---











ROUGE RESOURCES LTD.

FINANCIAL STATEMENTS

JANUARY 31, 2010





1

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|AUDITORS REPORT
|----------------
|                

To the Shareholders of Rouge Resources Ltd.

We have audited the balance sheet of Rouge Resources Ltd. as at
  January 31, 2010 and 2009 and the statements of operations, comprehensive loss
  and deficit and cash flows for the years then ended. These financial statements
  are the responsibility of the company's management. Our responsibility is to
  express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with Canadian generally
  accepted auditing standards and with the standards of the Public Company
  Accounting Oversight Board (United States). Those standards require that we plan
  and perform an audit to obtain reasonable assurance whether the financial
  statements are free of material misstatement. An audit includes examining, on a
  test basis, evidence supporting the amounts and disclosures in the financial
  statements. An audit also includes assessing the accounting principles used and
  significant estimates made by management, as well as evaluating the overall
  financial statement presentation.

In our opinion, these financial statements present fairly, in
  all material respects, the financial position of the Company as at January 31,
  2010 and 2009 and the results of its operations and its cash flows for the years
  then ended in accordance with Canadian generally accepted accounting principles.

The audited financial statements at January 31, 2008 were
  examined by other auditors who expressed an opinion without reservation on those
  statements in their report dated May 28, 2008.

DMCL

DALE MATHESON CARR-HILTON LABONTE LLP 
  CHARTERED
  ACCOUNTANTS

Vancouver, Canada 
  May 18, 2010

|COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA
|-----------------------------------------------
|-UNITED
      STATES REPORTING DIFFERENCES     

In the United States, reporting standards for auditors require
  the addition of an explanatory paragraph (following the opinion paragraph) when
  the financial statements are affected by conditions and events that cast
  substantial doubt on the Companys ability to continue as a going concern, such
  as those described in Note 1 to the financial statements. Our report to the
  shareholders dated May 18, 2010 is expressed in accordance with Canadian
  reporting standards which do not permit a reference to such events and
  conditions in the auditors report when these are adequately disclosed in the
  financial statements.

DMCL

DALE MATHESON CARR-HILTON LABONTE LLP 
  CHARTERED
  ACCOUNTANTS

Vancouver, Canada 
  May 18, 2010



---





AUDITORS' REPORT

To the Shareholders of 
  Rouge Resources Ltd (formerly
  Gemstar Resources Ltd.) 
  (An Exploration Stage Company)

We have audited the balance sheets of Rouge Resources Ltd.
  (formerly Gemstar Resources Ltd.) as at January 31, 2008 and 2007, and the
  statements of operations and deficit, and cash flows for each of the years ended
  January 31, 2008, 2007 and 2006. These financial statements are the
  responsibility of the Company's management. Our responsibility is to express an
  opinion on these financial statements based on our audits.

We conducted our audits in accordance with Canadian generally
  accepted auditing standards and the standards of the Public Company Accounting
  Oversight Board (United States). Those standards require that we plan and
  perform an audit to obtain reasonable assurance whether the financial statements
  are free of material misstatement. An audit includes examining, on a test basis,
  evidence supporting the amounts and disclosures in the financial statements. An
  audit also includes assessing the accounting principles used and significant
  estimates made by management, as well as evaluating the overall financial
  statement presentation.

In our opinion, these financial statements present fairly, in
  all material respects, the financial position of the Company as at January 31,
  2008 and 2007, and the results of its operations and its cash flows for each of
  the years ended January 31, 2008, 2007 and 2006, in accordance with Canadian
  generally accepted accounting principles.

|Vancouver, Canada | Morgan & Company   
|----------------- | ---------------------
|                  |                      
|May 28, 2008      | Chartered Accountants

Comments by Auditors for U.S. Readers on Canada  U.S.
  Reporting Conflict

In the United States, reporting standards for auditors require
  the addition of an explanatory paragraph (following the opinion paragraph) when
  the financial statements are affected by conditions and events that cast
  substantial doubt on the Companys ability to continue as a going concern, such
  as those described in Note 1 to the financial statements. Our report to the
  shareholders, dated May 28, 2008 is expressed in accordance with Canadian
  reporting standards, which do not permit a reference to such events and
  conditions in the auditors report when these are adequately disclosed in the
  financial statements.

|Vancouver, Canada | Morgan & Company   
|----------------- | ---------------------
|                  |                      
|May 28, 2008      | Chartered Accountants



