of shares issued was
determined using quoted market values either at the time of the stock grant or at the
average stock price during the period of service.

During
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 also issued
35,000 shares of common stock valued at $1.71 to two employees for their services. We also
issued 250,000 restricted shares of common stock valued at $1.10 to a firm that provided
investor relations services and we issued 30,000 shares of restricted common stock valued
at $1.45 to a consultant who provided investor relations services.

During
the year ended December 31, 2007, we also granted stock options to a public relations
consultant to purchase 50,000 shares of common stock at an exercise price of $3.68 per
share, all of which vested in 2007. We used an option pricing model to value the options
at $83,192. Total compensation expense related to option grants recorded during 2007 was
$99,482, including all options issued during 2007 and options issued during prior years
that required the allocation of certain amounts to 2007.

During
the year ended December 31, 2006 we granted stock options to purchase 1,200,000 shares of
common stock at an exercise price of $1.00 per share, of which 1,150,000 vested in 2006
and 50,000 vested in 2007. We used an option pricing model to value the options. The
1,200,000 options were valued at $163,340 and the expense was allocated partially to 2007
($16,290) and partially to 2006 ($147,050).

Interest
income increased to $242,513 in 2007 compared to $57,089 in 2006, an increase of $185,424,
or 325%. The increase is due to the proceeds from our 2007 and 2006 private placement
financings which 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.

# Off-Balance Sheet
Arrangements

As
of April 14, 2008, we have no off-balance sheet arrangements.

# Critical Accounting
Policies

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

Mineral
Acquisition, Exploration and Development Costs.             Pursuant to
Emerging Issues Task Force (EITF) Issue No. 04-2, Whether Mineral Rights are
Tangible or Intangible Assets, mineral rights are treated as tangible assets.  The
acquisition costs of mineral rights are evaluated for recoverability at the date of
acquisition and periodically thereafter using the criteria set forth in the following
paragraphs.

Mineral
property  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.
 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.

22

---



All
such capitalized costs, and estimated future development costs, if any, will be amortized
using the units-of-production method over the estimated life of the ore body. The
units-of-production method requires an estimate of proven and probable reserves. Until we
establish proven and probable reserves, we will generally not capitalize mining costs and
will not report any amortization expense.

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 Statement of Financial Accounting Standards (SFAS)
No. 144, Accounting for Impairment or Disposal of Long-Lived Assets,
 and EITF Issue No. 04-3, Mining Assets: Impairment and Business Combinations.

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, 2007.

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

23

---



# Recent Accounting
Pronouncements

In
February 2007, the FASB issued FAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities (FAS 159). Under this standard, an entity is
required to provide additional information that will assist investors and other users of
financial information to more easily understand the effect of the companys choice to
use fair value on its earnings. Further, the entity is required to display the fair value
of those assets and liabilities for which the company has chosen to use fair value on the
face of the balance sheet. This standard does not eliminate the disclosure requirements
about fair value measurements included in FAS 157 and FAS No. 107, Disclosures about
Fair Value of Financial Instruments. FAS 159 is effective for fiscal years beginning after
November 15, 2007. Management is currently evaluating the requirements of FAS 159 and
has not yet determined the impact on its financial statements.

In
December 2007 the FASB issued FAS No. 141 (revised 2007), Business Combinations
(SFAS 141R). This statement replaces SFAS 141, Business
Combinations. The statement provides guidance for how the acquirer recognizes and measures
the identifiable assets acquired, liabilities assumed and any non-controlling interest in
the acquiree. SFAS 141R provides for how the acquirer recognizes and measures the
goodwill acquired in the business combination or a gain from a bargain purchase. The
statement determines what information to disclose to enable users to be able to evaluate
the nature and financial effects of the business combination. The provisions of
SFAS 141R are effective as of January 1, 2009 and do not allow early adoption.
Management is currently evaluating the impact of adopting this statement.

In
December 2007, the FASB issued FAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements (SFAS 160), which becomes effective on
January 1, 2009. This standard establishes accounting and reporting standards for
ownership interests in subsidiaries held by parties other than the parent, the amount of
consolidated net income attributable to the parent and to the noncontrolling interest,
changes in a parents ownership interest and the valuation of retained
non-controlling equity investments when a subsidiary is deconsolidated. The Statement also
establishes reporting requirements that provide sufficient disclosures that clearly
identify and distinguish between the interests of the parent and the interests of the
non-controlling owners. Management is currently evaluating the impact of adopting this
statement.

There
were various other accounting standards and interpretations issued during 2007 and 2006,
none of which are expected to a have a material impact on our consolidated financial
position, operations or cash flows.

24

---



# ITEM 8.   FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA

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

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

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

| | Consolidated
Balance Sheets at December 31, 2007 and 2006
| | ---------------------------------------------------------

| | Consolidated
Statements of Operations for the years ended December 31, 2007 and 2006, and for the
period from Inception (August 24, 1998) to December 31, 2007
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Consolidated
Statement of Changes in Shareholders Equity (Deficit)
for the period from Inception (August 24, 1998) to December 31, 2007
| | ----------------------------------------------------------------------------------------------------------------------------------------

| | Consolidated
Statements of Cash Flows for the years ended December 31, 2007 and 2006, and for the
period from Inception (August 24, 1998) to December 31, 2007
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------

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

25

---



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

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

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

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

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

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

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

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

Based on its assessment, management
concluded that we maintained effective internal control over financial reporting as of
December 31, 2007.

