---



CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED JULY 31, 2006, 2005 AND 2004

(Expressed in United States Dollars, unless otherwise
stated)

---

|DAVIDSON &
      COMPANY LLP |  |  | Chartered Accountants |  | A Partnership
      of Incorporated Professionals
|---------------------------- |  |  | --------------------- |  | -------------------------------------------------

INDEPENDENT AUDITORS' REPORT

To the Shareholders of
  Quartz Mountain Resources Ltd.

We have audited the consolidated balance sheets of Quartz Mountain
  Resources Ltd. as at July 31, 2006 and 2005 and the consolidated statements
  of operations and deficit and cash flows for the years ended July 31, 2006,
  2005 and 2004. These financial statements are the responsibility of the Company's
  management. Our responsibility is to express an opinion on these financial statements
  based on our audits.

We conducted our audits in accordance with Canadian generally
  accepted auditing standards and with the standards of the Public Company Accounting
  Oversight Board (United States). Those standards require that we plan and perform
  an audit to obtain reasonable assurance whether the financial statements are
  free of material misstatement. An audit includes examining, on a test basis,
  evidence supporting the amounts and disclosures in the financial statements.
  An audit also includes assessing the accounting principles used and significant
  estimates made by management, as well as evaluating the overall financial statement
  presentation.

In our opinion, these consolidated financial statements present
  fairly, in all material respects, the financial position of the Company as at
  July 31, 2006 and 2005 and the results of its operations and its cash flows
  for the years ended July 31, 2006, 2005 and 2004 in accordance with Canadian
  generally accepted accounting principles.

"DAVIDSON & COMPANY LLP"

|Vancouver, Canada | Chartered Accountants
|----------------- | ---------------------
|                  |                      
|October 11, 2006  |                      

COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA –
  U.S. REPORTING DIFFERENCE

In the United States, reporting standards for auditors require
  the addition of an explanatory paragraph (following the opinion paragraph) when
  the financial statements are affected by conditions and events that cast substantial
  doubt on the Company's ability to continue as a going concern, such as those
  described in Note 1 to the financial statements. Our report to the shareholders
  dated October 11, 2006 is expressed in accordance with Canadian reporting standards
  which do not permit a reference to such events and conditions in the auditors'
  report when these are adequately disclosed in the financial statements.

"DAVIDSON & COMPANY LLP"

|Vancouver, Canada | Chartered Accountants
|----------------- | ---------------------
|                  |                      
|October 11, 2006  |                      

A Member of SC INTERNATIONAL1200 - 609 Granville Street, P.O. Box 10372, Pacific Centre, Vancouver,
  BC, Canada, V7Y 1G6
  Telephone (604) 687-0947 Fax (604) 687-6172

---

QUARTZ MOUNTAIN RESOURCES
LTD.Consolidated Balance Sheets(Expressed in
United States Dollars, unless otherwise stated)

|                                                    |   | July
      31 |   |   | July
      31 |  
|--------------------------------------------------- | - | ------------- | - | - | ------------- | -
|                                                    |   | 2006          |   |   | 2005          |  
|                                                    |   |               |   |   |               |  
|ASSETS                                              |   |               |   |   |               |  
|                                                    |   |               |   |   |               |  
|Current assets                                      |   |               |   |   |               |  
|Cash and equivalents                                | $ | 1,071,431     |   | $ | 670,755       |  
|Amounts receivable and prepaids                     |   | 8,922         |   |   | 16,525        |  
|Amounts due from related parties (note 7)           |   | 33,677        |   |   |              |  
|                                                    |   | 1,114,030     |   |   | 687,280       |  
|                                                    |   |               |   |   |               |  
|Mineral
      property interests(note 5)            |   | 1             |   |   | 1             |  
|                                                    |   |               |   |   |               |  
|                                                    | $ | 1,114,031     |   | $ | 687,281       |  
|                                                    |   |               |   |   |               |  
|LIABILITIES AND SHAREHOLDERS' EQUITY                |   |               |   |   |               |  
|                                                    |   |               |   |   |               |  
|Current liabilities                                 |   |               |   |   |               |  
|Accounts payable and accrued
      liabilities      | $ | 16,664        |   | $ | 8,726         |  
|Amounts due
      to related parties (note 7)       |   |              |   |   | 3,933         |  
|                                                    |   | 16,664        |   |   | 12,659        |  
|                                                    |   |               |   |   |               |  
|Shareholders' equity                                |   |               |   |   |               |  
|Share capital (note 6)                              |   | 21,269,046    |   |   | 20,726,303    |  
|Contributed surplus (note 6(d))                     |   |              |   |   | 54,540        |  
|Deficit                                             |   | (20,171,679   | ) |   | (20,106,221   | )
|                                                    |   | 1,097,367     |   |   | 674,622       |  
|Nature and
      continuance of operations (note 1) |   |               |   |   |               |  
|                                                    |   |               |   |   |               |  
|                                                    |   |               |   |   |               |  
|                                                    | $ | 1,114,031     |   | $ | 687,281       |  

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

Approved by the Board of Directors

|*/s/ Rene G. Carrier* | */s/ Gordon J. Fretwell*
|--------------------- | ------------------------
|                      |                         
|Rene G. Carrier       | Gordon J. Fretwell      
|Director              | Director                

---

QUARTZ MOUNTAIN RESOURCES
LTD.Consolidated Statements of Operations(Expressed
in United States Dollars, unless otherwise stated)

|                                                     |   | Years ended July 31 |  
|---------------------------------------------------- | - | ------------------- | -
|                                                     |   | 2006                |  
|                                                     |   |                     |  
|                                                     |   |                     |  
|                                                     |   |                     |  
|Expenses and other                                   |   |                     |  
|Foreign exchange gain                                | $ | (53,106             | )
|Interest income                                      |   | (26,201             | )
|Legal, accounting and audit                          |   | 40,290              |  
|Mineral property investigations                      |   |                    |  
|Office and administration                            |   | 82,247              |  
|Regulatory, trust and filing                         |   | 22,228              |  
|Write-down of mineral property interests (note 5a)   |   |                    |  
|                                                     |   |                     |  
|Loss for the year                                    | $ | 65,458              |  
|                                                     |   |                     |  
|Basic and diluted loss per common share              | $ | 0.01                |  
|                                                     |   |                     |  
|Weighted average number of common shares outstanding |   | 12,322,741          |  