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ROUGE RESOURCES LTD.(An
Exploration Stage Company)BALANCE SHEETS

|                                               |   | JANUARY
      31, |  
|---------------------------------------------- | - | ----------------- | -
|                                               |   | 2010              |  
|                                               |   |                   |  
|ASSETS                                         |  
|Current                                        |   |                   |  
|Cash                                           | $ | 53,623            |  
|Other receivable                               |   | 1,816             |  
|                                               |   | 55,439            |  
|                                               |   |                   |  
|Restricted cash                                |   | 6,900             |  
|Mineral Property Interests (Note 3)            |   | 105,791           |  
|Equipment (Note 4)                             |   | 1,294             |  
|                                               |   |                   |  
|                                               | $ | 169,424           |  
|                                               |   |                   |  
|LIABILITIES                                    |  
|Current                                        |   |                   |  
|Accounts
      payable and accrued liabilities | $ | 70,556            |  
|Due to related parties (Note
      5)          |   | 1,069,901         |  
|                                               |   | 1,140,457         |  
|                                               |   |                   |  
|SHAREHOLDERS DEFICIENCY                       |  
|                                               |   |                   |  
|Share Capital (Note 6)                         |   | 1,613,471         |  
|Share Subscriptions Received (Note 10)         |   | 100,000           |  
|Contributed Surplus (Note 6)                   |   | 53,357            |  
|Deficit                                        |   | (2,737,861        | )
|                                               |   | (971,033          | )
|                                               |   |                   |  
|                                               | $ | 169,424           |  
|                                               |   |                   |  
|Going concern (Note 1)                         |   |                   |  
|Subsequent Events (Notes 5 and 10)             |   |                   |  

Approved on behalf of the Board of Directors:

|Linda Smith |  | Darcy Krell
|------------- |  | -------------
|Director      |  | Director     

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

3

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ROUGE RESOURCES LTD.(An
Exploration Stage Company)STATEMENTS OF OPERATIONS, COMPREHENSIVE
LOSS AND DEFICIT

|                                                                            |   | YEARS ENDED JANUARY 31 |  
|--------------------------------------------------------------------------- | - | ---------------------- | -
|                                                                            |   | 2010                   |  
|                                                                            |   |                        |  
|General and Administration Expenses                                         |   |                        |  
|Amortization                                                                | $ | 554                    |  
|Accounting
      and audit fees                                             |   | 32,107                 |  
|Accretion on promissory note                                                |   | 14,007                 |  
|Management
      fees (Note 5)                                              |   | 60,000                 |  
|Office and general (Note
      5)                                           |   | 40,710                 |  
|Professional
      fees                                                     |   | 8,232                  |  
|Transfer agent and filing
      fees                                        |   | 11,308                 |  
|Travel and
      promotion                                                  |   | 3,685                  |  
|                                                                            |   |                        |  
|Loss before other item                                                      |   | (170,603               | )
|                                                                            |   |                        |  
|Other item                                                                  |   |                        |  
|Accounts payable written
      off                                          |   | 51,681                 |  
|                                                                            |   |                        |  
|Net and Comprehensive Loss                                                  |   | (118,922               | )
|                                                                            |   |                        |  
|Deficit, Beginning                                                          |   | (2,618,939             | )
|                                                                            |   |                        |  
|Deficit, Ending                                                             | $ | (2,737,861             | )
|                                                                            |   |                        |  
|                                                                            |   |                        |  
|Net Loss Per Share - Basic and Diluted                                      | $ | (0.01                  | )
|                                                                            |   |                        |  
|Weighted Average Number of Shares Outstanding
          - Basic and Diluted |   | 10,565,171             |  

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

4

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ROUGE RESOURCES LTD.(An
Exploration Stage Company)STATEMENTS OF CASH FLOWS

