SECOND QUARTER REPORT FOR THE THREE AND SIX MONTHS ENDED FEBRUARY 28, Unaudited (prepared by management) Stated in Canadian dollars

Transcription

1 SECOND QUARTER REPORT FOR THE THREE AND SIX MONTHS ENDED FEBRUARY 28, 2006 Unaudited (prepared by management) Stated in Canadian dollars Notice to Reader These interim financial statements of Sunridge Gold Corp. have been prepared by management and approved by the Audit Committee and Board of Directors of the Company. In accordance with National Instrument released by the Canadian Securities Administrators, the Company discloses that its external auditors have not reviewed these interim financial statements, notes to financial statements and the related quarterly Management Discussion and Analysis.

2 MANAGEMENT DISCUSSION AND ANALYSIS FOR THE THREE AND SIX MONTHS ENDED FEBRUARY 28, 2006 Unaudited (prepared by management) Stated in Canadian dollars Notice to Reader This Management Discussion and Analysis and the related interim financial statements and notes to financial statements have not been reviewed by the Company Auditors. 1

3 Management Discussion and Analysis April 26, 2006 The following discussion is management s assessment and analysis of the results of operations and financial conditions ( MD&A ) of Sunridge Gold Corp. (the Company or Sunridge ) and should be read in conjunction with the accompanying unaudited interim financial statements and related notes thereto for the second quarter ended February and with the audited financial statements for the years ended August 31, 2005 and 2004 all of which are available at the SEDAR website at The financial information in this MD&A is derived from the Company s financial statements prepared in accordance with Canadian generally accepted accounting principles and all dollar amounts are expressed in Canadian dollars unless otherwise indicated. Additional information relating to the Company is available on SEDAR at Forward looking statements This MD&A contains certain forward-looking statements related to, among other things, expected future events, future spending levels and the future financial and operating results of the Company. Forward-looking statements are encouraged to enhance communication but are subject to inherent risks and uncertainties including but not limited to, market and general economic conditions, changes arising as drilling results are received, changes in regulatory environments affecting the Company and the availability and terms of subsequent financings. Other risks and uncertainties are detailed below. Consequently, actual results and events may differ materially from those included in, contemplated or implied by such forward looking statements for a wide variety of reasons. Description of the Business Sunridge is incorporated in British Columbia and is an exploration stage company engaged in the business of acquiring and exploring mineral properties. The Company s focus since August 21, 2003 has been on funding exploration expenditures to earn a joint venture interest in the Asmara Projects located in Eritrea, Africa (the Asmara JV ). Of less significance the Company also has an option to acquire the McIntrye Mine Property in the Red Lake area of northwestern Ontario that it has in turn optioned to Continuum Resources Ltd. To date the Company has not generated revenues from operations and is considered to be in the development stage. The Company is a reporting issuer in British Columbia and Alberta and trades on the TSX Venture Exchange under the symbol SGC. Overall performance The net loss for the six months ended 2006 was $481,074 compared to $405,747 for the six months ended The Company funded $3,519,738 of exploration costs of the Asmara JV in the six months ended 2006 compared to $577,368 in the six months ended The Company is well funded at 2006 having $6.8 million cash. On February 10, 2006 the Company closed an equity financing with Lundin Mining Corporation ( Lundin Mining ). Lundin Mining purchased just under a 10% equity stake in the Company by purchasing 3,150,000 units of the Company at a price of $1.66 per unit for gross proceeds of $5,229,000. Each unit consists of one common share and one common share purchase warrant at an exercise price of $2.07. Sunridge is pleased to welcome Karl-Axel Waplan, the President and CEO of Lundin Mining as a director of Sunridge. Mr. Waplan has been employed by Lundin Mining since 2004 and he has a M.S. in Mechanical Engineering from the Royal Institute of Technology, Stockholm, Sweden. To facilitate Mr. Waplan s appointment, Don Halliday has stepped down as a director but continues in his role as Vice President Corporate Development of Sunridge. 2

