September 30,
2005
(unaudited)

December 31,
2004

ASSETS

Current

    Cash and cash equivalents

$ 20,927,382

$   6,060,371

    Receivables

247,087

100,410

    Prepaid expenses

249,406

62,514

    Total current assets

21,423,875

6,223,295

Equipment (Note 4)

686,591

139,120

$ 22,110,466

$   6,362,415

LIABILITIES AND STOCKHOLDERS' EQUITY

Current

    Accounts payable and accrued liabilities

$     516,193

$     198,763

Stockholders' equity

    Common stock, no par value, unlimited number authorized (Note 6)
         66,075,276 (December 31, 2004 - 50,868,066) issued and outstanding

40,920,209

20,692,906

    Additional paid-in capital

9,113,156

4,898,250

    Accumulated other comprehensive income:

        Foreign currency cumulative translation adjustment

1,331,911

180,482

    Accumulated deficit during exploration stage

(29,771,003)

(19,607,986)

Total stockholders' equity

21,594,273

6,163,652

Total liabilities and stockholders' equity

$   22,110,466

$    6,362,415

Three Month
Period Ended
September 30,
2005

Three Month
Period Ended
September 30,
2004

Nine Month
Period Ended
September 30,
2005

Nine Month
Period Ended
September 30,
2004

Cumulative Period from Inception (July 19, 1995) to September 30,

2005

EXPENSES

    Audit and accounting

$        7,229

$        15,913

$        48,453

$        36,256

$      154,936

    Consulting fees (Note 6)

20,119

39,681

1,095,505

120,216

1,349,747

    Depreciation

35,285

7,081

76,731

16,978

111,266

    Escrow shares compensation (Notes 6 and 7)

-

(139,903)

(435,583)

(947,422)

1,790,959

    Foreign exchange loss (gain)

(12,679)

9,062

(9,528

4,057

8,982

    Legal (Note 6)

84,718

53,313

338,273

160,542

1,013,623

    Loss on settlement of debt (Note 6)

-

-

-

-

5,252

    Management fees (Notes 6 and 7)

16,648

61,665

1,704,795

280,763

2,623,740

    Mineral property interests (Note 5 and 6)

2,569,409

674,620

5,680,637

2,021,015

19,363,494

    Office and administration (Note 6)

239,026

132,439

1,205,642

378,673

1,984,865

    Regulatory and transfer agent fees

25,295

6,316

62,087

23,402

146,689

    Shareholder communications and

       investor relations (Note 6)

121,730

89,709

432,334

328,159

1,248,392

    Travel

73,679

20,122

142,392

77,115

296,222

Loss from operations

(3,180,459)

(970,018)

(10,341,738)

(2,499,754)

(30,098,167)

    Interest income

125,790

15,073

178,721

70,526

327,164

Net loss

$(3,054,669)

$(954,945)

$(10,163,017)

$(2,429,228)

$(29,771,003)

Comprehensive loss:

    Net loss

(3,054,669)

(954,945)

(10,163,017)

(2,429,228)

(29,771,003)

    Foreign currency translation adjustment

1,168,212

151,602

1,151,429

15,000

1,331,911

Comprehensive loss

$(1,886,457)

$(803,343)

$(9,011,588)

$(2,414,228)

$(28,439,092)

Basic and diluted loss per share

$         (0.05)

$         (0.02)

$         (0.18)

$         (0.06)

Weighted average number of shares outstanding

65,373,384

42,747,166

57,728,965

42,651,527

ENTREE GOLD INC.
(An Exploration Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Expressed in United States dollars)

Number of
Shares

Common
Stock

Additional
Paid-In Capital

Accumulated
Other
Comprehensive
Income

Accumulated
Deficit
During the
Exploration
Stage

Total
Stockholders'
Equity

Balance, July 19, 1995 (date of inception)

-

$         -

$        -

$         -

$          -

$        -

   Shares issued:

     Private placements

4,200,000

60,852

-

-

-

60,852

     Acquisition of mineral property interests

3,200,000

147,520

-

-

-

147,520

   Foreign currency translation adjustment

-

-

-

(756)

-

(756)

   Net loss

-

-

-

-

(175,714)

(175,714)

Balance, April 30, 1996

7,400,000

208,372

-

(756)

(175,714)

31,902

   Shares issued:

     Private placements

3,880,000

274,718

-

-

-

274,718

   Foreign currency translation adjustment

-

-

-

(8,568)

-

(8,568)

   Net loss

-

-

-

-

(56,250)

(56,250)

Balance, April 30,1997

11,280,000

483,090

-

(9,324)

(231,964)

241,802

   Foreign currency translation adjustment

-

-

-

(5,216)

-

(5,216)

   Net loss

-

-

-

-

(33,381)

(33,381)

Balance, April 30, 1998

11,280,000

483,090

-

(14,540)

(265,345)

203,205

   Foreign currency translation adjustment

-

-

-

(3,425)

-

(3,425)

   Net loss

-

-

-

-

(40,341)

(40,341)

Balance, April 30, 1999

11,280,000

483,090

-

(17,965)

(305,686)

159,439

   Escrow shares compensation

-

-

41,593

-

-

41,593

   Exercise of stock options

1,128,000

113,922

-

-

-

113,922

   Foreign currency translation adjustment

-

-

-

(896)

-

(896)

   Net loss

-

-

-

-

(154,218)

(154,218)

Balance, April 30, 2000

12,408,000

597,012

41,593

(18,861)

(459,904)

159,840

   Foreign currency translation adjustment

-

-

-

(5,627)