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



Consolidated Statements of Deficit(Expressed in
United States Dollars, unless otherwise stated)

|                           |   | Years ended July 31 |  
|-------------------------- | - | ------------------- | -
|                           |   | 2006                |  
|                           |   |                     |  
|                           |   |                     |  
|                           |   |                     |  
|                           |   |                     |  
|Deficit, beginning of year | $ | (20,106,221         | )
|Loss for the year          |   | (65,458             | )
|Deficit, end of year       | $ | (20,171,679         | )

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

---

QUARTZ MOUNTAIN RESOURCES
LTD.Consolidated Statements of Cash Flows(Expressed in
United States Dollars, unless otherwise stated)

|                                                                 |   | Years ended July 31 |  
|---------------------------------------------------------------- | - | ------------------- | -
|Cash provided by (used in)                                       |   | 2006                |  
|                                                                 |   |                     |  
|                                                                 |   |                     |  
|                                                                 |   |                     |  
|                                                                 |   |                     |  
|Operating activities                                             |   |                     |  
|Loss for the year                                                | $ | (65,458             | )
|Items not involving cash                                         |   |                     |  
|Write-down of mineral
      property interests                   |   |                    |  
|Changes in non-cash working capital items                        |   |                     |  
|Amounts receivable
      and prepaids                            |   | 7,603               |  
|Accounts payable and accrued liabilities                         |   | 7,938               |  
|Advances from/(to) related parties                               |   | (37,610             | )
|                                                                 |   | (87,527             | )
|                                                                 |   |                     |  
|Financing activities                                             |   |                     |  
|Shares issued net of issuance costs                              |   | 488,203             |  
|                                                                 |   |                     |  
|Increase (decrease) in cash and equivalents                      |   |                     |  
|during the year                                                  |   | 400,676             |  
|                                                                 |   |                     |  
|Cash and equivalents,
      beginning of year                    |   | 670,755             |  
|                                                                 |   |                     |  
|Cash and equivalents, end of year                                | $ | 1,071,431           |  
|                                                                 |   |                     |  
|Components of cash and equivalents are as follows:               |   |                     |  
|Cash                                                             | $ | 13,869              |  
|Commercial paper                                                 |   | 58,608              |  
|Bankers acceptances                                              |   | 998,954             |  
|                                                                 | $ | 1,071,431           |  
|                                                                 |   |                     |  
|Supplemental disclosure:                                         |   |                     |  
|Interest received during the
      year                          | $ | 26,201              |  
|Income taxes paid during the year                                | $ |                    |  
|                                                                 |   |                     |  
|                                                                 |   |                     |  
|Non-cash financing activities                                    |   |                     |  
|Shares issued on acquisition of mineral property
      interests | $ |                    |  
|Fair value of warrants exercised transferred to share capital    | $ | 54,540              |  

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

---

|QUARTZ MOUNTAIN RESOURCES LTD.                                     
|-------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                     
|For the years ended July 31, 2006, 2005 and 2004                   
|(Expressed in
      United States Dollars, unless otherwise stated)

|1. | NATURE AND CONTINUANCE OF OPERATIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Quartz Mountain Resources Ltd. (the Company) is a
      Canadian public company incorporated in British Columbia. The Company is
      primarily engaged in the acquisition and exploration of mineral
      properties.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | These consolidated financial statements have been
      prepared using Canadian generally accepted accounting principles assuming
      a going concern. At July 31, 2006, the Company had working capital of
      approximately $1,097,000 (2005  $675,000). Other than incidental interest
      income, the Company has no source of revenue and has incurred operating
      losses since its inception. The ability of the Company to continue as a
      going concern depends upon its ability to develop profitable operations
      and to continue to raise adequate financing. There can be no assurance
      that the Company will be able to secure additional financial resources or
      achieve profitability or positive cash flows. If the Company is unable to
      obtain adequate additional financing or enter into business alliances, the
      Company will be required to curtail its operations and exploration
      activities. Failure to continue as a going concern would require that the
      Companys assets and liabilities be restated on a basis which could differ
      significantly from the going concern basis.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|2. | BASIS OF PRESENTATION AND PRINCIPLES OF
      CONSOLIDATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | These consolidated financial statements have been
      prepared in accordance with Canadian generally accepted accounting
      principles. These consolidated financial statements include the accounts
      of (i) Quartz Mountain Resources Ltd., (ii) Quartz Mountain Gold Inc., a
      wholly-owned subsidiary incorporated in the State of Nevada, and (iii)
      Wavecrest Resources Inc., a wholly-owned subsidiary of Quartz Mountain
      Gold Inc., incorporated in the State of Delaware.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | All material intercompany balances and transactions have
      been eliminated upon consolidation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | The results of applying measurement accounting principles
      generally accepted in the United States are set out in note 10.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|3. | SIGNIFICANT ACCOUNTING
POLICIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

|(a) | Cash and equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | Cash and equivalents include highly liquid investments
      with original maturities of three months or less.                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | At July 31, 2006, the Company held
      Canadian-dollar-denominated cash and equivalents totaling Cdn$1,141,607
      (2005  Cdn$735,417).                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(b) | Financial instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | The Companys financial instruments consist of cash and
      equivalents, amounts receivable, accounts payable and accrued liabilities
      and amounts due from and to related parties. It is managements opinion
      that the Company is not exposed to significant interest or credit risks
      arising from these financial instruments. The fair value of these
      financial instruments approximates their carrying values due to their
      short term nature.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | The Company maintains its cash and equivalents
      substantially in Canadian dollars and is subject to currency
  risk.                                                                                                                                                                                                                                                                                                                                                       

