---



CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDEDJULY 31, 2008, 2007 AND 2006

(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, 2008 and 2007 and the consolidated statements
  of operations, deficit and cash flows for the years ended July 31, 2008, 2007
  and 2006. 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, 2008 and 2007 and the results of its operations and its cash flows
  for the years ended July 31, 2008, 2007 and 2006 in accordance with Canadian
  generally accepted accounting principles.

**"DAVIDSON & COMPANY LLP"**

Chartered Accountants

Vancouver, Canada

September 24, 2008

**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 September 24, 2008 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"**

Chartered Accountants

Vancouver, Canada

September 24, 2008

1200 - 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 |  
|----------------------------------------------- | - | ------------- | - | - | ------------- | -
|                                                |   | 2008          |   |   | 2007          |  
|ASSETS                                          |   |               |   |   |               |  
|                                                |   |               |   |   |               |  
|Current assets                                  |   |               |   |   |               |  
|Cash and cash equivalents                       | $ | 591,336       |   | $ | 663,877       |  
|Amounts receivable and prepaids                 |   | 15,709        |   |   | 38,374        |  
|Amounts due
      from related parties (note 7) |   | 5,465         |   |   | 10,659        |  
|                                                |   | 612,510       |   |   | 712,910       |  
|                                                |   |               |   |   |               |  
|Mineral property interests(note 5)              |   | 1             |   |   | 1             |  
|                                                |   |               |   |   |               |  
|                                                | $ | 612,511       |   | $ | 712,911       |  
|                                                |   |               |   |   |               |  
|LIABILITIES AND SHAREHOLDERS' EQUITY            |   |               |   |   |               |  
|                                                |   |               |   |   |               |  
|Current liabilities                             |   |               |   |   |               |  
|Accounts
      payable and accrued liabilities  | $ | 20,519        |   | $ | 14,408        |  
|                                                |   |               |   |   |               |  
|Shareholders' equity                            |   |               |   |   |               |  
|Share capital (note 6)                          |   | 21,269,046    |   |   | 21,269,046    |  
|Deficit                                         |   | (20,677,054   | ) |   | (20,570,543   | )
|                                                |   | 591,992       |   |   | 698,503       |  
|                                                |   |               |   |   |               |  
|                                                |   |               |   |   |               |  
|                                                | $ | 612,511       |   | $ | 712,911       |  

Nature and continuance of operations (note 1)

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

Approved by the Board of Directors

|/s/ Rene G. Carrier | /s/ Brian F. Causey
|------------------- | -------------------
|                    |                    
|Rene G. Carrier     | Brian F. Causey    
|Director            | Director           

---

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

|                                                     |   | Years ended July 31 |  
|---------------------------------------------------- | - | ------------------- | -
|                                                     |   | 2008                |  
|Expenses and other                                   |   |                     |  
|Foreign exchange gain                                | $ | (29,874             | )
|Interest income                                      |   | (24,465             | )
|Legal, accounting and audit                          |   | 34,779              |  
|Mineral property
      investigations                |   |                    |  
|Office and administration                            |   | 93,070              |  
|Regulatory, trust and filing                         |   | 33,001              |  
|                                                     |   |                     |  
|Loss for the year                                    | $ | 106,511             |  
|                                                     |   |                     |  
|Basic and diluted loss per common share              | $ | 0.01                |  
|                                                     |   |                     |  
|Weighted average number of common shares outstanding |   | 13,399,426          |  





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

|                           |   | Years ended July 31 |  
|-------------------------- | - | ------------------- | -
|                           |   | 2008                |  
|Deficit, beginning of year | $ | (20,570,543         | )
|Loss for the
      year    |   | (106,511            | )
|Deficit, end of year       | $ | (20,677,054         | )

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)                                    |   | 2008                |  
|                                                                    |   |                     |  
|Operating activities                                                |   |                     |  
|Loss for the year                                                   | $ | (106,511            | )
|Changes in non-cash working
      capital items                     |   |                     |  
|Amounts receivable and prepaids                                     |   | 22,665              |  
|Accounts payable
      and accrued liabilities                      |   | 6,111               |  
|Amounts due from/(to) related parties                               |   | 5,194               |  
|                                                                    |   | (72,541             | )
|                                                                    |   |                     |  
|Financing activities                                                |   |                     |  
|Shares issued net of issuance costs                                 |   |                    |  
|                                                                    |   |                     |  
|(Decrease) increase in cash and cash equivalents                    |   |                     |  
|during the year                                                     |   | (72,541             | )
|                                                                    |   |                     |  
|Cash and cash equivalents, beginning of year                        |   | 663,877             |  
|                                                                    |   |                     |  
|Cash and cash equivalents, end of year                              | $ | 591,336             |  
|                                                                    |   |                     |  
|Components of cash and cash equivalents
      are as follows:       |   |                     |  
|Cash                                                                | $ | 37,920              |  
|Commercial paper                                                    |   | 37,911              |  
|Government treasury bills                                           |   | 515,505             |  
|Bankers acceptances                                                 |   |                    |  
|                                                                    | $ | 591,336             |  
|                                                                    |   |                     |  
|Supplemental disclosure:                                            |   |                     |  
|Interest paid during the year                                       | $ |                    |  
|Income taxes paid during the year                                   | $ |                    |  
|                                                                    |   |                     |  
|                                                                    |   |                     |  
|Non-cash financing activities                                       |   |                     |  
|Fair
      value of warrants exercised transferred to share capital | $ |                    |  