|                                                   |   | YEARS
      ENDED JANUARY 31 |  
|-------------------------------------------------- | - | ---------------------------- | -
|                                                   |   | 2010                         |  
|                                                   |   |                              |  
|Cash Flows Provided by (Used In):                  |   |                              |  
|                                                   |   |                              |  
|Operating Activities                               |   |                              |  
|Net and Comprehensive Loss                         | $ | (118,922                     | )
|Items not requiring
      use of cash:             |   |                              |  
|Amortization                                       |   | 554                          |  
|Accretion on convertible promissory note           |   | 14,007                       |  
|Accounts payable written off                       |   | (51,681                      | )
|                                                   |   | (156,042                     | )
|Changes in operating assets and
      liabilities: |   |                              |  
|Other receivable                                   |   | 720                          |  
|Accounts payable and accrued liabilities           |   | (2,411                       | )
|                                                   |   | (157,733                     | )
|                                                   |   |                              |  
|Investing Activities                               |   |                              |  
|Mineral property interests                         |   | (20,446                      | )
|Purchase of equipment                              |   | -                            |  
|                                                   |   | (20,446                      | )
|                                                   |   |                              |  
|Financing Activities                               |   |                              |  
|(Repayment of) advances
      from related parties |   | 126,946                      |  
|Shares subscription received                       |   | 100,000                      |  
|Shares issued for
      cash                       |   | -                            |  
|                                                   |   | 226,946                      |  
|                                                   |   |                              |  
|Increase (Decrease) in Cash during the Year        |   | 48,767                       |  
|                                                   |   |                              |  
|Cash, Beginning of Year                            |   | 4,856                        |  
|                                                   |   |                              |  
|Cash, End of Year                                  | $ | 53,623                       |  
|                                                   |   |                              |  
|                                                   |   |                              |  
|Supplemental Cash Flow Information                 |   |                              |  
|Interest paid                                      | $ | -                            |  
|Income taxes paid                                  | $ | -                            |  

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

5

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ROUGE RESOURCES LTD.(An
Exploration Stage Company)NOTES TO FINANCIAL STATEMENTSJANUARY 31, 2010

|1. | NATURE OF OPERATIONS AND GOING CONCERN                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | Rouge Resources Ltd. (the Company) was incorporated in
      British Columbia, on March 31, 1998. The Company is engaged in the
      acquisition and exploration of mineral resource properties.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | Going Concern                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | These financial statements have been prepared on a going
      concern basis, which assumes the Company will realize its assets and
      discharge its liabilities in the normal course of operations. Should the
      Company be unable to continue as a going concern significant adjustment to
      asset values may be necessary. The ability of the Company to continue as a
      going concern is dependent upon the company raising sufficient financing
      to complete exploration and development activities, the discovery of
      economically recoverable reserves, and upon future profitable operations
      or proceeds from disposition of resource property interests. The Company
      presently, has not yet determined whether its mineral property contains
      economically recoverable resources. Management anticipates that the
      Company has sufficient current cash reserves to continue operations for
      the ensuing twelve months. Management is also aware that significant
      material uncertainties exist, related to current economic conditions that
      could cast significant doubt upon the entitys ability to continue to
      finance its exploration activities. As a result, management plans on
      reducing spending in order to preserve cash and maintain liquidity until
      overall market conditions improve. Management is not able to assess the
      likelihood or timing of improvements in the equity markets for raising
      capital for future acquisitions or expenditures. This uncertainty
      represents a liquidity risk and may impact the Companys ability to
      continue as a going concern in the future.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|2. | SUMMARY OF SIGNIFICANT ACCOUNTING
  POLICIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | Basis of Presentation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | The financial statements of the Company are presented in
      accordance with Canadian generally accepted accounting principles (GAAP)
      and are presented in Canadian dollars.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | Financial Instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | The Company follows the Canadian Institute of Chartered
      Accountants (CICA) Handbook Section 3855, Financial Instruments. This
      section prescribes when a financial instrument is to be recognized on the
      balance sheet and at what amount. Under Section 3855, financial
      instruments must be classified into one of five categories:
      held-for-trading, held-to-maturity, loans and receivables,
      available-for-sale financial assets, or other financial liabilities. All
      financial instruments, including derivatives, are measured at the balance
      sheet date at fair value except for loans and receivables,
      held-to-maturity investments, and other financial liabilities which are
      measured at amortized cost.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | The Companys financial instruments consist of cash,
      other receivable, accounts payable and amounts due to related parties.
      Cash, which is measured at its face value, representing fair value, is
      classified as held-for-trading. Other receivable is classified as loans
      and receivables and are measured at amortized cost. Accounts payable and
      amounts due to related parties, which are measured at amortized cost, are
      classified as other financial liabilities. The fair value of these
      financial instruments approximates their carrying values, unless otherwise
      noted.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

6

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|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)
|-- | -----------------------------------------------------

For the years ended January 31, 2010
and 2009, the Company has no derivatives or embedded derivatives.

Estimates, assumptions and
measurement uncertaintyThe preparation of financial statements in
conformity with Canadian GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses. Actual results
could differ from these estimates. By their nature, these estimates are subject
to measurement uncertainty and the effect on the financial statements of changes
in such estimates in future periods could be significant. The significant areas
requiring the use of management estimates relate to the carrying values of
long-lived assets and future income tax rates.