4 Management Discussion and Analysis April 26, 2006 While Lundin Mining holds 7.5% or more of the issued and outstanding shares of the Company on a fully diluted basis, the Company grants them the right to maintain its proportional equity interest in the Company by allowing them to participate in future equity financings. Lundin Mining is a Canadian mining and exploration company with a primary focus in Europe. The main asset is the Zinkgruvan mine, located about 2000 kilometres southwest of Stockholm, Sweden. The mine has been producing zinc, lead and silver on a continuous basis since Zinkgruvan has consistently ranked in the lowest cost quartile among zinc mines in the world. Lundin Mining also owns the Galmoy zinc mine in Ireland and the Storliden zinc/copper mine in the Skellefte District of northern Sweden. The Company also holds a large copper/gold exploration project in the Norrbotten Mining District of northern Sweden. On January 13, 2006 the Company delivered notice to both Sub-Sahara Resources NL ( SSR ) and Africa Wide Resources Limited ( AWR ) of its intention to exercise its option to acquire their combined interests in the Asmara JV for shares of the Company so that the Company would own 100% of the Asmara Joint Venture project. Pursuant to the terms of the Option Agreements between the parties dated June 30, 2004 the parties are to negotiate the fair value of the Asmara JV project. Sunridge can purchase the SSR (48%) and AWR (12%) interests in the AJV for common shares of Sunridge. This transaction is subject to regulatory approvals. On March 1st, 2006 Sunridge announced that negotiations have been unable to establish a fair value of the project acceptable to all parties. As a consequence and pursuant to the Option Agreement between the parties an independent consulting company, SRK Consulting of Johannesburg, South Africa, has been appointed to complete the evaluation. The valuation report was expected in early April 2006 however it is taking longer than anticipated and is now expected in May. Results of operations The net loss for the six months ended 2006 was $481,074. After eliminating non-cash charges of amortization, unrealized loss relating to marketable securities and stock-based compensation the cash loss is $388,777. The net loss for the six months ended 2005 of $405,747 after making the same non-cash adjustments is $258,194. An increase of $85,408 in management fees and corporate services account for 65% of the total increase in cash costs of $130,583. The Company assumed the role of operator of the Asmara JV at the beginning of the last fiscal year. The Company hired an exploration manager in mid June 2005 and utilized the services of an Information Technology consultant for the entire year. Executives increased their time contributed to a full time basis and resulting charges for services to the Company during the year. The remaining costs increased or decreased relatively insignificantly and did so commensurate with the Company s increased staff and activities. The most significant non-cash charge was the stock-based compensation expense of $79,522 being the calculated fair value of 100,000 stock options granted in October In the same period in 2005 the Company recorded $141,886 as the calculated fair value of 330,000 stock options granted in December Contributed surplus was increased by the same amount. The Company will be drawing down its cash treasury over the next fiscal year as it funds the exploration and development programs at the Asmara projects in Eritrea as well as the cost to investigate other mineral opportunities for acquisition. Interest income will fluctuate with the surplus cash balances and interest rates. General administrative costs will increase over comparative periods as the Company plans to expand its office space, hire an office administrator and possibility additional technical staff and increased investor communications and awareness programs. 3

5 Management Discussion and Analysis April 26, 2006 Asmara Exploration Joint Venture The Asmara JV Projects comprises three contiguous exploration licenses, the Debarwa (includes the Adi Rassi area), the Adi Nefas and the Medrizien licenses covering approximately 1,105 square kilometres immediately west, north and south of the capital city of Asmara in east-central Eritrea. The project is prospective for base and precious metals contained in Volcanogenic Massive Sulfide ( VMS ) deposits and gold from structurally controlled or shear structures. The Debarwa and Adi Nefas deposits are advanced high-grade VMS gold-copper-zinc-silver deposits. The Gupo Gold Deposit on the Adi Nefas license is an advanced gold deposit. There are many other VMS and structurally controlled gold occurrences on the project including three high priority VMS drill targets, namely Debarwa South, Emba Derho and Kodadu. Activities on the three licenses during the period are summarized as follows: Debarwa License The Company s 2005/ ,000 metre drilling program recommenced with 2 drills in mid-november 2005 on the Debarwa Copper Gold VMS Deposit. This drilling, both diamond and reverse-circulation was designed to accomplish the following objectives: 1. Test possible northern extensions to the Debarwa Main Deposit as defined in the Company s 2004 drilling program at Debarwa. 2. Test possible southern extensions to the Debarwa Main Deposit as defined in the Company s 2004 drilling program at Debarwa. 3. Test possible depth extensions to the Debarwa Main Deposit as defined in the Company s 2004 drilling program at Debarwa. 4. Define in further detail some areas of Debarwa Main and Debarwa South zones. 5. Define in greater detail the upper leached gossan zone of Debarwa Main. Currently 99 drill holes for a total of over 9,000 metres have been completed during and subsequent to the period. On March 1 st, 2006 (NR ) the Company announced the results of 25 drill holes some of which demonstrated that the strike length of the mineralized zone had been extended by 400 meters. The details may be viewed on the Company s web site or on the Company s profile on highlights from this work were as follows: Debarwa Southern Extension: DEBD metres grading g/t Au DEBD metres grading 3.77 g/t Au and 2.31% Zn DEBR-118-D 2.05 metres grading 18.44% Cu DEBR-127-D 4.55 metres grading 5.45 g/t Au and 2.26% Cu Debarwa Main Infill: DEBD metres grading 2.61% Cu DEBD metres grading 8.79% Cu During the period engineering studies continued by Beacon Hill Consultants on the Debarwa deposit. The study is examining the geological model, estimating resources, creating a conceptual a mine plan, identifying metallurgy and mineral processing options, studying capital and operating costs as well as completing financial analyses and baseline environmental data collection. As part of the study metallurgical test work on the five major types of mineralization is in progress. 4