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, 2008, 2007 and 2006                   
|(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 are prepared on the basis that the Company will continue as
        a going concern. Management recognizes that the Company will need to generate
        additional financial resources in order to meet its planned business objectives.
        However, there can be no assurance that the Company will continue to obtain
        additional financial resources and/or achieve profitability or positive
        cash flows. If the Company is unable to obtain adequate additional financing,
        the Company will be required to curtail operations and exploration activities.
        Furthermore, failure to continue as a going concern would require that
        the Company's assets and liabilities be restated on a liquidation basis
        which would 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 and have been reconciled to United States generally accepted
        accounting principles in note 10. 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|3.  | SIGNIFICANT ACCOUNTING POLICIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(a) | Cash and cash equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | Cash and cash equivalents consist
        of highly liquid investments, having maturity dates of three months or
        less from the date of purchase, which are readily convertible to known
        amounts of cash.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | At July 31, 2008, the Company
        held Canadian-dollar-denominated cash and equivalents totaling Cdn$543,279
        (2007  Cdn$641,876).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(b) | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

---

|QUARTZ MOUNTAIN RESOURCES LTD.                                     
|-------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                     
|For the years ended July 31, 2008, 2007 and 2006                   
|(Expressed in United
      States Dollars, unless otherwise stated)

|    | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(c) | Asset retirement obligations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | The Company records the fair value of an asset retirement
        obligation as a liability in the period in which it incurs a legal obligation
        associated with the retirement of tangible long-lived assets that result
        from the acquisition, construction, development and/or normal use of the
        assets. The Company also records a corresponding asset value which is
        amortized over the remaining service life of the asset being retired.
        Subsequent to the initial measurement of the asset retirement obligation,
        the obligation will be adjusted at the end of each period to reflect the
        passage of time (accretion expense) and changes in the estimated future
        cash flows underlying the obligation (asset retirement cost).
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | The Company also 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. Recoverability of assets to
        be held and used is measured by a comparison of the carrying amount of
        an asset to future net cash flows expected to be generated by the asset.
        If the carrying amount of an asset exceeds its estimated future cash flows,
        an impairment charge is recognized in the amount by which the carrying
        amount of the asset exceeds the fair value of the asset.                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | The Company has no material asset obligations as the
        Company, as at July 31, 2008 had not yet acquired a suitable mineral property
        upon which to conduct exploration activities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(d) | Foreign currency translation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | The Company considers its functional currency to be
        the United States dollar.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | 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.                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(e) | 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 enacted or substantively enacted income tax rates expected
        to apply to taxable income in the years in which those temporary differences
        are expected to be recovered or settled.                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | 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.                                                                                                                                                                                                                                                                                                                                                                                                          

---

|QUARTZ MOUNTAIN RESOURCES LTD.                                     
|-------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                     
|For the years ended July 31, 2008, 2007 and 2006                   
|(Expressed in United
      States Dollars, unless otherwise stated)

|(f) | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|(g) | Stock-based compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | The Company has a share option plan which is described
        in note 6(e). The Company accounts for all non- cash stock-based payments
        to non-employees, and employee awards that are direct awards of shares
        that call for settlement in cash or other assets, or that are share appreciation
        rights which call for settlement by the issuance of equity instruments,
        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. The fair value of non-cash stock-based payments
        is periodically re-measured until counterparty performance is complete,
        and any change therein is recognized in the same manner as if the Company
        had paid cash instead of paying with or using equity instruments. The
        cost of non-cash stock-based payments to service providers that are fully
        vested and non-forfeitable at the grant date is measured and recognized
        at that date.                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | Consideration received by the Company upon the exercise
        of share purchase options and warrants, and the stock-based compensation
        previously credited to contributed surplus related to such options and
        warrants, is credited to share capital.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | During the years ended July 31, 2008, 2007 and 2006,
        no stock options were granted.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|(h) | Loss per share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | Basic loss per share is calculated by dividing the loss
        for the period by the weighted average number of common shares outstanding
        during the period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | Diluted loss per share is calculated using the treasury
        stock method. Under the treasury stock method, the weighted average number
        of common shares outstanding used for the calculation of diluted loss
        per share assumes that the proceeds to be received on the exercise of
        dilutive stock options and warrants are used to repurchase common shares
        at the average market price during the period.                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|(i) | 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 the 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 include the determination of
        potential impairment of asset values, reclamation obligations, as well
        as the assumptions used in determining the fair value of non-cash stock-based
        compensation. Actual results could differ from those estimates.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|(j) | Segment disclosures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | The Company is currently operating in a single segment
         the acquisition and exploration of mineral properties.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