-

(5,627)

   Net loss

-

-

-

-

(18,399)

(18,399)

Balance, April 30, 2001

12,408,000

597,012

41,593

(24,488)

(478,303)

135,814

   Foreign currency translation adjustment

-

-

-

(2,561)

-

(2,561)

   Net loss

-

-

-

-

(22,490)

(22,490)

Balance, April 30, 2002

12,408,000

$597,012

$ 41,593

$(27,049)

$(500,793)

$ 110,763

ENTREE GOLD INC.
(An Exploration Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Expressed in United States dollars)

Number of
Shares

Common
Stock

Additional
Paid-In Capital

Accumulated
Other
Comprehensive
Income

Accumulated
Deficit
During the
Exploration
Stage

Total
Stockholders'
Equity

 - continued -

Balance, April 30, 2002

12,408,000

$      597,012

$      41,593

$(27,049

)

$    (500,793

)

$      110,763

   Shares issued:

     Private placements

7,500,000

1,351,055

-

-

-

1,351,055

     Exercise of warrants

12,500

3,288

-

-

-

3,288

     Agent's finder fee

310,000

39,178

-

-

-

39,178

     Finder's fee for mineral property interests

100,000

35,827

-

-

-

35,827

     Debt settlement

135,416

45,839

5,252

-

-

51,091

   Agent's warrants

-

-

16,877

-

-

16,877

   Escrow shares compensation

-

-

40,205

-

-

40,205

   Stock-based compensation

-

-

16,660

-

-

16,660

   Share issue costs

-

(211,207)

-

-

-

(211,207)

   Foreign currency translation adjustment

-

-

-

73,080

-

73,080

   Net loss

-

-

-

-

(1,073,320)

(1,073,320)

Balance, April 30, 2003

20,465,916

1,860,992

120,587

46,031

(1,574,113)

453,497

   Shares issued:

     Private placements and offerings

16,352,942

10,891,160

-

-

-

10,891,160

     Exercise of warrants

3,730,372

1,316,664

(6,443)

-

-

1,310,221

     Exercise of stock options

35,000

18,730

(4,026)

-

-

14,704

     Agent's corporate finance fee

100,000

64,192

8,384

-

-

72,576

     Acquisition of mineral property interests (Note 5)

5,000,000

3,806,000

-

-

-

3,806,000

   Agent's warrants

-

-

370,741

-

-

370,741

   Escrow shares compensation

-

-

1,949,878

-

-

1,949,878

   Stock-based compensation

-

-

414,847

-

-

414,847

   Share issue costs

-

(1,302,715)

-

-

-

(1,302,715)

   Foreign currency translation adjustment

-

-

-

1,950

-

1,950

   Net loss

-

-

-

-

(12,505,759)

(12,505,759)

Balance, December 31, 2003

45,684,230

$ 16,655,023

$ 2,853,968

$ 47,981

$(14,079,872

)

$   5,477,100

ENTREE GOLD INC.
(An Exploration Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Expressed in United States dollars)

Number of
Shares

Common
Stock

Additional
Paid-In Capital

Accumulated
Other
Comprehensive
Income

Accumulated
Deficit
During the
Exploration
Stage

Total
Stockholders'
Equity

- continued -
Balance, December 31, 2003

45,684,230

$ 16,655,023

$ 2,853,968

$   47,981

$(14,079,872

)

$   5,477,100

   Shares issued:

     Private placement

4,600,000

3,846,521

-

-

-

3,846,521

     Exercise of warrants

533,836

186,208

(13,197)

-

-

173,011

     Exercise of stock options

50,000

26,180

(8,238)

-

-

17,942

   Warrants issued for cancellation of price
       guarantee ( Note 5)

-

-

129,266

-

-

129,266

   Escrow shares compensation

-

-

405,739

-

-

405,739

   Share issue costs

-

(21,026)

-

-

-

(21,026)

   Stock-based compensation

-

-

1,530,712

-

-

1,530,712

   Foreign currency translation adjustment

-

-

-

132,501

-

132,501

   Net loss

-

-

-

-

(5,528,114)

(5,528,114

Balance, December 31, 2004

50,868,066

20,692,906

4,898,250

180,482

(19,607,986)

6,163,652

   Shares issued:

     Exercise of warrants

15,000

13,210

-

-

-

13,210

   Escrow shares compensation

-

-

(475,056)

-

-

(475,056)

   Stock-based compensation

-

-

2,518,054

-

-

2,518,054

   Foreign currency translation adjustment

-

-

-

(26,183)

-

(26,183)

   Net loss

-

-

-

-

(3,197,023)

(3,197,023)

Balance, March 31, 2005

50,883,066

20,706,116

6,941,248

154,299

(22,805,009)

4,996,654

   Shares issued:

     Private placement

5,665,730

10,170,207

-

-

-

10,170,207

     Exercise of warrants

6,245,800

5,827,614

-

-

-

5,827,614

     Exercise of stock options

245,000

151,590

-

-

-

151,590

   Escrow shares compensation

-

-

39,473

-

-

39,473

   Share issue costs

-

(521,798)

-

-

-

(521,798)

   Stock-based compensation

-

-

1,960,483

-

-

1,960,483

   Foreign currency translation adjustment

-

-

-

9,400

-

9,400

   Net loss

-

-

-

-

(3,911,325)

(3,911,325)

Balance, June 30, 2005

63,039,596

$ 36,333,729

$ 8,941,204

$ 163,699

$(26,716,334)

