Summary of XTRA-GOLD RESOURCES CORP

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS

The following discussion and analysis of our consolidated financial conditions and results of operations for the year ended December 31, 2008 and 2007 should be read in conjunction with the consolidated financial statements and the related notes to our consolidated financial statements and other information presented elsewhere in this Report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to those discussed below and elsewhere in this Report, particularly in the item entitled "Risk Factors" beginning on page 8 of this Report. Our consolidated audited financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles.

Plan of Operations

We are a gold exploration company engaged in the exploration of gold properties in the Republic of Ghana, West Africa. Our mining portfolio currently consists of 246.84 square kilometers (also referred to herein as "sq km") comprised of 51.67 sq km for our Banso Project, 55.65 sq km for our Muoso Project, 33.65 sq km for our Apapam Project, 44.76 sq km for our Kwabeng Project, 40.51 sq km for our Pameng Project and 20.60 sq km for our Edum Banso Project, or 60,969 acres, pursuant to the leased and licensed areas set forth in our respective mining leases, prospecting licenses and/or option agreement.

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Our strategic plan is, with respect to our gold projects: (i) to define potential reserves on our exploration projects; (ii) to mine the mineralized material, where possible, to generate cash proceeds to assist funding of our exploration programs; and (iii) to acquire further interests in gold mineralized projects and oil and gas prospects that fall within the criteria of providing a geological basis for development of drilling initiatives that can enhance shareholder value by demonstrating potential to define reserves.

We anticipate that our ongoing efforts, subject to adequate funding being available, will continue to be focused on the exploration and development of our properties and completing acquisitions in strategic areas.

Our ability to continue to expand land acquisitions and drilling opportunities during the next 12 months is dependent on adequate capital resources being available. In October 2008, we temporarily suspended our operations at the Kwabeng Project while Management considers a more economic and efficient manner in which to extract and process the gold recovered from the mineralized material at this Project. Assuming that we will be able to continue to derive cash proceeds from the sale of the gold recovered from the mineralized material at our Kwabeng Project, we intend to continue to advance operations at our Kwabeng Project, recover gold for sale and acquire further interests in mineral projects by way of acquisition or joint venture participation.

We anticipate that, over the next 12 months, we will spend an aggregate of $2,000,000 comprised of $500,000 for mining operating, capital and administrative costs at our Kwabeng Project, $1,000,000 for exploration expenses and approximately $500,000 for general and administrative expenses. However, we would not expend this amount unless we are able to derive cash proceeds from the sale of the gold recovered from the mineralized material at our Kwabeng Project or raise additional capital.

We require additional capital to implement our plan of operations. We anticipate that these funds primarily will be raised through equity and debt financing or from other available sources of financing. If we raise additional funds through the issuance of equity or convertible debt securities, it may result in the dilution in the equity ownership of investors in our common stock. There can be no assurance that additional financing will be available upon acceptable terms, if at all. If adequate funds are not available or are not available on acceptable terms, we may be unable to take advantage of prospective new opportunities or acquisitions, which could significantly and materially restrict our operations, or we may be forced to discontinue our current projects.

We do not expect to purchase significant ore processing and gold recovery equipment as our Wash Plant has sufficient capacity to handle our processing requirements at our Kwabeng Project. We rent our earthmoving and ancillary earthmoving equipment fleet in connection with our operations at our Kwabeng Project. We plan to increase the number of key mining personnel including technical consultants, contractors and skilled laborers during the next 12 months. Our current business strategy is that we plan to continue engaging technical personnel under contract where possible as Management believes that this strategy, at its current level of development, provides the best services available in the circumstances, leads to lower overall costs, and provides the best flexibility for our business operations.

The cash proceeds derived from the sale of 608.50 fine ounces of gold recovered from the mineralized material at our Kwabeng Project during the Bulk Test (defined herein), as discussed elsewhere in this Report, was categorized as Recovery of Gold. The Bulk Test was only a pre-production stage test that was completed on March 25, 2007. Since April 24, 2007 to December 31, 2008, we have recovered 8,162.84 fine ounces of gold from the mineralized material at our Kwabeng Project and derived cash proceeds of $6,441,593 from the related gold sales.

