The Company’s ability to continue its mine development activities, exploration activities and producti on activities, and to continue as a going concern, will depend on its ability to obtain suitable financing and to generate cash flow from gold production. The Company has generated positive cash flow from operations in its first full quarter of commercial production. Management believes it is able to obtain adequate working capital to continue the on-going operations through its Selinsing mine operation and other financing vehicles. However, the positive cash flow generated from the plant cannot be seen as an indication for future profitability. The profitability of the Company is affected by various factors, including the amount of gold produced and sold, the market price of gold, operating costs, interest rates, environmental costs, labour risk and political risk. The Company seeks to manage risks associated with its business; however, many of the factors affecting these risks are beyond the Company’s control. 

Financing may be required from time to time to meet its business development program. Whether the Company is able to generate adequate cash to meet its capital requirements is affected by a number of external economic factors beyond the Company’s control. 

None. 

Refer to note 14 of the audited consolidated financial statements as at June 30, 2011. 

## Summary 

1.8 Off Balance Sheet Arrangements 

1.9 Transactions with Related Parties 

1.10 Fourth Quarter 

The operating results of the Company reflect its income from operations, on-going corporate business development, administrative costs and other income or expenses such as interest, accretion expense, fair value gains or losses on derivative liabilities and foreign exchange gains or losses. 

For the three months ended June 30, 2011, commercial production from the Selinsing Gold Project, generated an income of $10,880,950, or $0.06 per share, net of operating and corporate expenses, which was mainly increased by other gains due to changes in fair value on derivative liabilities of $826,720 estimated using Black-Scholes financial model and fair value on a gold forward contract of $129,102, offset by foreign exchange loss of $213,887 and accretion expense of $312,560 that resulted in a net income of $10,880,950, or $0.06 per share, compared to a net loss of $638,475, or $(0.00) per share, reported for the corresponding period in fiscal 2010. 

## Sales, Cost of Goods Sold and Gross Margin from Mining Operations 

Revenue from the sale of metals is recognized in the financial statements when the following conditions are met: persuasive evidence of an arrangement exists; title and risk passes to buyer, the price is fixed or determinable; and collectability is reasonably assured. Incidental revenues from the sale of silver by-products are classified within cost of sales. 

For the three months ended June 30, 2011, the Company had gold sales of $16,617,862, produced 12,136 ounces of gold and sold 10,936 ounces of gold at an average realized price of $1,520. 

For the three months ended June 30, 2011, cash cost of goods sold amounted to $2,867,144 or $262/oz, comprised primarily of $589,833, or $53/oz for mining; $1,506,594, or $138/oz for processing; $827,765, or $76/oz for royalties, and $75,275, offset by silver sales of $132,323, or $(5)/oz for operations. 

## Accretion and Depletion 

Other operating expenses included depletion and accretion of $1,133,064 for the three months ended June 30, 2011. Depletion began in September 2010, in conjunction with the commencement of commercial production. 