---

|QUARTZ MOUNTAIN RESOURCES LTD.                                     
|-------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                     
|For the years ended July 31, 2006, 2005 and 2004                   
|(Expressed in United
      States Dollars, unless otherwise stated)

|(c) | Allowance for receivables                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | The Company establishes an allowance for receivables on a specific account basis. No allowance for receivables was recorded by the Company as at July 31, 2006 and 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(d) | Mineral property interests                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | Mineral property acquisition costs, and exploration and development expenditures incurred subsequent to the determination of the feasibility of mining operations, are capitalized until the property to which they relate is placed
into production, sold, allowed to lapse or abandoned. Mineral property acquisition costs include the cash consideration and the fair value of common shares and warrants issued for mineral property interests, pursuant to the terms of the relevant
agreement. These costs are amortized over the estimated life of the property following commencement of commercial production, or written off if the property is sold, allowed to lapse or abandoned, or when an impairment in value has been determined
to have occurred.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | Exploration expenses incurred prior to determination of the feasibility of mining operations, including periodic option payments and administrative expenditures are expensed as incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(e) | Asset retirement obligations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | The Company recognizes statutory, contractual or other legal obligations related to the retirement of tangible long-lived assets when such obligations are incurred, if a reasonable estimate of fair value can be made. These
obligations are measured initially at fair value and the resulting costs capitalized to the carrying value of the related asset. In subsequent periods, the liability is adjusted for any changes in the amount or timing and for the discounting of the
underlying future cash flows. The capitalized asset retirement cost is amortized to operations over the life of the asset.                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(f) | Foreign currency translation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | All of the Companys foreign operations are considered integrated.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | Monetary assets and liabilities of the Company and its integrated foreign operations are translated into United States dollars at exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities are
translated at historical exchange rates unless such items are carried at market, in which case they are translated at the exchange rates in effect on the balance sheet date. Revenues and expenses, except amortization, are translated at the average
exchange rates for the period. Amortization is translated at the same exchange rate as the assets to which it relates. Gains or losses on translation are recorded in the statement of operations.                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(g) | Income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | The Company uses the asset and liability method of accounting for income taxes. Under this method, future income tax assets and liabilities are computed based on differences between the carrying amount of existing assets and
liabilities on the balance sheet and their corresponding tax values, using the substantively enacted income tax rates expected to apply to taxable income in the years in which the asset is realized or the liability settled.                                                                                                                                                                                                                                                                                                    

---

|QUARTZ MOUNTAIN RESOURCES LTD.                                     
|-------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                     
|For the years ended July 31, 2006, 2005 and 2004                   
|(Expressed in United
      States Dollars, unless otherwise stated)

|    | Future income tax assets also result from unused loss carry forwards and other deductions. Future tax assets are recognized to the extent that they are considered more likely than not to be realized. The valuation of future income
tax assets is adjusted, if necessary, by the use of a valuation allowance to reflect the estimated realizable amount.                                                                                                                                                                                                                                                                                                                                                                                              
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(h) | Share capital                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | The Company records proceeds from share issuances net of issue costs. Shares issued for consideration other than cash are valued at the quoted price on the stock exchange on the date that shares are issued pursuant to the relevant
agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(i) | Stock-based compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | The Company has a share option plan which is described in note 6(e). The Company records all stock- based payments granted using the fair value method.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | Under the fair value method, stock-based payments are measured at the fair value of the consideration received or the fair value of the equity instruments issued or liabilities incurred, whichever is more reliably measurable and
are charged to operations over the vesting period. The offset is credited to contributed surplus.                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | Consideration received upon the exercise of stock options is credited to share capital and the related contributed surplus is transferred to share capital.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | During the years ended July 31, 2006, 2005 and 2004, no stock options were granted.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(j) | Loss per share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | Basic loss per share is calculated by dividing the loss available to common shareholders for the period by the weighted average number of shares outstanding during the period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | The Company uses the treasury stock method to compute the dilutive effect of options, warrants and similar instruments. Under this method the dilutive effect on loss per share is recognized on the use of the proceeds that could be
obtained upon exercise of options, warrants and similar instruments. It assumes that the proceeds would be used to purchase common shares at the average price during the period. For all years presented, the impact of stock options and warrants, if
any, has been excluded as they would be anti- dilutive.                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(k) | Use of estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | The preparation of consolidated financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as at the balance sheet date and the reported amounts of revenue and expenses during the reporting period. Significant areas requiring the use of management estimates relate to the
determination of potential impairment of assets, reclamation obligations and rates for amortization as well as the assumptions used in determining the fair value of non-cash stock-based compensation and warrants. Actual results could differ from
those estimates.

---

|QUARTZ MOUNTAIN RESOURCES LTD.                                     
|-------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                     
|For the years ended July 31, 2006, 2005 and 2004                   
|(Expressed in United
      States Dollars, unless otherwise stated)

|(l) | Variable interest entities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | Effective August 1, 2005, the Company adopted the
      Canadian Institute of Chartered Accountants (CICA) Accounting Guideline
      15, Consolidation of Variable Interest Entities("AcG15") on a
      prospective basis. AcG15 prescribes the application of consolidation
      principles for entities that meet the definition of a variable interest
      entity (VIE). An enterprise holding other than a voting interest in a
      VIE could, subject to certain conditions, be required to consolidate the
      VIE if it is considered its primary beneficiary whereby it would absorb
      the majority of the VIEs expected losses, receive the majority of its
      expected residual returns, or both. The adoption of this new standard had
      no effect on these consolidated financial statements as the Company does
      not have any VIEs.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|(m) | Comparative figures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | Certain of the prior years figures have been
      reclassified to conform to the financial statement presentation adopted
      for the current year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

|4. | CHANGE IN ACCOUNTING POLICY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | Mineral property interest                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | During the year ended July 31, 2005, the Company changed
      its policy from capitalizing (deferring) mineral property exploration
      expenditures to charging these costs to earnings in the period incurred.
      This change in accounting policy is applied retroactively and the amounts
      presented for prior periods have been restated for this change. The effect
      of this change is to reduce loss for the year ended July 31, 2004 by
      $8,086. There was no impact to opening deficit for the year ended July 31,
      2005. The impact of this restatement on the July 31, 2004 consolidated
      financial statements is as follows:

| |                                                       |   | As         |   |   |            |   |   |                   |  
| | ----------------------------------------------------- | - | ---------- | - | - | ---------- | - | - | ----------------- | -
| |                                                       |   | previously |   |   |            |   |   |                   |  
| |                                                       |   | reported   |   |   | Adjustment |   |   | As
      restated |  
| |                                                       |   |            |   |   |            |   |   |                   |  
| | Year ended July 31, 2004:                             |   |            |   |   |            |   |   |                   |  
| | Write-down of mineral
      property interests        | $ | 23,296     |   | $ | (8,086     | ) | $ | 15,210            |  
| | Loss for the year                                     |   | 136,252    |   |   | (8,086     | ) |   | 128,166           |  
| | Loss (income) per share                               |   | 0.01       |   |   | 0.00       |   |   | 0.01              |  
| | Cash provided by (used in) operating
      activities |   | (117,219   | ) |   |           |   |   | (117,219          | )
| | Cash provided by (used in) investing
      activities |   |           |   |   |           |   |   |                  |  