Results of Operations for the Year Ended December 31, 2008 Compared to the Year Ended December 31, 2007

Our loss for the year ended December 31, 2008 was $3,231,403 as compared to a loss of $1,874,757 for the year ended December 31, 2007, an increase of $1,356,646. We incurred expenses of $6,239,722 in the year ended December 31, 2008 as compared to $5,319,503 in the year ended December 31, 2007, an increase of $920,219. The increase in expenses in the year ended December 31, 2008 can be primarily attributed to exploration costs of $5,140,679 incurred mostly in connection with (a) exploration programs at our Banso and Muoso Project, our Apapam Project and our Edum Banso Project; (b) a drilling program of 3,001 meters; and (c) operational costs for our Kwabeng Project as compared to $3,932,845 expended on these projects in the year ended December 31, 2007. Exploration costs were incurred in connection with our exploration programs at our Banso and Muoso, Apapam and Edum Banso Projects and costs associated with extracting and producing the mineralized material at our Kwabeng Project which we have booked as exploration expenses. General and administrative expenses ("G&A") were $1,035,369 as compared to $1,348,898 for the year ended December 31, 2007. A down-sizing of management consultants, a significant reduction in legal costs and labor costs at our Kwabeng Project in the year ended December 31, 2008 attributed to the decrease in G&A.

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Our loss for the year ended December 31, 2008 was greater than our loss for the year ended December 31, 2007 due to (i) a significant net unrealized loss on trading securities of $857,980 (compared to a gain of $389,793 in 2007); and
(ii) a foreign exchange loss of $424,559 (compared to a foreign exchange gain of $366,687 in 2007). Trading securities were comprised mostly of investments in common shares and income trust units of resource companies. The net unrealized loss can be attributed to a decrease in the market value of those securities due to poor market conditions and economic strain, in particular, the significant weakening of the Canadian dollar in which our marketable securities are denominated.

Other items totaled a gain of $3,008,319 for the year ended December 31, 2008 compared to a gain of $3,444,746 for the year ended December 31, 2007. In particular, during the year ended December 31, 2008, we recovered and sold 4,809.02 fine ounces of gold recovered from the mineralized material at our Kwabeng Project for cash proceeds of $4,140,765 which was booked as Recovery of Gold as compared to $2,692,242 for the year ended December 31, 2007. We had a foreign exchange loss of $424,559 for the year ended December 31, 2008 (2007 - gain of $366,687) which can be attributed to the weakening of the Canadian dollar. Our portfolio of marketable securities is largely Canadian currency denominated. The sharp depreciation of the Canadian dollar resulted in the bulk of the foreign exchange loss. Additionally, the continuing strength of the US dollar increased our expenses that are denominated in other foreign currencies. Consequently, transactions denominated in US dollars would be more expensive.

Our portfolio of marketable securities had an unrealized loss of $857,980 (compared to an unrealized gain of $389,793 in 2007) due to declining market conditions and economic strain which commenced in the summer of 2008. Our securities portfolio realized a gain of $2,585 on the sale of trading securities during the year ended December 31, 2008 compared to a loss in 2007 of $94,855. Other income derived from dividends increased slightly (2007 - $196,621; 2007 - $163,119). The decrease in our interest expense (2008 - $49,113; 2007 - $72,240) is largely attributable to our convertible debentures which interest we ceased paying from the end of the second quarter due to the automatic conversion of the debentures.

Our basic and diluted loss per share for the year ended December 31, 2008 was $0.11 compared to $0.07 per share for the year ended December 31, 2007. The weighted average number of shares outstanding was 30,389,400 at December 31, 2008 compared to 28,216,728 for the year ended December 31, 2007. The increase in the weighted average number of shares outstanding can be attributed to the issuance of (i) 1,062,000 shares in connection with a private placement financing completed during fiscal 2008; (ii) 100,000 shares in connection with an exercise of stock options; (iii) 650,000 shares in connection with an automatic conversion of debentures; (iv) 631,000 shares in connection with an exercise of warrants; and (v) 131,243 shares in connection with a settlement of outstanding accounts for services rendered to our subsidiary, XG Mining.