$ 18,722,298

Number of
Shares

Common
Stock

Additional
Paid-In Capital

Accumulated
Other
Comprehensive
Income

Accumulated
Deficit
During the
Exploration
Stage

Total
Stockholders'
Equity

- continued -

Balance, June 30, 2005

63,039,596

$ 36,333,729

$ 8,941,204

$ 163,699

$(26,716,334)

$ 18,722,298

   Shares issued:

     Private placement

1,876,680

3,367,890

-

-

-

3,367,890

     Exercise of warrants

997,000

1,069,135

-

-

-

1,069,135

     Exercise of stock options

162,000

149,455

-

-

-

149,455

   Stock-based compensation

-

-

171,952

-

-

171,952

   Foreign currency translation adjustment

-

-

-

1,168,212

-

1,168,212

   Net loss

-

-

-

-

(3,054,669)

(3,054,669)

Balance, September 30, 2005

66,075,276

$ 40,920,209

$ 9,113,156

$1,331,911

$(29,771,003)

$ 21,594,273

Three Month
Period Ended
September 30,
2005

Three Month
Period Ended
September 30,
2004

Nine Month
Period Ended
September 30,
2005

Nine Month
Period Ended
September 30,
2004

Cumulative
Period from
Inception
(July 19,

1995) to September 30,

2005

CASH FLOWS FROM OPERATING
   ACTIVITIES

Net loss

$(3,054,669)

$(954,945)

$(10,163,017)

$(2,429,228)

$(29,771,003)

Items not affecting cash:

   Depreciation

35,285

7,081

76,731

16,978

111,266

   Stock-based compensation

171,952

223,468

4,650,489

752,547

6,612,708

   Escrow shares compensation

(139,903)

(435,583)

(1,049,123)

2,001,832

   Loss on settlement of debt

 -

-

-

-

5,252

   Warrants issued for cancellation of

     price guarantee

-

-

-

129,266

129,266

   Finder's fee paid in stock

-

-

-

-

35,827

   Mineral property interest paid in stock

-

-

-

-

3,806,000

Changes in assets and liabilities:

   Receivables

(78,103)

(25,413)

(135,662)

(83,494)

(236,072)

   Prepaid expenses

28,065

46,941

(175,134)

(86,590)

(237,648)

   Accounts payable and accrued liabilities

(364,951)

(17,775)

294,239

176,270

538,841

Net cash used in operating activities

(3,262,421)

(860,546)

(5,887,937)

(2,573,374)

(17,003,731)

CASH FLOWS FROM FINANCING
  ACTIVITIES

   Proceeds from issuance of capital stock

4,586,479

-

20,749,101

182,332

38,954,015

   Share issue costs

-

-

(521,798)

-

(1,557,374)

    Net cash provided by financing activities

4,586,479

-

20,227,303

182,332

37,396,641

CASH FLOWS FROM INVESTING
   ACTIVITIES

   Acquisition of equipment

(145,864)

(19,335)

(624,202)

(117,305)

(797,857)

    Net cash used in investing activities

(145,864)

(19,335)

(624,202)

(117,305)

(797,857)

Effect of foreign currency translation
   on cash and cash equivalents

1,168,630

151,603

1,151,847

15,000

1,332,329

Change in cash and cash equivalents

   during the period

2,346,824

(728,278)

14,867,011

(2,493,347)

20,927,382

Cash and cash equivalents,
   beginning of period

18,580,558

3,690,426

6,060,371

5,455,495

-

Cash and cash equivalents, end of period

$20,927,382

$ 2,962,148

$ 20,927,382

$ 2,962,148

$ 20,927,382

Cash paid for interest during the period

$         -

$         -

$            -

$          -

Cash paid for income taxes during the  period

$         -

$         -

$            -

$          -

1.

BASIS OF PRESENTATION

The interim period financial statements have been prepared by the Company in conformity with generally accepted accounting principles in the United States of America. The preparation of financial data is based on accounting principles and practices consistent with those used in the preparation of annual financial statements, and in the opinion of management these financial statements contain all adjustments necessary (consisting of normally recurring adjustments) to present fairly the financial information contained therein. Certain information and footnote disclosure normally included in the financial statements prepared in conformity with generally accepted accounting principles in the United States of America have been condensed or omitted. These interim period statements should be read together with the audited financial statements and the accompanying notes included in the Company's Form 10-KSB for the year ended December 31, 2004. The results of operations for the nine month period ended September 30, 2005 are not necessarily indicative of the results to be expected for the year ending December 31, 2005.

On September 9, 2005, the Registrant elected to begin filing all future periodic reports with the United States Securities and Exchange Commission (SEC) in accordance with the filing requirements and rules of a foreign private issuer. The election was made on the basis that the Registrant is incorporated in Canada and meets the definition of a "foreign private issuer" pursuant to SEC Rule 3b-4. Filings and rules that applied under the Registrant's previous system of filing using forms designated for U.S. domestic issuers, such as annual and quarterly reports under Forms 10-KSB and 10-QSB, and material change reports under Form 8-K will no longer apply to the Registrant.

2.

NATURE OF OPERATIONS

The Company was incorporated under the laws of the Province of British Columbia and continued under the laws of the Yukon Territory. On May 27, 2005, the Company changed the governing jurisdiction from the Yukon Territory to British Columbia by continuing into British Columbia under the British Columbia Business Corporation Act. The Company's principal business activity is the exploration of mineral property interests. Effective October 10, 2002, pursuant to a special resolution passed by the shareholders of the Company, the Company changed its name from Entree Resources Inc. to Entree Gold Inc. and consolidated its share capital on a 2:1 basis (Note 6). In December 2003, the Company changed its fiscal year end from April 30 to December 31. To date, the Company has not generated significant revenues from its operations and is considered to be in the exploration stage.