---

|QUARTZ MOUNTAIN RESOURCES LTD.                                     
|-------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                     
|For the years ended July 31, 2006, 2005 and 2004                   
|(Expressed in United
      States Dollars, unless otherwise stated)

|5. | MINERAL PROPERTY
INTERESTS
|-- | --------------------------

| |                                          |   | Year
      ended July 31 | 
| | ---------------------------------------- | - | ------------------------ | 
| |                                          |   | 2006                     | 
| | Ample-Goldmax Property, British Columbia |   |                          | 
| |                                          |   |                          | 
| |                                          |   |                          | 
| |                                          |   |                          | 
| | Acquisition costs                        |   |                          | 
| | Balance, beginning of year               | $ |                         | 
| | Incurred during the year                 |   |                         | 
| | Written off during the year              |   |                         | 
| | Balance, end of year                     |   |                         | 
| |                                          |   |                          | 
| | Exploration costs                        |   |                          | 
| | Balance, beginning of year               |   |                         | 
| | Written off during the year              |   |                         | 
| | Balance, end of year                     |   |                         | 
| |                                          |   |                          | 
| | Quartz Mountain Property                 |   |                          | 
| | Net smelter royalty                      |   | 1                        | 
| |                                          |   |                          | 
| |                                          |   |                          | 
| | Total mineral property interests         | $ | 1                        | 

|(a) | Ample-Goldmax Property British Columbia,
      Canada                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | During the year ended July 31, 2003, the Company entered
      into a Letter Option Agreement to acquire a 100% interest in the
      Ample-Goldmax Mineral Claims located in the Lillooet Mining Division. The
      Company paid the optionors Cdn$10,000 at the time of signing and issued
      25,000 common shares on the date of regulatory approval. An additional
      75,000 common shares were issued in fiscal 2003 and 25,000 common shares
      were issued in fiscal 2004 pursuant to the option agreement. During the
      year ended July 31, 2004, the Company terminated its option, and
      accordingly, wrote off its interest in the amount of $15,210. The Company
      has no further obligations under the option agreement.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(b) | Quartz Mountain Property Oregon, USA                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | During the year ended July 31, 2002, the Company sold
      100% of its title, rights and interest in the Quartz Mountain property
      located in Lake County, Oregon to Seabridge Resources Inc. ("Seabridge")
      for 300,000 common shares of Seabridge, 200,000 common share purchase
      warrants of Seabridge, cash of $100,000, and a 1% net smelter return
      royalty payable to the Company on any production from the Quartz Mountain
      property.                                                                                                                                                                                                                                                                                   

---

|QUARTZ MOUNTAIN RESOURCES LTD.                                     
|-------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                     
|For the years ended July 31, 2006, 2005 and 2004                   
|(Expressed in United
      States Dollars, unless otherwise stated)

|6. | SHARE CAPITAL
|-- | -------------

|(a) | Authorized share capital                                                                                                                                                              
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                       
|    | The Companys authorized share capital consists of an
      unlimited number of common shares, without par value and an unlimited
      number of preferred shares, without par value.
|    |                                                                                                                                                                                       
|(b) | Issued and outstanding common
  shares                                                                                                                                                

| |                                                   |  | Number
      of |  |  | Price  |  |   | Amount     | 
| | ------------------------------------------------- |  | --------------- |  |  | ------ |  | - | ---------- | 
| | Common shares issued                              |  | Shares          |  |  | (US$)  |  |   | (US$)      | 
| | Balance at July 31, 2003                          |  | 9,643,315       |  |  |        |  | $ | 20,366,625 | 
| | Private placement, net of issue costs (ii)        |  | 1,510,000       |  |  | 0.2100 |  |   | 258,712    | 
| | Ample-Goldmax property option payment (note 5(a)) |  | 25,000          |  |  | 0.0920 |  |   | 2,295      | 
| | Balance at July 31, 2004                          |  | 11,178,315      |  |  |        |  |   | 20,627,632 | 
| | Cash received on exercise of
      warrants (i)   |  | 711,111         |  |  | 0.1254 |  |   | 89,179     | 
| | Fair
      value of warrants exercised            |  |                |  |  |        |  |   | 9,492      | 
| | Balance at July 31, 2005                          |  | 11,889,426      |  |  |        |  |   | 20,726,303 | 
| | Cash received on exercise of warrants (ii)        |  | 1,510,000       |  |  | 0.3233 |  |   | 488,203    | 
| | Fair value of warrants exercised                  |  |                |  |  |        |  |   | 54,540     | 
| | Balance at July 31, 2006                          |  | 13,399,426      |  |  |        |  | $ | 21,269,046 | 

| | (i)  | On December 2, 2002, the Company issued 711,111 units at
      a price of Cdn$0.1125 (US$0.071) per unit for gross proceeds of Cdn$80,000
      (net proceeds of US$40,895). Each unit was comprised of one common share
      and one share purchase warrant. Each warrant entitled the holder to
      purchase a further common share exercisable until December 2, 2004 at a
      price of Cdn$0.15. The share purchase warrants issued as part of this
      private placement had been recorded at an estimated fair value of $9,492.
      In November 2004, these warrants were exercised by the warrant holders.
      The estimated fair value of $9,492 was reallocated from contributed
      surplus to share capital.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | (ii) | On April 19, 2004, the Company issued 1,510,000 units at
      a price of Cdn$0.28 (US$0.210) per unit for net proceeds of $258,712. Each
      unit was comprised of one common share and one share purchase warrant.
      Each warrant is exercisable until April 19, 2006 and entitles the holder
      to purchase a further common share at a price of Cdn$0.37. The share
      purchase warrants issued as part of this private placement had been
      recorded at an estimated fair value of $54,540. In April 2006, these
      warrants were exercised by the warrant holders. The estimated fair value
      of $54,540 was reallocated from contributed surplus to share
    capital.                                

