UNITED STATES
SECURITIES AND EXCHANGE COMMISSION 
Washington, D.C. 20549

# FORM 20-F

| |  | REGISTRATION
STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
| |  | ----------------------------------------------------------------------------------------------

OR

| |  | ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the
fiscal year ended June 30, 2006
| |  | ----------------------------------------------------------------------------------------------------------------------------

OR

| |  | TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES          EXCHANGE ACT OF 1934
| |  | -------------------------------------------------------------------------------------------------

| | For
the transition period from __________ to _______________
| | ------------------------------------------------------------

OR

| |  | SHELL
COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES          EXCHANGE ACT OF
1934
| |  | ----------------------------------------------------------------------------------------------------

| | Date
of event requiring this shell company report __________
| | ------------------------------------------------------------

Commission file number:
0-50880

White Knight
Resources Ltd. (Exact name of
Registrant as specified in its charter)

Province of British
Columbia, Canada
(Jurisdiction of incorporation or organization)

#922, 510 West
Hastings Street, Vancouver, British Columbia, Canada V6B 1L8
(Address of principal executive offices)

| | Securities
registered or to be registered pursuant to Section 12(b) of the Act.
| | -------------------------------------------------------------------------------

|Title of each classN/A | Name of each exchange on which registeredN/A
|---------------------- | --------------------------------------------

| | Securities
registered or to be registered pursuant to Section 12(g) of the Act.
| | -------------------------------------------------------------------------------

Common Stock, No Par Value
(Title of Class)

Securities for which there is a
reporting obligation pursuant to Section 15(d) of the Act.   N/A

Indicate the number of outstanding
shares of each of the issuers classes of capital or common stock as of the close of the
period covered by this annual report, June 30, 2006:   59,384,972 Common Shares

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

If this report is an annual or
transition report,  indicate by check mark if the registrant  is not required to file
 reports  pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
       Yes       No

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

Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.

|Large accelerated filer | Accelerated filer | Non-accelerated filer
|----------------------- | ----------------- | ---------------------

Indicate by check mark which
financial statement item the registrant has elected to follow.
       Item 17         Item 18

If this is an annual report,
 indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).        Yes       No

---

# WHITE KNIGHT RESOURCES
LTD.
FORM 20-F ANNUAL REPORT 
TABLE OF CONTENTS

|                                          |                                                                              
|----------------------------------------- | -----------------------------------------------------------------------------
|NOTE REGARDING FORWARD LOOKING STATEMENTS |                                                                              
|GLOSSARY OF TERMS                         |                                                                              
|RESERVE AND RESOURCE DISCLOSURE           |                                                                              
|METRIC EQUIVALENTS                        |                                                                              
|ITEM 1:                                   | IDENTITY OF OFFICERS AND DIRECTORS                                           
|ITEM 2:                                   | OFFER STATISTICS AND EXPECTED TIMETABLE                                      
|ITEM 3:                                   | KEY INFORMATION                                                              
|ITEM 4:                                   | INFORMATION ON THE COMPANY                                                   
|ITEM 4A:                                  | UNRESOLVED STAFF COMMENTS                                                    
|ITEM 5:                                   | OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                 
|ITEM 6:                                   | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                   
|ITEM 7:                                   | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                            
|ITEM 8:                                   | FINANCIAL INFORMATION                                                        
|ITEM 9:                                   | OFFER AND LISTING DETAILS                                                    
|ITEM 10:                                  | ADDITIONAL INFORMATION                                                       
|ITEM 11:                                  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                   
|ITEM 12:                                  | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                       
|ITEM 13:                                  | DEFAULTS, DIVIDEND ARREARAGES AND DELIQUENCIES                               
|ITEM 14:                                  | MATERIAL MODIFICATIONS TO THE
RIGHTS OF SECURITY HOLDERS 
AND USE OF PROCEEDS
|ITEM 15:                                  | CONTROLS AND PROCEDURES                                                      
|ITEM 16A:                                 | AUDIT COMMITTEE FINANCIAL EXPERT                                             
|ITEM 16B:                                 | CODE OF ETHICS                                                               
|ITEM 16C:                                 | PRINCIPAL ACCOUNTANT FEES  AND SERVICES                                      
|ITEM 16D:                                 | EXEMPTIONS FROM LISTING STANDARDS FOR AUDIT COMMITTEES                       
|ITEM 16E:                                 | PURCHASEES OF EQUTY SECURITIES BY 
THE ISSUER AND AFFILIATED PURCHASERS      
|ITEM 17:                                  | FINANCIAL STATEMENTS                                                         
|ITEM 18:                                  | FINANCIAL STATEMENTS                                                         
|ITEM 19:                                  | EXHIBITS                                                                     
|SIGNATURE                                 |                                                                              

---

# NOTE REGARDING FORWARD
LOOKING STATEMENTS

This report contains forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of 1934
concerning plans for the properties, operations and other matters of White Knight
Resources Ltd. These statements relate to analyses and other information that are based on
forecasts of future results, estimates of amounts not yet determinable and assumptions of
management. In this Annual Report, unless the context otherwise requires, the terms
White Knight, Company, Issuer, Registrant
and we refer collectively to White Knight Resources Ltd. and its subsidiaries.

Statements concerning reserves, if
any, and mineral resource estimates may also be deemed to constitute forward-looking
statements to the extent that they involve estimates of the mineralization that will be
encountered if the property is developed, and in the case of mineral reserves, such
statements reflect the conclusion based on certain assumptions that the mineral deposit
can be economically exploited. Any statements that express or involve discussions with
respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions
or future events or performance (often, but not always, using words or phrases such as
expects or does not expect, is expected,
anticipates or does not anticipate, plans,
estimates or intends, or stating that certain actions, events or
results may, could, would, might or
will be taken, occur or be achieved) are not statements of historical fact and
may be forward-looking statements. Forward-looking statements are subject to a
variety of risks and uncertainties, which could cause actual events or results to differ
from those reflected in the forward-looking statements, including, without limitation:

| |  |  | Risks
related to gold price and other commodity price fluctuations;
| | - |  | -------------------------------------------------------------------

| |  |  | Risks
and  uncertainties  relating to the  interpretation  of drill  results,  and the geology,
 grade and                continuity of mineral deposits;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Risks
 related to the  inherent  uncertainty  of  production  and cost  estimates  and the
 potential  for                unexpected costs and expenses;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Results
of initial feasibility, prefeasibility and feasibility studies, and the possibility that
future exploration, development or mining results will not be consistent with the Companys
expectations;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Mining
and development risks, including risks related to accidents, equipment breakdowns, labour
disputes or other unanticipated difficulties with or interruptions in production;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | The
 potential for delays in  exploration  or  development  activities  or the  completion of
 feasibility                studies;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------

| |  |  | The
uncertainty of profitability based upon the Companys history of losses;
| | - |  | ----------------------------------------------------------------------------

| |  |  | Risks
related to failure to obtain adequate financing on a timely basis and on acceptable
terms;
| | - |  | ------------------------------------------------------------------------------------------------

| |  |  | Risks
related to environmental regulation and liability;
| | - |  | --------------------------------------------------------

| |  |  | Risks
related to hedging activities;
| | - |  | ------------------------------------

| |  |  | Political
and regulatory risks associated with mining and exploration; and
| | - |  | --------------------------------------------------------------------------

| |  |  | Other
risks and uncertainties related to the Companys prospects, properties and business
strategy.
| | - |  | ---------------------------------------------------------------------------------------------------

Some of the important risks and
uncertainties that could affect forward looking statements are described in this Annual
Report under Item 3 D.  Risk Factors. Should one or more of these risks and
uncertainties materialize, or should underlying assumptions prove incorrect, actual
results may vary materially from those described in forward-looking statements. Forward
looking statements are made based on managements beliefs, estimates and opinions on
the date the statements are made and the Company undertakes no obligation to update
forward-looking statements if these beliefs, estimates and opinions or other circumstances
should change. Investors are cautioned against attributing undue certainty to
forward-looking statements.

# GLOSSARY OF TERMS

The following terms have the
following meanings in this Annual Report on Form 20-F

|                    
|--------------------
|Adit                
|
|Alluvial            
|
|Alteration          
|
|Argillization       
|
|Audiomagnetotelluric
|
|Au                  

1

---

|                       |  |                                                                                                                                                                                                             | 
|---------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|Barite                 |  | Barium sulphate                                                                                                                                                                                             | 
|
|Basalt                 |  | A general term for dark-colored mafic igneous rocks, commonly extrusive but locally intrusive.                                                                                                              | 
|
|Bioclastic Turbidites  |  | Submarine debris flows.                                                                                                                                                                                     | 
|
|BLM                    |  | Bureau of Land Management of the State of Nevada.                                                                                                                                                           | 
|
|Breccia                |  | A rock in which angular fragments are surrounded by a mass of fine-grained matrix.                                                                                                                          | 
|
|Carbonate              |  | A sediment formed by the organic or inorganic precipitation from aqueous solution of carbonates of calcium, magnesium, or iron; e.g., limestone and dolomite.                                               | 
|
|Chert                  |  | A hard, dense, sedimentary rock, consisting primarily of cryptocrystaline quartz.                                                                                                                           | 
|
|CSAMT                  |  | Controlled Source Audio Magnetotelluric - geophysical method which measures the decay of an induced electromagnetic field.                                                                                  | 
|
|Devonian               |  | Geologic era 360 million years to 410 million years.                                                                                                                                                        | 
|
|Dolomite               |  | A carbonate sedimentary rock consisting of carbonate and magnesium. Often associated with and interbedded with limestone.                                                                                   | 
|
|Embayment              |  | Indentation in the profile of a coastline.                                                                                                                                                                  | 
|
|Facies                 |  | Environment in which a certain sedimentary rock unit is deposited.                                                                                                                                          | 
|
|Felsic                 |  | Intrusive or volcanic rock with a high silica content.                                                                                                                                                      | 
|
|g/t                    |  | Grams per metric tonne.                                                                                                                                                                                     | 
|
|Geophysical Survey     |  | A scientific method of prospecting that measures the physical properties of rock formations. Common properties investigated include magnetism, specific gravity, electrical conductivity and radioactivity. | 
|
|Greenstone             |  | Metamorphosed intermediate to basic volcanics.                                                                                                                                                              | 
|
|Hematite               |  | An oxide of iron, and one of irons most common ore minerals.                                                                                                                                               | 
|
|Horst                  |  | A relatively uplifted rock unit or block that is bounded by faults on its long sides.                                                                                                                       | 
|
|Hydrothermal           |  | The products or the actions of heated waters in a rock mass such as a mineral deposit precipitating from a hot solution.                                                                                    | 
|
|Induced Polarization   |  | Geophysical exploration method which measures decay of an induced charge.                                                                                                                                   | 
|
|Jasperiod              |  | A dense, usually gray, siliceous rock which contains quartz instead of limestone or dolomite.                                                                                                               | 
|
|Karsting               |  | The development of large open spaces (caves) by the process of solution collapse. This usually takes place in limestones or other calcium carbonate rich rocks.                                             | 
|
|Lower-plate            |  | Generally refers to the eastern assemblage of northeastern Nevada.                                                                                                                                          | 
|
|Magnetotelluric Survey |  | An electromagnetic survey in which natural electric and magnetic fields are measured.                                                                                                                       | 
|
|Miocene                |  | Geologic era 23.7 Million years to 6.2 million years.                                                                                                                                                       | 
|
|Micritic               |  | Fine-grained carbonate rock.                                                                                                                                                                                | 
|
|NSR                    |  | Net Smelter Royalty, or, the amount payable from the precious metal produced by the mine after smeltering hs removed most of the impurities.                                                                | 
|
|Opt                    |  | Ounce per ton.                                                                                                                                                                                              | 

2

---

|             |  |                                                                                                                                                                                                                                                                                                                                                                                                   | 
|------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|Paleozoic    |  | Geologic era 570 million years to 245 million years.                                                                                                                                                                                                                                                                                                                                              | 
|
|Pod          |  | A roughly cylindrically-shaped body of ore that decreases at the ends.                                                                                                                                                                                                                                                                                                                            | 
|
|ppb          |  | Parts per billion                                                                                                                                                                                                                                                                                                                                                                                 | 
|
|Quarternary  |  | The period of Earth's history from about 2 million years ago to the present; also, the rocks and deposits of that age.                                                                                                                                                                                                                                                                            | 
|
|Refractory   |  | A type of ore which it is difficult or expensive to treat to release or recover its valuable minerals.                                                                                                                                                                                                                                                                                            | 
|
|Rhyolite     |  | A group of extrusive igneous rocks, typically porphyritic and commonly exhibiting flow texture, with phenocrysts of quartz and alkali feldspar in a glassy to cryptocrystalline groundmass; also, any rock in that group; the extrusive equivalent of granite.                                                                                                                                    | 
|
|Sediments    |  | Solid fragmental material that originates from weathering of rocks and is transported or deposited by air, water, or ice, or that accumulates by other natural agents, such as chemical precipitation from solution or secretion by organisms, and that forms in layers on the Earth's surface at ordinary temperatures in a loose, unconsolidated form; e.g., sand, gravel, silt, mud, alluvium. | 
|
|Siliclastic  |  | Sedimentary rock with a high silica content.                                                                                                                                                                                                                                                                                                                                                      | 
|
|Silification |  | The in situ alteration of a rock, which involves an increase in the proportion of silica minerals.                                                                                                                                                                                                                                                                                                | 
|
|Siltstone    |  | An indurated silt having the texture and composition of shale but lacking its fine lamination or fissility; a massive mudstone in which the silt predominates over clay.                                                                                                                                                                                                                          | 
|
|Tertiary     |  | Geologic era 57 million years to recent.                                                                                                                                                                                                                                                                                                                                                          | 
|
|Upper-plate  |  | Generally refers to the western assemblage of northeastern Nevada.                                                                                                                                                                                                                                                                                                                                | 

# RESERVE AND RESOURCE
DISCLOSURE

Terms used in this Annual Report
relating to mineral reserves and mineral resources are Canadian mining terms as defined in
accordance with National Instrument 43-101 under the guidelines set out in Canadian
Institute of Mining, Metallurgy and Petroleum (CIM) Standards on Mineral
Resources and Mineral Reserves Definitions and Guidelines as adopted by the CIM Council.
Under CIM Standards, the terms mineral reserve, proven mineral
reserve, probable mineral reserve, mineral resource,
measured mineral resource, indicated mineral resource and
inferred mineral resource have the following meanings:

|Mineral
 reserve | The term mineral reserve, under CIM Standards, refers to
the economically mineable part of a measured or indicated mineral resource demonstrated
by at least a preliminary feasibility study. The study must include adequate information
on mining, processing, metallurgical, economic, and other relevant factors that
demonstrate, at the time of reporting, that economic extraction can be justified. A
mineral reserve includes diluting materials and allowances for losses that might occur
when the material is mined. Under CIM Standards, mineral reserves are categorized as
follows on the basis of the degree of confidence in the estimate of the quantity and
grade of the deposit.
|---------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Proven
mineral reserve means, under CIM Standards, for the part of a deposit which is being
mined, or which is being developed and for which there is a detailed mining plan, the
estimated quantity and grade or quality of that part of a measured mineral resource for
which the size, configuration and grade or quality and distribution of values are so well
established, and for which economic viability has been demonstrated by adequate
information on engineering, operating, economic and other relevant factors, so that there
is the highest degree of confidence in the estimate.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Probable
mineral reservemeans, under CIM Standards, the estimated quantity and grade or
quality of that part of an indicated mineral resource for which economic viability has
been
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

3

---

| | demonstrated
by adequate information on engineering, operating, economic and other relevant factors,
at a confidence level which would serve as a basis for decisions on major expenditures.
The degree of assurance, although lower than that for proven mineral reserves, is high
enough to assume continuity between points of observation.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Mineral
 resource | The term mineral resource, under CIM Standards, refers to
a concentration or occurrence of natural, solid, inorganic or fossilized organic material
in or on the Earths crust in such form and quantity and of such a grade or quality
that it has reasonable prospects for economic extraction. The location, quantity, grade,
geological characteristics and continuity of a mineral resource are known, estimated or
interpreted form specific geological evidence and knowledge. Under CIM Standards, mineral
resources are categorized as follows:
|----------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Measured
mineral resourcerefers to that part of a mineral resource for which a quantity grade
or quality, density, shape and physical characteristics are so well established that they
can be estimated with confidence sufficient to allow the appropriate application of
technical and economic parameters, to support production planning and evaluation of the
economic viability of the deposit. The estimate is based on detailed and reliable
exploration, sampling and testing information gathered through appropriate techniques from
locations such as outcrops, trenches, pits, workings and drill holes that are spaced
closely enough to confirm both geological and grade continuity.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Indicated
mineral resource refers to that part of a mineral resource for which quantity grade or
quality, density, shape and physical characteristics can be estimated with a level of
confidence sufficient to allow the appropriate application of technical and economic
parameters to support mine planning and evaluation of the economic viability of the
deposit. The estimate is based on detailed and reliable exploration and testing
information gathered through appropriate techniques from locations such as outcrops,
trenches, pits, workings and drill holes that are spaced closely enough for geological and
grade continuity to be reasonably assumed.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Inferred
mineral resource refers to that part of a mineral resource for which quantity and
grade or quality can be estimated on the basis of geological evidence and limited sampling
and reasonably assumed, but not verified, geological and grade continuity. The estimate is
based on limited information and sampling gathered through appropriate techniques from
locations such as outcrops, trenches, pits, workings and drill holes.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Cautionary Note to U.S. Investors
Concerning Estimates of Mineral Reserves and Mineral Resources:

We advise U.S. investors that the
definitions of the terms mineral reserve, proven mineral reserve
and probable mineral reserve under CIM Standards are different than the
definitions adopted to the U.S. Securities and Exchange Commission (the SEC)
and applicable to U.S. companies filing reports with the SEC pursuant to Guide 7. It is
the view of the SECs staff that:

| |  |  | A
final or bankable feasibility study is required to meet the
requirements to designate reserves under Guide 7.
| | - |  | -------------------------------------------------------------------------------------------------------------------

| |  |  | A
historic three year average price is to be used in any reserve or cash flow analysis to
designate reserves.
| | - |  | -------------------------------------------------------------------------------------------------------------

| |  |  | To
meet the legal part of the reserve definition, the primary environmental
analysis or document should have been submitted to governmental authorities.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------

In addition, while the terms
mineral resource, measured mineral resource, indicated
mineral resource, and inferred mineral resource are recognized and
required to be reported by Canadian regulations, the SEC does not recognize them. As such,
information contained in this Annual Report concerning descriptions of mineralization,
resources and reserves under Canadian standards may not be comparable to similar
information made public by U.S. companies subject to the reporting and disclosure
requirements of the SEC. Indicated mineral resource and inferred mineral
resource have a great amount of uncertainty as to their existence and a great
uncertainty as to their economic and legal feasibility. It cannot be assumed that all or
any part of an indicated mineral resource or inferred mineral
resource will ever be upgraded to a higher category. U.S. investors are cautioned
not to assume that any part or all of an inferred resource exists, or is economically or
legally mineable.

4

---

# METRIC EQUIVALENTS

For ease of reference, the following
factors for converting metric measurements into imperial equivalents are provided:

|To Convert from Metric | To Imperial | Multiply by       
|---------------------- | ----------- | ------------------
|Hectares               |             | Acres             
|Meters                 |             | Feet (ft.)        
|Kilometers (km)        |             | Miles             
|Tonnes                 |             | Tons (2000 pounds)
|Grams/tonne            |             | Ounces (troy/ton) 

# ITEM 1:   IDENTITY OF
DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

Not applicable.

# ITEM 2:    OFFER STATISTICS
AND EXPECTED TIMETABLE

Not applicable.

# ITEM 3:    KEY INFORMATION

# 3 A.    SELECTED FINANCIAL
DATA

The selected financial data of the
Company for the years ended June 30, 2006, 2005 and 2004 were derived from the
consolidated financial statements of the Company that were audited by Davidson &
Company LLP, Chartered Accountants (Davidson & Company), as indicated in
their audit report which is included elsewhere in this Annual Report. The selected
financial data of the Company for the years ended June 30, 2003 and 2002 was derived from
the consolidated financial statements of the Company that were audited by Davidson &
Company; these consolidated financial statements are not included herein.

The selected financial data should be
read in conjunction with the consolidated financial statements and other financial
information included elsewhere in the Annual Report.

The Company has not declared any
dividends on its common shares since incorporation and does not anticipate that it will do
so in the foreseeable future. The present policy of the Company is to retain any future
earnings for use in its operations and the expansion of its business.

The following table is derived from
the consolidated financial statements of the Company, which have been prepared in
accordance with Canadian generally accepted accounting principles (GAAP), the
application of which, in the case of the Company, conforms in all material respects for
the years presented with United States generally accepted accounting principles (US
GAAP), except as disclosed in Note 16 to the consolidated financial statements.

In this Annual Report, unless
otherwise specified, all dollar amounts are expressed in Canadian Dollars (CAD$).

Selected Financial Data
(CAD$ in 000, except per share data)

|                          | Year
Ended
6/30/06 | Year
Ended
6/30/05 | Year
Ended
6/30/04 | Year
Ended
6/30/03 | Year
Ended
6/30/02
|------------------------- | ------------------ | ------------------ | ------------------ | ------------------ | ------------------
|                         
|Revenue                   |                    | $          0       |                    | $          0       |                   
|Net Loss                  |                    | (3,307             | )                  | (1,063             | )                 
|Net Loss Per Share        |                    | (0.06              | )                  | (0.02              | )                 
|Dividends Per Share       |                    | 0                  |                    | 0                  |                   
|Weighted Avg. Shares(000) |                    | 58,855             |                    | 53,091             |                   

5

---

Selected Financial Data
(CAD$ in
000)

|                           | As at
6/30/06 | As at
6/30/05 | As at
6/30/04 | As at
6/30/03 | As at
6/30/02
|-------------------------- | ------------- | ------------- | ------------- | ------------- | -------------
|                          
|Working Capital            |               | 13,239        |               | 11,216        |              
|Mineral Property Interests |               | 2,800         |               | 2,456         |              
|Deferred Exploration Costs |               | 3,864         |               | 1,509         |              
|Long-Term Debt             |               | 0             |               | 0             |              
|Shareholders' Equity       |               | 20,902        |               | 15,517        |              
|Total Assets               |               | 21,502        |               | 15,697        |              

Had the consolidated financial
statements of the Company been prepared in accordance with US GAAP, certain selected
financial data would have been reported as follows, (CAD$ in 000 except per share
amounts).

|                     | Year 
  Ended 
6/30/06 | Year 
    Ended 
  6/30/05 
 Restated | Year 
   Ended 
 6/30/04 
Restated | Year 
  Ended 
6/30/03 | Year 
  Ended 
6/30/02
|-------------------- | ---------------------- | ------------------------------------- | ---------------------------------- | ---------------------- | ----------------------
|                    
|Loss Per Share       |                        | (0.10                                 | )                                  | (0.05                  | )                     
|Shareholders' Equity |                        | 15,054                                |                                    | 12,205                 |                       

|                           | As at
6/30/06 | As at
  6/30/05 
 Restated | As at
 6/30/04 
Restated | As at
6/30/03 | As at
6/30/02
|-------------------------- | ------------- | -------------------------- | ------------------------ | ------------- | -------------
|                          
|Mineral Property Interests |               | 767                        |                          | 616           |              
|Deferred Exploration Costs |               | 0                          |                          | 0             |              
|Total Assets               |               | 15,654                     |                          | 12,385        |              

The Government of Canada permits a
floating exchange rate to determine the value of the CAD$ against the U.S. Dollar (US$).

The following table sets forth the high
and low rate of exchange for the CAD$ for each month during the previous six months, and
for the five most recent fiscal years of the Company. The average rate for each such
fiscal year is calculated using the average of the rate of exchange on the last day of
each month during the year.

For purposes of this table, the rate
of exchange means the noon buying rate in New York City for cable transfers in foreign
currencies as certified for customs purposes by the Federal Reserve Bank of New York. The
table sets forth the number of CAD$ required under that formula to buy one US$.

|Canadian Dollar/US Dollar
|-------------------------
|
|Year Ended June 30, 2006 
|Year Ended June 30, 2005 
|Year Ended June 30, 2004 
|Year Ended June 30, 2003 
|Year Ended June 30, 2002 

|               | High | Low   
|-------------- | ---- | ------
|September 2006 |      | 1.1272
|August 2006    |      | 1.1312
|July 2006      |      | 1.1415
|June 2006      |      | 1.1241
|May 2006       |      | 1.1232
|April 2006     |      | 1.1718

6

---

On October 4, 2006, the rate of
exchange was US$1.00 = CAD$1.1286.

# 3 B.   CAPITALIZATION AND
INDEBTEDNESS

Not applicable.

# 3 C.    REASONS FOR THE
OFFER AND USE OF PROCEEDS

Not applicable.

# 3 D.    RISK FACTORS

An investment in the common shares of
the Company involves a high degree of risk and must be considered highly speculative due
to the nature of the Companys business and the present stage of exploration and
development of its mineral resource properties. In particular, the following risk factors
apply:

# Risks Relating to Our
Business and Industry

We have a history of losses, and
we expect to incur losses in the future

The Company has no mineral producing
properties and no operating revenues. The Company has had a history of losses and there is
no assurance that it can generate operating revenues or reach profitability in the future.
The Company could require significant additional funding to meet its business objectives.

Mineral exploration is
speculative and frequently unsuccessful

Resource exploration is a speculative
business, characterized by a number of significant risks including, among other things,
unprofitable efforts resulting not only from the failure to discover resource deposits but
from finding resource deposits which, though present, are insufficient in quantity and
quality to return a profit from production. The marketability of resources acquired or
discovered by the Company may be affected by numerous factors which are beyond the control
of the Company and which cannot be accurately predicted, such as market fluctuations, the
proximity and capacity of refining facilities, resource markets and processing equipment,
and such other factors as government regulations, including regulations relating to
royalties, allowable production, importing and exporting of minerals, and environment
protection, the combination of which factors may result in the Company not receiving an
adequate return on investment capital.

The Company is at the exploration
stage on all of its properties and substantial additional work will be required in order
to determine if any economic deposits occur on the Companys properties. Resource
exploration is highly risky, and most exploration properties do not contain any economic
deposits of minerals. If a property is determined to not contain any economic reserves of
minerals, the entire amount spent on exploration will be lost.

Despite exploration work on its
mineral claims, no known bodies of commercial ore have been established on any of the
Companys resource properties. Finding resource deposits is dependent on a number of
factors, not the least of which is the technical skill of exploration personnel involved.
Even in the event commercial quantities of resources are discovered, the exploration
properties might not be brought into a state of commercial production. The commercial
viability of a resource deposit once discovered is also dependent on a number of factors,
some of which are particular attributes of the deposit, such as size, grade and proximity
to infrastructure, as well as commodity prices. Most of these factors are beyond the
control of the entity conducting such resource exploration. The Company is an exploration
stage company with no history of pre-tax profit and no income from its operations. Even if
the Companys properties are brought into production, operations may not be
profitable.

We could be harmed by a
decline in gold or other metal prices

The economics of developing metal and
mineral properties are affected by many factors including, without limitation, the cost of
operations, variations in the grade of ore or resource mined and the price of such
resources. Depending on the price of gold and other metals, the Company may determine that
it is impractical to commence or continue commercial production. The prices of gold and
other metals have fluctuated in recent years.

Since the Companys properties
are gold prospects, the prices of gold and other metals significantly affect the Companys
ability to explore and develop its properties, and to obtain financing and its future
prospects generally. The prices of gold and other metals are affected by several factors
beyond the control of the Company, including, without limitation, international economic
and political trends, expectations of inflation, interest rates and global or regional
consumption patterns, speculative activities, increased production due to improved mining
and production methods, and changes in

7

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primary production capacity and
utilization and in the recycling of secondary material. There can be no assurance that
the prices of gold will remain stable or that such prices will be at levels that will
make it feasible to continue  the Company's exploration  activities,  or, if applicable,
begin development of its properties or commence or, if commenced, continue commercial
production.

The titles to some of our
properties may be uncertain or defective, or we may lose rights to properties if we fail
to meet payment requirements

Certain of our mineral rights consist
of unpatented mining claims created and maintained in accordance with the U.S.
General Mining Law of 1872. Unpatented mining claims are unique property interests granted
in lands owned by the U.S. federal government. No land ownership is conveyed to the
holders of the claims. Unpatented mining claims are generally considered to be subject to
greater title risk than other real property interests because the validity of unpatented
mining claims is often uncertain. This uncertainty arises, in part, out of the complex
federal and state laws and regulations that supplement the General Mining Law. Also,
unpatented mining claims and related rights, including rights to use the surface, are
subject to possible challenges by third parties or contests by the federal government. The
validity of an unpatented mining claim, in terms of both its location and its maintenance,
is dependent on strict compliance with a complex body of federal and state statutory and
decisional law. In addition, there are few public records that definitively control the
issues of validity and ownership of unpatented mining claims. In recent years, the U.S.
Congress has considered a number of proposed amendments to the General Mining Law.
Although no such legislation has been adopted to date, there can be no assurance that such
legislation will not be adopted in the future. If ever adopted, such legislation could,
among other things, impose royalties on gold production from unpatented mining claims
located on federal lands or impose fees on production from patented mining claims. If such
legislation is ever adopted, it could have an adverse impact on earnings from our
operations, could reduce estimates of our reserves and could curtail our future
exploration and development activity on federal lands or patented claims.

We hold rights in certain of our
properties pursuant to unpatented mining claims, leaseholds, joint ventures, purchase
option agreements and other rights which require the payment of maintenance fees, rents,
or purchase price installments, exploration expenditures, or other fees. If we fail to
make these payments when they are due, our rights to the property may lapse. There can be
no assurance that we will always make payments by the requisite payment dates. There can
be no assurance that we will be able to meet any or all of the development or production
schedules. Our ability to transfer or sell our rights to some of our mineral properties
requires government approvals or third party consents, which may not be granted.

While we have no reason to believe
that the existence and extent of any of our property rights are in doubt, we have done
only a preliminary legal survey of the boundaries of some of our properties, and
therefore, their existence and area could be in doubt. We have not obtained formal title
reports on any of our properties and title may be in doubt. If title is disputed, we will
have to defend our ownership through the courts. In the event of an adverse judgment, we
would lose our property rights.

We may be unable to comply with
the substantial governmental regulation to which our business is subject

The Companys exploration
operations are affected to varying degrees by government regulations relating to resource
operations, the acquisition of land, pollution control and environmental protection,
safety, production and expropriation of property. Changes in these regulations or in their
application are beyond the control of the Company and may adversely affect its operations,
business and results of operations. Failure to comply with the conditions set out in any
permit or failure to comply with the applicable statutes and regulations may result in
orders to cease or curtail operations or to install additional equipment. The Company may
be required to compensate those suffering loss or damage by reason of its operating or
exploration activities. Operations may be affected in varying degrees by government
regulations with respect to restrictions on production, price controls, export controls,
foreign exchange controls, income taxes, expropriation of property, environmental
legislation and mine safety.

On the Federal and State of Nevada
level, the Company must comply with exploration permitting requirements which require
sound operating and reclamation plans to be approved by the applicable government body
prior to the start of exploration. Depending upon the type and extent of the exploration
activities, the Company may be required to post reclamation bonds and/or assurances that
the affected areas will be reclaimed. The Company has posted bonds with various government
bodies for exploration work on several of its properties, but if the reclamation requires
funds in addition to those already allocated, the Company could be forced to pay for the
extra work and it could have a significant negative effect upon the Companys
financial position and operations.

In connection with its operations
and properties, the Company is subject to extensive and changing environmental
legislation, regulation and actions. The Company cannot predict what environmental
legislation, regulation or policy will be enacted or adopted in the future or how future
laws and regulations will be administered or interpreted. The recent trend in
environmental legislation and regulation generally is toward stricter standards and this
trend is likely to continue in the future.

8

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The recent trend includes, without
limitation, laws and regulations relating to air and water quality, mine reclamation,
waste handling and disposal, the protection of certain species and the preservation of
certain lands. These regulations may require obtaining permits or other authorizations
for certain activities. These laws and regulations may also limit or prohibit activities
on certain lands lying within wetland areas, area providing for habitat for certain
species or other protected areas. Compliance with more stringent laws and regulations, as
well as potentially more vigorous enforcement policies or stricter interpretation of
existing laws, may necessitate significant capital outlays, may materially affect the
Companys results of operations and business, or may cause material changes or
delays in the Companys intended activities.

We rely on key management
personnel

The success of the operations and
activities of the Company is dependent to a significant extent on the efforts and
abilities of its management team. See Item 6  Directors, Senior Management and
Employees for details of Companys current management. Investors must be willing to
rely to a significant extent on their discretion and judgment. The Company does not
maintain key employee insurance on any of its employees.

We face strong competition from
other mining companies for the acquisition of new properties

The Company will be required to
compete in the future directly with other corporations that may have greater resources.
Such corporations could outbid the Company for potential projects or produce commodities
at lower costs, which would have a negative effect on the Companys operations.