---

|QUARTZ MOUNTAIN RESOURCES LTD.                                     
|-------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                     
|For the years ended July 31, 2008, 2007 and 2006                   
|(Expressed in United
      States Dollars, unless otherwise stated)

|(k) | Accounting Standards Issued But Not Yet Adopted
|--- | -----------------------------------------------

| | (i) | Section 1535  Capital Disclosures
| | --- | ----------------------------------

This standard requires disclosure of
  an entity's objectives, policies and processes for managing capital, quantitative
  data about what the entity regards as capital and whether the entity has complied
  with any capital requirements and, if it has not complied, the consequences
  of such non-compliance. This standard is effective for the Company for the July
  31, 2009 fiscal year. The Company is currently evaluating the impact of this
  standard.

| | (ii) | Amendments to Section 1400  Going Concern
| | ---- | ------------------------------------------

CICA 1400, General Standards of Financial
  Statement Presentation, was amended to include requirements to assess and disclose
  an entity's ability to continue as a going concern. The new requirements are
  effective for interim and annual financial statements relating to fiscal years
  beginning on or after January 1, 2008.

| | (iii) | International Financial Reporting Standards
      ("IFRS")
| | ----- | ----------------------------------------------------------

In 2006, the Canadian Accounting Standards
  Board ("AcSB") published a new strategic plan that will significantly affect
  financial reporting requirements for Canadian companies. The AcSB strategic
  plan outlines the convergence of Canadian GAAP with IFRS over an expected five
  year transitional period. In February 2008, the AcSB announced that 2011 is
  the changeover date for publicly-listed companies to use IFRS. The date is for
  interim and annual financial statements relating to fiscal years beginning on
  or after January 1, 2011. The transition date of August 1, 2011 will require
  the restatement for comparative purposes of amounts reported by the Company
  for the year ended July 31, 2011. While the Company has begun assessing the
  adoption of IFRS for 2011, the financial reporting impact of the transition
  to IFRS cannot be reasonably estimated at this time.

| | (iv) | Section 3064  Goodwill and Intangibles
| | ---- | ---------------------------------------

The AcSB issued CICA Handbook Section
  3064 which replaces Section 3062, Goodwill and Other Intangible Assets, and
  Section 3450, Research and Development Costs. This new section establishes standards
  for the recognition, measurement, presentation and disclosure of goodwill subsequent
  to its initial recognition and of intangible assets. Standards concerning goodwill
  remain unchanged from the standards included in the previous Section 3062. The
  section applies to interim and annual financial statements relating to fiscal
  years beginning on or after October 1, 2008.

|4. | ADOPTION OF NEW ACCOUNTING POLICIES
|-- | -----------------------------------

Effective August 1, 2007, the Company
  adopted the following new accounting standards issued by the Canadian Institute
  of Chartered Accountants ("CICA") relating to financial instruments. These new
  standards have been adopted on a prospective basis with no restatement to prior
  period financial statements.

| | (a) | Section 3855  Financial Instruments 
        Recognition and Measurement                                                                                                                                                                                                                                                             
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                        
| |     | This standard sets out criteria for the recognition
        and measurement of financial instruments for fiscal years beginning on
        or after October 1, 2006. This standard requires all
        financial instruments within its scope, including derivatives, to be included
        on a Company's balance sheet and measured

---

|QUARTZ MOUNTAIN RESOURCES LTD.                                     
|-------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                     
|For the years ended July 31, 2008, 2007 and 2006                   
|(Expressed in United
      States Dollars, unless otherwise stated)

either at fair value
  or, in certain circumstances when fair value may not be considered most relevant,
  at cost or amortized cost. Changes in fair value are to be recognized in the
  statements of operations and comprehensive income (loss).

All financial assets
  and liabilities are recognized when the entity becomes a party to the contract
  creating the asset or liability. As such, any of the Company's outstanding financial
  assets and liabilities at the effective date of adoption are recognized and
  measured in accordance with the new requirements as if these requirements had
  always been in effect. Any changes to the fair values of assets and liabilities
  prior to August 1, 2007 are recognized by adjusting opening deficit or opening
  accumulated other comprehensive income (loss).

All financial instruments
  are classified into one of the following five categories: held for trading,
  held-to-maturity, loans and receivables, available-for-sale financial assets,
  or other financial liabilities. Initial and subsequent measurement and recognition
  of changes in the value of financial instruments depends on their initial classification:

- Held-to-maturity investments,
      loans and receivables, and other financial liabilities are initially measured at fair value and subsequently measured at
      amortized cost.
- Available-for-sale financial
      assets are measured at fair value. Revaluation gains and losses are included in other comprehensive income (loss) until the asset
      is removed from the balance sheet.
- Held for trading financial
      instruments are measured at fair value. All gains and losses are
      included in net earnings (loss) in the period in which they arise.
- All derivative financial instruments
      are measured at fair value, even when they are part of a
      hedging relationship. All gains and losses are included in net earnings
      (loss) in the period in which they arise.