6 Management Discussion and Analysis April 26, 2006 Adi Nefas License During and subsequent to the reporting period and as part of the Company s 2005/ ,000 drilling program 66 diamond drill holes for a total of over 13,000 meters has been drilled on the Adi Nefas Gossan VMS Deposit. This drilling accomplished the goals of defining in greater detail the known zones of mineralization, extending the known strike length of the mineralization along strike to approximately 400 meters, and extending the depth to approximately 300 metres. In addition, the drill program confirms that three distinct high-grade zones exist; a gold oxide zone underlain by a copper supergene zone underlain by a primary zinc-rich zone. Highlights of this work are as follows with full details available in the Company s news release dated February 21, 2006 (NR ) which may be viewed on the Company s web site or on the Company s profile on Oxide zone: NG-055-D - 12 metres grading 4.58 g/t Au & g/t Ag NG-056-D 6.25 metres grading g/t Au NG-057-D 4.50 metres grading g/t Au & g/t Ag Primary zone: NG-050-D 10 metres grading 1.82 g/t Au and 9.19% Zn NG-052-D 7.85 metres grading 4.36 g/t Au, g/t Ag, 1.25% Cu&17.70% Zn NG-059-D metres grading 2.31g/t Au, g/t Ag, 2.37% Cu & 5.95% Zn NG-060-D 7.70 metres grading 2.49 g/t Au, g/t Ag, 2.71% Cu & 13.02% Zn NG-062-D metres grading 1.44 g/t Au,72.28 g/t Ag, 1.08% Cu & 9.93% Zn To generate further drill hole targets detailed geological mapping was completed along strike to the north and south. In addition, detailed geological mapping has been completed over the Gupo Gold Deposit, part of the Adi Nefas license as well as a 16 line kilometre IP/Resistivity survey. Results of this work will be used to plan the next phase of drilling. Medrizien License As part of the Company s 2005/ ,000 metre drilling program 32 diamond drill holes have been completed on the Embo Derho prospect for a total of over 9,000 meters. Results received to date have been announced on February 6, 2006 (NR ) and March 6, 2006 (NR ) both of which may be viewed on the Company s web site or on the Company s profile on The highlights from the first 10 holes are below: ED-003-D 6.0 metres grading 9.21 g/t Au ED-005-D metres grading 2.22 g/t Au and metres grading 1.26% Cu ED-007-D 34.0 metres grading 5.45% Zn ED-008-D 11.5 metres grading 5.6% Zn and metres grading 1.3% Cu ED-009-D metres grading 1.07% Cu ED-010-D metres grading 5.51% Zn On March 6, 2006 (NR06-8) the Company announced the results from drill hole ED-012-D, the first hole to test a 700 metre long by 300 metre wide gravity anomaly at Embo Derho. The results confirm a large VMS discovery at Emba Derho as the entire mineralized interval averaged 1.77% zinc and 0.41% copper over metres. 5

