---

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
20549

FORM 20-F

[   ]  REGISTRATION STATEMENT PURSUANT TO SECTION
12(b) or 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934OR

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year endedDecember 31,
2011

OR

[   ]  TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

[   ]  SHELL COMPANY REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to
_______________

Commission file number0-32255

BALATON POWER INC.(Exact name of Registrant specified in its charter)

BRITISH COLUMBIA, CANADA(Jurisdiction
of incorporation or organization)

Suite 206, 20257 54thAvenueLangley, British ColumbiaCanada V3A 3W2(Address of principal executive offices)

Contact Person: Paul PrestonAddress: Suite 206,
20257 54thAvenue, Langley, British Columbia V3A 3W2Email: ppreston@shaw.caTelephone: (604) 533-5075, Toll
Free: 1 (877) 559-5988, Facsimile: (604) 533-5065(Name, Telephone,
Email and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section
12(b) of the Act:

|Title of Each Class | Name of each exchange on which registered
|------------------- | -----------------------------------------
|                    |                                          
|None                | Not applicable                           

i

---

Securities registered or to be registered pursuant to Section
12(g) of the Act:

COMMON SHARES WITHOUT PAR VALUE(Title of
Class)

Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act: None

Number of outstanding shares of the Companys only class of
capital or common stock as at December 31, 2011 was 137,846,070 common shares
without par value.

Indicate by check mark if the Registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act. YES [ 
 ]                     NO
[X]

If this is an annual report or a transition report, indicate by
check mark if the Registrant is not required to file reports pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934. YES [  
]                     NO
[X]

Indicate by check mark whether Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.YES
[X]                     NO
[   ]

Indicate by check mark whether Registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such
files).YES [  
]                     NO
[   ]

Indicate by check mark whether the Registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated filer. See
definition of accelerated filer and large accelerated filer in Rule 12b-2 of
the Exchange Act. (check one):

Large accelerated filer [   ]
    Accelerated filer [   ]
    Non-accelerated filer [X]


Indicate by check mark which basis of accounting the Registrant
  has used to prepare the financial statements included in this filing:

U.S. GAAP [X]
    International Financial
      Reporting Standards as issued
    Other [   ]by the
      International Accounting Standards Board  [   ]


If other has been checked in response to the previous
question, indicate by check mark which financial statement item the Registrant
has elected to follow:Item 17 [ 
 ]                 Item
18 [   ]

If this is an annual report, indicate by check mark whether the
Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

---

YES [ 
 ]                     NO
[X]

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PAST FIVE YEARS)

Indicate by checkmark whether the Registrant has filed all
documents and reports required to be filed by Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court. YES [  
]                   
 NO [   ] N/A

---

TABLE OF CONTENTS

|                                                                                                 |                                                                                    | **Page**
|------------------------------------------------------------------------------------------------ | ---------------------------------------------------------------------------------- | --------
|                                                                                                 |                                                                                    |         
|Glossary                                                                                         |                                                                                    | 1       
|                                                                                                 |                                                                                    |         
|Cautionary Note to U.S. Investors concerning estimates of
      Measured and Indicated Resources | 4                                                                                 
|Cautionary Note to U.S. Investors concerning estimates of
      Inferred Resources               | 4                                                                                 
|Forward-Looking Statements                                                                       | 5                                                                                 
|                                                                                                 |                                                                                    |         
|PART I                                                                                           |                                                                                    | 6       
|                                                                                                 |                                                                                    |         
|Item 1.                                                                                          | Identity of Directors, Senior Management and Advisers                              | 6       
|Item 2.                                                                                          | Offer Statistics and Expected Timetable                                            | 6       
|Item 3.                                                                                          | Key Information                                                                    | 6       
|Item 4.                                                                                          | Information on the Company                                                         | 13      
|Item 4A.                                                                                         | Unresolved Staff Comments                                                          | 39      
|Item 5.                                                                                          | Operating And Financial Review And Prospects                                       | 40      
|Item 6.                                                                                          | Directors, Senior Management and Employees                                         | 49      
|Item 7.                                                                                          | Major Shareholders and Related Party Transactions                                  | 55      
|Item 8.                                                                                          | Financial Information                                                              | 56      
|Item 9.                                                                                          | The Offer and Listing                                                              | 58      
|Item 10.                                                                                         | Additional Information                                                             | 59      
|Item 11.                                                                                         | Quantitative and Qualitative Disclosures
      About Market Risk                   | 71      
|Item 12.                                                                                         | Description of Securities Other Than Equity Securities                             | 71      
|                                                                                                 |                                                                                    |         
|PART II                                                                                          |                                                                                    | 71      
|                                                                                                 |                                                                                    |         
|Item 13.                                                                                         | Defaults, Dividend Arrearages and Delinquencies                                    | 71      
|Item 14.                                                                                         | Material Modifications to the Rights of
      Security Holders and Use of Proceeds | 71      
|Item 15.                                                                                         | Controls and Procedures                                                            | 71      
|Item 16.                                                                                         | [Reserved]                                                                         | 72      
|Item 16A.                                                                                        | Audit Committee Financial Expert                                                   | 72      
|Item 16B.                                                                                        | Code of Ethics                                                                     | 72      
|Item 16C.                                                                                        | Principal Accountant Fees and Services                                             | 73      
|Item 16D.                                                                                        | Exemptions from the Listing Standards for
      Audit Committees                   | 73      
|Item 16E.                                                                                        | Purchases of Equity Securities by the Issuer and Affiliated
      Purchasers       | 73      
|Item 16F.                                                                                        | Change in Registrants Certifying
      Accountant                                 | 73      
|Item 16G.                                                                                        | Corporate Governance                                                               | 74      
|                                                                                                 |                                                                                    |         
|PART III                                                                                         |                                                                                    | 75      
|                                                                                                 |                                                                                    |         
|Item 17.                                                                                         | Financial Statements                                                               | 75      
|Item 18.                                                                                         | Financial Statements                                                               | 75      
|Item 19.                                                                                         | Exhibits                                                                           | 76      

iv

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Glossary

|Term                     |  | Definition                                                                                                                                      
|------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------
|                         |  |                                                                                                                                                 
|Annual Report            |  | This Form 20-F annual report of the Company for the year
      ended December 31, 2011                                                          
|                         |  |                                                                                                                                                 
|Amended Option Agreement |  | The Companys amended and restated option agreement with
      JAL for the Voiseys Bay West Project dated for reference December 21,
      2011
|                         |  |                                                                                                                                                 
|Balaton or the Company   |  | Balaton Power Inc.                                                                                                                              
|                         |  |                                                                                                                                                 
|Balco                    |  | Bharat Aluminium Co.                                                                                                                            
|                         |  |                                                                                                                                                 
|Bayer Process            |  | A method of producing alumina from bauxite by heating it
      in a sodium hydroxide solution                                                   
|                         |  |                                                                                                                                                 
|BRIMAC                   |  | Balaton Remote Integrated Monitoring and Control System                                                                                         
|                         |  |                                                                                                                                                 
|BSA                      |  | Balaton Power Corporation S.A.                                                                                                                  
|                         |  |                                                                                                                                                 
|CDN GAAP                 |  | Generally accepted accounting principles in Canada                                                                                              
|                         |  |                                                                                                                                                 
|CFC                      |  | Controlled foreign corporation                                                                                                                  
|                         |  |                                                                                                                                                 
|CIMM                     |  | Canadian Institute of Mining and Metallurgy                                                                                                     
|                         |  |                                                                                                                                                 
|Code                     |  | Internal Revenue Code                                                                                                                           
|                         |  |                                                                                                                                                 
|Committee                |  | Board of directors of the Company who will be Plan
      administrators                                                                         
|                         |  |                                                                                                                                                 
|COMPL                    |  | Continental Orissa Mining Private Limited                                                                                                       
|                         |  |                                                                                                                                                 
|Continental              |  | Continental Resources Ltd., a company incorporated under
      the laws of Québec                                                               
|                         |  |                                                                                                                                                 
|CRA                      |  | Canada Revenue Agency                                                                                                                           
|                         |  |                                                                                                                                                 
|CRL                      |  | Continental Resources (USA) Ltd., a wholly-owned
      subsidiary of the Company                                                                
|                         |  |                                                                                                                                                 
|EDTA                     |  | Ethylene-diamene-tetra-acetic acid technique, industry
      standard for analyses for radicals                                                 
|                         |  |                                                                                                                                                 
|Essar                    |  | Essar Aluminium Orissa Limited, an Indian resource
      development corporation                                                                
|                         |  |                                                                                                                                                 
|Essar Agreement          |  | Agreement between CRL and Essar dated May 8, 2007                                                                                               
|                         |  |                                                                                                                                                 
|Exchange Act             |  | Securities Exchange Act of 1934, as amended
      (United States)                                                                               
|                         |  |                                                                                                                                                 
|FERC                     |  | United States Federal Energy Regulatory Commission                                                                                              

1

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|Term                                     |  | Definition                                                                                                                                             
|---------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------
|                                         |  |                                                                                                                                                        
|Gandhamardan Project                     |  | The Companys mineral project, situated in the
      Gandhamardan Hills, Duragali, State of Orissa, India                                              
|                                         |  |                                                                                                                                                        
|GSI                                      |  | Geological Survey of India                                                                                                                             
|                                         |  |                                                                                                                                                        
|ICA                                      |  | Investment Canada Act                                                                                                                                  
|                                         |  |                                                                                                                                                        
|Investor                                 |  | A person who acquires one or more Common Shares of the
      Company                                                                                   
|                                         |  |                                                                                                                                                        
|IRS                                      |  | United States Internal Revenue Service                                                                                                                 
|                                         |  |                                                                                                                                                        
|ISO Options                              |  | Incentive stock options                                                                                                                                
|                                         |  |                                                                                                                                                        
|JAL                                      |  | JAL Exploration Inc., a British Columbia company                                                                                                       
|                                         |  |                                                                                                                                                        
|Joint Venture Agreement                  |  | The joint venture agreement between Continental and OMC
      dated April 18, 1997                                                                     
|                                         |  |                                                                                                                                                        
|MECL                                     |  | Mineral Exploration Corp. Ltd., an Indian company                                                                                                      
|                                         |  |                                                                                                                                                        
|NQSO Options                             |  | Non-qualified stock options                                                                                                                            
|                                         |  |                                                                                                                                                        
|ODM                                      |  | Orissa Directorate of Mines                                                                                                                            
|                                         |  |                                                                                                                                                        
|OMC                                      |  | Orissa Mining Corporation Limited, an Orissa State owned
      government corporation                                                                  
|                                         |  |                                                                                                                                                        
|Option Plan                              |  | The Companys 2010 incentive stock option plan                                                                                                         
|                                         |  |                                                                                                                                                        
|Option Agreement                         |  | The Companys option agreement with JAL for the Voiseys
      Bay West Property dated March 4, 2011                                                   
|                                         |  |                                                                                                                                                        
|Options Right Agreement                  |  | The Companys purchase of options right agreement with
      JAL for the Voiseys Bay West Property dated July 27, 2010, as amended
      March 3, 2011
|                                         |  |                                                                                                                                                        
|Permit                                   |  | The mining permit issued in the name of OMC for over 285
      hectares named Block 7 of the Gandhamardan Project                                      
|                                         |  |                                                                                                                                                        
|Perial                                   |  | Perial Ltd., a company incorporated under the laws of the
      Province of Ontario, and a major shareholder of the Company                            
|                                         |  |                                                                                                                                                        
|PFIC                                     |  | Passive foreign investment companies                                                                                                                   
|                                         |  |                                                                                                                                                        
|Pisces Process                           |  | Fish protective water inlet device                                                                                                                     
|                                         |  |                                                                                                                                                        
|Proposed Revised Joint Venture Agreement |  | The Proposed Revised Joint Venture Agreement is between
      CRL and OMC                                                                              
|                                         |  |                                                                                                                                                        
|QEF                                      |  | Qualified electing fund                                                                                                                                

