---

ROUGE RESOURCES LTD.

FINANCIAL STATEMENTS

JANUARY 31, 2011

---



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

|                                               |   | JANUARY 31, |  
|---------------------------------------------- | - | ----------- | -
|                                               |   | 2011        |  
|                                               |   |             |  
|ASSETS                                         |   |             |  
|Current                                        |   |             |  
|Cash                                           | $ | 144,952     |  
|Other receivable                               |   | 8,419       |  
|                                               |   | 153,371     |  
|                                               |   |             |  
|Restricted cash                                |   | 6,900       |  
|Mineral property interests (Note 3)            |   | 200,879     |  
|Furniture and equipment (Note 4)               |   | 2,886       |  
|                                               |   |             |  
|                                               | $ | 364,036     |  
|                                               |   |             |  
|LIABILITIES                                    |   |             |  
|Current                                        |   |             |  
|Accounts
      payable and accrued liabilities | $ | 92,523      |  
|Due to related parties
      (Note 5)          |   | 100,913     |  
|                                               |   | 193,436     |  
|                                               |   |             |  
|SHAREHOLDERS EQUITY (DEFICIENCY)              |   |             |  
|                                               |   |             |  
|Share Capital (Note 6)                         |   | 3,110,796   |  
|Share Subscriptions Received                   |   | -           |  
|Contributed Surplus (Note 6)                   |   | 53,357      |  
|Deficit                                        |   | (2,993,553  | )
|                                               |   | 170,600     |  
|                                               |   |             |  
|                                               | $ | 364,036     |  

Going concern (Note 1)

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 |  
|----------------------------------------------------------------------- | - | ---------------------- | -
|                                                                        |   | 2011                   |  
|                                                                        |   |                        |  
|General and Administration Expenses                                     |   |                        |  
|Amortization                                                            | $ | 439                    |  
|Accounting and audit fees                                               |   | 37,979                 |  
|Accretion on promissory
      note (Note 5)                             |   | 14,926                 |  
|Management fees (Note 5)                                                |   | 60,000                 |  
|Office and general (Note
      5)                                       |   | 57,661                 |  
|Professional fees                                                       |   | 27,530                 |  
|Transfer agent and filing
      fees                                    |   | 45,229                 |  
|Travel
      and promotion                                              |   | 11,928                 |  
|                                                                        |   |                        |  
|Loss before other item                                                  |   | (255,692               | )
|                                                                        |   |                        |  
|Other item                                                              |   |                        |  
|Accounts payable written
      off                                      |   | -                      |  
|                                                                        |   |                        |  
|Net and Comprehensive Loss                                              |   | (255,692               | )
|                                                                        |   |                        |  
|Deficit, Beginning                                                      |   | (2,737,861             | )
|                                                                        |   |                        |  
|Deficit, Ending                                                         | $ | (2,993,553             | )
|                                                                        |   |                        |  
|Net Loss Per Share - Basic and Diluted                                  | $ | (0.01                  | )
|                                                                        |   |                        |  
|Weighted Average Number of Shares Outstanding - Basic and
      Diluted |   | 33,578,870             |  

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 |  
|-------------------------------------------------- | - | ---------------------- | -
|                                                   |   | 2011                   |  
|                                                   |   |                        |  
|Cash Flows Provided by (Used In):                  |   |                        |  
|                                                   |   |                        |  
|Operating Activities                               |   |                        |  
|Net and Comprehensive Loss                         | $ | (255,692               | )
|Items not
      requiring use of cash:             |   |                        |  
|Amortization                                       |   | 439                    |  
|Accretion on convertible promissory note           |   | 14,926                 |  
|Accounts payable written off                       |   | -                      |  
|                                                   |   | (240,327               | )
|Changes in operating assets and
      liabilities: |   |                        |  
|Other receivable                                   |   | (6,603                 | )
|Accounts payable and accrued liabilities           |   | 21,967                 |  
|                                                   |   | (224,963               | )
|                                                   |   |                        |  
|Investing Activities                               |   |                        |  
|Mineral property interests                         |   | (95,088                | )
|Purchase of
      furniture and equipment          |   | (2,031                 | )
|                                                   |   | (97,119                | )
|                                                   |   |                        |  
|Financing Activities                               |   |                        |  
|Advances (to)
      from related parties           |   | (983,914               | )
|Shares subscriptions received                      |   | -                      |  
|Shares issued
      for cash                       |   | 1,397,325              |  
|                                                   |   | 413,411                |  
|                                                   |   |                        |  
|Increase (Decrease) in Cash during the Year        |   | 91,329                 |  
|                                                   |   |                        |  
|Cash, Beginning of Year                            |   | 53,623                 |  
|                                                   |   |                        |  
|Cash, End of Year                                  | $ | 144,952                |  
|                                                   |   |                        |  
|                                                   |   |                        |  
|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 STATEMENTS 
|JANUARY 31, 2011              

|1. | NATURE OF OPERATIONS AND GOING
  CONCERN
|-- | ----------------------------------------

Rouge Resources Ltd. (the Company) was incorporated on March
31, 1988 in British Columbia, Canada. The Company is engaged in the acquisition
and exploration of mineral resource properties. The Company stock is quoted on
the OTC Bulletin Board in the United States.