26

---





# REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and
ShareholdersGold Resource CorporationDenver,
Colorado

We have audited the accompanying consolidated balance sheet of Gold Resource Corporation as of December
31, 2007 and 2006, and the related consolidated statements of operations, changes in shareholders
equity and cash flows for the years ended December 31, 2006 and 2007, and the period August 24, 1998
(inception) to December 31, 2007.  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, 2007 and 2006, and the results
of its operations and its cash flows for the years ended December 31, 2006 and 2007,
and the period August 24, 1998 (inception) to December 31, 2007, in
conformity with accounting principles generally accepted in the United States of America.

April
10, 2008Denver, Colorado

27

---



# GOLD RESOURCE
CORPORATION AND SUBSIDIARIES                                                     (An
Exploration Stage Company)
                                                      CONSOLIDATED BALANCE SHEETS
                                                   As of December 31, 2007 and 2006

|                                                                 | 2007 |  | 2006 |            
|---------------------------------------------------------------- | ---- |  | ---- | -----------
|ASSETS                                                           |      |  |      |            
|                                                                 |      | 
|Current assets:                                                  |      | 
|Cash and cash equivalents                                        |      |  | $    | 22,007,216 
|Refundable tax payments                                          |      |  |      |           
|Other current assets                                             |      |  |      | 43,940     
|                                                                 |      |  |      |            
|Total current assets                                             |      |  |      | 22,051,156 
|                                                                 |      |  |      |            
|Investment in mineral properties                                 |      |  |      |           
|Property and equipment - net                                     |      |  |      | 504,951    
|Other assets                                                     |      |  |      | 1,469      
|                                                                 |      |  |      |            
|Total assets                                                     |      |  | $    | 22,557,576 
|                                                                 |      |  |      |            
|LIABILITIES AND SHAREHOLDERS' EQUITY                             |      | 
|                                                                 |      | 
|Current liabilities:                                             |      | 
|Accounts payable and accrued expenses                            |      |  | $    | 768,452    
|                                                                 |      |  |      |            
|Total current liabilities                                        |      |  |      | 768,452    
|                                                                 |      |  |      |            
|Shareholders' equity:                                            |      | 
|Preferred stock - $0.001 par value, 5,000,000 shares authorized: |      | 
|no shares issued and outstanding                                 |      |  |      |           
|Common stock - $0.001 par value, 60,000,000 shares authorized:   |      | 
|34,146,952 and 28,139,552 shares issued and outstanding,         |      |  |      | 34,147     
|respectively                                                     |      | 
|Additional paid-in capital                                       |      |  |      | 36,498,444 
|(Deficit) accumulated during the exploration stage               |      |  |      | (14,673,211
|Other comprehensive income:                                      |      | 
|Currency translation adjustment                                  |      |  |      | (70,256    
|                                                                 |      |  |      |            
|Total shareholders' equity                                       |      |  |      | 21,789,124 
|                                                                 |      |  |      |            
|Total liabilities and shareholders' equity                       |      |  | $    | 22,557,576 
|                                                                 |      |  |      |            

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 OPERATIONS                                             For the years ended
December 31, 2007 and 2006                                and for the period from
Inception (August 24, 1998) to December 31, 2007

|                                                | 2007 |  | 2006 |            | Inception (August
24, 1998) to
December 31, 2007 |  
|----------------------------------------------- | ---- |  | ---- | ---------- | ------------------------------------------------ | -
|Revenues:                                       |      |  |      |            |                                                  |  
|Gold sales                                      |      |  | $    |           |                                                  | $
|                                                |      |  |      |            |                                                  |  
|Costs and Expenses:                             |      | 
|Property exploration and evaluation             |      |  |      | 5,711,190  |                                                  |  
|Other mineral property costs                    |      |  |      | 20,581     |                                                  |  
|Management contract - U. S. Gold, related party |      |  |      |           |                                                  |  
|General and administrative                      |      | 
|Salaries and benefits                           |      |  |      | 880,098    |                                                  |  
|Legal and accounting                            |      |  |      | 234,154    |                                                  |  
|Investor relations                              |      |  |      | 342,083    |                                                  |  
|Travel related                                  |      |  |      | 173,559    |                                                  |  
|All other general and administrative            |      |  |      | 179,260    |                                                  |  
|Stock based compensation                        |      | 
|Stock awards                                    |      |  |      | 630,968    |                                                  |  
|Grant of stock options                          |      |  |      | 99,482     |                                                  |  
|Depreciation                                    |      |  |      | 47,480     |                                                  |  
|                                                |      |  |      |            |                                                  |  
|Total costs and expenses                        |      |  |      | 8,318,855  |                                                  |  
|                                                |      |  |      |            |                                                  |  
|Operating (loss)                                |      |  |      | (8,318,855 | )                                                |  
|Other income:                                   |      | 
|Interest income                                 |      |  |      | 242,513    |                                                  |  
|                                                |      |  |      |            |                                                  |  
|(Loss) before income taxes                      |      |  |      | (8,076,342 | )                                                |  
|Provision for income taxes                      |      |  |      |           |                                                  |  
|                                                |      |  |      |            |                                                  |  
|Net (loss)                                      |      |  |      | (8,076,342 | )                                                |  
|Other comprehensive income:                     |      | 
|Currency translation gain (loss)                |      |  |      | (89,939    | )                                                |  
|Net comprehensive (loss)                        |      |  | $    | (8,166,281 | )                                                | $
|                                                |      |  |      |            |                                                  |  
|Net (loss) per common share:                    |      | 
|Basic and Diluted                               |      |  | $    | (0.28      | )                                                | $
|Weighted average shares outstanding:            |      | 
|Basic and Diluted                               |      |  |      | 28,645,038 |                                                  |  
|                                                |      |  |      |            |                                                 