Currency fluctuations may
affect the costs of doing business

The Companys activities are
currently located in Canada and the United States. Any appreciation of the US$ could
increase the Companys cost of doing business in the United States. The Company does
not utilize hedging programs to any degree to mitigate the effect of currency movements.

Our insurance coverage
may be inadequate

The mining industry is subject to
significant risks that could result in:

| |  | Damage
to or destruction of property and facilities;
|- |  | ----------------------------------------------------

| |  | Personal
injury or death;
|- |  | -------------------------

| |  | Environmental
damage and pollution; and
|- |  | ---------------------------------------

| |  | Expropriation
of assets and loss of title to mining claims.
|- |  | -----------------------------------------------------------

While where applicable the Company
has purchased property and liability insurance that it believes is appropriate for the
level of risk incurred, it does not carry insurance for political risk, nor environmental
damage or pollution because such coverage cannot be purchased at reasonable costs. This
lack of insurance coverage could result in material economic harm to the Company if a
significant claim against the Company should occur.

Our directors and
officers may have conflicts of interest

The Companys directors and
officers may serve as directors or officers of other resource companies or have
significant shareholdings in other resource companies and, to the extent that such other
companies may participate in ventures in which the Company may participate, the directors
of the Company may have a conflict of interest in negotiating and concluding terms
respecting the extent of such participation. In the event that such a conflict of interest
arises at a meeting of the Companys directors, a director who has such a conflict
will abstain from voting for or against the approval of such participation or such terms.
From time to time several companies may participate in the acquisition, exploration and
development of natural resource properties thereby allowing for their participation in
larger programs, permitting involvement in a greater number of programs and reducing
financial exposure in respect of any one program. It may also occur that a particular
company will assign all or a portion of its interest in a particular program to another of
these companies due to the financial position of the company making the assignment. In
accordance with the laws of the British Columbia, the directors of the Company are
required to act honestly, in good faith and in the best interests of the Company. In
determining whether or not the Company will participate in a particular program and the
interest therein to be acquired by it, the directors will primarily consider the degree of
risk to which the Company may be exposed and its financial position at that time. See Item
6.

We will require additional
financing, which may not be available on favorable terms, or at all

While the Company believes it has
sufficient funds to undertake its planned current exploration projects, future
exploration will require additional funds. The exploration of the Companys mineral
properties is, therefore, dependent upon the Companys ability to obtain financing
through the joint venturing of projects, debt financing, equity financing or other means.
Such sources of financing may not be available on
acceptable terms, if at all. Failure to obtain such financing may result in delay or
indefinite postponement of exploration work on the Companys mineral properties, as
well as the possible loss of such properties. Any transaction involving the issuance of
previously authorized but unissued common shares or securities convertible into common
shares could result in dilution, possibly substantial, to present and prospective holders
of common shares. These financings may be on terms less favorable to the Company than
those obtained previously.

9

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# Risks Relating to an
Investment in Our Securities

The market price of our
securities may be volatile

The market for the common shares of
the Company may be highly volatile for reasons both related to the performance of the
Company or events pertaining to the industry (ie, gold exploration/commodity
prices/accidents) as well as factors unrelated to the Company or its industry. In
particular, market demand for products incorporating minerals in their manufacture
fluctuates from one business cycle to the next, resulting in change of demand for the
mineral and an attendant change in the price for the mineral. The Companys common
shares can be expected to be subject to volatility in both price and volume arising from
market expectations, announcements and press releases regarding the Companys
business, and changes in estimates and evaluations by securities analysts or other events
or factors. In recent years the securities markets in the United States and Canada have
experienced a high level of price and volume volatility, and the market price of
securities of many companies, particularly small-capitalization companies such as the
Company, have experienced wide fluctuations that have not necessarily been related to the
operations, performances, underlying asset values, or prospects of such companies. For
these reasons, the price of the Companys common shares can also be expected to be
subject to volatility resulting from purely market forces over which the Company will have
no control. Further, despite the existence of a market for trading the Companys
common shares in Canada, shareholders of the Company may be unable to sell significant
quantities of common shares in the public trading markets without a significant reduction
in the share price.

There may be certain tax
risks associated with investments in our company

The Company could be classified as a
Passive Foreign Investment Company (PFIC) under the United States tax code. If
the Company is declared a PFIC, then owners of the Companys common shares who are
U.S. taxpayers generally will be required to treat any so-called excess
distribution received on its common shares, or any gain realized upon a disposition
of common shares, as ordinary income and to pay an interest charge on a portion of such
distribution or gain, unless the taxpayer makes a qualified electing fund
(QEF) election or a mark-to-market election with respect to the Companys
shares. A U.S. taxpayer who makes a QEF election generally must report on a current basis
its share of the Companys net capital gain and ordinary earnings for any year in
which the Company is classified as a PFIC, whether or not the Company distributes any
amounts to its shareholders.

You could have difficulty or be
unable to enforce certain civil liabilities against us and certain of our directors and
officers

It may be difficult to bring and
enforce suits against the Company. The Company is a corporation incorporated in Canada
under the laws of British Columbia. Most of the Companys directors and officers are
residents of Canada and certain of the Companys assets are located outside of the
United States. Consequently, it may be difficult for United States investors to effect
service of process in the United States upon those directors or officers who are not
residents of the United States, or to realize in the United States upon judgments of
United States courts predicated upon civil liabilities under United States securities
laws.. There is substantial doubt whether an original action could be brought successfully
in Canada against any of such persons or the Company predicated solely upon such civil
liabilities under the United States laws. The Company also has indemnity agreements with
all of its officers and directors which would likely cause further difficulty in the
enforcement of any judgment against those persons and the Company maintains no liability
insurance for its officers and directors.

Brokers may be discouraged from
engaging in transactions in our securities because it is a penny stock

Rules 15g-1 through 15g-9 promulgated
under the Securities Exchange Act of 1934, as amended, impose sales practice and
disclosure requirements on NASD broker-dealers who make a market in a penny
stock. A penny stock generally includes any non-NASDAQ equity security that has a
market price of less than $5.00 per share. The additional sales practice and disclosure
requirements imposed upon broker-dealers may discourage broker-dealers from effecting
transactions in the Companys shares, which could severely limit the market liquidity
of the shares and impede the sale of the Companys shares in the secondary market.

Under the penny stock regulations, a
broker-dealer selling penny stock to anyone other than an established customer or
accredited investor (generally, an individual with net worth in excess of
US$1,000,000 or an annual income exceeding US$200,000, or US$300,000 together with his or
her spouse) must make a special suitability determination for the purchaser and must
receive the purchasers written consent to the transaction prior to sale, unless the
broker-dealer or the transaction is otherwise exempt.

10

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In addition, the penny stock
regulations require the broker-dealer to deliver, prior to any transaction involving a
penny stock, a disclosure schedule prepared by the US Securities and Exchange Commission
relating to the penny stock market, unless the broker-dealer or the transaction is
otherwise exempt. A broker-dealer is also required to disclose commissions payable to the
broker-dealer and the registered representative and current quotations for the
securities. Finally, a broker-dealer is required  to send  monthly  statements
 disclosing  recent  price information with respect to the penny stock held in a customers
account and information with respect to the limited market in penny stocks.

# ITEM 4:    INFORMATION ON
THE COMPANY

# 4 A.    HISTORY AND
DEVELOPMENT OF THE COMPANY

The legal and commercial name of the
Company is White Knight Resources Ltd.

The Company was incorporated under
the Company Act of British Columbia under the name White Knight Resources Ltd. on December
18, 1986. The Companys articles were amended on January 31, 1995 to increase the
authorized share capital from 10,000,000 common shares to 100,000,000 common shares
without par value.

On March 29, 2004, the British
Columbia legislature enacted the British Columbia Business Corporations Act(the
New Act) and repealed the former act, which previously governed the Company.
The New Act removed many of the restrictions contained in the former act, including
restrictions on the residency of directors, the place of annual general meetings and
limits on authorized share capital. The New Act also uses new forms and terminology. Under
the New Act, every company incorporated, amalgamated or continued under the former act was
required to complete a mandatory transition rollover under the New Act to substitute a
Notice of Articles for its Memorandum on or before March 29, 2006, after which existing
articles can be altered to take advantage of new provisions contained in the New Act.
Under the New Act, the directors of the Company approved and completed this mandatory
transition rollover, and accordingly the Company filed a transition application with the
Registrar of Companies effective June 20, 2005. At the annual general meeting held on
November 26, 2005, the Companys shareholders approved, by a three-quarter majority
vote cast by those shareholders of the Company who, being entitled to do so, voted in
person or by proxy at the Meeting in respect of such resolutions, the removal of
pre-existing company provisions that applied to the Company relating to restrictions in
the former act and no longer required under the New Act, and certain amendments to its
Notice of Articles and to its authorized share capital. In addition, the shareholders
approved new articles (the New Articles) to bring the Companys charter
documents into line with the New Act and, as permitted by the New Act, altered the
authorized share structure of the Company from 100,000,000 common shares without par value
to an unlimited number of common shares without par value and the alteration of the Notice
of Articles. The changes were effected and the Registrar issued a new Notice of Articles
on December 21, 2005.

The Company is domiciled in British
Columbia, Canada and is a valid and existing company in good standing and operating under
the British Columbia Business Corporations Act. The Companys principal place of
business is located at Suite 922, 510 West Hastings Street, Vancouver, British Columbia,
Canada, V6B 1L8, telephone (604) 681-4462, E-Mail info@whiteknightres.com. The Company
through its subsidiary has a technical office in Reno, Nevada.

Since inception, the Company has been
active in the mineral exploration sector. From 1986 to 1993, the Company explored various
properties in British Columbia and the Northwest Territories, Canada. In 1993, the Company
began to acquire gold exploration properties in Nevada and has focused solely on the
exploration of properties in Nevada since that time.

See Item 5  Operating and
Financial Review and Prospects for a financial analysis of events that have occurred in
the development of the Companys business during the last full fiscal year from July
1, 2005 to June 30, 2006. Also see Item 5 for information on the Companys principal
expenditures during the past three years. There are ongoing drilling programs on the
Cottonwood, Celt, Squaw Creek, New Pass and Patty properties. The Company anticipates
spending approximately US$2,000,000 or more during the next year on further exploration of
its properties.

# Public Takeover Offers
by Third Parties

On March 5, 2006, U.S. Gold
Corporation (US Gold) issued a press release announcing that it intended to
acquire, in stock transactions, all of the outstanding common shares of four companies
that are exploring in the Cortez Trend in Nevada: (1) the Company, (2) Nevada Pacific Gold
Ltd., (3) Coral Gold Resources Ltd. and (4) Tone Resources Ltd. (collectively, the
Subject Companies), each of which had mineral properties that were adjacent to
or near US Golds Tonkin Springs property. US Gold stated that this proposal had been
made in letters sent on March 5, 2006 by Rob McEwen, Chairman and Chief Executive Officer
of US Gold, to the chief executive officers of each of the Subject Companies. US Gold
stated that the proposal represented a premium of 25% to the closing stock prices of each
Subject Companys shares on March 3, 2006. US Gold stated that under this proposal,
it would issue:

| |  |  | 0.35
share of US Gold common stock for each outstanding common share of the Company;
| | - |  | ------------------------------------------------------------------------------------

11

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| |  |  | 0.23
share of US Gold common stock for each outstanding common share of Nevada Pacific Gold
Ltd.;
| | - |  | -------------------------------------------------------------------------------------------------

| |  |  | 0.63
share of US Gold common stock for each outstanding common share of Coral Gold Resources
Ltd.; and
| | - |  | ------------------------------------------------------------------------------------------------------

| |  |  | 0.26
share of US Gold common stock for each outstanding common share of Tone Resources Ltd.
| | - |  | -------------------------------------------------------------------------------------------

The press release noted that the
transactions were subject to a number of conditions, including determination of the
precise forms of the transactions, due diligence and shareholder and regulatory approvals.

On May 1, 2006, US Gold Holdings
Corporation (New US Gold) and US Gold Canadian Acquisition Corporation
(US Gold Canada, and together with US Gold and New US Gold, the
Offerors), both wholly-owned subsidiaries of US Gold, filed a registration
statement with the SEC on Form S-4 in which the Offerors offered to purchase all of the
outstanding common shares of the Company on the basis of either 0.35 shares of common
stock of New US Gold or 0.25 shares of US Gold Canada for each common share of the Company
(the Offer). The Offerors also filed a take-over bid circular with the
securities regulators in Canada relating to the Offer.

On May 16, 2006, the Company filed a
directors circular with the securities regulators in Canada, responding to the
Offer. The directors circular was also disseminated to the Companys
shareholders and furnished to the SEC on Form 6-K. The directors circular stated,
among other things, that the Companys Board was generally supportive of the business
proposition of consolidating the land positions within the Cortez Trend, aggressively
pursuing exploration programs, enhanced trading liquidity and a stronger cash position for
Company, but that, based upon advice from the Companys financial and legal advisors,
the Board was reserving judgment until the issues are resolved with respect to the timing
of the Offer, particularly with respect to the timing of receiving appropriate clearances
from the SEC for the purpose of US Gold proceeding with the Offer in a timely manner, and
satisfactory due diligence on US Gold could be completed. As a result, until greater
certainty could be obtained with respect to the ability of US Gold to meet these
conditions, the Board believed that it was inadvisable to request its financial advisors
to provide their opinion as to the fairness of the Offer, from a financial point of view.
In the interim, the Board stated its intention to continue its dialogue with US Gold with
respect to the status of the conditions to its Offer and to continue to consider the Offer
in light of the directors fiduciary duties. The directors circular advised the
Companys shareholders that there was no necessity for shareholders to take any
action with respect to the Offer at that time and the Board had no recommendation at that
time.

On June 5, 2006, US Gold issued a
press release stating that, in view of certain regulatory requirements, it had terminated
the Offer. US Gold stated that it intended to recommence its offer for the Company and to
commence offers for the other Subject Companies by mailing new offer documents as soon as
regulatory requirements could be satisfied, including the receipt of necessary information
from each of the Subject Companies. US Gold stated that the termination of the offer for
the Company was necessitated, among other things, by an interpretation of the SEC that,
pursuant to applicable securities regulatory requirements, US Gold was required to have
gone effective with a registration statement prior to launching the formal tender offer.
US Gold stated that it might reevaluate its intention to acquire any or all of the Subject
Companies if it was not able to obtain on a timely basis the required auditors
consents and, in the case of Nevada Pacific Gold Ltd. and Coral Gold Resources Ltd.,
formal valuations of each of those companies in accordance with applicable securities
regulatory requirements. US Gold also stated that, in relation to the offer for the
Company, any common shares already tendered to the former offer would be promptly returned
to the tendering shareholders and will need to be retendered in accordance with the new
offer materials if such shareholders desire to tender their shares in that offer.

On September 6, 2006, US Gold posted
on its website an open letter to US Gold shareholders, in which US Gold stated, among
other things, that the takeover bid process had not been stopped and that it would proceed
as fast as permitted by U.S. and Canadian securities regulators. US Gold stated that the
delays had been caused by faulty legal advice and that the situation had been corrected.

The foregoing discussion is qualified
in its entirety by reference to the documents described above. The press releases,
registration statement, take-over bid circular and directors circular described
above have been filed with the SEC and the securities regulators in Canada, and may be
reviewed at www.sec.gov or www.sedar.com.

The Company can provide no assurance
to investors as to (1) whether US Gold will recommence an offer for the Companys
shares, (2) the terms and conditions of any recommenced offer, (3) whether any recommenced
offer will be completed, (4) whether US Gold will commence an offer for the other Subject
Companies, the terms and conditions of any such offer, and whether any such offer will be
completed, or (4) the timing of any of the foregoing. If US Gold recommences an offer for
the Companys shares, the Company will respond to the offer in the manner prescribed
by Canadian and U.S. regulatory requirements.

12

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Rob McEwen, Chairman and Chief
Executive Officer of US Gold, is one of the Companys significant shareholders. See
Item 7: Major Shareholders and Related Party Transactions.

# 4 B.    BUSINESS OVERVIEW

The Company is a British Columbia
based mineral resource exploration company engaged, through its subsidiaries, in the
acquisition and exploration of precious metals properties, primarily gold.

All of the Companys mineral
exploration operations are located in the State of Nevada, United States. The Company
continues to explore for projects to acquire in Nevada.

To date, the Company has no revenue
from its operations, nor is it dependent upon any patents, licenses or manufacturing
processes. The Companys operations are dependent upon mineral exploration and mining
rights and claims as well as the terms of option and/or joint venture agreements on its
properties. The Company currently holds interests in 18 properties in Nevada.

The exploration operations of the
Company are subject to regulation by several government agencies at the Federal, State,
and local levels. These regulations are a fundamental aspect of operations for any
resource company in North America. Management believes it is in compliance with all
current requirements and does not anticipate any significant changes to these regulations
which will have a material effect on the Companys operations.

See Item 3D  Risk Factors, for
a summary of certain risks related to the Companys business and an investment in the
Companys securities.

See Item 4D  Mineral
Properties, for an overview of the Companys properties.

See Item 5  Operating and
Financial Review and Prospects, for an overview of the Companys financial position
and past expenditures.

# 4 C.    ORGANIZATIONAL
STRUCTURE

The following is a listing of the
Companys subsidiaries including name, jurisdiction of incorporation or residence and
the Companys respective proportion of ownership interest and, if different,
proportion of voting power held.

| | (1) |  | CUN
Minerals, Inc., Nevada, USA, 100% directly owned by the Company.
| | --- |  | --------------------------------------------------------------------

| | (2) |  | White
Knight Gold (U.S.) Inc., Delaware, USA, 100% directly owned by the           Company.
| | --- |  | -------------------------------------------------------------------------------------------

| | (3) |  | Quito
Gold Corporation, Nevada, USA, 100% directly owned by the Company.
| | --- |  | ------------------------------------------------------------------------

# 4 D.    PROPERTY, PLANTS
AND EQUIPMENT

The following is a description of the
Companys properties and the nature of the Companys interests in such
properties. This Item 4 D. was reviewed and the contents have been verified by the
Companys Qualified Person, John M. Leask, P.Eng. The Qualified Persons for the Gold
Pick Property analysis are Neil Prenn, Registered Professional Mining Engineer, and Peter
Ronning, Professional Engineer of Mine Development Associates.

Patty Property (formerly
Indian Ranch)

The Patty property, formerly known as
the Indian Ranch property (the Patty Property), is located in Eureka County,
Nevada and consists of 544 unpatented mining claims totaling 10,008 acres. The Company
owns a 30% undivided interest, Chapleau Resources Ltd. (Chapleau) owns a 10%
undivided interest and Placer Dome U.S. Inc. (Placer Dome) owns a 60%
undivided interest in the Patty Property. The Patty Property is without known mineral
reserves and is at the exploration stage. The Companys current efforts are
exploratory in nature.

13

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# Acquisition

The Company entered into an option
agreement dated February 10, 1994 with the Damele Family (the Vendor) on the
Patty Property. The agreement was subsequently amended through 5 separate amendments with
the Vendor. Under the agreement and its amendments, the Company earned a 100% leasehold
interest in the Patty Property by issuing to the Vendor 100,000 common shares and an
annual work commitment of 5,000 feet of drilling. The drill commitment was waived for the
year ended February 10, 1996 in consideration of a US$15,000 cash payment. Additionally,
the original NSR held by the vendor was amended for consideration of a US$15,000 cash
payment; currently, the vendor retains a 6% NSR, but the Company may reduce the NSR to 3%
in consideration of a US$500,000 payment. The Companys lease on the Patty Property
extends through February 10, 2014 or for so long thereafter as exploration, development or
mining activity is being conducted on a continuous annual basis. The Company has met all
the required terms under the agreement to date.

Under an agreement with Chapleau
dated May 26, 1997 and amended June 18, 2001, the Company granted Chapleau the right to
earn an interest in the Patty Property by making payments to the Company totaling
US$400,000 and incurring exploration expenditures of US$1,500,000. On June 25, 2001,
Chapleau vested a 25% interest, thus reducing the Companys interest to 75%.

Under an agreement dated March 26,
2003 between the Company, Chapleau and Placer Dome, the Company granted Placer Dome the
right to earn an initial 60% interest in the Patty Property by paying US$55,000 and
incurring a minimum of US$2,000,000 in work expenditures over a four-year period under the
following schedule:

|Expenditure
  Due Date | Minimum Work
Expenditures  (US$)
|---------------------- | --------------------------------
|                       |                                 
|March 25, 2004         |                                 
|March 25, 2005         |                                 
|March 25, 2006         |                                 
|March 25, 2007         |                                 
|                       |                                 
|Total                  |                                 

14

---

In August 2006, Placer Dome vested
its 60% interest in the Patty Property and declined to elect to earn an extra 15% by
financing a feasibility study.As a result of Placer dome vesting its 60% interest,
the interests of the Company and Chapleau were reduced to 30% and 10%, respectively.

Annual holding costs for the Patty
Property are estimated to be US$72,624 for 2007 in federal and county fees, of which the
Company is responsible for 30%. An initial 2006 exploration budget of US$651,348 has been
approved by Placer Dome, Chapleau and the Company of which the Companys 30% share is
US$195,404.

# Location and Access

The Patty Property lies 10 miles
southeast of the Gold Acres-Cortez Window and is located 17 air miles southeast of the
Pipeline/South Pipeline gold mines and 38 air miles northwest of Eureka, Nevada. Access is
achieved via Nevada State Highway 278 south from Carlin for 48 miles, west on the JD Ranch
Road for 4 1/2 miles, south for 12 miles to the Tonkin Ranch site, and then northwest for
5 miles. The south and central portions of the Patty Property can be traversed by
unimproved dirt roads, and new roads are planned to provide drilling access to the north.

# Regional and Property
Geology

The Patty Property is located on the
Cortez Trend. Lower-plate Paleozoic sediments (the Indian Ranch window)
underlies shallow volcanic and alluvial cover on much of the central and eastern portions
of the Patty Property. Lower-plate carbonate rocks are not exposed at the surface, but
drilling and mapping thus far indicate that about 10 square miles of the Patty Property is
underlain by lower-plate Paleozoic carbonate rocks of the Roberts Mountains Formation,
Rabbit Hill Limestone, Nevada Group, or underlying dolomites of the Hanson Creek
Formation. This covered window of lower-plate rocks is present in the form of several
uplifted or horsted blocks. Roberts Mountains Formation rocks occur in the window and have
been intersected in drill holes within 35 feet of the surface. Hydrothermal alteration is
present over large areas of the property, and thick (up to 600 feet or more) zones of
intense alteration in the form of silicification, decalcification (sanding), and
argillization are present, as well as amorphous carbon or fine-grained sulfides. Anomalous
gold and associated hydrothermal alteration is present across the Patty Property in both
upper-plate and lower-plate rocks.

# Previous Exploration
History

Prior to the Companys
acquisition of its interest in the Patty Property, Northern Dynasty Exploration Ltd.
(Northern Dynasty) explored it in 1987. Northern Dynasty prepared a
preliminary geologic map and drilled 4 holes totaling 1,130 feet. Hycroft Resources and
Development Corporation then acquired the property and drilled 90 additional holes from
1988 to 1990 to an average depth of 114 feet. After the Company acquired the Patty
Property in 1994, exploration was conducted by Delta Gold Mining Corp. (Delta
Gold) under an earn-in joint venture agreement on a combined land package comprised
of the Patty Property and the Imperial property. Delta Gold completed an IP survey, a
CSAMT survey, and drilled 10 holes to an average depth of 501 feet. This drilling resulted
in the discovery of an 80 foot wide zone of gold mineralization averaging 0.012 oz/ton
gold. Delta Gold also intersected a higher-grade zone of 10 feet averaging 0.22 oz/ton
gold. Delta Gold subsequently terminated the agreement. Under the Chapleau option
agreement, 20 holes were drilled during 1997, 12 holes were drilled in 1998, four holes
were drilled in 1999, and 11 holes were drilled in 2000 for a total of 45,100 feet in 47
holes. During 1999, a detailed gravity survey and a soil sampling grid program were also
completed. Exploration expenditures under the Chapleau agreement totaled US$1,500,000.

In 2001, Kennecott Exploration
Company (Kennecott) entered an option agreement with the Company and Chapleau.
Kennecott drilled 11 reverse circulation (RC) holes which intersected low-grade gold
mineralization three miles south of the previously identified gold zones. Kennecott
expended US$531,100 before terminating the agreement.

During the 2005 field season, Placer
Dome completed RC drilling in three holes comprising 1,830
metres. As part of this campaign, Hole PIR 05-10 intersected a broad zone of Carlin-type
mineralization grading 0.32 grams/tonne over a thickness of 102 metres which included 9.1
metres grading 1.58 grams/tonne. Several holes angled off the same drill pad also
intersected significant gold at what is interpreted to be the same host sequence.
Highlights of the program occurred in drill hole PIR05-12 which was drilled at an angle of
70(0) and an azimuth of 350(0) from PIR05-10 and returned the
following intervals: 676 ppb Au (0.023 oz/ton) from 1370 feet to 1460 feet (90 feet)
including 15 feet grading 1,820 ppb Au (0.057 oz/ton) from 1380 feet to 1395 feet Drill
holes PIR05-11, PIR05-13, PIR05-14 and PIR05-15 were all drilled off the drill pad set-up
for PIR05-10 and were lost above the target section. Drill hole PIR05-16 also intersected
anomalous gold in what is projected as a down faulted block to the south of PIR05-10. The
assay interval from 2,620 feet to 2,720 feet returned 219 ppb gold over 100 feet with a
high of 500 ppb gold over 5 feet.

15

---

# Current and Planned
Exploration

In September 2006, Placer Dome
commenced drilling on the Patty Property with a planned program of 6,000 feet of
RC drilling in 3 to 4 holes.

Slaven Canyon Property

The Slaven Canyon property (the
Slaven Canyon Property) is located in Lander County, Nevada, and totals 6,599 acres.
The Company has a 100% interest in 258 unpatented mining claims comprising 5,174 acres of
the Slaven Canyon Property and has a lease on the remaining 1,425 acres, which are subject
to NSR royalties. The Slaven Canyon Property is without known mineral reserves and is at
the exploration stage. The Companys current efforts are exploratory in nature.

# Acquisition

Since September 2001, the Company has
staked 258 unpatented mining claims comprising 5,174 acres (the Gordo Claims).
Since fiscal 2003, the Company has signed lease agreements on 1,425 acres adjacent to the
Companys staked claims. The leases called for the payment of approximately US$32,430
on signing and escalating lease payments thereafter. The owners retain net smelter returns
ranging from 1⁄2 percent to 31⁄2% with a buy down to 1% for US$1,500,000. Annual
holding costs for the Slaven Canyon Property are estimated to be US$81,885 for 2007, which
includes US$47,438 for the lease payments and US$34,447 in federal and county fees.

# Location and Access

The Slaven Canyon Property is located
in the Northern Shoshone Range, Lander County, Nevada, approximately 14 miles southeast of
Battle Mountain. The Slaven Canyon Property is traversed by numerous unimproved dirt roads
traveling south from Battle Mountain.

# Regional and Property
Geology

Rock units on the Slaven Canyon
Property are dominated by chert, siltstone and limestone of the Ordovician Vinini
Formation and Devonian Slaven Chert, both units of the upper-plate Roberts Mountains
Allochthon. These units are overlain on the east by Miocene basalt of the Northern Nevada
Rift. Major northeast trending faults cut through the area and are believed to be a
regional control to the localization of gold mineralization. The main zone of gold
mineralization on the property measures about 2,400 feet east-west by 300 feet  500
feet north-south. Select drill intercepts include:

16

---

|   
|---
|
|   
|60 
|35 
|60 
|100
|40 
|45 
|25 
|   

Mineralization is open on the east
and west end and to some degree down dip. A second area of gold mineralization occurs on
the northern portion of the claims. The primary exploration target is a Carlin-type gold
deposit in lower-plate carbonate rocks or in carbonate units of the Upper-plate. Select
drill hole intercepts from here include:

|  
|--
|
|  
|25
|25
|10
|  

The zone of mineralization is a
shallow, mostly oxide, shallowly dipping tabular body hosted in upper-plate siliclastic
rocks. Gold mineralization is probably controlled by a shallow angle thrust fault.
Alteration is dominantly argillization and sanding. Most holes in the vicinity of the main
zone are between 200 feet to 300 feet deep with the deepest being 700 feet.

# Previous Exploration
History

After the discovery of gold-bearing
breccia outcrops, Resource Associates of Alaska (RAA) staked claims at Slaven
Canyon in 1984. RAA conducted geologic mapping, rock and soil sampling, and trenching from
1984 to 1987. Nerco Exploration Company (Nerco) acquired RAA in 1988 and Alta
Gold Company (Alta) joint-ventured the claims with Nerco later that year. Alta
began an aggressive drilling program and completed 59 shallow holes in 1988. An additional
eight holes were drilled in 1989. Cyanide-shake metallurgical tests were conducted in
1990, followed by the drilling of 17 holes in 1991. Uranerz Exploration and Mining Limited
(Uranerz) leased the property in 1991 and completed a 57-hole drilling program
in 1992. Bottle-roll tests were completed in 1993 after which a resource estimate was
completed. Cameco acquired Uranerz in 1994 and terminated the lease. Cyprus Minerals Corp.
(Cyprus) leased the claims from Alta Gold later that year and drilled nine
holes in the northwest part of the property before terminating the lease in 1995.
Following Cyprus withdrawal, Alta Gold retained the claims from 1996 through 1999
but performed no further work on the Slaven Canyon Property. Alta Gold filed for
bankruptcy in 2000 and relinquished the claims shortly thereafter.

Work on the Slaven Canyon Property
during the 2004 and 2005 field seasons included 24 shallow RC holes and
one deep core hole (DDH SL21). The Company drilled the Slaven Canyon Property with two
exploration objectives: 1) to establish the existence of, and depth to, lower-plate
limestone host rocks, and 2) to establish a better understanding of the structural
controls for the upper-plate hosted mineralization. DDH SL21, drilled to a final
depth of 2,583 ft, encountered several thrust fault sequences. Deep in the hole, a 100
ft-thick, highly sheared micritic limestone was encountered, which was interpreted to be a
piece of lower-plate, based on lithology. Diamond drill hole SL25 was completed 3 months
later and reached a total depth of 3,088 ft. This hole was drilled through the known
upper-plate resource and confirmed the grade and disseminated nature of gold
mineralization, intersecting 50 ft @ 0.092 opt Au including 5 ft @ 0.380 opt Au. The hole
also drilled the same thrusted and repeated sequences observed in DDH SL21. However, the
hole, which included some limestone interbeds similar to the limestone drilled in DDH SL21,
remained in upper-plate rocks to the total depth drilled. The Company believes that the
shallow drilling at the Slaven Canyon Property (less than 1,000 ft) established strong
exploration potential for a structurally controlled deposit of significant size in
upper-plate host rocks, principally in quartzites which have yielded strong gold values
both in drill holes and in surface samples (e.g. 25 ft @ 0.122 opt Au in a roadcut).

# Current and Future
Exploration

It is the Companys intention to
further explore the Slaven Canyon Property when a drill rig becomes available.

Celt Property

The Companys 100% owned Celt
property (the Celt Property) is located in Eureka County, Nevada, and consists
of 608 unpatented mining claims totaling 12,569 acres. Teck Cominco American Incorporated
(Teck Cominco) has an option to earn an initial 51% interest in the Celt
Property. The Celt Property is without known economic mineral reserves and is at the
exploration stage. The Companys current efforts are exploratory in nature.

17

---

# Acquisition

The Company has staked 608 unpatented
mining claims located on Bureau of Land Management land since September 2003.

In October 2004, the Company entered
into a Property Acquisition Agreement with Teck Cominco whereby Teck Cominco was granted
the option to earn an initial 51% interest in the Celt Property. The terms of the
agreement provide for exploration expenditures of US$4,000,000 and cash payments of
US$750,000 which must be incurred and paid to the Companys U.S. subsidiary in annual
increments prior to December 31, 2008. Teck Cominco has completed a firm commitment to
incur US$500,000 in exploration expenditures by December 31, 2005. Upon Teck Cominco vesting its
51% interest, Teck Cominco and the Company will form a joint venture to further develop
the Celt Property. When the joint venture completes the earlier of US$8.0 million in
expenditures or a preliminary feasibility study, Teck Cominco will have a one-time option
to elect to earn an additional 9% interest by funding and completing a feasibility study.
Upon Teck Cominco earning its additional interest and the approval of a production plan,
the Company will have the option to request that Teck Cominco arrange financing for the
Companys share of the capital costs required to develop the property. If the Company
exercises this option Teck Cominco shall commit to use its best efforts to arrange or
provide project debt financing for not less than 60% of projected capital costs on a
limited recourse basis after technical completion. If project costs exceed the amount
available for debt financing and the parties elect nonetheless to put the property into
production then at the Companys election Teck Cominco shall also arrange or provide
the Companys share of equity financing on a subordinate loan basis at LIBOR plus 4%.

During the earn-in period, Teck
Cominco is responsible for all property holding costs.

# Location and Access

The Celt Property lies along the
southern portion of the Cortez Trend. It is situated along the western edge of the Roberts
Mountains. Access is by a network of all-weather roads.