2

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|Term                                     |  | Definition                                                                                                                                                                                                                                      
|---------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                         |  |                                                                                                                                                                                                                                                 
|SEC                                      |  | United States Securities and Exchange Commission                                                                                                                                                                                                
|                                         |  |                                                                                                                                                                                                                                                 
|System                                   |  | Low-impact run-of-the-river hydroelectric power
      production system                                                                                                                                                                         
|                                         |  |                                                                                                                                                                                                                                                 
|Tax Act                                  |  | Income Tax Act(Canada)                                                                                                                                                                                                                          
|                                         |  |                                                                                                                                                                                                                                                 
|Technical Report                         |  | A report prepared by E.A. Gallo, P. Geo, titled Summary
      Report Gandhamardan Bauxite Deposit Sambalpur and Bolangir Districts,
      State of Orissa, India, dated April 8, 2003 and amended January 19, 2007,
      and February 9, 2007
|                                         |  |                                                                                                                                                                                                                                                 
|Treaty                                   |  | Canada-United States Income Tax Convention, 1980                                                                                                                                                                                                
|                                         |  |                                                                                                                                                                                                                                                 
|US GAAP                                  |  | Generally accepted accounting principles in the United
      States of America                                                                                                                                                                  
|                                         |  |                                                                                                                                                                                                                                                 
|U.S. Securities Act                      |  | Securities Act of 1933, as amended (United States)                                                                                                                                                                                              
|                                         |  |                                                                                                                                                                                                                                                 
|VISA                                     |  | VISA International Ltd., an Indian Company                                                                                                                                                                                                      
|                                         |  |                                                                                                                                                                                                                                                 
|Voiseys Bay West Project (or Project) |  | The Companys mineral exploration project, situated on
      the east coast of north Labrador, Canada                                                                                                                                           

Resource Category (Classification) Definitions

|Mineral Reserve  | The SECs Industry Guide 7  Description of Property by
      Issuers Engaged or to be Engaged in Significant Mining Operations defines
      reserve as that part of a mineral deposit which could be economically
      and legally extracted or produced at the time of the reserve
      determination. Reserves consist of:                                                                                                                                                                                                                                                       
|---------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                 | (1) Proven (Measured) Reserves. Reserves for
      which: (a) quantity is computed from dimensions revealed in outcrops,
      trenches, workings or drill holes; grade and/or quality are computed from
      the results of detailed sampling; and (b) the sites for inspection,
      sampling and measurement are spaced so closely and the geologic character
      is so well defined that size, shape, depth and mineral content of reserves
      are well-established.                                                                                                            
|                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                 | (2) Probable (Indicated) Reserves. Reserves for
      which quantity and grade and/or quality are computed from information
      similar to that used for proven (measured) reserves, but the sites for
      inspection, sampling and measurement are farther apart or are otherwise
      less adequately spaced. The degree of assurance, although lower than that
      for proven (measured) reserves, is high enough to assume continuity
      between points of observation.                                                                                                      
|                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|Mineral Resource | Canadian National Instrument 43-101, Standards of
      Disclosure for Mineral Projects (NI 43-101) defines a Mineral
      Resource as a concentration or occurrence of natural, solid, inorganic or
      fossilized organic material in or on the earths crust in such form and
      quantity and of such a grade or quality that it has reasonable prospects
      for economic extraction. The location, quantity, grade, geological characteristics and
continuity of a mineral resource are known, estimated or interpreted from
specific geological evidence and knowledge.

3

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Mineral Resources are sub-divided, in
order of increasing geological confidence, into Inferred, Indicated and Measured
categories. An Inferred Resource has a lower level of confidence than that
applied to an Indicated Resource. An Indicated Resource has a higher level of
confidence than an Inferred Resource but has a lower level of confidence than a
Measured Resource.

(1) Inferred Resource. That
part of the Mineral Resource for which quantity and grade or quality can be
estimated on the basis of geological evidence and limited sampling and
reasonably assumed, but not verified, geological and grade continuity. The
estimate is based on limited information and sampling gathered through
appropriate techniques from locations such as outcrops, trenches, pits, workings
and drill holes.

(2) Indicated Resource. That
part of the Mineral Resource for which quantity, grade or quality, densities,
shape and physical characteristics can be estimated with a level of confidence
sufficient to allow the appropriate application of technical and economic
parameters, to support mine planning and evaluation of the economic viability of
the deposit. The estimate is based on detailed and reliable exploration and
testing information gathered through appropriate techniques from locations such
as outcrops, trenches, pits, workings and drill holes that are spaced closely
enough for geological and grade continuity to be reasonably assumed.

(3) Measured Resource. That
part of a Mineral Resource for which quantity, grade or quality, densities,
shape, physical characteristics are so well established that they can be
estimated with confidence sufficient to allow the appropriate application of
technical and economic parameters, to support production planning and evaluation
of the economic viability of the deposit. The estimate is based on detailed and
reliable exploration, sampling and testing information gathered through
appropriate techniques from locations such as outcrops, trenches, pits, workings
and drill holes that are spaced closely enough to confirm both geological and
grade continuity.

The SECs Industry Guide 7 
Description of Property by Issuers Engaged or to be Engaged in Significant
Mining Operations does not define or recognize resources. As used in this
Annual Report, resources are as defined in Canadian NI 43-101.

CAUTIONARY NOTE TO U.S. INVESTORSCONCERNING
ESTIMATES OF MEASURED AND INDICATED RESOURCES

This Annual Report uses the terms Measured Resources and
Indicated Resources. We advise U.S. investors that while these terms are
recognized and required by Canadian regulations, the SEC does not recognize
them. U.S. Investors are cautioned not to assume that any part or all of the
mineral deposits in these categories will ever be converted into
reserves.

CAUTIONARY NOTE TO U.S. INVESTORS CONCERNING ESTIMATES OF
INFERRED RESOURCES

This Annual Report uses the term inferred resources. We
advise U.S. investors that while this term is recognized and required by
Canadian regulations, the SEC does not recognize it. Inferred resources have
a great amount of uncertainty as to their economic and legal
feasibility. It cannot be assumed that all or any part of an inferred resource
will ever be upgraded to a higher category. Under Canadian rules, estimates of
inferred resources may not form the basis of feasibility or pre-feasibility
studies, except in rare cases. U.S. investors are cautioned not to assume
that part or all of an inferred resource exists, or is economically or legally
mineable.

4

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FORWARD-LOOKING STATEMENTS

This Annual Report contains forward-looking statements within
the meaning of the U.S.Private Securities Litigation Reform Act of 1995.
These forward-looking statements are not guarantees of the Companys future
operational or financial performance and are subject to risks and uncertainties.
When used in this Annual Report, the words estimate, intend, expect,
anticipate and similar expressions are intended to identify forward-looking
statements. Readers are cautioned not to place undue reliance on these
statements, which speak only as of the date of this Annual Report. These
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those contemplated in such forward-looking
statements.

Actual operational and financial results may differ materially
from the Companys expectations contained in the forward-looking statements due
to various factors, many of which are beyond the control of the Company. These
factors include, but are not limited to, the need for additional financing to
pursue the Companys business plan, risks involved in conducting business
outside of the United States, changes in Canadian or U.S. tax or other laws or
regulations, material changes in capital expenditures, as well as the risks and
uncertainties described in the section entitled Risk Factors set forth in Item
3 of this Annual Report.

5

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PART I

ITEM
1.             
 IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM
2.             
 OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM
3.              
KEY INFORMATION

A.             Selected
Financial Data

The following selected financial data is derived from and should
  be read in conjunction with the audited financial statements of the Company
  for the last five fiscal years ended December 31, 2011, as well as the sections
  of this Annual Report entitled Information on the Company and Operating
  and Financial Review and Prospectus. The financial statements are presented
  in United States dollars and have been prepared in accordance with US GAAP.
  Note 2 to the financial statements provides a summary of the material differences
  between CDN GAAP and US GAAP as they relate to the Companys financial
  statements included herein.

December 31,
    
    
    December 31,
    
    
    December 31,
    
    
    December 31,
    
    
    December 31,(US$)
    
    2011
    
    
    2010
    
    
    2009
    
    
    2008
    
    
    2007Balance Sheet DataTotal assets (CDN GAAP)
    $
    901,065
    
    $
    436,198
    
    $
    44,904
    
    $
    31,906
    
    $
    144,076Total assets (US GAAP)
    
    901,065
    
    
    436,198
    
    
    44,904
    
    
    31,906
    
    
    144,076Total liabilities
    
    718,835
    
    
    666,584
    
    
    679,580
    
    
    843,795
    
    
    699,017Share capital
    
    6,630,848
    
    
    6,024,026
    
    
    5,679,967
    
    
    5,537,404
    
    
    5,537,404Retained earnings (deficit)
      (CDN GAAP)
    
    (9,497,858
    )
    
    (9,268,874
    )
    
    (8,826,957
    )
    
    (8,601,003
    )
    
    (8,344,055
    )Retained earnings (deficit) (US GAAP)
    
    (9,497,858
    )
    
    (9,268,874
    )
    
    (8,826,957
    )
    
    (8,601,003
    )
    
    (8,344,055
    )Period End Balances (as
      at)Working capital (deficit)
    
    (640,842
    )
    
    (599,690
    )
    
    (663,582
    )
    
    (840,795
    )
    
    (552,335
    )Resource properties
    
    823,072
    
    
    369,304
    
    
    -0-
    
    
    -0-
    
    
    -0-Shareholders equity (deficit)
    
    182,230
    
    
    (230,386
    )
    
    (634,676
    )
    
    (811,889
    )
    
    (554,941
    )Statement of Operations
      DataRevenue
    $
    -
    
    $
    -
    
    $
    -
    
    $
    -
    
    $
    -Production costs
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -Write-down of resource properties
    
    -
    
    
    -
    
    
    -
    
    
    75,000
    
    
    126,176General and administrative
      expenses
    
    99,916
    
    
    148,400
    
    
    86,958
    
    
    98,680
    
    
    449,488Consulting fees and commissions
    
    4,000
    
    
    11,487
    
    
    50,500
    
    
    -
    
    
    435,000Professional fees
    
    101,068
    
    
    196,497
    
    
    124,512
    
    
    83,268
    
    
    137,218


6

---

December 31,
    
    
    December 31,
    
    
    December 31,
    
    
    December 31,
    
    
    December 31,(US$)
    
    2011
    
    
    2010
    
    
    2009
    
    
    2008
    
    
    2007Interest expense
    
    (24,000
    )
    
    (7,276
    )
    
    -
    
    
    -
    
    
    -Stock Base Compensation
    
    -
    
    
    78,257
    
    
    34,997
    
    
    -
    
    
    48,700Income (loss) (US GAAP)
    
    (228,984
    )
    
    (441,917
    )
    
    (255,954
    )
    
    (256,948
    )
    
    (1,147,882
    )Loss per common share (CDN GAAP)1
    
    0.00
    
    
    0.00
    
    
    0.00
    
    
    0.00
    
    
    0.01Loss per common share (US
      GAAP)1
    
    0.00
    
    
    0.00
    
    
    0.00
    
    
    0.00
    
    
    0.01Number of outstanding shares
    
    137,846,070
    
    
    123,941,070
    
    
    95,726,070
    
    
    83,453,737
    
    
    83,453,737


Notes:

|(1) | Stock options and warrants outstanding were not included
      in the computation of diluted loss per share as their inclusion would be
      anti-dilutive.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------

B.             Capitalization
and Indebtedness

Not applicable.

C.             Reasons
for the Offer and Use of Proceeds

Not applicable.

D.             Risk
Factors

The following provides a discussion of certain risks
facing the Company. Additional risks that are currently unknown or that are
currently deemed immaterial may also materially adversely affect the Companys
business, results of operations, financial condition and cash flows. You could
lose all or part of your investment due to any of these risks.

The Company has no history of earnings and is subject to
the risks inherent in a start-up company. The Company has no operating history, no revenues and is
subject to all the risks inherent in a start-up business enterprise including
lack of cash flow and no source of revenue. The Company has incurred losses
since its inception, does not currently generate any revenue from the sale of
its products and will require significant additional capital to place any of its
projects into production.

The Company will require additional funding to continue
operations.Historically, the Company has funded its operations
through the sale of equity capital and will require additional funding to
continue operations.The Company has had and will continue to have
capital requirements in excess of its currently available resources and may not
be able to meet its financial commitments as they become due. The Company is
dependent on the proceeds of future financing to finance both its operations and
those of its wholly-owned subsidiary, CRL. Specifically, the Company is
dependent on the proceeds of future financing to finance exploration and future
development of the Gandhamardan Project and the Voiseys Bay West Project. To
the extent that any such financing involves the sale of equity capital, the
interests of the Companys then existing shareholders could be substantially
diluted. There is no assurance the Company will be successful in raising
additional financing.