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

29

---



# 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, 2007

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

30

---



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

31

---



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

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

32

---



# GOLD RESOURCE
CORPORATION AND SUBSIDIARIES                                                     (An
Exploration Stage Company)                                                  CONSOLIDATED
STATEMENTS OF CASH FLOWS                                             For the years ended
December 31, 2007 and 2006                                and for the period from
Inception (August 24, 1998) to December 31, 2007

|                                                | 2007 |  | 2006 |            | Inception
(August 24,
1998) to
December 31,
2007 |  
|----------------------------------------------- | ---- |  | ---- | ---------- | ------------------------------------------------ | -
|Cash flows from operating activities:           |      |  |      |            |                                                  |  
|Net (loss)                                      |      |  | $    | (8,076,342 | )                                                | $
|                                                |      |  |      |            |                                                  |  
|Adjustments to reconcile net (loss) to net cash |      | 
|used by operating activities:                   |      | 
|Depreciation                                    |      |  |      | 47,480     |                                                  |  
|Stock compensation                              |      |  |      | 730,450    |                                                  |  
|Management fee paid in stock                    |      |  |      |           |                                                  |  
|Related party payable paid in stock             |      |  |      |           |                                                  |  
|Foreign currency translation adjustment         |      |  |      | (89,939    | )                                                |  
|Issuance cost forgiven                          |      |  |      |           |                                                  |  
|Changes in operating assets and liabilities:    |      | 
|Operating assets                                |      |  |      | 162,172    |                                                  |  
|Accounts payable and accrued liabilities        |      |  |      | 317,289    |                                                  |  
|Other liabilities - related parties             |      |  |      |           |                                                  |  
|Other                                           |      |  |      |           |                                                  |  
|                                                |      |  |      |            |                                                  |  
|Total adjustments                               |      |  |      | 1,167,452  |                                                  |  
|                                                |      |  |      |            |                                                  |  
|Net cash (used in) operating activities         |      |  |      | (6,908,890 | )                                                |  
|                                                |      |  |      |            |                                                  |  
|Cash flows from investing activities:           |      | 
|Capital expenditures                            |      |  |      | (456,152   | )                                                |  
|                                                |      |  |      |            |                                                  |  
|Net cash (used in) investing activities         |      |  |      | (456,152   | )                                                |  
|                                                |      |  |      |            |                                                  |  
|Cash flows from financing activities:           |      | 
|Cash proceeds from initial public stock         |      | 
|offering                                        |      |  |      |           |                                                  |  
|Cash proceeds from other sales of stock         |      |  |      | 21,712,000 |                                                  |  
|Cash proceeds from exercise of options          |      |  |      |           |                                                  |  
|Proceeds from debentures - founders             |      |  |      |           |                                                  |  
|Proceeds from exploration funding agreement -   |      | 
|Canyon Resources                                |      |  |      |           |                                                  |  
|                                                |      |  |      |            |                                                  |  
|Net cash provided by financing activities       |      |  |      | 21,712,000 |                                                  |  
|                                                |      |  |      |            |                                                  |  
|Net increase in cash and equivalents            |      |  |      | 14,346,958 |                                                  |  
|Cash and equivalents at beginning of year       |      |  |      | 7,660,258  |                                                  |  
|                                                |      |  |      |            |                                                  |  
|Cash and equivalents at end of year             |      |  | $    | 22,007,216 |                                                  | $
|                                                |      |  |      |            |                                                  |  
|Supplemental Cash Flow Information              |      | 
|Interest paid                                   |      |  | $    |           |                                                  | $
|                                                |      |  |      |            |                                                  |  
|Income taxes paid                               |      |  | $    |           |                                                  | $
|                                                |      |  |      |            |                                                  |  
|Non-cash investing and financing activities:    |      | 
|Conversion of Canyon Resources funding into     |      | 
|common stock                                    |      |  | $    |           |                                                  | $
|                                                |      |  |      |            |                                                  |  
|Conversion of founders debentures into          |      | 
|common stock                                    |      |  | $    |           |                                                  | $
|                                                |      |  |      |            |                                                  |  

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

33

---



# GOLD RESOURCE
CORPORATION AND SUBSIDIARIES                                                     (An
Exploration Stage Company)                                               NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
                                                      December 31, 2007 and 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. It plans to develop mineral properties and ultimately become a
producer of gold, silver, and base metals. The Company has not generated any revenues from
operations. The consolidated financial statements included herein are expressed in United
States dollars, the Companys reporting currency.

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 Resources S.A. de C.V. The expenditures of Don David
Gold and Golden Trump Resources are generally incurred in Mexican pesos. Significant
intercompany accounts and transactions have been eliminated.

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

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.

Mineral
Acquisition, Exploration and Development Costs.           Pursuant to
Emerging Issues Task Force (EITF) Issue No. 04-2, Whether Mineral
Rights are Tangible or Intangible Assets, mineral rights are treated as tangible
assets.  The acquisition costs of mineral rights are evaluated for recoverability at the
date of acquisition and periodically thereafter using the criteria set forth in the
following paragraphs.

Mineral
property  exploration and related costs are expensed as incurred unless
proven and probable reserves exist and the property is a commercially minable property.
If 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.
Interest costs, if any,
allocable to the cost of developing mining properties and to 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.

34

---



# GOLD RESOURCE
CORPORATION AND SUBSIDIARIES                                                     (An
Exploration Stage Company)                                               NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
                                                      December 31, 2007 and 2006

All
such capitalized costs, and estimated future development costs, if any, will be amortized
using the units-of-production method over the estimated life of the ore body. The
units-of-production method requires an estimate of proven and probable reserves. Until we
establish proven and probable reserves, we will generally not capitalize mining costs and
will not report any amortization expense.