7 Management Discussion and Analysis April 26, 2006 In addition, recently completed drill holes, ED-015-D and ED-018-D were drilled approximately 100 metres to the southeast and 80 metres to the southwest of ED-012-D respectively to test the central part of the gravity anomaly. Visual logging of the core from these holes, for which no assays are yet available, has shown that ED-015-D intercepted approximately 220 metres and that ED-018-D intercepted 250 metres of massive sulphide mineralization that appears to be similar to that seen in ED-012-D. Investors are cautioned that visual logging of the core can be misleading and that there can be no assurance that this core will contain significant metal values. Management of Sunridge believes that assay results from drill hole ED-012-D, as well as the visual logs from ED-015-D and ED- 018-D confirm that Emba Derho is a very large potentially bulk-mineable mineralized system. In addition, at the Kodado VMS prospect geophysical, geochemical and detailed geological mapping surveys have been underway during the period. The results of this work will help define future drill targets. Summary of Quarterly Results The financial results for each of the eight most recently completed quarters are summarized below: 3 months ended February 28, months ended November 30, months ended August 31, months ended May 31, months ended February 28, months ended November 30, months ended August 31, months ended May 31, 2004 Total $- $- $- $- $- $- $- $- revenues Net loss (211,071) (270,003) (520,069) (127,092) (269,220) (136,527) (139,036) (128,708) Net loss per share, basic and fully diluted (0.01) (0.01) (0.02) (0.01) (0.01) (0.01) (0.01) (0.01) Liquidity At 2006, Sunridge had working capital of $6.3 million. The Company has no revenues from operations, and should it wish to accelerate its exploration and development programs or acquire additional mineral exploration projects and fund exploration programs on those newly acquired projects, Sunridge may raise additional equity financing to fund the increase. Capital Resources The Company has 2,102,500 stock options and 5,791,903 stock purchase warrants that will, if exercised, provide additional cash. Transactions with Related Parties During the six months ended 2006, the Company paid management fees to officers and directors of the Company: Related party Six months ended 2006 Six months ended 2005 Services provided to the Company B.C. Ltd. a company controlled by Don Halliday, Director and Vice President Corporate Development $48,000 $36,000 Investor relations and corporate development consulting services 6

8 Management Discussion and Analysis April 26, 2006 Golden Oak Corporate Services Ltd., a company controlled by Doris Meyer, Director, Chief Financial Officer and Corporate Secretary $30,000 $30,000 Bookkeeping, accounting, financial reporting, corporate compliance and administrative services These transactions are in the normal course of business and are measured at the exchange amount being the amount of consideration established and agreed to by the related parties. All contracts may be terminated on 90 days notice by either party. Critical Accounting Estimates The Company estimates the fair value of each stock option at the date of grant using the Black-Scholes option pricing model. Any consideration paid by the option holders to purchase shares is credited to share capital Additional Disclosure for Venture Issuers without Significant Revenue The components of capitalized exploration costs are described in note 3 to the unaudited financial statements for the six months ended Outstanding Share Data as at April 26, 2006 Authorized: an unlimited number of common shares without par value. As at April 26, 2006, issued and outstanding share capital is 32,827,386 common shares with a recorded value of $19,138,777. Risks Common Shares Issued and Outstanding Common Share Purchase Warrants Stock Options ,293,223 6,246,066 1,882,500 Options issued ,000 Options exercised 40,000 - (40,000) Shares issued 40, Warrants exercised 454,163 (454,163) - Balance April 26, ,827,386 5,791,903 2,102,500 Mineral exploration is subject to a high degree of risk, which even a combination of experience, knowledge, and careful evaluation fail to overcome. Exploration activities seldom result in the discovery of a commercially viable mineral resource. Exploration activities are also expensive. The Company will therefore require additional financing to carry on its business and such financing August not be available when it is needed. 7

9 Management Discussion and Analysis April 26, 2006 Other Information Additional information relating to the Company is available for viewing on SEDAR at and at the Company s web site Approved by the Board of Directors: /s/ Michael Hopley Director /s/ Doris Meyer Director April 26,

10 FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED FEBRUARY 28, 2006 Unaudited (prepared by management) Stated in Canadian dollars Notice to Reader These interim financial statements of Sunridge Gold Corp. have been prepared by management and approved by the Audit Committee and Board of Directors of the Company. In accordance with National Instrument released by the Canadian Securities Administrators, the Company discloses that its external auditors have not reviewed these interim financial statements, notes to financial statements and the related quarterly Management Discussion and Analysis.