All amounts are expressed in United States dollars, except for certain per share amounts denoted in Canadian dollars ("C$").

3.

SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation

These consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America and include the accounts of the Company and its wholly-owned Mongolian subsidiary, EntrEe LLC. All inter-company transactions and balances have been eliminated upon consolidation. These consolidated financial statements conform in all material respects with Canadian generally accepted accounting principles ("Canadian GAAP") except as described in Note 12.

3.

SIGNIFICANT ACCOUNTING POLICIES (cont'd)

Asset retirement obligations

The Company records the fair value of the liability for closure and removal costs associated with the legal obligations upon retirement or removal of any tangible long-lived assets in accordance with Statements of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations". The initial recognition of any liability will be capitalized as part of the asset cost and depreciated over its estimated useful life. To date, the Company has not incurred any asset retirement obligations.

Escrow shares

Shares placed in escrow in connection with an initial public offering which are to be released upon achievement of certain performance criteria are considered to be contingently issueable and compensatory in nature. Accordingly, the difference between the fair value of these shares, being the trading price of the Company's publicly traded common shares, at the time they are released from escrow and their original issue price is accounted for as compensation expense in the period of release.

As described in Note 6, certain of the Company's escrow shares were transferred to a Trustee for the benefit of future employees, officers and directors of the Company. As these performance escrow shares are considered compensatory in nature, the Company records a compensation benefit at fair value, being the trading price of the Company's publicly traded common shares, when a portion or all of these performance escrow shares are allocated to specific individuals and adjusts this compensation benefit to fair value at the end of each respective reporting period until the performance escrow shares are released from escrow.

Stock-based compensation

Statements of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123") encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans at fair value. Prior to May 1, 2003, the Company chose to account for stock-based compensation, excluding escrow shares, using Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the date of the grant over the amount an employee is required to pay for the stock. Effective for the eight month period ended December 31, 2003, the Company adopted Statements of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment of FASB Statement No. 123" whereby the Company voluntary changed to the fair value based method of accounting for stock-based employee compensation on a prospective basis.

The Company accounts for stock-based compensation issued to non-employees in accordance with the provisions of SFAS 123 and the consensus in Emerging Issues Task Force No. 96-18, "Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring or in Conjunction with Selling, Goods or Services" ("EITF 96-18").

The functional currency of the Company and its wholly-owned subsidiary is the Canadian dollar. Accordingly, monetary assets and liabilities denominated in a foreign currency are translated at the exchange rate in effect at the balance sheet date while non-monetary assets and liabilities denominated in a foreign

3.

SIGNIFICANT ACCOUNTING POLICIES (cont'd)

Foreign currency translation (cont'd)

currency are translated at historical rates. Revenue and expense items denominated in a foreign currency are translated at exchange rates prevailing when such items are recognized in the statement of operations. Exchange gains or losses arising on translation of foreign currency items are included in the statement of operations

The Company follows the current rate method of translation with respect to its presentation of these consolidated financial statements in the reporting currency, being the United States dollar. Accordingly, assets and liabilities are translated into U.S. dollars at the period-end exchange rates while revenue and expenses are translated at the prevailing exchange rates during the period. Related exchange gains and losses are included in a separate component of stockholder's equity as accumulated other comprehensive income.

Net loss per share

Basic net loss per share is computed by dividing the net loss for the period attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share takes into consideration shares of common stock outstanding (computed under basic loss per share) and potentially dilutive shares of common stock. Diluted net loss per share is not presented separately from basic net loss per share as the conversion of outstanding stock options and warrants into common shares would be anti-dilutive. At September 30, 2005, the total number of potentially dilutive shares of common stock excluded from basic net loss per share was 20,876,880 (September 30, 2004 - 15,620,464).

Shares that remain in escrow are excluded from the weighted average number of shares of common stock. The number of shares held in escrow excluded from the weighted average number of shares of common stock was Nil (September 30, 2004 - 3,510,900).

Recent accounting pronouncements

In December 2004, FASB issued Statement of Financial Accounting Standards No. 153, "Exchanges of Nonmonetary Assets - an amendment of APB Opinion No. 29"("SFAS 153") which amends Accounting Principles Board Opinion No. 29, "Accounting for Nonmonetary Transactions" to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS 153 is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005.

In December 2004, FASB issued Statement of Financial Accounting Standards No. 123R, "Share Based Payment" ("SFAS 123R"). SFAS 123R supersedes APB 25 and its related implementation guidance by requiring entities to recognize the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of those awards (with limited exceptions) and revises SFAS 123 as follows:

3.

SIGNIFICANT ACCOUNTING POLICIES (cont'd)

Recent accounting pronouncements (cont'd)

i.         Public entities are required to measure liabilities incurred to employees in share-based payment transactions at fair value and nonpublic entities may elect to measure their liabilities to employees incurred in share-based payment transactions at their intrinsic value whereas under SFAS 123, all share-based payment liabilities were measured at their intrinsic value.

ii.         Nonpublic entities are required to calculate fair value using an appropriate industry sector index for the expected volatility of its share price if it is not practicable to estimate the expected volatility of the entity's share price.

iii.         Entities are required to estimate the number of instruments for which the requisite service is expected to be rendered as opposed to accounting for forfeitures as they occur.

iv.         Incremental compensation cost for a modification of the terms or conditions of an award is measured by comparing the fair value of the modified award with the fair value of the award immediately before the modification whereas SFAS 123 required that the effects of a modification be measured as the difference between the fair value of the modified award at the date it is granted and the award's value immediately before the modification determined based on the shorter of (1) its remaining initially estimated expected life or (2) the expected life of the modified award.