Very few mineral properties are ultimately developed into
producing mines.The business of exploration for minerals and
mining involves a high degree of risk. Few properties that are explored are
ultimately developed into producing mines. Most exploration projects do not
result in the discovery of commercially mineable deposits of ore. Substantial expenditures
will be required for the Company to establish ore reserves through drilling, to
develop metallurgical processes, to extract the metal from the ore and to
develop the mining and processing facilities and infrastructure at any site
chosen for mining.

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Although substantial benefits may be derived from the discovery
of a major mineral deposit, no assurance can be given that the Company will
discover minerals in sufficient quantities to justify commercial operations or
that the Company can obtain the funds required for development on a timely
basis. The economics of developing precious and base metal mineral properties is
affected by many factors including the cost of operations, variations in the
grade of ore mined, fluctuations in metal markets, costs of processing equipment
and other factors such as government regulations, including regulations relating
to royalties, allowable production, importing and exporting of minerals and
environmental protection

The loss of any directors or officers would adversely
affect the Company. Although none of our directors or officers
has any significant technical training or experience in resource exploration or
mining, the loss of any directors or officers would adversely affect the results
of the Company. The Company is wholly dependent at present upon the personal
efforts and abilities of its officers and directors, who exercise control over
the day-to-day affairs of the Company. The loss of any director or officer could
have an adverse effect on the Company.

The directors and officers of the Company rely on the opinions
of consulting geologists that it retains from time to time for specific
projects. As a result of managements lack of formal training in resource
exploration, there maybe a higher risk of our being unable to complete our
business plan.

The issuance of additional shares would dilute the
interests of existing shareholders. The Company is authorized to
issue an unlimited number of common shares. On December 31, 2011, the Company
had 137,846,070 common shares issued and outstanding. The Board of Directors has
the power to issue additional shares and may in the future issue shares to
acquire products, equipment or properties, or for other corporate purposes. Any
additional issuance by the Company from its authorized but unissued share
capital would have the effect of diluting the interest of existing
shareholders.

The Companys officers and directors may be indemnified
against certain securities liabilities.The laws of the Province
of British Columbia provide that the Company can indemnify any director,
officer, agent and/or employee as to those liabilities and on those terms and
conditions as are specified in the British Columbia Business Corporations
Act. Further, the Company may purchase and maintain insurance on behalf of
any such persons whether or not the Company has the power to indemnify such
person against the liability insured. The foregoing could result in substantial
expenditures by the Company and prevent any recovery from such officers,
directors, agents and employees for losses incurred by the Company as a result
of their actions. The Company has been advised that in the opinion of the SEC,
indemnification is against public policy as expressed in the U.S. Securities
Act, and is, therefore, unenforceable.

The Companys management may not be subject to U.S. legal
process.As Canadian citizens and residents, certain of the
Companys directors and officers may not be subject to U.S. legal proceedings, a
result of which is that recovery on judgments issued by U.S. courts may be
difficult or impossible. While reciprocal enforcement of judgment legislation
exists between Canada and the U.S., the Companys insiders may have defences
available to avoid, in Canada, the effect of U.S. judgments under Canadian law,
making enforcement difficult or impossible. The Companys management may not
have any personal assets available in the U.S. to satisfy judgments of U.S.
courts. Therefore, the Companys shareholders in the United States may have to
avail themselves of remedies under Canadian corporate and securities laws for
perceived oppression, breach of fiduciary duty and like legal complaints.
Canadian law may not provide for remedies equivalent to those available under
U.S. law.

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Exploration and development of natural resources involves
a high degree of risk.The Company is required to obtain the approval
from the State of Orissa for the agreement with OMC (which has been superseded
and replaced with a further Proposed Revised Joint Venture Agreement between CRL
and OMC) before it will have the opportunity for exploration and future
development of the Gandhamardan Project. Also, the Company will, among other
things, be required to obtain various approvals from the government of
Newfoundland and Labrador and the Nunatsiavut Government for exploration and
future development of the Voiseys Bay West Project. There can be no assurance
that the Company will be able to obtain all necessary licenses and permits that
may be required to conduct exploration, development and mining operations at any
of the Companys projects. In addition, as mineral projects near completion,
proper permitting and environmental review may be required.

The terms of the Proposed Revised Joint Venture Agreement have
been accepted by both CRL and OMC, however such revised agreement remains
subject to the approval from the State of Orissa. As of the date of this filing,
the Orissa State Government has not authorized OMC to execute the final Proposed
Revised Joint Venture Agreement. There can be no assurance the Orissa State
Government will authorize OMC to sign the Proposed Revised Joint Venture
Agreement on the terms currently prescribed. In the event that OMC does not sign
the Proposed Revised Joint Venture Agreement, the Companys interest in the
Gandhamardan Project would be significantly adversely affected. Substantial
expenditures are required to conduct pre-feasibility and feasibility work which
would include an environmental impact study, obtain Forestry clearances,
approval of Mining Plan, secure sites for refinery, power plant, water station,
rail and other studies in order to develop the extraction and processing
facilities and infrastructure. No assurance can be given that Mineral Resources
will be converted to Mineral Reserves, that funds required for the development
can be obtained on a timely basis, that funds will be adequate to complete a
feasibility study and/or that bauxite can be economically extracted from the
Gandhamardan Project.

Even with a combination of experience, knowledge and
careful examination, operating hazards and risks may not be mitigated.
Operations in which the Company has a direct or indirect interest will be
subject to all the hazards and risks normally incidental to exploration,
development and production of resources, any of which could result in work
stoppages, damage to persons or property and possible environmental damage.
Although the Company has or will obtain liability insurance in an amount which
it considers adequate, the nature of these risks is such that the liabilities
might exceed policy limits, the liabilities and hazards might not be insurable
against, or the Company might not elect to insure itself against such
liabilities due to high premium costs or other reasons, in which event the
Company could incur significant costs that could have a material adverse effect
upon its financial condition.

Commodity prices fluctuate and are affected by factors
beyond the Companys control. The Companys revenues, if any, are
expected to be in large part derived from future resource efforts including
those of CRLs projects and the Voiseys Bay West Project. Commodity prices
fluctuate and are affected by numerous factors beyond the Companys control
including international, economic and political trends, expectations of
inflation, currency exchange fluctuations, interest rates, global or regional
consumptive patterns, speculative activities and increased production due to
extractive developments and improved extractive production methods. The effect
of these factors on the price of bauxite, and therefore the economic viability
of the Companys exploration projects, cannot be accurately predicted.

The Company operates in a highly competitive
industry. The resource industry is intensely competitive in all of its
phases with numerous companies seeking to explore and develop resource
properties. The Company competes with many companies larger than it and
possessing greater financial resources and technical facilities. Competition
could adversely affect CRLs ability to explore and develop the Gandhamardan
Project and the Companys ability to explore and develop the Voiseys Bay West
Project.

9

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The Company has and may enter into option and joint
venture agreements, which will reduce its interests in its projects. The
Company has entered into the Amended Option Agreement with JAL relating to the
Voiseys Bay West Project and the Company is subject to various terms and
conditions in order to earn any interest in this project. There is no assurance
that the Company will be able to meet the terms and conditions of the Amended
Option Agreement in order to earn any interest in the Voiseys Bay West
Project.

With regard to the Gandhamardan Project, in order to conserve
financial resources, the Companys efforts are focused on its subsidiary CRL,
which intends to enter into option, joint venture, or development agreements to
form a consortium to finance the exploration and possible development of this
project following obtaining approval from the State Government of Orissa for the
Proposed Revised Joint Venture Agreement between OMC and CRL. There is no
assurance that OMC or the Government of Orissa will approve CRLs agreement with
any such third party. When such agreements are entered into, CRLs current
interest in the Gandhamardan Project will be reduced and CRL will share with
others in the development of the Project. Though CRL currently has entered into
such an agreement with VISA, there is no assurance that such a consortium will
continue or that it, or any additional consortiums, will be formed on terms
favourable to CRL or that the development of the Gandhamardan Project will
proceed.

The Company cannot guarantee title to its assets.
While the Company has or will receive title opinions for any properties in which
it has or will acquire a material interest, such opinions cannot be viewed as a
guarantee of title. Title may be affected by unregistered interests and claims
to title, which could adversely affect the Companys ability to develop its
properties.

The Company has inadequate working capital. It
will be necessary for the Company and/or CRL to raise additional funds this year
to move forward on the Gandhamardan Project and the Voiseys Bay West Project.
The Company and/or CRL may be required to raise funds through private placements
or public offerings of treasury shares, through debt financing, if available, or
sale of a portion of its interest in its projects. If the Company is not
successful in raising further funds, it may not be able to further the
development of its projects.

The Company is subject to Indian government regulations.CRL is subject to all governmental regulations in India regarding the
development of the Gandhamardan Project. The level of regulation by the
government in India relating to the project could affect the Companys ability
to obtain partners or consortium members for the development of the Gandhamardan
Project.

The Company relies on Indian government agencies and OMC
  for the development of the Gandhamardan Project.The Company
  relies heavily on the cooperation of the State Government of Orissa, OMC and
  other governmental agencies in the finalization of joint venture relationships
  and the issuance of permits and licenses for the development of the Gandhamardan
  Project. The Company is dependent upon the Government of Orissa to approve the
  Proposed Revised Joint Venture Agreement between the Company and OMC and there
  is no assurance that the Government of Orissa will give such approval. The Company
  is also dependent upon OMC to approve any agreements between the Company and
  third parties that relate to the Gandhamardan Project and there is no assurance
  that OMC will give such approval.

The Company is subject to government policies in
India. Activities conducted by residents and nonresidents in India and
the flow of investment into the country and the return of capital out of the
country are subject to regulation. All such controls and regulations are subject
to change from time to time. Any change in government regulation or the economic
and political stability of the host country India, could have a material adverse
effect on the business of the Company and could impact investments in the
Companys common shares.

10

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The Company is subject to government policies in
Canada. Activities conducted by the Company in Newfoundland and Labrador
are subject to regulation by federal, provincial and aboriginal governments. All
such controls and regulations are subject to change from time to time. Any
change in government regulation or the economic and political stability could
have a material adverse effect on the business of the Company and could impact
investments in the Companys common shares.

Currency exchange rate fluctuations and higher inflation
may adversely impact the Companys future operating results and financial
condition.The exchange rate between the Indian Rupee and the U.S.
dollar has changed substantially in the last two decades and could fluctuate
substantially in the future. On an annual average basis, the Indian Rupee
declined against the U.S. dollar from 1980 to 2002. Beginning in May 2002, the
Indian Rupee began appreciating relative to the U.S. dollar. On December 31,
2011 the U.S. dollar equalled 53.0222 Indian Rupees. Because some the Companys
assets may be held in Indian Rupees, devaluation or depreciation of the value of
the Indian Rupee will adversely affect the value of these assets in foreign
currency terms. In addition, the Companys market valuation could be materially
adversely affected by the devaluation of the Indian Rupee if U.S. investors
analyze the Companys value and performance based on the U.S. dollar equivalent
of the Companys financial condition and operating results. The Company expects
that a substantial portion of its expenses, including personnel costs, may be
denominated in Indian Rupees. As such, any appreciation of the Indian Rupee
against the U.S. dollar would reduce the cost advantage derived from the
Companys Indian Rupee-denominated expenses and would likely adversely affect
the Companys financial condition and results of operations. In addition, an
increase in inflation would adversely affect world economies generally, which
would adversely affect the Companys business.

The Company is subject to risks of operating in
India.A large part of the Companys assets and business
operations could be located in India when the Joint Venture Agreement with OMC
becomes effective. The Company has entered into a consortium agreement with an
Indian company, VISA, to develop the Gandhamardan Project subject to the Joint
Venture Agreement with OMC becoming effective as well as obtaining all other
governmental approvals necessary to develop the Gandhamardan Project.
Consequently, the Companys financial performance and the market price of its
shares may be affected by social and economic developments in India and the
policies of the Government of India, including taxation and foreign investment
policies, as well as changes in exchange rates, interest rates and controls.