# Regional and Property
Geology

The Celt Property lies over the
Ordovician Vinini Formation which is dominantly chert and shale, but includes some
limestone and greenstone units. The Celt Property follows more than four miles of strike
length of a north-northwest trending fault zone where anomalous gold and pathfinder
elements occur. The claims were staked to cover the gravel-covered area to the west of the
fault.

18

---

# Previous Exploration
History

Gold was discovered in jasperoids
along the eastern edge of the Celt Property in 1972 which led to prospecting and the
staking of blocks of claims between 1972 and 1978. After the discovery of the nearby Gold
Bar deposit in 1984, Atlas Precious Metals (Atlas) staked the entire area, but
the property was not drilled. Cordex Syndicate (Cordex) leased Atlas
claims in the area in 1994. Cordex conducted geologic mapping and grid rock and soil
sampling, and drilled one exploration hole of less than 600 feet along the range front of
the property before dropping the claims.

During the 2005 field season, Teck
Cominco executed gravity and Induced Polarization surveys that defined a 7 kilometre long
zone interpreted as the faulted western edge of a lower-plate horst block. Outcrops of
dolomitized limestone along the zone are confirmation of shallowly buried lower-plate
lithologies. Teck Cominco collected twenty-six rock chip samples of which ranged from no
gold detected to 6.17 grams/tonne gold. The five highest values returned 6.17 grams/tonne,
5.02 grams/tonne, 2.28 grams/tonne, 0.82 grams/tonne and 0.26 grams/tonne. Teck
Comincos follow-up 2005 RC drilling program tested
a geophysical/geological series of targets in the central portion of the property.
Lower-plate carbonate host rocks were encountered at relatively shallow depths under a
veneer of upper-plate siliclastics in 5 of 8 drill holes. Significant path finder
elements, as well as anomalous gold, were encountered. After careful examination of the
results, it is now believed that the several kilometre-long gold soil/rock anomaly located
along the west Roberts Mountains rangefront, may be a part of a gold system focused to the
west.

# Current and Planned
Exploration

Teck Cominco has just commenced a
6-10 hole, 8,000 foot RC drill program on the Celt Property.

Cottonwood Property

The Cottonwood property (the
Cottonwood Property) is located in Eureka County, Nevada, and consists of 113
unpatented mining claims totaling 2,178 acres. The Company currently has a 100% interest
in 107 unpatented mining claims and has an option to purchase 100% interest in the other 6
unpatented mining claims. The Cottonwood Property is without known economic mineral
reserves and is at the exploration stage. The Companys current efforts are
exploratory in nature.

19

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# Acquisition

The Company has staked 107 unpatented
mining claims since October 2001. Under an agreement dated February 1, 2002, the Company
has leased from Gregory McN. French (the Jam Vendor) 6 adjacent unpatented
mining claims known as the Jam Claims. Under the agreement, the Company is
required make cash payments and issue common shares to the Jam Vendor under the following
schedule:

|Payment
  Due Date                        | Cash Option Payments  
            (US Dollars) | Common Share 
     Issuances
|----------------------------------------- | ----------------------------------------------- | ----------------------------
|Initial Payment                           |                                                 | $1,000 (paid)               
|February 1, 2003                          |                                                 | $1,000 (paid)               
|February 1, 2004                          |                                                 | $2,000 (paid)               
|February 1, 2005                          |                                                 | $2,000 (paid)               
|February 1, 2006                          |                                                 | $3,000 (paid)               
|February 1, 2007 and each year thereafter |                                                 | $5,000                      

The Jam Vendor also retains a NSR on
the Jam Claims which varies by ounces produced and the price of gold. On production
greater than 50,000 ounces but less than 150,000 ounces, the NSR is 4%. For production of
less than 50,000 ounces and greater than 150,000 ounces, the NSR varies from between 1% to
2%, depending upon the price of gold. The Jam Vendor also retains a 1.5% NSR on minerals
other than gold. The Company has the option to acquire the NSR and purchase the Jam Claims
from the Jam Vendor for US$50,000 at any time before the 10thanniversary date
of the lease.

Annual holding costs for the property
are estimated to be US$15,085 for 2007 in federal and county fees.

# Location and Access

The Cottonwood Property is located at the
headwaters of Cottonwood Creek in the central Roberts Mountains, approximately 30 miles
northwest of the town of Eureka, Nevada. Access is by a network of improved all-weather
roads.

# Regional and Property
Geology

The Cottonwood Property lies on the
Cortez Trend and encompasses a major north-northwest trending window-bounding fault where
it is intersected by a west-northwest trending belt of mineralization which crosses the
Roberts Mountains. The fault places a block of thick Ordovician Vinini Formation on the
west in juxtaposition with lower-plate Devonian carbonates on the east. Gold bearing
jasperoid is developed on the southeast extension of this window bounding fault.

The Cottonwood Property contains the
Pot Canyon mineralized zone, the French Trail and South French Trail mineralized zones,
and the Wall mineralized zone. The Pot Canyon zone is still open for expansion in two
directions. Significant intercepts from previous drilling at Pot Canyon include:

|      
|------
|
|      
|114-29
|114-34
|114-36
|      

At the South French Trail zone, about
3,000 feet north of Gold Canyon, Atlas intersected gold mineralization grading 0.015 opt
gold to 0.044 opt gold over widths of 10 feet to 20 feet in five holes. Follow-up drilling
was not conducted. At the Wall prospect south of Pot Canyon, Barrick intersected 30 feet
of 0.048 opt gold in a window-bounding fault and did no follow-up drilling.

The target is a large Carlin-type
deposit hosted in Devonian carbonate rocks along or east of the major window-bounding
fault. The convergence of the window-bounding fault, the Roberts Mountains thrust fault,
the east-west anticlinal axis, and the west-northwest-trending belt of gold mineralization
produces an ideal exploration setting. Expansion of the Pot Canyon resource and South
French Trail mineralization are also targets.

# Previous Exploration
History

Barite occurrences in the area were
prospected in the late 1970s and in 1980, N.L Baroid Division of N.L. Industries,
Inc. (N.L. Baroid) located claims for barite in the central Cottonwood area.
Prospecting during the gold boom of the early 1980s led to claim groups being
located by Chevron Resources Company (Chevron) in 1980 and by Mapco Minerals
Corporation (Mapco)/Nerco in 1983 in the northern and southern parts of the
Cottonwood area respectively. Chevrons claims lapsed in 1983 and were restaked by
Nerco. American Copper and Nickel Company (ACNC) and Phelps Dodge

20

---

later leased and explored the claims
staked by N.L. Baroid and Nerco. N.L. Baroid discovered the Pot Canyon gold zone in 1985.
          The property was acquired by Phelps Dodge in 1986 who continued to explore the
          property through 1990 until Atlas acquired their holdings in 1991. Atlas
          acquired the Nerco claims in 1990. The French Trail and South French Trail
          mineralized zones were drilled by Atlas in 1993.

Cordex leased the northern part of
the Cottonwood area in 1995 and drilled a few holes. In 1997, Barrick leased most of
Atlas claims in the area. Barrick drilled eight fairly deep holes in 1998 and
intersected gold mineralization at the Wall prospect. Atlas claims were leased by
Vengold (American Bonanza) in 1999 after Barrick terminated its lease but conducted no
work before relinquishing the property. Drilling on the Cottonwood Property by previous
operators identified several gold zones, but little follow-up work was ever conducted. The
Pot Canyon deposit remains open in two directions, and gold mineralization discovered by
drilling the South French Trail and Wall prospect were never followed-up.

In 2005, the Company completed five
shallow holes on the Cottonwood Property at the southern end of the target area where a
hole drilled by Barrick Gold in the late 1990s was reported to have significant gold
in favourable host rocks. These follow-up drill holes around the Barrick hole failed to
intersect significant gold mineralization in this area.

# Current and Planned
Exploration

The Company is currently drilling on
the Cottonwood Property. The planned drill program consists of a four to eight hole, 5,000
to 10,000 ft campaign focusing along the Wall fault north of the 2005 drilling, in the Pot
Canyon and French Trail deposit areas where significant gold mineralization has been
drilled and remains open for expansion, and at the Gold Ledge prospect along the faulted
gold-mineralized anticline east of the Wall fault.

Fye Canyon Property

The Fye Canyon property (the
Fye Canyon Property) is located in Eureka County, Nevada and comprises 345
unpatented mining claims on 6,320 acres. The Company currently has a 100% interest, with
Teck Cominco holding an option to earn an initial 51% interest. The Fye Canyon Property is
without known economic mineral reserves and is at the exploration stage. The
Companys current efforts are exploratory in nature.

21

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# Acquisition

The Company staked 231 unpatented
mining claims after acquiring 114 unpatented mining claims upon the execution of a mining
lease agreement. Under the terms of the agreement, the Company must pay annual advance
royalty payments starting at US$5,000 upon execution, and increasing by US$5,000 per year
to a maximum of US$50,000 per year. The Company must expend a minimum of
US$20,000 on exploration work on the property per year. The vendor retains a 2% NSR
payable on production up to US$1,000,000 after which it is reduced to 1% to a maximum of
US$5,000,000.

In October 2004, the Company and Teck
Cominco entered into an agreement which granted Teck Cominco an option to earn an initial
51% interest in the property by making cash payments to the Company totaling US$750,000
and incurring exploration expenditures of US$4,000,000 in annual increments prior to
December 31, 2008. Upon Teck Cominco earning a 51% interest in the property, Teck Cominco
and the Company will form a joint-venture on the Fye Canyon Property. When the
joint-venture completes the earlier of US$8.0 million in expenditures or a preliminary
feasibility study, Teck Cominco will have the one-time option to elect to earn an
additional 9% interest (for 60% total) in the property by funding and completing a
feasibility study. Upon Teck Cominco earning its additional interest and the approval of a
production plan, the Company will have the option to request that Teck Cominco arrange
financing for the Companys share of the capital costs required to develop the Fye
Canyon Property. If the Company exercises this option Teck Cominco shall commit to use its
best efforts to arrange or provide project debt financing for not less than 60% of
projected capital costs on a limited recourse basis after technical completion. If project
costs exceed the amount available for debt financing and the parties elect nonetheless to
put the property into production then at the Companys election Teck Cominco shall also
arrange or provide the Companys share of equity financing on a subordinate loan
basis with an interest rate of the London Interbank Offered Rate (LIBOR) plus
4%.

During the earn-in period, Teck
Cominco is responsible for all property holding costs.

# Location and Access

The Fye Canyon Property lies on the
Cortez Trend and is adjacent to the Companys Pat Canyon Property to the north.
Access is by a series of all-weather and dirt roads.

# Regional and Property
Geology

The Fye Canyon Property lies along
the southern projection of the north-northwest by south-southeast-trending Cortez fault
zone, just south of a major northeast-trending cross-structure which bounds the northern
edge of Simpson Park Mountains. The claims cover 31⁄2 miles of strike length of this
splayed north-northwest fault system. Upper-plate Ordovician Vinini Formation crops out in
the eastern part of the block and is overlain by scabs of felsic Tertiary volcanics and
thin Quaternary alluvium in the central area with thicker gravels in the west part.
Intermediate Tertiary volcanics cover the southernmost part of the claim block. The claim
block lies along the projection of lower-plate carbonate rocks in the Cortez window to the
northwest and the Tonkin window to the southeast. On the property, hematite and barite
veined cherts and siltstones of the Vinini Formation are highly anomalous in both mercury
and arsenic.

# Previous Exploration
History

A number of companies explored
portions of the Fye Canyon claims in the 1980s and 1990s. ECM Inc.
(ECM)/Noranda Inc. (Noranda) staked the Gap claims in 1985;
Noranda drilled 4 shallow (less than 500 ft) holes in 1988; Kennecott drilled 4 holes (500
ft) in 1991; Rio Algom Ltd. leased the claims and drilled 1 hole in 1992; Lac Minerals
Ltd. (Lac) drilled one deep hole (1,100 ft) in the northeast corner of the
property in 1995; Placer drilled one hole in 1996; and Aquaterre Mineral Development Ltd.
drilled 2 shallow holes from one pad in 1999. These holes targeted shallow mineralization
based on geochemical anomalies in outcropping upper-plate rocks and holes terminated in
Vinini Formation.

During the 2005 exploration season,
Teck Cominco undertook additional gravity surveys and drilled four RC holes to test
certain structural and lithological targets generated by the geophysical program. Elevated
gold geochemistry (>20 ppb, up to 56 ppb) was encountered in hole F04-04.

# Current and Future
Exploration

Teck Cominco has not yet advised the
Company of details of their upcoming planned drill program.

Gold Pick Property

The Companys 100% owned Gold
Pick property (the Gold Pick Property) is located in Eureka County, Nevada,
and consists of 27 unpatented mining claims for 601 acres and patented mining claims (a
patented mining claim is one for which title to the property was transferred
from the U.S. federal government to a private party, in this case the Company) for 193
acres for a total of 794 acres. The Gold Pick Property is without known economic mineral
reserves and is at the exploration stage. The Companys current efforts are
exploratory in nature.

22

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# Acquisition

The Company acquired the unpatented
mining claims and patented mining claims by staking and application since June 2002.
Annual holding costs for the property are estimated to be US$3,604 for 2007 in federal and
county fees.

# Location and Access

The Gold Pick Property is located on
the Cortez Trend in the southern Roberts Mountains approximately 30 miles northwest of the
town of Eureka, Nevada. Access is by all-weather country-maintained roads to the past
producing Gold Bar Mine approximately six miles southwest of the property and then along
the Gold Bar haul road to the Gold Pick Property.

# Regional and Property
Geology

The Gold Pick Property is underlain
by an east-dipping sequence of Devonian carbonate rocks, comprising the Lone Mountain
Dolomite overlain by the McColley Canyon Formation and Denay Formation. Located on the
Gold Pick Property is the past producing Gold Pick Mine, which contains two gold deposits,
the Gold Pick East and Gold Pick West. Also on the Gold Pick Property is a portion of the
formerly producing Gold Ridge gold deposit. All of the known deposits lie along a subtle
east-west anticline, which crosses the Roberts Mountains and provides a regional control
to gold mineralization. Northeast and northwest-trending faults cut the section in the
vicinity of the deposits and provide deposit-scale controls to gold mineralization.

The main Gold Pick East deposit has a
footprint of approximately 1,100 feet east-west by 1,200 feet north-south. The deposit is
typically 50 feet to 100 feet thick, but can be up to 300 feet thick adjacent to
controlling structures. The southwest extension of the Gold Pick East deposit measures
about 1,200 feet in a west-southwest direction and ranges from 75 feet to 200 feet in
width. Within this structurally controlled zone are at least two pods of high-grade
mineralization which include the following drill intercepts:

|      
|------
|
|      
|33-578
|33-570
|33-5  
|33-321
|33-719
|      

23

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Higher-grade pods of gold
mineralization also occur within the main Gold Pick East deposit and include a drill
intercept of 10 feet at 1.20 oz/ton gold beneath the southwest corner of the pit.

The Gold Pick West deposit measures
about 700 feet north-south by 700-800 feet east-west. The deposit contains at least two
pods of +0.20 oz/ton gold mineralization. A third higher-grade pod lies to the east of the
main deposit. The Gold Pick mine consists of two separate open pits: Gold Pick East and
Gold Pick West. Atlas Precious Metals (Atlas) considered mining the high-grade
mineralization in the southwest extension of Gold Pick East by underground mining methods.
In the late stages of mining, an exploration adit was driven to better define reserves in
the north wall of the pit and to define underground reserves in the southwest extension.
However, the drift never reached the southwest zone, and no underground reserves were
delineated.

The Gold Pick East and West deposits
have been tested with a total of 877 drill holes. Despite the intensity of drilling,
potential to expand resources remains. The southwest extension zone is open to the
southwest, where it is cut off by a single fence of three drill holes. Beyond that, only a
handful of widely spaced (approx. 300 foot) holes were drilled. The zone could easily
continue beyond the limits of drilling. A fairly high-grade drill intercept (5 ft @ 0.202
oz/ton gold) near the west end of the drilling suggests that the high-grade core of the
zone may extend further to the southwest along the structure. The vast majority of drill
holes have been vertical, which could easily miss high-grade mineralization along
high-angle structures. Potential exists to expand the high-grade portions of the deposit
by drilling angle holes, especially in the area of higher-grade mineralized pods such as
the southwest extension zone. Drilling is also wide-spaced to the northeast of the Gold
Pick East open pit, and good potential remains to expand resources in this direction as
well.

The following disclosure was provided
by Mine Development Associates (MDA) of Reno, Nevada. In April 2006, a technical report
was filed on the Gold Pick and Gold Ridge deposits, which verified an indicated resource
of 321,000 oz gold contained in the Gold Pick and Gold Ridge deposits.  During 1994,
Donald Tschabrun, a consulting geologist working for Atlas, estimated resources for
the deposits (Tschabrun Estimate) which were audited by Mine Reserve
Associates.  The technical report submitted by MDA completed work required to bring
the Tschabrun Estimate in compliance with 43-101 regulations.  The deposits are
drilled on a nominal 50 ft spacing.  The Tschabrun Estimate was completed by first
outlining mineralized areas on cross sections spaced at 50 ft intervals and then
transferred the mineralized outlines to plan view benches on 10 ft intervals.  Grades
were interpolated into 25 x 25 x 10 ft blocks by inverse distance weighting
methods.  MDA concluded that the Tschabrun Estimate is equivalent to Indicated
Resources.  Atlas drill holes used to calculate the Tschabrun Estimate total more
than 1200 reverse circulation holes and seven core holes. The following table summarizes
the audited indicated resource (after the Tschabrun Estimate):

|Mineralization | Cutoff | Gold Pick Deposit | Gold Ridge North Deposit | Totals
|-------------- | ------ | ----------------- | ------------------------ | ------
|
|              
|Oxide          |        | 0.01              |                          | 4,738 
|Carbonaceous   |        | 0.01              |                          | 1,954 
|              
|Totals         |        | 0.01              |                          | 6,692 
|              

Details of the audit and additional
technical information on the Gold Pick Property are contained in a 43-101 Technical Report
completed by MDA which can be viewed at www.sedar.com. The Qualified Persons commissioned
by MDA were Neil Prenn, Registered Professional Mining Engineer, and Peter Ronning,
Professional Engineer, who conducted the site visit.

# Previous Exploration
History

After the discovery of the Gold Bar
gold deposit in 1984, Atlas began systematic exploration of the Roberts Mountains.
Gold-mineralized jasperoid was discovered in the Gold Ridge and Gold Pick areas in 1986.
Atlas drilled discovery holes in the Gold Ridge deposit in 1986 and the Gold Pick deposit
in 1987. Open-pit mining of the Gold Ridge deposit commenced in 1991. Approximately 96,000
ounces of gold were produced from the deposit until mining ceased in 1992. The Gold Pick
deposit was mined between 1992 and 1994, with production totaling approximately 48,000
ounces of gold. Vengold Inc. (now American Bonanza) leased the Atlas claim block in 1999.
American Bonanza dropped the claims in the Gold Pick and Gold Ridge areas in September
2001.

# Current and Future
Exploration Plans

The Company drilled a total of 18
RC holes (11,700 ft) at the Gold Pick Property in August and September
of 2005. The results of the exploration campaign demonstrated grade continuity in
extensions of both the southwest feeder

24

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structure (30 ft @ 0.062 opt Au, 25
ft @ 0.083 opt Au) and the northwest feeder structure (25 ft @ 0.143 opt Au with 10 ft @
0.226 opt Au), indicating the potential to significantly increase the dimensions of the
gold deposit. In addition, the successful extension of the feeder zones away from the pit
area into un-drilled terrain opens up the potential for discovery of a new gold deposit.
          Geologic mapping in the Roberts Mountains District in 2005 led to a recognition
          of local karsting within the lower-plate host rocks in the area. The karsting
          presents strong exploration targets as a number of Carlin type deposits in the
          Carlin trend are related to solution collapse (karst) features. Further work
          will be required to establish the geologic timing of this karsting and its
          relevance to gold deposition. The drill program at the Gold Pick Property was
          encouraging and a follow-up program is planned for late 2006.

McClusky Pass Property

The Companys 100% owned
McClusky Pass property (the McClusky Pass Property) consists of 243 unpatented
mining claims totaling 5,175 acres located in Eureka County, Nevada. The McClusky Pass
Property is without known economic mineral reserves and is at the exploration stage. The
Companys current efforts are exploratory in nature.

# Acquisition

The Company acquired the McClusky
Pass Property by staking in September, 2003. Annual holding costs for the property are
estimated to be US$32,440 for 2007 in federal and county fees.

# Location and Access

The McClusky Pass Property is located
in Eureka County near the intersection of the Roberts and Simpson Park Mountains,
approximately 30 miles northwest of Eureka, Nevada. Access is by way of a series of
improved all weather roads.

# Regional and Property
Geology

The McClusky Pass Property is located
immediately south of the convergence of the north-northeast trending Simpson Park
Mountains and the northwest-trending Roberts Mountains. The two mountain ranges intersect
along a major northwest-trending fault. This fault zone is postulated to be a major
regional control of gold mineralization within the Cortez Trend.

The McClusky Pass Property is
centered on the intersection of this northwest fault zone with a major northeast-trending
cross-structure. The northeast-trending structural zone is characterized by a broad
northeast-trending magnetic low,

25

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interpreted to reflect a zone of
magnetic destruction. The zone is also manifest as a northeast-trending gravel-covered
embayment into the range. The project area is nearly completely covered by Quaternary and
Tertiary gravels which fill the northwest arm of Kobeh Valley. Intermediate-composition
Tertiary volcanics crop out in the north central and northeast parts of the property.
Thickness of the gravel deposits is unknown but regional gravity data suggests that the
basin becomes shallower to the north towards McClusky Pass. Tertiary volcanic rocks in
the northeast portion of the property are bleached and argillized, suggesting the
possible presence of a hydrothermal system.

# Previous Exploration
History

Sections of the McClusky Pass
Property were explored by different exploration companies between 1984 and 1995. Atlas
staked claims covering the eastern portion of the current property in 1984 as part of its
larger Gold Bar claim block. Atlas focused its exploration efforts on areas with outcrop
and thus conducted little work in the area of the property, although a few shallow (200
feet or less) holes may have been drilled. In 1988, ECM staked claims over the western
portion of the McClusky area immediately to the west of Atlas claims. ECM drilled
four or five shallow (500 feet deep) holes in the north central part of the claim block,
east of McClusky Pass in 1990. ECM dropped its claims and the area was staked by MBM
Consultants in 1994. Battle Mountain Exploration Company leased the claims and drilled an
unknown number of holes in the north central portion of the claim block in 1995. All
previous claims lapsed and the Company staked the property in September 2003.

# Current and Future
Exploration

The Company commenced a drill program
at the McClusky Pass Property in September 2005. One diamond drill hole was completed to a
depth of 1,191 ft on the northern portion of the project with only anomalous gold
encountered. A RC hole was attempted, but was lost at 775 ft, about 200
ft short of the target. The holes were drilled approximately 1,000 ft apart to test a
geophysically interpreted uplifted block. Anomalous gold and pathfinder elements, as well
as intrusive dykes and strong dolomitization, were encountered in the southern most
RC drill hole. Both holes encountered chert and siltstones with minor
limestone interbeds which are interpreted to be part of the upper-plate. The depth to
lower-plate on the project is not known at this time. Additional work will be performed on
the McClusky Pass Property in late 2006 to generate new drill targets.

New Pass Property

The New Pass property (the New
Pass Property) consists of 107 unpatented mining claims totaling 2,232 acres located
near the town of Austin in Churchill County, Nevada. The Company currently has a 100%
interest subject to an option agreement with Bonaventure Enterprises Inc.
(Bonaventure) who can earn an initial 50% interest in the New Pass
Property.The New Pass Property is without known economic mineral reserves and is
at the exploration stage. The Companys current efforts are exploratory in nature.

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# Acquisition

In March 1998, the Company acquired a
100% interest in the New Pass Property from Quest USA Resources Inc. (Quest)
after paying US$165,000 cash. Quest maintained a 2.75% NSR royalty which the Company
purchased in March 2000, by issuing 100,000 common shares to Quest.

In September 2004, the Company
entered into an option agreement with Consolidated Odyssey Exploration Inc.
(Odyssey) whereupon Odyssey may earn an initial 50% interest in the New Pass
Property. To earn a 50% interest, Odyssey must make cash payments to the Company of
US$500,000, issue 500,000 of its common shares and provide US$2,000,000 in exploration
expenditures, all over a four-year period. Upon earning a 50% interest in the property, Odyssey may
earn an additional 10% interest in the property by financing the completion of a
feasibility study. Subsequently, Odyssey assigned all rights under the option agreement to
Bonaventure.

During the earn-in period,
Bonaventure is responsible for all property holding costs.

# Location and Access

The New Pass Property is located
along the Austin-Lovelock mineral belt in the New Pass Mining District, 27 miles west of
Austin, Nevada. Access is from Austin on US Highway 50 for 34 miles, north on the Edwards
Valley Road for 5 miles, and east-southeast for 2 1/2 miles on an unimproved road to the
center of the property.

# Regional and Property
Geology

Gold mineralization on the New Pass
Property is hosted in silty and carbonaceous limestones of the Triassic Lower Augusta
Mountain Formation. This unit consists of thin to medium bedded, carbonaceous limestone
with interbeds of platy, calcareous siltstone, fine-grained sandstone, and bioclastic
turbidites. Impermeable, massive, cliff-forming limestones of the upper Augusta Mountain
sequence cap these rocks.

# Previous Exploration
History

Gold was discovered on the New Pass
Property in 1980 by Dekalb Mining Ltd. (Dekalb) which was conducting
follow-up work to a stream sediment survey. Dekalb transferred ownership of the claims to
Northern Illinois Coal, Oil and Resources Mineral Ventures (NICOR) in 1982.
NICOR explored the New Pass Property from 1982 through 1992, and drilled a total of 165
holes. Consolidated Ramrod Gold (USA), Inc. (Ramrod) acquired the New Pass
Property in 1993. In 1995, Santa Fe

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Pacific Gold Corp. completed 11
holes on the property under an exploration agreement with Ramrod. Ramrod was later
reorganized and renamed Quest which sold the property to the Company in 1998. During
1998, the Company completed 1:6000 scale mapping, collected 250 rock chip samples,
prepared geochemical overlays for all surface rock chip data, constructed 100-foot cross
sections via an Interdex mining software program, and estimated geologic resources on the
main jasperoid.

# Current and Future
Exploration

During 2005, Bonaventure completed 28
drill holes totaling 9,140 ft of drilling. The results from this campaign, which include
75 ft @ 0.057 opt Au with 10 ft @ 0.307 opt Au and 30 ft @ 0.095 opt Au, confirm the
exploration potential for the project. Bonaventure has commenced its 2006 drill effort
which will involve further step out as well as infill drilling of the 2005 program. The
Phase 2 angle drilling has begun in the northern portion of the project drill grid using a
RC rig. The program includes 9,000-10,000 feet of new drilling in 20-25 holes to expand
the current resource. Hole depths will be 250 feet to 650 feet deep. Drilling of the
untested portion of the current drill grid as well as up-dip and down-dip offsets from
previous drilling will be completed. The Phase 2 drilling program will occur over a strike
length of approximately 3,200 feet. The angle hole program will also test volcanic rocks
above previous drilling that have not been assayed and explore possible high grade feeder
faults below the deposit.

Squaw Creek Property

The Squaw Creek property (the
Squaw Creek Property) is located on the northern portion of the Carlin Trend,
42 miles north of the town of Battle Mountain in Elko County, Nevada. The property
consists of 151 unpatented mining claims totaling 3,040 acres. The Company currently has a
100% interest, subject to an agreement with Bonaventure who can earn an initial 50%
interest.The Squaw Creek Property is without known economic mineral reserves and
is at the exploration stage. The Companys current efforts are exploratory in nature.

# Acquisition

The Company acquired the Squaw Creek
Property by staking during 1996. In September 2004, the Company entered into an option
agreement with Odyssey whereupon Odyssey may earn an initial 50% interest by making cash
payments to the Company of US$500,000, issue 500,000 of its common shares and provide
US$2,000,000 in exploration expenditures, all over a four-year period. Odyssey may earn an
additional 10% interest in the Squaw Creek Property by financing the completion of a
feasibility study. Subsequently, Odyssey assigned all its rights under the option
agreement to Bonaventure.

28

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During the earn-in period,
Bonaventure is responsible for all property holding costs.

# Location and Access

The Squaw Creek Property lies between
the Midas and Ivanhoe mining districts on the northern portion of the Carlin Trend. Access
to the property is achieved from the towns of Battle Mountain, Elko, or Winnemucca, Nevada
via highway and maintained all-weather roads. Unimproved dirt roads provide access along
the pediment on the northern part of the Squaw Creek Property.

# Regional and Property
Geology

The Squaw Creek Property is located
directly on the Carlin Trend, and strongly anomalous gold mineralization associated with
pyrite has been intersected in drill holes in an area more than 3 miles long and 1 mile
wide. Additional weakly anomalous gold has been discovered within virtually all drill
holes over a much larger area. The anomalous gold occurs within silicified and brecciated
zones often more than 100 feet thick in the sedimentary rocks of the upper-plate or in the
overlying Miocene age volcanics. Zones of gold mineralization are also hosted within silty
dolomitic sediments of unknown age and of unknown stratigraphic position. These silty
dolomitic sediments may be part of the Rodeo Creek Formation and possibly indicate the
presence of nearby auriferous lower-plate sediments.

# Exploration History

During the 1970s, the US Steel
Company explored the Ivanhoe District and by 1984 had defined a gold reserve on the
adjacent Ivanhoe Property. A series of companies explored the Ivanhoe project which was
expanded to cover the current Squaw Creek Property. Touchstone Resources explored the
Squaw Creek Property by surface mapping, and drilled at least 4 holes. Newmont Mining
Corporation and Cornucopia Resources Ltd. explored the Squaw Creek Property from 1992
until 1995, drilling a total of 12 holes in the Sheep Corral Mine area before dropping the
outer claims, including the Squaw Creek Property.            The Company drilled three holes in 1998, 14 holes in 1999, and 10 holes in 2000
          funded by Chapleau which terminated its option in August 2000 after incurring
          exploration expenditures totaling US$1,024,135.

# Current and Future
Exploration

During the 2005 field season,
Bonaventure completed controlled source audio magnetotelluric surveys. A follow-up drill
program has just commenced. The first of three 1,500 feet deep angle holes is approaching
target depth. The holes are pre-collared using a RC drill rig to penetrate post-mineral
rocks and completed using a core rig. Holes SC-0601 and 0602 are a fence of holes designed
to drill across a large interpreted fault zone indicated in a CSMT geophysical survey
completed in 2005. The primary target at the Squaw Creek Property is a high grade vein
deposit like Ken Snyder to the northwest or the deeper part of Hollister, located to the
southeast.

Other Properties

South Cabin Creek Property

The Companys 100% owned South
Cabin Creek property (the South Cabin Creek Property) is located in Eureka
County, Nevada, and consists of 84 unpatented mining claims totaling approximately 1,735
acres. The South Cabin Creek Property is without known economic mineral reserves and is at
the exploration stage. The Companys current efforts are exploratory in nature.

# Acquisition

The Company acquired the claims that
make up the South Cabin Creek Property by way of staking in October 2001. Annual holding
costs for the property are estimated to be US$11,214 for 2007 in federal and county fees.

# Location and Access

The South Cabin Creek Property is
located about 3⁄4 mile east of the past-producing Gold Pick Mine, approximately 30
miles northwest of the town of Eureka, Nevada. Access is via county maintained roads and
then along all-weather dirt roads.

# Regional and Property
Geology

The South Cabin Creek Property lies
along the Cortez Trend. The claims are underlain by an east-dipping fault-repeated
section of Silurian Lone Mountain Dolomite overlain by Devonian McColley Canyon Formation
and Denay Formation. The

29

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claims lie near the Devonian
dolomite line, a major facies boundary controlled by regional Paleozoic-age structure
along the continental margin.

The South Cabin Creek Property covers
a small portion of the Cabin Creek deposit, the South Cabin Creek mineralized zone, and
potential extensions of the Cabin Creek mineralizing structure. The Cabin Creek deposit is
an oxide gold deposit hosted in the Bartine member of the McColley Canyon Formation. Drill
intercepts in the southernmost portion of the deposit on the Companys claims
include:

|     
|-----
|
|     
|92-41
|SS-26
|SS-19
|SS-27
|92-53
|     

Mineralization in the Cabin Creek
deposit consists of two ore pods aligned in a northwest-southeast direction. The trend of
gold mineralization and the favourable host rock unit project onto the Companys
claims to the southeast of the Cabin Creek deposit. The northeast-trending high-grade
feeder structure of the deposit also projects on to the northeast part of the
Companys claims.

Widely spaced drilling in the area
south of the Cabin Creek deposit by Atlas discovered the South Cabin Creek gold zone.
Anomalous drill intercepts at the South Cabin Creek mineralized zone include:

|       
|-------
|
|       
|55-51  
|55-12  
|55-10  
|PD55-27
|       

Exploration targets on the South
Cabin Creek Property include shallow small to moderate pods of mineralization in the South
Cabin Creek zone, high-grade mineralization along the projection of the high-grade feeder
structure, and potentially large Carlin-type deposits concealed beneath gravel and
volcanic cover along the major north-northwest-trending fault zone (main controlling
structure) to the east of the Cabin Creek deposit.