At August 1, 2007,
  upon adoption of this standard, the Company remeasured its financial assets
  and liabilities and found the remeasured values to be consistent with the carrying
  amount, as reported in prior periods. Consequently, no adjustment to the carrying
  values was required.

In accordance with this new standard,
  the Company has classified its financial instruments as follows:

- Cash and equivalents are classified as held for
      trading financial instruments and are measured at fair value due to their
      short term nature and availability for prompt liquidation.
- Amounts receivable and amounts due from a related
      party are classified as loans and receivables and are measured initially
      at fair value and subsequently measured at amortized cost.
- Accounts payable and accrued liabilities are classified
      as other financial liabilities and are measured initially at fair value
      and subsequently measured at amortized cost.

| | (b) | Section 3862 Financial Instruments  Disclosure
        and Section 3863 Financial Instruments Presentation                                                                                               
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                            
| |     | These standards replace CICA 3861, Financial Instruments
         Disclosure and Presentation.They increase the disclosures
        for those previously required, which will enable users to evaluate the

---

|QUARTZ MOUNTAIN RESOURCES LTD.                                     
|-------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                     
|For the years ended July 31, 2008, 2007 and 2006                   
|(Expressed in United
      States Dollars, unless otherwise stated)

significance of financial instruments
  for an entity's financial position and performance, including disclosures about
  fair value. In addition, disclosure is required of qualitative and quantitative
  information about exposure to risks arising from financial instruments, including
  specified minimum disclosures about credit risk, liquidity risk and market risk.
  The quantitative disclosures must provide information about the extent to which
  the entity is exposed to risk, based on information provided internally to the
  entitys key management personnel. This standard is effective for the Company
  for fiscal years beginning on or after October 1, 2007.

The Company has opted for an early adoption
  of this standard, with effect from August 1, 2007, and the additional disclosure
  requirements have been incorporated in these financial statements.

| | *(c)* | Section 3865  Hedges
| | ----- | ---------------------

This new standard specifies the circumstances
  under which hedge accounting is permissible and how hedge accounting may be
  performed. The Company currently does not have any financial instruments which
  qualify for hedge accounting.

| | (d)   | Section 1530  Comprehensive Income (Loss)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |       | Comprehensive income is the change in the Companys
        shareholder equity that results from transactions and other events from
        other than the Companys shareholders and includes items that would
        not normally be included in net earnings (loss), such as unrealized gains
        or losses on available-for-sale investments. This standard requires certain
        gains and losses that would otherwise be recorded as part of net earnings
        to be presented in other comprehensive income until it is
        considered appropriate to recognize into net earnings. This standard requires
        the presentation of comprehensive income, and its components in a separate
        financial statement that is displayed with the same prominence as the
        other financial statements. Accumulated other comprehensive income is
        presented as a new category in shareholders equity. As at July 31,
        2008, the Company had no accumulated other comprehensive income and for
        the year ended July 31, 2008, comprehensive income (loss) equals net income.
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | *(e)* | Section 1506 - Accounting Changes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |       | This standard establishes criteria for changing accounting
        policies, together with the accounting treatment and disclosure of changes
        in accounting policies, changes in accounting estimates and correction
        of errors. As a result, changes in accounting policies are only permitted
        when required by a primary source of GAAP or when the change will result
        in more reliable and more relevant information.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

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

Years ended July 312008
      
      
      2007Quartz Mountain PropertyNet smelter royalty
      $
      1
      
      $
      1


---

|QUARTZ MOUNTAIN RESOURCES LTD.                                     
|-------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                     
|For the years ended July 31, 2008, 2007 and 2006                   
|(Expressed in United
      States Dollars, unless otherwise stated)

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. In 2003,
  Seabridge optioned a 50% interest in the property to Quincy Gold Inc., which
  later changed its name to Golden Predator Mines Inc.

|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, 2005                       |  | 11,889,426 |  |  |        |  | $ | 20,726,303 | 
| | Cash received on exercise of warrants (i)      |  | 1,510,000  |  |  | 0.3233 |  |   | 488,203    | 
| | Fair value of warrants exercised               |  |           |  |  |        |  |   | 54,540     | 
| | Balance at July 31,
      2006, 2007, and 2008 |  | 13,399,426 |  |  |        |  | $ | 21,269,046 | 

| | (i) | On April 19, 2004, the Company issued 1,510,000 units
        at a price of Cdn$0.28 (US$0.21) per unit for net proceeds of $258,712.
        Each unit was comprised of one common share and one share purchase warrant.
        Each warrant was exercisable until April 19, 2006 and entitled 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 and 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, 2008, 2007 and 2006                   
|(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, 2008 is:

| |                                                |  |             |   |  |          | 
| | ---------------------------------------------- |  | ----------- | - |  | -------- | 
| |                                                |  | Number      |   |  |          | 
| | Share purchase
      warrants issued           |  | of Warrants |   |  | Price    | 
| |                                                |  |             |   |  |          | 
| | Balance at July 31, 2005                       |  | 1,510,000   |   |  |          | 
| | Exercised (note
      6(b)(i))                 |  | (1,510,000  | ) |  | Cdn$0.37 | 
| |                                                |  |             |   |  |          | 
| | Balance at July 31,
      2006, 2007, and 2008 |  |            |   |  |         | 

