From Sonic Retro
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Sonic Medals are found all over Flicky Island, appearing throughout Green Grove Zone up to Volcano Valley Zone, and Continues are obtained when 10 Sonic Medals are collected. They are usually placed above a spring, though some of them are too high for Sonic to reach unless he has enough Flickies following him. No Sonic Medals appear in Gene Gadget Zone and Panic Puppet Zone, meaning no more Continues can be obtained.