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

# FORM 10-QSB

|[X] |  | QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF           1934
|--- |  | -------------------------------------------------------------------------------------------

| | For
the quarterly period ended June 30, 2005
| | --------------------------------------------

|[   ] |  | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
|----- |  | ---------------------------------------------------------------

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

Commission file
number  0-50982

ENTRÉE GOLD INC.

---

(Exact
name of small business issuer as specified in its charter)

|British Columbia
(State or other jurisdiction of incorporation 
or organization) | N/A
(I.R.S. Employer Identification No.)
|-------------------------------------------------------------------------------- | ----------------------------------------

Suite 1201, 1166 Alberni Street
Vancouver, BC V6E 3Z3

---

(Address of principal executive offices)

604.687.4777

---

(Issuer's telephone number)

Suite 1450, 650 West Georgia Street
Vancouver, BC V6B 4N7

---

(Former name, former address and former fiscal year, 
if changed since last report)

Check
whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of
the Exchange Act during the past 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  [X]           
No   [   ]



# APPLICABLE ONLY TO
ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Check whether the registrant filed
all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange
Act after the distribution of securities under a plan confirmed by a
court.     Yes [ ]     No [ ]

# APPLICABLE ONLY TO
CORPORATE ISSUERS

State the number of shares
outstanding of each of the issuers classes of common equity, as of the latest
practicable date:

65,536,026 common shares issued and
outstanding as at August 1, 2005.

Transitional Small Business
Disclosure Format (Check one):           Yes  [   ]
      
No   [X]

---

# PART I

# Item 1.    Financial
Statements

Our financial statements are stated
in United States Dollars (US$) and are prepared in accordance with Generally Accepted
Accounting Principles in the United States.

1

---

# ENTRÉE GOLD INC. 
(An Exploration Stage Company)

# CONSOLIDATED FINANCIAL
STATEMENTS
(Expressed in United States Dollars)

JUNE 30, 2005

2

---

ENTRÉE GOLD INC.(An Exploration Stage Company)
CONSOLIDATED BALANCE SHEETS 
(Expressed in United States dollars)

|                                                                                                                                             
|---------------------------------------------------------------------------------------------------------------------------------------------
|
|                                                                                                                                             
|ASSETS                                                                                                                                       
|Current                                                                                                                                      
|Cash and cash equivalents                                                                                                                    
|Receivables                                                                                                                                  
|Prepaid expenses                                                                                                                             
|                                                                                                                                             
|Total current assets                                                                                                                         
|                                                                                                                                             
|                                                                                                                                             
|Equipment (Note 4)                                                                                                                           
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                         
|Current                                                                                                                                      
|Accounts payable and accrued liabilities                                                                                                     
|                                                                                                                                             
|                                                                                                                                             
|Stockholders equity                                                                                                                         
|                                                                                                                                             
|Common stock, no par value, unlimited number authorized (Note 6) 
         63,039,596 (December 31, 2004 - 50,868,066) issued and outstanding
|Additional paid-in capital                                                                                                                   
|Accumulated other comprehensive income:                                                                                                      
|Foreign currency cumulative translation adjustment                                                                                           
|Accumulated deficit during exploration stage                                                                                                 
|                                                                                                                                             
|                                                                                                                                             
|Total stockholders' equity                                                                                                                   
|                                                                                                                                             
|                                                                                                                                             
|Total liabilities and stockholders' equity                                                                                                   
|                                                                                                                                             

Nature of operations (Note 2)

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

3

---

ENTRÉE GOLD INC.(An Exploration Stage Company) 
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS 
(Unaudited) 
(Expressed in United States dollars)

|                                             
|---------------------------------------------
|
|                                             
|EXPENSES                                     
|Audit and accounting                         
|Consulting fees (Note 6)                     
|Depreciation                                 
|Escrow shares compensation (Notes 6 and 7)   
|Foreign exchange loss                        
|Legal (Note 6)                               
|Loss on settlement of debt (Note 6)          
|Management fees (Notes 6 and 7)              
|Mineral property interests (Note 5 and 6)    
|Office and administration (Note 6)           
|Regulatory and transfer agent fees           
|Shareholder communications and               
|investor relations (Note 6)                  
|Travel                                       
|                                             
|                                             
|Loss from operations                         
|Interest income                              
|                                             
|                                             
|Net loss                                     
|                                             
|Comprehensive loss:                          
|Net loss                                     
|Foreign currency translation adjustment      
|                                             
|                                             
|Comprehensive loss                           
|                                             
|Basic and diluted loss per share             
|                                             
|Weighted average number of shares outstanding
|                                             

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

4

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

|                                          
|------------------------------------------
|
|                                          
|                                          
|Balance, July 19, 1995 (date of inception)
|Shares issued:                            
|Private placements                        
|Acquisition of mineral property interests 
|Foreign currency translation adjustment   
|Net loss                                  
|                                          
|Balance, April 30, 1996                   
|Shares issued:                            
|Private placements                        
|Foreign currency translation adjustment   
|Net loss                                  
|                                          
|Balance, April 30,1997                    
|Foreign currency translation adjustment   
|Net loss                                  
|                                          
|Balance, April 30, 1998                   
|Foreign currency translation adjustment   
|Net loss                                  
|                                          
|Balance, April 30, 1999                   
|Escrow shares compensation                
|Exercise of stock options                 
|Foreign currency translation adjustment   
|Net loss                                  
|                                          
|Balance, April 30, 2000                   
|Foreign currency translation adjustment   
|Net loss                                  
|                                          
|Balance, April 30, 2001                   
|Foreign currency translation adjustment   
|Net loss                                  
|                                          
|Balance, April 30, 2002                   
|                                          

 continued 

5

---

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

|                                                  
|--------------------------------------------------
|
|                                                  
|                                                  
| continued  Balance, April 30, 2002             
|Shares issued:                                    
|Private placements                                
|Exercise of warrants                              
|Agent's finder fee                                
|Finder's fee for mineral property interests       
|Debt settlement                                   
|Agent's warrants                                  
|Escrow shares compensation                        
|Stock-based compensation                          
|Share issue costs                                 
|Foreign currency translation adjustment           
|Net loss                                          
|                                                  
|Balance, April 30, 2003                           
|Shares issued:                                    
|Private placements and offerings                  
|Exercise of warrants                              
|Exercise of stock options                         
|Agent's corporate finance fee                     
|Acquisition of mineral property interests (Note 5)
|Agent's warrants                                  
|Escrow shares compensation                        
|Stock-based compensation                          
|Share issue costs                                 
|Foreign currency translation adjustment           
|Net loss                                          
|                                                  
|Balance, December 31, 2003                        
|                                                  

 continued 

6

---

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

|                                                                     
|---------------------------------------------------------------------
|
|                                                                     
|                                                                     
| continued  Balance, December 31, 2003                             
|Shares issued:                                                       
|Private placement                                                    
|Exercise of warrants                                                 
|Exercise of stock options                                            
|Warrants issued for cancellation of price 
       guarantee ( Note 5)
|Escrow shares compensation                                           
|Share issue costs                                                    
|Stock-based compensation                                             
|Foreign currency translation adjustment                              
|Net loss                                                             
|                                                                     
|Balance, December 31, 2004                                           
|Shares issued:                                                       
|Exercise of warrants                                                 
|Escrow shares compensation                                           
|Stock-based compensation                                             
|Foreign currency translation adjustment                              
|Net loss                                                             
|                                                                     
|Balance, March 31, 2005                                              
|Shares issued:                                                       
|Private placement                                                    
|Exercise of warrants                                                 
|Exercise of stock options                                            
|Escrow shares compensation                                           
|Share issue costs                                                    
|Stock-based compensation                                             
|Foreign currency translation adjustment                              
|Net loss                                                             
|                                                                     
|Balance, June 30, 2005                                               
|                                                                     

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

7

---

ENTRÉE GOLD INC.(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS 
(Unaudited) 
(Expressed in United States dollars)



|                                              
|----------------------------------------------
|
|                                              
|CASH FLOWS FROM OPERATING ACTIVITIES          
|Net loss                                      
|Items not affecting cash:                     
|Depreciation                                  
|Stock-based compensation                      
|Escrow shares compensation                    
|Loss on settlement of debt                    
|Warrants issued for cancellation of           
|price guarantee                               
|Finder's fee paid in stock                    
|Mineral property interest paid in stock       
|                                              
|Changes in assets and liabilities:            
|Receivables                                   
|Prepaid expenses                              
|Accounts payable and accrued liabilities      
|                                              
|Net cash used in operating activities         
|                                              
|                                              
|CASH FLOWS FROM FINANCING ACTIVITIES          
|Proceeds from issuance of capital stock       
|Share issue costs                             
|                                              
|Net cash provided by financing activities     
|                                              
|CASH FLOWS FROM INVESTING ACTIVITIES          
|Acquisition of equipment                      
|                                              
|Net cash used in investing activities         
|                                              
|Effect of foreign currency                    
|translation on cash and cash equivalents      
|                                              
|                                              
|Change in cash and cash equivalents           
|during the period                             
|                                              
|Cash and cash equivalents, beginning of period
|                                              
|                                              
|Cash and cash equivalents, end of period      
|                                              
|Cash paid for interest during the period      
|                                              
|Cash paid for income taxes during the period  
|                                              

Supplemental disclosure with respect
to cash flows(Note 10)

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

8

---

ENTRÉE GOLD INC.
(An Exploration Stage Company) 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
JUNE 30, 2005 
(Unaudited)
(Expressed in United States dollars)

---

|1. |  | BASIS
OF PRESENTATION
|-- |  | ---------------------

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

|2. |  | NATURE
OF OPERATIONS
|-- |  | --------------------

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

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

|3. |  | SIGNIFICANT
ACCOUNTING POLICIES
|-- |  | -------------------------------

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

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

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

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

9

---

ENTRÉE GOLD INC.
(An Exploration Stage Company) 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
JUNE 30, 2005 
(Unaudited)
(Expressed in United States dollars)

---

|3. |  | SIGNIFICANT
ACCOUNTING POLICIES (contd)
|-- |  | -----------------------------------------

| | Escrow
shares
| | -------------

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

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

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

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

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

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

| | The
functional currency of the Company and its wholly-owned subsidiary is the Canadian
dollar. Accordingly, monetary assets and liabilities denominated in a foreign currency
are translated at the exchange rate in effect at the balance sheet date while
non-monetary assets and liabilities denominated in a foreign currency are translated at
historical rates. Revenue and expense items denominated in a foreign currency are
translated at exchange rates prevailing when such items are recognized in the statement
of operations. Exchange gains or losses arising on translation of foreign currency items
are included in the statement of operations.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

10

---

ENTRÉE GOLD INC.
(An Exploration Stage Company) 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
JUNE 30, 2005 
(Unaudited)
(Expressed in United States dollars)

---

|3. |  | SIGNIFICANT
ACCOUNTING POLICIES (contd)
|-- |  | -----------------------------------------

| | Foreign
currency translation(contd)
| | ------------------------------------

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

| | Net
loss per share
| | ------------------

| | Basic
net loss per share is computed by dividing the net loss for the period attributable to
common stockholders by the weighted average number of shares of common stock outstanding
during the period. Diluted net loss per share takes into consideration shares of common
stock outstanding (computed under basic loss per share) and potentially dilutive shares
of common stock. Diluted net loss per share is not presented separately from basic net
loss per share as the conversion of outstanding stock options and warrants into common
shares would be anti-dilutive. At June 30, 2005, the total number of potentially dilutive
shares of common stock excluded from basic net loss per share was 20,014,200 (June 30,
2004  15,697,673).
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Shares
that remain in escrow are excluded from the weighted average number of shares of common
stock. The number of shares held in escrow excluded from the weighted average number of
shares of common stock was Nil (June 30, 2004  5,401,350).
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Recent
accounting pronouncements
| | --------------------------------

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

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

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

11

---

ENTRÉE GOLD INC.
(An Exploration Stage Company) 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
JUNE 30, 2005 
(Unaudited)
(Expressed in United States dollars)

---

|3. |  | SIGNIFICANT
ACCOUNTING POLICIES (contd)
|-- |  | -----------------------------------------

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

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

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

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

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

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

|4. |  | EQUIPMENT
|-- |  | ---------

|                  
|------------------
|
|                  
|
|                  
|                  
|Office equipment  
|Computer equipment
|Field equipment   
|Buildings         
|                  
|                  
|                  