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

| | Balance at July 31, 2005                                          | $ | 54,540  |  
| | ----------------------------------------------------------------- | - | ------- | -
| | Share purchase warrants exercised for common stock (note 6(b)(i)) |   | (54,540 | )
| |                                                                   |   |         |  
| | Balance at July 31,
      2006, 2007, and 2008                    | $ |        |  

|(e) | Share purchase options                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | On January 19, 2007, the Company amended its existing
        share purchase option compensation plan. The amended plan allows the Company
        to grant up to 10% of the issued and outstanding shares of the Company
        at any one time, typically vesting over two years, subject to regulatory
        terms and approval, to its directors, employees, officers, and consultants
        (previously, the Company was allowed to grant up to 1,900,000 share purchase
        options). The exercise price of each option may be set equal to or greater
        than the closing market price of the common shares on the NEX Exchange
        on the day prior to the date of the grant of the option, less any allowable
        discounts. Options have a maximum term of five years and terminate 30
        days following the termination of the optionee's employment, except in
        the case of retirement or death.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | At July 31, 2008, no share purchase options had been
        granted under the Companys Share Purchase Option Plan. Accordingly,
        there were no stock options outstanding as at July 31, 2008, 2007, and
        2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

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

| | Balances receivable                       |   |                     |  |   | As at July 31 | 
| | ----------------------------------------- | - | ------------------- |  | - | ------------- | 
| |                                           |   |                     |  |   | 2008          | 
| | Hunter Dickinson Services Inc. (a)        |   |                     |  | $ | 5,465         | 
| |                                           |   |                     |  |   |               | 
| | Transactions                              |   | Years ended July 31 | 
| |                                           |   | 2008                |  |   | 2007          | 
| | Services rendered and expenses reimbursed |   |                     |  |   |               | 
| | Hunter Dickinson Services Inc. (a)        | $ | 95,754              |  | $ | 417,768       | 

---

|QUARTZ MOUNTAIN RESOURCES LTD.                                     
|-------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                     
|For the years ended July 31, 2008, 2007 and 2006                   
|(Expressed in United
      States Dollars, unless otherwise stated)

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 Services Inc.
  (HDSI). The related party balances are non-interest bearing and
  due on demand.

| | (a) | HDSI is a private company owned equally by several public
        companies. HDSI 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 June 1, 2008.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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.

Services rendered by and expenses reimbursed
  to HDSI for the year-ended July 31, 2008, 2007 and 2006 related to the reimbursement
  of travel expenses, office and administration services and geological consulting
  services for property investigation activities.

|8. | FINANCIAL INSTRUMENTS
|-- | ---------------------

| | a) | Fair Value of Financial Instruments
| | -- | -----------------------------------

The carrying amounts of cash and cash
  equivalents, amounts receivable, amounts due to/from the related parties and
  accounts payable and accrued liabilities approximate their fair values due to
  the short term to maturity of such instruments.

| | b) | Financial Instrument Risk Exposure and Risk
      Management
| | -- | ------------------------------------------------------------

The Company is exposed in varying degrees
  to a variety of financial instrument related risks. The Board approves and monitors
  the risk management processes, inclusive of treasury policies, counterparty
  limits, controlling and reporting structures. The type of risk exposure and
  the way in which such exposure is managed is provided as follows:

| | (i) | Credit Risk
| | --- | -----------

The Companys credit risk is primarily
  attributable to its liquid financial assets. The Company limits exposure to
  credit risk on liquid financial assets through maintaining its cash and equivalents
  in high quality investments with major financial institutions and in federal
  government-backed treasury bills. The Company does not have any financial assets
  that are invested in asset backed commercial paper.

| | (ii) | Liquidity Risk
| | ---- | --------------

The Company ensures that there is sufficient
  cash in order to meet its short term business requirements, after taking into
  account the Companys holdings of cash and cash equivalents. The Companys
  cash and equivalents are invested in business accounts, commercial paper and
  treasury bills, which are immediately available on demand for the Companys
  use.