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 to date determined whether
its mineral property interests contain economically recoverable resources.

|2. | SUMMARY OF SIGNIFICANT ACCOUNTING
  POLICIES
|-- | --------------------------------------------

Basis of PresentationThe financial statements of
the Company are presented in accordance with Canadian generally accepted
accounting principles (GAAP) and are presented in its functional currency,
Canadian dollars. A reconciliation of differences between the Canadian GAAP and
United States (US) GAAP is presented in Note 11.

Financial Instruments The Company has made the
following designations of its financial instruments: cash as held for trading,
other receivable as loans and receivables, accounts payable and due to related
parties as other financial liabilities.

The Canadian Institute of Chartered Accountants (CICA)
Handbook Section 3862 Financial Instruments-Disclosure requires an entity to
classify fair value measurements in accordance with an established hierarchy
that prioritizes the inputs in valuation techniques used to measure fair value.
The levels and inputs which may be used to measure fair value are as follows:

|1. | Level 1  fair values are based on quoted prices
      (unadjusted) in active markets for identical assets and
  liabilities;                                                                                               
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2. | Level 2  fair values are based on inputs other than
      quoted prices included in level 1 that are observable for the asset or
      liability, either directly (as prices) or indirectly (derived from
      prices); or
|3. | Level 3  applies to assets and liabilities for inputs
      that are not based on observable market data, which are unobservable
      inputs.                                                                             

Financial instruments classified as level 1  quoted prices in
active markets included cash.

6

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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 material. The significant areas requiring the use of management
estimates relate to the carrying values of mineral properties, allocation of
cost to mineral properties, financial instruments and future income tax rates.

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.

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.

7

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Stock-Based CompensationThe Company records all
stock based awards at fair value. 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. Future income tax assets are only
recorded if realization is determined to be more likely than not.

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

Recent Accounting Pronouncements

International Financial Reporting Standards

In 2006, Canadas Accounting Standards Board (AcSB) ratified a
strategic plan that will result in the convergence of Canadian GAAP, as used by
public companies, with International Financial Reporting Standards (IFRS) over
a transitional period. The AcSB has developed and published a detailed
implementation plan, with a changeover date for fiscal years beginning on or
after January 1, 2011. The adoption of IFRS will require the Company to prepare
its comparative figures for the year ended January 31, 2012 in accordance with
IFRS. The Company continues to monitor and assess the impact of Canadian GAAP
and IFRS.

Other accounting pronouncements issued by the CICA with future
effective dates have been reviewed by management and determined to be either not
applicable or are not expected to be significant to the financial statements of
the Company.

8

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|3. | MINERAL PROPERTY INTERESTS
|-- | --------------------------

The balance of mineral property interests as at January 31,
2011 and 2010 are as follows:

|                                              |   |         |  |   |         | 
|--------------------------------------------- | - | ------- |  | - | ------- | 
|                                              |   | 2011    |  |   | 2010    | 
|Dotted Lake Property                          |   |         |  |   |         | 
|Acquisition cost                              |   |         |  |   |         | 
|Staking                                       | $ | 15,261  |  | $ | 15,261  | 
|Deferred exploration costs                    |   |         |  |   |         | 
|Geological
      surveys                      |   | 142,637 |  |   | 69,736  | 
|Geological consulting fees and
      expenses |   | 33,948  |  |   | 20,794  | 
|                                              |   | 176,585 |  |   | 90,530  | 
|                                              |   |         |  |   |         | 
|                                              |   | 191,846 |  |   | 105,791 | 
|Lampson Lake Property                         |   |         |  |   |         | 
|Acquisition cost                              |   |         |  |   |         | 
|Option payment                                |   | 7,000   |  |   | -       | 
|Other
      acquisition cost                  |   | 2,033   |  |   | -       | 
|                                              |   | 9,033   |  |   | -       | 
|                                              |   |         |  |   |         | 
|                                              | $ | 200,879 |  | $ | 105,791 | 

During year ended January 31, 2010, the Company expanded its
100% owned holdings in the Dotted Lake Property from a single claim to 10 claims
by means of staking at an additional cost of $11,055.