SFAS 123R also clarifies and expands guidance in several areas, including measuring fair value, classifying an award as equity or as a liability and attributing compensation cost to reporting periods. SFAS 123R does not change the accounting guidance for share-based payment transactions with parties other than employees provided in SFAS 123 as originally issued and EITF 96-18. SFAS 123R also does not address the accounting for employee share ownership plans which are subject to Statement of Position 93-6, "Employers'Accounting for Employee Stock Ownership Plans". Public entities (other than those filing as small business issuers) will be required to apply SFAS 123R as of the first annual reporting period that begins after June 15, 2005. Public entities that file as small business issuers will be required to apply SFAS 123R in the first annual reporting period that begins after December 15, 2005. For nonpublic entities, SFAS 123R must be applied as of the beginning of the first annual reporting period beginning after December 15, 2005.

In May 2005, FASB issued Statement of Financial Accounting Standards No. 154 Accounting Changes and Error Corrections - A Replacement of APB Opinion No. 20 and FASB Statement No. 3 ("SFAS 154"), which is effective for fiscal years ending after December 15, 2005. SFAS 154 requires that changes in accounting policy be accounted for on a retroactive basis.

The adoption of these new pronouncements are not expected to have a material effect on the Company's consolidated financial position or results of operations.

5.

MINERAL PROPERTY INTERESTS

Title to mineral property interests involves certain inherent risks due to the difficulties of determining the validity of certain claims as well as the potential for problems arising from the frequently ambiguous conveyancing history characteristic of many mineral property interests. The Company has investigated title to its mineral property interests and, to the best of its knowledge, title to the mineral property interests are in good standing.

Under the terms of an option agreement completed in July, 2002, the Company had the right to acquire up to a 60% interest in three mineral concessions (collectively, the "Lookout Hill Property"), located in southern Mongolia, from Mongol Gazar Co., Ltd. ("Mongol Gazar"), the Mongolian owner. In November 2003, pursuant to an amended purchase agreement which replaced the previous option agreement and all obligations thereunder, the Company acquired from Mongol Gazar a 100% interest in the Lookout Hill Property, free of all royalties. As consideration, the Company paid $5,500,000, issued 5,000,000 common shares at a value of $3,806,000 and agreed to pay Mongol Gazar the amount, if any, by which the net proceeds from the sale of the 5,000,000 shares issued to Mongol Gazar in this transaction is less than $5,000,000 (the "Minimum Price Guarantee").

For the above purchase price, the Company also acquired a 100% interest in a fourth mineral concession (the "Ulziit Uul Property") located in southern Mongolia.

On  April 20, 2004, subject to TSX Venture Exchange ("TSX-V") regulatory approval which was received on June 14, 2004, the Company agreed to issue non-transferable warrants to purchase up to 250,000 shares of the Company (issued) at a price of C$1.05 per share for two years to Mongol Gazar, in satisfaction of the Minimum Price Guarantee previously provided to Mongol Gazar. The fair value of the warrants was estimated to be $129,266. In addition, Mongol Gazar has agreed to transfer to the Company's subsidiary, EntrEe LLC, its 100% interest in an exploration licence located in Khanbogd, Omnogovi, Mongolia (the "Khatsavch Property").

In October, 2004, the Company granted to Ivanhoe Mines Ltd. ("Ivanhoe") the right to earn, over an eight year period, a participating interest in a certain portion of its Lookout Hill Property (the "Project Property"). Under the agreement, Ivanhoe must spend a minimum of $3 million in order to earn surface rights in the Project Property and a minimum of $20 million in order to earn any mineral rights interest in the Project

5.

MINERAL PROPERTY INTERESTS (cont'd)

Property and may acquire up to an 80% interest in mineralization below a depth of 560 metres and a 70% interest in mineralization above a depth of 560 metres by spending $35 million. Thereafter, the Company has the right to require Ivanhoe to fund its share of subsequent project costs through to production, to be recovered from production cash flow. The agreement with Ivanhoe also provided for Ivanhoe to subscribe for 4,600,000 units of the Company at a price of C$1.00 per unit (completed in November 2004).

The Company's exploration licenses begin to expire in March 2008 through to October 2010. The total estimated annual fees in order to maintain these licenses in good standing is approximately $280,000 payable in March 2006 for the ensuing 12 month period.

Three Month
Period Ended
September 30,
2005

Three Month
Period Ended
September 30,
2004

Nine Month
Period Ended
September 30,
2005

Nine Month
Period Ended
September 30,
2004

Lookout Hill:

Acquisition

$     45,895

$   53,186

$     138,487

$   237,150

Assaying, testing and analysis

136,998

134,777

207,352

222,921

Camp and field supplies

453,293

62,610

1,033,038

549,553

Drilling

988,875

69,691

1,303,491

373,684

Geological and geophysical

558,912

266,511

2,047,833

484,591

Travel and accommodation

89,867

57,225

203,266

102,465

2,273,840

644,000

4,933,467

1,970,364

Ulziit Uul:

Acquisition

1,724

2,600

5,200

2,600

Assaying, testing and analysis

24,623

2,000

37,964

2,000

Camp and field supplies

151,376

14,391

334,740

14,391

Geological and geophysical

116,093

-

367,496

-

Travel and accommodation

1,753

1,500

1,753

1,500

295,569

20,491

747,153

20,491

Khatsavch:

Acquisition

-

-

17

-

-

-

17

-

Other

Geological and geophysical

-

10,129

-

30,160

-

10,129

-

30,160

$2,569,409

$674,620

$5,680,637

$2,021,015

6.