The Company has sufficient cash and
  cash equivalents to meet commitments associated with its financial liabilities.

| | (iii) | Price Risk
| | ----- | ----------

The significant price risk exposures
  to which the Company is exposed are foreign exchange risk and interest rate
  risk.

| | (iv) | Foreign Exchange Rate Risk
| | ---- | --------------------------

---

|QUARTZ MOUNTAIN RESOURCES LTD.                                     
|-------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                     
|For the years ended July 31, 2008, 2007 and 2006                   
|(Expressed in United
      States Dollars, unless otherwise stated)

The Companys activities for the
  past several years have consisted mainly of searching for suitable mineral exploration
  and development projects. This search has resulted in property investigations
  in the United States as well as other geographic regions and is expected to
  continue in the upcoming year. Given that the United States dollar (USD)
  is widely used in international transactions, and that the Company holds a royalty
  interest on a property in the United States, the Company has chosen the USD
  as its functional and reporting currency. The Company is exposed to foreign
  exchange risk to the extent of exchange rate fluctuation related to the portion
  of its cash and cash equivalents which held in Canadian dollars (CAD).

| | (v) | Interest Rate Risk
| | --- | ------------------

The Company is subject to interest rate
  risk with respect to its investments in cash equivalents. The Companys
  policy is to invest cash in fixed rate financial instruments having maturity
  dates of three months or less from the date of acquisition and cash reserves
  are to be maintained in cash equivalents in order to maintain liquidity, while
  achieving a satisfactory return for shareholders. Changes in market interest
  rates have a direct effect on the fair value of cash equivalents. The Company
  does not have any financial assets that are invested in asset backed commercial
  paper.

|9. | INCOME TAXES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | At July 31, 2008, the Company had estimated income tax
        losses available for application against future years taxable income
        of approximately $182,450 (2007  $755,256) in the United States
        which, if unused, will predominantly expire between fiscal years ending
        2009 and 2021. The Company also has tax losses in Canada of approximately
        $1,015,000 (2007  $869,000), which if unused, will expire between
        fiscal 2010 and 2028. The Company also has resource allowance expenditures
        and capital asset deductions of approximately $3,554,000 (2007 
        $3,413,000) and $111,000 (2007  $106,000), respectively, which carry
        forward indefinitely. Because of the uncertainty regarding the Company's
        ability to utilize these 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 32.59% (2007  34.95%, 2006  36.95%) with reported
        taxes is as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

| |                                              |   | Years ended July 31 |  
| | -------------------------------------------- | - | ------------------- | -
| | Income tax expense                           |   | 2008                |  
| |                                              |   |                     |  
| | Income (loss) before income taxes (recovery) | $ | (106,511            | )
| |                                              |   |                     |  
| | Income taxes (recovery) at statutory rates   |   | (34,714             | )
| | Permanent difference                         |   | (9,736              | )
| | Change in future tax rate                    |   | 189,184             |  
| | Statutory rate differential                  |   | 12,391              |  
| | Foreign exchange                             |   | (58,307             | )
| | Change in valuation allowance                |   | (313,955            | )
| | Losses expired                               |   | 194,604             |  
| | Non-deductible items                         |   | 20,533              |  
| | Net income taxes (recovery)                  | $ |                    |  

---

|QUARTZ MOUNTAIN RESOURCES LTD.                                     
|-------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                     
|For the years ended July 31, 2008, 2007 and 2006                   
|(Expressed in United
      States Dollars, unless otherwise stated)

Amounts of future tax assets and liabilities
  are as follows:

| |                                              |   | As at July 31 |  
| | -------------------------------------------- | - | ------------- | -
| | Future tax assets
      and liabilities      |   | 2008          |  
| | Tax benefit of:                              |   |               |  
| | Losses carried forward  Canada              | $ | 264,000       |  
| | Losses carried forward
       United States |   | 63,000        |  
| | Resource allowance                           |   | 924,000       |  
| | Property and equipment                       |   | 29,000        |  
| |                                              |   | 1,280,000     |  
| | Valuation allowance                          |   | (1,280,000    | )
| | Future income tax
      asset (liability)    | $ |              |  

|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:
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | Consolidated statements of operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

| |                                                   |   |                     |   |   |            |   |   |            |  
| | ------------------------------------------------- | - | ------------------- | - | - | ---------- | - | - | ---------- | -
| |                                                   |   | Years ended July 31 |  
| |                                                   |   | 2008                |   |   | 2007       |   |   | 2006       |  
| | Loss for the year, Canadian GAAP and US GAAP      | $ | (106,511            | ) | $ | (398,864   | ) | $ | (65,458    | )
| | Mineral property
      acquisition costs          |   |                    |   |   |           |   |   |           |  
| | Basic and diluted loss per common share, Canadian |   |                     |   |   |            |   |   |            |  
| | and US GAAP                                       | $ | (0.01               | ) | $ | (0.03      | ) | $ | (0.01      | )
| |                                                   |   |                     |   |   |            |   |   |            |  
| | Weighted average shares outstanding,              |   |                     |   |   |            |   |   |            |  
| | basic and diluted, Canadian GAAP and US GAAP      |   | 13,399,426          |   |   | 13,399,426 |   |   | 12,322,741 |  