During year ended January 31, 2011,

i) the Company entered into an option to purchase agreement
regarding an additional two claims adjacent to the Dotted Lake Property, known
as the Lampson Lake Property. The Company has an exclusive option to purchase a
100% interest in these two claims by making option payments totalling $60,000 of
which $7,000 was paid on signing the agreement dated April 20, 2010. The second
payment of $12,000 was made subsequent to the year end on April 20, 2011 with
$16,000 due in the second anniversary year of the effective date and a final
payment of $25,000 due in the third anniversary year of the effective date. The
property is subject to a 2% net smelter royalty when, and if, mineral
exploration and development eventually leads to mining revenue from the
property.

On exercise of the option, the Companys holdings will then
total 12 claims consisting of 104 mining units on 1,683 hectares. The Dotted
Lake claims are currently in good standing with the Ontario Ministry of Northern
Development of Mines and Forests.

ii) the Company expended $86,054 on the Dotted Lake Property
comprised of $72,901 for prospecting and trenching as follow-up to the positive
gold mineralization results identified from soil sampling in 2008 and 2009, and
$13,154 for its consulting geologist to draft an independent technical report
covering a review of all work completed on the property to date together with
recommendations for further exploration work in the future.

The Companys mineral property interests are being held in
trust on behalf of the Company by an officer-director pursuant to an Amended
Trust and Indemnity Agreement dated December 16, 2010.

9

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|4. | FURNITURE AND
EQUIPMENT
|-- | -----------------------

|                                     |   | 2011   |   |   | 2010   |  
|------------------------------------ | - | ------ | - | - | ------ | -
|Furniture and equipment, at cost     | $ | 8,001  |   | $ | 5,970  |  
|Less: Accumulated
      amortization |   | (5,115 | ) |   | (4,676 | )
|Net Book Value                       | $ | 2,886  |   | $ | 1,294  |  

|5. | RELATED PARTY TRANSACTIONS
|-- | --------------------------

As at January 31, 2011, loans payable aggregating $100,913
(2010: $1,069,901) are owing to officers of the company and an immediate family
member of an officer of the Company. These amounts are unsecured, non-interest
bearing and have no specific terms of repayment.

Included in the amounts due to related parties is a convertible
promissory note form an immediate family member of an officer of the Company in
the amount of $Nil (2010 - $41,827). The amount was non-interest bearing and is
unsecured and the maturity date was January 1, 2011. The loan was fully repaid
during the year end January 31, 2011. Accretion on the conversion feature of
$14,926 (2010 - $14,007) was recorded in expenses during the year ended January
31, 2011.

The following amounts were charged to the Company by a director
of the Company during the years ended January 31:

|                |   | 2011   |  |   | 2010   |  |   | 2009   | 
|--------------- | - | ------ |  | - | ------ |  | - | ------ | 
|Management fees | $ | 60,000 |  | $ | 60,000 |  | $ | 52,750 | 
|Office rent     |   | 30,000 |  |   | 30,000 |  |   | 18,000 | 
|                | $ | 90,000 |  | $ | 90,000 |  | $ | 70,750 | 

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

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

|a) | Common Shares
|-- | -------------

Authorized

Unlimited common shares without par value

10

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Issued and outstanding

The following table summarizes common shares issued and
outstanding for the years ended January 31:

|                                    |  | 2011       |  |   | 2010      |  
|----------------------------------- |  | ---------- |  | - | --------- | -
|                                    |  | Number of  |  |   |           |  
|                                    |  | shares     |  |   | Amount    |  
|                                    |  |            |  |   |           |  
|Balance, beginning of year          |  | 10,565,171 |  | $ | 1,613,471 |  
|Private Placement @ $0.05 per share |  | 30,000,000 |  |   | 1,500,000 |  
|                                    |  |            |  |   |           |  
|Share
      issue costs             |  |            |  |   | (2,675    | )
|                                    |  |            |  |   |           |  
|Balance, end of
      year          |  | 40,565,171 |  | $ | 3,110,796 |  

During the year ended January 31, 2011, the Company completed a
non-brokered private placement of 30,000,000 units at $0.05 for total proceeds
of $1,500,000. 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. No fair value was attributed to the warrants. Share
issuance costs of $2,675 were incurred in relation to this private
placement.