Political instability related to the current multi-party
coalition government could halt or delay the liberalization of the Indian
economy and adversely affect economic conditions in India generally. The
Government has traditionally exercised and continues to exercise significant
influence over many aspects of the economy. The Companys business, and the
market price and liquidity of its shares, may be affected by interest rates,
changes in Government policy, taxation, social and civil unrest and other
political, economic or other developments in or affecting India. Since 1991,
successive Indian governments have pursued policies of economic liberalization,
including significantly relaxing restrictions on the private sector. The Company
cannot assure you that these liberalization policies will continue in the
future. The rate of economic liberalization could change, and specific laws and
policies affecting the Companys business, foreign investment, currency exchange
rates and other matters affecting investment in the Companys securities could
change as well. A significant change in Indias economic liberalization and
deregulation policies could adversely affect business and economic conditions in
India generally, including the Companys business.

Litigation and disputes may adversely affect the
Companys profitability and financial condition.The Company is,
and may be in the future, subject to legal actions and disputes in the ordinary
course of its business operations. Legal actions and disputes may arise under
contracts, regulations or from a course of conduct taken by the Company.
Differences in the legal and judicial system according to region make it difficult to predict the result of litigation or other legal
proceedings currently involving the Company or of these which may arise in the
future. Although the Company believes that it has adequately reserved in all
material aspects for the costs of litigation and regulatory matters, no
assurance can be provided that such reserves are sufficient. Given the large or
indeterminate amounts of damages sometimes sought, and the inherent
unpredictability of litigation and disputes, it is possible that an adverse
outcome could have an adverse effect on the Companys results of operation or
cash flows.

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Recent market events and conditions, including
disruptions in the international credit markets and other financial systems and
the deterioration of global economic conditions, could impede the Companys
access to capital or increase its cost of capital. Since 2007, the U.S.
credit markets experienced serious disruption due to a deterioration in
residential property values, defaults and delinquencies in the residential
mortgage market and a decline in the value and credit quality of mortgage-backed
securities. Other adverse events include delinquencies in non-mortgage consumer
credit and a general decline in consumer confidence. These conditions worsened
in 2008 and have continued into 2012, contributing to reduced confidence in
credit and financial markets around the world and the collapse of, and
governmental intervention in, major financial institutions. Asset price
volatility and solvency concerns have increased, and there has been less
liquidity, a widening of credit spreads, a lack of price transparency, increased
credit losses and tighter credit conditions. Notwithstanding various government
actions, concerns about the general condition of the capital markets, financial
instruments and financial institutions persist, and stock markets have declined
substantially.

These market disruptions have had a significant material
adverse impact on companies in many sectors of the economy and have limited
access to capital and credit. These disruptions could, among other things, make
it more difficult for the Company to obtain, or increase the Companys cost of
obtaining, financing for its operations. Failure to raise capital when needed or
on reasonable terms may have a material adverse effect on the Companys
business, financial condition and results of operations.

Additionally, these factors, as well as other related factors,
may cause decreases in asset values that are deemed to be other than temporary,
which may result in impairment losses. If these factors continue, the Companys
operations could be adversely impacted and the trading price of the Common
Shares may be adversely affected.

The Company is also exposed to liquidity risks in meeting its
operating and capital expenditure requirements in instances where cash positions
are unable to be maintained or appropriate financing is unavailable. These
factors may impact the ability of the Company to obtain loans and other credit
facilities in the future and on favourable terms. If these increased levels of
volatility and market turmoil continue, the Companys operations could be
adversely impacted and the trading price of the Common Shares could be adversely
affected.

The trading market for our shares is not always
liquid.Although the Companys shares trade on the
Over-The-Counter Bulletin Board (OTC) of the Financial Industry Regulatory
Authority, Inc. (FINRA), the volume of shares traded at any one time can be
limited, and, as a result, there may not be a liquid trading market for our
shares. The Company also cannot assure you that any other market will be
established in the future. The price of the Companys common stock may be highly
volatile and your liquidity may be adversely affected in the future.

Our common stock is thinly traded, so you may be unable
to sell at or near ask prices or at all if you need to sell your shares to raise
money or otherwise desire to liquidate your shares.There is
limited market activity in the Companys stock and the Company is too small to
attract the interest of many brokerage firms and analysts. The Company cannot
give any assurance that a broader or more active public trading market for its common stock will develop or be
sustained. While the Company is trading on the OTC, our trading volume may be
limited by the fact that many major institutional investment funds, including
mutual funds, as well as individual investors follow a policy of not investing
in OTC stocks and certain major brokerage firms restrict their brokers from
recommending OTC stocks because they are considered speculative, volatile,
thinly traded and the market price of the common stock may not accurately
reflect the Companys underlying value. The market price of the Companys common
stock could be subject to wide fluctuations in response to quarterly variations
in our revenues and operating expenses, announcements of new products or
services by us, significant sales of the Companys common stock, the operating
and stock price performance of other companies that investors may deem
comparable to us, and news reports relating to trends in our markets or general
economic conditions.

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Our securities may be subject to penny stock and other
regulation.The Companys stock is subject to penny stock rules
as defined in 1934 Securities and Exchange Act rule 3151-1. The Commission has
adopted rules that regulate broker-dealer practices in connection with
transactions in penny stocks. The Companys common shares are subject to these
penny stock rules. Transaction costs associated with purchases and sales of
penny stocks are likely to be higher than those for other securities. Penny
stocks generally are equity securities with a price of less than U.S. $5.00
(other than securities registered on certain national securities exchanges or
quoted on the NASDAQ system, provided that current price and volume information
with respect to transactions in such securities is provided by the exchange or
system).

The penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document that provides information about penny
stocks and the nature and level of risks in the penny stock market. The
broker-dealer also must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction, and monthly account statements showing the
market value of each penny stock held in the customers account. The bid and
offer quotations, and the broker-dealer and salesperson compensation
information, must be given to the customer orally or in writing prior to
effecting the transaction and must be given to the customer in writing before or
with the customers confirmation.

The penny stock rules require that prior to a transaction in a
penny stock not otherwise exempt from such rules, the broker-dealer must make a
special written determination that the penny stock is a suitable investment for
the purchaser and receive the purchasers written agreement to the transaction.
These disclosure requirements may have the effect of reducing the level of
trading activity in the secondary market for the Companys common shares in the
United States and shareholders may find it more difficult to sell their shares.

In addition, the Companys stock is subject to British Columbia
Instrument 51-509 (Issuers quote in the US Over-The-Counter Markets) (BCI
51-509). Among other things, BCI 51-509 places additional disclosure
requirements on the Company and also provides for legend requirements on certain
share certificates of the Companys stock. The requirements of BCI 51-509 may
impose additional restrictions on the liquidity of the Companys stock and
shareholders may find it more difficult to sell their shares.

ITEM
4.             
 INFORMATION ON THE COMPANY

A.            
History and Development

The Companys legal and commercial name is Balaton Power Inc.
The Company was incorporated under the Company Act (British Columbia)
(now the British Columbia Business Corporations Act) under the laws of
the Province of British Columbia, Canada, on June 25, 1986.

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The Companys head office is located at Suite 206, 20257 54th
Avenue, Langley, British Columbia, Canada V3A 3W2, Telephone: (604) 533-5075,
Toll Free: 1 (877) 559-5988, Facsimile: (604) 533-5065, Email: boxbal@shaw.ca.
The Companys registered office is located at 1500 Royal Centre, 1055 West
Georgia Street, P.O. Box 11117, Vancouver, BC V6E 4N7.

The Company is a mining exploration and development company currently
  pursuing mineral projects in both India and Canada. The Companys Indian
  mineral project is a bauxite deposit in Gandhamardan Hill, Duragali, State of
  Orissa, India (the Gandhamardan Project). The Gandhamardan
  Project is being developed by the Companys wholly owned subsidiary, Continental
  Resources (USA) Ltd. (CRL). The Companys Canadian mineral
  project is a nickel and copper exploration property in the Voiseys Bay
  West area of Labrador (the Voiseys Bay West Project).
  The Voiseys Bay West Project is being developed pursuant to the Amended
  Option Agreement with JAL Exploration Inc. (JAL).

The Company is a public company listed on the OTC Bulletin
Board, with the stock symbol BPWRF.

On September 30, 2002, the Company entered into a Stock Exchange
  Agreement with Perial Ltd. (Perial) for the purchase of CRL.
  The Company issued a total of 33,000,000 common shares in its own capital to
  acquire CRL, of which 25,000,000 shares were allocated to Perial and 8,000,000
  shares were issued as finders fees to non-related parties of the Company.
  At that time CRL was a joint venture partner with Orissa Mining Corporation
  (OMC), an Indian state-owned corporation, which held an interest
  in the Gandhamardan Project. The transaction was treated as a capital transaction
  by the Company and not a business combination. Prior to the transaction, CRL
  sold all of its oil and gas assets to its then parent company, Perial, for a
  promissory note in the amount of $481,724 and the assumption of CRLs outstanding
  debts. The note is non-interest bearing and is repayable through the payment
  of a 25% interest in production from the oil and gas assets. Subsequently the
  25% interest was converted to a 6.25% override and the value was lowered to
  $126,176. No revenues were received during 2007 and this interest was written
  down to zero on December 31, 2007.

At the time of the Companys acquisition of CRL in 2002,
  CRLs sole asset was a 50% interest and effective control of Continental
  Orissa Mining Private Limited (COMPL), a private Indian company
  which held rights to explore and develop the Gandhamardan Project. OMC held
  the other 50% interest in COMPL and is a Orissa State owned corporation. During
  2004, COMPL was voluntarily dissolved to make way for a new entity that would
  facilitate future joint venture agreements between CRL and OMC. Since the dissolution
  of COMPL, CRL and OMC have planned to incorporate a new entity that will direct
  the development of the Gandhamardan Project. CRL and OMC have submitted a Proposed
  Revised Joint Venture Agreement to the Orissa Government for approval and upon
  the effectiveness of such revised agreement will form such an entity. As of
  the date of this filing, the approval of the Orissa Government for the Proposed
  Revised Joint Venture Agreement remains outstanding.

Over the past eight years, the Company has focussed on
establishing a strong working relationship with OMC. The Company and OMC have
discussed exploration and possible development of the Gandhamardan Project,
although no written agreement has yet been signed as Indian government approval
is still pending and no development or exploration has been done on the Project
in recent years. Management has held discussions with potential partners to
provide financial and technical resources to assist in the exploration and
potential development of the Gandhamardan Project and to aid in the formation of
the new entity with OMC, as described further below.

In February of 2005, CRL entered into a consortium agreement
(the Consortium Agreement) with VISA International Ltd.
(VISA) to assist in the development of the Gandhamardan Project, but in
September of 2006 CRL sent a letter to VISA to terminate the Consortium
Agreement. VISA subsequently commenced an arbitration in India in relation to
CRLs termination letter.

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On May 8, 2007, Balaton announced that CRL had entered into an
agreement in principle (the Essar Agreement) with Essar Aluminum Orissa
Limited (Essar), an Indian resource development corporation, to develop
the Gandhamardan Project and set up an alumina/aluminum complex subject to a
feasibility study and applicable approvals. The Essar Agreement was subject to
negotiation and execution of a definitive agreement, approval of OMC, and
approval by the State of Orissa, India. In the fourth quarter of 2008, Essar
served notice to CRL that Essars board had not approved Essar entering into a
definitive and shareholder agreement with CRL at that time because of the global
crisis in commodity and financial markets and CRLs then unresolved litigation
with VISA.

In the fourth quarter of 2008, CRL entered into discussion with
VISA in an attempt to resolve the pending litigation between the parties and on
September 23, 2009 the parties settled the litigation and revived the 2005
Consortium Agreement mentioned above (see Legal Proceedings).

In addition, in April 2009, CRL and Essar entered into a
general release whereby Essar released CRL, and CRL released Essar from any
previous agreements between the parties. Despite this release, CRL may approach
Essar in the future now that it has resolved the litigation with VISA, but at as
of the date of this filing, and considering the instability of the global
commodity markets, CRL is free to pursue other potential partners for
exploration and development for the Gandhamardan Project.

As of the date of this filing, no other agreements other than
  those referred to above have been entered into with any party by CRL for the
  exploration and potential development of the Gandhamardan Project.