# Previous Exploration
History

The area containing the South Cabin
Creek Property was explored by a number of companies from 1982 to 1992. Exxon Coal and
Minerals Company (Exxon) geologists first discovered gold-bearing jasperoid
rocks in the Cabin Creek area in 1982, and drilled the first mineralized holes on the
property. After Exxon relinquished the claims, Nerco staked claims which include the
current property in 1982. ACNC leased the property and drilled the discovery hole at Cabin
Creek oxide gold deposit adjacent to the Companys current property, which was later
further defined by Phelps Dodge Corporation (Phelps Dodge) and Atlas. Atlas
also drilled holes to the south and discovered the South Cabin Creek mineralization. From
1997 to 1998, Barrick Gold Corporation (Barrick) leased the claims but
conducted no work. American Bonanza Gold Mining Corp. (now American Bonanza Gold Corp.,
American Bonanza) leased the claims in 1999, but conducted no work before
relinquishing the claims in September 2001.

# Current and Planned
Exploration

Due to the location and extension of
a portion of the Cabin Creek oxide deposit onto the Companys property, exploration
targets include potential high-grade mineralization along the projection of the high-grade
feeder structure, shallow small to moderate pods of mineralization in the South Cabin
Creek zone, and possible Carlin-type deposits concealed beneath gravel and volcanic cover
along the major north-northwest trending fault zone (main controlling structure) to the
east of the Cabin Creek deposit.

The Company is currently seeking a
joint-venture partner to fund and conduct exploration on the South Cabin Creek Property.

30

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Gold Bar Horst Property

The Companys 100% owned Gold Bar
Horst property (the Gold Bar Horst Property) is located in Eureka County,
Nevada, and consists of 183 unpatented mining claims totaling 3,652 acres. The Gold Bar
Horst Property is without known economic mineral reserves and is at the exploration stage.
The Companys current efforts are exploratory in nature.

# Acquisition

The Company acquired the 183
unpatented mining claims by way of staking since September 2001. Annual holding costs for
the property are estimated to be US$24,430 for 2007 in federal and county fees.

# Location and Access

The Gold Bar Horst Property is
located in Eureka County on the southwest flank of the Roberts Mountains, approximately 30
miles northwest of Eureka, Nevada. Access is by way of a series of improved all weather
roads.

# Regional and Property
Geology

The claims were staked to cover the
projection of a northwest-trending horst of lower-plate Devonian Carbonates. The claims
are in two noncontiguous blocks, covering the northern and southern projections of the
horst beyond the immediate past producing Gold Bar Mine. The depth to bedrock under
Quarternary gravels, as indicated by CSAMT and gravity surveys, and drilling, varies from
less than 500 feet to greater than 1000 feet. Mineralization is controlled by a
north-northwest-trending fault and structural intersections with northeast-trending cross
faults.

# Previous Exploration
History

Atlas discovered gold-anomalous
jasperoid along the southwest flank of the Roberts Mountains in 1983 and drilled 16
shallow exploration holes, one of which intersected thin gold mineralization. In 1984
Atlas discovered the Gold Bar deposit, which lies between the 2 current portions of the
Companys property. Atlas mined the Gold Bar deposit beginning in 1987 before
exhausting the economic reserves in 1994. Atlas negotiated a series of joint-venture
agreements with other mining companies between 1994 and 1999 for further exploration of
the project which includes the claims encompassed by the Companys current property
boundaries. Homestake Mining Company (Homestake) entered into a joint venture
in 1994 for exploration of the pediment area south and southeast of the Gold Bar mine.
Homestake conducted CSAMT surveys and drilled 17 exploration holes on the area south of
Gold Bar in 1995 and 1996. The joint venture was terminated in 1996. Barrick
joint-ventured all of Atlas holdings in the Roberts Mountains, exclusive of the mine
areas, in 1997. Barrick drilled a series of widely-spaced holes in the Millsite area and
drilled seven deep holes to the north before terminating the joint venture in 1999.
Vengold (now American Bonanza) leased all of Atlas holdings in the Roberts Mountains
later in 1999.  When American Bonanza reduced the size of its claim holdings in 2001
to concentrate on the claims around the past producing Gold Bar mine, the Company staked
the two noncontiguous claim groups bordering the remaining claims at Gold Bar on the north
and south which currently comprise the Gold Bar Horst Property.

# Current and Planned
Exploration

Future exploration is expected to
target possible Carlin-type gold mineralization beneath the gravel cover. North-northwest
to northwest-trending horst-bounding faults and crosscutting northeast-trending faults are
possible feeder structures. The master feeder fault has not been tested. The majority of
previous drilling on the Gold Bar Horst Property is less than 350 feet deep and did not
encounter bedrock. One deeper drill hole located on the property encountered a mineralized
jasperoid which returned minor gold values from a depth of 1,160 feet to 1,255 feet. This
mineralization may be peripheral to other gold mineralization.

The Company has completed a Phase I
drilling program at the Gold Bar Horst Property and is awaiting assay results.

Hunter Property

The Hunter property (the Hunter
Property) is located in Eureka County, Nevada, and consists of 48 unpatented mining
claims totaling 1,116 acres. The Company has a 100% interest in 46 claims, and has a lease
agreement and an option to purchase a 100% interest in the other 2 claims which make up
the property. The Hunter Property is without known economic mineral reserves and is at the
exploration stage. The Companys current efforts are exploratory in nature.

31

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# Acquisition

The Company acquired 46 unpatented
mining claims of the Hunter Property through staking in September 2001. In February 2002,
the Company signed a lease agreement with Gregory McN. French (the HNT Vendor)
on two adjacent unpatented mining claims known as the HNT Claims. Under the
terms of the lease agreement, the Company is required to make lease payments and issue
common shares to the HNT Vendor under the following schedule:

|Payment
  Due Date                        | Cash Option Payments  
     (US Dollars) | Common Share 
    Issuances
|----------------------------------------- | ---------------------------------------- | ---------------------------
|Initial Payment                           |                                          | $2,000 (paid)              
|February 1, 2003                          |                                          | $2,000 (paid)              
|February 1, 2004                          |                                          | $3,000 (paid)              
|February 1, 2005                          |                                          | $3,000 (paid)              
|February 1, 2006                          |                                          | $4,000 (paid)              
|February 1, 2007 and each year thereafter |                                          | $7,000                     

The HNT Vendor also retains a NSR on
the HNT claims which varies from between 1% to 2%, depending upon the price of gold. The
HNT Vendor retains a 1.5% NSR on minerals other than gold. The Company has the option to
acquire the NSR and purchase the HNT Claims from the HNT Vendor for US$75,000 at any time
before the 10th anniversary date of the lease.

Annual holding costs for the property
are estimated to be US$6,408 for 2007 in federal and county fees.

# Location and Access

The Hunter Property is located on the Cortez
Trend and lies approximately 3 miles southeast of the Gold Pick Mine. Access is via
Highway 50, then approximately 13 miles along county maintained gravel road and 11⁄2
miles along unimproved dirt road.

# Regional and Property
Geology

The Hunter Property encompasses an
easterly dipping fault-repeated section of Silurian Lone Mountain Dolomite overlain by
Devonian McColley Canyon Formation, Bay State Dolomite and Devils Gate Limestone. Miocene
basalts and minor rhyolite overlay and/or are faulted against the Paleozoic section along
both the western and eastern parts of the claims. The western portion of the Hunter
Property is covered by pediment gravels, which masks the Paleozoic and Tertiary rocks.

# Previous Exploration
History

Gold-bearing jasperoids were
discovered in the Hunter area in 1983 and Mapco (Nerco) staked claims over the prospective
ground. The claims were leased to ACNC in 1985. ACNC conducted geological mapping,
rock-chip and soil sampling, geophysical surveys (IP-resistivity and VLF), and drilled 39
shallow holes between 1985 and 1987.

Nerco conducted additional geologic
and geochemical work and drilled seven holes in 1988-1989. Phelps Dodge acquired the Nerco
claims in 1989 and conducted more mapping and collected additional rock-chip samples as
well as drilling 21 exploration holes in 1990. Atlas acquired the Nerco claims in 1991 and
conducted additional drilling in 1993. American Barrick leased all of Atlas claims
in 1997, including those at Hunter, but performed no work on the property before
terminating its lease in 1998. Vengold (now American Bonanza) then leased the Atlas land
holdings in 1999 but also performed no work on the property before dropping the claims in
September 2001.

# Current and Planned
Exploration

During the 2006 field season, the
Company completed 800 feet of drilling in three holes. Assays are pending.

Pat Canyon Property

The wholly owned Pat Canyon property
(the Pat Canyon Property) is located in Eureka County, Nevada and consists of
178 unpatented mining claims totaling 3,582 acres. The Pat Canyon Property is without
known mineral reserves and is at the exploration stage. The Companys current efforts
are exploratory in nature.

# Acquisition

The Company acquired the Pat Canyon
Property by staking in November 2003. Annual holding costs for the property are estimated
to be US$23,763 for 2007 in federal and county fees.

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# Location and Access

The Pat Canyon Property lies on the
Cortez Trend and is adjacent to the Companys Fye Canyon Property to the south.
Access is by a series of all-weather and dirt roads.

# Regional and Property
Geology

The Pat Canyon Property lies along
the southern projection of the north-northwest-south-southeast-trending Cortez fault zone
just south of a major northeast-trending cross-structure which bounds the northern edge of
Simpson Park Mountains. The property covers 31⁄2 miles of strike length of this
splayed north northwest fault system. Upper-plate Ordovician Vinini Formation crops out in
the eastern part of the block and is overlaid by scabs of felsic Tertiary volcanics and
thin Quaternary alluvium in the central area with thicker gravels in the west part.
Intermediate Tertiary volcanics cover the southernmost part of the claim block. The claim
block lies along the projection of lower-plate carbonate rocks in the Cortez window to the
northwest and the Tonkin window to the southeast.

# Current and Future
Exploration

The Company is seeking a joint
venture partner to further explore the Pat Canyon Property.

Tonkin Summit Property

The Tonkin Summit property (the
Tonkin Summit Property) is located in Eureka County, Nevada, adjacent to the
Companys McClusky Pass Property to the East. The 100% owned property consists of 186
unpatented mining claims totaling 3,826 acres. The Tonkin Summit Property is without known
mineral reserves and is at the exploration stage. The Companys current efforts are
exploratory in nature.

# Acquisition

The Company acquired the Tonkin
Summit Property by staking in the spring 2004. Annual holding costs for the property are
estimated to be US$24,831 for 2007 in federal and county fees.

# Location and Access

The Tonkin Summit Property is located
on the Cortez Trend at the northwest end of the Roberts Mountains approximately 30 miles
northwest of Eureka, Nevada. Access is by way of a series of improved all weather roads.

# Regional and Property
Geology

The claims are underlain by
upper-plate Ordivician Vinini Formation (chert, siltstone with some limestone beds) with
minor Tertiary volcanic and Quaternary gravel cover in the northwest corners. Lower-plate
carbonate rocks are projected to underlie Vinini Formation at relatively shallow depths.

# Current and Planned
Exploration

The target is a Carlin-type
disseminated gold deposit hosted in lower-plate carbonate units beneath the Roberts
Mountains thrust fault, alternatively similar bodies in limestone units of lower
Ordovician Vinini Formation. The depth to lower-plate is unknown as the property is
unexplored below a 200 to 600 foot depth. Lower-plate Devonian limestones crop out within
2,000 feet of the east side of the claim block. Scattered anomalous gold, arsenic,
antimony and mercury in rock chips and soils are on trend from two mineralized northeast
trending faults on an adjacent property. The Company is seeking a joint venture partner to
further explore the Tonkin Summit Property.

Miscellaneous

Since 2004, the Company has acquired,
by staking, a 100% interest in four additional Nevada mineral exploration properties
comprised of unpatented mining claims located on the Cortez Trend in Eureka County and one
additional mineral exploration property located on the Getchell Trend in Humboldt County.
The combined acreage of these properties totals approximately 9,300 acres. The cumulative
annual holding cost for these properties is estimated to be US$64,480 for 2007 in federal
and county fees. These properties are without known mineral reserves and are at the
exploration stage. The Companys current efforts are exploratory in nature.

33

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Sampling and Analysis

The sampling method used by the
Company field personnel varies with the purpose of the sample. Geologists doing initial
reconnaissance or prospecting may collect selected grab samples from new discoveries. Such
samples would be intended only to determine if minerals of interest are present, not to
estimate grades for any volume of material.

For more systematic sampling,
outcrops are cleaned off and in some cases shallow hand trenches are dug. Continuous chip
samples are collected over intervals selected by a Company geologist. The manner of
sampling is recorded in field notes and is entered into the digital database of surface
samples.

Core from drilling programs is
photographed and logged on the project site by contract geologists under the supervision
of the Companys project manager. Core is split by a contract geotechnician in
Eureka, Nevada. Split core is bagged, sealed and shipped directly to assay labs in Elko,
Nevada for sample preparation, and then to Sparks, Nevada for analysis. All samples are
analyzed for gold and silver by fire-assay technique.

The Company employs a quality control
program consisting of re-assaying of both mineralized (0.010 oz/ton gold) and randomly
selected coarse reject samples, insertion of coarse standard samples and assaying of both
random and mineralized duplicate drilling samples through an umpire laboratory.
Drill-cuttings samples are bagged, sealed and shipped directly to an assay laboratory in
Elko, Nevada for sample preparation, then to Sparks, Nevada for analysis. All samples are
analyzed for gold and silver by fire-assay technique.

# ITEM 4A:    UNRESOLVED
STAFF COMMENTS

None.

# ITEM 5:       OPERATING AND
FINANCIAL REVIEW AND PROSPECTS

# Overview

The Companys consolidated
financial statements are stated in CAD$ and are prepared in accordance with Canadian GAAP,
the application of which, in the case of the Company, conforms in all material respects
for the years presented with US GAAP, except as disclosed in Note 16 to the consolidated
financial statements. The value of the US$ Dollar in relationship to the CAD$ was US$1.00
= CAD$1.115 as of June 30, 2006.

The Company has since inception
financed its activities through the distribution of equity capital. While the Company has
sufficient resources to meet its obligations for the foreseeable future at its current
level of activity, it is anticipated that additional funds by equity issuance will be
required in the future, as all of the Companys properties are at the exploration
stage. The timing of such offerings is dependent upon the success of the Companys
exploration programs as well as the general economic climate.

# Results of Operations

# Year Ended June 30, 2006
vs. Year Ended June 30, 2005

During the year ended June 30, 2006
the Company received $6,175,733 from the exercise of 4,940,586 warrants.

The loss for the year ended June 30,
2006 was $3,307,465, or $0.06 per share, compared to a loss of $1,063,474, or $0.02 per
share, in the prior year. The increased loss was due to higher expenses of $3,572,966 in
2006 compared to $1,100,746 in 2005, with the largest increase occurring in stock-based
compensation, which totaled $2,275,298 compared to $148,543 in 2005. Other significant
changes in expenses occurred in audit fees which rose to $116,362 from $48,696 as well as
wages and benefits which rose to $130,998 from $79,918 due to a higher level of corporate
activity. Consulting increased to $123,809 from $116,588 in 2005, and travel and
entertainment rose to $108,044 in 2006 from $69,132 in 2005 as management and consultants
visited and reviewed existing properties in Nevada as well as travel related to investor
relations. Investor relations and shareholder information rose to $175,427 in 2006 from
$123,189 in 2005 as the Company continued its effort to better inform shareholders and the
investment community about the Companys activities.

The Company also recorded the
write-off of deferred exploration costs of $143,783 in 2006 compared to $194,598 in 2005.
These write-offs are related to general exploration of properties in Nevada. The Company
also recorded a loss on foreign exchange of $11,574 in 2006 compared to a loss of $60,377
in 2005 due to favorable changes in the Canadian/US dollar exchange rate, a partial
recovery of $2,749 of the unrealized loss on temporary investments reported in 2004
compared to $31,404 in 2005 as well as a loss on disposal of temporary investments of
$23,927 (Nil in 2005). These expenses were offset by an increase in interest income of
$442,036 in 2006 versus $261,600 in 2005, with the increase due to higher cash balances in
the current period.

34

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# Year Ended June 30, 2005
vs. Year Ended June 30, 2004

During the year ended June 30, 2005
the Company acquired two additional mineral exploration properties on the Cortez Trend.
The Company also completed a private placement of its common shares, which provided net
proceeds of $2,370,000.

A loss of $1,063,474 or $0.02 per
share in 2005 was the result of interest on short-term investments of $261,600, a loss on
foreign exchange of $60,377, a partial recovery of $31,404 of the unrealized loss on
temporary investments reported in 2004, a loss on disposal of equipment of $757, a
stock-based compensation charge of $148,543 and costs of $952,203 before write-offs.

In 2004, a loss of $1,664,257 or
$0.04 per share resulted from short-term investment interest of $97,920, a loss on foreign
exchange of $9,299, an unrealized loss on temporary investments of $42,999, a stock-based
compensation charge of $840,005 and costs of $628,325 before write-offs.

During the 2005 fiscal year, $194,598
of preliminary exploration costs was written-off compared to $241,549 in 2004. The
increase in administrative costs from $628,325 at June 30, 2004 to $952,203 at June 30,
2005 was a result of an increase in consulting fees, audit fees, investor relations and
shareholder information costs, management fees, rent, amortization, office costs,
telephone and travel expenses, reflecting the costs associated with the Companys new
Reno office as well as the general increase in exploration activities in Nevada.

# Liquidity and Capital
Resources

The Companys working capital at
June 30, 2006 was $13,238,927 compared to $11,216,455 at June 30, 2005. As at June 30,
2006, $2,107,699 was classified as temporary investments compared to a reclassification to
$1,995,443 at June 30, 2005 while $11,397,885 was classified as cash at June 30, 2006,
compared to a reclassification to $9,182,459 at June 30, 2005.

For the 2007 fiscal year, the Company
has budgeted US$2,000,000 for its anticipated exploration activities. Property costs,
including land holding leases and fees, are estimated to total US$600,000, and
administrative costs are estimated at approximately US$600,000. Therefore, the Company
estimates it has sufficient capital resources for all planned expenditures through fiscal
2007 and beyond.

# Year Ended June 30, 2006

The Companys working
capital of $13,238,927 as at June 30, 2006 compared to $11,216,455 as at June 30, 2005.
During the year ended June 30, 2006 operating activities used cash of $605,920. Loss for
the year of $3,307,465 was reduced by items not affecting cash including write-off of
deferred exploration costs of $143,783 and a stock-based compensation charge of
$2,275,298. Changes in non-cash working capital items included an increase in accounts
payable and accrued liabilities of $75,709, a decrease in receivables of $58,674, and an
increase in amounts due to related parties of $100,248.

Investing activities provided cash of
$5,375,913, including the reclassification of temporary investments to cash of $8,806,566
offset by $288,777 in acquisition of mineral property interests, $2,413,657 in deferred
exploration costs and acquisition of equipment in the amount of $696,458.

Financing activities provided cash of
$6,345,433, resulting from the issuance of 4,940,586 common shares pursuant to the
exercise of warrants (proceeds of $6,175,733) and 315,000 common shares pursuant to the
exercise of stock options (proceeds of $169,700). The Company also issued 40,000 common
shares for mineral property acquisitions at a deemed value of $72,000.

During the year ended June 30, 2006,
the Companys cash position inclusive of temporary investments increased by
$2,327,682.

# Year Ended June 30, 2005

Operating activities for the year
ended June 30, 2005 used cash of $954,361, with the loss for the year of $1,063,474
reduced by items not affecting cash including stock-based compensation of $148,543 and
write-off of deferred exploration costs of $194,598. Changes in non-cash working capital
items included increases in accounts receivable of $103,457 and prepaid expenses of
$26,214, and decreases in accounts payable and accrued liabilities of $51,640, and amounts
due to related parties of $52,616.

35

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Investing activities used cash of
$4,972,207. The largest component was the acquisition of temporary investments of
$3,413,215 as the Company invested in highly liquid short-term bonds. Acquisition of
mineral property interests used cash of $673,373, and deferred exploration costs used cash
of $816,648. Acquisition of equipment used cash of $86,486.

Financing activities provided cash of
$3,813,500, with the entire amount provided by the issuance of capital stock. During the
year, the Company issued a total of 4,060,000 common shares: 1,500,000 common shares were
issued pursuant to a private placement for proceeds of $2,370,000; 40,000 shares were
issued for mineral property interests at a deemed value of $28,400; 230,000 shares were
issued on the exercise of stock options for net proceeds of $120,125; and 2,290,000 shares
were issued pursuant to the exercise of warrants for net proceeds of $1,421,304.

During the year the Companys
cash position decreased by $2,113,068.

# Year Ended June 30, 2004

Operating activities for the year
ended June 30, 2004 used cash of $741,247, with the loss for the year of $1,664,257
reduced by items not affecting cash including stock-based compensation of $840,005 and
write-off of deferred exploration costs of $241,549. Changes in non-cash working capital
items included an increase in accounts receivable of $70,608, an increase in accounts
payable and accrued liabilities of $12,714, and a decrease in amounts due to related
parties of $153,168.

Investing activities used cash of
$8,702,270. The largest component was the acquisition of temporary investments of
$7,493,823. Acquisition of mineral property interests used cash of $611,213, and deferred
exploration costs used cash of $442,661. Acquisition of equipment used cash of $89,321 and
reclamation bonds were posted which used cash of $65,252.

Financing activities provided cash of
$11,705,658, with the entire amount provided by the issuance of capital stock. During the
year, the Company issued a total of 20,870,734 common shares: 12,486,926 common shares
were issued pursuant to private placements for gross proceeds of $9,599,998; 40,000 shares
were issued for mineral property interests at a deemed value of $31,200; 2,134,500 shares
were issued for the exercise of stock options for proceeds of $268,310; 6,084,308 shares
were issued pursuant to the exercise of warrants for net proceeds of $2,377,872; and
125,000 common shares were issued for a finders fee.

During the year the Companys
cash position increased by $2,262,141.

# US GAAP Reconciliation
with Canadian GAAP

Under Canadian GAAP, mineral
properties, including exploration, development and acquisition costs, are carried at cost
and written down if the properties are abandoned, sold or if management decides not to
pursue the properties. Under US GAAP, all expenditures relating to mineral interests prior
to the completion of a definitive feasibility study, which establishes proven and probable
reserves, other than certain capitalized costs related to the acquisition of mineral
property interests, must be expensed as incurred. Once a final feasibility study has been
completed, additional costs incurred to bring a mine into production are capitalized as
development costs.

Under United States GAAP, Statements
of Financial Accounting Standards No. 123, Accounting for Stock-based
Compensation (SFAS 123) requires companies to establish a fair
market value based method of accounting for stock-based compensation plans. The Company
has chosen to account for stock-based compensation 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 grant over the option
price. Effective July 1, 2003 the Company elected to follow the fair value method of
accounting for stock-based compensation.

New accounting and disclosure
standards were introduced under Canadian GAAP for the fiscal year ending June 30, 2003.
Accordingly, there were no differences between Canadian GAAP and United States GAAP for
the years ended June 30, 2006, 2005 and 2004 other than those disclosed in the financial
statements.

The reader is advised to consult the
Companys audited annual consolidated financial statements for the year ended June
30, 2006, particularly Note 16, for quantification of the differences.

# Canadian GAAP Conflict
in Accounting for Mineral Property Interests and Deferred Exploration Costs

In March 2000, the Accounting
Standards Board of the Canadian Institute of Chartered Accountants (CICA)
issued Accounting Guideline No. 11 Enterprises in the Development Stage(AcG
11). AcG 11 addresses three distinct issues: i) the capitalization of
costs/expenditures; ii) impairment; and iii) disclosure. Prior to its issuance,
development stage entities were exempt from following certain aspects of Canadian GAAP.
AcG 11 requires that all companies account for transactions

36

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based on the underlying
characteristics of the transaction rather than the maturity of the enterprise. In
addition, AcG 11 requires specific disclosure of information by development stage
companies and is effective no later than fiscal periods beginning on or after April 1,
2000, which in the case of the Company, is the year ended June 30, 2001.

In March 2002, the Emerging Issues
Committee (EIC) of the CICA issued EIC-126 Accounting by Mining
Enterprises for Exploration Costs (EIC-126) which interprets how AcG 11
affects mining companies with respect to the deferral of exploration costs. EIC-126 refers
to CICA Handbook Section 3061 Property, Plant and Equipment (HB
3061), paragraph .21, which states that for a mineral property interest, the cost of
the asset includes exploration costs if the enterprise considers that such costs have the
characteristics of property, plant and equipment.

EIC-126 then states that a mining
enterprise that has not established mineral reserves objectively, and therefore does not
have a basis for preparing a projection of the estimated cash flow from the mineral
property interest, is not precluded from considering the exploration costs to have the
characteristics of property, plant and equipment. EIC-126 also sets forth the EICs
consensus that a mining enterprise in the development stage is not required to consider
the conditions in AcG 11 regarding impairment in determining whether exploration costs may
be initially capitalized. With respect to impairment of capitalized exploration costs,
EIC-126 sets forth the EICs consensus that a mining enterprise in the development
stage that has not established mineral reserves objectively, and, therefore, does not have
a basis for preparing a projection of the estimated cash flow from the property, is not
obliged to conclude that capitalized costs have been impaired. However, such an enterprise
should consider the conditions set forth in AcG 11 and HB 3061 in determining whether a
subsequent write-down of capitalized exploration costs related to mineral property
interest is required.

As disclosed above, the Company
considers that its mineral property interests and deferred exploration costs have the
characteristics of property, plant and equipment, and, accordingly, the Company has chosen
to classify its mineral property interests and deferred exploration costs as tangible
assets in accordance with its interpretation of Canadian GAAP.

Although the Company believes its
accounting policy is appropriate and consistent with Canadian GAAP, there is an
alternative interpretation of Canadian GAAP that would consider them to be intangible
assets as a result of the issuance of CICA Handbook Section 1581 Business
Combinations (HB 1581) and CICA Handbook Section 3062 Goodwill and
Other Intangible Assets (HB 3062).

This alternative interpretation under
HB 1581 and HB 3062 would provide for the capitalization of a contract based mining asset
as an intangible asset at its fair value at the time it was acquired, either as an
individual asset purchase or as part of a business combination. For exploration stage
mineral property interests and deferred exploration costs such as those owned by the
Company, the excess of the carrying value over the residual value of the intangible assets
would be amortized on a straight-line basis over the period in which the Company expected
to complete its exploration process or convert, develop or further explore the underlying
properties. For the Company, a reasonable estimate of this amortization period would be 5
years.

Consult the Companys audited
annual consolidated financial statements for the year ended June 30, 2006 for the
differences if the Company had chosen to account for these costs as intangible assets
under HB 1581 and HB 3062 effective July 1, 2001.

# Variation in Operating
Results

The Company derives interest income
on its cash and temporary investments, which depend on the Companys ability to raise
funds.

Management periodically, through the
exploration process, reviews results both internally and externally through the use of
mining related professionals. The decision to abandon, reduce or expand exploration
efforts is based upon many factors including general and specific assessments of mineral
deposits, the likelihood of increasing or decreasing those deposits, land costs, estimates
of future mineral prices, potential extraction methods and costs, the likelihood of
positive or negative changes to the environment, permitting, taxation, labor and capital
costs. There cannot be a pre-determined hold period for any property as geological or
economic circumstances render each property unique.

# Research and Development

The Company conducts no research and
development activities, nor is it dependent upon any patents or licenses.

# Trend Information

The Company knows of no trends,
uncertainties, demands, commitments or events that are reasonably likely to have a
material effect on the Companys operations or financial condition.

37

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# Off-Balance Sheet
Arrangements

The Company does not have any
off-balance sheet arrangements that have or are reasonably likely to have a current or
future effect on the Companys financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or capital
resources that is material to investors.

# Tabular Disclosure of
Contractual Obligations

The Company has an interest in
various exploration-stage mineral properties located in the State of Nevada. Certain of
the underlying claims are leased from third-parties and have lease payments due. Other
claims are unpatented mining claims on land owned by the Bureau of Land Management
(BLM) and have annual lease fees payable. All claims have Nevada county taxes
due annually which vary by county.

Based upon its current and
anticipated future claim holdings, the Company estimates its land holding costs for the
next three fiscal years to be the following:

|Annual Estimated Property Holding Costs
|---------------------------------------
|
|
|
|Leases                                 
|BLM Fees                               
|County Fees                            

The Company also maintains
reclamation bonds for exploration work on certain of its properties. These bonds are held
by or in trust for the responsible government body who oversees the Companys
exploration work. When exploration, development or mining activities cease on that
property, the Company is responsible for restoring the property as provided by law. If the
Company either does not, or is not able, to comply with the required restoration, the
reclamation bond will be used to provide funds for the required restoration work. However,
if the Company completes the required restoration and the applicable government body is
satisfied all requirements have been met, the reclamation bond for that property will be
returned to the Company.

The following is a list of the
Companys reclamation bonds outstanding as of June 30, 2006.

|Property             | Current
Status | Government Body Holding
          the Bond | US$ Amount
of Bond | CND$ Amount
of Bond             
|-------------------- | -------------- | ------------------------------------------ | ------------------ | --------------------------------
|                    
|Cottonwood           |                | Exploration                                |                    | Nevada Division of Minerals     
|Gold Bar Horst       |                | Exploration                                |                    | Nevada Division of Minerals     
|Gold Pick            |                | Exploration                                |                    | Nevada Division of Minerals     
|Hunter               |                | Exporation                                 |                    | Nevada Division of MInerals     
|Patty (Indian Ranch) |                | Exploration                                |                    | BLM                             
|McClusky Pass        |                | Exploration                                |                    | BLM, Nevada Division of Minerals
|New Pass             |                | Exploration                                |                    | BLM                             
|Slaven Canyon        |                | Exploration                                |                    | BLM                             
|Unallocated Nevada   |                | Exploration                                |                    | BLM                             
|Quito                |                | Dropped                                    |                    | US Forest Service               
|Lookout              |                | Dropped                                    |                    | B.C. Minister of Finance        
|MGM                  |                | Dropped                                    |                    | B.C. Minister of Finance        

# ITEM 6:    DIRECTORS,
SENIOR MANAGEMENT AND EMPLOYEES

# 6A.    DIRECTORS AND SENIOR
MANAGEMENT

Each of the Companys directors
is elected by the Companys shareholders at the annual general meeting to serve until
the next annual general meeting of shareholders, scheduled to be held in November 2006, or
until a successor is elected or appointed. The Board of Directors appoints the
Companys executive officers annually after each annual general meeting, to serve at
the discretion of the Board of Directors.

The following tables disclose the
name, age, functions in the Company and date or election or appointment of its directors
and executive officers as of October 13, 2006, together with business experience,
principal business activities performed outside of the Company (including in the case of
directors other principal directorships).

38

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|Director                        | Age | Date First Elected/Appointed
|------------------------------- | --- | ----------------------------
|                               
|John M. Leask (1)               |     | 50                          
|Gordon P. Leask (1)             |     | 45                          
|Brian D. Edgar (1)              |     | 56                          
|Megan Cameron-Jones             |     | 44                          
|(1)  Member of Audit Committee. |     |                             

|Executive Officer   | Position | Age                                   | Date of Appointment
|------------------- | -------- | ------------------------------------- | -------------------
|                   
|John M. Leask       |          | President, CEO and Chairman           |                    
|Megan Cameron-Jones |          | CFO and Corporate Secretary           |                    
|Robert G. Cuffney   |          | Vice-President, Exploration           |                    
|Kareen McKinnon     |          | Vice President, Corporate Development |                    

John M. Leask is President, Chief
Executive Officer and Chairman of the Company. Mr. Leask is a Professional Engineer who
graduated with a Bachelor of Applied Science degree from the University of British
Columbia in 1980. Prior to joining the Company, he was a self-employed consultant and has
29 years experience in resource exploration and management of public companies. He joined
the Company as a Director in December 1994, and has been Chairman and Chief Executive
Officer since 1996. He also served as President of the Company from January to July 1996,
and was reappointed President in April 2001. He currently also serves as a director of
Mansfield Minerals Inc., a public mineral exploration company traded on the TSX Venture
Exchange. Mr. Leask devotes 50% of his time to Company business.

Gordon P. Leask is a Director of the
Company. Mr. Leask is a Professional Engineer who graduated from the
University of British Columbia with a Bachelor of Applied Science degree in Geological
Engineering in 1985. He joined the Company as a Director in January 2003, although he had
provided consulting services to the Company prior to his being named a Director. He has over 25
years experience in the mineral exploration business, and currently serves as President
and director of Mansfield Minerals Inc., a public mineral exploration company traded on
the TSX Venture Exchange. Mr. Leask devotes 50% of his time to Company business.