---

|QUARTZ MOUNTAIN RESOURCES LTD.                                     
|-------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                     
|For the years ended July 31, 2006, 2005 and 2004                   
|(Expressed in United
      States Dollars, unless otherwise stated)

|(c) | Share purchase warrants                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                  
|    | The continuity of share purchase warrants (each
      exercisable into one common share) for the year ended July 31, 2006
    is:

| |                                               |  | Number            |   |  |          | 
| | --------------------------------------------- |  | ----------------- | - |  | -------- | 
| | Share purchase
      warrants issued          |  | of
      Warrants |   |  | Price    | 
| |                                               |  |                   |   |  |          | 
| | Balance at July 31, 2003                      |  | 711,111           |   |  | Cdn$0.15 | 
| | Private placement, April 2004 (note 6(b)(ii)) |  | 1,510,000         |   |  | Cdn$0.37 | 
| |                                               |  |                   |   |  |          | 
| | Balance at July 31, 2004                      |  | 2,221,111         |   |  |          | 
| | Exercised (note 6(b)(i))                      |  | (711,111          | ) |  | Cdn$0.30 | 
| |                                               |  |                   |   |  |          | 
| | Balance at July 31, 2005                      |  | 1,510,000         |   |  |          | 
| | Exercised (note 6(b)(ii))                     |  | (1,510,000        | ) |  | Cdn$0.15 | 
| |                                               |  |                   |   |  |          | 
| | Balance at July
      31, 2006                |  |                  |   |  |         | 

|(d) | Contributed surplus
|--- | -------------------

| | Balance at July 31, 2003 (note 6(b)(i))                                  | $ | 9,492   |  
| | ------------------------------------------------------------------------ | - | ------- | -
| | Share purchase warrants issued, April 2004 (note
      6(b)(ii))         |   | 54,540  |  
| |                                                                          |   |         |  
| | Balance at July 31, 2004                                                 |   | 64,032  |  
| | Share purchase warrants
      exercised for common stock (note 6(b)(i))  |   | (9,492  | )
| |                                                                          |   |         |  
| | Balance at July 31, 2005                                                 |   | 54,540  |  
| | Share purchase warrants exercised for common stock
      (note 6(b)(ii)) |   | (54,540 | )
| |                                                                          |   |         |  
| | Balance at July
      31, 2006                                           | $ |        |  

|(e) | Share purchase options                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | At its Annual and Special General Meeting held in January
      2004, shareholders of the Company approved a Share Purchase Option Plan in
      accordance with the policies of the TSXV. Under this plan, the Company is
      authorized to grant up to 1,900,000 share purchase options to directors,
      officers, employees and consultants. The exercise price of each option
      normally equals or exceeds the market price of the Company's shares as
      calculated on the date of grant. No service provider can be granted an
      option if that option would result in the service provider receiving
      shares, in conjunction with any other share compensation arrangement, of
      greater than 5% of the outstanding listed shares. Options granted are for
      a term of no greater than five years. Vesting of options is at the
      discretion of the Board of Directors at the time the options are
      granted.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | To July 31, 2006, no share purchase options had been
      granted under this plan. Accordingly, there were no stock options
      outstanding as at July 31, 2006, 2005 and
2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

---

|QUARTZ MOUNTAIN RESOURCES LTD.                                     
|-------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                     
|For the years ended July 31, 2006, 2005 and 2004                   
|(Expressed in United
      States Dollars, unless otherwise stated)

|7. | RELATED PARTY BALANCES AND
  TRANSACTIONS
|-- | -----------------------------------------

| | Balances receivable (payable)             |   |                    |  |   | As at July 31 | 
| | ----------------------------------------- | - | ------------------ |  | - | ------------- | 
| |                                           |   |                    |  |   | 2006          | 
| | Hunter Dickinson Inc. (a)                 |   |                    |  | $ | 33,677        | 
| |                                           |   |                    |  |   |               | 
| | Transactions                              |   | Year ended July 31 | 
| |                                           |   | 2006               |  |   | 2005          | 
| | Services rendered and expenses reimbursed |   |                    |  |   |               | 
| | Hunter Dickinson Inc. (a)                 | $ | 69,407             |  | $ | 57,732        | 
| | Euro-American Capital Corporation (b)     |   |                   |  |   | 571           | 
| | Other (c)                                 |   |                   |  |   |              | 

Related party balances receivable or
payable arise from advances by the Company for current and future services
rendered to or costs incurred on behalf of the Company by Hunter Dickinson Inc.
(HDI). The related party balances are non-interest bearing and due on demand.

| | (a) | HDI is a private company owned equally by nine public
      companies, one of which is the Company. HDI has certain directors in
      common with the Company and provides geological, corporate development,
      administrative and management services to, and incurs third party costs on
      behalf of, the Company and its subsidiaries on a full cost recovery basis
      pursuant to an agreement dated December 31, 1996. These costs are included
      in office and administration expenses.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | During the year ended July 31, 2003, the Company
      completed a private placement with HDI of 711,111 units comprised of one
      common share and one share purchase warrant at a price of Cdn$0.1125 per
      unit. The share purchase warrants were subsequently exercised in the year
      ended July 31, 2005 by HDI (note 6(b)(i)).                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (b) | Euro-American Capital Corporation is a private company
      controlled by a director of the Company that provides management services
      to the Company based on the fair market value of those services.                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (c) | During the year ended July 31, 2004, the Company paid
      $40,580 in consulting fees and reimbursement of expenses to a private
      company controlled by a former director and officer of the Company. These
      costs were included in office and administration expenses in fiscal
      2004.                                                                                                                                                                                                      

|   | The amounts charged to the Company for the services
      provided have been determined by negotiation among the parties and in
      certain cases, by signed agreements. These transactions were in the normal
      course of operations and were measured at the exchange amount which is the
      amount of consideration established and agreed to by the related
      parties.                                                                                                                                                                                                                                                                                                                                                                                                            
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|8. | INCOME TAXES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | At July 31, 2006, the Company had estimated income tax
      losses available for application against future years taxable income of
      approximately $1,350,099 (2005  $2,516,000) in the United States which,
      if unused, will predominantly expire between fiscal years ending 2007 and
      2021. The Company also has tax losses in Canada of approximately $457,000
      (2005  $314,000), which if unused, will expire between fiscal 2007 and
      2026. The Company also has resource allowance expenditures and capital
      asset deductions of approximately $3,639,000 (2005  $2,975,000) and
      $113,000 (2005  $93,000), respectively, which carry forward indefinitely.
      Because of the uncertainty regarding the Company's ability to utilize
      these