Liquidity and Capital Resources

Historically, our principal source of funds is our available resources of cash and cash equivalents and investments, as well as debt and equity financings. During the year ended December 31, 2008, we received cash proceeds of $4,140,765 derived from the sale of gold recovered from the mineralized material at our Kwabeng Project during this financial reporting period.

Unrealized Gain on Trading Securities

Unrealized gain on trading securities represents the change in value of securities as of the end of the financial reporting period. For the year ended December 31, 2008, we recognized an unrealized loss of $857,980 on trading securities, as compared to an unrealized gain of $389,793 for the year ended December 31, 2007. The change reflects a significant decline in the value of our resource company investments following a significant rebound during 2007. Trading securities were comprised mostly of investments in common shares and income trust units of resource companies.

Liquidity Discussion

Net cash provided by financing activities for the year ended December 31, 2008 was $2,489,460 (2007 - $812,540).

As of December 31, 2008, we had working capital equity of $1,299,625, comprised of current assets of $1,834,897 less current liabilities of $535,272. Our current assets were comprised mostly of $271,573 in cash and cash equivalents and $1,470,382 in trading securities, which is based on our analysis of the ready saleable nature of the securities including an existing market for the securities, the lack of any restrictions for resale of the securities and sufficient active volume of trading in the securities. Our trading securities are held in our investment portfolio with an established brokerage in Canada in which we primarily invest in the common shares and income trust fund units of publicly traded resource companies.

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We have historically relied on equity and debt financings to finance our ongoing operations. Existing working capital, possible debt instruments, anticipated warrant exercises, further private placements and anticipated cash flow are expected to be adequate to fund our operations over the next year. We have no lines of credit or other bank financing arrangements. Generally, we have financed operations to date through the proceeds of the private equity financings and a convertible debt financing. In connection with our business plan, Management anticipates operating expenses and capital expenditures as follows: (i) $1,000,000 for exploration; (ii) $500,000 for mine operating, capital and administration costs at our Kwabeng Project; and (iii) $500,000 for general and administrative costs.

Until we achieve profitability, we will need to raise additional capital for our exploration programs. We intend to finance these expenses with our cash proceeds and to the extent that our cash proceeds are not sufficient, then from further sales of our equity securities or debt securities, or from investment income. Thereafter, we may need to raise additional capital to meet long-term operating requirements. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, we may not be able to take advantage of prospective new business endeavors or opportunities or existing agreements and projects which could significantly and materially restrict our business operations.

The independent auditors' report accompanying our December 31, 2008 and December 31, 2007 consolidated financial statements contains an explanatory paragraph expressing doubt about our ability to continue as a going concern. The consolidated financial statements have been prepared "assuming that we will continue as a going concern", which contemplates that we will realize our assets and satisfy our liabilities and commitments in the ordinary course of business.

Material Commitments

Mineral Property Commitments

Save and except for fees payable from time to time to (i) the Minerals Commission for an extension of an expiry date of a prospecting license (current consideration fee payable is $15,000) or mining lease or annual operating permits; (ii) the EPA for the issuance of permits prior to the commencement of any work at a particular concession or the posting of a bond in connection with any mining operations undertaken by our company; and (iii) a legal obligation associated with our mineral properties for clean up costs when work programs are completed, we are committed to expend an aggregate of less than $500 in connection with annual or ground rent and mining permits to enter upon and gain access to the following concessions and such other financial commitments arising out of any approved exploration programs in connection therewith:

(i) the Kwabeng concession (Kwabeng Project);

(ii) the Pameng concession (Pameng Project);

(iii) the Banso and Muoso concessions (Banso and Muoso Project);

(iv) the Apapam concession (Apapam Project); and

(v) the Edum Banso concession (Edum Banso Project).

With respect to the Kwabeng, Pameng and Apapam Projects, upon and following the commencement of gold production, a royalty of 3% of the net smelter returns is payable quarterly to the Government of Ghana.

With respect to the Edum Banso Project:

(a) $5,000 is payable to Adom Mining Limited ("Adom") on the anniversary date of the Option Agreement in each year that we hold an interest in the agreement;

(b) $200,000 is payable to Adom when the production of gold is commenced (or $100,000 in the event that less than 2 million ounces of proven and probable reserves are discovered on our project at this concession; and

(c) an aggregate production royalty of 2% of the net smelter returns ("NSR") from all ores, minerals and other products mined and removed from the project, except if less than 2 million ounces of proven and probable reserved are discovered in or at the Project, then the royalty shall be 1% of the NSR.