12

---

ENTRÉE GOLD INC.
(An Exploration Stage Company) 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
JUNE 30, 2005 
(Unaudited)
(Expressed in United States dollars)

---

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

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

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

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

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

| | In
October, 2004, the Company granted to Ivanhoe Mines Ltd. (Ivanhoe) the
right to earn, over an eight year period, a participating interest in a certain portion
of its Lookout Hill Property (the Project Property). Under the agreement,
Ivanhoe must spend a minimum of $3 million in order to earn surface rights in the Project
Property and a minimum of $20 million in order to earn any mineral rights interest in the
Project Property and may acquire up to an 80% interest in mineralization below a depth of
560 metres and a 70% interest in mineralization above a depth of 560 metres by spending
$35 million. Thereafter, the Company has the right to require Ivanhoe to fund its share
of subsequent project costs through to production, to be recovered from production cash
flow. The agreement with Ivanhoe also provided for Ivanhoe to subscribe for 4,600,000
units of the Company at a price of C$1.00 per unit (completed in November 2004).
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

13

---

ENTRÉE GOLD INC.
(An Exploration Stage Company) 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
JUNE 30, 2005 
(Unaudited)
(Expressed in United States dollars)

---

|5. |  | MINERAL
PROPERTY INTERESTS(contd)
|-- |  | -----------------------------------

|                              
|------------------------------
|
|                              
|Lookout Hill:                 
|Acquisition                   
|Assaying, testing and analysis
|Camp and field supplies       
|Drilling                      
|Geological and geophysical    
|Travel and accommodation      
|                              
|                              
|                              
|Ulziit Uul:                   
|Acquisition                   
|Assaying, testing and analysis
|Camp and field supplies       
|Drilling                      
|Geological and geophysical    
|Travel and accommodation      
|                              
|                              
|                              
|Khatsavch:                    
|Acquisition                   
|                              
|                              
|                              
|Other                         
|Geological and geophysical    
|                              
|                              
|                              
|                              
|                              

|6. |  | COMMON
STOCK
|-- |  | ------------

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

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

14

---

ENTRÉE GOLD INC.
(An Exploration Stage Company) 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
JUNE 30, 2005 
(Unaudited)
(Expressed in United States dollars)

---

|6. |  | COMMON
STOCK(contd)
|-- |  | ---------------------

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

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

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

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

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

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

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

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

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

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

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

15

---

ENTRÉE GOLD INC.
(An Exploration Stage Company) 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
JUNE 30, 2005 
(Unaudited)
(Expressed in United States dollars)

---

|6. |  | COMMON
STOCK(contd)
|-- |  | ---------------------

| | Share
issuances(contd)
| | ------------------------

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

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

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

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

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

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

16

---

ENTRÉE GOLD INC.
(An Exploration Stage Company) 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
JUNE 30, 2005 
(Unaudited)
(Expressed in United States dollars)

---

|6. |  | COMMON
STOCK (contd)
|-- |  | ----------------------

| | Share
issuances (contd)
| | -------------------------

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

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

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

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

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

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

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

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

17

---

ENTRÉE GOLD INC.
(An Exploration Stage Company) 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
JUNE 30, 2005 
(Unaudited)
(Expressed in United States dollars)

---

|6. |  | COMMON
STOCK(contd)
|-- |  | ---------------------

| | Escrow
shares
| | -------------

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

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

| | Performance
escrow shares
| | -------------------------

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

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

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

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

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

18

---

ENTRÉE GOLD INC.
(An Exploration Stage Company) 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
JUNE 30, 2005 
(Unaudited)
(Expressed in United States dollars)

---

|6. |  | COMMON
STOCK(contd )
|-- |  | ----------------------

| | Escrow
shares (contd)
| | -----------------------

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

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

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

|                                                  
|--------------------------------------------------
|
|                                                  
|Escrow shares allocated to president pursuant     
|to employment agreement:                          
|Mineral property interests expense (recovery      
|Escrow shares compensation expense (recovery)     
|                                                  
|                                                  
|Escrow shares allocated to directors, officers and
|employees:                                        
|Escrow shares compensation expense (recovery)     
|                                                  
|                                                  
|                                                  

| | Share
purchase warrants
| | -----------------------

| | Share
purchase warrant transactions are summarized as follows:
| | --------------------------------------------------------------

|                               
|-------------------------------
|
|                               
|Balance as at December 31, 2004
|Issued                         
|Expired                        
|Exercised                      
|                               
|Balance as at June 30, 2005    
|                               

19

---

ENTRÉE GOLD INC.
(An Exploration Stage Company) 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
JUNE 30, 2005 
(Unaudited)
(Expressed in United States dollars)

---

|6. |  | COMMON
STOCK (contd )
|-- |  | -----------------------

| | Share
purchase warrants(contd)
| | --------------------------------

| | As
at June 30, 2005, the following share purchase warrants were outstanding and exercisable.
| | --------------------------------------------------------------------------------------------

|          
|----------
|
|          
|742,970   
|4,490,500 
|250,000   
|2,832,865 
|2,832,865 
|          
|11,149,200
|          

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

| | During
the year ended April 30, 2003, the Company adopted a stock option plan (the Plan)
to grant options to directors, officers, employees and consultants. Under the Plan, as
amended in May 2005, the Company may grant options to acquire up to 9,251,613 common
shares of the Company. Options granted can have a term up to five years and an exercise
price typically not less than the Companys closing stock price at the date of
grant. The options shall vest as to 25% at issuance and 1/8 every three months thereafter
for a total of 18 months.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                               
|-------------------------------
|
|                               
|Balance as at December 31, 2004
|Granted                        
|Exercised                      
|                               
|Balance as at June 30, 2005    
|                               

| | The
weighted average fair value of stock options granted during the six months ended June 30,
2005 was C$0.94 (June 30, 2004  C$1.09). The number of stock options exercisable at
June 30, 2005 was 8,758,750 (December 31, 2004  3,708,750).
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

20

---

ENTRÉE GOLD INC.
(An Exploration Stage Company) 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
JUNE 30, 2005 
(Unaudited)
(Expressed in United States dollars)

---

|6. |  | COMMON
STOCK(contd )
|-- |  | ----------------------

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

| | At
June 30, 2005, the following stock options were outstanding:
| | ---------------------------------------------------------------

|         
|---------
|
|         
|210,000  
|715,000  
|50,000   
|510,000  
|900,000  
|175,000  
|715,000  
|1,595,000
|200,000  
|600,000  
|400,000  
|175,000  
|75,000   
|2,545,000
|         
|8,865,000
|         

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

| | The
fair value of stock options granted during the six months ended June 30, 2005 was
$2,380,679 (June 30, 2004  $590,448). Total stock-based compensation recognized in
the consolidated statements of operations is summarized as follows with corresponding
additional paid-in capital recorded in stockholders equity:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                 
|-------------------------------------------------
|
|                                                 
|Consulting fees                                  
|Legal                                            
|Management fees                                  
|Mineral property interest                        
|Office and administration                        
|Stockholder communications and investor relations
|                                                 
|                                                 
|                                                 

21

---

ENTRÉE GOLD INC.
(An Exploration Stage Company) 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
JUNE 30, 2005 
(Unaudited)
(Expressed in United States dollars)

---

|6. |  | COMMON
STOCK(contd )
|-- |  | ----------------------

| | Stock-based
compensation(contd)
| | ---------------------------------

| | The
following weighted-average assumptions were used for the Black-Scholes valuation of stock
options granted:
| | --------------------------------------------------------------------------------------------------------------

|                        
|------------------------
|
|                        
|Risk-free interest rate 
|Expected life of options
|Annualized volatility   
|Dividend rate           
|                        

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

| | The
Company entered into the following transactions with related parties during the six
months ended June 30, 2005:
| | -------------------------------------------------------------------------------------------------------------------

| | a)
                        Paid or accrued management
fees of $25,821 (June 30, 2004  $20,856) to                     two directors and
officers of the Company.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b)
                        Recognized an expense
(recovery) of ($1,453) (June 30, 2004  ($370,658))                     from certain
performance escrow shares allocated to the president and CEO of the
                    Company (Note 6) which have been recorded as escrow shares
compensation                     (recovery) of ($1,453) (June 30, 2004  ($268,867))
and mineral property                     interests cost (recovery) of $Nil (June 30, 2004
 ($101,701)). In                     addition, compensation expense (recovery) of
($434,130) (June 30, 2004                     ($538,652)) was recognized from
certain performance escrow shares transferred to                     directors of the
Company (Note 6) which has been recorded as escrow shares
                    compensation (recovery) of ($434,130) (June 30, 2004  ($538,652)).
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | These
transactions were in the normal course of operations and were measured at the exchange
amount which represented the amount of consideration established and agreed to by the
related parties.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

22

---

ENTRÉE GOLD INC.
(An Exploration Stage Company) 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
JUNE 30, 2005 
(Unaudited)
(Expressed in United States dollars)

---

|8. |  | SEGMENT
INFORMATION
|-- |  | -------------------

| | The
Company operates in one business segment being the exploration of mineral property
interests.
| | -------------------------------------------------------------------------------------------------

| | Geographic
information is as follows:
| | -------------------------------------

|                   
|-------------------
|
|                   
|Identifiable assets
|Canada             
|Mongolia           
|                   
|                   
|                   

|                   
|-------------------
|
|                   
|Loss for the period
|Canada             
|Mongolia           
|                   
|                   
|                   

|9. |  | FINANCIAL
INSTRUMENTS
|-- |  | ---------------------

| | The
Companys financial instruments consist of cash and cash equivalents, receivables
and accounts payable and accrued liabilities. Unless otherwise noted, it is managements
opinion that the Company is not exposed to significant interest or credit risks arising
from these financial instruments. The fair value of these financial instruments
approximates their carrying values, unless otherwise noted.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company is exposed to currency risk by incurring certain expenditures in currencies other
than the Canadian dollar. The Company does not use derivative instruments to reduce this
currency risk.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10. |  | SUPPLEMENTAL
DISCLOSURE WITH RESPECT TO CASH FLOWS
|--- |  | --------------------------------------------------

| | Significant
non-cash transactions for the six month period ended June 30, 2005 consisted of:
| | --------------------------------------------------------------------------------------------

| | a)
                        The recognition of
compensation expense (recovery) from the allocation of                     certain
performance escrow shares to the president of the Company which has been
                    recorded as escrow shares compensation (recovery) of ($1,453).
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b)
                        The recognition of
compensation expense (recovery) from the allocation of                     certain
performance escrow shares to directors of the Company which has been
                    recorded as escrow shares compensation (recovery) of ($434,130).
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

23

---

ENTRÉE GOLD INC.
(An Exploration Stage Company) 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
JUNE 30, 2005 
(Unaudited)
(Expressed in United States dollars)

---

|10. |  | SUPPLEMENTAL
DISCLOSURE WITH RESPECT TO CASH FLOWS (contd)
|--- |  | ------------------------------------------------------------

| | Significant
non-cash transactions for the three month period ended June 30, 2004 consisted of:
| | ----------------------------------------------------------------------------------------------

| | a)
                        The issuance of
non-transferable warrants to purchase up to 250, 000 shares of                     the
company at a price of C$1.05 per share on or before April 20, 2006 in return
                    for the cancellation of a price guarantee in connection with shares
previously                     issued for mineral property interests (Note 5). The fair
value of the warrants                     was estimated to be $129,266.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b)
                        The recognition of
compensation expense (recovery) from the allocation of                     certain
performance escrow shares to the president and CEO of the Company which
                    has been recorded as escrow shares compensation (recovery) of
($268,867) and                     mineral property interest costs (recovery) of
($101,701) (Note 6).
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c)
                        The recognition of
compensation expense (recovery) from the allocation of                     certain
performance escrow shares to directors of the Company which has been
                    recorded as escrow shares compensation (recovery) of ($538,652).
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|11. |  | SUBSEQUENT
EVENTS
|--- |  | -----------------

| | Subsequent
to June 30, 2005:
| | ----------------------------

| | a) |  | The
Company completed a non-brokered private placement consisting of 1,876,680
               units at a price of C$2.20 per unit for gross proceeds of $3,412,145.
Each unit                consisted of one common share and one non-transferable share
purchase A warrant                and one non-transferable share purchase B warrant. Two
A warrants entitle the                holder to purchase one common share of the Company
at a price of C$2.75 for a                period of two years. Two B warrants entitle the
holder to purchase one common                share of the Company at a price of C$3.00
for a period of two years.
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) |  | The
Company issued 619,750 common shares upon the exercise of warrants for
               aggregate proceeds of $669,647.
| | -- |  | -------------------------------------------------------------------------------------------------------------------------

| | c) |  | The
Companys common shares were listed for trading on the American Stock
               Exchange.
| | -- |  | --------------------------------------------------------------------------------------------------