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 Statement of
Financial Accounting Standards (SFAS) No. 144, Accounting for
Impairment or Disposal of Long-Lived Assets, and EITF Issue No. 04-3,
Mining Assets: Impairment and Business Combinations.

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

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

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

Property
Retirement Obligation.   The Company follows SFAS 143, Accounting for Asset
Retirement Obligations. 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 material property retirement obligations as of December 31,
2007.

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.

35

---



# GOLD RESOURCE
CORPORATION AND SUBSIDIARIES                                                     (An
Exploration Stage Company)                                               NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
                                                      December 31, 2007 and 2006

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
(28,645,038 for 2007 and 20,218,659 for 2006).   Diluted earnings per share reflect the
potential dilution of securities that could share in the earnings of the Company, similar
to fully diluted earnings per share. Potentially dilutive securities, such as common stock
options, are excluded from the calculation when their effect would be anti-dilutive. For
the period ended December 31, 2007, outstanding options to purchase 2,650,000 shares of
common stock would have an anti-dilutive effect and were therefore excluded from the
calculation.

Income
Taxes.   The Company accounts for income taxes under SFAS 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.

In
accordance with FIN 48 (effective January 1, 2007) which clarifies SFAS 109, the Company
recognizes in its financial statements the impact of any tax position that more than
likely will be sustained in an examination, based on the technical merits of the position.

Business
Risks.  The Company continually reviews the mining and political risks it encounters in
its operations. It mitigates the likelihood and potential severity of these risks through
the application of high operating standards. The Company may be affected to various
degrees by changes in environmental regulations, including those for future site
restoration and reclamation costs. The 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. FASB Statement No. 157, Fair Value Measurements (SFAS 157)
defines fair value, establishes a framework for measuring fair value in generally accepted
accounting principles, and expands disclosures about fair value measurements. Fair value
estimates discussed herein are based upon certain market assumptions and pertinent
information available to management as of December 31, 2007.

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.

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.

36

---



# GOLD RESOURCE
CORPORATION AND SUBSIDIARIES                                                     (An
Exploration Stage Company)                                               NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
                                                      December 31, 2007 and 2006

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.  In February 2007, the FASB issued FAS No. 159, The Fair
Value Option for Financial Assets and Financial Liabilities (FAS 159). Under
this standard, an entity is required to provide additional information that will assist
investors and other users of financial information to more easily understand the effect of
the companys choice to use fair value on its earnings. Further, the entity is
required to display the fair value of those assets and liabilities for which the company
has chosen to use fair value on the face of the balance sheet. This standard does not
eliminate the disclosure requirements about fair value measurements included in FAS 157
and FAS No. 107, Disclosures about Fair Value of Financial Instruments. FAS 159 is
effective for fiscal years beginning after November 15, 2007. Management is currently
evaluating the requirements of FAS 159 and has not yet determined the impact on its
financial statements.

In
December 2007 the FASB issued FAS No. 141 (revised 2007), Business Combinations
(SFAS 141R). This statement replaces SFAS 141, Business
Combinations. The statement provides guidance for how the acquirer recognizes and measures
the identifiable assets acquired, liabilities assumed and any non-controlling interest in
the acquiree. SFAS 141R provides for how the acquirer recognizes and measures the
goodwill acquired in the business combination or a gain from a bargain purchase. The
statement determines what information to disclose to enable users to be able to evaluate
the nature and financial effects of the business combination. The provisions of
SFAS 141R are effective as of January 1, 2009 and do not allow early adoption.
Management is currently evaluating the impact of adopting this statement.

In
December 2007, the FASB issued FAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements (SFAS 160), which becomes effective on
January 1, 2009. This standard establishes accounting and reporting standards for
ownership interests in subsidiaries held by parties other than the parent, the amount of
consolidated net income attributable to the parent and to the noncontrolling interest,
changes in a parents ownership interest and the valuation of retained
non-controlling equity investments when a subsidiary is deconsolidated. The Statement also
establishes reporting requirements that provide sufficient disclosures that clearly
identify and distinguish between the interests of the parent and the interests of the
non-controlling owners. Management is currently evaluating the impact of adopting this
statement.

There
were various other accounting standards and interpretations issued during 2007 and 2006,
none of which are expected to a have a material impact on the Companys consolidated
financial position, operations or cash flows.

# 2.    Mineral Properties

We
currently have an interest in four properties, the El Aguila property, the
Las Margaritas property, 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 Reyproperty, which are subject to a 2% royalty on production payable to this consultant.
All of these properties are in the exploration stage and have no proven or probable
reserves.

37

---



# GOLD RESOURCE
CORPORATION AND SUBSIDIARIES                                                     (An
Exploration Stage Company)                                               NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
                                                      December 31, 2007 and 2006

El
Aguila and Las Margaritas.  Effective October 14, 2002, we leased a prospective
gold/silver property comprised of three concessions, El Aguila, El Aireand 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. Prior to 2007 we have
made periodic advance royalty payments under the lease totaling $260,000 and no further
advance royalty payments are due.

El
Rey.  We have acquired claims in another area of the Sierra Madre del Sur region
of Mexico by filing concessions under the Mexican mining laws. The mineral concessions
making up the El Rey property are located within the San Baltazar Chichicapam
Ejido.During the year ended December 31, 2007, we spent $449,000 on exploratory
drilling at El Rey.

Solaga.
  
          In February 2007 we leased a 100% interest in a property known as the Solagaproperty. The lease required us to pay $10,000 at the time of execution,
          perform $25,000 of work and grant the lessor a 4% net smelter return on any
          production. We have conducted no exploration on this property to date.