Prior to the Company becoming involved with the Voiseys Bay
West Project, the above referenced efforts of the Company took substantially all
of the time of the Companys management over the past three years. When the time
comes, the Gandhamardan Project will require financing activities to raise funds
to further the Project. During the Companys last three financial years to the
date of this filing, the Company has made no principal capital expenditures or
divestitures in this project.

On July 27, 2010, Balaton announced that it had entered into an
agreement with JAL whereby Balaton purchased the right to enter into a
subsequent option agreement to obtain two property options relating to the
Voiseys Bay West Project. During the fall of 2010 the Company commenced
exploration operations on the Voiseys Bay West Project and completed such
operations in December 2010, as required by the agreement with JAL.

On March 7, 2011 the Company announced that it had entered into
an Option Agreement with JAL to acquire up to an 80% interest in the Voiseys
Bay West Property, subject to a 2% NSR. Further, on June 1, 2011 the Company
announced that it had increased its property position at the Voiseys Bay West
Project by purchasing an addition mineral licence from JAL. Finally, on December
21, 2011 the Company reached agreement with JAL to amend the Option Agreement
(the Amended Option Agreement). As of the date of this filing, Balaton
is working towards the further exploration and development of this project.

On October 18, 2011 the Company announced that it entered into
  an agreement with The Eversull Group, Inc. (the Eversull Group)
  for financial public relations, investor relations and shareholder consulting
  services. The Eversull Group was established in 1997 and is based in Frisco,
  Texas. The Eversull Group has been successful in achieving national and international
  media coverage for its clients. The Eversull Group has also been successful
  in assisting OTCBB companies to achieve listings on primary stock exchanges.
  The Eversull Group will assist the Company in developing a strategy to communicate
  to its shareholders and to the financial investment community.

15

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B.             Business
Overview

The Companys principal business is focussed on the exploration
of the Gandhamardan Project located in the State of Orissa in India through CRL
and the exploration of the Voiseys Bay West Project.

The Company is currently seeking approval from the Government
in the State of Orissa to a Proposed Revised Joint Venture Agreement with OMC
relating to the Gandhamardan Project. In September of 2009 the Company
reinstated the Consortium Agreement from 2005 that it had entered into with VISA
and that relates to the Project.

The Company is currently planning operations for further exploration
  of the Voiseys Bay West Project.

Gandhamardan Project

On April 18, 1997, Continental entered into an agreement with
OMC (the Joint Venture Agreement) to form COMPL, a 50-50 joint venture
company in the State of Orissa, India, with its primary purpose to explore and
develop the Gandhamardan Project. Continental managed the daily operations of
COMPL. Under the Joint Venture Agreement, OMC had an option to participate in
Continentals proposed aluminium complex (including refinery, power plant and
smelter). OMC had to exercise this option within one year from the date of
transfer of leases concerning the Gandhamardan Project, of which such option
could be extended by mutual consent. Pursuant to the Joint Venture Agreement,
Continental bore all costs associated with the preparation of a feasibility
report and exploration of the deposit. In 2002, Continental transferred its
interest in the deposit to CRL, an unrelated company, with the result that CRL
and OMC became joint venture partners. On September 30, 2002, the Company
entered into a Stock Exchange Agreement with Perial for the purchase of CRL in
consideration for 33,000,000 common shares (See Material Contracts). During
2004, COMPL was voluntarily dissolved at the request of OMC. Currently, CRL and
OMC plan to incorporate a new entity that will direct the development of the
Gandhamardan Project according to the terms and conditions of a new agreement
submitted to the Orissa Government for approval, and as of the date of this
filing the approval is still pending.

During 2004, CRL met with OMC to discuss the terms and
conditions for a new joint venture agreement to explore and develop the
Gandhamardan Project. The Proposed Revised Joint Venture Agreement has been
approved by CRL and OMC but is currently awaiting final approval from the
Government of Orissa. No assurance can be made that the Government of Orissa
will give its approval to such agreement.

During 2005, CRL set up and staffed an
  office in Bhubaneswar, Orissa and proceeded with the initial start up of the
  Gandhamardan Project. Included in the staff in the Bhubaneswar office was a
  geological team that obtained more than 1400 maps and reports covering the
  Gandhamardan area and had catalogued them with reference numbers for evaluating
  the top sites for alumina refinery, power plants, railroad spurs, water pipeline
  and aluminium smelter. Due to the delay in obtaining approvals and the current
  financial environment, as of date of this filing, the Bhubaneswar office has
  been closed and no staff are currently retained at that office.

The Company believes that the most efficient way to potentially
develop the Gandhamardan Project is through the establishment of a consortium,
as it will allow the members to spread the financial burden for building the
aluminium complex (see discussion of history of the Companys and CRLs efforts
in this regard in Item 4A History and Development). Currently, the Company has
confirmed VISA as a consortium partner and may continue to approach other
potential parties in the future. Though CRL has entered into the Consortium
Agreement with VISA, there is no assurance that any consortium that the Company
is involved with will be successful and there is no security as to what the
terms of any future consortium formed will be. If the Company is unable to
locate suitable partners, the Company will have to seek additional financing to
carry out the Gandhamardan Project.

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As the Gandhamardan Project is currently preliminary in nature
and awaiting numerous approvals from the Government of the State of Orissa:

| | a. | the extent of the permits that must be acquired to
      conduct the work proposed for the project remains unknown at this time (as
      the date of this filing, OMC has obtained a mining permit for one of the
      seven blocks that relate to the project and approval for the remaining six
      has been submitted to the central government of India),
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                  
| | b. | the extent of the environmental liabilities to which the
      project is subject remains unknown at this time, and                                                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                  
| | c. | subject to any agreements with third parties relating to
      the project and finalization of the Proposed Revised Joint Venture
      Agreement, the extent of any royalties, overrides, back-in rights,
      payments or other agreements and encumbrances to which the project is
      subject remains unknown at this time.                               

Summary Report on Gandhamardan Project

The Gandhamardan Project is summarized in the following
information from a report prepared by E.A. Gallo, P. Geo. titled Summary Report
Gandhamardan Bauxite Deposit Sambalpur and Bolangir Districts, State of Orissa,
India, dated April 8, 2003 as amended January 19, 2007, and February 9, 2007
(the Technical Report). The Technical Report summarizes
exploration on the property by past operations, and was prepared and is
disclosed by the Company under Canadian securities regulations. The Technical
Report has been filed on SEDAR and can be reviewed in its entirety at
www.SEDAR.com. E.A. Gallo, a geologist, had worked extensively on the project
and had visited the Gandhamardan area and made several trips to India to become
knowledgeable on the Gandhamardan area.

Historical Resource Estimates

The Technical Report sets out resource estimates calculated
prior to the Canadian Institute of Mining and Metallurgy (CIM) Best Practices
Guidelines for Estimation of Mineral Resources and Mineral Reserves and National
Instrument 43-101 (NI 43-101) and were not performed to CIM standards. The
Company has obtained the original data but a qualified person has not done the
work necessary to verify the classification of the resource and the Company is
not treating it as a NI 43-101 defined resource. It is a historic estimate that
should not be relied upon. Moreover, there is no guarantee that further work
will result in the delineation of the current mineral resources.

Significant risks are associated with the development of the
Gandhamardan Project and the Companys effort to date can only be considered
preliminary in nature. Many factors affect the development of the project
including the proximity of the project to rail, roads, water, cost of energy and
environmental concerns associated with the development of the project. Based on
the preliminary nature of the Companys efforts, there can be no assurance that
the project will be feasible or economically viable. The information provided
below relating to the Technical Report has not been updated since last amendment
of the Technical Report referenced above.

Introduction And Terms Of Reference

The Technical Report was written at the request of CRL, a
subsidiary of the Company. It was written on April 8, 2003, revised on January
15, 2007 and further revised on February 9, 2007.

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The Gandhamardan bauxite deposit was the focus of an extensive
exploration-evaluation program conducted in stages over a number of years by ODM
and MECL. A need was recognized to examine and assimilate the technical results
of all this work, to draw whatever conclusions might emerge, and to make
recommendations regarding any further work that might be warranted. The
Technical Report addresses that need.

The prime sources of data utilized in preparing the Technical
Report are technical reports written by geologists and engineers employed on the
project by ODM and MECL. Information was also obtained from other technical
reports, and from discussions held with officials of OMC, MECL, GSI, National
Aluminium Company of India, and SNC-Lavalin Inc. As well, the author drew upon
observations made during five visits to the area, including three to the
property. These three visits lasted a total of 59 days.

The author has relied heavily on technical reports written
by ODM and MECL personnel. These persons are competent, qualified professionals.
Nevertheless, occasional minor discrepancies were found in their reports, such
as conflicting numbers, typographical errors, and illegible words. Most of the
discrepancies involve drill hole sites and pit sites, and they could not be
resolved. One of the more bothersome was in the ODM resource calculations. One
calculation appears to include Block 10, the other does not, although it is not
clear that this is the case. At any rate, Block 10 is one of the smallest
blocks, and accounts for only about 3% of the total calculated tonnage. Its
inclusion or omission does not change the weighted average grade calculations.
The other discrepancies appear to have similar minimal effects on the size,
shape, and grade of the bauxite zone, due to the thorough extent of work
performed, and to the straight-forward nature of the deposit.

Property Description And Location

The Gandhamardan bauxite deposit occurs at the top of
Gandhamardan hill. This hill, which has a plateau top, is linear, aligned in a
NE-SW direction. The hill straddles the boundary between Balangir District to
the SE, and Sambalpur District to the NW, in the west central part of the State
of Orissa, in eastern India.

Figure I shows the general location of the State of Orissa in
India.

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Figure
I - General Location Sketch

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Figure II shows the location of Gandhamardan in the State of
Orissa.



Figure II  Location of Gandhamardan in Orissa

Gandhamardan is bounded by Latitudes 20 50 and 20 55 North,
and Longitudes 82 45 and 82 54 East. It plots on Survey of India topographic
sheet NTS 65L/13.

Gandhamardan hill extends in the NE-SW direction for a length
of 9.8 kms. Its width ranges from 0.4 to 2.6 kms., and averages 0.75 km. The top
of the hill is a plateau, with an areal extent of 7.4 kms2. The bauxite zone
covers an area of 735 hectares. Because of its large size and lineal alignment,
the deposit has been divided into 10 1-km wide blocks, numbered 1 to 10.

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Figure III shows the extent of the deposit and the 10 blocks.



Figure III  Gandhamardan Bauxite Deposit Showing Block
Divisions

OMC currently holds a mining permit (the Permit) on
Block 7. The Permit covers an area of 285 hectares, as shown in Figure IV.

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Figure IV  Granted and Applied Mining Leases

As mentioned above, OMC has applied for mining permits covering
  the other blocks. A perimeter land survey and other environmental studies must
  be performed before additional permits are granted.

Gandhamardan hill stands approximately 1,200 meters above sea
level, and 700 meters above a plain at the base of the hill. The plateau top has
a gentle relief of about 50 meters.

Vegetation on the plateau consists primarily of tiger-grass,
dwarf palm, chachar, chhena, bantulsi, etc., with small, isolated clumps of
stunted hardwood trees such as char and kendu. The stunted trees rarely exceed 4
meters in height.

22

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Vegetation on the hill flanks contrast greatly with that on the
plateau. The flanks are densely forested by mature hardwood trees such as char,
kendu, tenk, and sal. Underbrush consists mainly of bamboo clumps, leafy vines,
shrubs, and medicinal herbs.

Gandhamardan hill is a designated Forest Reserve. Indian
government regulations permit mining in a designated Forest Reserve provided
that another area of equal or greater areal extent is secured and substituted in
its stead, and the designation transferred to it. A permit must be granted by
the Dept. of Forests to effect such a transfer. The Directorate of Mines has
identified 3 potential substitute sites, and has made application to the Dept.
of Forests for the necessary permit. Granting of the permit is pending as of the
date of this filing.

Accessibility, Climate, Local Resources, Infrastructure
and Physiography

The Gandhamardan Project is easily accessed by 4-wheel drive
vehicle along a poorly-maintained road up the NW flank of the hill. This road
departs from the village of Duragali, at the base of the hill, and winds 4 kms.
to the top. Duragali is connected by the paved road to Paikmal, a town with all
modern facilities, including power, water, transportation, communication, food,
shelter, supplies, services, and labour. Paikmal is connected by a paved road to
the State Capital, Bhubaneswar, about 300 kms. to the E, and to port cities
along the Bay of Bengal, equidistant to the SE.