24

---

ENTRÉE GOLD INC.
(An Exploration Stage Company) 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
JUNE 30, 2005 
(Unaudited)
(Expressed in United States dollars)

---

|12. |  | DIFFERENCES
BETWEEN UNITED STATES AND CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
|--- |  | ---------------------------------------------------------------------------------------

| | These
consolidated financial statements have been prepared in conformity with generally
accepted accounting principles in the United States of America (United States GAAP).
These consolidated financial statements also comply, in all material respects, with
Canadian generally accepted accounting principles (Canadian GAAP) with
respect to recognition, measurement and presentation as described and quantified below.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Consolidated
balance sheets
| | ---------------------------

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

|                          
|--------------------------
|
|                          
|
|                          
|                          
|Current assets            
|Mineral property interests
|Equipment                 
|                          
|                          
|                          
|                          
|Current liabilities       
|Stockholders' equity      
|                          
|                          
|                          

25

---

ENTRÉE GOLD INC.
(An Exploration Stage Company) 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
JUNE 30, 2005 
(Unaudited)
(Expressed in United States dollars)

---

|12. |  | DIFFERENCES
BETWEEN UNITED STATES AND CANADIAN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (contd)
|--- |  | ------------------------------------------------------------------------------------------------

| | Consolidated
statements of operations
| | -------------------------------------

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

|                                                                   
|-------------------------------------------------------------------
|
|                                                                   
|                                                                   
|Net loss for the period, United States GAAP                        
|Adjustments:                                                       
|Mineral property interests                                         
|Escrow shares compensation                                         
|                                                                   
|Net loss for the period, Canadian GAAP                             
|                                                                   
|Basic and diluted net loss per common share,
Canadian GAAP         
|                                                                   
|Weighted average number of common
shares outstanding, Canadian GAAP
|                                                                   

26

---

ENTRÉE GOLD INC.
(An Exploration Stage Company) 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
JUNE 30, 2005 
(Unaudited)
(Expressed in United States dollars)

---

|12. |  | DIFFERENCES
BETWEEN UNITED STATES AND CANADIAN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (contd)
|--- |  | ------------------------------------------------------------------------------------------------

| | Consolidated
statements of cash flows
| | -------------------------------------

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

|                                                                          
|--------------------------------------------------------------------------
|
|                                                                          
|                                                                          
|Net cash used in operating activities,                                    
|United States GAAP                                                        
|Mineral property interests                                                
|Stock-based compensation                                                  
|Escrow shares compensation                                                
|Warrants issued for cancellation of price guarantee                       
|Finders fee                                                               
|Mineral property interests paid in stock                                  
|                                                                          
|Net cash provided by (used in)
operating activities, Canadian GAAP        
|                                                                          
|Net cash provided by financing
activities, United States and Canadian GAAP
|                                                                          
|Net cash used in investing
activities, United States GAAP                 
|Mineral property interests                                                
|                                                                          
|Net cash used in investing
activities, Canadian GAAP                      
|                                                                          
|Effect of foreign currency
translation on cash and cash equivalents       
|                                                                          
|Change in cash and cash equivalents
during the period                     
|Cash and cash equivalents, beginning of period                            
|                                                                          
|Cash and cash equivalents, end of period                                  
|                                                                          

27

---

ENTRÉE GOLD INC.
(An Exploration Stage Company) 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
JUNE 30, 2005 
(Unaudited)
(Expressed in United States dollars)

---

|12. |  | DIFFERENCES
BETWEEN UNITED STATES AND CANADIAN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (contd)
|--- |  | ------------------------------------------------------------------------------------------------

| | Mineral
property interests
| | --------------------------

| | Under
United States GAAP, costs of acquisition, exploration, carrying and retaining unproven
properties are expensed as incurred.
| | ---------------------------------------------------------------------------------------------------------------------------------

| | Under
Canadian GAAP, mineral property interests, which consist of the right to explore for
mineral deposits, are recorded at cost. Deferred exploration costs, which consist of
costs attributable to the exploration of mineral property interests, are recorded at
cost. All direct and indirect costs relating to the acquisition and exploration of
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 are 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 of 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.
Based on the foregoing criteria, management determined that no impairment to the Companys
current mineral property interests had taken place at June 30, 2005.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | Under
United States GAAP, the Company records the fair value of the liability for closure and
removal costs associated with the legal obligations upon retirement or removal of any
tangible long-lived assets in accordance with Statements of Financial Accounting
Standards No. 143, Accounting for Asset Retirement Obligations. The initial
recognition of any liability will be capitalized as part of the asset cost and
depreciated over its estimated useful life. Under Canadian GAAP, asset retirement
obligations are required to be recorded beginning January 1, 2004.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
of June 30, 2005, the Company has not incurred any asset retirement obligations under
United States GAAP that would generate a difference.
| | ---------------------------------------------------------------------------------------------------------------------------------------------

| | Escrow
shares
| | -------------

| | Under
United States GAAP, the Company accounts for escrow shares as described in Note 3.
| | ----------------------------------------------------------------------------------------

| | Under
Canadian GAAP, shares placed in escrow in connection with an initial public offering
which are to be released upon achievement of certain performance criteria are not
considered to be contingently issueable and are not compensatory in nature. Accordingly,
the difference between the fair value of these shares, being the trading price of the
Companys publicly traded common shares, at the time they are released from escrow
and their original issue price is not recorded. Further, as described in Note 6, certain
of the Companys escrow shares were transferred to a Trustee for the benefit of
future employees, officers and directors of the Company. Under Canadian GAAP, as these
performance escrow shares were transferred from a principal stockholder to a Trustee,
these performance escrow shares are considered compensatory in nature. Accordingly, the
Company records a compensation benefit at fair value, being the
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

28

---

ENTRÉE GOLD INC.
(An Exploration Stage Company) 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
JUNE 30, 2005 
(Unaudited)
(Expressed in United States dollars)

---

|12. |  | DIFFERENCES
BETWEEN UNITED STATES AND CANADIAN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (contd)
|--- |  | ------------------------------------------------------------------------------------------------

| | Escrow
shares(contd)
| | ----------------------

| | trading
price of the Companys publicly traded common shares, when a portion or all of the
these performance escrow shares are allocated to specific individuals.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Thus,
there is a difference between United States GAAP and Canadian GAAP on the accounting for
escrow shares for the six month periods ended June 30, 2005 and 2004 in the amount of
$(39,473) and $(350,364) respectively. There is difference between United States GAAP and
Canadian GAAP for escrow shares for the year six months periods ended June 30, 2005 and
2004 in the amount of $(435,583) and $(808,287).
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | Under
United States GAAP, the Company accounts for stock-based compensation as described in
Note 3.
| | ---------------------------------------------------------------------------------------------------

| | Under
Canadian GAAP, effective May 1, 2002, the Company adopted CICA Handbook Section 3870
Stock-Based Compensation and Other Stock-Based Payments (HB 3870),
which recommends the fair value-based methodology for measuring compensation costs,
excluding escrow shares. HB 3870 also permits, and the Company adopted, the use of the
intrinsic value-based method, which recognizes compensation cost for awards to employees
and directors when the market price exceeds the exercise price at date of grant, but
requires pro-forma disclosure of loss and loss per share as if the fair value method had
been adopted. The granting of stock options to non-employees and direct awards of stock
to employees and non-employees is accounted for using the fair value method of
accounting. Effective May 1, 2003, the Company adopted prospectively the fair value-based
methodology for measuring compensation costs under HB 3870 which requires the Company to
recognize fair value compensation costs for the granting of all stock options and direct
awards of stock.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Accordingly,
there is no difference between United States GAAP and Canadian GAAP on the accounting for
stock-based compensation for the six month periods ended June 30, 2005 and 2004.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Net
loss per share
| | ------------------

| | Under
both United States GAAP and Canadian GAAP, basic net loss per share is calculated using
the weighted average number of common shares outstanding during the year.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Under
Canadian GAAP, the weighted average number of common shares outstanding includes any
shares that remain in escrow. The weighted average number of shares outstanding under
Canadian GAAP for the three month periods ended June 30, 2005 and 2004 were 51,833,126
and 46,258,066 respectively. The weighted average number of shares outstanding under
Canadian GAAP for the six month periods ended June 30, 2005 and 2004 were 51,356,970 and
46,224,271 respectively.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

29

---

ENTRÉE GOLD INC.
(An Exploration Stage Company) 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
JUNE 30, 2005 
(Unaudited)
(Expressed in United States dollars)

---

|12. |  | DIFFERENCES
BETWEEN UNITED STATES AND CANADIAN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (contd)
|--- |  | ------------------------------------------------------------------------------------------------

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

| | In
June 2003, the CICA issued Accounting Guideline 15, Consolidation of Variable
Interest Entities, which will be effective for annual and interim periods beginning
on or after November 1, 2004. This guideline addresses the application of consolidation
principles to entities that are subject to control on a basis other than ownership of
voting interests. Management is assessing the impact, if any, of the adoption of this
guideline on the Companys consolidated financial statements. The adoption of this
new pronouncement is not expected to have a material effect on the Companys
consolidated financial position or results of operations.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

30

---

Item 2.   
          Managements Discussion and Analysis and Plan of Operation.

# FORWARD-LOOKING
STATEMENTS

This quarterly report contains
forward-looking statements as that term is defined in the Private Securities Litigation
Reform Act of 1995. These statements relate to future events or our future financial
performance. In some cases, you can identify forward-looking statements by terminology
such as may, should, expects, plans,
anticipates, believes, estimates,
predicts, potential or continue or the negative of
these terms or other comparable terminology. These statements are only predictions and
involve known and unknown risks, uncertainties and other factors, including the risks in
the section entitled Risk Factors, that may cause our or our industrys
actual results, levels of activity, performance or achievements to be materially different
from any future results, levels of activity, performance or achievements expressed or
implied by these forward-looking statements.

Although we believe that the
expectations reflected in the forward-looking statements are reasonable, we cannot
guarantee future results, levels of activity, performance or achievements. Except as
required by applicable law, including the securities laws of the United States, we do not
intend to update any of the forward-looking statements to conform these statements to
actual results.

# EXPLANATORY NOTE

Unless otherwise specified, all
monetary amounts in this Form 10-QSB are expressed in the United States dollars
(US$ or $). Amounts in Canadian dollars are specifically expressed
with Cdn $ or C$". All references to common shares
refer to the common shares in our capital stock.

As used in this quarterly report, the
terms we, us, our, the Company and
Entrée mean Entree Gold Inc. and our wholly-owned Mongolian subsidiary
Entrée LLC, unless otherwise indicated.

# General

We are an exploration stage company
engaged in the exploration of natural resource properties located in Mongolia. Our
principal executive office is located at Suite 1201, 1166 Alberni Street, Vancouver,
British Columbia, Canada V6E 3Z3. The telephone number for our principal executive office
is (604) 687-4777 and our web site is located at www.entreegold.com. Information contained
on our website does not form part of this quarterly report. Our registered and records
office is at Suite 950  1055 West Georgia Street, Vancouver, British Columbia, V6E
3P3 and our agent for service of process in the United States of America is National
Registered Agents, Inc., 1090 Vermont Avenue NW, Suite 910, Washington, DC 20005.

We also maintain an administrative
office in Ulaan Bataar, the capital of Mongolia, from which we support our Mongolian
operations. The address of our Mongolian office is Jamyan Gun Street-5, Ar Mongol Travel
Building, Suite #201, #202, Sukhbaatar district, 1st county, Ulaanbaatar, Mongolia. The
telephone number for our Mongolian office is 976.11.318562.

# Our Current Business

We are an exploration stage resource
company engaged in exploring mineral resource properties. Our current mineral properties
consist of five mineral exploration licenses granted by the Mineral Resources Authority of
Mongolia, a division of the government of Mongolia. All of these mineral exploration
licenses have been registered in the name of our Mongolian subsidiary Entrée LLC.