# 3.    Property and Equipment

At
December 31, 2007, property and equipment consisted of the following:

|                               | 2007 |  | 2006 |        
|------------------------------ | ---- |  | ---- | -------
|Land                           |      |  | $    | 152,522
|Trucks and autos               |      |  |      | 131,509
|Office furniture and equipment |      |  |      | 88,385 
|Exploration equipment          |      |  |      | 205,302
|                               |      |  |      |        
|Subtotal                       |      |  |      | 577,718
|Accumulated depreciation       |      |  |      | (72,767
|                               |      |  |      |        
|Total                          |      |  | $    | 504,951
|                               |      |  |      |        

# 4.    Income Taxes

At
December 31, 2007, the Company has tax loss carryforwards approximating $7,400,000
that expire at various dates through 2027. The principle difference between the net loss
reported for book purposes and the taxable loss reported for tax purposes relates to the
taxation of foreign subsidiaries. Secondly, stock based compensation expenses are
generally deductible in different periods and in different amounts than the expense
recognized for book purposes.

38

---



# GOLD RESOURCE
CORPORATION AND SUBSIDIARIES                                                     (An
Exploration Stage Company)                                               NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
                                                      December 31, 2007 and 2006

The
tax effects of temporary differences that give rise to significant portions of the
deferred tax assets and deferred liabilities at December 31, 2007 and 2006 are presented
below:

|                                | 2007 |  | 2006 |           
|------------------------------- | ---- |  | ---- | ----------
|Deferred tax assets:            |      |  |      |           
|Net operating loss carryforward |      |  | $    | 2,537,000 
|Foreign losses                  |      |  |      | 2,167,000 
|Stock based compensation        |      |  |      | 278,000   
|                                |      |  |      |           
|Total deferred tax assets       |      |  |      | 4,982,000 
|Valuation allowance             |      |  |      | (4,982,000
|                                |      |  |      |           
|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 $2,616,000 during 2007.

A
reconciliation of the tax provision for 2007 and 2006 at statutory rates is comprised of
the following components:

|                         | 2007 |  | 2006 |           
|------------------------ | ---- |  | ---- | ----------
|Tax at statutory rates   |      |  | $    | (2,746,000
|Book to tax adjustments: |      | 
|Stock and option grants  |      |  |      | 34,000    
|Valuation allowance      |      |  |      | 2,712,000 
|                         |      |  |      |           
|Tax provision            |      |  | $    |          
|                         |      |  |      |           

# 5.    Shareholders
Equity (Deficit)

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

39

---



# GOLD RESOURCE
CORPORATION AND SUBSIDIARIES                                                     (An
Exploration Stage Company)                                               NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
                                                      December 31, 2007 and 2006

During
2001, the Founders made convertible debenture loans to the Company of $50,000 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 (total $205,000).

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, U.S. Gold acquired the RMB shares in exchange for U.S.
Gold shares, and terminated the obligation of the Company to pay RMB approximately $25,327
in transaction costs, which was added back into paid-in-capital.

During
2004, the Company sold 608,000 shares at $.25 per share raising net proceeds of $152,000.
Also during 2004,  the Company issued 1,200,000 shares
at approximately $.42 per share to Canyon for $500,000 in repayment of a loan for funding
of exploration cost at the El Aguila property. Also during 2004, the Company made a stock
grant of 600,000 shares 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.

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 U.S. Gold Corporation in satisfaction of $320,000 owed
for a prior year management contract.

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

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

40

---



# GOLD RESOURCE
CORPORATION AND SUBSIDIARIES                                                     (An
Exploration Stage Company)                                               NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
                                                      December 31, 2007 and 2006

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

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

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

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

Pursuant
to a contract effective November 1, 2006, the Company agreed to issue shares of common
stock to a consultant performing investor relations work on its behalf. The 30,000 shares
issued in November 2006 were valued at $1.50 per share, or $45,000. The 30,000 shares
issued in February 2007 were valued at $2.428 per share, or $72,840. The 30,000 shares
issued in May 2007 were valued at $3.39 per share or $101,670. In November, 2007, 30,000
shares were issued at a value of $4.14 per share or $124,200, and 20,000 shares were
issued at a value of $4.235 per share or $84,703. The Company agreed to issue an
additional 10,000 shares for services performed during December 2007 valued at $4.375 per
share or $43,745.

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

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

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

41

---



# GOLD RESOURCE
CORPORATION AND SUBSIDIARIES                                                     (An
Exploration Stage Company)                                               NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
                                                      December 31, 2007 and 2006

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, 2007, the Founders beneficially own a total of 7,264,845 shares
(excluding options), or approximately 21% 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 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.

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 calculated 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 issued 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 vested in 2007. Stock option compensation expense of
$21,440 was calculated 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%. The total cost of the 1,200,000 options issued
during 2006 was $163,340. The expense allocated to 2006 was $147,050 and the expense
allocated to 2007 was $16,290.

During
the year ended December 31, 2007, stock options were granted to a public relations
consultant to purchase 50,000 shares of common stock at an exercise price of $3.68 per
share and a term of two years and a vesting period during 2007. Stock option compensation
expense of $83,192 was calculated based upon a fair value calculation using the following
assumptions: expected life of two years, stock price of $3.68 at date of grant, dividend
yield of 0%, and interest rate of 4%.