Brian D. Edgar has been a Director of
the Company since February 1996. Mr. Edgar currently serves as an investment banker with
Rand Edgar Investment Corp. in Vancouver, B.C. since 1992 and President of Dome Ventures
Inc. since February 2005. He graduated with a Bachelor of Laws degree from the University
of British Columbia in 1975 and currently serves as a director of other public companies,
including: Pender Financial Group, a public investment company traded on the TSX Venture
Exchange; Lexacal Investment Corp, a public investment company traded on the TSX Venture
Exchange; South Atlantic Ventures Ltd., a mineral exploration company traded on the TSX
Venture Exchange; Valkyries Petroleum Corp., a petroleum and natural gas exploration
company traded on the TSX Venture Exchange; and Lundin Mining Corporation, a mineral
exploration company traded on the Toronto Stock Exchange. Mr. Edgar devotes approximately
5% of his time to Company business.

Megan Cameron-Jones is Chief
Financial Officer, Corporate Secretary and a Director of the Company. She served as
Corporate Secretary from 1990-1991, 1995-1997, in 1999, and from January 2003 to the
present. She was appointed a Director in December 1996 and was appointed Chief Financial
Officer in November 2004. She is President of Cerro Rico Management Corp., a self-owned
management company, and a director of Mansfield Minerals Inc., a public mineral
exploration company traded on the TSX Venture Exchange. She devotes approximately 50% of
her time to Company business.

Robert G. Cuffney is Vice-President
of Exploration for the Company. He is a Professional Geologist and holds a Bachelor of
Science in Geological Engineering and a Master of Science in Geology from the Colorado
School of Mines. Mr. Cuffney has over 29 years of experience in mineral exploration in
North America and Southeast Asia and is a past president of the Geological Society of
Nevada. He was appointed Vice President of Exploration of the Company in August 1998, but
prior to his appointment also served as a geologic consultant to the Company. Before
joining the Company, Mr. Cuffney served as a senior geologist for Newmont Exploration Ltd.
working on the Carlin Trend and regionally in the Great Basin of Nevada and Utah. He
devotes approximately 100% of his time to Company business.

Kareen McKinnon is Vice President,
Corporate Development for the Company. Ms. McKinnon has over 10 years experience in public
markets and handles investor relations for the Company. Before joining the Company, Ms.
McKinnon spent several years in Corporate Finance with Nesbitt Burns and moved on to take
a variety of senior level positions within various public companies. She devotes
approximately 50% of her time to Company business.

39

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No Director and/or Executive Officer
has been the subject of any order, judgment, or decree of any governmental agency or
administrator or of any court or competent jurisdiction, revoking or suspending for cause
any license, permit or other authority of such person or of any corporation of which he is
a director and/or executive officer, to engage in the securities business or in the sale
of a particular security or temporarily or permanently restraining or enjoining any such
person or any corporation of which he is an officer or director from engaging in or
continuing any conduct, practice, or employment in connection with the purchase or sale of
securities, or convicting such person of any felony or misdemeanor involving a security or
any aspect of the securities business or of theft or of any felony.

All of the Companys Officers
and Directors are covered by Indemnity Agreements executed with each individual. Under
these agreements, the Company has agreed to indemnify the individual and their heirs,
executors, administrators and personal representatives against all costs, charges and
expenses incurred in connection with any civil, criminal, or administrative action to
which they are made a party by reason of having been an officer or director of the
Company. The Indemnity Agreement is only in effect if the individual acted honestly and in
good faith with a view to the best interests of the Company and if the individual had
reasonable grounds for believing that their conduct was lawful.

John M. Leask, President, Chief
Executive Officer, Director and Chairman, and Gordon P. Leask, Director, are brothers.
There are no arrangements or understandings pursuant to which a person was selected as a
Director of the Company.

# 6 B.    COMPENSATION

# Summary Compensation
Table

For the three most recently completed
financial years ended June 30, 2006, June 30, 2005 and June 30, 2004 in respect of the
Chief Executive Officer (CEO), the Chief Financial Officer (CFO)
and for each of the Companys three most highly compensated executive officers as at
June 30, 2006 (other than the CEO and CFO), whose total salary and bonus exceeds $150,000,
if any, and any other additional individuals for whom disclosure would have been provided
but for the fact that the individual was no longer an executive officer as at June 30,
2006 (the Named Executive Officers or NEO), the annual and
long-term compensation and bonus is set out below.

|Summary Compensation Table
|--------------------------
|
|
|
|                          
|John M. Leask             
|President, Chairman       
|and Chief Executive       
|Officer                   
|                          
|Megan Cameron-Jones(4)    
|Chief Financial           
|Officer and Corporate     
|Secretary                 
|                          

|1 |  | SAR or stock appreciation right means a right granted by
                    the Company, as compensation for services rendered, to receive a payment of cash
                    or an issue or transfer of securities based wholly or in part on changes in the
                    trading price of publicly traded securities of the Company.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2 |  | LTIP or long term incentive plan means any plan that
                    provides compensation intended to serve as incentive for performance to occur
                    over a period longer than one financial year, but does not include option or
                    stock appreciation right plans or plans for compensation through restricted
                    shares or restricted share units.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3 |  | These
monies were paid to Rangefront Exploration Corp., a BC private company
          controlled by Mr. Leask.
|- |  | ---------------------------------------------------------------------------------------------------------------

|(4) |  | Megan
Cameron-Jones was appointed Chief Financial           Officer on November 25, 2004.
|--- |  | -----------------------------------------------------------------------------------------

40

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# Options Granted in
Financial Year ended June 30, 2006

During the most recently completed
financial year, the following are stock options granted by the Company to the Named
Executive Officers.

|                   
|-------------------
|
|                   
|John M. Leask      
|                   
|Megan Cameron-Jones
|                   

# Notes:

(1)    
          Calculated as the closing price of the Companys shares on the TSX Venture
          Exchange on the date of grant.

# Aggregated Option
Exercises During the Most Recently Completed Financial Year and Financial Year-End Option
Values

During the most recently completed
financial year, there were no stock options exercised by the Named Executive Officers. The
following table sets out the financial year end value of stock options held by the Named
Executive Officers.

|                   
|-------------------
|
|                   
|John M. Leask      
|                   
|Megan Cameron-Jones
|                   

|(1) |  | In
the money options are those where the market value of the
                    underlying securities at the financial year-end exceeds the exercise
price of                     the option. Value is determined by calculating the
difference between the                     closing price of the Companys common
shares ($2.26) on June 30, 2006,                     and the exercise price of each
option, and then multiplying the difference by                     the number of common
shares under option at the financial year end.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Pension

No funds were set aside or accrued by
the Company during fiscal 2006 to provide pension, retirement or similar benefits for
directors or executive officers.

# Director Compensation

The Company has no arrangements
pursuant to which directors are compensated by the Company for their services in their
capacity as directors, or for committee participation; however, certain of the
Companys directors and executive officers have been compensated for consulting and
expert services during the most recently completed fiscal year. For a description of these
payments, see Note 7 to the Companys consolidated financial statements.

41

---

# Management Service
Agreements

The Company has entered into
management service agreements with respect to each of its directors, including those
executive officers that serve as directors of the Company. In each case, the agreement is
between the Company and a private company controlled by the director, pursuant to which
the private company has agreed to provide certain consulting services to the Company,
initially through the director that controls such private company. An overview of these
agreements is provided in the following table:

|                            
|----------------------------
|
|                            
|Rangefront Exploration Corp.
|                            
|Eagle Putt Ventures Inc.    
|                            
|Cerro Rico Management Corp. 
|                            
|Rand Edgar Investment Corp. 
|                            

Under each agreement, as amended, the
Company has agreed to pay the private company a monthly base fee (specified above), which
is subject to annual review by the Companys board of directors, and a minimum number
of stock options (specified above). The Company has also agreed to provide the designated
employees of Rangefront Exploration Corp., Eagle Putt Ventures Inc. and Cerro Rico
Management Corp., currently Mr. J. Leask, Mr. G. Leask and Ms. Cameron-Jones,
respectively, participation in all benefit programs maintained by the Company, and to
provide an additional fee to Rangefront Exploration Corp. and Eagle Putt Ventures Inc. of
US$450 for each day that their designated employees, currently Messrs. J. Leask and G.
Leask, respectively, are required to travel to Nevada to provide any service for the
Company.

In each case, the private company is
permitted to replace the services of its currently-designated employee with the services
of another person of equal or greater skills for the engagement, provided that, in such
event, the Company may terminate the agreement. Each agreement is for an initial term
expiring on December 31, 2008, unless earlier terminated or extended. Unless the Company
provides written notice of termination at least 60 days prior to the expiry of the initial
term, each agreement will automatically be extended for an additional 24 months. Each
agreement may be terminated earlier, at any time, (i) by the private company upon 30 days
prior written notice to the Company, (ii) at the option of the private company in the
event that there is a takeover of control of the Company as defined in the
agreement, (iii) by the Company if the services of the designated employee are no longer
available or he or she is unable to perform the services as a result of death or permanent
disability, (iv) by the Company for cause as defined in the agreement, or (v)
by the Company for any other reason. If the agreement is terminated by the private company
in connection with a takeover of control, or by the Company within a certain period of
time of a takeover of control, the Company is required to pay the private company an
amount equal to 24 months of the monthly base fee under the agreement, plus, in the case
of Cerro Rico Management Corp. (Ms. Cameron-Jones), an additional lump sum payment of
$85,500. If the agreement is terminated by the Company for any other reason, other than
for cause or due to the unavailability of the currently-designed employee, the Company is
required to pay the private company an amount equal to three months of the monthly base
fee if the agreement is terminated within the first year, and one additional month of the
monthly base fee for each year of service thereafter.

# Consulting Agreements

The Companys subsidiary, White
Knight Gold (U.S.) Inc., has entered into a consulting agreement with Robert G. Cuffney,
the Companys Vice-President, Exploration, dated February 1, 2000, and amended on
July 1, 2005 and October 3, 2006. Under this agreement, as amended, Mr. Cuffney is
entitled to receive US$8,000 per month and to receive stock options of the Company from
time to time. The agreement may be terminated by either party with 30 days advance written
notice to the other party. If Mr. Cuffney is terminated pursuant to a takeover of
control of the Company, as defined in the agreement, the Company must pay Mr.
Cuffney a termination fee equal to 18 months of his monthly compensation.

The Company has entered into a
consulting agreement with Kareen McKinnon, the Companys Vice-President, Corporate
Development, dated April 6, 2005 and amended on March 1, 2006 and October 3, 2006. Under
this agreement, as amended, Ms. McKinnon is entitled to receive $5,000 per month, to
receive an initial grant of 100,000 stock options of the Company at a price of $0.67 per
share, and to receive additional stock options of the Company from time to time. The
agreement is initially for a term ending March 31, 2007, unless earlier terminated or
extended. Unless the agreement has been terminated prior to the end of the initial term,
the agreement will automatically be extended for an additional one-year period. The
agreement may be terminated earlier, at any time, by either party, with 30 days
advance written notice to the other party. If Ms. McKinnon is terminated pursuant to a
takeover of control of the Company, as defined in the agreement, the Company
must pay Ms. McKinnon a termination fee equal to six months of her monthly compensation.

42

---

# Stock Option Plan

To assist the Company in
compensating, attracting, retaining and motivating personnel, the Company also grants
stock options to directors, executive officers and others under a stock option plan
effective as of November 4, 2002 and amended as of December 12, 2003 and October 3, 2006.
See Share Ownership  Stock Option Plan below.

# 6 C.    BOARD PRACTICES

The Companys Board of Directors
(the Board) currently consists of four directors, all of whom were elected at
the annual and special general meeting of shareholders on November 25, 2005. The current
term of office for all the directors will expire at the next annual general meeting, at
which time all four of the current directors may be nominated for re-election.

The Board is responsible for the
conduct of the Companys affairs generally. The Board is responsible for reviewing
and approving the Companys operating plans and budgets as presented by management.
The Board is responsible for identifying the principal risks of the Companys
business and for ensuring these risks are effectively monitored and mitigated to the
extent practicable. Succession planning, including the recruitment, supervision,
compensation and performance assessment of the Companys senior management personnel
also falls within the gambit of the Boards responsibilities. The Board is
responsible for ensuring effective communications by the Company with its shareholders and
the public and for ensuring that the Company adheres to all regulatory requirements with
respect to the timeliness and content of its disclosure. In keeping with its overall
responsibility for the stewardship of the financial affairs of the Company, the Board
created an audit committee which is responsible for the integrity of the Companys
internal control and management information systems.

The CEO and the Board have not, to
date, developed formal, documented position descriptions for the CEO and the Board
defining the limits of managements responsibilities. The Board is currently of the
view that the respective corporate governance roles of the Board and management are clear
and that the limits to managements responsibility and authority are reasonably
well-defined.

The Board is responsible for
approving annual operating plans recommended by management. Board consideration and
approval is also required for all material contracts and business transactions and all
debt and equity financing proposals.

The Board delegates to management
responsibility for meeting defined corporate objectives, implementing approved strategic
and operating plans, carrying on the Companys business in the ordinary course,
managing the Companys cash flow, evaluating new business opportunities, recruiting
staff and complying with applicable regulatory requirements.

In the event of a conflict of
interest at a meeting of the Board, the conflicted director will in accordance with
corporate law and in accordance with his or her fiduciary obligations as a Director of the
Company, disclose the nature and extent of his or her interest to the meeting and abstain
from voting on or against the approval of such participation.

For details regarding the
Companys service contracts with each of its directors, see Management Service
Agreements above.

Board Committees

The Companys Board has
appointed one committee, an audit committee (the Audit Committee), which
recommends to the Board the engagement of the independent auditors of the Company and
reviews with the independent auditors the scope and results of the Companys audits,
the Companys internal accounting controls, and the professional services furnished
by the independent auditors to the Company. The Audit Committee operates under a written
set of rules for its conduct and practices which sets out its required duties. During
fiscal 2006, the Audit Committee met four times, once each quarter.

The current members of the Audit
Committee are John M. Leask, Gordon P. Leask and Brian D. Edgar.

# 6 D.    EMPLOYEES

As at September 30, 2006, the Company
had no employees.

# 6 E.    SHARE OWNERSHIP

The following table sets forth, as
of September 30, 2006, the number of the Companys common shares beneficially owned
by (a) directors and executive officers of the Company, individually, and as a
group, and (b) the percentage ownership of the outstanding common shares represented
by such shares. The security holders listed below are deemed to be the beneficial

43

---

owners of common shares underlying
options and other convertible securities which are exercisable or convertible within 60 days
from the above date. Unless otherwise indicated, the shareholders listed possess sole
voting and investment power with respect to the shares shown.

|                         
|-------------------------
|
|                         
|John M. Leask            
|                         
|Megan Cameron-Jones      
|                         
|                         
|Gordon P. Leask          
|                         
|Brian D. Edgar           
|                         
|Robert G. Cuffney        
|                         
|Kareen McKinnon          
|                         
|                         
|Directors and Officers as
|a group (6 persons)      
|                         

|(1) |  | As of September 30, 2006 there were 59,384,972 common shares of the Company
                    issued and outstanding. Percentage of class is based on the number of shares
                    beneficially owned by the individual (or group, if applicable), divided by the
                    sum of 59,384,972 plus any shares subject to stock options or other convertible
                    securities exercisable by such individual (or group) within 60 days of September
                    30, 2006.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Includes 231,947 common shares held indirectly in the name of Rangefront
                    Exploration Corp., a private British Columbia company controlled by Mr. Leask,
                    and 1,175,000 common shares subject to stock options exercisable within 60 days
                    of September 30, 2006.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | Includes 48,000 common shares held indirectly in the name of Gary Jones and
                    34,722 common shares held indirectly in the name of 3115 Investments Ltd., both
                    controlled by Ms. Cameron-Jones, and 550,000 common shares subject to stock
                    options exercisable within 60 days of September 30, 2006.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | Includes 1,147,609 common shares held indirectly in the name of Eagle Putt
                    Ventures Inc., a private British Columbia company controlled by Mr. Leask, and
                    1,175,000 common shares subject to stock options exercisable within 60 days of
                    September 30, 2006.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) |  | Includes 1,175,000 common shares subject to stock options exercisable within 60
                    days of September 30, 2006.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------

|(6) |  | Includes 500,000 common shares subject to stock options exercisable within 60
                    days of September 30, 2006.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------

|(7) |  | Includes 165,000 common shares subject to stock options exercisable within 60
                    days of September 30, 2006.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------

|(8) |  | Includes 4,740,000 common shares subject to stock options exercisable within 60
                    days of September 30, 2006.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------

Stock Option Plan

Under the Companys stock option
plan effective November 4, 2002 and amended December 12, 2003, the Company may grant
options for up to 7,072,935 common shares to directors, employees and consultants at
exercise prices to be determined by the market value on the date of grant. Vesting of
options is made at the discretion of the Board of Directors at the time the options are
granted with the exception of options granted in relation to investor relations. Options
granted to consultants engaged in investor relations activities vest no earlier than as to
one-quarter upon the grant date and a further one-quarter after each of the following
three three-month periods. The options can be granted for a maximum term of 10 years.

As of September 30, 2006, the
following options are held by directors, executive officers and other employees of the
Company.

44

---

|                    
|--------------------
|
|                    
|Cameron-Jones, Megan
|                    
|                    
|                    
|Cuffney, Robert     
|                    
|                    
|                    
|                    
|                    
|Edgar, Brian D      
|                    
|                    
|                    
|Leask, Gordon P     
|                    
|                    
|                    
|Leask, John M       
|                    
|                    
|                    
|McKinnon, Kareen    
|                    
|                    
|                    
|Others              
|                    
|                    
|                    
|                    

# ITEM 7:    MAJOR
SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

# 7A.    MAJOR SHAREHOLDERS

The Company is a publicly owned
Canadian corporation, the common shares of which are owned by U.S. residents, Canadian
residents and other foreign residents. The Company is not controlled by another
corporation or any foreign government. No shareholders of the Company have different
voting rights from any other shareholder.

As of September 30, 2006, Pacific
Corporate Trust Company reported that there were 59,384,972 common shares issued and
outstanding. Of those common shares issued, 4,092,250 shares were registered to 38 holders
of record resident in the United States.

The Company is aware of two persons
who beneficially own 5% or more of the Registrants voting securities. The following
table lists as of September 30, 2006, persons and/or companies holding 5% or more
beneficial interest in the Companys outstanding common shares. Unless otherwise
indicated, the shareholders listed possess sole voting and investment power with respect
to the shares shown.

|5% or Greater Shareholders
|--------------------------
|                          
|
|                          
|Gordon P. Leask (2)       
|Robert McEwen (3)         

|(1) |  | As of September 30, 2006 there were 59,384,972 common shares of the Company
                    issued and outstanding. Percentage of class is based on the number of shares
                    beneficially owned by the individual, divided by the sum of 59,384,972 plus any
                    shares subject to stock options or other convertible securities exercisable by
                    such individual within 60 days of September 30, 2006.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Includes 1,147,609 common shares held indirectly in the name of Eagle Putt
                    Ventures Inc., a private British Columbia company controlled by Mr. Leask, and
                    1,175,000 common shares subject to stock options exercisable within 60 days of
                    September 30, 2006.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

45

---

|(3) |  | To the best of the Companys knowledge, based on public filings made by Mr.
                    McEwen and US Gold.
|--- |  | -------------------------------------------------------------------------------------------------------------------

There has been no significant change
in the percentage ownership held by the major shareholders during the past three years,
except that on or about June 2005, Goldcorp Inc. sold its entire shareholding to Robert
McEwen.

# 7B.    RELATED PARTY
TRANSACTIONS

The directors, senior officers and
principal shareholders of the Company and associates or affiliates of the foregoing have
had no material interest, direct or indirect, in any transactions in which the Company has
participated since July 1, 2005 which have or will materially affect the Company or any of
its subsidiaries, or that are unusual in their nature or conditions, except as disclosed
in this Annual Report.

Without limiting the foregoing, see
Public Takeover Offers by Third Parties under Item 4 A., for a discussion of
certain matters relating to US Gold. Robert McEwen, one of our principal shareholders, is
the Chairman and Chief Executive Officer of US Gold.

There are no outstanding loans or
guarantees made by the Company to or for the benefit of any of the directors, senior
officers or principal shareholders of the Company, nor any associate or affiliate of any
of the foregoing persons.

# 7C.    INTERESTS OF
EXPERTS AND COUNSEL

Not applicable.

# ITEM 8:    FINANCIAL INFORMATION

# 8A.    CONSOLIDATED STATEMENTS
AND OTHER FINANCIAL INFORMATION

See Item 17 for details of the
Companys consolidated financial statements which have been prepared by independent
auditors and are accompanied by audit reports, including comparative financial statements
for the latest three financial years audited in accordance with a comprehensive body of
auditing standards.

The financial year end of the Company
is June 30.

Also see Item 5  Operating and
Financial Review and Prospects.

The Company is not and has not been, since
July 1, 2005, a party to any material legal or arbitration proceeding, nor is any material
governmental proceeding involving the Company pending or known to be contemplated.

The Company has not paid any
dividends on its common shares since its incorporation. The Company has no present
intention of paying dividends on its common shares as it anticipates that all available
funds will be invested to finance the growth of its business.

# 8B.    SIGNIFICANT CHANGES

No significant changes have occurred
since the date of the financial statements included in this Annual Report, except as
disclosed in this Annual Report.

# ITEM 9:    OFFER AND
LISTING DETAILS

The Companys shares were listed
for trading on the Vancouver Stock Exchange, a predecessor to the TSX Venture Exchange
(the TSX-V), on October 23, 1989. The Companys shares are listed for
trading on the TSX-V under the symbol, WKR. The CUSIP number is 963900 10 5.
The price range of the Companys common shares during the periods indicated below was
as follows:

46

---

|Financial Period 
       Ended | Financial 
  Period | TSX-V
High | TSX-V
Low
|------------------------------ | ------------------- | ---------- | ---------
|September 30, 2006             |                     | Month      |          
|August 31, 2006                |                     | Month      |          
|July 31, 2006                  |                     | Month      |          
|June 30, 2006                  |                     | Month      |          
|May 31, 2006                   |                     | Month      |          
|April 30, 2006                 |                     | Month      |          
|September 30, 2006             |                     | Quarter    |          
|June 30, 2006                  |                     | Quarter    |          
|March 31, 2006                 |                     | Quarter    |          
|December 31, 2005              |                     | Quarter    |          
|September 30, 2005             |                     | Quarter    |          
|June 30, 2005                  |                     | Quarter    |          
|March 31, 2005                 |                     | Quarter    |          
|December 31, 2004              |                     | Quarter    |          
|September 30, 2004             |                     | Quarter    |          
|June 30, 2006                  |                     | Annual     |          
|June 30, 2005                  |                     | Annual     |          
|June 30, 2004                  |                     | Annual     |          
|June 30, 2003                  |                     | Annual     |          
|June 30, 2002                  |                     | Annual     |          

# ITEM 10:    ADDITIONAL
INFORMATION

# 10 A.    SHARE CAPITAL

Not applicable.

# 10 B.    MEMORANDUM AND
ARTICLES OF ASSOCIATION

The Companys Articles do not
prescribe any extraordinary limits on the business or purpose of the Company.

Under the New Articles, directors of
the Company: 1) who hold a disclosable interest in a contract or transaction into which
the Company has entered or proposes to enter are not entitled to vote on any
directors resolution to approve that contract or transaction, unless all the
directors have a disclosable interest in that contract or transaction, in which case any
or all of those directors may vote on such resolution; 2) may authorize the Company to
borrow money in amounts, on the security, from the sources and issue bonds, debentures and
other debt obligations, on terms and conditions they consider appropriate; guarantee the
repayment of money; and mortgage, charge, grant a security interest in or give other
security on the whole or any part of the present and future assets and undertaking of the
Company; 3) may authorize the Company to borrow money in amounts, on the security, from
the sources and issue bonds, debentures and other debt obligations, on terms and
conditions they consider appropriate; guarantee the repayment of money; and mortgage,
charge, grant a security interest in or give other security on the whole or any part of
the present and future assets and undertaking of the Company; 4) are not required to
retire on an age limit and 5) are not required to hold any share in the capital of the
Company to become, act or continue to act as a director of the Company.

All of the authorized share of common
shares of the Company are of the same class and, once issued, rank equally as to
dividends, voting powers, and participation in assets and in all other respects, on
liquidation, dissolution or winding up of the Company, whether voluntary or involuntary,
or any other distribution of the assets of the Company among its shareholders for the
purpose of winding up its affairs after the Company has paid out its liabilities. The
issued common shares are not subject to call or assessment rights or any pre-emptive or
conversion rights. The holders of common shares are entitled to one vote for each share on
all matters to be voted by the shareholders. There are no provisions for redemption,
purchase for cancellation, surrender or to purchase funds.

The Company is authorized to
determine whether the rights of the holders of issued shares of the Company may be altered
only with the approval of the holders of 2/3 or more of the shares of the Company voted at
a meeting of the shareholders of the Company.

47

---

General meetings are to be held
annually. All Directors are subject to re-election at each annual general meeting.
Directors may call a special meeting of shareholders. All registered shareholders or
persons who hold powers of attorney or proxies given to them by registered shareholders
may attend at meetings of shareholders.

There are no limitations on the right
to own securities, imposed by foreign law or by the charter or other constating document
of the Company. There are no provisions in the New Articles or charter documents that
would have the effect of delaying, deferring or preventing a change in the control of the
Company, or that would operate with respect to any proposed merger, acquisition or
corporate restructuring involving the Company or any of its subsidiaries.

There are no conditions imposed by
the New Articles governing changes in the capital where such conditions are more stringent
than is required by the laws of British Columbia. All common shareholders share equally in
the profits of the Company.

# 10 C.    MATERIAL CONTRACTS

Other than as described in this
Annual Report, neither the Company nor any member of its group is a party to any material
contracts within the two years preceding the publication of this document.

# 10 D.    EXCHANGE CONTROLS

Other than as provided in the
Investment Canada Act (Canada), as amended, (the Investment Act), there are
currently no limitations imposed by Canadian laws, decrees or regulations that restrict
the import or export of capital, including foreign exchange controls, or that affect the
remittance of dividends to non-resident holders of the Companys securities. However,
any such remittances of dividends paid to United States residents are subject to
withholding tax at a rate equal to a maximum of 15% of the amount paid (see Item 10E
Taxation).

Management of the Company considers
that the following summarizes the material features of the Investment Act, in its present
form, pertinent to a non-resident of Canada who proposes to acquire common shares of the
Company. However, provisions of the Investment Act are complex and any non-Canadian
contemplating an investment to acquire control of the Company should consult professional
advisors as to whether and how the Investment Act might apply.

The Investment Act regulates the
acquisition of control of a Canadian business by a non-Canadian as defined
under the Investment Act. With respect to the Company, an acquisition of control is
considered to be the acquisition of the majority of its common shares. However, if a
non-Canadian acquires more than one-third of the voting shares of the Company, but less
than a majority, there is a presumed acquisition of control unless it can be established
that the Company is not controlled in fact by the acquirer. All acquisitions of control of
a Canadian business are notifiable (which requires that a notification form be submitted
to Investment Canada within thirty days after the implementation of the investment) unless
the investment is reviewable. If the investment is reviewable, the investment may not be
implemented until the Minister responsible for the Investment Act is, or has been deemed
to be, satisfied that the investment is likely to be of net benefit to Canada.

An investment is reviewable if there
is an acquisition of a Canadian business and the asset value of the Canadian business
being acquired equals or exceeds the following thresholds:

|(a) |  | for
non-WTO investors (as defined below), the threshold is $5 million for a
                    direct acquisition and over $50 million for an indirect acquisition;
the $5                     million threshold will apply however for an indirect
acquisition if the asset                     value of the Canadian business being
acquired exceeds 50% of the asset value of                     the global transaction;
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) |  | except
as specified in paragraph (c) below, a threshold is calculated annually
                    for reviewable direct acquisitions by or from WTO investors. The
threshold for                     2006 is $265 million. Indirect acquisitions by or from
WTO investors are not                     reviewable.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) |  | the
limits set out in paragraph (a) above apply to all investors for
                    acquisitions of a Canadian business that:
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------

| | (i) |  | engages
in the production of uranium and owns an interest in a producing uranium
               property in Canada;
| | --- |  | -------------------------------------------------------------------------------------------------------------------

| | (ii) |  | provides
any financial service;
| | ---- |  | -------------------------------

| | (iii) |  | provides
any transportation service; or
| | ----- |  | ---------------------------------------

| | (iv) |  | is
a cultural business.
| | ---- |  | -----------------------

Notwithstanding the above, any
investment which is usually only notifiable, including the establishment of a new Canadian
business, and which falls within a specific business activity listed in the Regulations to
Respecting Investment in Canada, may be reviewed if an Order-in-Council directing a review
if made and a notice is sent to the investor within 21 days following the receipt of a
certified complete notification.

48

---

WTO investor as defined
in the Investment Act includes: an individual, other than a Canadian, who is a national of
a member of the World Trade Organization (a WTO Member) or who has the right
of permanent residence in relation to that WTO Member; a government or government agency
of a WTO investor-controlled corporation; corporation or limited partnership; or trust
that is neither WTO investor-controlled or Canadian controlled of which two-thirds of its
board of directors, general partners or trustees, as the case may be, are any combination
of Canadians and WTO investors.

Certain types of transactions are
exempt from application of the Investment Act including, among the transactions,
acquisitions of control of the Company:

|(a) |  | by
the acquisition of voting shares or other voting interests by any person in
               the ordinary course of that persons business as a trader or dealer
in                securities;
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) |  | in
connection with the realization of security granted for a loan or other
               financial assistance and not for any purpose related to the Investment
Act;
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) |  | for
the purpose of facilitating its financing and not for any purpose related to
               the Investment Act on the condition that the acquirer divest itself of
control                within two years after control was acquired or within such longer
period as is                approved by the Minister; and
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(d) |  | by
reason of an amalgamation, merger, consolidation or corporate reorganization
               following which the ultimate direct or indirect control in fact of the
Company                through the ownership of voting interests remains unchanged.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Except as provided in the Investment
Act, there are currently no limitations specific to the right of non-resident Canadians to
hold or vote the common shares of the Company under Canadian law or the Companys
charter documents.

# 10 E.    TAXATION

# Certain Canadian Federal
Income Tax Consequences

The discussion under this heading
summarizes the material Canadian federal income tax consequences of acquiring, holding and
disposing of common shares of the Company (Common Shares) for a shareholder of
the Company who is not resident in Canada but is resident in the United States and who
will acquire and hold Common Shares as capital property for the purpose of the Income Tax
Act (Canada) (the Tax Act). This summary does not apply to a shareholder who
carries on business in Canada through a permanent establishment situated in
Canada or performs independent personal services in Canada through a fixed base in Canada
if the shareholders holding in the Company is effectively connected with such
permanent establishment or fixed base.

This summary is based on the
provisions of the Tax Act and the regulations there under and on the Companys
understanding of the administrative practices of Canada Revenue Agency and takes into
account all specific proposals to amend the Tax Act or regulations made by the Minister of
Finance of Canada to April 30, 2005. It has been assumed that there will be no other
relevant amendment of any governing law although no assurance can be given in this
respect. This discussion is general only and is not a substitute for independent advice
from a shareholders own Canadian and U.S. tax advisors. The provisions of the Tax
Act are subject to income tax treaties to which Canada is a party, including the
Canada-United States Income Tax Convention (1980) (the Convention) and the
Protocols to the Convention.

# Dividends on Common
Shares

Under the Tax Act, a non-resident of
Canada is generally subject to Canadian withholding tax at the rate of 25% on dividends
paid or deemed to have been paid to him by a corporation resident in Canada. The
Convention limits the rate to 15% if the shareholder is resident in the United States and
the dividends are beneficially owned by and paid to him, and to 5% if the shareholder is a
corporation that beneficially owns at least 10% of the voting shares of the payor
corporation.

The Convention generally exempts from
Canadian income tax dividends paid to a religious, scientific, literary, educational or
charitable organization or to an organization constituted and operated exclusively to
administer a pension, retirement or employee benefit fund or plan, if the organization is
resident in the United States and is exempt from income tax under the laws of the United
States.

The tax payable on dividends is to be
withheld at source by the company or personnel acting on its behalf. The Company is liable
for the amount of the tax if it fails to so withhold. The taxpayer is liable in any event
if the Company fails to withhold.

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# Disposition of Common
Shares

Under the Tax Act, a taxpayers
capital gain or capital loss from a disposition of Common Shares is the amount, if any, by
which his proceeds of disposition exceed (or are exceeded by, respectively) the aggregate
of his adjusted cost base of the share and reasonable expenses of disposition. One-half of
a capital gain (the taxable capital gain) is included in income, and one-half
of a capital loss in a year (the allowable capital loss) is deductible from
taxable capital gains realized in the same year. The amount by which a shareholders
allowable capital loss exceeds the taxable capital gain in a year may be deducted from a
taxable capital gain realized by the shareholder in the year or in the three previous or
any subsequent year, subject to certain restrictions in the case of a corporate
shareholder.

In the case of a shareholder that is
a corporation, the amount of any capital loss otherwise determined may be reduced, in
certain circumstances, by the amount of dividends previously received in respect of the
shares disposed of, unless the corporation owned the shares for at least 365 days prior to
sustaining the loss and (together with corporations, persons and other entities with whom
the corporation was not dealing at arms length) did not, at the time the dividends
were received, own more than 5% of the shares of any class of the capital stock of the
corporation from which the dividend was received. These loss limitation rules may also
apply where a corporation is a member of a partnership or a beneficiary of a trust that
owned the shares disposed of.