There is no assurance that a
commercially viable mineral deposit exists on any of our properties, and further
exploration is required before we can evaluate whether any exist and, if so, whether it
would be economically and legally feasible to develop or exploit those resources. Even if
we complete our current exploration program and we are successful in identifying a mineral
deposit, we would be required to spend substantial funds on further drilling and
engineering studies before we could know whether that mineral deposit will constitute a
reserve (a reserve is a

31

---

commercially viable mineral deposit).
Please refer to the section of this quarterly report entitled Risk Factors,
beginning at page 43, for additional information about the risks of mineral exploration.

We acquired our first mineral
resource property in 1995 from Tierra Colorada SA, a Costa Rican corporation controlled by
one of our then directors, for a purchase price of 800,000 common shares of our company
issued at a value of $147,250, or $0.25 per share. This mineral property consisted of a
Costa Rican exploration permit for the exploration of certain land located in Santa Rosa,
Costa Rica. We engaged in active exploration of this Santa Rosa property through calendar
year 1999, but the results were disappointing. Shortly thereafter, an ore processing mill
located near the Santa Rosa property to which we would have sent minerals, had we found
them, closed down. For these reasons, our Board of Directors decided to abandon the Santa
Rosa property on April 30, 2001, and to write off all deferred costs to operations. The
total amount that we lost on the Santa Rosa property, including our acquisition cost, was
$232,332.

From April 30, 2001 until July 25,
2002 our management considered other business opportunities. Towards the end of this
period our management changed to our current management.

Purchase of Lookout Hill
Property

Pursuant to an arms
length option agreement dated July 25, 2002, we purchased from Mongol Gazar Co.,
Ltd., an unrelated privately held Mongolian company, an option to acquire up to a 60%
interest in three mineral licenses granted by the Mineral Resources Authority of Mongolia
granting exploration rights, respectively, over three contiguous parcels of land known as
Togoot (License No. 3136X), comprised of 104,484 hectares, Shivee Tolgoi (License No.
3148X), comprised of 54,760 hectares and Javhlant (License No. 3150X), comprised of 20,346
hectares. Shivee Tolgoi translates into English as Lookout Hill
and we refer to all three of these parcels, collectively, as Lookout Hill.

The option agreement provided that we
could purchase up to a 60% interest in the Lookout Hill property in stages by:

| |  | incurring
$490,000 in exploration expenditures on the Lookout Hill property prior to the first  anniversary
of the date of the agreement and reimbursing Mongol Gazar for up to $200,000 for exploration
expenditures incurred by it on the Lookout Hill property during this period;
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | incurring $1,490,000 in cumulative exploration expenditures on the Lookout Hill property
prior to the second anniversary of the date of the agreement and issuing 1,000,000 common
shares to Mongol Gazar;
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | incurring $3,490,000 in cumulative exploration expenditures on the Lookout Hill property
prior to the third anniversary of the date of the agreement and issuing an additional
1,000,000 common shares to Mongol Gazar;
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | incurring $7,490,000 in cumulative exploration expenditures on the Lookout Hill property
prior to the fourth anniversary of the date of the agreement and issue an additional
1,000,000 common shares to Mongol Gazar;
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | incurring $12,490,000 in cumulative exploration expenditures on the Lookout Hill property
prior to the fifth anniversary of the date of the agreement and either (a) issuing a final
1,000,000 of our common shares to Mongol Gazar or (b) completing a feasibility study on
the Lookout Hill property;
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In return, Mongol Gazar agreed to
transfer to us a 15% interest in the Lookout Hill property after the second anniversary of
the date of the option agreement, and an additional 15% interest after each of the third,
fourth and fifth anniversaries for an aggregate total of a 60% interest. Thereafter, we
intended to form a joint venture with Mongol Gazar for further development of the Lookout
Hill property, if warranted by the results of our exploration. We agreed to pay a net
smelter return royalty to Mongol Gazar and Mongol Gazar agreed that we could purchase half
of this net smelter return royalty for $10,000,000. We paid a finders fee for this
transaction to Canaccord Capital Corporation, consisting of 200,000 of our common shares.
By an assignment effective July 25, 2002, we assigned our interest in the option
agreement to our wholly-owned subsidiary Entrée LLC, which we formed specifically
for the purpose of holding and operating our mining properties in Mongolia.

32

---

Pursuant to a purchase agreement
dated September 13, 2003 between our company and our subsidiary Entrée LLC on the
one hand, and Mongol Gazar and its Mongolian affiliate MGP LLC, on the other hand, we
agreed to purchase a 100% interest in the Lookout Hill property, free of any net smelter
return royalty, together with an additional mineral license (License No. 3045X) pertaining
to a parcel of property known as the Ikh Ulziit Uul property, located in the Kharmagtai
area of Mongolia in the Manlai and Tsogt-tsetsii Soums, Omnogovi (also spelled Umnogobi)
Aimag (an Aimag is the local equivalent of a state or province; a
Soum is the local Mongolian term for a township or district), approximately
120 kilometers north of the Lookout Hill property. In consideration for these properties
we agreed to pay $5,500,000 in cash and to issue 5,000,000 common shares of our company to
Mongol Gazar. We also agreed that if Mongol Gazar sold these 5,000,000 shares at any time
prior to November 30, 2004 for net proceeds of less than $5,000,000, we would pay them an
amount equal to the difference between $5,000,000 and the net proceeds they actually
received. Although this purchase agreement superseded the option agreement dated July 25,
2002, we agreed that we would reinstate the option agreement if the transactions described
in the purchase agreement did not close.

The purchase agreement provided that
we could use the cash portion of the purchase price to clear any encumbrance on the
Lookout Hill property, and that we were to pay the balance of the cash portion of the
purchase price, and issue the 5,000,000 shares, fifteen days after we received notice from
our Mongolian lawyers that satisfactory title to the Lookout Hill and Ikh Ulziit Uul
properties had been transferred into the name of our Mongolian subsidiary, Entrée
LLC, free of all liens, charges and encumbrances.

Because Mongol Gazar was still in the
process of clearing title to the Ikh Ulziit Uul property at the time we were preparing to
complete our acquisition of the Lookout Hill property, we entered into an Amending
Agreement dated November 6, 2003 severing the Ikh Ulziit Uul property from the September
13, 2003 purchase agreement. We entered into a separate purchase agreement with respect to
the Ikh Ulziit Uul property, pursuant to which we would acquire title to it for no
additional consideration at such time as Mongol Gazar was able to transfer clear title.
Title to this parcel was transferred to our subsidiary Entrée LLC on February 9,
2004.

Title to the Javhlant and Togoot
parcels was transferred to our subsidiary, Entrée LLC, on September 30, 2003 and
title to the third parcel comprising the Lookout Hill property, Shivee Tolgoi, was
transferred to Entrée LLC on October 28, 2003. We paid the first part of the cash
portion of the purchase price of $5,500,000, in the amount of $500,000, on September 19,
2003 and the balance of the cash portion of the purchase price on November 13, 2003.

In a subsequent agreement dated as of
April 20, 2004, we agreed to issue to Mongol Gazar non-transferable share purchase
warrants for the purchase of up to 250,000 of our common shares at a purchase price of
$1.05 per share until expiration of the warrants on April 20, 2006 in consideration of (i)
the waiver by Mongol Gazar of our obligation to pay to it the shortfall, if any, between
$5,000,000 and the net proceeds realized upon a sale of the 5,000,000 shares issued to
them as part of the purchase price for the Lookout Hill property and (ii) a 100% interest
in the Khatsavch Property (Licence #6500X, consisting of 632 hectares) located in Khanbogd
and Bayan Ovoo, Omnogovi, Mongolia. The share purchase warrants were issued on June 14,
2004, and title to the Khatsavch property has been registered in the name of Entrée
LLC.

Equity Participation and
Earn-In Agreement With Ivanhoe Mines, Ltd.

We entered into an arms
length Equity Participation and Earn-In Agreement dated as of October 15, 2004, with
Ivanhoe Mines Ltd., an unrelated Yukon corporation which owns a mineral exploration
property known as Oyu Tolgoi, or Turquoise Hill, which is located adjacent to
our Lookout Hill property. This agreement provided that, upon satisfaction of certain
conditions, Ivanhoe Mines Ltd. would:

| |  | subscribe
for 4,600,000 units from our company for Cdn $1.00 per unit, with each unit consisting of
 one common share of our company and one share purchase warrant entitling the holder
to purchase one additional common share of our company for a purchase price of Cdn $1.10
for two years from the date of purchase.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | have the right, during an earn-in period beginning on closing of the subscription for
units and ending, at the latest, on the eighth anniversary of that closing date (subject
to earlier expiration as specified in the agreement), to earn a participating interest in
a mineral exploration and, if warranted, development and mining project to be
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

33

---

| | conducted
by Ivanhoe Mines Ltd. on a portion of our companys Lookout Hill property consisting
of approximately 40,000 hectares, or approximately 22% of the land area of our Lookout
Hill property shown on the map below. The amount of the participating interest in the
project will vary depending on the amount of money that Ivanhoe Mines Ltd. expends on the
project during the earn-in period, but the agreement provides that Ivanhoe Mines Ltd. can
earn a 51% interest by expending an aggregate of at least $20,000,000 during the earn-in
period, a 60% interest by expending an aggregate of at least $27,500,000 during the
earn-in period, or a sliding percentage interest, depending on the depth from which
minerals are extracted from the project, of between 70% and 80% by expending an aggregate
of at least $35,000,000 during the earn-in period.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | have the right to nominate one member of our Board of Directors until the earlier to occur
of (a) the expiration of the earn-in period, or (b) the date upon which Ivanhoe ceases to
own at least ten percent (10%) of our issued and outstanding common shares (assuming the
exercise by Ivanhoe of all securities convertible into our common shares).
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In addition, the Equity Participation
and Earn-In Agreement gives to Ivanhoe Mines Ltd. a pre-emptive right to such percentage
of any offering of securities of our company as will enable them to preserve their
ownership percentage in our company which, after the acquisition of the 4,600,000 units,
would be approximately 9% prior to exercise of any of their share purchase warrants and
could, upon the exercise of the latter, go as high as 17% of our issued and outstanding
common shares. During any period of time that Ivanhoe Mines Ltd. owns more than 10% of our
issued and outstanding common shares (assuming the exercise by Ivanhoe of all securities
convertible into our common shares), Ivanhoe Mines Ltd. is required to vote these shares
as our board of directors direct on all matters pertaining to the appointment of
directors, the appointment and remuneration of our auditors and all other matters to be
submitted to our shareholders except for extraordinary matters.
Extraordinary matters are defined in the Equity Participation and Earn-In
Agreement to mean matters requiring a special majority (66.33%), the vote of a majority of
disinterested shareholders and matters where Ivanhoe Mines Ltd. is precluded from voting.

The portion of our property subject
to the Equity Participation and Earn-In Agreement, which is referred to in the agreement
as the Project Property, is shown below:

34

---



We closed the private placement
described in the Equity Participation and Earn-In Agreement on November 9, 2004, at which
time Ivanhoe Mines Ltd. purchased the 4,600,000 units described above. Ivanhoe Mines now
owns approximately 16% of Entrées issued and outstanding shares, with the
potential to hold up to a total of 17% upon exercise of the warrants.

We believe that the Equity
Participation and Earn-In Agreement represents a significant milestone in the development
of our company. It has enabled us to raise money that we can use to pursue our exploration
activities on the balance of our Lookout Hill property and elsewhere. It has the
potential, depending on how much money Ivanhoe Mines Ltd. actually expends on the project
during the earn-in period, to enable the exploration of that portion of our Lookout Hill
property at little or no cost to our company. Finally, their commitment to explore our
property demonstrates that Ivanhoe Mines Ltd., an internationally recognized mineral
exploration and development company, has sufficient confidence in our company and our
Lookout Hill property to invest significant time, money and effort in our future.

Our corporate headquarters are
located in Vancouver, British Columbia, but we conduct all of our operations in Mongolia
through our wholly-owned subsidiary, Entrée LLC. We maintain an office for this
purpose in Ulaan Bataar, the capital of Mongolia. Our Mongolian office is staffed by our
Exploration Manager, a Canadian geologist who works in Ulaan Baatar for 11 months of the
year on a 7 weeks in/3 weeks out basis; a Mongolian office administrator employed
full-time, and a Mongolian office assistant, on contract for 11 months per year.