Comprehensive LossThe
Company follows CICA Handbook Section 1530, Comprehensive Income. This
standard defines comprehensive loss as the change in equity from transactions
and other events from non-owner sources. It establishes standards for reporting
and presenting certain gains and losses not normally included in net income or
loss, such as unrealized gains or losses from available-for-sale securities and
gains or losses resulting from the translation of self-sustaining foreign
operations. Instead, these items are presented in a statement of comprehensive
income. For the years ended January 31, 2010 and 2009, the Companys net loss
equals comprehensive loss.

Mineral Property InterestsThe Company records its mineral property interests at the lower of cost
or estimated recoverable value. Where specific exploration programs are planned
and budgeted by management, mineral exploration costs are capitalized and
carried at cost until the properties to which they relate are placed into
commercial production, sold, abandoned or determined by management to be
impaired in value. Costs incurred for acquisition, including where applicable,
option payments under acquisition agreements, are capitalized until such time as
the related interest is placed into production, sold, abandoned or management
has determined impairment in value.

Mineral property interests, where
future cash flows are not reasonably determinable, are evaluated for impairment
on a reporting period basis or as events and changes in circumstances warrant
based on managements intentions and determination of the extent to which future
exploration programs are warranted and likely to be funded.

Capitalized costs for acquisition and
deferred exploration represent costs incurred to date or estimated recoverable
value if lower than cost. Recovery of carrying value is dependent upon future
success or proceeds from disposition of the mineral interests. Upon the
establishment of production, carrying values of deferred acquisition and
exploration costs will be amortized over the estimated life of the resource on
the unit of production method.

Impairment of Long-lived Assets
The carrying values of long-lived assets with fixed or determinable lives
are reviewed for impairment whenever events or changes in circumstances indicate
the recoverable value may be less than the carrying amount. Impairment
determinations are based on management's estimates of undiscounted and
discounted future net cash flows expected to be recovered from specific assets
or groups of assets through use or future disposition. Impairment charges are
recorded in the period in which determination of impairment is made by
management.

7

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|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)
|-- | -----------------------------------------------------

Assets with indefinite or
indeterminable lives are not amortized and are reviewed for impairment on a
reporting period basis using managements fair value determinations of estimated
recoverable value.

Asset Retirement ObligationsThe Company reviews and recognizes legal obligations associated with the
retirement of tangible long-lived assets, including rights to explore or exploit
natural resources. When such obligations are identified and measurable, the
estimated fair values of the obligations are recognized on a systematic basis
over the remaining period until the obligations are expected to be settled.

Mineral property interests related to
retirement obligations are capitalized as part of deferred exploration and
development costs and are accounted for in the same manner as all other
capitalized costs.

Management is not aware of any
significant known or anticipated liability or reclamation requirement arising
from its past or current operations.

Stock-Based CompensationThe
Company may grant, from time to time, stock options to executive officers,
directors and consultants. The Company records all stock based awards at fair
value as determined using the Black-Scholes option pricing model. All stock
based awards to employees and non-employees are measured at the time of grant,
or revision, and the fair value attributed is charged to operations, allocated
to specific asset accounts, and recognized over the vesting period. Upon
exercise, the fair value of share purchase options or specified warrants is
allocated from the contributed surplus account to share capital.

Loss per ShareThe Company
uses the treasury stock method for the computation of loss per share. The
treasury stock method is used to determine the dilutive effect of stock options
and other dilutive instruments which assume that proceeds received from
in-the-money stock options are used to repurchase common shares at the
prevailing market rate. Basic net loss per share has been calculated using the
weighted average number of shares outstanding during the year. Diluted loss per
share is equal to the basic loss per share as the effect of dilutive instruments
will be anti dilutive.

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

Equipment The Company
records amortization on computer equipment using the declining balance method at
a rate of 30% per annum.

8

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|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)
|-- | -----------------------------------------------------