At the time that the exploration work was performed, the hill
top could also be accessed up the SE side. This road currently has three
wash-outs. After repairs, this road would be navigable by 4-wheel drive
vehicles. The SE road is preferable, as it provides a slightly shorter route to
the hill top, and access by paved roads southerly to the towns of Lakhna and
Nawaspara, 32 and 39 kms. distant, respectively. Both these towns lie along the
South Eastern Railway line. This rail line was recently constructed by the
Indian Government to facilitate the development of Orissa bauxite deposits by
linking them to the port of Vishakhapnam on the Bay of Bengal.

The climate in the Gandhamardan area is sub-tropical, with
summer temperatures averaging 33°C, and winter temperatures averaging 18°C.
Annual rainfall averages 150 cms., most of it during the monsoon season, between
July and August. The months of January and February experience little or no
rain. Previously, the monsoon rains came in 3-year cycles, however, they have
failed to come for the past several years, resulting in impoverished drought
conditions. It is anticipated that the length of operating season for the
project will be year round.

Should a mining operation be established, no tailings or wastes
would be created, since the bauxite is direct-shipping. The cover of soil and
laterite would be moved and stockpiled, then replaced after removal of the
bauxite.

As the Gandhamardan Project is currently preliminary in nature
and awaiting numerous approvals from the Government of the State of Orissa, the
extent of the surface rights necessary for the project to proceed remains
uncertain at this time.

History

The potential for bauxite at Gandhamardan was first recognized
by the Geological Survey of India (the GSI) in the 1940s, and they
recommended that the area be thoroughly prospected.

In 1948, the Orissa Directorate of Mines (the ODM)
sank several pits, which intersected only laterite.

23

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In 1959, ODM identified bauxite at Gandhamardan, and they
immediately undertook a programme of exploration and evaluation. GSI and Mineral
Exploration Corp. Ltd. (MECL), an Indian federal government agency,
participated, as did Aluminium Corp. of India, an aluminium producer.

ODM drilled 75 holes in 1959, and reported a resource of 6
million tonnes grading +50% Al2O3 to a depth of 17 meters. This figure does
not conform to current NI 43-101 standards, and is classified as a historical
estimate.

Subsequent phases of drilling were conducted between 1961 and
1965. In the late 1960s, Aluminium Corp. of India undertook detailed
exploration with MECL, after which MECL reported a resource of 26 million tones
of metallurgical grade bauxite, using a cut-off of +46% Al2O3. This figure
does not conform to current NI 43-101 standards, and is classified as a
historical estimate.

The deposit attracted no further attention until 1975, when the
economic potential of the large, low-silica bauxite deposits in the State Orissa
became recognized. Bharat Aluminum Co. (Balco), an Indian corporation,
expressed interest in Gandhamardan as a source of feed for their aluminium plant
at Korba, situated 350 kms. by rail to the N, in the adjoining State of Madhya
Pradesh. At Balcos request, an integrated exploration programme was undertaken
jointly by MECL, GSI, and ODM. The programme included linecutting, topographic
surveying, geological mapping, pitting, drilling, sampling, mineralogical
studies, and metallurgical tests.

Balco commissioned a feasibility study on a portion of the
deposit in 1980, and upon its conclusion, prepared to bring the deposit into
production. Local villagers opposed the project, and Balco finally gave it up.

The property remained idle until 1997, when Continental and OMC
agreed to jointly develop it. Continental commissioned SNC-Lavalin to undertake
a feasibility study on the deposit, however numerous delays ensued, and the
study was never completed. The author of the Technical Report visited the
property at this time, and during one of the visits, collected six samples, two
from Pit GP-2, and two from each of two scarp sites. The samples were collected
in the author of the Technical Reports presence, and he personally transported
them to a Canadian commercial laboratory. Analyses were performed for 12
radicals, including Al2O3, SiO2, Fe2O3, TiO2, and LOI, by x-ray fluorescence,
fused-disc method. In 2002, OMC transferred the Agreement from Continental to
CRL. There is no connection between the two companies.

Geological Setting

The general geology of the Orissa region consists primarily of
Precambrian rocks of the Indian Shield. These rocks have been divided into four
distinct sectors, based on their lithologies and structure. The sectors are
named after the geographic region in which they occur  West, South, Coastal,
and North Sectors.

The West Sector is where Gandhamardan is located. This sector
is underlain primarily by Archean granitic gneisses, khondalites, charnockites,
and migmatites. These rocks trend in a general NE-SW direction, gently curving
eastward at their northern end. Khondalites are rocks formed by high-grade
metamorphism of argillaceous, arenaceous, and calcareous sediments. They are
unique to this part of the world, and they host major deposits of bauxite. The
West Sector is separated from the South and North Sectors by the Eastern Ghat
Boundary Fault and the North Orissa Boundary Fault, respectively.

The South Sector is also underlain predominantly by Archean
rocks. They are comprised of marbles, calc-granulites, carbonatites, gneisses,
khondalites, and charnockites. This sector is composed of four fault blocks, each with distinct trends. The rocks in two of
the blocks trend E-W. Trends in the other two blocks are NE-SW, and NW-SE,
respectively. The North Orissa Boundary Fault separates the South Sector from
the North Sector.

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The Coastal Sector is underlain primarily by Quaternary
laterite and alluvium. They appear to overlie the eastward extension of the
South Sector rocks.

The North Sector is composed mainly of Archean granites and
greenstones. The granites occur as large batholiths, and the greenstones as
broad, intervening belts. The greenstones are comprised of mafic volcanics and
banded iron formation. This assemblage of granites and greenstones is very
similar to that which occurs in the Superior Province in NW Ontario. Ultramafic
bodies intrude the granites and the volcanics. The western third of the North
Sector is underlain by Grenville-type metasediments consisting of marble,
quartzite, phyllite, and slate.

Figure V shows the general geology of the State of Orissa.

The local geology at Gandhamardan and the geology of the
property are the same. Both consist exclusively of khondalites, represented by
garnetiferous quartz-feldspar-sillimanite gneisses and schists with or without
ilmenite and graphite. Subordinate garnetiferous quartzites are also present.
The rocks have a pronounced NE-SW strike, conformable to the regional trend, and
curve slightly to the east at their northern extremity. The rocks have been
tightly folded, and now dip steeply to the SE at 45 to 70°.



Figure V  General Geology of Orissa

Prolonged exposure to the elements has altered the khondalite
at the top of Gandhamardan hill, resulting in the formation of bauxite as an
extensive layer blanketing the parent rock throughout the plateau.

Deposit Type

The bauxite occurs as a large residual deposit, formed by in
situ, subaerial weathering of aluminium-rich rocks (khondalites) under tropical
conditions. The deposit blankets the plateau top of a high ridge known as
Gandhamardan hill. The bauxite mineralization is continuous and homogeneous, and
is analogous to a horizontally-bedded stratigraphic unit.

25

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Figure VI is a schematic longitudinal section through
Gandhamardan hill depicting the bauxite layer.



Figure VI  Schematic Longitudinal Section Through
Gandhamardan

The bauxite is overlain by laterite, and the laterite by a
thin, discontinuous layer of lateritic soil. This soil is rusty-red in colour,
granular, and high in silca and iron content. It reaches a thickness of up to
several centimeters.

The laterite is also rusty-red in colour, and high in silica
and iron. The weathered surface is irregular, porous, and craggy. The upper
portion of the laterited is hard, reflecting a relatively higher silica content
than the lower portion. Iron content also decreases with depth, while aluminous
content increases. The laterite varies in thickness from 0.3 to 12.0 meters, and
averages 5.0 meters. The laterite grades downwards into bauxite.

The bauxite layer ranges from 4.3 to 35.0 meters in thickness,
and averages 16.6 meters. It varies in colour from pinkish-red to
yellowish-brown, buff, or brown. It is medium to fine grained, massive and
compact. Vesicular and pisolitic textures may be displayed. Hardness varies from
2.5 to 3.5. Banding and foliation are sometimes evident.

Mineralization

The bauxite is composed mainly of the minerals gibbsite and
hematite, which together comprise about 95%. The remaining 5% is a mixture of
several oxide minerals in minor and trace amounts.

Table I shows the mineralogical composition of bauxite.

26

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Table I  Mineralogical Composition of the Bauxite

The basement khondalite rock is composed of a heterogeneous mix
of minerals, including quartz, orthoclase, sillimanite, garnet, ilmenite, and
graphite. Quartz predominates, forming up to 60% of the rock locally. The
khondalite is gneissic, and the quartz is closely associated with orthoclase and
sillimanite in gneissic bands of leucocratic minerals. Orthoclase locally forms
up to 35% of the rock, sillimanite up to 20%, garnet up to 20%, and ilmenite and
graphite together up to 3%. The contact between the khondalite and the bauxite
is fairly sharp, although the khondalite immediately beneath the bauxite is
partly altered. Orthoclase in altered khondalite displays varying stages of
bauxitization, while sillimanite displays varying stages of gibbsitization.

Exploration / Previous Work

Linecutting  Using theodolite and steel tape, ODM established
a grid with base line oriented at Azimuth 50°, parallel to the longitudinal axis
of Gandhamardan hill. Cross lines were run at right angles to the base line,
spaced at 100-meter intervals. Stations were established on all lines at
25-meter intervals, and marked by stone monuments. A total of 85 kms of lines
were established. Accuracy of the grid was maintained by triangulation.

Topographic Survey  Survey of India performed a topographic
survey using a standard bubble level. All stations were read. An area of 5.8
kms2 was covered.

Geological Mapping  ODM geologists mapped Gandhamardan plateau
using the grid for their traverses. Scarp faces were also examined, at the ends
of cross lines, wherever accessible.

Pitting  According to ODM reports, 26 pits were sunk into the
bauxite zone, however data exists for only 24. It appears that 26 may have been
planned, but only 24 actually dug. The pits are spaced at 400-meter intervals,
and their sites were selected to coincide with previously-drilled holes. They
were dug by hand in such a way that half the drill hole was retained in one wall
of the pit. Each pit is 2.5 m2 in cross section. Depth ranged from
17.9 to 41.2 meters, and averaged 31 meters. A total of 744 meters of pits were
excavated, producing 4,650 m3 of material, equal to more than 2,300
tonnes. Pit data indicates that the soil-laterite overburden ranges between 0.8
to 4.5 meters in thickness and averages 2.7 meters.

27

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The Company is still seeking approval of the underlying agreement
  relating to the property from the Government of the State of Orissa. Once this
  government approval has been obtained, the Company anticipates undertaking,
  among other things, confirmatory exploration, a pre-feasibility study (and if
  recommended, a final/full feasibility study) and environmental studies as necessary.

Drilling

Drilling  Both ODM and MECL undertook extensive drill
programs. ODM concentrated on the SW portion of the deposit, on Blocks 1 to 8,
and MECL on Blocks 7 to 10 at the NE end. Drilling was performed dry. NX size
casing bits of tungsten carbide were used at the start of a hole, to penetrate
the hard laterite capping. Bit size was reduced to BX in the softer bauxite
zone. Short sections of thin-walled casing shoes were used, and drill runs were
restricted to less than 1 meter in length. This technique allowed the drill
cuttings to be collected in the casing, thus eliminating the need for a core
barrel. The entire deposit was drilled at a hole spacing of 200 meters. Spacing
was reduced to 100 meters in Blocks 5 to 8, where the plateau is widest, and
therefore the bulk concentration the greatest. Selected portions of Blocks 6, 7
and 8 were detail-drilled at 50-, 25-, and 15-meter spacing. Two small areas,
termed Clusters I and II, were detailed-drilled at a 5-meter spacing. Cluster I
sits in Block 7, at Station N2 on Line E19, and covers an area of 0.24 hectare.
Cluster II is in Block 8, at Station SO.5 on Line E24 and covers 0.16 hectare.
Together ODM and MECL drilled a total of 462 holes, for a cumulative length of
15.1 kms. Except for 36 holes drilled at 450, all the holes were drilled
vertically into the flat-lying bauxite zone. The cuttings from each hole were
collected, geologically mapped, sampled and analysed.