35

---

# Listing of Common Stock
on the American Stock Exchange

On July 7, 2005 the American Stock
Exchange has approved the listing of 86,807,154 shares of our common stock. The trading of
our shares of common stock commenced on the American Stock Exchange effective July 18,
2005, under the trading symbol EGI.

# Other Developments

On May 12, 2005 we entered into a
Lease Agreement dated May 12, 2005 with Alberni Investments (1988) Inc. whereby we will
lease approximately 2,250 square feet of office space in Vancouver, British Columbia for a
5 year term. We have agreed to pay base rent of C$2,625 per month in years one to three
and C$2,812.50 per month in years four and five. We intend to use these leased premises for
our day-to-day operations.

For certain other important
developments, see Part II, Item 2. Unregistered Sales of Equity Securities and Use
of Proceeds. below.

# Plan of Operations and
Cash Requirements

Overview

We are an exploration stage resource
company engaged in exploring mineral resource properties. Our current mineral properties
consist of five mineral exploration licenses granted by the Mineral Resources Authority of
Mongolia, a division of the government of Mongolia. All of these mineral exploration
licenses have been registered in the name of our Mongolian subsidiary Entrée LLC.

There is no assurance that a
commercially viable mineral deposit exists on any of our properties and further
exploration is required before we can evaluate whether any exist and, if so, whether it
would be economically and legally feasible to develop or exploit those resources. Even if
we complete our current exploration program and we are successful in identifying a mineral
deposit, we would be required to spend substantial funds on further drilling and
engineering studies before we could know whether that mineral deposit will constitute a
reserve (a reserve is a commercially viable mineral deposit).

Three of our five mineral properties,
known as the Javhlant, Shivee Tolgoi and Togoot licenses, are contiguous and are referred
to collectively as the Lookout Hill property. A map of the Lookout Hill property has been
included in this quarterly report. We believe that reference to this map will be helpful
to you during your review of our Plan of Operation, below. The Lookout Hill property is
our principal focus at this time, though it is without a known body of commercial ore or
improvements of any kind.

Over the next 12 months we propose to
continue our exploration activities at the Lookout Hill property. As is discussed in
greater detail in the Section of this quarterly report entitled Our Current
Business, beginning at page 32 of this quarterly report, in November 2004, we
entered into an Equity Participation and Earn-In Agreement with Ivanhoe Mines Ltd.
pursuant to which we anticipate that Ivanhoe Mines Ltd. is required to pursue, at its
expense, exploration for minerals on the portion of our Lookout Hill property that is
identified as the Project Property on the map at page 36 of this quarterly
report.Ivanhoe has been operating up to seven drills on that portion of the
Lookout Hill property that is subject to the Equity Participation and Earn-In Agreement.

Drill results from hole EGD006,
collared on Entrées property, 5 meters from the Entrée-Ivanhoe
boundary, intersected the interpreted northwards extension of the Ivanhoes Hugo
North deposit and returned 258m of 2.56% copper and 1.17 g/t gold or a copper equivalent
grade of 3.31% copper (Copper equivalent grades have been calculated using assumed metal
prices of US$0.80/lb. for copper and US$350/oz .for gold; %Cu equivalent = %Cu+ [Au g/t x
(11.25/17.64)]. Subsequently, hole EGD006A intersected 608m of high grade copper
mineralization that averaged 3.24% copper and 0.82 g/t gold or a copper equivalent grade
of 3.77% copper. This intersection in hole EGD006A extended the mineralization 200-300m
vertically below the intercept in hole EGD006. Hole EGD008 intercepted the same
mineralized horizon approximately 450m along strike to the north-northeast of the
intercepts in holes EGD006/6A and averaged 324m of
2.45% copper and 1.23 g/t gold or a copper equivalent grade of 3.25%

36

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copper. Ivanhoe is
continuing its drill testing of the Hugo North extension. Hole EGD016, collared midway
between EGD006/6A, and EGD008, confirmed the continuity of the Hugo North extension by
intersecting a 193.1-metre downhole interval, with average grades of 3.06 % copper and
1.08 g/t gold or a copper equivalent grade of 3.75 % copper. Hole EGD020, collared
approximately 450m north of EGD008 or approximately 900m north of EGD006/6A was lost due
to drilling difficulties within the hangingwall rock units, estimated to be up
to 200m above the targeted depth to the mineralized horizon. The mineralized system
remains open to the north of EGD008 and to depth and continues to be aggressively
evaluated by Ivanhoe.

In July 2005, Rio Tinto plc (one of
the worlds largest mining and exploration companies), through its wholly owned
subsidiary, Kennecott Canada Exploration Inc. (collectively, Rio Tinto)
completed a private placement into Entrée, whereby they purchased 5,665,730, units
at a price of C$2.20 per unit, which consisted of one Entrée common share and two
warrants (one A warrant and one B warrant). Two A
warrants entitle Rio Tinto to purchase one Entrée common share for C$2.75 within
two years; two B warrants entitle Rio Tinto to purchase one Entrée
common share for C$3.00 within two years. Proceeds from Rio Tintos investment were
$10,170,207. Ivanhoe exercised its pre-emptive right to maintain proportional ownership of
Entrées shares and thereby exercised its warrant for 4.6 million shares at
C$1.10, resulting in proceeds of $4,069,214. In July 2005 Ivanhoe took part in the private
placement, purchasing 1,235,489 units, resulting in further proceeds to Entrée of
$2,246,343. Rio Tinto purchased an additional 641,191 units of the private placement to
maintain its proportional ownership, resulting in further proceeds of $1,165,802. Total
gross proceeds to Entrée for these transactions were $17,651,368. See Part II. Item
2. Unregistered Sales of Equity Securities and Use of Proceeds. below.

At the same time, we intend to
continue our exploration activities on the balance of our Lookout Hill property, in
addition to exploration activities on our other mineral properties in Mongolia.

Cost Estimate, Lookout
Hill

In July 2002, Dr. Andrejs Panteleyev
(an independent consulting geologist), recommended a two phase exploration program
consisting of a mix of trenching, geophysical surveying, diamond drilling and geochemical
analysis and assays. The components of Phase I of Dr. Panteleyevs program are
discussed in detail in our Annual Report on Form 10-KSB filed with the SEC on April 6,
2005, and we refer you to that document. We completed Phase 1 of Dr. Panteleyevs
program on July 31, 2003.

At December 31, 2004 we considered
Phase II of the exploration program recommended by Dr. Panteleyev to be complete. The
drilling program in the Zone III, Zones I and II and the X-Grid areas was completed in
August 2004, with drill results released in September 2004. The surface geophysical
surveys to the west and south of the Turquoise Hill property and in the Bayan Ovoo areas
were completed in early November 2004. Trenching and sampling of selected targets,
geological mapping, reconnaissance mapping and sampling over the entire 179,000 hectares
of the Lookout Hill property was finished at the end of November.

In early 2005, our geologists
assessed and compiled all available data and assays, discussed the results with the
geophysical and geochemical consultants and provided input to Dr. Panteleyev. Dr.
Panteleyev reviewed the data gathered during the 2004 exploration season and recommended a
work program for the 2005 exploration season in a report dated February 4, 2005, prepared
in accordance with Canadian securities instrument National Instrument 43-101.

Due to severe weather conditions
during the winter months, all field exploration activities at Lookout Hill were suspended
until mid-February 2005, when the 2005 exploration season began. We expect that the 2005
exploration program will include deep probing geophysical surveys over Zone I/III and
Bayan Ovoo, follow-up drilling in previously drilled areas, drilling in new areas
identified by previous ongoing surveys and continued reconnaissance mapping of the entire
property as outlined in Dr. Panteleyevs latest report. Geophysical surveys for Zone
I/III began in February 2005. As of July 2005, most of the deep probing IP geophysical
investigations were completed. However, extensions to these surveys south of Zones I and
III are being contemplated, along with the evaluation of additional targets. Drilling on
Zones I and III commenced in May 2005. Drilling has been slow due to technical

37

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difficulties, but continues with
numerous targets remaining to be tested. The following table sets out our projected budget
for the 12 month period ending June 30, 2006:

|                                   | June 30, 2006
|---------------------------------- | -------------
|Exploration, Lookout Hill          |              
|Drilling                           |              
|Gradient IP (induced polarization) |              
|Capital expenditures               |              
|Camp operating expenses            |              
|Communication                      |              
|Assays                             |              
|Transport                          |              
|Travel                             |              
|Salaries                           |              
|Ulaan Baatar office                |              
|Contingency (10%)                  |              
|                                   |              
|                                   |              
|                                   |              

We are required to pay annual fees to
the Mineral Resources Authority of Mongolia in order to maintain our five mineral
exploration licenses. Over the 12 month period ending June 30, 2006, we will be required
to pay an aggregate of $269,250 for the Lookout Hill property.

Cost Estimate  Ikh
Ulziit Uul

Although most of our exploration
efforts have been focused on our Lookout Hill Property because it is the most advanced of
our properties to date and it shows promising results, exploration on the Ikh Ulziit Uul
property has increased. Programs including geological mapping and sampling, deep-probing
geophysical (induced polarization and magnetometer) and geochemical surveys are nearing
completion. Selected anomalies will be diamond drilled. The following table shows our
projected budget for the 12 month period ending June 30, 2006 for the Ikh Ulziit Uul
property:

|                            | June 30, 2006
|--------------------------- | -------------
|Exploration, Ikh Ulziit Uul |              
|Drilling                    |              
|Gradient IP                 |              
|Capital expenditures        |              
|Camp operating expenses     |              
|Communication               |              
|Assays                      |              
|Transport                   |              
|Travel                      |              
|Salaries                    |              
|Ulaan Baatar office         |              
|Contingency - 10%           |              
|                            |              
|                            |              
|                            |              

We are required to pay annual fees to
the Mineral Resources Authority of Mongolia in order to maintain our five mineral
exploration licenses. Over the next 12 months ending June 30, 2006, we will be required to
pay $10,500 for the Ikh Ulziit Uul property.

38

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Cost Estimate 
Khatsavch

We also intend to do some preliminary
exploration work consisting mainly of reconnaissance mapping and sampling on the Khatsavch
property during this period, which we estimate will cost approximately $10,000.

We are required to pay annual fees to
the Mineral Resources Authority of Mongolia in order to maintain our five mineral
exploration licenses. Over the next 12 months ending June 30, 2006, we will be required to
pay $63 for the Khatsavch property.

Cost Estimate -Overview

The following table sets out our
combined operating budget for the 12 month period ending June 30, 2006:

|                                            | June 30, 2006
|------------------------------------------- | -------------
|Exploration, combined                       |              
|Lookout Hill                                |              
|Ikh Ulziit Uul                              |              
|Khatsavch                                   |              
|                                            |              
|                                            |              
|Other expenditures                          |              
|Annual license fees                         |              
|New project evaluation                      |              
|Vancouver office                            |              
|Investor relations                          |              
|                                            |              
|Total expenditures                          |              
|                                            |              
|Working Capital, June 30, 2005              |              
|Private placement, July 6, 2005             |              
|Exercise of warrants, July 2005             |              
|                                            |              
|                                            |              
|                                            |              
|Working capital, June 30, 2006, as adjusted |              
|                                            |              

Our average monthly corporate
expenditures, which we have determined based on our experience over the previous 12
months, is estimated to be approximately $94,000 per month or $1,126,000 over the 12 month
period ending June 30, 2006, including estimated legal fees of $198,000.

Over the next 12 months, we
anticipate that we will incur promotional and investor relations costs of approximately
$282,000 consisting of ongoing investor relations fees, investment conferences and
advertising.

A provision for ongoing new project
evaluations and acquisitions during the fall of 2005 has been made. Mongolia will remain
our primary area of interest. A budget of $250,000 has been allocated for this purpose.

As at June 30, 2005, we had working
capital of approximately $18,146,000. We estimate that our expenditures for the 12 month
period ending June 30, 2006 will be approximately $8,993,400. Based on the above assumptions we expect
our working capital at June 30, 2006 to be approximately $13,234,600. In July 2005, the
Company issued 1,876,680 common shares for gross proceeds of $3,412,145 in a private
placement and 619,750 common shares for an aggregate of $669,647 upon the exercise of
warrants.

39

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# Product Research and
Development

Our business plan is focused on the
exploration and development of our mineral resource properties.

We do not anticipate that we will
expend any significant funds on research and development, apart from the evaluation of
potential acquisitions, over the next twelve months ending June 30, 2006.