COMMON STOCK

In October 2002, the Company consolidated its issued share capital on a two old shares for one new share basis. Authorized share capital remained unchanged. All references to share and per share amounts in these consolidated financial statements have been adjusted accordingly.

In May 2004, the Company received shareholder approval to amend its Articles to increase the authorized share capital of the Company from 100,000,000 common shares without par value to an unlimited number of common shares without par value.

Share issuances

In July 1995, the Company completed a private placement consisting of 4,200,000 common shares issued at a price of C$0.02 per share for gross proceeds of $60,852.

In July 1995, the Company issued 3,200,000 shares at a value of $147,520 for the acquisition of a mineral property interest in Costa Rica. This mineral property was abandoned in 2001.

In January 1997, the Company completed a private placement consisting of 1,680,000 common shares issued at a price of C$0.06 per share for gross proceeds of $77,553.

In April 1997, the Company completed a private placement consisting of 2,200,000 common shares issued at a price of C$0.12 per share for gross proceeds of $197,165.

In February 2000, the Company issued 1,128,000 common shares for cash proceeds of $113,922 on the exercise of stock options.

In September 2002, the Company completed a brokered private placement consisting of 4,000,000 units issued at a price of C$0.20 per unit for gross proceeds of $505,520. Each unit consisted of one common share and one-half non-transferable share purchase warrant. Each whole share purchase warrant entitled the holder to acquire one additional common share at a price of C$0.40 per share for a period of one year. As part of this private placement, the Company issued 310,000 units as a finder's fee to the agent. Each agent's unit consisted of one common share and one-half non-transferable share purchase warrant whereby each whole share purchase warrant entitled the agent to acquire one additional common share at a price of C$0.40 per share for a period of one year. Related share issue costs of $112,338 were comprised of cash costs totaling $72,556 and the fair value of 310,000 units estimated at $39,782, of which $39,178 was assigned to the common shares and $604 was assigned to the warrants.

In January 2003, the Company completed a combination brokered and non-brokered private placement consisting of 2,500,000 units issued at a price of C$0.35 per unit for gross proceeds of $569,975. Each unit consisted of one common share and one-half non-transferable share purchase warrant. Each whole share purchase warrant entitled the holder to acquire one additional common share at a price of C$0.40 per share for a period of one year. As part of this private placement, the Company issued 329,723 agent's warrants whereby each warrant entitled the agent to acquire one additional common share at a price of C$0.40 per share for a period of one year. Related share issue costs of $94,461 were comprised of cash costs totaling $78,188 and the fair value of the agents warrants estimated at $16,273.

6.

COMMON STOCK (cont'd)

Share issuances (cont'd)

In January 2003, the Company issued 100,000 common shares at a value of $35,827 as a finder's fee towards the acquisition of mineral property interests (Note 5).

In February 2003, the Company issued 12,500 common shares for proceeds of $3,288 on the exercise of warrants.

In March 2003, the Company issued 135,416 common shares at a value of $45,839 and 67,708 non-transferable share purchase warrants with a value of $5,252 to settle accounts payable totalling $45,839 resulting in a loss on settlement of $5,252. Each share purchase warrant entitled the holder to acquire one additional common share at a price of C$0.60 per share for a period of one year.

In April 2003, the Company completed a non-brokered private placement consisting of 1,000,000 units issued at a price of C$0.40 per unit for proceeds of $275,560. Each unit consisted of one common share and one non-transferable share purchase warrant. Each share purchase warrant entitles the holder to acquire one additional common share at a price of C$0.50 per share for the first year and at C$0.60 per share for the second year. The Company incurred costs of $4,408 with respect to this private placement.

In August 2003, the Company completed a non-brokered private placement consisting of 2,000,000 common shares issued at a price of C$0.20 per share for gross proceeds of $288,360. Related share issue costs of $15,270 were charged as a reduction to the gross proceeds raised on the non-brokered private placement.

In October 2003, the Company completed a short-form offering and issued 2,352,942 units at a price of C$0.85 per unit for gross proceeds of $1,510,400. Each unit consisted of one common share and one-half of one non-transferable share purchase warrant. Each whole share purchase warrant allows the holder to purchase one additional common share at an exercise price of C$1.06 on or before October 22, 2005. The agent for the offering was paid a cash commission of 8.5% of the gross proceeds received, or $128,384, in respect of units sold and received agent's warrants to acquire common shares equal to 10% of the number of units sold, or 235,294 warrants. The agent's warrants allow the agent to purchase one additional common share at an exercise price of C$0.95 per share on or before October 22, 2004. The agent was also issued 100,000 units as a corporate finance fee. Each agent's unit consists of one common share and one-half of one non-transferable share purchase warrant. Each whole share purchase warrant allows the agent to purchase one additional common share at an exercise price of C$0.95 on or before October 22, 2004. Related share issue costs of $296,296 were comprised of cash costs totaling $164,004 and the fair value of 100,000 agents units estimated at $72,576 and the fair value of 235,294 agent's warrants estimated at $59,716. The fair value of the agent's units of $72,576 consisted of $64,192 assigned to the common shares and $8,384 assigned to the warrants.