A non-resident of Canada is not
subject to tax under the Tax Act in respect of a capital gain realized upon the
disposition of shares unless the shares represent taxable Canadian property.
Common Shares will not generally constitute taxable Canadian property. common shares of
the Company will constitute taxable Canadian property of a shareholder at a particular
time if the shareholder holds the shares as capital property and used the
shares in carrying on a business in Canada, or if at any time in the five years
immediately preceding the disposition the shareholder owned, either alone or with persons
with whom the shareholder did not deal at arms length, 25% or more of the issued
shares of any class of the share capital of the Company.

Where a United States resident
realizes a capital gain on a disposition of shares that constitute taxable Canadian
property, the Convention relieves the United States resident from liability for
Canadian tax on such capital gains unless:

(a)    
          the value of the shares is derived principally from real property in
          Canada, including the right to explore for or exploit natural resources and
          rights to amounts computed by reference to production,

(b)    
          the shareholder was resident in Canada for 120 months during any period of 20
          consecutive years preceding the disposition, was resident in Canada at any time
          during the 10 years immediately preceding the disposition and the shares were
          owned by him when he ceased to be resident in Canada, or (c) the shares formed
          part of the business property of a permanent establishment or
          pertained to a fixed base used for the purpose of performing independent
          personal services that the shareholder has or had in Canada within the 12 months
          preceding the disposition.

At the present time the value of the
Common Shares is not derived principally from real property in Canada.

Notwithstanding the potential
exemption from Canadian tax provided under the Convention, where a nonresident of Canada
disposes of Common Shares that are taxable Canadian property, the non-resident
is required to file a Canadian income tax return in respect of any such dispositions.

# U.S. Federal Income Tax
Consequences

The following is a summary of the
anticipated material U.S. federal income tax consequences to a U.S. Holder (as defined
below) arising from and relating to the acquisition, ownership, and disposition of Common
Shares.

This summary is for general
information purposes only and does not purport to be a complete analysis or listing of all
potential U.S. federal income tax consequences that may apply to a U.S. Holder as a result
of the acquisition, ownership, and disposition of Common Shares. In addition, this summary
does not take into account the individual facts and circumstances of any particular U.S.
Holder that may affect the U.S. federal income tax consequences of the acquisition,
ownership, and disposition of Common Shares. Accordingly, this summary is not intended to
be, and should not be construed as, legal or U.S. federal income tax advice with respect
to any U.S. Holder. Each U.S. Holder should consult its own financial advisor, legal
counsel, or accountant regarding the U.S. federal, U.S. state and local, and foreign tax
consequences of the acquisition, ownership, and disposition of Common Shares.

# Scope of this Disclosure

Authorities

This summary is based on the
Internal Revenue Code of 1986, as amended (the Code), Treasury Regulations
(whether final, temporary, or proposed), published rulings of the Internal Revenue
Service (IRS), published administrative positions of the IRS, the Convention
Between Canada and the United States of America with Respect to Taxes on Income and on

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Capital, signed September 26, 1980,
as amended (the Canada-U.S. Tax Convention), and U.S. court decisions that
are applicable and, in each case, as in effect and available, as of the date of this
Annual Report. Any of the authorities on which this summary is based could be changed in
a material and adverse manner at any time, and any such change could be applied on a
retroactive basis. This summary does not discuss the potential effects, whether adverse
or beneficial, of any proposed legislation that, if enacted, could be applied on a
retroactive basis.

U.S. Holders

For purposes of this summary, a
U.S. Holder is a beneficial owner of Common Shares that, for U.S. federal
income tax purposes, is (a) an individual who is a citizen or resident of the U.S., (b) a
corporation, or any other entity classified as a corporation for U.S. federal income tax
purposes, that is created or organized in or under the laws of the U.S. or any state in
the U.S., including the District of Columbia, (c) an estate if the income of such estate
is subject to U.S. federal income tax regardless of the source of such income, or (d) a
trust if (i) such trust has validly elected to be treated as a U.S. person for U.S.
federal income tax purposes or (ii) a U.S. court is able to exercise primary supervision
over the administration of such trust and one or more U.S. persons have the authority to
control all substantial decisions of such trust.

Non-U.S. Holders

For purposes of this summary, a
non-U.S. Holder is a beneficial owner of Common Shares other than a U.S.
Holder. This summary does not address the U.S. federal income tax consequences of the
acquisition, ownership, and disposition of Common Shares to non-U.S. Holders. Accordingly,
a non-U.S. Holder should consult its own financial advisor, legal counsel, or accountant
regarding the U.S. federal, U.S. state and local, and foreign tax consequences (including
the potential application of and operation of any tax treaties) of the acquisition,
ownership, and disposition of Common Shares.

U.S. Holders Subject to
Special U.S. Federal Income Tax Rules Not Addressed

This summary does not address the
U.S. federal income tax consequences of the acquisition, ownership, and disposition of
Common Shares to U.S. Holders that are subject to special provisions under the Code,
including the following U.S. Holders: (a) U.S. Holders that are tax-exempt organizations,
qualified retirement plans, individual retirement accounts, or other tax-deferred
accounts; (b) U.S. Holders that are financial institutions, insurance companies, real
estate investment trusts, or regulated investment companies; (c) U.S. Holders that are
broker-dealers, dealers, or traders in securities or currencies that elect to apply a
mark-to-market accounting method; (d) U.S. Holders that have a functional
currency other than the U.S. dollar; (e) U.S. Holders that are liable for the
alternative minimum tax under the Code; (f) U.S. Holders that own Common Shares as part of
a straddle, hedging transaction, conversion transaction, constructive sale, or other
arrangement involving more than one position; (g) U.S. Holders that acquired Common Shares
in connection with the exercise of employee stock options or otherwise as compensation for
services; (h) U.S. Holders that hold Common Shares other than as a capital asset within
the meaning of Section 1221 of the Code; or (i) U.S. Holders that own, directly or
indirectly, 10% or more, by voting power or value, of the outstanding shares of the
Company. U.S. Holders that are subject to special provisions under the Code, including
U.S. Holders described immediately above, should consult their own financial advisor,
legal counsel or accountant regarding the U.S. federal, U.S. state and local, and foreign
tax consequences of the acquisition, ownership, and disposition of Common Shares.

If an entity that is classified as
partnership (or pass-through entity) for U.S. federal income tax purposes
holds Common Shares, the U.S. federal income tax consequences to such partnership (or
pass-through entity) and the partners of such partnership (or owners of such
pass-through entity) generally will depend on the activities of the
partnership (or pass-through entity) and the status of such partners (or
owners). Partners of entities that are classified as partnerships (or owners of
pass-through entities) for U.S. federal income tax purposes should consult
their own financial advisor, legal counsel or accountant regarding the U.S. federal income
tax consequences of the acquisition, ownership, and disposition of Common Shares.

Tax Consequences Other
than U.S. Federal Income Tax Consequences Not Addressed

This summary does not address the
U.S. state and local, U.S. federal estate and gift, or foreign tax consequences to U.S.
Holders of the acquisition, ownership, and disposition of Common Shares. Income or loss in
the sale or other taxable disposition of foreign currency will be U.S. source. Each U.S.
Holder should consult its own financial advisor, legal counsel, or accountant regarding
the U.S. state and local, U.S. federal estate and gift, and foreign tax consequences of
the acquisition, ownership, and disposition of Common Shares. (See TaxationCertain
Canadian Federal Income Tax Consequences above).

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U.S.           Federal Income Tax Consequences of the Acquisition, Ownership, and Disposition
          of Common Shares

Distributions on Common
Shares

General Taxation of
Distributions

A U.S. Holder that receives a
distribution, including a constructive distribution, with respect to the Common Shares
will be required to include the amount of such distribution in gross income as a dividend
(without reduction for any Canadian income tax withheld from such distribution) to the
extent of the current or accumulated earnings and profits of the Company. To
the extent that a distribution exceeds the current and accumulated earnings and
profits of the Company, such distribution will be treated (a) first, as a tax-free
return of capital to the extent of a U.S. Holders tax basis in the Common Shares
and, (b) thereafter, as gain from the sale or exchange of such Common Shares. Dividends
paid on the Common Shares generally will not be eligible for the dividends received
deduction. (See more detailed discussion at Disposition of Common Shares
below).

Reduced Tax Rates for
Certain Dividends

For taxable years beginning before
January 1, 2011, a dividend paid by the Company generally will be taxed at the
preferential tax rates applicable to long-term capital gains if (a) the Company is a
qualified foreign corporation (as defined below), (b) the U.S. Holder
receiving such dividend is an individual, estate, or trust, and (c) such dividend is paid
on Common Shares that have been held by such U.S. Holder for at least 61 days during the
121-day period beginning 60 days before the ex-dividend date (i.e., the first
date that a purchaser of such Common Shares will not be entitled to receive such
dividend).

The Company generally will be a
qualified foreign corporation under Section 1(h)(11) of the Code (a
QFC) if (a) the Company is incorporated in a possession of the U.S., (b) the
Company is eligible for the benefits of the Canada-U.S. Tax Convention, or (c) the Common
Shares are readily tradable on an established securities market in the U.S. However, even
if the Company satisfies one or more of such requirements, the Company will not be treated
as a QFC if the Company is a passive foreign investment company (as defined
below) for the taxable year during which the Company pays a dividend or for the preceding
taxable year.

As discussed below, the Company
believes that it was a passive foreign investment company in prior taxable
years and expects that it will be a passive foreign investment company in the current
taxable year. (See more detailed discussion at Additional Rules that May Apply to
U.S. Holders below). Therefore, the Company does not expect to be a QFC for the
current taxable year and may not be a QFC in subsequent taxable years.

In years that the Company is not a
QFC, a dividend paid by the Company to a U.S. Holder generally will be taxed at ordinary
income tax rates (and not at the preferential tax rates applicable to long-term capital
gains). The dividend rules are complex, and each U.S. Holder should consult its own
financial advisor, legal counsel, or accountant regarding the dividend rules.

Distributions Paid in
Foreign Currency

The amount of a distribution paid to
a U.S. Holder in foreign currency generally will be equal to the US$ value of such
distribution based on the exchange rate applicable on the date of receipt. A U.S. Holder
that does not convert foreign currency received as a distribution into US$ on the date of
receipt generally will have a tax basis in such foreign currency equal to the US$ value of
such foreign currency on the date of receipt. Such a U.S. Holder generally will recognize
ordinary income or loss on the subsequent sale or other taxable disposition of such
foreign currency (including an exchange for US$).

Disposition of Common
Shares

A U.S. Holder will recognize gain or
loss on the sale or other taxable disposition of Common Shares in an amount equal to the
difference, if any, between (a) the amount of cash plus the fair market value of any
property received and (b) such U.S. Holders tax basis in the Common Shares sold or
otherwise disposed of. Any such gain or loss generally will be capital gain or loss, which
will be long-term capital gain or loss if the Common Shares are held for more than one
year. Gain or loss recognized by a U.S. Holder on the sale or other taxable disposition of
Common Shares generally will be treated as U.S. source for purposes of
applying the U.S. foreign tax credit rules. (See more detailed discussion at Foreign
Tax Credit below).

Preferential tax rates apply to
long-term capital gains of a U.S. Holder that is an individual, estate, or trust. There
are currently no preferential tax rates for long-term capital gains of a U.S. Holder that
is a corporation. Deductions for capital losses and net capital losses are subject to
complex limitations. For a U.S. Holder that is an individual, estate, or trust, capital
losses may be used to offset capital gains and up to US$3,000 of ordinary income. An
unused capital loss of a U.S.

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Holder that is an individual,
estate, or trust generally may be carried forward to subsequent taxable years, until such
net capital loss is exhausted. For a U.S. Holder that is a corporation, capital losses
may be used to offset capital gains, and an unused capital loss generally may be carried
back three years and carried forward five years from the year in which such net capital
loss is recognized.

Foreign Tax Credit

A U.S. Holder who pays (whether
directly or through withholding) Canadian income tax with respect to dividends paid on the
Common Shares generally will be entitled, at the election of such U.S. Holder, to receive
either a deduction or a credit for such Canadian income tax paid. Generally, a credit will
reduce a U.S. Holders U.S. federal income tax liability on a dollar-for-dollar
basis, whereas a deduction will reduce a U.S. Holders income subject to U.S. federal
income tax. This election is made on a year-by-year basis and applies to all foreign taxes
paid (whether directly or through withholding) by a U.S. Holder during a year.

Complex limitations apply to the
foreign tax credit, including the general limitation that the credit cannot exceed the
proportionate share of a U.S. Holders U.S. federal income tax liability that such
U.S. Holders foreign source taxable income bears to such U.S. Holders
worldwide taxable income. In applying this limitation, a U.S. Holders various items
of income and deduction must be classified, under complex rules, as either foreign
source or U.S. source. In addition, this limitation is calculated
separately with respect to specific categories of income (including passive
income, high withholding tax interest, financial services
income, general income, and certain other categories of income).
Dividends paid by the Company generally will constitute foreign source income
and generally will be categorized as passive income or, in the case of certain
U.S. Holders, financial services income. However, for taxable years beginning
after December 31, 2006, the foreign tax credit limitation categories are reduced to
passive income and general income (and the other categories of
income, including financial services income, are eliminated). The foreign tax
credit rules are complex, and each U.S. Holder should consult its own financial advisor,
legal counsel, or accountant regarding the foreign tax credit rules.

Information Reporting;
Backup Withholding Tax

Payments made within the U.S., or by
a U.S. payor or U.S. middleman, of dividends on, and proceeds arising from certain sales
or other taxable dispositions of, Common Shares generally will be subject to information
reporting and backup withholding tax, at the rate of 28%, if a U.S. Holder (a) fails to
furnish such U.S. Holders correct U.S. taxpayer identification number (generally on
Form W-9), (b) furnishes an incorrect U.S. taxpayer identification number, (c) is notified
by the IRS that such U.S. Holder has previously failed to properly report items subject to
backup withholding tax, or (d) fails to certify, under penalty of perjury, that such U.S.
Holder has furnished its correct U.S. taxpayer identification number and that the IRS has
not notified such U.S. Holder that it is subject to backup withholding tax. However, U.S.
Holders that are corporations generally are excluded from these information reporting and
backup withholding tax rules. Any amounts withheld under the U.S. backup withholding tax
rules will be allowed as a credit against a U.S. Holders U.S. federal income tax
liability, if any, or will be refunded, if such U.S. Holder furnishes required information
to the IRS. Each U.S. Holder should consult its own financial advisor, legal counsel, or
accountant regarding the information reporting and backup withholding tax rules.

# Additional Rules that
May Apply to U.S. Holders

If the Company is a controlled
foreign corporation or a passive foreign investment company (each as
defined below), the preceding sections of this summary may not describe the U.S. federal
income tax consequences to U.S. Holders of the acquisition, ownership, and disposition of
Common Shares.

Controlled Foreign
Corporation

The Company generally will be a
controlled foreign corporation under Section 957 of the Code (a
CFC) if more than 50% of the total voting power or the total value of the
outstanding shares of the Company is owned, directly or indirectly, by citizens or
residents of the U.S., domestic partnerships, domestic corporations, domestic estates, or
domestic trusts (each as defined in Section 7701(a)(30) of the Code), each of which own,
directly or indirectly, 10% or more of the total voting power of the outstanding shares of
the Company (a 10% Shareholder).

If the Company is a CFC, a 10%
Shareholder generally will be subject to current U.S. federal income tax with respect to
(a) such 10% Shareholders pro rata share of the subpart F income (as
defined in Section 952 of the Code) of the Company and (b) such 10% Shareholders
pro rata share of the earnings of the Company invested in United States property(as
defined in Section 956 of the Code). In addition, under Section 1248 of the Code, any
gain recognized on the sale or other taxable disposition of Common Shares by a U.S.
Holder that was a 10% Shareholder at any time during the five-year period ending with
such sale or other taxable disposition generally will be treated as a dividend to the
extent of the earnings and profits of the Company that are attributable to
such Common Shares. If the Company is both a CFC and a passive foreign investment
company(as defined below), the Company generally will be treated as a CFC (and not
as a passive foreign investment company) with respect to any 10% Shareholder.
The Company does not believe that it has previously been, or

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currently is, a CFC. However, there
can be no assurance that the Company will not be a CFC for the current or any future
taxable year.

Passive Foreign
Investment Company

The Company generally will be a
Passive Foreign Investment Company (PFIC) under Section 1297(a) of the
Code if, for a taxable year, (a) 75 percent or more of the Companys gross
income for such taxable year is passive income or (b) on average, 50 percent or more
of the assets held by the Company either produce passive income or are held for the
production of passive income, based on the fair market value of such assets (or on the
adjusted tax basis of such assets, if the Company is not publicly traded and make an
election). In addition, if the Company is classified as a PFIC for any taxable year in
which a U.S. Holder has held shares of the Company, the Company may continue to be
classified as a PFIC for any subsequent taxable year in which such U.S. Holder continues
to hold such shares even if the Companys income and costs are no longer passive in
nature in such subsequent taxable year. Passive income includes, for example,
dividends, interest, certain rents and royalties, certain gains from the sale of stock and
securities, and certain gains from commodities transactions. For years beginning after
December 31, 2004, net gains from commodities transactions may generally be excluded
from passive income if such gains are active business gains from the sales of commodities,
and if substantially all of the non-U.S. corporations commodities are stock in
trade, inventory, property held for sale to customers in the ordinary course of business,
depreciable assets, or supplies of a type that are regularly consumed by the corporation
in the ordinary course of its business. In determining whether or not it is classified as
a PFIC, a non-U.S. corporation is required to take into account its pro rata portion of
the income and assets of each corporation in which it owns, directly or indirectly, at
least a 25% interest.

For purposes of the PFIC income test
and asset test described above, if the Company owns, directly or indirectly, 25 percent or
more of the total value of the outstanding shares of another foreign corporation, the
Company will be treated as if it (a) held a proportionate share of the assets of such
other foreign corporation and (b) received directly a proportionate share of the
income of such other foreign corporation. In addition, for purposes of the PFIC income
test and asset test described above, passive income does not include any
interest, dividends, rents, or royalties that are received or accrued by the Company from
a related person (as defined in Section 954(d)(3) of the Code), to the
extent such items are properly allocable to the income of such related person that is not
passive income.

If the Company is a PFIC and if one
or more of its non-U.S. corporate subsidiaries are treated as a PFIC (lower-tier
PFICs), U.S. Holders of Common Shares would be considered to own, and also would be
subject to the PFIC rules with respect to, their proportionate share of the lower-tier
PFIC stock that the Company owns, regardless of the percentage of their ownership in the
Company. In such circumstances a U.S. Holder of Common Shares could elect an alternative
taxation regime in respect of its indirect ownership interest in a lower-tier PFIC,
subject to certain conditions as discussed below.

The Company believes that it was a
PFIC for prior taxable years, and expects that it will be a PFIC for the current taxable
year. The determination of whether the Company was, or will be, a PFIC for a taxable year
depends, in part, on the application of complex U.S. federal income tax rules, which are
subject to various interpretations. In addition, whether the Company will be a PFIC for
the current taxable year and each subsequent taxable year depends on the Companys
assets and income over the course of each such taxable year and, as a result, cannot be
predicted with certainty as of the date of this prospectus. Accordingly, there can be no
assurance that the IRS will not challenge the determination made by the Company concerning
PFIC status or that the Company was not, or will not be, a PFIC for any taxable year.

Default PFIC Rules Under
Section 1291 of the Code

If the Company is a PFIC, the U.S.
federal income tax consequences to a U.S. Holder of the acquisition, ownership, and
disposition of Common Shares will depend on whether such U.S. Holder makes an election to
treat the Company as a qualified electing fund or QEF under
Section 1295 of the Code (a QEF Election) or a mark-to-market election under
Section 1296 of the Code (a Mark-to-Market Election). A U.S. Holder that does not
make either a QEF Election or a Mark-to-Market Election will be referred to in this
summary as a Non-Electing U.S. Holder.

A Non-Electing U.S. Holder will be
subject to the rules of Section 1291 of the Code with respect to (a) any gain
recognized on the sale or other taxable disposition of Common Shares and (b) any
excess distribution received on the Common Shares. A distribution generally will be an
excess distribution to the extent that such distribution (together with all
other distributions received in the current taxable year) exceeds 125 percent of the
average distributions received during the three preceding taxable years (or during a U.S.
Holders holding period for the Common Shares, if shorter).

Under Section 1291 of the Code,
any gain recognized on the sale or other taxable disposition of the Companys Common
Shares, and any excess distribution received on the Common Shares, must be ratably
allocated to each day in a Non-Electing U.S. Holders holding period for such Common
Shares. The amount of any such gain or excess distribution allocated to prior years of
such Non-Electing U.S. Holders holding period for the Common Shares (other than
years prior to the Companys first taxable year beginning after December 31, 1986
for which the Company was not a PFIC) will be subject to U.S. federal income tax at the
highest tax rate applicable to ordinary income in each such prior year. A Non-Electing
U.S.

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Holder will be required to pay
interest on the resulting tax liability for each such prior year, calculated as if such
tax liability had been due in each such prior year. Such a Non-Electing U.S. Holder that
is not a corporation must treat any such interest paid as personal interest, which
is not deductible. The amount of any such gain or excess distribution allocated to the  current year of such Non-Electing
U.S. Holders holding period for the Common Shares will be treated as ordinary income
in the current year, and no interest charge will be incurred with respect to the resulting
tax liability for the current year.

If the Company is a PFIC for any
taxable year during which a Non-Electing U.S. Holder holds Common Shares, the Company will
continue to be treated as a PFIC with respect to such Non-Electing U.S. Holder, regardless
of whether the Company ceases to be a PFIC in one or more subsequent taxable years. A
Non-Electing U.S. Holder may terminate this deemed PFIC status by electing to recognize
gain (which will be taxed under the rules of Section 1291 of the Code discussed
above) as if such Common Shares were sold on the last day of the last taxable year for
which the Company was a PFIC.

In addition, if the Company is a PFIC
and own shares of another foreign corporation that also is a PFIC, under certain indirect
ownership rules, a disposition by the Company of the shares of such other foreign
corporation or a distribution received by the Company from such other foreign corporation
generally will be treated as an indirect disposition by a U.S. Holder or an indirect
distribution received by a U.S. Holder, subject to the rules of Section 1291 of the Code
discussed above. To the extent that gain recognized on the actual disposition by a U.S.
Holder of Common Shares or income recognized by a U.S. Holder on an actual distribution
received on Common Shares was previously subject to U.S. federal income tax under these
indirect ownership rules, such amount generally should not be subject to U.S. federal
income tax.

QEF Election

A U.S. Holder that makes a timely QEF
Election generally will not be subject to the rules of Section 1291 of the Code as
discussed above. A U.S. Holder that makes a timely QEF Election generally will recognize
capital gain or loss on the sale or other taxable disposition of Common Shares.
Furthermore, for each taxable year in which the Company is a PFIC, an electing U.S. Holder
will recognize, for U.S. federal income tax purposes, such U.S. Holders pro rata
share of (a) the Companys net capital gain, which will be taxed as long-term
capital gain to such U.S. Holder, and (b) and the Companys ordinary earnings,
which will be taxed as ordinary income to such U.S. Holder. Accordingly, an electing U.S.
Holder would not have any income inclusions as a result of the QEF Election so long as the
Company does not generate any net income. Generally, net capital gain is the
excess of (a) net long-term capital gain over (b) net short-term capital loss,
and ordinary earnings are the excess of (a) earnings and
profits over (b) net capital gain. A U.S. Holder that makes a QEF Election will
include such U.S. Holders pro rata share of net capital gain and ordinary earnings
for each taxable year in which the Company is a PFIC, even though such amounts may not be
distributed to such U.S. Holder by the Company. A U.S. Holder that makes a QEF Election
may, subject to certain limitations, elect to defer payment of current U.S. federal income
tax on such amounts, subject to an interest charge. If such U.S. Holder is not a
corporation, any such interest paid will be treated as personal interest,
which is not deductible.

A U.S. Holder that makes a QEF
Election generally (a) may receive a tax-free distribution from the Company to the
extent that such distribution represents the Companys earnings and
profits that were previously included in income by the U.S. Holder because of such
QEF Election and (b) will adjust such U.S. Holders tax basis in Common Shares
to reflect the amount included in income or allowed as a tax-free distribution because of
such QEF Election.

The procedure for making a QEF
Election, and the U.S. federal income tax consequences of making a QEF Election, will
depend on whether such QEF Election is timely. A QEF Election generally will be
timely if it is made for the first year in a U.S. Holders holding period
for Common Shares in which the Company is a PFIC. In this case, a U.S. Holder may make a
timely QEF Election by filing the appropriate QEF Election documents with such U.S.
Holders U.S. federal income tax return for such first year. However, if the Company
was a PFIC in a prior year in a U.S. Holders holding period for the Common Shares,
then in order to be treated as making a timely QEF Election, such U.S. Holder
must elect to recognize gain (which will be taxed under the rules of Section 1291 of
the Code discussed above) as if the Common Shares were sold on the qualification date for
an amount equal to the fair market value of the Common Shares on the qualification date.
The qualification date is the first day of the first taxable year in which the
Company was a QEF with respect to such U.S. Holder. In addition, under very limited
circumstances, a U.S. Holder may make a retroactive QEF Election if such U.S. Holder
failed to file the QEF Election documents in a timely manner.

A QEF Election will apply to the
taxable year for which such QEF Election is made and to all subsequent taxable years,
unless such QEF Election is invalidated or terminated or the IRS consents to revocation
of such QEF Election. If a U.S. Holder makes a QEF Election and, in a subsequent taxable
year, the Company ceases to be a PFIC, the QEF Election will remain in effect (although
it will not be applicable) during those taxable years in which the Company is not a PFIC.
Accordingly, if the Company becomes a PFIC in another subsequent taxable year, the QEF
Election will be effective and the U.S. Holder will be subject to the QEF rules described
above during any such subsequent taxable year in which the Company constitutes a PFIC. In
addition, the QEF Election will remain in effect (although it will not be applicable)
with respect to a U.S. Holder even after such U.S. Holder disposes of all of such U.S.
Holders direct and indirect interest in

55

---

Common Shares. Accordingly, if such
U.S. Holder reacquires an interest in the Company, such U.S. Holder will be subject to
the QEF rules described above for each taxable year in which the Company was a PFIC.

In the event the Company is a
PFIC, the Company will satisfy record keeping requirements that apply to a QEF and supply
U.S. Holders with information that such U.S. Holders require to report under the QEF
rules. Each U.S. Holder should consult its own tax advisor regarding the availability of,
and procedure for making, a QEF Election.

Mark-to-Market Election

A U.S. Holder may make a
Mark-to-Market Election only if Common Shares are marketable stock. Common Shares
generally will be marketable stock if the Common Shares are regularly traded
on a qualified exchange or other market. For this purpose, a qualified exchange or
other market includes (a) a national securities exchange that is registered
with the U.S. Securities and Exchange Commission, (b) the national market system
established pursuant to section 11A of the Securities and Exchange Act of 1934, or
(c) a foreign securities exchange that is regulated or supervised by a governmental
authority of the country in which the market is located, provided that (i) such
foreign exchange has trading volume, listing, financial disclosure, surveillance, and
other requirements designed to prevent fraudulent and manipulative acts and practices,
remove impediments to and perfect the mechanism of a free, open, fair, and orderly market,
and protect investors (and the laws of the country in which the foreign exchange is
located and the rules of the foreign exchange ensure that such requirements are actually
enforced) and (ii) the rules of such foreign exchange effectively promote active
trading of listed stocks. If the Common Shares are traded on such a qualified exchange or
other market, the Common Shares generally will be regularly traded for any
calendar year during which the Common Shares are traded, other than in de minimis
quantities, on at least 15 days during each calendar quarter.

A Mark-to-Market Election applies to
the taxable year in which such Mark-to-Market Election is made and to each subsequent
taxable year, unless Common Shares cease to be marketable stock or the IRS
consents to revocation of such election. Each U.S. Holder should consult its own tax
advisor regarding the availability of, and procedure for making, a Mark-to-Market
Election.

A U.S. Holder that makes a
Mark-to-Market Election generally will not be subject to the rules of Section 1291 of
the Code discussed above. However, if a U.S. Holder makes a Mark-to-Market Election after
the beginning of such U.S. Holders holding period for the Common Shares and such
U.S. Holder has not made a timely QEF Election, the rules of Section 1291 of the Code
discussed above will apply to certain dispositions of, and distributions on, Common
Shares.

A U.S. Holder that makes a
Mark-to-Market Election will include in ordinary income, for each taxable year in which
the Company is a PFIC, an amount equal to the excess, if any, of (a) the fair market
value of the Common Shares as of the close of such taxable year over (b) such U.S.
Holders adjusted tax basis in such Common Shares. A U.S. Holder that makes a
Mark-to-Market Election will be allowed a deduction in an amount equal to the lesser of
(a) the excess, if any, of (i) such U.S. Holders adjusted tax basis in the
Common Shares over (ii) the fair market value of such Common Shares as of the close
of such taxable year or (b) the excess, if any, of (i) the amount included in
ordinary income because of such Mark-to-Market Election for prior taxable years over
(ii) the amount allowed as a deduction because of such Mark-to-Market Election for
prior taxable years.

A U.S. Holder that makes a
Mark-to-Market Election generally will adjust such U.S. Holders tax basis in the
Common Shares to reflect the amount included in gross income or allowed as a deduction
because of such Mark-to-Market Election. In addition, upon a sale or other taxable
disposition of Common Shares, a U.S. Holder that makes a Mark-to-Market Election will
recognize ordinary income or loss (not to exceed the excess, if any, of (a) the
amount included in ordinary income because of such Mark-to-Market Election for prior
taxable years over (b) the amount allowed as a deduction because of such
Mark-to-Market Election for prior taxable years).

The PFIC rules are complex, and
each U.S. Holder should consult its own tax advisor regarding the PFIC rules and how the
PFIC rules may affect the U.S. federal income tax consequences of the acquisition,
ownership, and disposition of Common Shares.

# 10 F:    DIVIDENDS AND
PAYING AGENTS

Not applicable.

# 10 G.    STATEMENT BY
EXPERTS

Not applicable.

56

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# 10 H.    DOCUMENTS ON DISPLAY

All documents incorporated and
referred by reference in this Annual Report may be viewed at the Companys head
office by giving 48 hours notice to the Corporate Secretary.

# 10 I.    SUBSIDIARY
INFORMATION

Not required.

# ITEM 11:    QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Companys mineral property
interests are all currently at the exploration stage and the Companys operations are
limited to exploring those properties. Therefore, the Companys market risks are
minimal. The Company does, however, have future property payments due in US$. As a
Canadian company, the Companys cash balances are kept in both CAD$ and US$ funds.
Therefore, the Company is exposed to some exchange rate risk. The Company considers the
amount of risk to be manageable and does not currently, nor is it likely in the
foreseeable future to, conduct hedging to reduce its exchange rate risk. A hypothetical
10% increase in the value of one Canadian dollar expressed in U.S. dollars as at June 30,
2006 would have caused a $404,000 increase in the Companys net assets as at June 30,
2006, and an equivalent decrease in the value of one Canadian dollar would have caused a
$367,000 decrease in the Companys net assets as at June 30, 2006.

# ITEM 12:    DESCRIPTION OF
SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

# ITEM 13:    DEFAULTS,
DIVIDEND ARREARAGES AND DELIQUENCIES

None.

# ITEM 14:    MATERIAL
MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

None.

# ITEM 15:    CONTROLS AND
PROCEDURES

# Evaluation of Disclosure
Controls and Procedures

The Company maintains a small head
office staff which, because of its size, precludes the functioning of all internal
controls, most notably division of duties. To compensate for this situation management
through its Chief Financial Officer performs a thorough review of any and all financial
and corporate information disclosed to the public markets. In addition, the Companys
Audit Committee reviews and recommends to the Board of Directors approval of any and all
financial information reviewed and referred to it by management for disclosure to the
public markets.

The Companys Chief Executive
Officer and Chief Financial Officer have evaluated the effectiveness of the Companys
disclosure controls and procedures (as such term is defined in Rules 13a-15 and 15d-15
under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as
of the end of the period covered by this Annual Report (the Evaluation Date).
Based on such evaluation, such officers have concluded that, as of the Evaluation Date,
the Companys disclosure controls and procedures are effective in alerting them on a
timely basis to material information relating to the Company required to be included in
our reports filed or submitted under the Exchange Act.

# Changes in Internal
Controls over Financial Reporting

During the fiscal year covered by
this Annual Report, there have not been any changes in the Companys internal
controls over financial reporting or in other factors that have materially affected, or
are reasonably likely to materially affect, our internal controls over financial
reporting.

# ITEM 16A:    AUDIT
COMMITTEE FINANCIAL EXPERT

The Company currently does not have
an audit committee financial expert serving on its audit committee.  The
Companys Committee consists of three directors, all of whom are financially
literate, have experience with public companies, and are very knowledgeable about the
Companys business and financial position. Currently, the Companys operations
are entirely exploratory in nature and the Board of Directors does not believe an audit
committee financial expert is needed at this time.