# Purchase of Significant
Equipment

We do not intend to purchase any
significant equipment over the next twelve months ending June 30, 2006.

# Employees

As at June 30, 2005, we had twelve
full time employees (four in our Vancouver administrative office, five at the Lookout Hill
project and three in our Ulaan Baatar administrative office). We currently employ 100 part
time employees at our Lookout Hill and Ikh Ulziit Uul properties for the 2005 field
exploration season. We do not anticipate making any significant changes to our full-time
staff over the next 12 months.

# APPLICATION OF CRITICAL
ACCOUNTING POLICIES

Our financial statements and
accompanying notes are prepared in conformity with generally accepted accounting
principles in the United States. Preparing financial statements requires management to
make estimates and assumptions that affect the reported amounts of assets, liabilities,
revenue, and expenses. These estimates and assumptions are affected by managements
application of accounting policies. We believe that understanding the basis and nature of
the estimates and assumptions involved with the following aspects of our consolidated
financial statements is critical to an understanding of our balance sheet, the statements
of operations and stockholders equity, and the cash flows statements included
elsewhere in this filing.

# Principles of
Consolidation

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

# Asset Retirement
Obligations

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

# Escrow Shares

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

As described in Note 6 of the consolidated financial
statements, certain of the Companys escrow shares were transferred to a Trustee for the benefit of future
employees, officers and directors of the Company. As these performance escrow shares are
considered

40

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compensatory in nature, the Company
records a compensation benefit at fair value, being the trading price of the
Companys publicly traded common shares, when a portion or all of these performance
escrow shares are allocated to specific individuals and adjusts this compensation benefit
to fair value at the end of each respective reporting period until the performance escrow
shares are released from escrow.

# Stock-Based Compensation

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

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

# Foreign Currency
Translation

The functional currency of the
Company and its wholly-owned subsidiary is the Canadian dollar. Accordingly, monetary
assets and liabilities denominated in a foreign currency are translated at the exchange
rate in effect at the balance sheet date while non-monetary assets and liabilities
denominated in a foreign currency are translated at historical rates. Revenue and expense
items denominated in a foreign currency are translated at exchange rates prevailing when
such items are recognized in the statement of operations. Exchange gains or losses arising
on translation of foreign currency items are included in the statement of operations. The
Company follows the current rate method of translation with respect to its presentation of
these consolidated financial statements in the reporting currency, being the United States
dollar. Accordingly, assets and liabilities are translated into U.S. dollars at the
period-end exchange rates while revenue and expenses are translated at the prevailing
exchange rates during the period. Related exchange gains and losses are included in a
separate component of stockholders equity as accumulated other comprehensive income.

# Net Loss Per Share

Basic net loss per share is computed
by dividing the net loss for the period attributable to common stockholders by the
weighted average number of shares of common stock outstanding during the period. Diluted
net loss per share takes into consideration shares of common stock outstanding (computed
under basic loss per share) and potentially dilutive shares of common stock. Diluted net
loss per share is not presented separately from basic net loss per share as the conversion
of outstanding stock options and warrants into common shares would be anti-dilutive. At
June 30, 2005, the total number of potentially dilutive shares of common stock excluded
from basic net loss per share was 20,014,200 (June 30, 2004  15,697,673).

Shares that remain in escrow are
excluded from the weighted average number of shares of common stock. The number of shares
held in escrow excluded from the weighted average number of shares of common stock was Nil
(June 30, 2004,  5,401,350).

# Recent Accounting
Pronouncements

In December 2004, FASB issued
Statement of Financial Accounting Standards No. 153, Exchanges of Nonmonetary Assets
 an amendment of APB Opinion No. 29 (SFAS 153) which amends
Accounting Principles Board Opinion No. 29,
Accounting for Nonmonetary Transactions to eliminate the exception for
nonmonetary exchanges of similar productive assets

41

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and replaces it with a general
exception for exchanges of nonmonetary assets that do not have commercial substance. A
nonmonetary exchange has commercial substance if the future cash flows of the entity are
expected to change significantly as a result of the exchange. SFAS 153 is effective for
nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005.

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

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

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

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

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

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

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

# RISK FACTORS

Much of the information included in
this quarterly report includes or is based upon estimates, projections or other
forward-looking statements. Such forward-looking statements include any
projections or estimates made by us and our management in connection with our business
operations. While these forward-looking statements, and any assumptions upon which they
are based, are made in good faith and reflect our current judgment regarding the direction
of our business, actual results will almost always vary, sometimes materially, from any
estimates, predictions, projections, assumptions, or other future performance suggested
herein. We undertake no obligation to update forward-looking statements to reflect events
or circumstances occurring after the date of such statements.

Such estimates, projections or other
forward-looking statements involve various risks and uncertainties as
outlined below. We caution readers of this quarterly report that important factors in
some cases have affected and, in the

42

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future, could materially affect actual results and cause actual
results to differ materially from the results expressed in any such estimates, projections
or other forward-looking statements. In evaluating us, our business and any
investment in our business, readers should carefully consider the following factors.

# RISKS ASSOCIATED WITH
MINING

All five of our properties are in
the exploration stage. There is no assurance that we can establish the existence of any
mineral resource on any of our properties in commercially exploitable quantities. Until we
can do so, we cannot earn any revenues from operations and if we do not do so we will lose
all of the funds that we expend on exploration. If we do not discover any mineral resource
in a commercially exploitable quantity, our business will fail.

Despite exploration work on our
mineral properties, we have not established that any of them contain any mineral reserve,
nor can there be any assurance that we will be able to do so. If we do not, our business
will fail.

A mineral reserve is defined by the
Securities and Exchange Commission in its Industry Guide 7 (which can be viewed over the
Internet at http://www.sec.gov/divisions/corpfin/forms/industry.htm#secguide7) as
that part of a mineral deposit which could be economically and legally extracted or
produced at the time of the reserve determination. The probability of an individual
prospect ever having a reserve that meets the requirements of the Securities
and Exchange Commissions Industry Guide 7 is extremely remote; in all probability
our mineral resource property does not contain any reserve and any funds that
we spend on exploration will probably be lost.

Even if we do eventually discover a
mineral reserve on one or more of our properties, there can be no assurance that we will
be able to develop our properties into producing mines and extract those resources. Both
mineral exploration and development involve a high degree of risk and few properties which
are explored are ultimately developed into producing mines.

The commercial viability of an
established mineral deposit will depend on a number of factors including, by way of
example, the size, grade and other attributes of the mineral deposit, the proximity of the
resource to infrastructure such as a smelter, roads and a point for shipping, government
regulation and market prices. Most of these factors will be beyond our control, and any of
them could increase costs and make extraction of any identified mineral resource
unprofitable.

Mineral operations are subject to
applicable law and government regulation. Even if we discover a mineral resource in a
commercially exploitable quantity, these laws and regulations could restrict or prohibit
the exploitation of that mineral resource. If we cannot exploit any mineral resource that
we might discover on our properties, our business may fail.

Both mineral exploration and
extraction require permits from various foreign, federal, state, provincial and local
governmental authorities and are governed by laws and regulations, including those with
respect to prospecting, mine development, mineral production, transport, export, taxation,
labour standards, occupational health, waste disposal, toxic substances, land use,
environmental protection, mine safety and other matters. There can be no assurance that we
will be able to obtain or maintain any of the permits required for the continued
exploration of our mineral properties or for the construction and operation of a mine on
our properties at economically viable costs. If we cannot accomplish these objectives, our
business could fail.

We believe that we are in compliance
with all material laws and regulations that currently apply to our activities but there
can be no assurance that we can continue to do so. Current laws and regulations could be
amended and we might not be able to comply with them, as amended. Further, there can be no
assurance that we will be able to obtain or maintain all permits necessary for our future
operations, or that we will be able to obtain them on reasonable terms. To the extent such
approvals are required and are not obtained, we may be delayed or prohibited from
proceeding with planned exploration or development of our mineral properties.

43

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Environmental hazards unknown to us
which have been caused by previous or existing owners or operators of the properties may
exist on the properties in which we hold an interest. More specifically, we are required
to deposit 50% of our proposed reclamation budget with the local Province Governors office
which will be refunded only on acceptable completion of land rehabilitation after mining
operations have concluded. Even if we relinquish our licenses, we will still remain
responsible for any required reclamation.

If we establish the existence of a
mineral resource on any of our properties in a commercially exploitable quantity, we will
require additional capital in order to develop the property into a producing mine. If we
cannot raise this additional capital, we will not be able to exploit the resource, and our
business could fail.

If we do discover mineral resources
in commercially exploitable quantities on any of our properties, we will be required to
expend substantial sums of money to establish the extent of the resource, develop
processes to extract it and develop extraction and processing facilities and
infrastructure. Although we may derive substantial benefits from the discovery of a major
deposit, there can be no assurance that such a resource will be large enough to justify
commercial operations, nor can there be any assurance that we will be able to raise the
funds required for development on a timely basis. If we cannot raise the necessary capital
or complete the necessary facilities and infrastructure, our business may fail.

Mineral exploration and
development is subject to extraordinary operating risks. We do not currently insure
against these risks. In the event of a cave-in or similar occurrence, our liability may
exceed our resources, which would have an adverse impact on our company.

Mineral exploration, development and
production involves many risks which even a combination of experience, knowledge and
careful evaluation may not be able to overcome. Our operations will be subject to all the
hazards and risks inherent in the exploration, development and production of resources,
including liability for pollution, cave-ins or similar hazards against which we cannot
insure or against which we may elect not to insure. Any such event could result in work
stoppages and damage to property, including damage to the environment. We do not currently
maintain any insurance coverage against these operating hazards. The payment of any
liabilities that arise from any such occurrence would have a material, adverse impact on
our company.

Mineral prices are subject to
dramatic and unpredictable fluctuations.

We expect to derive revenues, if any,
from the extraction and sale of precious and base metals such as gold, silver and copper.
The price of those commodities has fluctuated widely in recent years, and is affected by
numerous factors beyond our control including international, economic and political
trends, expectations of inflation, currency exchange fluctuations, interest rates, global
or regional consumptive patterns, speculative activities and increased production due to
new extraction developments and improved extraction and production methods. Mongolian law
requires the sale or export of gold mined in Mongolia to be made through the Central Bank
of Mongolia and/or other authorized entities at world market prices. The effect of these
factors on the price of base and precious metals, and, therefore, the economic viability
of any of our exploration projects, cannot accurately be predicted.

The mining industry is highly
competitive and there is no assurance that we will continue to be successful in acquiring
mineral claims. If we cannot continue to acquire properties to explore for mineral
resources, we may be required to reduce or cease operations.

The mineral exploration, development,
and production industry is largely unintegrated. We compete with other exploration
companies looking for mineral resource properties and the resources that can be produced
from them. While we compete with other exploration companies in the effort to locate and
license mineral resource properties, we do not compete with them for the removal or sales
of mineral products from our properties if we should eventually discover the presence of
them in quantities sufficient to make production economically feasible. Readily available
markets exist worldwide for the sale of gold and other mineral products. Therefore, we
will likely be able to sell any gold or mineral products that we identify and produce.

44

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We compete with many companies
possessing greater financial resources and technical facilities. This competition could
adversely affect our ability to acquire suitable prospects for exploration in the future.
Accordingly, there can be no assurance that we will acquire any interest in additional
mineral resource properties that might yield reserves or result in commercial mining
operations.

Our title to our resource
properties may be challenged by third parties or the licenses that permit us to explore
our properties may expire if we fail to timely renew them and pay the required fees.

We have investigated the status of
our title to the five mining licenses granting us the right to explore the Togoot (License
3136X), Shivee Tolgoi (License 3148X), Javhlant (License No. 3150X), Ikh Uulziit Uul
(License No. 3045X) and Khatsavch (License 6500X) mineral resource properties and we are
satisfied that the title to these five licenses is properly registered in the name of our
Mongolian subsidiary, Entrée LLC and that these licenses are currently in good
standing.

We cannot guarantee that the rights
to explore our properties will not be revoked or altered to our detriment. The ownership
and validity of mining claims and concessions are often uncertain and may be contested.
Should such a challenge to the boundaries or registration of ownership arise, the
Government of Mongolia may declare the property in question a special reserve for up to
three years to allow resolution of disputes or to clarify the accuracy of our mining
license register. We are not aware of challenges to the location or area of any of the
mining concessions and mining claims. There is, however, no guarantee that title to the
claims and concessions will not be challenged or impugned in the future. Further, all of
our licenses are exploration licenses, which are issued initially for a three-year term
with a right of renewal for two more years, and a further right of renewal for two years,
making a total of seven years. If we fail to pay the appropriate annual fees or if we fail
to timely apply for renewal, then these licenses may expire or be forfeit.