42

---



# GOLD RESOURCE
CORPORATION AND SUBSIDIARIES                                                     (An
Exploration Stage Company)                                               NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
                                                      December 31, 2007 and 2006

|                                       | 2007 |  | 2006 |          
|-------------------------------------- | ---- |  | ---- | ---------
|
|Outstanding, beginning of year         |      |  |      | 2,600,000
|Granted                                |      |  |      | 50,000   
|Terminated                             |      |  |      |         
|Exercised                              |      |  |      |         
|                                       |      |  |      |          
|Outstanding, end of year               |      |  |      | 2,650,000
|                                       |      |  |      |          
|Options exercisable, end of year       |      |  |      | 2,650,000
|                                       |      |  |      |          
|Weighted Average Fair Value of Options |      |  |      |          

# 6.    Rental Expense and
Commitments and Contingencies

Effective October 1, 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 $13,400 in 2008. Rent expense for 2007 was
$27,000.

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s annual salary is $240,000 and David Reids annual salary is
$170,000. Each individual also participates in health and other insurance programs
maintained by the Company. 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.

# 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.

43

---



# GOLD RESOURCE
CORPORATION AND SUBSIDIARIES                                                     (An
Exploration Stage Company)                                               NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
                                                      December 31, 2007 and 2006

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 through November 2006, $9,000 per month
effective December 2006, and $10,000 per month effective August 2007 under a
month-to-month arrangement. The Company also leased the El Aguila Property from
Mr. Reynoso under terms which required advance royalty payments to Mr. Reynoso
aggregating $260,000.

# 8.    Subsequent Events

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

On
January 15, 2008, a Director of the Company exercised options to purchase 50,000 shares of
the Companys common stock at the exercise price of $1.00 per share.

44

---



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

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

|ITEM 9A(T). | CONTROLS AND
PROCEDURES
|----------- | -----------------------

(a)       
          Our management supervised and participated in an evaluation of the effectiveness
          of the design and operation of our disclosure controls and procedures as of
          December 31, 2007. Based on that evaluation, our management, including our
          principal executive officer and principal financial officer, concluded that our
          disclosure controls and procedures were effective to ensure that information
          required to be disclosed in the reports filed or submitted by the company under
          the Securities Exchange Act of 1934, as amended, is recorded, processed,
          summarized and communicated to our management, including our principal executive
          officer and principal financial officer, as appropriate, to allow timely
          decisions regarding required disclosure within the time periods specified in the
          SECs rules and forms.

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

(b)       
          There were no changes in our internal control over financial reporting during
          the quarter ended December 31, 2007 that materially affected, or are reasonably
          likely to materially affect, our internal controls over financial reporting.

|ITEM 9B. | OTHER INFORMATION
|-------- | -----------------

None.

# PART III

|ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|-------- | ------------------------------------------------------

# Directors and Executive
Officers

The
following individuals presently serve as our officers and directors:

|Name              | Age | Positions With the Company                        | Board Position Held Since
|----------------- | --- | ------------------------------------------------- | -------------------------
|William W. Reid   | 59  | President, Chief Executive Officer
and Director   | 1998                     
|                  |     |                                                   |                          
|David C. Reid     | 58  | Vice President, Secretary, Treasurer
and Director | 1998                     
|                  |     |                                                   |                          
|Bill M. Conrad    | 51  | Director                                          | 2006                     
|                  |     |                                                   |                          
|Frank L. Jennings | 57  | Chief Financial Officer                           | N/A                      
|                  |     |                                                   |                          
|Jason D. Reid     | 35  | Vice President of Corporate Development           | N/A                      

45

---



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

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

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

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

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

Bill
M. Conrad.   Mr. Conrad was elected to the Board of Directors on
June 1, 2006. From its inception in 2005, Mr. Conrad has served as the
vice-president, secretary and a director of Brishlin Resources, Inc., formerly
Blue Star Energy, Inc., a Colorado corporation engaged in the energy industry.
From February 2002 until June 2005, Mr. Conrad served as president and a
director of Wyoming Oil & Minerals, Inc., and from May 2000 until April
2003, he served as vice president and a director of New Frontier Energy, Inc.
The securities of Wyoming Oil & Mineral, now known as Sun Motor
International Inc., New Frontier Energy, and Brishlin Resources are quoted on
the OTC Bulletin Board. In 1990, Mr. Conrad co-founded MCM Capital Management
Inc. and has served as vice president since that time. Mr. Conrads term of
office as a director of our company will expire at the next annual meeting of
shareholders and when his successor has been elected and qualifies.

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. Pass
served as our financial consultant since 2002 and resigned due to the demands of other
obligations. Mr. Jennings serves our company on a part-time basis as his services are
deemed necessary. Since 2001, Mr. Jennings has been a financial consultant and provides
management and financial consulting services primarily to smaller public companies. From
2000 to 2005, he served as the chief financial officer and a director of Global Casinos,
Inc., a publicly traded Utah corporation, and from 2001 to 2005, he served as the chief
financial officer and a director of OnSource Corporation, now known as Ceragenix
Pharmaceuticals, Inc., a publicly traded Delaware corporation. During his tenure with
Global Casinos and Ceragenix Pharmaceuticals, each company was engaged in the gaming
industry and each had common stock quoted on the OTC Bulletin Board.

46

---



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

# Other Significant
Employees or Consultants

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

Jose
Perez Reynoso.   Mr. Reynoso, a Mexican national, has served our company as a full time
consultant since 2002. In that capacity, he oversees all our operations in Mexico, and
provides advice in relations with the Mexican Government. 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 ElAguila property from Mr. Reynoso in 2002.