---

|QUARTZ MOUNTAIN RESOURCES LTD.                                     
|-------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                     
|For the years ended July 31, 2006, 2005 and 2004                   
|(Expressed in United
      States Dollars, unless otherwise stated)

amounts in future years, an allowance
equal to the amount of the tax asset relating to these amounts has been
provided.

A reconciliation of income tax expense
at the statutory rate of 36.95% (2005  35.6%, 2004  35.62%) with reported
taxes is as follows:

| |                                              |   | Year
      ended July 31 |  
| | -------------------------------------------- | - | ------------------------ | -
| | Income tax expense                           |   | 2006                     |  
| |                                              |   |                          |  
| | Income (loss) before income taxes (recovery) | $ | (65,458                  | )
| |                                              |   |                          |  
| | Income taxes (recovery) at statutory rates   |   | (27,957                  | )
| | Unrecognized (recognized) benefit of non-    |   |                          |  
| | capital losses                               |   | 27,957                   |  
| | Net income taxes
      (recovery)            | $ |                         |  

Amounts of future tax assets and
liabilities are as follows:

| | Future tax assets and liabilities            |   | July 31    |   |   | July 31    |  
| | -------------------------------------------- | - | ---------- | - | - | ---------- | -
| |                                              |   | 2006       |   |   | 2005       |  
| |                                              |   |            |   |   |            |  
| | Tax benefit of:                              |   |            |   |   |            |  
| | Losses carried
      forward  Canada        | $ | 169,000    |   | $ | 112,000    |  
| | Losses carried forward  United
      States |   | 472,000    |   |   | 881,000    |  
| | Resource
      allowance                     |   | 1,345,000  |   |   | 1,059,000  |  
| | Property and equipment                       |   | 42,000     |   |   | 33,000     |  
| |                                              |   | 2,028,000  |   |   | 2,085,000  |  
| | Valuation
      allowance                    |   | (2,028,000 | ) |   | (2,085,000 | )
| | Future income tax asset (liability)          | $ |           |   | $ |           |  

|9.  | SEGMENTED INFORMATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | As at and during the years ended July 31, 2006, 2005 and
      2004, all of the Company's assets and operations, other than its net
      smelter royalty, were located in Canada.                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10. | DIFFERENCES BETWEEN CANADIAN AND UNITED STATES
      GENERALLY ACCEPTED ACCOUNTING PRINCIPLES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | The consolidated financial statements have been prepared
      in accordance with Canadian generally accepted accounting principles
      (Canadian GAAP), which differ in certain material aspects from those
      principles that the Company would have followed had its consolidated
      financial statements been prepared in accordance with United States
      generally accepted accounting principles (US GAAP). Had the Company
      followed US GAAP, certain items on the statements of loss and deficit, and
      balance sheets would have been reported as
below:

---

|QUARTZ MOUNTAIN RESOURCES LTD.                                     
|-------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                     
|For the years ended July 31, 2006, 2005 and 2004                   
|(Expressed in United
      States Dollars, unless otherwise stated)

Consolidated statements of
operations

| |                                          |   | Year ended July 31 |  
| | ---------------------------------------- | - | ------------------ | -
| |                                          |   | 2006               |  
| |                                          |   |                    |  
| |                                          |   |                    |  
| |                                          |   |                    |  
| |                                          |   |                    |  
| |                                          |   |                    |  
| |                                          |   |                    |  
| | Loss for the year, Canadian GAAP         | $ | (65,458            | )
| | Mineral property acquisition costs       |   |                   |  
| | Writeoff of mineral property            |   |                   |  
| |                                          |   |                    |  
| | Loss for the year, US GAAP               | $ | (65,458            | )
| |                                          |   |                    |  
| | Basic and diluted loss per common share, |   |                    |  
| | US GAAP                                  | $ | (0.01              | )
| |                                          |   |                    |  
| | Weighted average shares outstanding,     |   |                    |  
| | basic and diluted, US GAAP               |   | 12,322,741         |  

Consolidated balance sheets

| |                                                         |   | July 31, 2006 |   |   | July 31, 2005 |  
| | ------------------------------------------------------- | - | ------------- | - | - | ------------- | -
| |                                                         |   |               |   |   |               |  
| | Total assets, Canadian GAAP                             | $ | 1,114,031     |   | $ | 687,281       |  
| | Mineral property acquisition costs expensed per US GAAP |   | (1            | ) |   | (1            | )
| | Total assets  US GAAP                                  | $ | 1,114,030     |   | $ | 687,280       |  
| |                                                         |   |               |   |   |               |  
| | Current liabilities, Canadian GAAP and US GAAP          | $ | 16,664        |   | $ | 12,659        |  
| |                                                         |   |               |   |   |               |  
| | Shareholders equity, Canadian GAAP                     |   | 1,097,367     |   |   | 674,622       |  
| | Mineral property
      acquisition costs                |   | (1            | ) |   | (1            | )
| | Shareholders equity, US GAAP                           |   | 1,097,366     |   |   | 674,621       |  
| |                                                         |   |               |   |   |               |  
| | Total liabilities and shareholders equity, US GAAP     | $ | 1,114,030     |   | $ | 687,280       |  

---

|QUARTZ MOUNTAIN RESOURCES LTD.                                     
|-------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                     
|For the years ended July 31, 2006, 2005 and 2004                   
|(Expressed in United
      States Dollars, unless otherwise stated)