|   | CHANGES IN ACCOUNTING POLICIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | As of January 1, 2009, the Company was required to adopt
      the CICA Handbook Section 3064 Goodwill and Intangible Assets, which
      will replace the existing Goodwill and Intangible Assets standard. The new
      standard revises the requirement for recognition, measurement,
      presentation and disclosure of intangible assets. The adoption of this
      standard did not have any impact on the Companys financial
    statements.                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | RECENT ACCOUNTING PRONOUNCEMENTS, NOT YET
      ADOPTED                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | International Financial Reporting Standards
    (IFRS)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | In 2006, the Accounting Standards Board of Canada
      (AcSB) ratified a strategic plan that will result in the convergence of
      Canadian GAAP, as used by publicly accountable entities, with IFRS over a
      transitional period. The AcSB has developed and published a detailed
      implementation plan, with changeover required for fiscal years beginning
      on or after January 1, 2011. The Company has completed a scoping study and
      is in the process of reviewing the impact of this initiative on its
      financial statements.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Other pronouncements issued by the CICA or other
      authoritative accounting standards groups with future effective dates are
      either not applicable or are not expected to be significant to the
      financial statements of the Company.                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|3. | MINERAL PROPERTY INTERESTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | The Company staked its original claim on the Dotted Lake
      Property in the Thunder Mining District of the province of Ontario,
      Canada, in February 2003. During the year ended January 31, 2010, the
      Company expanded its 100% owned holdings in the Dotted Lake Property from
      a single 15-unit claim to ten claims of 82 units .                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | The Company had expended the following amounts on the
      Dotted Lake Property as at January 31:                                                                                                                                                                                                                                                                                                                                                                                                                                                                

| |                                         |   | 2010    |  |   | 2009   | 
| | --------------------------------------- | - | ------- |  | - | ------ | 
| |                                         |   |         |  |   |        | 
| | Mineral properties                      |   |         |  |   |        | 
| | Staking                                 | $ | 15,261  |  | $ | 4,206  | 
| |                                         |   |         |  |   |        | 
| | Deferred exploration costs              |   |         |  |   |        | 
| | Geological
      surveys                |   | 69,736  |  |   | 64,236 | 
| | Geological consulting fees and expenses |   | 20,794  |  |   | 16,903 | 
| |                                         |   | 90,530  |  |   | 81,139 | 
| |                                         |   |         |  |   |        | 
| |                                         | $ | 105,791 |  | $ | 85,345 | 

Subsequent to the year end, the Company
entered into an option agreement to purchase additional claims adjacent to the
Dotted Lake Property (Note 10).

9

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

| |                                |   | 2010   |   |   | 2009   |  
| | ------------------------------ | - | ------ | - | - | ------ | -
| | Computer equipment, at cost    | $ | 5,970  |   | $ | 5,970  |  
| | Accumulated
      amortization |   | (4,676 | ) |   | (4,122 | )
| | Net Book Value                 | $ | 1,294  |   | $ | 1,848  |  

|5. | RELATED PARTY TRANSACTIONS
|-- | --------------------------
|   |                           
|   | a)                        
|   |                           
|   |                           
|   |                           
|   |                           
|   |                           
|   | b)                        

| |                 |   | 2010   |  |   | 2009   |  |   | 2008   | 
| | --------------- | - | ------ |  | - | ------ |  | - | ------ | 
| | Management fees | $ | 60,000 |  | $ | 52,750 |  | $ | 30,000 | 
| | Office rent     |   | 30,000 |  |   | 18,000 |  |   | 18,000 | 
| |                 | $ | 90,000 |  | $ | 70,750 |  | $ | 48,000 | 

Related party transactions are
recorded at the exchange amount, which is the consideration agreed to between
the related parties.

10

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|6. | SHARE CAPITAL
|-- | -------------

| | a) | Common Shares Authorized                 
| | -- | -----------------------------------------
| |    |                                          
| |    | Unlimited common shares without par value
| |    |                                          
| |    | Issued and outstanding                   

| |                                           |  | 2010       |  |   | 2009      | 
| | ----------------------------------------- |  | ---------- |  | - | --------- | 
| |                                           |  | Number of  |  |   | Amount    | 
| |                                           |  | shares     |  |   |           | 
| |                                           |  |            |  |   |           | 
| | Balance, beginning                        |  | 10,565,171 |  | $ | 1,613,471 | 
| | Private placement
      @ $0.05 per share |  | -          |  |   | -         | 
| |                                           |  |            |  |   |           | 
| |                                           |  | 10,565,171 |  | $ | 1,613,471 | 

| |    | During the year ended January 31, 2009, the Company
      completed a non-brokered private placement of 10,000,000 units at $0.05
      for total proceeds of $500,000. Each unit consisted of one common share
      and one non-transferable share purchase warrant, each warrant entitles the
      holder to acquire one additional common share of the Company at a price of
      $0.10 per share for a period of two years. No fair value was attributed to
      the warrants.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | b) | Share Purchase
Warrants                                                                                                                                                                                                                                                                                                                                                                                                                                                               

Balance,
    Issued
    Balance,
    Exercise price
    ExpiryJanuary 31,
      2009
    