11 BALANCE SHEETS Assets Current assets 2006 (unaudited) August 31, 2005 (audited) Cash $ 6,431,970 $ 1,042,948 Asmara Joint Venture cash (Note 2(c)) 421, ,842 Marketable securities (Note 3) 14,250 20,900 Amounts receivable 33,106 8,463 Prepaid expenses and deposits 41,362 33,195 6,942,457 1,266,348 Mineral properties (Note 3) 8,774,716 5,240,361 Property and equipment (Note 4) 235, ,551 $ 15,952,185 $ 6,679,260 Liabilities Current liabilities Accounts payable and accrued liabilities $ 597,331 $ 359,628 Current portion of obligations under capital leases (Note 5) 8,545 8, , ,920 Obligations under capital leases (Note 5) 4,536 8,865 Shareholders Equity 610, ,785 Share capital (Note 6) 18,595,229 9,331,152 Contributed surplus (Note 6) 885, ,923 Deficit (4,138,674) (3,657,600) 15,341,773 6,302,475 $ 15,952,185 $ 6,679,260 On behalf of the Board: Michael J. Hopley Michael J. Hopley, Director Doris Meyer Doris A. Meyer, Director (The accompanying notes are an integral part of these financial statements) 2

12 STATEMENTS OF LOSS AND DEFICIT For the Three Month and Six Month Period Ending 2006 and 2005 (Unaudited) Three months ended Six months ended For the period ended Expenses Amortization 3,101 2,841 6,125 5,667 Bank charges and interest 1,792 1,100 2,806 3,779 Corporate development - 6,072-14,855 Grassroots exploration - 13,143-13,894 Insurance 7,598-14,151 - Investor relations: printing, travel, conference fees 36, ,004 7,390 Management fees and corporate services 123,181 79, , ,046 Office and miscellaneous 3,741 6,438 13,676 14,924 Professional fees 15,129 10,086 16,615 20,592 Rent, telephone and utilities 7,089 12,343 21,461 24,649 Stock based compensation - 141,886 79, ,886 Transfer agent, regulatory and shareholder communications 21,714 20,512 32,046 24,059 Less: Interest income (1,171) (9,101) (3,665) (20,509) Loss on marketable securities - - 6,650 - Foreign exchange gain (7,576) (15,933) (10,769) (485) Net loss for the period (211,071) (269,220) (481,074) (405,747) Deficit, beginning of period (3,927,603) (2,741,219) (3,657,600) (2,604,692) Deficit, end of period $ (4,138,674) $ (3,010,439) $ (4,138,674) $ (3,010,439) Net loss per share-basic and diluted Weighted average shares outstanding $ (0.01) $ (0.01) $ (0.02) $ (0.02) 29,279,742 21,709,623 27,731,302 21,601,290 The accompanying notes are an integral part of the financial statements. 3

13 STATEMENT OF CASH FLOW For the Three Month and Six Month Period Ending 2006 and 2005(Unaudited) Three months ended Six months ended For the period ended CASH FLOWS FROM (USED IN): OPERATING ACTIVITIES Net loss $ (211,071) $ (269,220) $ (481,074) $ (405,747) Items not involving cash Amortization 3,101 10,584 6,125 21,153 Marketable securities loss - - 6,650 - Stock-based compensation expense - 141,886 79, ,886 (207,951) (116,750) (388,778) (242,708) Net changes in non-cash working capital items: Amounts receivable 262,749 (8,727) (24,644) (25,894) Prepaid expenses and deposits (17,591) (7,039) (8,167) 5,247 Accounts payable and accrued liabilities (425,537) (356,556) 237,703 (689,374) (388,350) (489,072) (183,886) (952,729) FINANCING ACTIVITIES Capital lease obligation, net of repayments (2,046) (2,020) (4,075) 12,212 Proceeds from issuance of shares 5,880, ,000 9,822, ,470 Share issue cost (342,453) - (381,930) - 5,536, ,980 9,436, ,682 INVESTING ACTIVITIES Acquisition of property and equipment (77,178) (835) (83,204) (19,305) Acquisition of and expenditures upon mineral properties (1,820,943) (202,823) (3,519,738) (577,368) (1,898,121) (203,658) (3,602,942) (596,673) Increase (decrease) in cash 3,249,561 (584,750) 5,649,948 (1,425,720) Cash, beginning of period 3,604,177 2,729,059 1,203,790 3,570,029 Cash, end of period $ 6,853,738 $ 2,144,309 $ 6,853,738 $ 2,144,309 Non-cash Investing and Financing Activities Marketable securities received pursuant to a mineral property option agreement $ - $ 13,000 $ - $ 13,000 The accompanying notes are an integral part of the financial statements. 4