Consolidated statements of cash
flows

| |                                                        |   | Year ended July 31 |  
| | ------------------------------------------------------ | - | ------------------ | -
| |                                                        |   | 2006               |  
| |                                                        |   |                    |  
| |                                                        |   |                    |  
| |                                                        |   |                    |  
| |                                                        |   |                    |  
| |                                                        |   |                    |  
| | Cash flows used in operating activities, Canadian      |   |                    |  
| | GAAP                                                   | $ | (87,527            | )
| | Adjustments to mineral properties                      |   |                   |  
| | Cash flows used in
      operating activities, US GAAP |   | (87,527            | )
| |                                                        |   |                    |  
| | Cash flows provided by investing activities,           |   |                    |  
| | Canadian and US GAAP                                   |   |                   |  
| |                                                        |   |                    |  
| | Cash flows provided by financing activities,           |   |                    |  
| | Canadian and US GAAP                                   |   | 488,203            |  
| |                                                        |   |                    |  
| | Increase (decrease) in cash and equivalents during     |   |                    |  
| | the year                                               |   | 400,676            |  
| | Cash and equivalents,
      beginning of year          |   | 670,755            |  
| | Cash and equivalents, end of year                      | $ | 1,071,431          |  

| | (a) | Mineral properties                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | Under Canadian GAAP, the Company accounts for mineral
      properties as described in note 3(d).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | In March 2004, the Emerging Issues Task Forces (EITF)
      reached a consensus that mineral interests covered by leases should be
      considered tangible assets. On April 30, 2004, the FASB issued a FASB
      Staff Position (FSP) amending SFAS 141 and SFAS 142, Goodwill and Other
      Intangible Assets, to provide that certain mineral use rights are
      considered tangible assets and that mineral use rights should be accounted
      based on their substance. The FSP is effective for the first reporting
      period beginning after April 29, 2005, with early adoption
    permitted.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | In March 2004, in its report on Mining Assets:
      Impairment and Business Combinations the EITF reached a consensus that an
      entity should include the cash flows associated with value beyond proven
      and probable reserves in estimates of future cash flows (both undiscounted
      and discounted) used for determining whether a mining asset is impaired
      under Statement No. 144, Accounting for the Impairment or Disposal of
      Long-Lived Assets.                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | Under U.S. GAAP, the recoverability of capitalized
      mineral properties exploration expenditures are generally considered
      insupportable until a commercially mineable deposit is determined;
      therefore, all mineral properties exploration expenditures are expenses as
      incurred. As the Company does not have reports on proven and probable
      reserves on any of its mineral properties, all exploration expenditures
      incurred, other than its acquisition costs, and its other mineral
      properties have been expensed as incurred.                                              

---

|QUARTZ MOUNTAIN RESOURCES LTD.                                     
|-------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                     
|For the years ended July 31, 2006, 2005 and 2004                   
|(Expressed in United
      States Dollars, unless otherwise stated)

| | (b) | Asset retirement obligation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | Under United States GAAP, Statement of Financial
      Accounting Standards No. 143, "Accounting for Asset Retirement
      Obligations"("SFAS 143") requires companies to record the fair value
      of the liability for closure and removal costs associated with the legal
      obligation upon retirement or removal of any tangible longlived asset,
      effective for years beginning on or after January 1, 2003. Under this
      standard, the initial recognition of the liability is capitalized as part
      of the asset cost and depreciated over its estimated useful life. The
      Company has determined that there were no asset retirement obligations as
      at July 31, 2006.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | For Canadian GAAP purposes, effective August 1, 2004, the
      Company retroactively adopted the provisions of CICA Handbook Section 3110
      (HB3110). HB3110 requires essentially the same accounting treatment of
      asset retirement obligations as SFAS 143. Consequently, the Company
      believes there is no difference in asset retirement obligations under
      United States GAAP and Canadian GAAP for the Company upon the adoption of
      this standard, and there is no effect on amounts previously
    reported.                                                                                                                                                              

| | (c) | Other presentation items                                                                                                                                                                                                                                                                                                                                                   
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                            
| |     | Pursuant to US GAAP, the Company would be considered an
      exploration stage company as it is devoting its efforts to establishing a
      commercially viable mineral property. However, the identification of the
      Company as such for accounting purposes does not impact the measurement
      principles applied in these consolidated financial
  statements.

| | (d) | Recent accounting
pronouncements
| | --- | --------------------------------

| | (i)   | In March 2005, the EITF issued EITF 04-6, "Accounting
      for Stripping Costs in the Mining Industry". The consensus indicated
      that costs of removing overburden and waste materials ("stripping costs")
      after production begins, represent variable production costs and should be
      considered a component of mineral inventory cost subject to the guidance
      in Chapter 4 of Accounting Research Bulletin No. 43, "Restatement and
      Revision of Accounting Research Bulletins". EITF 04-6 is effective for
      fiscal years beginning after December 15, 2005 and upon adoption, can be
      applied by either retroactively restating prior periods or using a
      cumulative catch-up adjustment. The Company believes this Statement will
      have no impact on the financial statements of the Company once
    adopted.                                                                                                                                                                                                                                                              
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (ii)  | In May 2005, the FASB issued SFAS 154, Accounting
      Changes and Error Corrections  a replacement of APB Opinion No. 20 and
      FASB Statement No. 3. SFAS 154 replaces APB Opinion No. 20, Accounting
      Changes, and SFAS 3, Reporting Accounting Changes in Interim Financial
      Statements and changes the requirements for the accounting for and
      reporting of a change in accounting principle. This statement applies to
      all voluntary changes in accounting principle. It also applies to changes
      required by an accounting pronouncement in the unusual instance that the
      pronouncement does not include specific transition provisions. When a
      pronouncement includes specific transition provisions, those provisions
      should be followed. SFAS 154 is effective for accounting changes and
      corrections of errors made in fiscal years beginning after December 31,
      2005. The Company does not believe the adoption of SFAS 154 will have a
      material effect on its consolidated financial position, results of
      operations or cash flows.
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (iii) | In November 2005, the FASB issued FASB Staff Position No.
      SFAS 115-1 and SFAS 124-1 (FSP SFAS 115-1 and 124-1), which addresses
      the determination as to when an investment is considered impaired, whether
      that impairment is other than temporary, and the measurement of an
      impairment loss. FSP SFAS 115-1 and 124-1 also includes accounting
      considerations subsequent to the recognition of an other-than-temporary
      impairment and requires certain disclosures
about                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