Sampling Procedures And Analyses

Samples of the bauxite zone were taken from selected scarp
sites, from each pit, and from each drill hole. All samples were collected under
direct supervision of ODM or MECL geologists.

Scarp samples of bauxite were taken by ODM wherever accessible
at the ends of cross lines. Channel samples were cut vertically along 1-meter
intervals, forming channels 15 cms. wide, 5 cms deep, and 1 meter long. A total
of 130 samples were cut from 17 scarp sites, across a cumulative length of 121
meters. The bauxite zone in the scarp faces is not fully exposed, the lower half
being buried by talus. Recognizing this limitation, ODM nevertheless calculated
average grades from the assay results. They are given in MECLs Exploration
Report, Volume I, 1980, as 47.03% Al2O3, 2.97% SiO2, 22.00% Fe2O3, 2.09% TiO2,
and 22.27% LOI, across an average thickness of +7.6 meters.

ODM also sampled the pits. Channel samples were cut in the same
manner employed in scarp sampling. All four walls of each pit were sampled. As a
check, and for comparison, the walls of one pit were sampled at 25-cm.
intervals. Surplus materials from the channel samples was combined to form
composite samples, which were also analysed. A total of 1,772 pit samples were
collected and analysed. The bauxite zone exposed in the pits ranged from 2.0 to
30.0 meters in thickness, and averaged 18.7 meters. ODM calculated average
grades from the pit sample results. MECLs same report shows them as 46.31%
Al2O3, 4.37% SiO2, 20.34% Fe2O3, 1.78% TiO2, and 23.71% LOI.

Both ODM and MECL sampled the drill holes in their respective
programmes, employing the same technique. Casing shoes were used in place of
core barrels. The drill cuttings were carefully removed from the shoe, put into
paper sleeves in the order drilled, identified by hole number and footage, and
boxed. Cuttings were collected continuously across 1-meter intervals. If the
upper or lower contact of the bauxite zone did not coincide exactly with a
whole-integer meter mark then that particular sample was taken as a fraction of
a meter. Within the bauxite zone, if non-ore material was recognized or
suspected, then two sub-samples were taken from that 1-meter interval, separated
by their geological contact.

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All collected samples were geologically classified before being
prepared for analyses. Samples of the drill cuttings were crushed to -60 mesh,
and quartered using a Jones Sample Splitter. Three-quarters of the sample was
shipped to Balco for storage, and the remaining quarter was further crushed to
-120 mesh. This -120-mesh fraction was further reduced by coning and quartering,
and a 50-gram portion was weighed out, bagged, and shipped to the laboratory for
analyses. Pit and scarp samples were prepared in a similar manner, except for
their primary crushing, which was to -10 mesh rather than -60.

Samples were shipped for analyses to ODMs own laboratory in
Bhubaneswar, or to MECLs own lab in Nagpur. Minor and trace element analyses
were conducted at a commercial laboratory in Bangalore operated by Esson and Co.
All samples were analysed for Al2O3, SiO2, Fe2O3, TiO2, and LOI. Composite
samples were analysed as well for V, Zn, S, P2O5, K2O, Na2O, CaO, adherent
moisture, and organic carbon.

Analyses for all these radicals were determined by chemical
method, employing the EDTA technique (ethylene-diamene-tetra-acetic acid), the
industry standard at that time. LOI was determined thermally, by calculating the
percentage loss on ignition of the resultant ash compared to the weight of the
preheated sample.

Sample Preparation, Analyses And Security

Samples collected personally by the author were transported to
a Canadian commercial laboratory for analyses. Determinations were performed of
the major oxides by the x-ray fluorescence  fused disc method, currently
recognized as a standard analytical technique. The results obtained for these
samples are in general agreement with the results reported by ODM and MECL.

Data Verification

In examining the technical reports authored by ODM and MECL, it
became apparent to the author of the Technical Report that the
exploration-evaluation programs were conducted in a thorough, competent manner
by knowledgeable, capable persons. The programs followed a logical sequence of
steps, justified by positive results, to determine the nature and extent of the
bauxite deposit, and its suitability for the production of alumina by the Bayer
Process.

Discussion with OMC technical staff verified the integrity of
the data.

Three site visits verified the presence of bauxite, the extent
of the deposit, the grid that was established, the holes that were drilled, and
the pits that were sunk. Six bauxite samples were personally collected by the
author, and transported to a Canadian commercial laboratory for analyses.

Mineralogical Studies and Metallurgical Tests

Mineralogical Studies  MECL conducted a number of studies of
the bauxite to determine its mineral constituents, and to identify any
deleterious chemical constituents that might be present. A total of 182 studies
were undertaken, including petrological studies, heavy mineral determinations,
acid-alkali treatments, derivatography, and x-ray diffraction. The studies
indicate that gibbsite and hematite are the main minerals present. According to
Indian Bauxite Standards, metallurgical grade bauxite must contain at least
44.0% A1203. As well, the maximum and/or minimum contents of certain deleterious
constituents are listed. A comparison of these standards with the chemical
composition of Gandhamardan bauxite is shown in Table II.

29

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Table II  Indian Standards Compared to Gandhamardan Bauxite

Metallurgical Tests  Five autoclave tests were performed by
MECL. Separate tests were undertaken on bauxite from the upper part of the zone,
where the Si02 content is higher, and on bauxite from the lower part of the
zone, where the A1203 content is higher. Results indicate that the Bayer Process
would extract 93.5% of the A1203 from the upper part of the zone, and 97 to 99%
from the lower part.

Balco, in cooperation with MECL, collected 12 composite drill
hole samples, and submitted them to Aluterv-FKI, an integrated aluminium
producer in Budapest, Hungary. MECLs Exploration Report, Volume I, 1980, states
.industrial tests were undertaken, however it does not describe the nature
of these tests. The MECL report does provide the results of additional autoclave
tests and chemical analyses performed by Aluterv, and it states The Hungarian
tests indicate that for the Korba plant the Gandhamardan bauxite can be
processed advantageously, and also that the deposit has a potential for low
temperature technology The conclusions in the report state The immediate
objective of establishing reserves of suitable categories for developing a mine
to feed the Korba plant has been achieved MECL also states in its report that
the Gandhamardan bauxite is suitable for use in Bayers process is general

Feasibility Study  In 1980, Balco commissioned Metallurgical
and Engineering Consultants (India) Ltd. to conduct a feasibility study. Their
report is titled Feasibility Report for Development of Gandhamardan Bauxite
Deposit and is dated February, 1981. In their report, they state a mining
operation could be establishedwith annual production of 500,000 tpy on dry
basis. Capital costs were estimated to be about 50 crore Rupees (approx.
US$10.5 million), including equipment, service buildings, townsite, class I
access road, ore tram line to base of hill, loading complex, and a 25-km spur
rail line. Their report also states Operating cost for mine, crushing plant,
ropeway and wagon loading complex(estimated)as 35.28 Rupees per tonne
(approx. US$0.75/tonne) .

The Balco feasibility study is not current. It was based
upon historical estimates that are too speculative to have economic
considerations applied to them, and therefore it does not conform to current NI
43-101 standards. It cannot be relied upon. The economic viability of this
project has not yet been determined. Any future development of the Gandhamardan
Project will be contingent to the completion of a positive feasibility or other
study demonstrating its technical and economic viability.

30

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Historical Resource Calculations

There are no current mineral resources or mineral reserves
on the Gandhamardan Project property. The author of the Technical Report has not
done sufficient work to reclassify the historical estimates as current mineral
resources or mineral reserves, and the public should not rely on the historical
estimates.

The resource estimates referred to in the Technical Report were
performed by competent geologists employed by Indian federal and/or state
government agencies. As such they are considered by the author of the Technical
Report to be accurate and reliable. However, these resource estimates were not
performed in accordance with NI 43-101 standards, and therefore are classified
as historical estimates.

ODM and MECL independently calculated resource estimates, based
exclusively on data obtained from the holes drilled at 200-meter intervals. Data
obtained from the closer-spaced drill holes were also utilized, but only as a
check on the validity of the calculations. Data from the inclined drill holes,
and from the pits were similarly utilized for checking purposes.

The resource estimates are in-situ geological resources. No
mining constraints were considered. The cutoff grades of +40 % Al2O3 and -5%
SiO2 used in the calculations were specified by Balco, and were determined in
anticipation of the bauxite being processed at their plant in Korba. Korba
produces alumina by the Bayer Process.

A tonnage factor of 2.0 tonnes per cubic meter of bauxite was
used in the calculations. This figure was based on bulk density tests performed
on pit samples, and on specific gravity and porosity tests performed on pit and
drill hole samples.

Three conventional techniques were followed in preparing the
resource estimates  average factor and area of influence method, cross section
method, and isocline (isochore) method. The first two methods are similar in
that they calculate area and multiply it by thickness to determine volume. Both
methods are well-suited to estimating a resource such as Gandhamardan, which is
a uniform, homogeneous, horizontally-lying body.

The average factor and area of influence method is based on the
assumptions that all unit blocks are uniform in shape and in grade. An area of
influence is established for each vertical drill hole, as one-half the
horizontal distance to an adjacent hole. In the case of peripheral holes, it is
the horizontal distance to the physical limit of the bauxite zone. This area is
multiplied by the thickness of the bauxite intersected in that hole to give the
volume, which is then converted to tonnage. Average grades are calculated by
weighing grades against tonnages.

The cross section method utilizes cross sections, in this case
prepared on a scale of 1:1,000. A cross-sectional area of bauxite is determined
for each hole by taking one-half the distance to adjacent holes, and multiplying
this area by the linear strike influence of the hole. The volume so obtained is
then converted to tonnage.

The isocline method is based on the assumptions that unit
values gradually change from one point to another. Isograde maps and isochore
maps are prepared, in this case 1% Al2O3 and 5 meters, respectively. The area
encompassed between the respective isoclines and the two corresponding midpoints
of assay value and thickness is used to estimate the resource.

31

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Cautionary Note to U.S. Investors Concerning Estimates of
Measured and Indicated Resources

This Annual Report uses the terms Measured Resources and
Indicated Resources. We advise U.S. investors that while these terms are
recognized and required by Canadian regulations, the SEC does not recognize
them. U.S. investors are cautioned not to assume that any part or all of the
mineral deposits in these categories will ever be converted into reserves.

Cautionary Note to U.S. Investors Concerning Estimates of
Inferred Resources

The Technical Report uses the term inferred resources. We
advise U.S. investors that while this term is recognized and required by
Canadian regulations, the SEC does not recognize it. Inferred resources have a
great amount of uncertainty as to their economic and legal feasibility. It
cannot be assumed that all or any part of an inferred resource will ever be
upgraded to a higher category. Under Canadian rules, estimates of inferred
resources may not form the basis of feasibility or pre-feasibility studies,
except in rare cases. U.S. investors are cautioned not to assume that part or
all of an inferred resource exists, or is economically or legally mineable.

Four categories of resources were established, based on the
Russian system, and termed A, B, C1, and C2. The Russian system of mineral
resource  mineral reserve classification does not conform to that established
by the CIM. MECLs 1980 Exploration Report, Volume I states that the Russian A
Category reserves are considered to be 90% accurate, and therefore are
suitable for mine planning. Under the CIMs standards on Definition for
Mineral Resources and Mineral Reserves, the Russian A Category would qualify as
a measured mineral resource, however the calculation was not performed to NI
43-101 standards, therefore they are a historic estimate, not as a resource, and
there is no guarantee that it will be converted to a corresponding CIM
category.

MECLs report describes the Russian B Category resources as
being sufficiently detailed to allowbroad outlining of the future mining
activities and development of the deposit. B Category resources were calculated
in areas where technical data were less detailed than in A Category areas, and
were deemed to be 70% accurate. Under the CIM standards, the Russian B
Category would be termed an indicated mineral resource, however the calculation
was not performed to NI 43-101 standards, therefore they are a historic
estimate, not as a resource, and there is no guarantee that it will be converted
to a corresponding CIM category.

Russian C1 Category resources were estimated for areas where
the bauxite was sufficiently explored to provide a rough estimation of the
nature of mineralization, shape and structure of the ore body (ibid). Accuracy
of the C1 resources is considered to be 50%. Russian C2 Category resources are
estimated for irregular parts of the bauxite zone, where insufficient
exploration datado not permit proper evaluation of shape, quality, etc. The
resources of Block 10 fall into this category. Here the plateau is irregular in
shape, and the bauxite varies in thickness. Under the CIM standards, both the
CI and C2 Categories, being 50% or less in accuracy, would be classified as an
inferred mineral resource, however the calculations were not performed to NI
43-101 standards, therefore they are historic estimates, not resources, and
there is no guarantee that they will be converted to corresponding CIM
categories.