14 1. NATURE OF OPERATIONS Sunridge Gold Corp. (the Company ) is incorporated in British Columbia and is in the business of acquiring and exploring mineral properties in Eritrea and Canada and has not yet determined whether its properties contain ore reserves that are economically recoverable. The recoverability of the amounts spent for mineral properties is dependent upon the existence of economically recoverable reserves, the ability of the Company to obtain the necessary financing to complete the exploration and development of its properties, and upon future profitable production or proceeds from the disposition of the properties. The Company will periodically have to raise additional funds to continue operations and while it has been successful in doing so in the past, there can be no assurance it will be able to do so in the future. To date the Company has not earned significant revenues and is considered a company in the development stage. Although the Company has taken steps to verify title to mineral properties in which it has an interest, in accordance with industry standards for the current stage of exploration of such properties, these procedures do not guarantee the Company s title. Property title may be subject to unregistered prior agreements and non-compliance with regulatory requirements. As at 2006, the Company had an accumulated deficit of $4,122,999 and working capital of $6,352,256. These financial statements have been prepared on the basis that the Company is a going concern, which contemplates the realization of its assets and the settlement of its liabilities in the normal course of operations. The ability of the Company to continue as a going concern is uncertain and dependent upon obtaining the financing necessary to meet its future exploration commitments and to complete the development of its properties and/or realizing proceeds from the sale of one or more of the properties. These financial statements do not reflect any adjustments related to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern. 2. ACCOUNTING PRINCIPLES AND USE OF ESTIMATES These interim financial statements follow the same accounting policies and methods of their application as the most recent annual financial statements and should be read in conjunction with the audited consolidated financial statements for the year ended August 31, MINERAL PROPERTIES Asmara Exploration Joint Venture Debarwa Debarwa Adi Rassi Extension Medrizien Adi Nefas Total Additions in period: $ $ $ $ Assays 43,986-18,115 54, ,014 Communications 5, ,041 18,123 Community development 1, ,235 6,356 Contractors and consultants 127,482-5, , ,678 Depreciation 5, ,289 18,527 Drilling 535,417-1,990 1,529,246 2,066,652 Equipment rental costs 49,230-25,256 43, ,526 Field support and consumables 35,653-4, , ,545 Salaries 44,688-23,789 51, ,596 Travel and accommodation 18,504-3,115 41,315 62,934 Vehicle running costs 55,684-2,109 18,973 76,

15 Sunridge Gold Corp. Notes to Unaudited Financial Statements Total in US dollars 923,874-85,861 2,106,983 3,026,718 Average exchange rate Canadian dollar equivalent 1,079,111-99,501 2,355,743 3,534,355 Balance, August 31, ,623, , , ,103 5,184,761 Balance, ,702, , ,180 3,285,846 8,719,116 McIntyre Mine Acquisition Costs Balance, August 31, ,600 Property holding costs - Recovered during period - Balance, ,600 Total mineral properties, ,774,716 Asmara Projects Sunridge has earned a 40% interest in the Asmara Exploration Joint Venture ( Asmara JV ) from Sub-Sahara Resources NL ( SSR ) and Africa Wide Resources Limited ( AWR ) (together the Optionors ) by having funded over US$2,700,000 to the Asmara JV. Sunridge has notified the Asmara JV of its intention to continue to be the sole contributing participant to earn a further 30% interest upon completion of a bankable feasibility study. Sunridge is the operator of the Asmara JV. On January 13, 2006 Sunridge delivered a Notice of Exercise of its Call Option to purchase an effective 100% ownership of the Asmara Project for common shares of Sunridge, subject to regulatory and shareholder approval. The parties have retained Steffan Robertson Kirsten ( SRK ) to estimate the value of the Asmara JV Tenements in accordance with the VALMIN Code. In a letter from the Minister of Energy and Mines of Eritrea dated February 1 st 2005 the renewal date for all three exploration licenses that make up the Asmara Project have been extended to May 30, Under the Eritrean mining code an additional year of exploration (to May 30, 2007) is allowable on these licenses provided that sufficient exploration work is completed. It is anticipated that after that date the licenses would be converted to longterm mining licenses. McIntyre Mine Property The Company holds the McIntyre Property under an option to purchase agreement, dated March 4, 2002, granting it an option to acquire a 100% interest by completing the following payment schedule: (i) Issued 25,000 shares on March 4, 2003 at a fair value of $7,000 (ii) Issued 25,000 shares on March 4, 2004 at a fair value of $78,750 (iii) Issued 25,000 shares on March 4, 2005 at a fair value of $24,750 (iv) Issued 40,000 shares on March 4, 2006 and paid the first annual minimum royalty payment of $6,000 to earn a 100% interest in the McIntyre Property. The vendor will retain a 1.5% Net Smelter Return Royalty. Beginning with March 4, 2006 minimum annual royalty payments of $6,000 will be deductible from any future production royalty. The McIntyre Property is situated adjacent to Continuum Resources Ltd. s ( Continuum ) Richardson Lake gold prospect, which is located 115 kilometres east of Red Lake, in Northwestern Ontario. By December 31, 2005 Continuum had earned a 70% interest in the McIntyre Property by delivering a total of 150,000 shares of Continuum to the Company and by expending a total of $300,000 in exploration expenditures on the project by December 31, The Company currently holds 95,000 shares of Continuum at a market value of $29,925 at 2006, having sold 50,000 in fiscal 2003 and 5,000 in fiscal