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Repayment of Convertible Debentures and Accrued Interest

We are committed to repay our Convertible Debenture holders outstanding amounts of principal and interest calculated at 7% per annum on an aggregate face value of $900,000. Interest only payments are payable quarterly on the last days of September, December, March and June in each year of the term or until such time that the principal has been repaid in the full. The Convertible Debenture holders are entitled, at their option, to convert, at any time and from time to time, until payment in full of their respective Convertible Debentures, all or any part of the outstanding principal amount of the Convertible Debenture, plus the Accrued Interest, into shares (the "Conversion Shares") of our common stock at the conversion price of $1.00 per share (the "Conversion Price"). Provided there is a registration statement then in effect covering the Conversion Shares, or the Conversion Shares may otherwise be resold pursuant to Rule 144, the outstanding principal amount of each Convertible Debenture, and all accrued but unpaid interest, shall automatically be converted into shares of our common stock, at the Conversion Price, in the event that our common stock trade for 20 consecutive trading days (a) with a closing bid price of at least $1.50 per share and (b) a cumulative trading volume during such twenty (20) trading day period of at least 1,000,000 shares.

In June 2008, we provided notice of automatic conversion of the Convertible Debentures and in July 2008 we converted $650,000 of the aggregate principal of the Convertible Debentures by way of the issuance of 650,000 Conversion Shares.

Purchase of Significant Equipment

Off Balance Sheet Arrangements

We have no off balance sheet arrangements.

Significant Accounting Applications

Application of Critical Accounting Policies

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements.

Mineral Properties

The valuation of our mineral properties (the "Assets") is based upon the fair value of cash or securities issued as consideration for the purchase of the Assets.

Asset Retirement Obligation

The fair value of our asset retirement obligation is recorded as liabilities when they are incurred. As such, the valuation could be affected by the following:

Costs - When work actually commences on asset retirement obligations, actual costs could materially differ from what has been projected. This would materially affect the value of the obligation.

Ghanaian laws and regulations - If the Government of Ghana approves or changes laws and regulations that affect mining operations in Ghana, the cost of meeting our asset retirement obligations could change materially.

Deferred Income Taxes

As we have no history of profitability and currently have derived limited cash proceeds, we have recognized a 100% valuation on our future tax assets. If our company becomes profitable in the future, a material amount of these future tax assets could actually be realized.

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Recent Accounting Pronouncements

In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities". SFAS No. 161 changes the disclosure requirements for derivative instruments and hedging activities by requiring enhanced disclosures about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," and how derivative instruments and related hedged items affect an entity's operating results, financial position, and cash flows.

SFAS No. 161 is effective for fiscal years beginning after November 15, 2008. Early adoption is permitted. The Company is currently reviewing the provisions of SFAS No. 161 and have not yet adopted the statement. However, as the provisions of SFAS No. 161 are only related to disclosure of derivative and hedging activities, the Company does not believe the adoption of SFAS No. 161 will have a material impact on the consolidated operating results, financial position, or cash flows.

In April 2008, the FASB issued FSP FAS 142-3, Determination of the Useful Life of Intangible Assets or FSP FAS 142-3. FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets. The intent of the position is to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the intangible asset. FSP FAS 142-3 is effective for fiscal years beginning after December 15, 2008. The Company is assessing the potential impact that the adoption of FSP FAS 142-3 may have on the Company's consolidated financial position, results of operations or cash flows.

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles or SFAS No. 162. SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP. This statement shall be effective 60 days following the Securities and Exchange Commission's approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. The Company does not believe that implementation of this standard will have a material impact on the consolidated financial position, results of operations or cash flows.

In June 2008, the FASB issued FSP No. EITF 03-6-1, "Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities," (FSP EITF 03-6-1). FSP EITF 03-6-1 states that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. FSP EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008. Management has determined that the adoption of FSP EITF 03-6-1 will not have an impact on the Financial Statements.

We do not anticipate that the adoption of the foregoing pronouncements will have a material effect on our company's consolidated financial position or results of operations.