---

|QUARTZ MOUNTAIN RESOURCES LTD.                                     
|-------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                     
|For the years ended July 31, 2008, 2007 and 2006                   
|(Expressed in United
      States Dollars, unless otherwise stated)

Consolidated balance sheets

| |                                                           |   |                     |   |   |                     |  
| | --------------------------------------------------------- | - | ------------------- | - | - | ------------------- | -
| |                                                           |   | As at               |   |   | As at               |  
| |                                                           |   | July
      31, 2008 |   |   | July
      31, 2007 |  
| | Total assets, Canadian GAAP                               | $ | 612,511             |   | $ | 712,911             |  
| | Mineral
      property interests expensed per US GAAP     |   | (1                  | ) |   | (1                  | )
| | Total assets  US GAAP                                    | $ | 612,510             |   | $ | 712,910             |  
| | Current liabilities,
      Canadian GAAP and US GAAP      | $ | 20,519              |   | $ | 14,408              |  
| | Shareholders equity, Canadian GAAP                       |   | 591,992             |   |   | 698,503             |  
| | Mineral property interests                                |   | (1                  | ) |   | (1                  | )
| | Shareholders equity, US GAAP                             |   | 591,991             |   |   | 698,502             |  
| | Total liabilities
      and shareholders equity, US GAAP | $ | 612,510             |   | $ | 712,910             |  

Consolidated statements of cash flows

| |                                                             |   |                     |  
| | ----------------------------------------------------------- | - | ------------------- | -
| |                                                             |   | Years ended July 31 |  
| |                                                             |   | 2008                |  
| |                                                             |   |                     |  
| |                                                             |   |                     |  
| | Cash flows used in operating activities, Canadian
      and |   |                     |  
| | US
      GAAP                                               | $ | (72,541             | )
| |                                                             |   |                     |  
| | Cash flows provided by financing activities,                |   |                     |  
| | Canadian and US GAAP                                        |   |                    |  
| |                                                             |   |                     |  
| | (Decrease) increase in cash and cash equivalents            |   |                     |  
| | during the year                                             |   | (72,541             | )
| | Cash and cash equivalents, beginning of year                |   | 663,877             |  
| | Cash and cash equivalents,
      end of year                | $ | 591,336             |  

| | (a) | Mineral properties
| | --- | ------------------

Under Canadian GAAP, the Company accounts
  for mineral properties as described in note 3(b).

Costs of acquiring mining properties
  are capitalized upon acquisition. Mine development costs incurred either to
  develop new ore deposits, expand the capacity of mines, or to develop mine areas
  substantially in advance of current production are also capitalized once proven
  and probable reserves exist and the property is a commercially mineable property.
  Costs incurred to maintain current production or to maintain assets on a standby
  basis are charged to operations. Costs of abandoned projects are charged to
  operations upon abandonment. The Company evaluates the carrying value of capitalized
  mining costs and related property, plant and equipment costs, to determine if
  these costs are in excess of their net recoverable amount whenever events or
  changes in circumstances indicate that their carrying amounts may not be recoverable.
  The periodic evaluation of carrying value of capitalized costs and any related
  property, plant and equipment costs are based upon expected future cash flows
  and/or estimated salvage value in accordance with

---

|QUARTZ MOUNTAIN RESOURCES LTD.                                     
|-------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                     
|For the years ended July 31, 2008, 2007 and 2006                   
|(Expressed in United
      States Dollars, unless otherwise stated)

Statement of Financial Accounting Standards
  (SFAS) No. 144, Accounting for Impairment or Disposal of Long-Lived Assets.

| | (b) | 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.

| | **(c)** | Impact of recent United States accounting pronouncements:
| | ------- | ---------------------------------------------------------