|b) | Share Purchase Warrants
|-- | -----------------------

The following share purchase warrants were outstanding for the
years ended January 31:

|January 31, |            |              | January 31, | Exercise |          
|----------- | ---------- | ------------ | ----------- | -------- | ---------
|2010        | Issued     | Expired      | 2011        | Price    | Expiry   
|            |            |              |             |          | April 30,
|10,000,000  | 30,000,000 | (10,000,000) | 30,000,000  | $0.10    | 2012     

As at January 31, 2011, the weighted average remaining life of
the share purchase warrants is 1.08 years and the weighted average exercise
price is $0.10.

|c) | Stock Option Plan
|-- | -----------------

The Company has adopted a stock option plan, which provides
that the Board of Directors of the Company may from time to time, in its
discretion, grant to directors, officers, employees and consultants to the
Company, non-transferable stock options to purchase common shares, provided that
the number of common shares reserved for issuance in any twelve month period
will not exceed 10% of the Companys issued and outstanding common shares. Such
options will be exercisable for a period of up to five years from the date of
grant. In connection with the foregoing, the number of common shares reserved
for issuance to any insider in any twelve month period will not exceed 10% of
the issued and outstanding common shares and the number of common shares
reserved for issuance to any employee or consultant will not exceed 2% of the
issued and outstanding common shares. Options may be exercised no later than 90
days following cessation of the optionees position with the Company or 30 days
following cessation of an optionee conducting investor relations activities.

11

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No stock options have been granted in current and prior years
and no stock options are currently outstanding.

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

|Balance, January 31, 2011 and 2010 | $ | 53,357 | 
|---------------------------------- | - | ------ | 

|7. | INCOME TAXES
|-- | ------------

A reconciliation of income tax balances at substantially
enacted statutory rates is as follows:

|                                     |   | 2011    |   |   | 2010    |   |   | 2009    |  
|------------------------------------ | - | ------- | - | - | ------- | - | - | ------- | -
|Loss before income taxes             | $ | 255,692 |   | $ | 118,922 |   | $ | 195,335 |  
|Statutory tax rate                   |   | 28.5%   |   |   | 30%     |   |   | 31%     |  
|                                     |   |         |   |   |         |   |   |         |  
|Expected income tax recovery         |   | (72,872 | ) |   | (35,677 | ) |   | (60,554 | )
|Adjustments resulting from:          |   |         |   |   |         |   |   |         |  
|Non-deductible
      differences     |   | 4,254   |   |   | 4,202   |   |   | 4,064   |  
|Impact of
      changes in tax rates |   | 6,362   |   |   | 12,560  |   |   | 97,175  |  
|Non-capital loss not
      utilized  |   | 19,380  |   |   | 18,600  |   |   | 21,390  |  
|Change in valuation allowance        |   | 42,876  |   |   | 315     |   |   | (62,075 | )
|                                     |   |         |   |   |         |   |   |         |  
|Future income tax benefit            | $ | -       |   | $ | -       |   | $ | -       |  

Potential future tax assets of the Company are comprised of the
following:

|                                            |   | 2011     |   |   | 2010     |  
|------------------------------------------- | - | -------- | - | - | -------- | -
|Non-capital losses carried-forward          | $ | 267,750  |   | $ | 224,750  |  
|Capital assets                              |   | 366      |   |   | 490      |  
|Mineral properties and deferred exploration |   | 50,000   |   |   | 50,000   |  
|                                            |   | 318,116  |   |   | 275,240  |  
|Less: Valuation allowance                   |   | (318,116 | ) |   | (275,240 | )
|                                            |   |          |   |   |          |  
|Net future tax asset                        | $ | -        |   | $ | -        |  

As at January 31, 2011, the Company has non-capital losses
available for carry forward totalling approximately $1,072,000 which expire as
follows:

2012
    $
    84,0002026
    
    132,0002027
    
    176,0002028
    
    152,0002029
    
    183,0002030
    
    105,0002031
    
    240,000$
    1,072,000


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 properties in which the Company currently has interests are
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 fund on-going general and administrative expenses, the Company intends to
use existing working capital and raise additional amounts as needed through
share issuances and loans. The Company will continue to assess new properties
and seek to acquire an interest in additional properties where there is
sufficient geologic or economic potential and if adequate financial resources
are available 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, 2011.

|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 for fluctuations in 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 flows 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 to meet its third party obligations as they are
      due.                                                                                                                                    

13

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|10. | 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 US 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 and reviewed for impairment on a reporting period basis
and 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, ie. contributed
surplus

Under Canadian GAAP, companies allocate convertible loan
proceeds between the debt component and the embedded conversion feature based on
their relative fair values. Under US GAAP, companies allocate convertible loan
proceeds to the embedded conversion feature only if such feature has intrinsic
value. 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.