57

---

# ITEM 16B:    CODE OF ETHICS

The Company currently does not have a
code of ethics that applies to the Companys principal executive officer, principal
financial officer, principal accounting officer or controller, or persons performing
similar functions. The Company currently believes that a code of ethics is necessary due
to the small size of the Companys management team (four officers and no employees).

# ITEM 16C:    PRINCIPAL
ACCOUNTANT FEES AND SERVICES

Davidson & Company serve as the
independent auditors for the Company and have acted as the Companys independent
auditor for the fiscal years ended June 30, 2006 and June 30, 2005. The chart below sets
forth the total amount billed the Company by Davidson & Company for services performed
in the last two fiscal years and breaks down these amounts by category of service (for
audit fees, audit-related fees, tax fees and other fees) in CAD$.

Audit Fees are the
aggregate fees billed by Davidson & Company for the audit of the Companys annual
consolidated financial statements, reviews of interim consolidated financial statements
and attestation services that are provided in connection with statutory and regulatory
filings or engagements.

Audit-Related Fees are
fees charged by Davidson & Company for assurance and related services that are
reasonably related to the performance of the audit or review of the Companys
consolidated financial statements and are not reported under Audit Fees. This
category comprises fees billed for independent accountant review of the interim
consolidated financial statements and management discussion and analysis, as well as
advisory services associated with the Companys financial reporting.

Tax Fees are fees for
professional services rendered by Davidson & Company for tax compliance, tax advice on
actual or contemplated transactions.

|                                | Fiscal Year Ended
June 30
|------------------------------- | -------------------------
|
|                                |                          
|Auditors Fees
     Audit Fees: |                          
|Audit-Related Fees:             |                          
|Tax Fees                        |                          
|All Other Fees                  |                          
|                                |                          
|Total Fees:                     |                          

Audit Committees
pre-approval policies and procedures

The Audit Committee nominates and
engages the independent auditors to audit the consolidated financial statements, and
approves all audit services, audit-related services, tax services and other services
provided by Davidson & Company. Any services provided by Davidson & Company that
are not specifically included within the scope of the audit must be pre-approved by the
Audit Committee prior to any engagement.

# ITEM 16D:    EXEMPTIONS
FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not Applicable.

# ITEM 16E:    PURCHASES OF
EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

During the fiscal year ended June 30,
2006, no purchases were made by or on behalf of the Company or any affiliated purchaser of
common shares of the Company, nor have any such purchases or plans or programs to make
such purchases been announced.

58

---

# ITEM 17:    FINANCIAL
STATEMENTS

The consolidated financial statements
are presented in CAD$ and were prepared in accordance with Canadian GAAP, the application
of which, in the case of the Company, conforms in all material respects for the years
presented with US GAAP, except as disclosed in Note 16 to the consolidated financial
statements forming part hereof.

The financial statements and related
schedules as required under Item 17 are attached hereto and found immediately following
the text of this Annual Report. The audit report of Davidson & Company is included
herein immediately preceding the consolidated financial statements.

59

---

# WHITE KNIGHT RESOURCES
LTD. 
(An Exploration Stage Company)

# CONSOLIDATED FINANCIAL
STATEMENTS 
(Expressed in Canadian Dollars)

# JUNE 30, 2006

60

---



# INDEPENDENT
AUDITORS REPORT

To the Shareholders of
White Knight Resources Ltd.

We have audited the consolidated
balance sheets of White Knight Resources Ltd. as at June 30, 2006 and 2005 and the
consolidated statements of operations, shareholders equity and cash flows for the
years ended June 30, 2006, 2005 and 2004 and the cumulative amounts from inception on
December 18, 1986 to June 30, 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 June 30, 2006 and 2005 and the results of its operations and its cash
flows for the years ended June 30, 2006, 2005 and 2004 and the cumulative amounts from
inception on December 18, 1986 to June 30, 2006 in accordance with Canadian generally
accepted accounting principles.

DAVIDSON &
COMPANY LLP

|Vancouver, Canada
August 22, 2006 | Chartered Accountants
|--------------------------------- | ---------------------

# 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) to identify circumstances 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 August 22, 2006 is expressed in
accordance with Canadian reporting standards which do not permit a reference to such
events and conditions in the auditors report when these are adequately disclosed in
the financial statements.

DAVIDSON &
COMPANY LLP

|Vancouver, Canada
August 22, 2006 | Chartered Accountants
|--------------------------------- | ---------------------

A Member of SCINTERNATIONAL

1200  609
Granville Street, P.O. Box 10372, Pacific Centre, Vancouver, BC, Canada, V7Y 1G6
Telephone (604) 687-0947 Fax (604) 687-6172

61

---

WHITE KNIGHT RESOURCES
LTD.(An Exploration Stage Company) 
CONSOLIDATED BALANCE SHEETS 
(Expressed in Canadian Dollars) 
AS AT JUNE 30

|                                                     
|-----------------------------------------------------
|
|                                                     
|ASSETS                                               
|                                                     
|Current                                              
|Cash                                                 
|Temporary investments (Note 3)                       
|Receivables (net of allowance - $NIL; 2005 - $NIL)   
|Prepaid expenses                                     
|                                                     
|Total current assets                                 
|                                                     
|Mineral property interests(Note 4)                   
|Deferred exploration costs(Note 5)                   
|Equipment(Note 6)                                    
|Restricted reclamation bonds(Note 12)                
|                                                     
|Total assets                                         
|                                                     
|LIABILITIES AND SHAREHOLDERS' EQUITY                 
|                                                     
|Current                                              
|Accounts payable and accrued liabilities             
|Due to related parties (Note 7)                      
|                                                     
|Total current liabilities                            
|                                                     
|Asset retirement obligation(Note 8)                  
|                                                     
|Total Liabilities                                    
|                                                     
|Shareholders' equity                                 
|Capital stock (Note 9)                               
|Authorized: unlimited common shares without par value
|Issued and outstanding 59,384,972 (2005 - 54,089,386)
|Contributed surplus                                  
|Deficit accumulated during the exploration stage     
|                                                     
|Total shareholders' equity                           
|                                                     
|Total liabilities and shareholders' equity           
|                                                     

Nature and continuance of operations(Note 1) Commitments(Note 14)

On behalf of the Board:

|John Leask        Director
_____________________________________
 John M. Leask | Megan Cameron-Jones        Director
_____________________________________
Megan Cameron-Jones
|--------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------

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

62

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WHITE KNIGHT RESOURCES
LTD.(An Exploration Stage Company) 
CONSOLIDATED STATEMENTS OF OPERATIONS 
(Expressed in Canadian Dollars) 
YEAR ENDED JUNE 30

|                                                            
|------------------------------------------------------------
|
|                                                            
|ADMINISTRATION COSTS                                        
|Amortization                                                
|Audit                                                       
|Bank charges and interest                                   
|Consulting                                                  
|Consulting - stock-based compensation (Note 9)              
|Investor relations and shareholder information              
|Legal                                                       
|Management fees - related party (Note 7)                    
|Office and miscellaneous                                    
|Rent                                                        
|Telephone                                                   
|Transfer agent and listing fees                             
|Travel and entertainment                                    
|Wages and benefits                                          
|                                                            
|Loss before other items                                     
|                                                            
|OTHER ITEMS                                                 
|Write-off of deferred exploration costs (Note 5)            
|Interest income                                             
|Option payments received (net)                              
|Write-off of mineral property interests                     
|Gain (loss) on foreign exchange                             
|Gain (loss) on disposal of temporary investments            
|Unrealized recovery (loss) on temporary investments (Note 3)
|Gain (loss) on disposal of equipment                        
|                                                            
|                                                            
|                                                            
|Loss for the period                                         
|                                                            
|Basic and diluted loss per common share                     
|                                                            
|Weighted average number of common shares                    
|outstanding                                                 
|                                                            

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

63

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WHITE KNIGHT RESOURCES
LTD.(An Exploration Stage Company) 
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
(Expressed in Canadian Dollars)

|                              
|------------------------------
|
|                              
|Balance, June 30, 1986        
|                              
|Shares issued for:            
|Incorporation                 
|Initial offering              
|Loss for the period           
|                              
|Balance, June 30, 1987        
|                              
|Shares issued for:            
|Initial offering              
|Loss for the year             
|                              
|Balance, June 30, 1988        
|                              
|Loss for the year             
|                              
|Balance, June 30, 1989        
|                              
|Shares issued for:            
|Mineral property interests    
|Exercise of stock options     
|Private placement             
|Private placement             
|Flow-through private placement
|Exercise of agent's warrants  
|Private placement expenses    
|Loss for the year             
|                              
|Balance, June 30, 1990        
|                              
|Shares issued for:            
|Exercise of stock options     
|Exercise of stock options     
|Private placement             
|Private placement             
|Flow-through private placement
|Loss for the year             
|                              
|Balance, June 30, 1991        
|                              

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

64

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WHITE KNIGHT RESOURCES
LTD.(An Exploration Stage Company) 
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY . . . continued
(Expressed in Canadian Dollars)

|                          
|--------------------------
|
|                          
|Balance, June 30, 1991    
|                          
|Shares issued for:        
|Mineral property interests
|Exercise of stock options 
|Debt settlement           
|Private placement         
|Finder's fee              
|Private placement         
|Private placement         
|Exercise of warrants      
|Exercise of warrants      
|Loss for the year         
|                          
|Balance, June 30, 1992    
|                          
|Shares issued for:        
|Mineral property interests
|Exercise of stock options 
|Exercise of stock options 
|Private placement         
|Private placement         
|Private placement         
|Loss for the year         
|                          
|Balance, June 30, 1993    
|                          
|Shares issued for:        
|Mineral property interests
|Exercise of stock options 
|Exercise of stock options 
|Private placement         
|Private placement         
|Loss for the year         
|                          
|Balance, June 30, 1994    
|                          
|Shares issued for:        
|Mineral property interests
|Loss for the year         
|                          
|Balance, June 30, 1995    
|                          

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

65

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WHITE KNIGHT RESOURCES
LTD.(An Exploration Stage Company) 
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY . . . continued
(Expressed in Canadian Dollars)

|                          
|--------------------------
|
|                          
|Balance, June 30, 1995    
|                          
|Shares issued for:        
|Mineral property interests
|Exercise of stock options 
|Exercise of stock options 
|Exercise of stock options 
|Private placement         
|Private placement         
|Private placement         
|Private placement         
|Exercise of warrants      
|Exercise of warrants      
|Exercise of warrants      
|Loss for the year         
|                          
|Balance, June 30, 1996    
|                          
|Shares issued for:        
|Exercise of stock options 
|Exercise of stock options 
|Private placement         
|Private placement         
|Exercise of warrants      
|Exercise of warrants      
|Exercise of warrants      
|Loss for the year         
|                          
|Balance, June 30, 1997    
|                          
|Shares issued for:        
|Mineral property interests
|Exercise of warrants      
|Loss for the year         
|                          
|Balance, June 30, 1998    
|                          
|Shares issued for:        
|Private placement         
|Mineral property interests
|Management bonus          
|Loss for the year         
|                          
|Balance, June 30, 1999    
|                          

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

66

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WHITE KNIGHT RESOURCES
LTD.(An Exploration Stage Company) 
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY . . . continued
(Expressed in Canadian Dollars)

|                          
|--------------------------
|
|                          
|Balance, June 30, 1999    
|                          
|Shares issued for:        
|Mineral property interests
|Loss for the year         
|                          
|Balance, June 30, 2000    
|Loss for the year         
|                          
|Balance, June 30, 2001    
|                          
|Shares issued for:        
|Mineral property interests
|Exercise of stock options 
|Private placement         
|Finder's fee              
|Loss for the year         
|                          
|Balance, June 30, 2002    
|                          
|Shares issued for:        
|Mineral property interests
|Exercise of stock options 
|Loss for the year         
|                          
|Balance, June 30, 2003    
|                          
|Shares issued for:        
|Mineral property interests
|Exercise of stock options 
|Exercise of stock options 
|Private placement         
|Finder's fee              
|Private placement         
|Private placement         
|Exercise of warrants      
|Exercise of warrants      
|Exercise of warrants      
|Private placement expenses
|Stock-based compensation  
|Loss for the year         
|                          
|Balance, June 30, 2004    
|                          

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

67

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WHITE KNIGHT RESOURCES
LTD.(An Exploration Stage Company) 
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY . . . continued
(Expressed in Canadian Dollars)

|                                  
|----------------------------------
|
|                                  
|Balance, June 30, 2004            
|                                  
|Shares issued for:                
|Mineral property interests        
|Exercise of stock options (Note 9)
|Exercise of warrants (Note 9)     
|Exercise of broker's warrants     
|(Note 9)                          
|Private placement                 
|Stock-based compensation          
|Less: Fair market value of stock  
|options and broker's warrants     
|exercised                         
|Loss for the year                 
|                                  
|Balance, June 30, 2005            
|                                  
|Shares issued for:                
|Mineral property interests        
|Exercise of stock options (Note 9 
|Exercise of warrants (Note 9)     
|Exercise of broker's warrants     
|(Note 9)                          
|Stock-based compensation          
|Less:Fair market value of stock   
|options and broker's warrants     
|exercised                         
|Loss for the year                 
|                                  
|Balance, June 30, 2006            
|                                  

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

68

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WHITE KNIGHT RESOURCES
LTD.(An Exploration Stage Company) 
CONSOLIDATED STATEMENTS OF CASH FLOWS 
(Expressed in Canadian Dollars) 
YEAR ENDED JUNE 30

|                                                     
|-----------------------------------------------------
|
|                                                     
|CASH FLOWS FROM OPERATING ACTIVITIES                 
|Loss for the period                                  
|Items not affecting cash:                            
|Amortization                                         
|Write-off of mineral property interests              
|Write-off of deferred exploration costs              
|Loss (gain) on disposal of equipment                 
|Stock-based compensation                             
|Unrealized loss (recovery) on temporary investments  
|Loss (gain) on disposal of investments               
|Shares issued for management bonus                   
|                                                     
|Changes in non-cash working capital items:           
|Decrease (increase) in receivables                   
|Increase in prepaid expenses                         
|Increase (decrease) in accounts payable and          
|accrued liabilities                                  
|Increase (decrease) in due to related parties        
|                                                     
|Net cash used in operating activities                
|                                                     
|                                                     
|CASH FLOWS FROM FINANCING ACTIVITIES                 
|Issuance of capital stock                            
|                                                     
|Net cash provided by financing activities            
|                                                     
|                                                     
|CASH FLOWS FROM INVESTING ACTIVITIES                 
|Acquisition of mineral property interests            
|Deferred exploration costs                           
|Restricted reclamation bond refunded (posted)        
|Acquisition (disposal) of temporary investments (net)
|Proceeds from disposal of equipment                  
|Acquisition of equipment                             
|                                                     
|Net cash provided by (used in) investing activities  
|                                                     
|Increase (decrease) in cash during the period        
|                                                     
|Cash, beginning of period                            
|                                                     
|Cash, end of period                                  
|                                                     

Supplemental disclosures with
respect to cash flows (Note 13)

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

69

---

WHITE KNIGHT RESOURCES
LTD.(An Exploration Stage Company) 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars) 
JUNE 30, 2006

---

|1. |  | NATURE
AND CONTINUANCE OF OPERATIONS
|-- |  | ------------------------------------

| | White
Knight Resources Ltd. (the Company) is a Canadian company incorporated in
British Columbia. The Company is primarily engaged in the acquisition and exploration of
mineral property interests.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At
the date of these consolidated financial statements, the Company has not been able to
identify a known body of commercial grade ore on any of its mineral property interests.
The ability of the Company to realize the costs it has incurred to date on these mineral
property interests is dependent upon the Company being able to lever its property
interests and cash, by way of exploration activities and option/joint ventures, into
assets of greater value or to identify a commercial ore body, to finance its exploration
costs and to resolve any environmental, regulatory or other constraints which may hinder
the successful development of the mineral property interest. To date, the Company has not
earned revenues and is considered to be in the exploration stage.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | These
consolidated financial statements have been prepared assuming the Company will continue
on a going concern basis. The Company has incurred losses since inception and the ability
of the Company to continue as a going-concern depends upon its ability to develop
profitable operations and to continue to raise adequate financing. Management is actively
targeting sources of additional financing through alliances with financial, exploration
and mining entities, or other business and financial transactions which would assure
continuation of the Companys operations and exploration programs. In order for the
Company to meet its liabilities as they come due and to continue its operations, the
Company is solely dependent upon its ability to generate such financing. The Company has
sufficient resources to meet its obligations for the foreseeable future at its current
level of activity.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | There
can be no assurance that the Company will be able to continue to raise funds in which
case the Company may be unable to meet its obligations. Should the Company be unable to
realize on its assets and discharge its liabilities in the normal course of business, the
net realizable value of its assets may be materially less than the amounts recorded on
the consolidated balance sheets.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | All
amounts are in Canadian dollars unless otherwise stated.
| | ------------------------------------------------------------

|               
|---------------
|
|               
|Working capital
|Deficit        
|               

|2. |  | SIGNIFICANT
ACCOUNTING POLICIES
|-- |  | -------------------------------

| | These
consolidated financial statements have been prepared in accordance with Canadian
generally accepted accounting principles (Canadian GAAP). The significant
accounting policies adopted by the Company are as follows:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Use
of estimates
| | ----------------

| | The
preparation of financial statements in accordance with Canadian GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amount of revenues and expenses during the year.
Actual results could differ from these estimates.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Principles
of consolidation
| | ---------------------------

| | These
consolidated financial statements include the accounts of the Company and the following
subsidiaries, all of which are 100% owned:
| | ----------------------------------------------------------------------------------------------------------------------------------------

70

---

WHITE KNIGHT RESOURCES
LTD.(An Exploration Stage Company) 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars) 
JUNE 30, 2006

---

|2. |  | SIGNIFICANT
ACCOUNTING POLICIES (contd)
|-- |  | -----------------------------------------

| | White Knight Gold (U.S.) Inc.
CUN Minerals Inc.
Quito Gold Corp.
| | ----------------------------------------------------------------

| | All
material inter-company transactions have been eliminated upon consolidation.
| | --------------------------------------------------------------------------------

| | Cash
| | ----

| | Cash
consists of cash on hand and highly liquid investments with original maturities of three
months or less. At June 30, 2006 and 2005, cash consisted of cash and guaranteed
investment certificates held in financial institutions.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Financial
instruments that potentially subject the Company to concentrations of credit risk consist
primarily of cash. The Company places its cash with high quality financial institutions,
thereby minimizing exposure for deposits in excess of federally insured amounts. The
Company believes that credit risk associated with cash is remote.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Temporary
investments
| | ---------------------

| | Temporary
investments are recorded at the lower of cost or market on an aggregate basis. For
temporary investments in which unrealized losses had been recognized in a previous year,
any subsequent recoveries in market value are recorded up to original cost. This occurred
during fiscal 2006 and 2005.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Mineral
property interests and deferred exploration costs
| | ---------------------------------------------------------

| | The
Company records mineral property interests, which consist of the right to explore for
mineral deposits, at cost. The Company records deferred exploration costs, which consist
of costs attributable to the exploration of mineral property interests, at cost. All
direct and indirect costs relating to the acquisition and exploration of these mineral
property interests are capitalized on the basis of specific claim blocks until the
mineral property interests to which they relate are placed into production, the mineral
property interests are disposed of through sale or where management has determined there
to be an impairment. If a mineral property interest is abandoned, the mineral property
interest and deferred exploration costs will be written off to operations in the period
of abandonment.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
an ongoing basis, the capitalized costs are reviewed on a property-by-property basis to
consider if there is any impairment on the subject mineral property interest. Managements
determination for impairment is based on: i) whether the Companys exploration
programs on the mineral property interests have significantly changed, such that
previously identified resource targets are no longer being pursued; ii) whether
exploration results to date are promising and whether additional exploration work is
being planned in the foreseeable future or iii) whether remaining lease terms are
insufficient to conduct necessary studies or exploration work. As at June 30, 2006 and
2005, management believes that no impairment relating to the mineral property interests
and deferred exploration costs was required.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
recorded cost of mineral property interests and deferred exploration costs is based on
cash paid and the assigned value of share consideration issued for mineral property
interest acquisitions and exploration costs incurred. The recorded amount may not reflect
recoverable value as this will be dependent on future development programs, the nature of
the mineral deposit, commodity prices, adequate funding and the ability of the Company to
bring its projects into production.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Canadian
GAAP Conflict in Accounting for Mineral Property Interests and Deferred Exploration Costs
| | --------------------------------------------------------------------------------------------------

| | In
March  2000,  the  Accounting  Standards  Board of the  Canadian  Institute  of
 Chartered  Accountants          ("CICA") issued  Accounting  Guideline No. 11
 "Enterprises  in the Development  Stage" ("AcG 11"). AcG 11          addresses three
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

71

---

WHITE KNIGHT RESOURCES
LTD.(An Exploration Stage Company) 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars) 
JUNE 30, 2006

---

|2. |  | SIGNIFICANT
ACCOUNTING POLICIES (contd)
|-- |  | -----------------------------------------

| | distinct
issues: i) the capitalization of costs/expenditures; ii) impairment; and iii) disclosure.
Prior to its issuance, development stage entities were exempt from following certain
aspects of Canadian GAAP. AcG 11 requires that all companies account for transactions
based on the underlying characteristics of the transaction rather than the maturity of
the enterprise. In addition, AcG 11 requires specific disclosure of information by
development stage companies.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
March 2002, the Emerging Issues Committee (EIC) of the CICA issued EIC-126
Accounting by Mining Enterprises for Exploration Costs (EIC-126)
which interprets how AcG 11 affects mining companies with respect to the deferral of
exploration costs. EIC-126 refers to CICA Handbook Section 3061 Property, Plant and
Equipment (HB 3061), paragraph .21, which states that for a mineral
property interest, the cost of the asset includes exploration costs if the enterprise
considers that such costs have the characteristics of property, plant and equipment.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | EIC-126
then states that a mining enterprise that has not established mineral reserves
objectively, and therefore does not have a basis for preparing a projection of the
estimated cash flow from the mineral property interest, is not precluded from considering
the exploration costs to have the characteristics of property, plant and equipment.
EIC-126 also sets forth the EICs consensus that a mining enterprise in the
development stage is not required to consider the conditions in AcG 11 regarding
impairment in determining whether exploration costs may be initially capitalized. With
respect to impairment of capitalized exploration costs, EIC-126 sets forth the EICs
consensus that a mining enterprise in the development stage that has not established
mineral reserves objectively, and, therefore, does not have a basis for preparing a
projection of the estimated cash flow from the property, is not obliged to conclude that
capitalized costs have been impaired. However, such an enterprise should consider the
conditions set forth in AcG 11 and HB 3061 in determining whether a subsequent write-down
of capitalized exploration costs related to mineral property interests is required.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
disclosed above, the Company considers that its mineral property interests and deferred
exploration costs have the characteristics of property, plant and equipment, and,
accordingly, the Company has chosen to classify its mineral property interests and
deferred exploration costs as tangible assets in accordance with its interpretation of
Canadian GAAP.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Although
the Company believes its accounting policy is appropriate and consistent with Canadian
GAAP, there is an alternative interpretation of Canadian GAAP that would consider them to
be intangible assets as a result of the issuance of CICA Handbook Section 1581 Business
Combinations (HB 1581) and CICA Handbook Section 3062 Goodwill
and Other Intangible Assets (HB 3062).
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | This
alternative interpretation under HB 1581 and HB 3062 would provide for the capitalization
of a contract based mining asset as an intangible asset at its fair value at the time it
was acquired, either as an individual asset purchase or as part of a business
combination. For exploration stage mineral property interests and deferred exploration
costs such as those owned by the Company, the excess of the carrying value over the
residual value of the intangible assets would be amortized on a straight-line basis over
the period in which the Company expected to complete its exploration process or convert,
develop or further explore the underlying properties. For the Company, a reasonable
estimate of this amortization period would be 5 years.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
September, 2004, the CICA amended the guidance in HB 3062 to remove the example of
mineral rights as this reference may have implied that mineral rights are necessarily an
intangible asset. This amendment confirmed the Companys current method of
accounting for mineral property interests. Unless alternative guidance is provided, the
Company expects to continue accounting for these assets as tangible assets.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

72

---

WHITE KNIGHT RESOURCES
LTD.(An Exploration Stage Company) 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars) 
JUNE 30, 2006

---

|2. |  | SIGNIFICANT
ACCOUNTING POLICIES (contd)
|-- |  | -----------------------------------------

| | Asset
retirement obligations
| | ----------------------------

| | Effective
July 1, 2004, the Company recognizes the fair value of a liability for an asset
retirement obligation in the year in which it is incurred when a reasonable estimate of
fair value can be made. The carrying amount of the related long-lived asset is increased
by the same amount as the liability. Changes in the liability for an asset retirement
obligation due to the passage of time will be measured by applying an interest method of
allocation. The amount will be recognized as an increase in the liability and an
accretion expense in the statement of operations. Changes resulting from revisions to the
timing or the amount of the original estimate of undiscounted cash flows are recognized
as an increase or a decrease in the carrying amount of the liability for an asset
retirement obligation and the cost of the related long-lived asset.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Impairment
of long-lived assets and long-lived assets to be disposed of
| | -----------------------------------------------------------------------

| | Long-lived
assets are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount 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 such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount and the fair value less costs to sell.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Risk
management
| | ---------------

| | The
Companys largest non-monetary assets are its mineral property interests in the
United States of America. The Company could accordingly be at risk for foreign currency
fluctuations and developing legal and political environments.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company does not maintain significant cash or other monetary assets or liabilities in the
United States.
| | ------------------------------------------------------------------------------------------------------------

| | The
Company relies on local consultants for the management of its exploration activities and
for legal and accounting matters.
| | ------------------------------------------------------------------------------------------------------------------------------

| | Equipment
and amortization
| | --------------------------

| | Equipment
is recorded at cost and amortization is calculated at the following rates per annum using
the declining-balance method:
| | ---------------------------------------------------------------------------------------------------------------------------------

|                                 | 
|-------------------------------- | 
|Vehicles and technical equipment | 
|Office equipment                 | 

| | Foreign
currency translation
| | ----------------------------

| | The
Companys subsidiaries are integrated foreign operations and its operating results
are translated into Canadian dollar equivalents using the temporal method. Monetary items
are translated at the exchange rate in effect at the balance sheet date; non-monetary
items are translated at historical exchange rates. Income and expense items are
translated at the average exchange rate for the period. Translation gains and losses are
reflected in loss for the year.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

73

---

WHITE KNIGHT RESOURCES
LTD.(An Exploration Stage Company) 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars) 
JUNE 30, 2006

---

|2. |  | SIGNIFICANT
ACCOUNTING POLICIES (contd)
|-- |  | -----------------------------------------

| | Stock-based
compensation
| | ------------------------

| | The
Company has an employee stock option plan. The Company recognizes an expense arising from
stock options granted to both employees and non-employees using the fair value method.
The fair value of option grants is generally established at the date of grant using the
Black Scholes option pricing model and the compensation amount, equal to the options
fair value, is then recognized over the options vesting periods.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Future
income taxes
| | -------------------

| | Future
income taxes are recorded using the asset and liability method. Under the asset and
liability method, future tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases. Future tax assets and
liabilities are measured using the enacted or substantively enacted tax rates expected to
apply when the asset is realized or the liability settled. The effect on future tax
assets and liabilities of a change in tax rates is recognized in income in the period
that substantive enactment or enactment occurs. To the extent that the Company does not
consider it more likely than not that a future tax asset will be recovered, it provides a
valuation allowance against the excess.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Loss
per share
| | --------------

| | The
Company uses the treasury stock method to compute the dilutive effect of options,
warrants and similar instruments. Under this method, the dilutive effect on earnings per
share is recognized on the use of the proceeds that could be obtained upon exercise of
options, warrants and similar instruments. It assumes that the proceeds would be used to
purchase common shares at the average market price during the year. The weighted average
number of common shares outstanding at June 30, 2006 of 58,855,176 (2005  53,091,304;
2004  39,038,472) does not include the 1,500,000 (2005  9,808,233; 2004 11,964,899)
warrants outstanding and the 5,120,000 (2005  3,385,000; 2004 3,665,000)
stock options outstanding.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Basic
loss per share is calculated using the weighted-average number of shares outstanding
during the year.
| | -----------------------------------------------------------------------------------------------------------

| | Comprehensive
income (loss)
| | ---------------------------

| | SFAS
No. 130 Reporting Comprehensive Income establishes standards for the
reporting and display of comprehensive loss and its components in the financial
statements. As at June 30, 2006, the Company has no items that represent comprehensive
loss, and therefore has not included a schedule of comprehensive loss in the financial
statements.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Comparative
figures
| | -------------------

| | Certain
comparative figures have been reclassified to conform with the current years
presentation.
| | ---------------------------------------------------------------------------------------------------

|3. |  | TEMPORARY
INVESTMENTS
|-- |  | ---------------------

| | Temporary
investments consist of highly liquid bonds with a carrying value at June 30, 2006 of
$2,107,699 and a fair value of $2,155,981. The recovery reported in the consolidated
financial statements of $2,749 (2005  $31,404) related to temporary investments is
a partial recovery of the unrealized loss on temporary investments reported in fiscal
2004 of $42,999.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

74

---

WHITE KNIGHT RESOURCES
LTD.(An Exploration Stage Company) 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars) 
JUNE 30, 2006

---

|4. |  | MINERAL
PROPERTY INTERESTS
|-- |  | --------------------------

|                             
|-----------------------------
|
|                             
|Nevada Properties            
|Benmark                      
|Celt                         
|Cottonwood                   
|Fye Canyon                   
|Gold Bar Horst               
|Gold Pick                    
|Goldstone                    
|Hunter                       
|Ian                          
|Knolls                       
|McClusky Pass                
|New Pass                     
|Pat Canyon                   
|Patty (formerly Indian Ranch)
|Slaven Canyon                
|South Cabin Creek            
|Squaw Creek                  
|Tonkin Summit                
|Other                        
|                             
|Total Nevada Properties      
|                             

|                             
|-----------------------------
|
|                             
|Nevada Properties            
|Benmark                      
|Celt                         
|Cottonwood                   
|Fye Canyon                   
|Gold Bar Horst               
|Gold Pick                    
|Goldstone                    
|Hunter                       
|Ian                          
|Knolls                       
|McClusky Pass                
|New Pass                     
|Pat Canyon                   
|Patty (formerly Indian Ranch)
|Slaven Canyon                
|South Cabin Creek            
|Squaw Creek                  
|Tonkin Summit                
|Other                        
|                             
|Total Nevada Properties      
|                             

75

---

WHITE KNIGHT RESOURCES
LTD.(An Exploration Stage Company) 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars) 
JUNE 30, 2006

---

|4. |  | MINERAL
PROPERTY INTERESTS (contd)
|-- |  | ------------------------------------

|                             
|-----------------------------
|
|                             
|Nevada Properties            
|Benmark                      
|Celt                         
|Cottonwood                   
|Fye Canyon                   
|Gold Bar Horst               
|Gold Pick                    
|Goldstone                    
|Hunter                       
|McClusky Pass                
|New Pass                     
|Pat Canyon                   
|Patty (formerly Indian Ranch)
|Slaven Canyon                
|South Cabin Creek            
|Squaw Creek                  
|Tonkin Summit                
|                             
|Total Nevada Properties      
|                             

| | 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 claims.
The Company has investigated title to all of its mineral property interests and, to the
best of its knowledge, expects title to all of its interests to be in good standing. The
mineral property interests in which the Company has committed to earn an interest are
located in the United States and the Company is therefore relying on advice by legal
counsel who are basing such advice on the laws of the United States.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Celt,
Eureka County, Nevada
| | ---------------------------

| | In
fiscal 2004, the Company acquired the property by staking. During the 2005 fiscal year,
the Company entered into a Financing and Acquisition Agreement with Teck ComincoAmerican
Incorporated (TCAI) whereby TCAI was granted the option to earn an initial
51% interest in the property.The terms of the agreement provide for exploration
expenditures of US$4,000,000 and cash payments of US$750,000 (US$50,000 paid) which must
be incurred and paid to the Companys U.S. subsidiary in annual increments prior to
December 31, 2008. TCAI has made a firm commitment to incur US$500,000 in exploration
expenditures by December 31, 2005 (completed). Upon TCAI vesting its 51% interest, TCAI
and the Company will form a joint venture to further develop the property. When the joint
venture completes the earlier of US$8.0 million in expenditures or a preliminary
feasibility study, TCAI will have a one-time option to elect to earn an additional 9%
interest in the property by funding and completing a feasibility study. Upon TCAI earning
its additional interest and the approval of a production plan, the Company will have the
option to request that TCAI arrange financing for the Companys share of the capital
costs required to develop the property. If the Company exercises this option TCAI shall
commit to use its best efforts to arrange or provide project debt financing for not less
than 60% of projected capital costs on a limited recourse basis after technical
completion. If project costs exceed the amount available for debt financing and the
parties elect nonetheless to put the property into production then at the Companys
election TCAI shall also arrange or provide the Companys share of equity financing
on a subordinate loan basis at LIBOR plus 4%. The property is comprised of 608 claims.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