| | i.   | FASB Interpretation No. 48  Accounting for Uncertainty
        in Income Taxes, an Interpretation of FASB Statement No. 109 (Accounting
        for Income Taxes) (FIN48)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |      | In June 2006, the Financial Accounting Standards Board
        (FASB) issued FIN 48 to create a single model to address accounting for
        uncertainty in tax positions. FIN 48 clarifies the accounting for income
        taxes, by prescribing a minimum recognition threshold a tax position is
        required to meet before being recognized in the financial statements.
        FIN 48 is effective for fiscal years beginning after December 31, 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |      | Under US GAAP effective January 1, 2007 the Company
        adopted the provisions of FIN 48 that prescribe a recognition threshold
        and measurement attribute for the financial statement recognition and
        measurement of a tax position taken or expected to be taken in a tax return.
        The interpretation requires that the Company recognized the impact of
        a tax position in the financial statements if that position is more likely
        than not of being sustained on audit, based on the technical merits of
        the position. Fin 48 also provides guidance on derecognition, classification,
        interest and penalties, accounting in interim periods and disclosure.
        In accordance with the provisions of FIN 48, any cumulative effect resulting
        from the change in accounting principle is to be recorded as an adjustment
        to the opening balance of deficit. The adoption of FIN 48 did not result
        in a material impact on the Companys consolidated financial position
        or results of operations.
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | ii.  | Statement of Financial Accounting Standards (SFAS)
        No. 157: Fair Value Measurements,defines fair value, establishes
        a framework for measuring fair value in generally accepted accounting
        principles (GAAP), and expands disclosures about fair value measurements.
        SFAS No. 157 applies under other accounting pronouncements that require
        or permit fair value measurements. SFAS No. 157 is effective for the Companys
        2009 fiscal year. Management is analyzing the requirements of this new
        standard but believes that its adoption will not have a significant impact
        on the Companys financial statements.                                                                                                                                                                                                                                                                                                                                                                                                              
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | iii. | SFAS No. 159, The Fair Value Option for Financial
        Assets and Financial Liabilities Included an amendment of SFAS
        No. 115.This Statement permits entities to choose to measure many
        financial instruments and certain other items at fair value. This Statement
        applies to all entities, including not- for-profit organizations. Most
        of the provisions of this Statement apply only to entities that elect
        the fair value option. SFAS No. 159 is effective for the Companys
        2009 fiscal year. Management is analyzing the requirements of this new
        standard but believes that its adoption will not have a significant impact
        on the Company's financial statements.                                                                                                                                                                                                                                                                                                                                                   
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | iv.  | FASB Staff Position (FSP) No. FIN 46 (R)-7,
        The Application of FASB Interpretation No. 46 (R) to Investment Companies,amends interpretation 46 (R) to provide an exception to the scope
        of the Interpretation for companies within the scope of the AICPA Audit
        and Accounting Guide (Guide). This FSP concludes that no additional
        consolidation guidance is necessary to the Guide. The                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

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|QUARTZ MOUNTAIN RESOURCES LTD.                                     
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|Notes to the Consolidated Financial Statements                     
|For the years ended July 31, 2008, 2007 and 2006                   
|(Expressed in United
      States Dollars, unless otherwise stated)

| |       | Companys preliminary assessment does not indicate
        that this FSP will have a significant impact on the financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
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| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | v.    | In December 2007, the FASB issued SFAS No. 141R, Business
        Combinations,which requires recognition of the assets acquired, liabilities
        assumed and non-controlling interest arising in a business combination
        at their fair value as of the acquisition date. In addition, the costs
        of acquisition must be expensed. This statement will be effective for
        the Companys 2010 fiscal year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | vi.   | In December 2007, the FASB issued SFAS No. 160, "Non-controlling
        Interests in Consolidated Financial Statements-An Amendment of ARB No.
        51" ("SFAS 160"). SFAS 160 establishes accounting and reporting standards
        for the non-controlling interest in a subsidiary (previously referred
        to as minority interests). SFAS 160 also requires that a retained non-controlling
        interest upon the deconsolidation of a subsidiary be initially measured
        at its fair value. Upon adoption of SFAS 160, the Company would be required
        to report any non-controlling interests as a separate component of stockholders'
        equity. The Company would also be required to present any net income allocable
        to non- controlling interests and net income attributable to the stockholders
        of the Company separately in its consolidated statements of operations.
        SFAS 160 is effective for the Companys 2010 fiscal year, except
        for the presentation and disclosure requirements, which will be applied
        retroactively.
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | vii.  | In March 2008, the FASB issued FAS No. 161, Disclosure
        about Derivative Instruments and Hedging Activities(FAS
        161). FAS 161 changes the disclosure requirements for derivative
        instruments and hedging activities by requiring enhanced disclosures about
        how and why an entity uses derivatives instruments, how derivative instruments
        and related hedged items affect an entitys operating results, financial
        position, and cash flows. FAS 161 is effective for the Companys
        2010 fiscal year. Early adoption is permitted. The Company is currently
        reviewing the provisions of FAS 161. However, as the provisions of FAS
        161 are only related to disclosure of derivative and hedging activities,
        the Company does not believe the adoption of FAS 161 will have a material
        impact on its consolidated operating results, financial position or cash
        flows.                                                                                                                                          
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | viii. | In May 2008, the FASB issued SFAS No. 162, The Hierarchy
        of Generally Accepted Accounting Principles ("SFAS No. 162"). The
        new standard is intended to improve financial reporting by identifying
        a consistent framework, or hierarchy, for selecting accounting principles
        to be used in preparing financial statements that are presented in conformity
        with U.S. generally accepted accounting principles (GAAP) for nongovernmental
        entities. SFAS No. 162 is effective 60 days following the Securities and
        Exchange Commission's approval of the Public Company Accounting Oversight
        Board Auditing amendments to AU Section 411, The Meaning of Present Fairly
        in Conformity with Generally Accepted Accounting Principles. The Company
        is currently evaluating the impact of adoption of SFAS No. 162 but does
        not expect adoption to have a material impact on results of operations,
        cash flows or financial position.                                                                                   

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