In October 2003, the Company completed a brokered private placement consisting of 12,000,000 units at a price of C$1.00 per unit for gross proceeds of $9,092,400. Each unit consisted of one common share and one-half of one non-transferable share purchase warrant. Each whole share purchase warrant allows the holder to purchase one additional common share at an exercise price of C$1.35 on or before October 31, 2005. The agent for the offering was paid a cash commission of 6.5% of the gross proceeds received in respect of units sold by the agent up to 11,500,000 units, or $566,381, and received 920,000 agent's warrants. The agent's warrants allow the agent to purchase one additional common share at an exercise price of C$1.35 per share on or before April 30, 2005. Related share issue costs of $991,149 were comprised of cash costs totaling $680,124 and the fair value of the agents warrants estimated at $311,025.

6.

COMMON STOCK (cont'd)

Share issuances (cont'd)

In November 2003, the Company issued 5,000,000 shares at a value of $3,806,000 for the acquisition of a mineral property interest (Note 5).

During the eight month period ended December 31, 2003 the Company issued 3,730,372 common shares for cash proceeds of $1,310,221 on the exercise of warrants. The warrants exercised had a corresponding fair value of $6,443 when issued which has been transferred from additional paid-in capital to common stock on the exercise of the warrants.

During the eight month period ended December 31, 2003, the Company issued 35,000 common shares for cash proceeds of $14,704 on the exercise of stock options. The fair value recorded when the options were granted of $4,026 has been transferred from additional paid-in capital to common stock on the exercise of the options.

In January 2004, the Company issued 50,000 common shares for cash proceeds of $17,942 on the exercise of stock options. The fair value recorded when the options were granted of $8,238 has been transferred from additional paid-in capital to common stock on the exercise of the options.

In November 2004, the Company completed a non-brokered private placement consisting of 4,600,000 units at a price of C$1.00 per unit for gross proceeds of $3,846,521. Each unit consisted of one common share and one non-transferable share purchase warrant. Each share purchase warrant entitles the holder to purchase one additional common share at a price of C$1.10 on or before November 9, 2006. Pursuant to an agreement with the Company, the placee, being Ivanhoe, has a pre-emptive right to such percentage of any future offering of securities by the Company to enable them to preserve their pro-rata ownership interest in the Company after their acquisition of these 4,600,000 units. Related share issue costs were comprised of cash costs totalling $21,026.

During the year ended December 31, 2004, the Company issued 533,836 common shares for cash proceeds of $173,011 on the exercise of warrants. Certain of the warrants exercised had a corresponding fair value of $13,197 when issued which has been transferred from additional paid-in capital to common stock on the exercise of the warrants.

During the three month period ended March 31, 2005, the Company issued 15,000 common shares for cash proceeds of $13,210 on the exercise of warrants.

In June 2005, the Company completed a non-brokered private placement consisting of 5,665,730 units at a price of C$2.20 per unit for gross proceeds of $10,170,207. Each unit consisted of one common share and one non-transferable share purchase A warrant and one non-transferable share purchase B warrant. Two A warrants entitle the holder to purchase one common share of the Company at a price of C$2.75 for a period of two years. Two B warrants entitle the holder to purchase one common share of the Company at a price of C$3.00 for a period of two years. Pursuant to an agreement with the Company, the placee, Kennecott Canada Exploration Inc. (an indirect wholly-owned subsidiary of Rio Tinto plc) has the right to acquire additional securities and participate in future financings by the Company so as to maintain its proportional equity in the Company. Related share issue costs were comprised of cash costs totalling $521,798.

During the three month period ended June 30, 2005, the Company issued 6,245,800 common shares for aggregate cash proceeds of $5,827,614 on the exercise of warrants.

6.

COMMON STOCK (cont'd)

Share issuances (cont'd)

During the three month period ended June 30, 2005, the Company issued 245,000 common shares for aggregate cash proceeds of $151,590 on the exercise of stock options.

In July 2005, the Company completed a non-brokered private placement consisting of 1,876,680 units at a price of C$2.20 per unit for gross proceeds of $3,367,890. Each unit consisted of one common share and one non-transferable share purchase A warrant and one non-transferable share purchase B warrant. Two A warrants entitle the holder to purchase one common share of the Company at a price of C$2.75 for a period of two years. Two B warrants entitle the holder to purchase one common share of the Company at a price of C$3.00 for a period of two years. Pursuant to an agreement with the Company, the placee, Kennecott Canada Exploration Inc. (an indirect wholly-owned subsidiary of Rio Tinto plc) has the right to acquire additional securities and participate in future financings by the Company so as to maintain its proportional equity in the Company.

During the three month period ended September 30, 2005, the Company issued 997,000 common shares for aggregate cash proceeds of $1,069,135 on the exercise of warrants.

During the three month period ended September 30, 2005, the Company issued 162,000 common shares for aggregate cash proceeds of $149,455 on the exercise of stock options.

Escrow shares

Included in issued capital stock at December 31, 2004 were 3,510,900 common shares which were subject to escrow agreements and may not be released, transferred or assigned without the consent of the regulatory authorities at the TSX-V. On March 3, 2005, the Company became a Tier 1 Issuer on the TSX-V and as a result 2,280,900 shares were released from escrow.

The remaining 1,230,000 common shares that were subject to escrow agreement were released in April, 2005 upon meeting additional performance requirements relating to exploration expenditures on the Company's mineral property interests.

Performance escrow shares

During the year ended April 30, 2000, 270,000 performance escrow shares of 3,000,000 shares originally placed in escrow in connection with an initial public offering with a value of $41,593 were released from escrow.