16 Sunridge Gold Corp. Notes to Unaudited Financial Statements 4. PROPERTY AND EQUIPMENT Cost Accumulated Amortization 2006 Net carrying value August 31, 2005 Net carrying Value Office equipment $ 24,697 $ 7,404 $ 17,293 $ 15,123 Leased equipment 26,300 13,406 12,894 17,278 50,997 20,810 30,187 32,401 Joint-venture Office equipment 38,269 11,607 26,662 18,441 Vehicles 165,325 41, ,390 66,261 Camp buildings 1, Camp equipment 43,848 15,268 28,580 25,995 Communication equipment 31,517 6,088 25,429 28, ,048 75, , ,150 $ 331,045 $ 96,033 $ 235,012 $ 172, CAPITAL LEASE OBLIGATION 2006 August 31, $ 8,963 $ 9, ,499 9,603 14,462 19,206 Amount representing interest 1,381 2,049 13,081 17,157 Current portion 8,545 8,292 $ 4,536 $ 8,865 The Company acquired specialized computer equipment for its Vancouver office on a three year capital lease. 6. SHARE CAPITAL (a) Authorized: unlimited common shares without par value Shares # Value $ Contributed Surplus $ Issued as at August 31, ,351,289 9,331, ,923 Shares issued for cash: Private placement (1) 6,040,000 3,926,000 - Share issue costs - (45,721) - Private placement (2) 3,150,000 5,229,000 Share issue costs - (512,982) Warrants exercised 125, ,890 Options exercised 412, ,900 Non-cash shares issued: For broker units (1) 25,000 16,250 6,245 Stock-based compensation ,

17 Sunridge Gold Corp. Notes to Unaudited Financial Statements For brokers units (2) 189, , ,528 Total additions for the period 9,941,934 9,264, ,295 Issued as at ,293,223 18,595, ,218 (1) On October 4, 2005 the Company completed a private placement of 6,040,000 units at a price of $0.65 per unit for cash proceeds of $3,880,279 (gross proceeds of $3,926,000 less cash issue costs of $45,721). Each unit consists of one common share and one-half of one non-transferable common share purchase warrant of the Company. Each whole warrant entitles the holder to acquire one additional common share of the Company at a price of $0.90 until October 4, In connection with the private placement the Company issued 25,000 broker units. Each broker warrant entitles the holder to purchase one common share and one-half of one non-transferable common share purchase warrant. Each whole warrant entitles the holder to acquire one common share of the Company at a price of $0.90 until October 4, The fair value of the broker units has been recorded as share issue costs with 25,000 common shares at a price of $0.65 for deemed share capital of $16,250 and 12,500 share purchase warrants as $6,245 determined using the Black-Scholes option pricing model assuming no dividends are to be paid, a weighted average volatility of 82%, an average annual risk free rate of 3.33% and an expected life of two years. (2) On February 10, 2006 the Company completed a private placement of 3,150,000 units at a price of $1.66 per unit for cash proceeds of $4,716,018 (gross proceeds of $5,229,000 less cash share issue costs of $512,982). Each unit consists of one common share and one common share purchase warrant. Each warrant shall entitle the purchaser to purchase one common share of the Company at a price of $2.07 until February 9, The Company paid a finder s fee of 6% by the issuance of 189,000 units. The common shares issued and any common shares issued pursuant to the exercise of share purchase warrants prior to June 11, 2006 are restricted from trading until June11, The fair value of the broker units has been recorded as share issue costs with 189,000 common shares at a price of $1.66 for deemed share capital of $313,740 and 189,000 share purchase warrants as $170,528 determined using the Black-Scholes option pricing model assuming no dividends are to be paid, a weighted average volatility of 81%, an average annual risk free rate of 3.99% and an expected life of one year. (b) Warrants outstanding at 2006: Number of warrants Exercise Price Expiry Date 2,907,066 $0.90 October 3, 2007 (1) 3,339,000 $2.07 February 9, 2008 (1) If the trading price of the common shares of the Company closes at or above $1.50 per share for 20 consecutive days in the period commencing February 5, 2006, the Company will have the right to accelerate the expiry date of the Warrants to the date which is 30 days after the day a press release is widely disseminated by the Company announcing the accelerated expiry date