    January 31, 201010,000,000
    -
    10,000,000
    $0.10
    June 30, 2010


| |    | As at January 31, 2010, the weighted average remaining
      life of the share purchase warrants is five months and the weighted
      average exercise price is $0.10.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                        
| | c) | Stock Option Plan                                                                                                                                                      
| |    |                                                                                                                                                                        
| |    | The Companys Stock Option Plan (the Plan) was adopted
      in December 2006 and is administered under the following terms and
      conditions:                    

| | (i)  | The maximum number of options available for grant is up
      to 10% of the Companys shares outstanding at any one time; and                                                                                                                                                                                                                                                                                                                                                        
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | (ii) | Company employees, directors, officers and consultants
      are eligible to receive a grant of stock options provided that bona fide
      services have been rendered and that such services are not in connection
      with the offer or sale of securities in a capital-raising transaction.
      There is a 10% limitation of options granted in any one year to one
      specific employee, director or officer and a 2% annual limitation to one
      specific consultant;

No stock options have been granted and
no stock options are outstanding at January 31, 2010 and 2009.

11

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|6. | SHARE CAPITAL(CONTINUED)
|-- | ------------------------

| | d) | Contributed Surplus
| | -- | -------------------

| | Balance, January 31, 2008            | $ | 11,576 |  |  |  | 
| | ------------------------------------ | - | ------ |  |  |  | 
| | Equity component of convertible debt |   | 41,781 |  |  |  | 
| |                                      |   |        |  |  |  | 
| | Balance, January 31, 2009 and 2010   | $ | 53,357 |  |  |  | 

|7. | INCOME TAXES                                                                                                          
|-- | ----------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                       
|   | A reconciliation of income taxes at statutory rates to
      the Companys effective income tax expense is as
follows:

| |                                     |   | 2010    |   |   | 2009    |  
| | ----------------------------------- | - | ------- | - | - | ------- | -
| | Loss before income taxes            | $ | 118,922 |   | $ | 195,335 |  
| | Statutory tax rate                  |   | 30%     |   |   | 31%     |  
| |                                     |   |         |   |   |         |  
| | Expected income tax recovery        |   | (35,677 | ) |   | (60,554 | )
| | Increase (decrease) resulting from: |   |         |   |   |         |  
| | Non-deductible differences          |   | 4,202   |   |   | 4,064   |  
| | Impact of change in tax rates       |   | 31,160  |   |   | 118,564 |  
| | Change in
      valuation allowance |   | 315     |   |   | (62,075 | )
| |                                     |   |         |   |   |         |  
| | Future income tax
      recovery    | $ | -       |   | $ | -       |  

Future tax assets of the Company were
comprised of the following:

| |                                             |   | 2010     |   |   | 2009     |  
| | ------------------------------------------- | - | -------- | - | - | -------- | -
| | Non-capital losses carried-forward          | $ | 224,750  |   | $ | 222,560  |  
| | Capital assets                              |   | 490      |   |   | 365      |  
| | Mineral properties and deferred exploration |   | 50,000   |   |   | 52,000   |  
| |                                             |   | 275,240  |   |   | 274,925  |  
| | Less: Valuation allowance                   |   | (275,240 | ) |   | (274,925 | )
| |                                             |   |          |   |   |          |  
| | Net future tax asset                        | $ | -        |   | $ | -        |  

As at January 31, 2010, the Company has
incurred non-capital losses available for carry forward totalling $1,042,000
which expire as follows:

2015
    
    $
    41,0002016
    
    
    132,0002027
    
    
    355,0002028
    
    
    152,0002029
    
    
    272,0002030
    
    
    90,000$
    1,042,000


A valuation allowance has been used to
offset the net benefit related to the future tax assets as a result of the
uncertainty associated with the ultimate realization of these tax assets before
expiry.

12

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|8. | CAPITAL MANAGEMENT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | The Company manages its capital structure, consisting of
      cash and share capital, and makes adjustments to it depending on the funds
      available to the Company for acquisition and exploration of mineral
      properties. The Board of Directors does not establish quantitative return
      on capital criteria for management, but rather relies on the expertise of
      the Companys management to sustain future development of the
    business.                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | The property in which the Company currently has interests
      is in the exploration stage. As such, the Company is dependent on external
      financing to fund its activities. In order to carry out its planned
      exploration and pay for on-going general and administrative expenses, the
      Company will use existing working capital and raise additional amounts as
      needed. The Company will continue to assess new properties and seek to
      acquire an interest in additional properties if it feels there is
      sufficient geologic or economic potential and if it has adequate financial
      resources to do so.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | Management reviews its capital management approach on an
      on-going basis and believes that this approach, given the small size of
      the Company, is reasonable. The Company is not subject to externally
      imposed capital requirements and there were no changes in its approach to
      capital management during the year ended January 31, 2010.                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|9. | RISK MANAGEMENT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | The Company is engaged in the mineral exploration
      business and manages related industry risk directly. The Company is
      potentially at risk for environmental reclamation and fluctuations and
      commodity-based market prices associated with resource property interests.
      Management is of the opinion that the Company addresses environmental risk
      and compliance in accordance with industry standards and specific project
      environmental requirements. There is no certainty that all environmental
      risks and contingencies have been addressed.                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | The Company is exposed in varying degrees to a variety of
      financial instrument related risks as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