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|QUARTZ MOUNTAIN RESOURCES LTD.                                     
|-------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                     
|For the years ended July 31, 2006, 2005 and 2004                   
|(Expressed in United
      States Dollars, unless otherwise stated)

| |       | unrealized losses that have not been recognized as
      other-than-temporary impairments. The guidance in FSP SFAS 115-1 and 124-1
      amends FASB Statements No. 115, Accounting for Certain Investments in
      Debt and Equity Securities, and No. 124, Accounting for Certain
      Investments Held by Not-for-Profit Organizations, and APB Opinion No. 18,
      The Equity Method of Accounting for Investments in Common Stock. The
      guidance in FSP SFAS 115-1 and 124-1 shall be applied to the first
      reporting period beginning after December 15, 2005. The adoption of FSP
      SFAS 115-1 and 124-1 has not had a significant impact on the Companys
      consolidated financial position, results of operations and cash
    flows.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (iv)  | In February 2006, the FASB issued FASB Staff Position
      (FSP) FAS 123R-4 Classification of Options and Similar Instruments
      Issued as Employee Compensation That Allow for Cash Settlement upon the
      Occurrence of a Contingent Event. FSP FAS 123(R)-4 addresses the
      classification of options and similar instruments issued as employee
      compensation that allow for cash settlement upon the occurrence of a
      contingent event and amends paragraphs 32 and A229 of SFAS 123(R). The
      Company is required to apply the guidance in FSP FAS123(R)-4 in the
      quarterly period ending April 30, 2006. The adoption of FSP FAS123(R)-4
      has not had a significant impact on the Companys consolidated financial
      position or results of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (v)   | In February 2006, the FASB issued SFAS 155 Accounting
      for Certain Hybrid Financial Instruments, an amendment of FASB Statements
      No. 133 and 140. This Statement amends FASB 133, Accounting for
      Derivative Instruments and Hedging Activities, and SFAS 140, Accounting
      for Transfers and Servicing of Financial Assets and Extinguishments of
      Liabilities. SFAS 155 resolves issues addressed in Statement 133
      Implementation Issue No. D1, Application of Statement 133 to Beneficial
      Interests in Securitized Financial Assets. SFAS 155 permits fair value
      remeasurement for any hybrid financial instrument that contains an
      embedded derivative that otherwise would require bifurcation, clarifies
      which interest-only strips and principal-only strips are not subject to
      the requirements of SFAS 133, establishes a requirement to evaluate
      interests in securitized financial assets to identify interests that are
      freestanding derivatives or that are hybrid financial instruments that
      contain an embedded derivative requiring bifurcation, clarifies that
      concentrations of credit risk in the form of subordination are not
      embedded derivatives and amends SFAS 140 to eliminate the prohibition on a
      qualifying special- purpose entity from holding a derivative financial
      instrument that pertains to a beneficial interest other than another
      derivative financial instrument. SFAS 155 is effective for all financial
      instruments acquired or issued after the beginning of the Companys first
      fiscal year that begins after September 15, 2006, with earlier adoption
      permitted. The Company is currently evaluating the impact of SFAS 155 on
      its consolidated financial position, results of operations and cash
      flows.
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (vi)  | In March 2006, the FASB issued SFAS No. 156 (FAS 156),
      Accounting for Servicing of Financial AssetsAn Amendment of FASB
      Statement No. 140. Among other requirements, FAS 156 requires a company
      to recognize a servicing asset or servicing liability when it undertakes
      an obligation to service a financial asset by entering into a servicing
      contract under certain situations. Under FAS 156 an election can also be
      made for subsequent fair value measurement of servicing assets and
      servicing liabilities by class, thus simplifying the accounting and
      provide for income statement recognition of potential offsetting changes
      in the fair value of servicing assets, servicing liabilities and related
      derivative instruments. FAS 156 is effective for fiscal years beginning
      after September 15, 2006. The Company does not expect the adoption of FAS
      156 will have a material impact on its financial position or results of
      operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (vii) | In July 2006, the FASB issued Financial Interpretation
      No. 48, Accounting for Uncertainty in Income Taxes-an interpretation of
      FASB Statement No. 109 (FIN 48), which is a change in accounting for
      income taxes. FIN 48 specifies how tax benefits for uncertain tax
      positions are to be recognized, measured, and derecognized in financial
      statements; requires certain disclosures of                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

---

|QUARTZ MOUNTAIN RESOURCES LTD.                                     
|-------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                     
|For the years ended July 31, 2006, 2005 and 2004                   
|(Expressed in United
      States Dollars, unless otherwise stated)

| |        | uncertain tax matters; specifies how reserves for
      uncertain tax positions should be classified on the balance sheet; and
      provides transition and interim period guidance, among other provisions.
      FIN 48 is effective for fiscal years beginning after December 15, 2006.
      The Company does not expect the adoption of FIN 48 will have a material
      impact on its financial position or results of operations.                                                                                                                                                                                                                         
| | ------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | (viii) | In September 2006, the FASB issued SFAS No. 157 (FAS
      157), Fair Value Measurements. Among other requirements, FAS 157
      defines fair value and establishes a framework for measuring fair value
      and also expands disclosure about the use of fair value to measure assets
      and liabilities. FAS 157 is effective beginning the first fiscal year that
      begins after November 15, 2007. The Company is currently evaluating the
      impact of FAS 157 on its financial position and results of
    operations.                                                                                                                      
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | (ix)   | In September 2006, the Securities and Exchange Commission
      issued Staff Accounting Bulletin No. 108, Considering the Effects of
      Prior Year Misstatements When Quantifying Misstatements in Current Year
      Financial Statements (SAB 108), which provides interpretive guidance on
      how the effects of the carryover or reversal of prior year misstatements
      should be considered in quantifying a current year misstatement. The
      guidance is applicable for fiscal years ending after November 15, 2006.
      The Company does not believe SAB 108 will have a material impact on its
      consolidated financial statements.

---