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

| |                                              |   | 2011     |   |   | 2010       |  
| | -------------------------------------------- | - | -------- | - | - | ---------- | -
| |                                              |   |          |   |   |            |  
| | Mineral property interests                   |   |          |   |   |            |  
| | Per Canadian GAAP                            | $ | 200,879  |   | $ | 105,791    |  
| | Deferred exploration
      costs written off |   | (178,618 | ) |   | (90,530    | )
| | Per
      US GAAP                            | $ | 22,261   |   | $ | 15,261     |  
| |                                              |   |          |   |   |            |  
| | Liabilities                                  |   |          |   |   |            |  
| | Per Canadian GAAP                            | $ | 193,436  |   | $ | 1,140,457  |  
| | Equity portion of
      convertible note     |   | 53,357   |   |   | 53,357     |  
| | Accretion of
      convertible note          |   | (53,357  | ) |   | (38,430    | )
| | Per
      US GAAP                            | $ | 193,436  |   | $ | 1,155,384  |  
| |                                              |   |          |   |   |            |  
| | Shareholders equity (deficiency)            |   |          |   |   |            |  
| | Per Canadian GAAP                            | $ | 170,600  |   | $ | (971,033   | )
| | Deferred
      exploration costs written off |   | (178,618 | ) |   | (90,530    | )
| | Equity portion of convertible note           |   | (53,357  | ) |   | (53,357    | )
| | Accretion of convertible note                |   | 53,357   |   |   | 38,430     |  
| | Per US GAAP                                  | $ | (8,018   | ) | $ | (1,076,490 | )

14

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| | b) | Effect on Statements of Operations, Comprehensive Loss
      and Deficit
| | -- | ------------------------------------------------------------------------

| |                                                                      |   | 2011     |   |   | 2010     |   |   | 2009     |  
| | -------------------------------------------------------------------- | - | -------- | - | - | -------- | - | - | -------- | -
| |                                                                      |   |          |   |   |          |   |   |          |  
| | Net and comprehensive loss                                           |   |          |   |   |          |   |   |          |  
| | Per Canadian GAAP                                                    | $ | (255,692 | ) | $ | (118,922 | ) | $ | (195,335 | )
| | Deferred exploration costs written off                               |   | (88,088  | ) |   | (9,391   | ) |   | (14,906  | )
| | Accretion of convertible note                                        |   | 14,926   |   |   | 14,007   |   |   | 11,871   |  
| | Per US GAAP                                                          | $ | (328,854 | ) | $ | (114,306 | ) | $ | (198,370 | )
| |                                                                      |   |          |   |   |          |   |   |          |  
| | Net and comprehensive loss per common
      share, basic and diluted |   |          |   |   |          |   |   |          |  
| | Per
      Canadian GAAP                                              | $ | (0.01    | ) | $ | (0.01    | ) | $ | (0.05    | )
| | Per US GAAP                                                          | $ | (0.01    | ) | $ | (0.01    | ) | $ | (0.06    | )

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

| |                                              |   | 2011     |   |   | 2010     |   |   | 2009     |  
| | -------------------------------------------- | - | -------- | - | - | -------- | - | - | -------- | -
| |                                              |   |          |   |   |          |   |   |          |  
| | Cash flows used in operating activities      |   |          |   |   |          |   |   |          |  
| | Per Canadian GAAP                            | $ | (224,963 | ) | $ | (157,733 | ) | $ | (162,523 | )
| | Deferred exploration costs written off       |   | (88,088  | ) |   | (9,391   | ) |   | (14,906  | )
| | Accretion of convertible note                |   | 14,926   |   |   | 14,007   |   |   | 11,871   |  
| | Per US GAAP                                  | $ | (298,125 | ) | $ | (153,117 | ) | $ | (165,608 | )
| |                                              |   |          |   |   |          |   |   |          |  
| | Cash flows used in investing activities      |   |          |   |   |          |   |   |          |  
| | Per Canadian GAAP                            | $ | (97,119  | ) | $ | (20,446  | ) | $ | (14,906  | )
| | Deferred exploration costs
      written off |   | 88,088   |   |   | 9,391    |   |   | 14,906   |  
| | Per
      US GAAP                            | $ | (9,031   | ) | $ | 11,055   |   | $ | -        |  

| | d) | Recent Accounting Guidance Not Yet
  Adopted
| | -- | --------------------------------------------

The Company has reviewed recently
issued accounting pronouncements and plans to adopt those that are applicable to
it. It does not expect the adoption of these pronouncements to have a material
impact on its financial position, results of operations or cash flows.

15

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