# 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.

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

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

# Audit Committee

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

47

---



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

|ITEM 11. | EXECUTIVE AND DIRECTOR COMPENSATION
|-------- | -----------------------------------

The
following table summarizes the total compensation for the two fiscal years ended
December 31, 2007 of our executive officers and one highly compensated individual who
was not serving as an executive officer at the end of our last fiscal year:

# Summary Compensation
Table

|Name and
Principal Position |  | Year |      | Salary |  | Bonus |         | Stock
Awards |   | Option
Awards |  | Non-Equity
Incentive Plan
Compensation |   | All
Other
Compensation |   | Total      | 
|--------------------------- |  | ---- | ---- | ------ |  | ----- | ------- | ------------ | - | ------------- |  | -------------------------------------- | - | ---------------------- | - | ---------- | 
|William W. Reid,            |  |      | 2007 |        |  | $     | 240,000 |              | $ | 150,000       |  | $                                      |  |                        | $ |           | 
|Chairman, C.E.O.            |  |      | 2006 |        |  | $     | 240,000 |              | $ |              |  | $                                      |  |                        | $ |           | 
|and President(1)            |  |     
|                            |  |     
|David C. Reid,              |  |      | 2007 |        |  | $     | 170,000 |              | $ | 100,000       |  | $                                      |  |                        | $ |           | 
|Vice President and          |  |      | 2006 |        |  | $     | 170,000 |              | $ |              |  | $                                      |  |                        | $ |           | 
|Director(1)                 |  |     
|                            |  |     
|Jason D. Reid,              |  |      | 2007 |        |  | $     | 100,000 |              | $ | 75,000        |  | $                                      |  |                        | $ |           | 
|Vice President              |  |      | 2006 |        |  | $     | 46,875  |              | $ |              |  | $                                      |  |                        | $ | 83,575 (3) | 
|Corporate Development(2)    |  |     

---

|(1) | The
executive officer was not compensated for his service as a director of our company.
|--- | ---------------------------------------------------------------------------------------

|(2) | Mr.
Reid was appointed Vice President of Corporate Development effective January 2, 2008.
|--- | -----------------------------------------------------------------------------------------

|(3) | Valued
in accordance with SFAS 123(R).
|--- | --------------------------------------

Effective
January 1, 2006, we entered into employment agreements with William Reid and David Reid
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.

48

---



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 schedule.  Termination by an executive officer with good
reason includes a "change in control."

We
do not have an employment agreement with Jason Reid who is employed on an at-will basis.
 Jason Reid received $100,000 in annual salary and a $75,000 bonus in 2007.  Jason Reid
received an option award in 2006 to purchase 600,000 shares for $1.00 per share until
March 3, 2009.  He also participates in health and other insurance programs that we
maintain on the same basis and under the same terms as our other executive officers.

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

In
addition to our executive officers, we engage two consultants on a regular basis.  Jose
Perez Reynoso is the manager of our operations in Mexico and is paid at the rate of
$10,000 per month.  Frank Jennings, our financial consultant, is paid on an hourly basis,
which we expect will not exceed $3,000 per month in the aggregate.  We do not have a
written agreement with either consultant.

Outstanding Equity Awards at Fiscal
Year-End

The
following table summarizes the amount of our executive officers' equity-based
compensation outstanding at the fiscal year ended December 31, 2007:

|                                    |               | Option Awards                                                           |  | Stock Awards                                                           
|----------------------------------- | ------------- | ----------------------------------------------------------------------- |  | -----------------------------------------------------------------------
|Name                                |               | Number of Securities Underlying
                    Unexercised Options |  | Number of Securities Underlying
                    Unexercised Options
|Exercisable                         | Unexercisable
|                                    |               | (#)                                                                     |  | (#)                                                                    
|William W.
                    Reid |               | 400,000                                                                 |  | 0                                                                      
|William W.
                    Reid |               | 400,000                                                                 |  | 0                                                                      
|David C.
                    Reid   |               | 400,000                                                                 |  | 0                                                                      
|David C.
                    Reid   |               | 200,000                                                                 |  | 0                                                                      
|Jason D.
                    Reid   |               | 600,000                                                                 |  | 0                                                                      

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

We did not grant any options to our executive officers during 2007 or 2006.
In May 2006, Jason Reid was granted options to purchase our common stock for
$1.00 per share prior to March 3, 2009 upon accepting employment as Corporate
Development Assistant. The options immediately vested and as of December 31,
2007, all of the options were outstanding.

49

---



# Director Compensation

In June 2006, we retained Bill Conrad to serve on our Board of Directors.  Mr. Conrad receives
cash compensation, which was increased from $3,000 to $4,000 per month in
February 2007, and also received a stock grant of 100,000 shares of unrestricted
common stock valued at $1.00 per share and options to acquire up to 500,000
shares of stock on or before March 3, 2009 for $1.00 per share at the time of
his appointment, all of which immediately vested. All of the stock options were
outstanding as of December 31, 2007. In 2007, Mr. Conrad also received a cash
bonus of $35,000, which was granted at the discretion of the disinterested
members of the Board of Directors upon the recommendation of the disinterested
member of the Compensation Committee. Mr. Conrad received the award in
recognition of his board committee service, which the Board determined exceeded
the amount of time and effort anticipated at the time of his appointment. The
Board believed that Mr. Conrad should be adequately compensated for his time and
effort. The table below summarizes the compensation of our only director who is
not also one of our executive officers and whose compensation is not disclosed
in the Summary Compensation Table, for the fiscal year ended December 31, 2007:

|Name           |  | Fees Earned
or Paid in
Cash |   | Stock
Awards |  | Option
Awards |   | Non-Equity
Incentive Plan
Compensation |   | All
Other
Compensation |  | Total               | 
|-------------- |  | --------------------------- | - | ------------ |  | ------------- | - | -------------------------------------- | - | ---------------------- |  | ------------------- | 
|Bill M. Conrad |  |                             | $ | 47,000       |  | $             |  |                                        | $ |                       |  | $    
             | 

---

(1)    
          Mr. Conrad received a cash bonus of $35,000 for his service during 2007.