| | a) | Credit risk is the risk that one party to a financial
      instrument will fail to discharge an obligation and cause the other party
      to incur a financial loss. The Companys primary exposure to credit risk
      is in its cash accounts. This risk is managed through the use of a major
      financial institution which has high credit quality as determined by the
      rating agencies.                                           
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | b) | Foreign exchange risk is the risk that the Company will
      be subject to foreign currency fluctuations in satisfying obligations
      related to its foreign activities. The Company operates primary in Canada
      and therefore is not exposed to foreign exchange risk arising from
      transactions denominated in a foreign currency.                                                                                                  
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | c) | Interest rate risk is the risk that the fair value of
      future cash flow of a financial instrument will fluctuate because of
      changes in market interest rate. The Companys exposure to interest rate
      risk relates to its ability to earn interest income on cash balances at
      variable rates. The fair value of the Companys cash account is relatively
      small and unaffected by changes in short term interest
  rates.

| | d) | Liquidity risk arises through the excess of financial
        obligations over available financial assets due at any point in time.
        The Companys objective in managing liquidity risk is to maintain
        sufficient readily available capital in order to meet its third party
        obligations.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

13

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|10. | SUBSEQUENT EVENTS
|--- | -----------------

| | a) | On May 13, 2010, the Company announced the closing of a
      private placement of 30,000,000 units at a price of $0.05 per unit for
      proceeds of $1,500,000. As at January 31, 2010, $100,000 of this amount
      was recorded as subscriptions received. Each unit consists of one common
      share and one non-transferable share purchase warrant. Each warrant
      entitles the holder to acquire one additional common share of the Company
      at a price of $0.10 per share for a period of two years.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | b) | Effective April 20, 2010, the Company entered into an
      option agreement to purchase two claims of the Lampson Lake Property,
      adjacent to the Dotted Lake Property. The Company has an option to
      purchase a 100% interest by making option payments totalling $60,000 over
      the next 3 years as follows: $7,000 upon signing the agreement (paid),
      $12,000 one year later, $16,000 two years later and $25,000 three years
      later. The property is subject to a 3% net smelter
  royalty. 

|11. | MATERIAL DIFFERENCES BETWEEN CANADIAN AND UNITED
      STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | These financial statements have been prepared in
      accordance with Canadian GAAP which differ in certain respects from those
      principles that the Company would have followed had its financial
      statements been prepared in accordance with United States GAAP. The
      material differences between Canadian and US GAAP affecting the Companys
      financial statements are described and quantified below.                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | Mineral Property Interests                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | Acquisition and exploration costs are accounted for in
      accordance with Canadian GAAP as disclosed in Note 2. For US GAAP,
      acquisition costs are capitalized in accordance with EITF 04-2 and
      reviewed for impairment on a reporting period basis. For US GAAP,
      exploration costs are expensed as incurred. When it has been determined
      that a mineral interest can be economically developed as a result of
      establishing proven and probable reserves, the costs incurred to develop
      such property are capitalized.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | Equity component of convertible note                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | Under Canadian GAAP, companies allocate the proceeds of
      issuance between the convertible debt component and the embedded
      conversion feature based on their fair values. Under US GAAP, the
      convertible note should be treated solely as a liability since the
      embedded conversion feature has no intrinsic value and accordingly does
      not meet the requirements of an equity component.                                                                                                                                        