During the year ended April 30, 2003, the Company, a Trustee and the owner of the remaining 2,730,000 performance escrow shares entered into a Share Purchase Agreement and Trust Deed whereby these performance escrow shares were transferred to the Trustee, on behalf of the Company, for the purpose of making the performance escrow shares available to present and future principals of the Company. In November 2003, the Company, Trustee and owner entered into a Restated Share Purchase Agreement and Trust Deed that clarified and corrected the terms and intent of the original agreement. Pursuant to these agreements, the Company acquired and immediately transferred these performance escrow shares to the Trustee for the benefit of current and future employees, officers and directors of the Company (the "2,730,000 Trustee Shares").

6.

COMMON STOCK (cont'd)

In July 2002, the Company entered into an agreement with the president of the Company for the receipt of certain escrow shares in exchange for services provided to the Company. The agreement was replaced with an employment agreement dated November 1, 2003. At December 31, 2004, under the terms of the agreements, a cumulative total of 625,000 performance escrow shares of the 2,730,000 Trustee Shares had been allocated to the president of the Company. In May 2004, 310,439 performance escrow shares allocated to the president of the Company were released from escrow and marked-to-market at the date of release at a final value of $252,246. In August 2004, an additional 310,439 performance escrow shares allocated to the president of the Company were released from escrow and marked-to-market at the date of release at a final value of $129,559.

During the eight month period ended December 31, 2003, the Trustee allocated an additional 905,000 performance escrow shares of the 2,730,000 Trustee Shares to directors of the Company. In May 2004, 109,891 performance escrow shares allocated to directors were released from escrow and marked-to-market at the date of release at a final value of $89,291. In August 2004, an additional 109,891 performance escrow shares allocated to the directors were released from escrow and marked-to-market at the date of release at a final value of $44,241.

In October, 2004 the Company allocated the final 1,200,000 performance escrow shares of the 2,730,000 Trustee Shares to directors, officers and employees of the Company.

In April 2005, the remaining 1,230,000 performance escrow shares allocated to the president of the Company and to the directors and employees were released from escrow and marked-to-market at the date of release at a final total value of $1,028,001.

At September 30, 2005, all performance escrow shares had been released from escrow. At December 31, 2004 there were 1,230,000 performance escrow shares that, although allocated, had not been released from escrow of which 4,122 performance escrow shares allocated to the president under employment agreement had a value of $4,902 and 1,225,878 performance escrow shares allocated to directors and employees had a value of $1,458,682.

The total escrow compensation expense (recovery) has been recorded in the consolidated financial statements as follows with corresponding additional paid-in capital recorded in stockholders' equity:

6.

COMMON STOCK (cont'd )

Escrow shares (cont'd)

Share purchase warrants

6.

COMMON STOCK (cont'd )

Share purchase warrants (cont'd)

As at September 30, 2005, the following share purchase warrants were outstanding and exercisable.

Number of                         
Shares                      

Exercise Price (C$)

Expiry Date

535,970

$1.06

October 22, 2005

3,700,500

1.35

October 31, 2005

250,000

1.05

April 20, 2006

2,832,865

2.75

June 29, 2007

2,832,865

3.00

June 29, 2007

938,340

2.75

July 7, 2007

938,340

3.00

July 7, 2007

12,028,880

Stock options

During the year ended April 30, 2003, the Company adopted a stock option plan (the "Plan") to grant options to directors, officers, employees and consultants. Under the Plan, as amended in May 2005, the Company may grant options to acquire up to 9,251,613 common shares of the Company. Options granted can have a term up to five years and an exercise price typically not less than the Company's closing stock price at the date of grant. The options shall vest at issuance, except for options granted to consultants for investor relations services which vest as to 25% at issuance and 25% every three months for a total of twelve months.

Number of
Shares

Weighted
Average
Exercise Price
(C$)

Balance as at December 31, 2004

5,915,000

$1.03

      Granted

3,340,000

1.67

      Exercised

(407,000)

0.90

Balance as at September 30, 2005

8,848,000

$1.27

The weighted average fair value of stock options granted during the nine months ended September 30, 2005 was C$0.95 ( September 30, 2004 - C$1.09). The number of stock options exercisable at September 30, 2005 was 8,741,750 (December 31, 2004 - 3,708,750). The weighted average exercise price of stock options exercisable at September 30, 2005 was C$1.27 (September 30, 2004 - C$0.99).

On March 3, 2005, the Company became a Tier 1 Issuer on the TSX-V and, as a result, all stock options became fully vested except those issued to investor relations consultants.

6.

COMMON STOCK (cont'd )

Stock options (cont'd)

At September 30, 2005, the following stock options were outstanding:

Number of                              
Shares                            

Exercise
Price
(C$)

Expiry Date

210,000

$1.15

November 1, 2006

715,000

0.46

August 26, 2007

50,000

0.34

December 3, 2007

510,000

0.60

January 30, 2008

800,000

1.00

September 18, 2008

175,000

2.32

November 13, 2008

665,000

1.24

February 11, 2009

1,595,000

1.15

November 12, 2009

200,000

1.20

November 24, 2009

600,000

1.25

December 17, 2009

400,000

1.28

January 7, 2010

175,000

1.19

March 3, 2010

63,000

1.48

May 24, 2010

2,545,000

1.75

June 9, 2010

100,000

2.00

August 15, 2010

25,000

1.66

August 25, 2010

20,000

1.85

September 28, 2010

8,848,000

Stock-based compensation