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

# Compensation Committee
Interlocks and Insider Participation

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

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

As
of April 7, 2008, there are a total of 34,206,952 shares of our common stock
outstanding, our only class of voting securities currently outstanding. The following
table describes the ownership of our voting securities by: (i) each of our officers and
directors; (ii) all of our officers and directors as a group; and (iii) each shareholder
known to us to own beneficially more than 5% of our common stock. Unless otherwise stated,
the address of each of the individuals is our address, 222 Milwaukee Street, Suite 301,
Denver, Colorado 80206. All ownership is direct, unless otherwise stated.

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

50

---



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

40 West 57th Street, 19th Floor
New York, NY  10019 |  |                          
|                                                                                        |  |                          
|All officers and directors as a group                                                   |  |                          
|(5 persons)                                                                             |  |                          

---

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

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

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

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

|(5) | Includes
1,534,200 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 450,000 shares which are currently exercisable.
|--- | ----------------------------------------------------------------------------

|(8) | Includes
200,000 shares owned by the reporting person's spouse, of which he disclaims beneficial
ownership.
|--- | -----------------------------------------------------------------------------------------------------------

|(9) | Includes
2,176,606 shares owned by the reporting person's spouse, of which she disclaims
beneficial ownership.
|--- | --------------------------------------------------------------------------------------------------------------

# Equity Incentive Plan

Our
Non-Qualified Stock Option and Stock Grant Plan (also as referred to as the
Plan) was adopted by us effective March 4, 1999. The Plan 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
below is information as of December 31, 2007 with respect to compensation plans (including
individual compensation arrangements) under which our equity securities are authorized for
issuance.

# Non-Qualified Stock
Option and Stock Grant Plan Information

|Plan Category                                          |  | Number of
securities to be
issued upon
exercise of
outstanding
9ptions, warrants
and rights
(a) |  | Weighted-
average exercise
price of
outstanding
options,
warrants and
rights
(b) |  | Number of
securities remaining
available for future
issuance under
equity compensation
plans (excluding
securities reflected
in column (a))
(c) | 
|------------------------------------------------------ |  | ----------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------- | 
|Equity compensation plans approved by shareholders     |  |                                                                                                 |  | 2,500,000                                                                        |  | $ 0.58                                                                                                                                          | 
|Equity compensation plans not approved by shareholders |  |                                                                                                 |  | 150,000                                                                          |  | $  1.89                                                                                                                                         | 
|                                                       |  |                                                                                                 |  |                                                                                  |  |                                                                                                                                                
|TOTAL                                                  |  |                                                                                                 |  | 2,650,000                                                                        |  | $  0.65                                                                                                                                         | 
|                                                       |  |                                                                                                 |  |                                                                                  |  |                                                                                                                                                

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.

51

---



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

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

# Changes in Control

One
of the holders of our common stock, Heemskirk Consolidated Limited, holds the first right
to acquire any stock offered by us in the future. While we have no plans to issue
additional stock in the future, 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.

|ITEM 13. | CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|-------- | -------------------------------------------------------------------------

# 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.

# Director Independence

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

52

---



# ITEM 14.    PRINCIPAL
ACCOUNTING FEES AND SERVICES

The
following table sets forth fees paid to (or accrued to) our principal accounting firm of
Stark Winter Schenkein & Co., LLP for the two years ended December 31, 2007:

|                   | 2007 |  | 2006 |       
|------------------ | ---- |  | ---- | ------
|Audit Fees         |      |  | $    | 31,800
|Audit Related Fees |      |  |      |      
|Tax Fees           |      |  |      | 2,750 
|All Other Fees     |      |  |      |      
|                   |      |  |      |       
|Total Fees         |      |  | $    | 34,550
|                   |      |  |      |       

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

# PART IV

# ITEM 15.    EXHIBITS,
FINANCIAL STATEMENT SCHEDULES

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

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

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

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

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

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

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

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

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

53

---



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

|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 | 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).
|----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.11 | Form
of Subscription Agreement between the Company and investors in the December 2007 private
                   placement (incorporated by reference from our report on Form 8-K dated
December 5, 2007,                    Exhibit 10.1, File No. 333-129321).
|----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

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

---

* filed herewith

54

---



# 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.

|                         |                                                                                                                                                          
|------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|Dated: February 12, 2009 | GOLD RESOURCE CORPORATION
      
    /s/ William W. Reid
By:    William W. Reid, Chairman of the Board,
         
  President and Chief Executive Officer

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

|                                                                                                                                                            |                                                                                                                                                       |                                                         
|----------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------
|/s/ William W. Reid
William W. Reid 
                      /s/ Frank L. Jennings
Frank L. Jennings 
                      /s/ Bill M. Conrad
Bill M. Conrad | Chairman of the Board,      
President and
Principal Executive Officer
Principal Financial         
Officer and Principal
Accounting Officer
Director | February  12, 2009
February  12, 2009
February  12, 2009

55

---



# EXHIBIT INDEX

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

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

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

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

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

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

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

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

|10.4 | 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).
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

56

---



|10.10 | 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).
|----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.11 | Form
of Subscription Agreement between the Company and investors in the December 2007 private
                   placement (incorporated by reference from our report on Form 8-K dated
December 5, 2007,                    Exhibit 10.1, File No. 333-129321).
|----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

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

---

* filed herewith

57

---