14

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|11. | MATERIAL DIFFERENCES BETWEEN CANADIAN AND UNITED
      STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES(CONTINUED)
|--- | -----------------------------------------------------------------------------------------------------------------

| | a) | Effect on Balance
Sheets
| | -- | ------------------------

| |                                                   |   | 2010       |   |   | 2009       |  
| | ------------------------------------------------- | - | ---------- | - | - | ---------- | -
| |                                                   |   |            |   |   |            |  
| | Mineral property interests                        |   |            |   |   |            |  
| | Per Canadian GAAP                                 | $ | 105,791    |   | $ | 85,345     |  
| | Deferred exploration
      costs written off      |   | (101,585   | ) |   | (81,139    | )
| | Per
      US GAAP                                 | $ | 4,206      |   | $ | 4,206      |  
| |                                                   |   |            |   |   |            |  
| | Liabilities                                       |   |            |   |   |            |  
| | Per Canadian GAAP                                 | $ | 1,140,457  |   |   | 1,053,596  |  
| | Equity portion of
      convertible note reversed |   | 53,357     |   |   | 53,367     |  
| | Accretion of convertible
      note reversed      |   | (38,430    | ) |   | (24,423    | )
| | Per
      US GAAP                                 |   | 1,155,384  |   |   | 1,082,530  |  
| |                                                   |   |            |   |   |            |  
| | Shareholders deficiency                          |   |            |   |   |            |  
| | Per Canadian GAAP                                 | $ | (971,033   | ) | $ | (952,111   | )
| | Deferred exploration
      costs written off      |   | (101,585   | ) |   | (81,139    | )
| | Equity
      portion of convertible note reversed |   | (53,357    | ) |   | (53,357    | )
| | Accretion of convertible note reversed            |   | 38,430     |   |   | 24,423     |  
| | Per US GAAP                                       | $ | (1,087,545 | ) | $ | (1,062,184 | )

| | b) | Effect on Statements of Operations and
    Deficit
| | -- | --------------------------------------------------

| |                                              |   | 2010     |   |   | 2009     |   |   | 2008     |  
| | -------------------------------------------- | - | -------- | - | - | -------- | - | - | -------- | -
| |                                              |   |          |   |   |          |   |   |          |  
| | Net and comprehensive loss for the year      |   |          |   |   |          |   |   |          |  
| | Per Canadian GAAP                            | $ | (118,922 | ) | $ | (195,335 | ) | $ | (156,658 | )
| | Deferred
      exploration costs written off |   | (20,446  | ) |   | (14,906  | ) |   | -        |  
| | Accretion of
      convertible note reversed |   | 14,007   |   |   | 11,871   |   |   | 2,331    |  
| | Per
      US GAAP                            | $ | (125,361 | ) | $ | (198,370 | ) | $ | (154,327 | )
| |                                              |   |          |   |   |          |   |   |          |  
| | Net and comprehensive loss per common        |   |          |   |   |          |   |   |          |  
| | share, basic and diluted                     |   |          |   |   |          |   |   |          |  
| | Per
      Canadian GAAP                      | $ | (0.01    | ) | $ | (0.05    | ) | $ | (0.28    | )
| | Per US GAAP                                  | $ | (0.01    | ) | $ | (0.05    | ) | $ | (0.28    | )

| | c) | Effect on Statements of Cash
Flows
| | -- | ----------------------------------

| |                                              |   | 2010     |   |   | 2009     |   |   | 2008     |  
| | -------------------------------------------- | - | -------- | - | - | -------- | - | - | -------- | -
| |                                              |   |          |   |   |          |   |   |          |  
| | Cash flows used in operating activities      |   |          |   |   |          |   |   |          |  
| | Per Canadian GAAP                            | $ | (157,733 | ) | $ | (162,523 | ) | $ | (180,512 | )
| | Deferred
      exploration costs written off |   | (20,446  | ) |   | (14,906  | ) |   | -        |  
| | Accretion of
      convertible note reversed |   | 14,007   |   |   | 11,871   |   |   | 2,331    |  
| | Per
      US GAAP                            | $ | (164,172 | ) | $ | (165,608 | ) | $ | (178,181 | )
| |                                              |   |          |   |   |          |   |   |          |  
| | Cash flows used in investing activities      |   |          |   |   |          |   |   |          |  
| | Per Canadian GAAP                            | $ | (20,446  | ) | $ | (14,906  | ) | $ | (2,662   | )
| | Deferred exploration costs written off       |   | 20,446   |   |   | 14,906   |   |   | -        |  
| | Per US GAAP                                  | $ | -        |   | $ | -        |   | $ | (2,662   | )

15

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|11. | MATERIAL DIFFERENCES BETWEEN CANADIAN AND UNITED
      STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES(CONTINUED)
|--- | -----------------------------------------------------------------------------------------------------------------
|    |                                                                                                                  
|    | d)                                                                                                               
|    |                                                                                                                  
|    |                                                                                                                  
|    |                                                                                                                  
|    |                                                                                                                  
|    |                                                                                                                  
|    |                                                                                                                  
|    |                                                                                                                  
|    | e)                                                                                                               
|    |                                                                                                                  
|    |                                                                                                                  

16

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