# RISKS RELATED TO OUR
COMPANY

We have a limited operating
history on which to base an evaluation of our business and prospects.

Although we have been in the business
of exploring mineral resource properties since 1995, we have not yet located any mineral
reserve. As a result, we have never had any revenues from our operations. In addition, our
operating history has been restricted to the acquisition and exploration of our mineral
properties and this does not provide a meaningful basis for an evaluation of our prospects
if we ever determine that we have a mineral reserve and commence the construction and
operation of a mine. We have no way to evaluate the likelihood of whether our mineral
properties contain any mineral reserve or, if they do that we will be able to build or
operate a mine successfully. We anticipate that we will continue to incur operating costs
without realizing any revenues during the period when we are exploring our properties.
During the twelve months ending June 30, 2006, we expect to spend approximately $8,993,000
on the maintenance and exploration of our mineral properties and the operation of our
company. We therefore expect to continue to incur significant losses into the foreseeable
future. We recognize that if we are unable to generate significant revenues from mining
operations and any dispositions of our properties, we will not be able to earn profits or
continue operations. At this early stage of our operation, we also expect to face the
risks, uncertainties, expenses and difficulties frequently encountered by companies at the
start up stage of their business development. We cannot be sure that we will be successful
in addressing these risks and uncertainties and our failure to do so could have a
materially adverse effect on our financial condition. There is no history upon which to
base any assumption as to the likelihood that we will prove successful and we can provide
investors with no assurance that we will generate any operating revenues or ever achieve
profitable operations.

The fact that we have not earned
any operating revenues since our incorporation raises substantial doubt about our ability
to continue to explore our mineral properties as a going concern.

We have not generated any revenue
from operations since our incorporation and we anticipate that we will continue to incur
operating expenses without revenues unless and until we are able to identify a mineral
resource in a commercially exploitable quantity on one or more of our mineral properties
and we build and operate a mine. We had cash in the amount of $18,580,558 as of June 30,
2005. In July 2005, the Company completed a series of
transactions with Rio Tinto plc and
Ivanhoe, raising $3,412,145. In July 2005, the Company also raised $669,647 upon the
exercise of warrants. See Part II. Item 2. Unregistered Sales of Equity Securities
and Use of Proceeds. below.

As at June 30, 2005, we had working
capital of $18,146,287. We estimate our average monthly operating expenses to be
approximately $750,000 each month, including exploration, general and administrative
expense and investor

45

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relations expenses. As a result, we
believe that we will not have to raise additional funds to meet our currently budgeted
operating requirements for the next 12 months. As we cannot assure a lender that we will
be able to successfully explore and develop our mineral properties, we will probably find
it difficult to raise debt financing in the future. We have traditionally raised our
operating capital from sales of equity, but there can be no assurance that we will
continue to be able to do so. If we cannot raise the money that we need to continue
exploration of our mineral properties in the future, we may be forced to delay, scale
back, or eliminate our exploration activities. If any of these actions were to occur,
there is a substantial risk that our business would fail.

Our by-laws and employment
agreements between our company and some of our officers and directors indemnify our
officers and directors against costs, charges and expenses incurred by them in the
performance of their duties.

Our by-laws contain provisions
limiting the liability of our officers and directors for all acts, receipts, neglects or
defaults of themselves and all of our other officers or directors or for any other loss,
damage or expense incurred by our company which shall happen in the execution of the
duties of such officers or directors, as do employment agreements between our company and
some of our officers and directors. Such limitations on liability may reduce the
likelihood of derivative litigation against our officers and directors and may discourage
or deter our shareholders from suing our officers and directors based upon breaches of
their duties to our company, though such an action, if successful, might otherwise benefit
our company and our shareholders.

Investors interests in our
company will be diluted and investors may suffer dilution in their net book value per
share if we issue employee/director/consultant options or if we issue additional shares to
finance our operations.

We have not ever generated revenue
from operations. We are currently without a source of revenue and will most likely be
required to issue additional shares to finance our operations and, depending on the
outcome of our exploration programs, may issue additional shares to finance additional
exploration programs of any or all of our projects or to acquire additional properties. We
may also in the future grant to some or all of our directors, officers, insiders, and key
employees options to purchase our common shares as non-cash incentives to those persons.
Such options may be granted at exercise prices equal to market prices, or at prices as
allowable under the policies of the TSX Venture Exchange, when the public market is
depressed. The issuance of any equity securities could, and the issuance of any additional
shares will, cause our existing shareholders to experience dilution of their ownership
interests.

If we issue additional shares or
decide to enter into joint ventures with other parties in order to raise financing through
the sale of equity securities, investors interests in our company will be diluted
and investors may suffer dilution in their net book value per share depending on the price
at which such securities are sold. As at June 30, 2005, we also had outstanding common
share purchase warrants and options exercisable into 20,014,200 common shares which, if
exercised, would represent approximately 24% of our issued and outstanding shares. If all
of these warrants and options are exercised and the underlying shares are issued, such
issuance will cause a reduction in the proportionate ownership and voting power of all
other shareholders. The dilution may result in a decline in the market price of our
shares.

Earnings and Dividend
Record.

We have no earnings or dividend
record. We have not paid dividends on our common shares since incorporation and do not
anticipate doing so in the foreseeable future. We do not generate any cash flow from
operations and could not expect to do so in the foreseeable future.

Conflicts of Interest.

Certain of our officers and
directors may be or become associated with other natural resource companies that acquire
interests in mineral properties. Such associations may give rise to conflicts of interest
from time to time. Our directors are required by law to act honestly and in good faith
with a view to our best interests and to disclose any interest which they may have in any
of our projects or opportunities. In general, if a conflict of interest arises at a
meeting of the board of directors, any director in a conflict will disclose his interest
and abstain from voting on such matter or, if he does vote, his vote does not count. In
determining whether or not we will participate in any project

46

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or opportunity, the director will
primarily consider the degree of risk to which we may be exposed and our financial
position at that time.

Dependence on Key
Management Employees.

The nature of our business, our
ability to continue our exploration and development activities and to develop a
competitive edge in the marketplace depends, in large part, on our ability to attract and
maintain qualified key management personnel. Competition for such personnel is intense,
and there can be no assurance that we will be able to attract and retain such personnel.
Our development now and in the future will depend on the efforts of key management
figures, such as Gregory Crowe and Robert Cann. The loss of any of these key people could
have a material adverse effect on our business. We do not currently maintain key-man life
insurance on any of our key employees.

Climatic Conditions.

Mongolias weather normally
varies to the extremes, from temperature highs in the summer of 40° Celsius to lows of
minus 40° Celsius in the winter. Such adverse conditions often preclude normal work
patterns and can severely limit mining operations, usually making work impossible from
November through to March. Although good project planning can ameliorate these factors,
unseasonable weather can upset programs with resultant additional costs and delays.

Limited Ability to Hedge
or Engage in Forward Sales.

While Mongolian law allows a company,
by various applications and processes, to export and sell our own gold production, in
practice, this is a difficult matter, with the result that we will have limited ability to
engage in forward sales of, or to hedge, any future gold production.

Fluctuations in Currency
Exchange Rates.

Fluctuations in currency exchange
rates, particularly operating costs denominated in currencies other than United States
dollars, may significantly impact our financial position and results. We face risks
associated with fluctuations in Canadian, U.S. and Mongolian currencies.

# RISKS ASSOCIATED WITH
OUR COMMON STOCK

We currently do not have an
operating business and therefore, the market price for our common shares may be volatile.

The market price for our common
shares may be significantly affected by our current lack of an operating business and, if
and after we commence operations, our financial and operations results from time-to-time.
Further, equity markets in general can experience
extreme volatility that can affect the market price of equity securities in ways that are
often unrelated or disproportionate to the operating performance of the issuer companies.
You should not invest in our company unless you are prepared to hold onto your securities
for a significant period of time.

Because we do not intend to pay
any dividends on our common shares, investors seeking dividend income or liquidity should
not purchase our shares.

We do not currently anticipate
declaring and paying dividends to our shareholders in the near future. It is our current
intention to apply net earnings, if any, in the foreseeable future to increasing our
working capital. Prospective investors seeking or needing dividend income or liquidity
should, therefore, not purchase our common stock. We currently have no revenues and a
history of losses, so there can be no assurance that we will ever have sufficient earnings
to declare and pay dividends to the holders of our shares, and in any event, a decision to
declare and pay dividends is at the sole discretion of our board of directors, who
currently do not intend to pay any dividends on our common shares for the foreseeable
future.

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# Item 3.    Controls and
Procedures

As required by Rule 13a-15 under the
Exchange Act, as of the end of the period covered by this quarterly report, being June
30, 2005, we have carried out an evaluation of the effectiveness of the design and
operation of our companys disclosure controls and procedures. This evaluation was
carried out under the supervision and with the participation of our companys
management, including our companys President along with our companys Chief
Financial Officer. Based upon that evaluation, our companys President along with our
companys Chief Financial Officer concluded that our companys disclosure
controls and procedures are effective as at the end of the period covered by this report.
There have been no significant changes in our companys internal controls or in other
factors, which could significantly affect internal controls subsequent to the date we
carried our evaluation.

Disclosure controls and procedures
and other procedures that are designed to ensure that information required to be disclosed
in our reports filed or submitted under the Exchange Act is recorded, processed,
summarized and reported, within the time period specified in the Securities and Exchange
Commissions rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required to be
disclosed in our reports filed under the Exchange Act is accumulated and communicated to
management, including our President and Chief Financial Officer as appropriate, to allow
timely decisions regarding required disclosure.

# Part II  OTHER
INFORMATION

# Item 1.    Legal
Proceedings.

We know of no material, active or
pending legal proceedings against our company, nor are we involved as a plaintiff in any
material proceeding or pending litigation. There are no proceedings in which any of our
directors, officers or affiliates, or any registered or beneficial shareholder, is an
adverse party or has a material interest adverse to our interest.

# Item 2.    Unregistered
Sales of Equity Securities and Use of Proceeds.

On January 7, 2005 we granted a total
of 400,000 stock options at a price of Cdn$1.28 to a consultant to our company. The
options are exercisable for a period of 5 years. The consultant to whom we granted these
options is a non-U.S. person, the options were not granted in the United States or
pursuant to any advertisement, there was no directed selling into the United States and we
relied on the exemption from registration provided for under Regulation S promulgated
under the Securities Act of 1933, as amended.

On March 3, 2005 we granted a total
of 100,000 stock options at a price of Cdn$1.19 to a consulting firm to our company. The
options are exercisable for a period of 3 years. The consulting firm to whom we granted
these options is a non-U.S. firm, the options were not granted in the United States or
pursuant to any advertisement, there was no directed selling into the United States and we
relied on the exemption from registration provided for under Regulation S promulgated
under the Securities Act of 1933, as amended.

On March 3, 2005 we granted a
total of 75,000 stock options at a price of Cdn$1.19 to a consultant to our company. The
options are exercisable for a period of 5 years. The consultant to whom we granted these
options is a non-U.S. person, the options were not granted in the United States or
pursuant to any advertisement, there was no directed selling into the United States and we
relied on the exemption from registration provided for under Regulation S promulgated
under the Securities Act of 1933, as amended.

On May 24, 2005, we entered into an
Investor Relations Agreement dated May 24, 2005 with Martin Robert Griesdorf whereby Mr.
Griesdorf agreed to perform investor relations support for us on an as-needed basis in the
United States. The agreement is effective for a period of 12 months from May 24, 2005.
Either party may terminate the agreement at any time. Pursuant to the investor relations
agreement, we granted to Mr. Griesdorf options to purchase an aggregate of 75,000 shares
of our common stock at an exercise price of C$1.48 per share, exercisable until May 24,
2010. These share purchase options will vest, in accordance with the terms of our Stock
Option Plan and the policies of the TSX Venture Exchange, in twelve equal monthly
instalments of 6,250 shares on the 24th day of each month during the 12 month period
beginning on June 24, 2005 and ending on May 24, 2006. Mr. Griesdorf is an accredited
investor, as defined in Rule 501 of Regulation D promulgated under the Securities Act of
1933. He is not a member of the general public, the agreement to issue these share
purchase options did not involve any advertisement or public offering and we issued these
securities to him relying on the exemption from registration provided in section 4(2) of
the Securities Act of 1933, as amended, and/or Rule 506 of Regulation D promulgated
thereunder.