76

---

WHITE KNIGHT RESOURCES
LTD.(An Exploration Stage Company) 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars) 
JUNE 30, 2006

---

|4. |  | MINERAL
PROPERTY INTERESTS (contd)
|-- |  | ------------------------------------

| | Cottonwood,
Eureka County, Nevada
| | ---------------------------------

| | In
fiscal 2002, the Company staked 56 claims and executed a mining lease agreement to
acquire six adjacent claims. Under the terms of the agreement, the Company has made lease
payments totalling US$9,000 and has issued 80,000 common shares of the Company at a value
of $69,800. The Company is required to make further annual lease payments of US$5,000.
The Company has staked an additional 57 claims in the surrounding area.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Fye
Canyon, Eureka County, Nevada
| | ---------------------------------

| | In
fiscal 2004, the Company executed a mining lease agreement to acquire 114 claims (the
Underlying Fye Agreement). Under the terms of the agreement, the Company has
made an initial lease payment of US$5,000 which will increase by US$5,000 per year to a
maximum of US$50,000 per year. The underlying royalty retained by the owner is 2% of net
smelter returns up to a maximum of US$1,000,000 after which it is reduced to 1% of net
smelter returns to a maximum of US$5,000,000. During the 2005 fiscal year, the Company
entered into a Financing and Acquisition Agreement with TCAI whereby TCAI was granted the
option to earn an initial 51% interest in the property. The terms of the agreement
provide for exploration expenditures of US$4,000,000, cash payments of US$750,000
(US$50,000 paid) which must be incurred and paid to the Companys U.S. subsidiary in
annual increments prior to December 31, 2008, and the assumption of all obligations under
the Underlying Fye Agreement. TCAI completed a firm commitment to incur US$500,000 in
exploration expenditures by December 31, 2005. Upon TCAI vesting its 51% interest, TCAI
and the Company will form a joint venture to further develop the property. When the joint
venture completes the earlier of US$8.0 million in expenditures or a preliminary
feasibility study, TCAI will have a one-time option to elect to earn an additional 9%
interest in the property by funding and completing a feasibility study. Upon TCAI earning
its additional interest and the approval of a production plan, the Company will have the
option to request that TCAI arrange financing for the Companys share of the capital
costs required to develop the property. If the Company exercises this option TCAI shall
commit to use its best efforts to arrange or provide project debt financing for not less
than 60% of projected capital costs on a limited recourse basis after technical
completion. If project costs exceed the amount available for debt financing and the
parties elect nonetheless to put the property into production then at the Companys
election TCAI shall also arrange or provide the Companys share of equity financing
on a subordinate loan basis at LIBOR plus 4%. An additional 231 claims have been staked
in the area of interest.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Hunter,
Eureka County, Nevada
| | -----------------------------

| | In
fiscal 2002, the Company staked 46 claims and executed a mining lease agreement to
acquire two adjacent claims. Under the terms of the agreement, the Company has made lease
payments totalling US$14,000 and issued 100,000 common shares of the Company at a value
of $73,800. The Company is required to make further annual lease payments of US$7,000.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Patty
(formerly Indian Ranch), Eureka County, Nevada
| | ----------------------------------------------------

| | In
fiscal 1994, the Company entered into a lease agreement for a 100% interest in 48 claims
by issuing 100,000 common shares of the Company. The agreement is subject to a 6% net
smelter return royalty payable to the lessee. The agreement was amended during a prior
year whereby the Company secured the ability to buy down the 6% net smelter return
royalty to 3% by making a payment of US$500,000 and extending the lease term to 2014. The
Company holds an additional 496 claims within the area of interest.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

77

---

WHITE KNIGHT RESOURCES
LTD.(An Exploration Stage Company) 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars) 
JUNE 30, 2006

---

|4. |  | MINERAL
PROPERTY INTERESTS (contd)
|-- |  | ------------------------------------

| | In
fiscal 1997, the Company entered into an option agreement with Chapleau Resources Ltd. (Chapleau).
Pursuant to the terms of the agreement and the subsequent amendment, Chapleau was vested
a 40% undivided interest in the property in 2001.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
fiscal 2001, the Company and Chapleau entered into an option agreement with Kennecott
Exploration Company (Kennecott) whereby Kennecott could earn a 60% interest
in the property by making certain option payments and incurring certain exploration
expenditures. After paying the Company certain option payments, Kennecott terminated the
agreement in November 2001. Upon termination of the Kennecott agreement, Chapleaus
interest in the property was reduced to a 25% undivided interest, leaving the Company
with a 75% undivided interest in the property.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
fiscal 2003, the Company and Chapleau entered into an option-joint venture agreement with
Placer Dome U.S. Inc. (PDUS). Under the terms of the agreement, PDUS may earn
a 60% interest in the property by incurring minimum work expenditures of US$2.0 million
over a four year period and reimbursing the companies for their 2002 claim filing costs.
During fiscal 2005, PDUS provided notice that it had completed the work expenditure
requirement and was exercising its right to vest its 60% ownership. The Company now owns
an undivided 30% interest.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | New
Pass, Churchill County, Nevada
| | ----------------------------------

| | In
fiscal 1998, the Company purchased a 100% interest in the property from Quest USA
Resources Inc. by making payments totalling US$165,000, subject to a 2.75% net smelter
return royalty. In fiscal 2000, the Company purchased the 2.75% net smelter return
royalty by issuing 100,000 common shares of its capital stock to the vendor. In fiscal
2005, the Company granted Consolidated Odyssey Exploration Inc. (ODE) an
option to earn an initial 50% interest in the property. The Company paid a finders fee of
$10,000 with respect to the ODE agreement. In February 2005, ODE assigned all of its
rights under the agreement to Bonaventure Enterprises Inc. (Bonaventure).
Under the terms of the agreement, Bonaventure must incur US$2,000,000 in exploration
expenditures, issue 500,000 shares and make option payments totalling US$500,000 over a
4-year period (US$125,000 and 200,000 shares valued at $44,617 received). Upon vesting a
50% interest, Bonaventure may elect to earn an additional 10% interest by financing the
completion of a feasibility study. The property is comprised of 107 claims.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Slaven
Canyon, Lander County, Nevada
| | ------------------------------------

| | In
fiscal 2002, the Company acquired 51 claims by staking. In fiscal 2003, the Company
acquired 17 claims by staking and acquired an additional 642 acres of land contiguous to
the Companys claims by executing three lease agreements which provide for
escalating lease payments. In fiscal 2004, the Company acquired an additional 190 claims
by staking and acquired an additional 350 acres of land contiguous to the Companys
claims by executing seven lease agreements which provide for cash payments totalling
US$7,400 on signing and escalating lease payments thereafter. The underlying royalty
retained by the owners ranges from 1⁄2% of net smelter returns to 31⁄2% of net
smelter returns with a buy-down provision allowing the Company to reduce the underlying
royalty to a 2% net smelter return by paying US$1,500,000. In July, 2005, the Company
acquired an additional 320 acres of land contiguous to the Companys claims by
executing a lease agreement which provides for a cash payment of US$7,619 and
re-imbursement of fees of US$15,000 upon signing (both payments made), and escalating
lease payments thereafter. The underlying royalty retained by the owner is 2.75%.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

78

---

WHITE KNIGHT RESOURCES
LTD.(An Exploration Stage Company) 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars) 
JUNE 30, 2006

---

|4. |  | MINERAL
PROPERTY INTERESTS (contd)
|-- |  | ------------------------------------

| | Squaw
Creek, Elko County, Nevada
| | --------------------------------

| | Since
1996, the Company has held a 100% interest in 151 claims located in Elko County which
were acquired by staking. During the 2005 fiscal year, the Company granted ODE an option
to earn an initial 50% interest in the property. The Company paid a finders fee of
$10,000 with respect to the ODE agreement. In February 2005, ODE assigned all of its
rights under the agreement to Bonaventure. Under the terms of the agreement, Bonaventure
must incur US$2,000,000 in exploration expenditures, issue 500,000 shares and make option
payments totaling US$500,000 over a 4-year period (US$125,000 and 200,000 shares at a
value of $44,617 received). Upon vesting a 50% interest, Bonaventure may elect to earn an
additional 10% interest by financing the completion of a feasibility study.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Other
Nevada Properties
| | -----------------------

| | In
fiscal 2002, the Company acquired a 100% interest by staking the South Cabin Creek and
Gold Bar Horst properties. In fiscal 2003, the Company acquired a 100% interest in the
Gold Pick property by staking. In fiscal 2004, the Company acquired the McClusky Pass,
Pat Canyon, Tonkin Summit, Benmark, and Goldstone properties. During the 2005 fiscal
year, the Company acquired the Ian and Knolls properties.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. |  | DEFERRED
EXPLORATION COSTS
|-- |  | --------------------------

|                               
|-------------------------------
|
|                               
|Assays                         
|Consulting                     
|Drafting and report preparation
|Drilling                       
|Field operations               
|Reclamation                    
|Recording                      
|Supervision                    
|Surveys                        
|Trenching and site preparation 
|Recovery                       
|Write-off                      
|                               
|Total                          
|                               

79

---

WHITE KNIGHT RESOURCES
LTD.(An Exploration Stage Company) 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars) 
JUNE 30, 2006

---

|5. |  | DEFERRED
EXPLORATION COSTS(contd)
|-- |  | -----------------------------------

|                               
|-------------------------------
|
|                               
|Assays                         
|Consulting                     
|Drafting and report preparation
|Drilling                       
|Field operations               
|Reclamation                    
|Recording                      
|Supervision                    
|Surveys                        
|Trenching and site preparation 
|Recovery                       
|Write-off                      
|                               
|Total                          
|                               

|                               
|-------------------------------
|
|                               
|Assays                         
|Consulting                     
|Drafting and report preparation
|Drilling                       
|Field operations               
|Reclamation                    
|Recording                      
|Supervision                    
|Surveys                        
|Trenching and site preparation 
|Recovery                       
|Write-off                      
|                               
|Total                          
|                               

80

---

WHITE KNIGHT RESOURCES
LTD.(An Exploration Stage Company) 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars) 
JUNE 30, 2006

---

|5. |  | DEFERRED
EXPLORATION COSTS(contd)
|-- |  | -----------------------------------

|                             
|-----------------------------
|
|                             
|Nevada Properties            
|Benmark                      
|Celt                         
|Cottonwood                   
|Fye Canyon                   
|Gold Bar Horst               
|Gold Pick                    
|Goldstone                    
|Hunter                       
|Ian                          
|Knolls                       
|McClusky Pass                
|New Pass                     
|Pat Canyon                   
|Patty (formerly Indian Ranch)
|Slaven Canyon                
|South Cabin Creek            
|Tonkin Summit                
|General exploration          
|                             
|Total Nevada Properties      
|                             

|                             
|-----------------------------
|
|                             
|Nevada Properties            
|Benmark                      
|Celt                         
|Cottonwood                   
|Fye Canyon                   
|Gold Bar Horst               
|Gold Pick                    
|Goldstone                    
|Hunter                       
|Ian                          
|Knolls                       
|McClusky Pass                
|New Pass                     
|Pat Canyon                   
|Patty (formerly Indian Ranch)
|Slaven Canyon                
|South Cabin Creek            
|Squaw Creek                  
|Tonkin Summit                
|General exploration          
|                             
|Total Nevada Properties      
|                             

81

---

WHITE KNIGHT RESOURCES
LTD.(An Exploration Stage Company) 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars) 
JUNE 30, 2006

---

|5. |  | DEFERRED
EXPLORATION COSTS(contd)
|-- |  | -----------------------------------

|                             
|-----------------------------
|
|                             
|Nevada Properties            
|Benmark                      
|Celt                         
|Cottonwood                   
|Fye Canyon                   
|Gold Bar Horst               
|Gold Pick                    
|Goldstone                    
|Hunter                       
|McClusky Pass                
|New Pass                     
|Pat Canyon                   
|Patty (formerly Indian Ranch)
|Slaven Canyon                
|South Cabin Creek            
|Squaw Creek                  
|Tonkin Summit                
|General exploration          
|                             
|Total Nevada Properties      
|                             

|6. |  | EQUIPMENT
|-- |  | ---------

|                   
|-------------------
|
|                   
|
|                   
|Vehicles           
|Technical equipment
|Office equipment   
|                   
|                   
|                   

82

---

WHITE KNIGHT RESOURCES
LTD.(An Exploration Stage Company) 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars) 
JUNE 30, 2006

---

|7. |  | RELATED
PARTY TRANSACTIONS
|-- |  | --------------------------

| | During
the year ended June 30, 2006, the Company entered into the following transactions with
related parties:
| | --------------------------------------------------------------------------------------------------------------

| | a) |  | Paid
or accrued $264,000 (2005  $264,000; 2004  $210,000) in
                    management fees to directors and officers of the Company and to
companies                     controlled by directors of the Company.
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) |  | Paid
or accrued $127,504 (2005  $111,223; 2004  $115,879) in
                    consulting fees to directors and officers of the Company and to
companies                     controlled by directors of the Company, of which $111,636
(2005  $111,223;                     2004  $115,879) is included in or
written-off to deferred exploration                     costs.
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c) |  | Paid
or accrued $117,770 (2005  $8,815; 2004  $NIL) in
                    administrative fees to officers and a company controlled by a
director of the                     Company.
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At
June 30, 2006, there is $118,002 (2005  $17,754) payable to directors and officers
of the Company and to companies controlled by directors of the Company. The amounts are
unsecured and non-interest bearing.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company entered into consulting agreements with directors and officers of the Company and
to companies controlled by directors of the Company. The annual consulting fee
commitments are as follows:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|     | 
|---- | 
|2007 | 
|2008 | 
|     | 
|     | 
|     | 

| | The
amounts charged to the Company for the services provided have been determined by
negotiation among the parties and are covered by signed agreements. These transactions
were in the normal course of operations and were measured at the exchange value which
represented the amount of consideration established and agreed to by the related parties.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|8. |  | ASSET
RETIREMENT OBLIGATION
|-- |  | ---------------------------

| | The
following table presents the aggregate carrying amount of the obligation associated with
the retirement of the properties:
| | ------------------------------------------------------------------------------------------------------------------------------

|                           
|---------------------------
|
|                           
|Asset retirement obligation
|                           

| | The
undiscounted amount of cash flows, required over the estimated reserve life of the
underyling assets, to settle the obligation, adjusted for inflation, is estimated at
$196,768 (2005  $NIL). The obligation was calculated using a credit-adjusted risk
free discount rate of 4% and an inflation rate of 4.1%. It is expected that this
obligation will be funded from general Company resources at the time the costs are
incurred with the majority of costs expected to occur when the properties are disposed
of.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|9. |  | CAPITAL
STOCK
|-- |  | -------------

| | Share
issuances
| | ---------------

| | During
the 2006 fiscal year the Company had no share issuances other than those issued for
mineral property interests, exercise of warrants and stock options.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
the 2005 fiscal year the Company completed a private placement of 1,500,000 units at
$1.58, each unit consisting of one common share and one non-transferable share purchase
warrant, each warrant entitling the holder to purchase an additional share at $2.50 for
one year.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

83

---

WHITE KNIGHT RESOURCES
LTD.(An Exploration Stage Company) 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars) 
JUNE 30, 2006

---

|9. |  | CAPITAL
STOCK(contd)
|-- |  | ----------------------

| | During
the 2004 fiscal year the Company completed three private placements:
| | ---------------------------------------------------------------------------

| | a) |  | 2,500,000
units at $0.40, each unit consisting of one common share and one
          non-transferable share purchase warrant, each warrant entitling the holder to
          purchase an additional share at $0.60 for two years (435,000 warrants exercised
          during the year) with an additional provision that if the closing price of the
          Companys shares exceeds $0.95 for a period of more than 20 business days,
          the warrants must be exercised within two weeks of notice (triggered subsequent
          to year end). A finders fee of 125,000 units were issued as well as
          finders warrants valued at $47,304 entitling the holder to acquire
200,000           shares of the Company at a price of $0.60 for one year; subject to the
same           additional provision as for the placees (triggered subsequent to year
end);
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) |  | 7,764,704
units at $0.85, each unit consisting of one common share and one
          non-transferable share purchase warrant, each warrant entitling the holder to
          purchase an additional share at $1.25 for 18 months. Brokers warrants
          valued at $239,567 were issued entitling the holder to acquire 543,529 shares
of           the Company at a price of $1.25, exercisable for 18 months; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c) |  | 2,222,222
units at $0.90, each unit consisting of one common share and one-half
          non-transferable share purchase warrant, each one warrant entitling the holder
          to purchase an additional share at $1.25 for one year. Brokers warrants
          valued at $69,035 were issued entitling the holder to acquire 155,555 shares of
          the Company at a price of $1.25, exercisable for 1 year.
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | d) |  | Share
issuance costs related to private placements during the year totalled           $540,522.
| | -- |  | -----------------------------------------------------------------------------------------------

| | Stock
options
| | -------------

| | Under
the Companys stock option plan effective November 4, 2002 and amended December 12,
2003, the Company may grant options for up to 7,072,935 common shares to directors,
employees and consultants at exercise prices to be determined by the market value on the
date of grant. Vesting of options is made at the discretion of the Board of Directors at
the time the options are granted with the exception of options granted in relation to
investor relations. Options granted to consultants engaged in investor relations
activities vest no earlier than as to one-quarter upon the grant date and a further
one-quarter after each of the following three three-month periods. The options can be
granted for a maximum term of 10 years.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At
June 30, 2006, the following incentive stock options were outstanding:
| | -------------------------------------------------------------------------

|         
|---------
|
|         
|755,500  
|2,074,500
|150,000  
|50,000   
|40,000   
|50,000   
|2,000,000
|5,120,000
|         

84

---

WHITE KNIGHT RESOURCES
LTD.(An Exploration Stage Company) 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars) 
JUNE 30, 2006

---

|9. |  | CAPITAL
STOCK(contd)
|-- |  | ----------------------

| | Stock
options(contd)
| | ----------------------

| | Stock
option transactions and the number of stock options outstanding are summarized as
follows:
| | ------------------------------------------------------------------------------------------------

|                                                              
|--------------------------------------------------------------
|
|                                                              
|Balance, June 30, 2003                                        
|Options granted                                               
|Options exercised                                             
|                                                              
|Balance, June 30, 2004                                        
|Options granted                                               
|Options expired/cancelled                                     
|Options exercised                                             
|                                                              
|Balance, June 30, 2005                                        
|Options granted                                               
|Options exercised                                             
|                                                              
|Balance, June 30, 2006                                        
|                                                              
|Number of options currently exercisable                       
|                                                              
|Weighted average fair value of options granted during the year
|                                                              
|                                                              
|                                                              

| | 
| | 

| | Stock-based
compensation
| | ------------------------

| | The
following assumptions were used in the Black-Scholes valuation of stock options and
warrants granted during the years presented:
| | ------------------------------------------------------------------------------------------------------------------------------------

|                                         | 2006 | 2005    | 2004
|---------------------------------------- | ---- | ------- | ----
|                                         |      |         |     
|Weighted average risk-free interest rate |      | 3.9%    |     
|Expected life of options and warrants    |      | 5 years |     
|Weighted average annualized volatility   |      | 71%     |     
|Dividend                                 |      | 0.00%   |     

85

---

WHITE KNIGHT RESOURCES
LTD.(An Exploration Stage Company) 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars) 
JUNE 30, 2006

---

|9. |  | CAPITAL
STOCK(contd)
|-- |  | ----------------------

| | Warrants
| | --------

| | Warrant
transactions are summarized as follows:
| | -----------------------------------------------

|                      
|----------------------
|
|                      
|Balance, June 30, 2003
|Warrants exercised    
|Warrants exercised    
|Warrants granted      
|Warrants granted      
|Warrants exercised    
|Warrants granted      
|Warrants granted      
|Warrants granted      
|                      
|Balance, June 30, 2004
|Warrants exercised    
|Warrants expired      
|Warrants expired      
|Warrants granted      
|                      
|Balance, June 30, 2005
|Warrants exercised    
|Warrants exercised    
|Warrants expired      
|                      
|Balance, June 30, 2006
|                      

| | The
number of warrants outstanding at June 30, 2006 is summarized as follows:
| | -----------------------------------------------------------------------------

|         
|---------
|
|         
|1,500,000
|         

86

---

WHITE KNIGHT RESOURCES
LTD.(An Exploration Stage Company) 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars) 
JUNE 30, 2006

---

|10. |  | INCOME
TAXES
|--- |  | ------------

| | A
reconciliation of income tax recovery at statutory rates with the reported income tax
recovery is as follows:
| | ---------------------------------------------------------------------------------------------------------------

|                                                 
|-------------------------------------------------
|
|                                                 
|Loss before income tax recovery                  
|                                                 
|Expected income tax recovery                     
|Non-deductible expenses                          
|Differences in foreign tax rates                 
|Tax loss benefit not recognized for book purposes
|                                                 
|Actual income tax recovery                       
|                                                 

| | The
significant components of the Company's future tax assets are as follows:
| | -----------------------------------------------------------------------------

|                                   
|-----------------------------------
|
|                                   
|Net operating loss carry forwards  
|Mineral properties and other assets
|Share issuance costs               
|                                   
|                                   
|Less:  valuation allowances        
|                                   
|Net future tax assets              
|                                   

| | The
Company has non-capital losses of approximately $6,853,000 which may be carried forward
and applied against taxable income in future years. These losses, if unutilized, will
begin to expire in 2007. Subject to certain restrictions, the Company has further
resource development and exploration expenditures totalling approximately $1,709,000
available to reduce taxable income of future years. Future tax benefits which may arise
as a result of these non-capital losses and resource deductions have not been recognized
in these financial statements and have been offset by a valuation allowance.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

87

---

WHITE KNIGHT RESOURCES
LTD.(An Exploration Stage Company) 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars) 
JUNE 30, 2006

---

|11. |  | SEGMENTED
INFORMATION
|--- |  | ---------------------

| | The
Companys one reportable operating segment is the exploration and development of
mineral properties. Geographic information is as follows:
| | ----------------------------------------------------------------------------------------------------------------------------------------------

|                        
|------------------------
|
|                        
|June 30, 2006           
|Canada                  
|United States           
|                        
|                        
|                        
|June 30, 2005           
|Canada                  
|United States           
|                        
|                        
|                        
|                        
|                        
|Loss before other items:
|Canada                  
|United States           
|                        
|                        
|                        

|12. |  | RESTRICTED
RECLAMATION BONDS
|--- |  | ----------------------------

| | The
Company has secure funds in place with the United States government, a Canadian bank and
a United States bank as security for reclamation bonds on its mineral properties. These
restricted reclamation bonds were required by the local jurisdictions at the time
exploration activities commenced on the properties and do not represent an asset
retirement obligation (Note 2). Interest on the certificates of deposit with Canadian and
United States banks is paid on a periodic basis to the Company.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|13. |  | SUPPLEMENTAL
DISCLOSURES WITH RESPECT TO CASH FLOWS
|--- |  | ---------------------------------------------------

| | Significant
non-cash transactions during the years ended June 30, 2006, June 30, 2005 and June 30,
2004 include the Company issuing 40,000 common shares each year at a value in the current
year of $72,000 (2005  $28,400; 2004  $31,200) for the acquisition of mineral
property interests. In the year ended June 30, 2004, the Company issued 125,000 units as a
finders fee related to a private placement. Included in accounts payable are $93,378
(2005  $153,756) relating to deferred exploration costs, $129,328 (2005  $NIL)
relating to equipment, $6,330 (2005  $NIL) relating to restricted reclamation bonds
and $2,695 (2005  $NIL) relating to mineral property interests.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|14. |  | COMMITMENTS
|--- |  | -----------

| | The
Company has entered into lease agreements for its premises in Canada and the United
States. The annual lease commitments are as follows:
| | --------------------------------------------------------------------------------------------------------------------------------------------

|     | 
|---- | 
|2007 | 
|2008 | 
|     | 
|     | 
|     | 

88

---

WHITE KNIGHT RESOURCES
LTD.(An Exploration Stage Company) 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars) 
JUNE 30, 2006

---

|15. |  | FINANCIAL
INSTRUMENTS
|--- |  | ---------------------

| | The
Companys financial instruments consist of cash, temporary investments, receivables,
restricted reclamation bonds, accounts payable and accrued liabilities, and due to
related parties. It is managements opinion that the Company is not exposed to
significant interest, currency or credit risks arising from its financial instruments.
The fair values of these financial instruments approximate their carrying values, unless
otherwise noted.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company has its cash primarily in one commercial bank in Vancouver, British Columbia,
Canada and one commercial bank in Reno, Nevada, United States.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------

|16. |  | DIFFERENCES
BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
|--- |  | ---------------------------------------------------------------------------------------

| | These
financial statements have been prepared in accordance with Canadian GAAP. Material
variations in the accounting principles, practices and methods used in preparing these
financial statements from principles, practices and methods accepted in the United States
(United States GAAP) are described and quantified below.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
impact of the differences between Canadian GAAP and United States GAAP on the
consolidated balance sheets would be as follows:
| | ----------------------------------------------------------------------------------------------------------------------------------

|                      
|----------------------
|
|                      
|
|                      
|Temporary             
|investments           
|Other current assets  
|Mineral property      
|interests             
|Deferred exploration  
|costs                 
|Equipment             
|Restricted reclamation
|bonds                 
|                      
|                      
|                      
|Current liabilities   
|Asset retirement      
|obligation            
|Shareholders' equity  
|                      
|                      
|                      

89

---

WHITE KNIGHT RESOURCES
LTD.(An Exploration Stage Company) 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars) 
JUNE 30, 2006

---

|16. |  | DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
               ACCOUNTING PRINCIPLES (contd)
|--- |  | ----------------------------------------------------------------------------------------------------------------

| | The
impact of the differences between Canadian GAAP and United States GAAP on the
consolidated statements of operations would be as follows:
| | --------------------------------------------------------------------------------------------------------------------------------------------

|                                                     
|-----------------------------------------------------
|
|                                                     
|Loss for the period, Canadian GAAP                   
|Adjustments:                                         
|Mineral property interests                           
|Deferred exploration costs                           
|Increase in temporary investments                    
|                                                     
|Loss for the period, United States GAAP              
|                                                     
|Basic and diluted loss per share, United States GAAP 
|                                                     
|Weighted average number of common shares outstanding,
|United States GAAP                                   
|                                                     

| | The
 impact  of the  differences  between  Canadian  GAAP  and  United  States  GAAP  on the
 consolidated          statements of cash flows would be as follows:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                           
|---------------------------------------------------------------------------
|
|                                                                           
|Cash flows used in operating activities, Canadian GAAP                     
|Acquisition of mineral property interests                                  
|Deferred exploration costs                                                 
|Acquisition (disposal) of temporary investments (net)                      
|                                                                           
|Cash flows provided by (used in) operating  activities,  United States GAAP
|                                                                           
|Cash flows provided by financing activities, Canadian GAAP                 
|and United States GAAP                                                     
|                                                                           
|Cash flows provided by (used in) investing activities,                     
|Canadian GAAP                                                              
|Acquisition of mineral property interests                                  
|Deferred exploration costs                                                 
|Acquisition (disposal) of temporary investments (net)                      
|                                                                           
|Cash flows used in investing activities,                                   
|United States GAAP                                                         
|                                                                           
|Increase (decrease) in cash during the period                              
|Cash, beginning of period                                                  
|                                                                           
|Cash, end of period                                                        
|                                                                           

90

---

WHITE KNIGHT RESOURCES
LTD.(An Exploration Stage Company) 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars) 
JUNE 30, 2006

---

|16. |  | DIFFERENCES
BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTEDACCOUNTING PRINCIPLES (contd)
|--- |  | ------------------------------------------------------------------------------------------------

| | Mineral
property interests and deferred exploration costs
| | ---------------------------------------------------------

| | In
accordance with EITF 04-02, the Company classifies the costs of acquiring its mineral
interests as tangible assets resulting in no difference between Canadian and United
States GAAP.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Under
United States GAAP exploration costs on mineral properties, other than acquisition costs,
prior to the establishment of proven or probable reserves are expensed as incurred. Under
Canadian GAAP these costs may be deferred.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Under
United States GAAP, the Company performs evaluations of its investment in mineral
properties to assess the recoverability and the residual value of its investments in
these assets. All mineral properties are reviewed for impairment whenever events or
circumstances change which indicates the carrying amount of an asset may not be
recoverable, utilizing established guidelines based on undiscounted future net cash flows
from the asset or upon the determination that certain exploration properties do not have
sufficient potential for economic mineralization.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Asset
retirement obligations
| | ----------------------------

| | The
Company adopted new accounting and disclosure standards under Canadian GAAP (Note 2)
since the 2005 fiscal year. Accordingly there were no differences between Canadian GAAP
and United States GAAP as at June 30, 2006 and 2005.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Under
Canadian GAAP, the Company was not required to record asset retirement obligations as at
June 30, 2005. The Company determined there were no asset retirement obligations as at
June 30, 2005.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Temporary
Investments
| | ---------------------

| | Under
Canadian GAAP, temporary investments are carried at the lower of aggregate cost or
current market value, with any unrealized gain or loss included in the statement of
operations. Long-term investments are carried on the cost or equity basis and are only
written down when there is evidence of a decline in value that is other than temporary.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Under
United States GAAP, SFAS 115 requires that certain debt and equity investments must be
classified into available-for-sale or trading securities and stated at fair market
values. Any unrealized holding gains or losses are reported as a separate component of
shareholders equity until realized for available-for-sale securities, and included
in earnings for trading securities. For United States GAAP purposes, the Companys
investment in debt securities have been classified as trading securities. Under SFAS 115,
for the 2004 fiscal year there was no difference under Canadian GAAP or United States
GAAP as these debt securities have been written down to their fair market value, with an
unrealized loss of $42,999 included in the consolidated statement of operations. For the
2006 fiscal year, an excess holding gain of $48,282 (2005  $36,224) would be
recognized under United States GAAP.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

91

---

WHITE KNIGHT RESOURCES
LTD.(An Exploration Stage Company) 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars) 
JUNE 30, 2006

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|16. |  | DIFFERENCES
BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTEDACCOUNTING PRINCIPLES (contd)
|--- |  | ------------------------------------------------------------------------------------------------

| | New
accounting pronouncements
| | -----------------------------

| | In
May 2005, the Financial Accounting Standards Board (FASB) issued SFAS No. 154, Accounting
Changesand Error Corrections  A Replacement of APB Opinion No. 20 and SFAS
No. 3". SFAS 154 changes the requirements for the accounting for and reporting
of a change in accounting principle and applies to all voluntary changes in accounting
principle. It also applies to changes required by an accounting pronouncement in the
unusual instance that the pronouncement does not include specific transition provisions.
SFAS 154 requires retrospective application to prior periods financial statements
of changes in accounting principle, unless it is impracticable to determine either the
period-specific effects or the cumulative effect of the change. The provisions of SFAS
No. 154 are effective for accounting changes and correction of errors made in fiscal
years beginning after December 15, 2005. The adoption of this standard is not expected to
have a material effect on the Companys results of operations or financial position.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
FASB has also issued SFAS No. 155 Accounting for Certain Hybrid Financial
Instruments and SFAS No. 156 Accounting for Servicing of Financial
Assets, but they will not have any relationship to the operations of the
Company. Therefore a description and its impact for each on the Companys operations
and financial position have not been disclosed.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

92

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# ITEM 18:    FINANCIAL
STATEMENTS

Not applicable.  See Item 17 above.

# ITEM 19: EXHIBITS

Exhibits as follows:

|Exhibit
Number | Description
|-------------- | -----------
|1              | .1(2)      
|1              | .2(2)      
|4              | .1(1)      
|4              | .2(1)      
|4              | .3(1)      
|4              | .4(1)      
|4              | .5(1)      
|4              | .6(1)      
|4              | .7(1)      
|4              | .8(1)      
|4              | .9(1)      
|4              | .10(1)     
|4              | .11(2)     
|4              | .12(2)     
|4              | .13(2)     
|4              | .14(2)     
|4              | .15(2)     
|4              | .16(2)     
|4              | .17        
|4              | .18        
|4              | .19        
|4              | .20        
|4              | .21        
|4              | .22        
|4              | .23        
|4              | .24        

93

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|Exhibit
Number | Description
|-------------- | -----------
|               |            
|4              | .25        
|4              | .26        
|4              | .27        
|8              | .1(2)      
|12             | .1         
|13             | .1         
|15             | .1(2)      

(1)    
          Incorporated by reference to the Registrants Form 20-F Registration
          Statement filed on July 30, 2004.

(2)    
          Incorporated by reference to the Registrants Form 20-F Annual Report filed
          on December 30, 2005.

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# SIGNATURES

The registrant certifies that it
meets all of the requirements for filing on Form 20-F and that it has duly caused and
authorized the undersigned to sign this amended annual report on its behalf.

Date:   October 20, 2006

| | WHITE KNIGHT RESOURCES LTD.
Per:   John M. Leask 
     _________________________
     John M. Leask 
     Chairman, President and 
     Chief Executive Officer
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

95

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