18 Sunridge Gold Corp. Notes to Unaudited Financial Statements Warrant activity for the period is as follows: Shares Weighted Average Exercise Price $ Balance, August 31, ,057, Issued 3,032, Issued 3,339, Exercised (125,434) 0.90 Expired (2,057,166) 2.00 Balance, ,246, (c) Options outstanding at 2006: Number of Options exercisable for common shares Exercise Price 495,000 $1.74 September 18, ,000 $3.45 December 18, ,000 $1.45 May 26, ,500 $0.60 December 19, ,000 $0.62 June 1, ,000 $0.76 June 12, ,000 $0.91 October 17, ,000 $1.14 October 17, ,882,500 Option activity for the period is as follows: Shares Expiry Date Weighted Average Exercise Price $ Outstanding, August 31, ,195, Issued 100, Exercised (412,500) (0.55) Outstanding, ,882, Exercisable at end of period 1,882, Using the fair value method for stock based compensation, the Company recorded a stock-based compensation expense of $79,522 for the grant of 100,000 stock options to employees in October This amount was determined using the Black-Scholes option pricing model assuming no dividends are to be paid, a weighted average volatility of 82%, an average annual risk free rate of 3.75% and an estimated life of five years

19 Sunridge Gold Corp. Notes to Unaudited Financial Statements 7. RELATED PARTY TRANSACTIONS During the six month periods ended 2006 and 2005, the Company was involved in the following related party transactions: (a) From September 1, 2005 to 2006 the Company paid management fees of $48,000 ( $36,000) to a company controlled by the Vice President of the Company. (b) From September 1, 2005 to 2006 the Company paid management and corporate service fees of $30,000 ( $30,000) to a company controlled by the Corporate Secretary of the Company. All of the above noted transactions have been in the normal course of business and, in management s opinion, undertaken with the same terms and conditions as transactions with unrelated parties. 8. COMMITMENTS Operating leases (1) Contractual Obligations (2) 2006 $16,193 $6, $ 7,376 $2,000 (1) The Company has obligations under operating leases for its corporate offices. Future minimum lease payments for non-cancellable leases with initial or remaining lease terms in excess of one year are included. (2) The Company has obligations under computer service contracts for its specialized computer equipment. Future minimum contract payments for non-cancellable contracts with initial or remaining contract terms in excess of one year are included. 9. SEGMENTED INFORMATION The Company operates only in the mineral exploration sector within two geographic segments: the Asmara Exploration Joint Venture in Eritrea and the McIntyre Mine exploration property in Canada. Currently, revenues comprised of interest income and gain on sale of marketable securities, are earned exclusively at the corporate level. Notes 3 and 4 provides disclosure of geographic location of assets. Included in accounts payable and accrued liabilities is $407,477 owing to suppliers in Eritrea. 10. SUBSEQUENT EVENTS (a) On March 4, 2006 the Company issued 40,000 common shares to Perry English pursuant to the McIntyre Mine Property option agreement at a deemed price of $98,800 and paid the first annual minimum royalty payment of $6,000 to earn a 100% interest in the McIntyre Property. (b) On April 6, 2006 pursuant to the shareholder approved Stock Option Plan, the Company granted 260,000 stock options to directors, employees and consultants at an exercise price of $3.00 per share. The options granted expire April 5, (c) In the period March 1, 2006 to April 26, 2006 the Company issued 40,000 shares pursuant to the exercise of stock options for total proceeds of $30,400. (d) In the period March 1, 2006 to April 26, 2006 the Company issued 454,163 shares pursuant to the exercise of share purchase warrants for total proceeds of $408,