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On June 9, 2005, we granted stock
options to 24 of our directors, officers, employees and consultants to purchase an
aggregate of 2,545,000 shares of our common stock at an exercise price of C$1.75 per
share, exercisable until June 9, 2010. These share purchase options will vest in
accordance with the terms of our Stock Option Plan and the policies of the TSX Venture
Exchange 22 of the 24 people to whom we granted options are not U.S. persons, nor were the
options granted to them granted in the United States, and in granting these options we
relied on the exemption from registration provided by Regulation S promulgated under the
Securities Act of 1933, as amended. The remaining two of the 24 option grantees were U.S.
persons. One of these people is a member of our Board of Directors and the other is a
geologist serving as an exploration manager on our Shivee Tolgoi property in Mongolia, and
in granting these options we relied on the exemptions from registration provided by
section 4(2) of the Securities Act of 1933, as amended, and/or Rule 506 of Regulation D
promulgated thereunder.

In June 2005, the Company completed a
non-brokered private placement, consisting of 5,665,730 units at a price of C$2.20 per
unit for gross proceeds of $10,170,207. Each unit consisted of one common share and one
non-transferable share purchase A warrant and one non-transferable share purchase B
warrant. Two A warrants entitle the holder to purchase one common share of the Company at
a price of C$2.75 for a period of two years. Two B warrants entitle the holder to purchase
one common share of the Company at a price of C$3.00 for a period of two years. Pursuant
to an agreement with the Company, the placee, Kennecott Canada Exploration Inc., an
indirect wholly-owned subsidiary of Rio Tinto plc has the right to acquire additional
securities and participate in future financings by the Company so as to maintain its
proportional equity in the Company. Related share issue costs were comprised of cash costs
totalling $521,798. We intend to use the proceeds of the private placement to fund
drilling and other exploration work on our Mongolian projects and to provide working
capital. All of these securities were issued to non-U.S. persons (as that term is defined
in Regulation S of the Securities Act of 1933) in offshore transactions and we relied on
the exemption from registration provided for in Regulation S, promulgated under the
Securities Act of 1933, as amended.

On June 27, 2005, Ivanhoe Mines Ltd.
exercised 4.6 million share purchase warrants originally acquired by it from our company
in November, 2004, and received 4.6 million of our common shares at an exercise price of
C$1.10 per share, resulting in proceeds of $4,069,214 to the Company. There were no
underwriting discounts or commissions. These common shares of our company were issued to a
non-U.S. person (as that term is defined in Regulation S of the Securities Act of 1933) in
an offshore transaction and we relied on the exemption from registration provided for in
Regulation S, promulgated under the Securities Act of 1933, as amended.

On July 7, 2005 the Company completed
an additional non-brokered private placement to Kennecott Canada Exploration Inc.
consisting of 641,191 units at a price of C$2.20 per unit for gross proceeds of
$1,165,802. Ivanhoe Mines Ltd. also took part in the private placement, purchasing
1,235,489 units, resulting in proceeds of $2,246,344 to the Company. Each unit consisted
of one common share and one non-transferable share purchase A warrant and one
non-transferable share purchase B warrant. Two A warrants entitle the holder to purchase
one common share of the Company at a price of C$2.75 for a period of two years. Two B
warrants entitle the holder to purchase one common share of the Company at a price of
C$3.00 for a period of two years. All of these securities were issued to non-U.S. persons
(as that term is defined in Regulation S of the Securities Act of 1933) in offshore
transactions and we relied on the exemption from registration provided for in Regulation
S, promulgated under the Securities Act of 1933, as amended.

During the six month period ended
June 30, 2005, the Company issued 1,660,800 common shares for aggregate cash proceeds of
$1,771,610 on the exercise of warrants by multiple investors. During the three month
period ended June 30, 2005, the Company issued 245,000 common shares for aggregate cash
proceeds of $151,590 on the exercise of stock options by directors, employees and
consultants. In July, 2005 the Company issued 619,750 common shares upon the exercise of
warrants by multiple investors for aggregate proceeds of $669,647. All of these securities
were issued to non-U.S. persons (as that term is defined in Regulation S of the Securities
Act of 1933) in offshore transactions and we relied on the exemption from registration
provided for in Regulation S, promulgated under the Securities Act of 1933, as amended.

# Item 3.    Defaults Upon
Senior Securities.

None.

Item 4.    Submission of Matters to a
Vote of Security Holders.

None.

# Item 5.    Other
Information.

None.

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# Item 6.    Exhibits.

Exhibits Required by Item 601
of Regulation S-B.

Exhibit Number/Description

# (3)     Articles of
Incorporation and Bylaws

3.1     Certificate of Incorporation July
19, 1995 (incorporated by reference from our Registration Statement on Form 10-SB filed
with the SEC on October 12, 2004)

3.2      Memorandum of Incorporation dated
July 13, 1995 (incorporated by reference from our Registration Statement on Form 10-SB
filed with the SEC on October 12, 2004)

3.3      Articles of Incorporation dated
July 13, 1995 (incorporated by reference from our Registration Statement on Form 10-SB
filed with the SEC on October 12, 2004)

3.4      Form 19  Special Resolution
filed November 5, 1997 (incorporated by reference from our Registration Statement on Form
10-SB filed with the SEC on October 12, 2004)

3.5      Form 19  Special Resolution
filed February 5, 2001 (incorporated by reference from our Registration Statement on Form
10-SB filed with the SEC on October 12, 2004)

3.6      Certificate of Name Change dated
February 5, 2001 (incorporated by reference from our Registration Statement on Form 10-SB
filed with the SEC on October 12, 2004)

3.7      Form 19  Special Resolution
filed October 9, 2002 (incorporated by reference from our Registration Statement on Form
10-SB filed with the SEC on October 12, 2004)

3.8      Certificate of Name Change dated
October 9, 2002 (incorporated by reference from our Registration Statement on Form 10-SB
filed with the SEC on October 12, 2004)

3.9      Letter regarding continuation to
Yukon Territory (incorporated by reference from our Registration Statement on Form 10-SB
filed with the SEC on October 12, 2004)

3.10     Certificate of Continuance
(incorporated by reference from our Registration Statement on Form 10-SB filed with the
SEC on October 12, 2004)

3.11     Articles of Continuance
(incorporated by reference from our Registration Statement on Form 10-SB filed with the
SEC on October 12, 2004)

3.12         Bylaw No. 1 (incorporated  by reference from our  Registration  Statement on Form 10-SB filed with the
SEC on October 12, 2004)

3.13     Certificate of Amendment dated
June 16, 2004 (incorporated by reference from our Registration Statement on Form 10-SB
filed with the SEC on October 12, 2004)

3.14     Articles dated May 23, 2005
(incorporated by reference from our current report on Form 8-K filed with the SEC on June
8, 2005)

3.15     Certificate of Continuance dated
May 27, 2005 (incorporated by reference from our current report on Form 8-K filed with the
SEC on June 8, 2005)

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# (10)     Material Contracts

10.1     Restated Share Transfer
Agreement and Trust Deed dated May 31, 2002 between Campney & Murphy, 430692 BC Ltd.
and Entrée Gold Inc. (incorporated by reference from our Registration Statement on
Form 10-SB filed with the SEC on October 12, 2004)

10.2     Consulting Agreement dated July
1, 2002 between Entrée Resources Inc. and Greg Crowe. (incorporated by reference
from our Registration Statement on Form 10-SB filed with the SEC on October 12, 2004)

10.3     Employment Agreement dated July
15, 2002 between Entrée Resources Inc. and Robert Cann. (incorporated by reference
from our Registration Statement on Form 10-SB filed with the SEC on October 12, 2004)

10.4         Investor  Relations
 Agreement  dated  December  20, 2002  between  Entree  Gold Inc.  and Tim Mikula.
(incorporated  by  reference  from our  Registration  Statement on Form 10-SB filed with
the SEC on October 12, 2004)

10.5     Investor Relations Agreement
dated February 19, 2003 between Entrée Gold Inc. and Tony R. Collins. (incorporated
by reference from our Registration Statement on Form 10-SB filed with the SEC on October
12, 2004)

10.6         Consulting  Services
 Agreement  dated  February  20, 2003  between  Entree Gold Inc.  and  Buckingham
Securities  Limited  (incorporated  by reference from our  Registration  Statement on
Form 10-SB filed with the SEC on October 12, 2004)

10.7     Purchase Agreement dated
September 13, 2003 between Mongol Gazar Co, Ltd., MGP LLC, Entrée Gold Inc. and
Entrée LLC (incorporated by reference from our Registration Statement on Form 10-SB
filed with the SEC on October 12, 2004)

10.8     Employment Agreement dated
September 19, 2003 between Entrée Gold Inc. and Mona M. Forster. (incorporated by
reference from our Registration Statement on Form 10-SB filed with the SEC on October 12, 2004)

10.9     Consulting Agreement dated
October 31, 2003 between Entrée Gold Inc. and Primoris Group Inc. (incorporated by
reference from our Registration Statement on Form 10-SB filed with the SEC on October 12, 2004)

10.10    Employment Agreement dated
November 1, 2003 between Entrée Gold Inc. and Greg Crowe (incorporated by reference
from our Registration Statement on Form 10-SB filed with the SEC on October 12, 2004)

10.11     Amendment Agreement dated
November 6, 2003 between Mongol Gazar Co, Ltd., MGP LLC, Entrée Gold Inc. and
Entrée LLC (incorporated by reference from our Registration Statement on Form 10-SB
filed with the SEC on October 12, 2004)

10.12     Purchase Agreement dated
November 6, 2003 between Mongol Gazar LLC and Entrée LLC (incorporated by reference
from our Registration Statement on Form 10-SB filed with the SEC on October 12, 2004)

10.13        Drilling  Contract dated
March 4, 2004 between  Can-Asia  Drilling  Services Ltd. and Entree Gold Inc.
(incorporated  by  reference  from our  Registration  Statement on Form 10-SB filed with
the SEC on October 12, 2004)

10.14     Agreement dated April 20, 2004
between Mongol Gazar Co., Ltd., Entrée Gold Inc. and Entrée LLC.
(incorporated by reference from our Registration Statement on Form 10-SB filed with the
SEC on October 12, 2004)

10.15     Equity Participation and
Earn-In Agreement dated October 15, 2004 between Entrée Gold Inc. and Ivanhoe Mines
Ltd. (incorporated by reference from our Amended Registration Statement on Form 10-SB/A
filed with the SEC on December 9, 2004)

10.16     Lease between Entrée
Gold Inc. and Alberni Investments (1988) Inc. dated May 12, 2005 (incorporated by
reference from Exhibit 10.1 of our current report on Form 8-K filed with the SEC on May
25, 2005)

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10.17     Investor Relations Agreement
between Entrée Gold Inc. and Martin Robert Griesdorf dated May 24, 2005
(incorporated by reference from Exhibit 10.1 of our current report on Form 8-K filed with
the SEC on May 31, 2005)

10.18     Stock Option Plan dated August
16, 2002, as amended May 17, 2005. (incorporated by reference from Exhibit 10.1 of our
current report on Form 8-K filed with the SEC on June 15, 2005)

10.19     Equity Participation Agreement
dated as of June 17, 2005 between the Company and Kennecott Canada Exploration Inc.
(incorporated by reference from Exhibit 10.1 of our current report on Form 8-K filed with
the SEC on June 22, 2005)

# (14)    Code of Ethics

14.1        Code of Ethics
(incorporated by reference from our Annual Report on Form 10-KSB, filed on April 6, 2005)

# (31)    Section 302
Certifications

31.1     Certification of Greg Crowe 
31.2     Certification of Hamish Malkin

# (32) Section 906
Certification

32.1     Certification of Greg Crowe
32.2     Certification of Hamish Malkin

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# SIGNATURES

In accordance with the requirements
of the Exchange Act, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

ENTREE GOLD INC.


By:  
/s/ Greg Crowe

Greg Crowe, President, CEO and Director
(Principal Executive Officer)

Date:   August 11, 2005


By:  
/s/ Hamish Malkin
Hamish Malkin, CFO and Secretary
(Principal Financial Officer)

Date:  August 11, 2005

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