B.K. Monhanty, in ODMs Resources Evaluation Report, 1981,
states the total calculated tonnage as 207.37 million tonnes with a weighted
average grade of 45.75% Al2O3, 2.23% SiO2, 23.23% Fe2O3, 2.58% TiO2, 22.95% LOI.
In the same report, S.M. Patnaik tabulates resource estimates for each of the 10
Blocks. His figures are shown in Table III. His calculated total tonnage is
213.43 million tonnes, with a weighted average grade of 46.50% Al2O3 and 2.49%
SiO2. The 3 other radicals were not calculated.

32

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The data acquisition and calculations were performed prior
to NI 43-101 and not according to NI 43-101 standards, therefore they are historic estimates, not
resources and there is no guarantee that they will be converted to corresponding
CIM categories.



Table III  ODM Block-Wise Historical Estimate

MECL calculated resources independently, and categorized them
according to the Russian system. MECLs 1980 Exploration Report, Volume I gives
their total calculated resources as .201.3 million tonnes averaging 46.40%
Al2O3, 2.44% SiO2., and estimates the Fe2O3, TiO2, and LOI contents to be
2341%, 2.47%, and 24.59%, respectively. MECLs resources estimates by category
are shown in Table IV. The data acquisition and calculations were performed
prior to NI 43-101 and not according to NI 43-101 standards, therefore they are
historic estimates, not resources.



Table IV  MECL Historical Estimate by Category

The three resources calculations are in fairly close agreement.
The total tonnage figures differ by a maximum of only 6%, and the calculated
weighted average grades by 1.4% for Al2O3, 9.0% for SiO2, 0.8% for Fe2O3, 1.2%
for TiO2, and 6.7% for LOI.

MECLs historical estimates were calculated in 1980-81, and
they followed the Russian system of classification. The Russian system of
resource-reserve classification does not comply with the standards established
by the CIM and incorporated in NI 43-101, therefore the Russian categories are
only roughly equivalent to the CIM categories, and there is no guarantee that
the Russian categories will be converted to corresponding CIM categories.

33

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As the Gandhamardan Project is currently preliminary in nature
and awaiting numerous approvals from the Government of the State of Orissa, the
extent to which the estimate of mineral resources and mineral reserves may be
materially affected by metallurgical, environmental, permitting, legal, title,
taxation, socio-economic, marketing, political and other relevant issues remains
unknown at this time.

Voiseys Bay West Project

On July 27, 2010, and as amended March 3, 2011, the Company
entered into a purchase of options right agreement (the Options Right
Agreement) with JAL, a private British Columbia company, pursuant to which
the Company purchased the right (the Right) to enter into a subsequent
option agreement (the Option Agreement) and obtain two property
options relating to three mineral rights licences comprising 200 claims and
approximately 5,000 hectares located on the east coast of north Labrador, Canada
(the Voiseys Bay West Project). On March 4, 2011,
the Company entered into the Option Agreement with JAL and on June 1, 2011, the
Company increased its land position at the property as noted below.

Voiseys Bay West Project Agreements

The Right

The Right allowed the Company the opportunity to enter into the
Option Agreement, with the Option Agreement providing the Company options to
acquire up to an undivided 80% interest in the Property, subject to a 2% NSR.
The Company was to pay the purchase price for the Right by:

| | 1. | paying $30,000 at the signing of the Options Right
      Agreement, or by no later than July 27, 2010;                                                        
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2. | issuing 3,000,000 common shares of the Company (the
      Shares) by July 30, 2010;                                                                         
| | 3. | paying $30,000 by August 15, 2010;                                                                                                                            
| | 4. | paying $40,000 by August 31, 2010;                                                                                                                            
| | 5. | spending no less than $150,000 in exploration
      expenditures on the Voiseys Bay West Project property by December 31,
      2010; and                    
| | 6. | causing to be prepared a National Instrument 43-101
      compliant technical report for the Voiseys Bay West Project property by
      January 31, 2011; and
| | 7. | reimbursing JAL for its expenses incurred in the
      application for the approval of the 2010 work
program.                                                 

On March 3, 2011, prior to the activities relating to the
Options described below, the Company entered into an amended and restated
options right agreement (the Amended and Restated Options Right
Agreement) in order to facilitate the Companys election to exercise the
Right in accordance with the original Options Right Agreement.

In the Amended and Restated Options Rights Agreement, among
other things:

| | 1. | item 6 above was amended to require that if the Right was
      not exercised by the Company, then by March 31, 2011 the Company would be
      required to cause to be drafted a Technical Report for delivery to JAL;
      and
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2. | the Rights expiry date was extended from February 28,
      2011 to March 4, 2011.                                                                                                                                              

On March 4, 2011 the Company elected to exercise the Right by
paying JAL $25,000, as required by the election procedure of the Amended and
Restated Options Right Agreement. As a result of this election the Company
entered into the Option Agreement with JAL.

34

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The Options

As mentioned above, on March 4, 2011 the Company entered into
the Option Agreement with JAL whereby the Company may acquire up to an 80%
interest in the Voiseys Bay West Project property, subject to a 2% NSR, in up
to two phases. In phase one (the First Option), the Company would
acquire a 55% interest in the Voiseys Bay West Project property by, among other
things:

| | 1. | issuing to JAL, upon entry into the Option Agreement,
      3,000,000 Shares;                                                                                                                                       
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2. | paying JAL a total of US$200,000 by December 31,
    2013;                                                                                                                                                          
| | 3. | issuing to JAL an additional 9,000,000 Shares by December
      31, 2013;                                                                                                                                           
| | 4. | spending no less than US$4,000,000 in exploration
      expenditures on the Voiseys Bay West Project property by December 31,
      2013;                                                                          
| | 5. | upon notice of exercise of the First Option, but by no
      later than March 31, 2014, issuing an amount of Shares to JAL that is
      equal to 10% of the then issued and outstanding capital of the
    Company;
| | 6. | causing a pre-feasibility report pertaining to the
      Voiseys Bay West Project property to be prepared by June 30, 2014;
    and                                                                                
| | 7. | causing the Shares to be listed on either the Canadian
      National Stock Exchange, the Toronto Stock Exchange or the TSX Venture
      Exchange by February 28, 2012.                                            

Upon entry into the Option Agreement, the Company issued JAL
3,000,000 Shares pursuant to item 1 above.

Once the Company exercised the First Option, it could have then
chosen to proceed with phase two (the Second Option), whereby the
Company would acquire a further 25% interest (for an aggregate 80% interest) in
the Voiseys Bay West Project property by, among other things:

| | 1. | paying JAL a total of US$400,000 by July 31,
  2016;                                                                                                                                                             
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2. | issuing to JAL an additional 10,000,000 Shares by July
      31, 2015;                                                                                                                                           
| | 3. | upon notice of exercise of the Second Option, but no
      later than December 31, 2016, issuing to JAL an amount of Shares equal to
      10% of the then issued and outstanding capital of the Company;        
| | 4. | causing a feasibility report pertaining to the Voiseys
      Bay West Project property to be prepared by December 31, 2016;
  and                                                                               
| | 5. | arranging for a semi-carried financing relating to the
      further development of the Voiseys Bay West Project property by December
      31, 2017 and having the funding advanced to JAL by March 31,
  2018.

At any time after completion of the First Option, the Company
may elect not to acquire any further interest in the Voiseys Bay West Project
property and immediately form a joint venture with JAL to further explore and
develop the Voiseys Bay West Project property.

Additional Licences

On June 1, 2011 the Company announced the acquisition from JAL
of an additional mining licence which has increased the Companys land position
under option at the Voiseys Bay West Project property from 200 to 388 claims.
This acquisition by the Company has increased the total area of the project from
approximately 5,000 hectares to approximately 9,700 hectares.

35

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The Amended Option Agreement

On December 21, 2011 the Company and JAL amended the terms of
the Option Agreement (the Amended Option Agreement). Pursuant to the
terms of the Amended Option Agreement, the conditions for acquiring the first of
the two phases of the Options were changed such that the Company may exercise
the First Option by, among other things:

| | 1. | issuing to JAL, upon entry into the Option Agreement,
      3,000,000 Shares (this has been completed);                                                                                                                                                    
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2. | paying JAL a total of US$240,000 by December 31,
    2014;                                                                                                                                                                                                 
| | 3. | issuing to JAL an additional 10,000,000 Shares by
      December 31, 2014;                                                                                                                                                                                 
| | 4. | spending no less than US$4,000,000 in exploration
      expenditures on the Voiseys Bay West Project property by December 31,
      2014;                                                                                                                 
| | 5. | issuing an amount of Shares to JAL that is equal to 10%
      of the then issued and outstanding capital of the Company within five
      business days of such election or deemed election of the First Option, and
      by no later than March 31, 2015;
| | 6. | causing a pre-feasibility report pertaining to the
      Voiseys Bay West Project property to be prepared by June 30, 2015;
    and                                                                                                                       
| | 7. | causing the Shares to be listed on either the Canadian
      National Stock Exchange, the Toronto Stock Exchange or the TSX Venture
      Exchange by February 28, 2013.                                                                                   

Once the Company has exercised the First Option, it may then
choose to proceed with phase two (the Second Option), which was also
amended on December 21, 2011, whereby the Company will acquire a further 25%
interest (for an aggregate 80% interest) in the Voiseys Bay West Project
property by, among other things:

| | 1. | paying JAL a total of US$400,000 by July 31,
  2017;                                                                                                                                                                                         
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2. | issuing to JAL an additional 10,000,000 Shares by July
      31, 2016;                                                                                                                                                                       
| | 3. | issuing to JAL an amount of Shares equal to 10% of the
      then issued and outstanding capital of the Company within five business
      days of the notice of election of the Second Option, and by no later than
      December 31, 2017;
| | 4. | causing a feasibility report pertaining to the Voiseys
      Bay West Project property to be prepared by December 31, 2017;
  and                                                                                                           
| | 5. | arranging for a semi-carried financing relating to the
      further development of the Voiseys Bay West Project property by December
      31, 2017 and having the funding advanced to JAL by March 31,
  2019.                            

Alec Lenec Memorial

As part of the Amended Option Agreement, the Company and JAL
agreed on December 21, 2011 that in the event of one or more deposits being
located or discovered on the Voiseys Bay West Project property, the most
significant of the deposits will be named the Alec Deposit, in memory of the
late Alec Lenec whose persistence and belief in the Property led to its
continued exploration. Also, the parties further agreed that should the Property
be commercially mined, the mine itself will be named the Alec Mine in further
honour of Alec.

36

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Voiseys Bay West Project Property Description

The Voiseys Bay West Project property adjoins the west side of
Vale Inco Newfoundland & Labrador Ltd.s (Vale Incos) property
(the Voiseys Bay discovery property) which was purchased from Diamond
Fields Resources Inc. and lies between 13.5 and 20 kilometers west of the main
Voiseys Bay discovery. The Voiseys Bay West Project property is contiguous and
covers an area of approximately 9700 hectares.

According to the publication entitled Mineral Commodities of
Newfoundland and Labrador  Nickel available on the Government of Newfoundland
and Labrador website, the Voiseys Bay discovery property contains a total
resource of 100 million tones grading 1.94% nickel, 1% copper and 0.11% cobalt
(calculated from INCO estimates 2003). According to the Vale Inco news release
dated June 11, 2002, within this deposit is the Ovoid deposit which contains 31
million tones of estimated proven reserves which can be mined using open pit
methods and holds average grades of 2.9% nickel, 1.69% copper and 0.14%
cobalt.

The Voiseys Bay West Project property is in part underlain by
layered anorthosite of the Nain Plutonic Suite and has been intruded by
NW-trending troctolite dykes. Rocks of troctolite composition (the Reid Brook
Troctolite Intrusion) are host to the Ni-Cu-Co mineralization on the adjacent
Voiseys Bay discovery property.

Between 1995 and 1997 work programs were conducted on the
Voiseys Bay West Project property by Polymet Mining Corp. (formerly Fleck
Resources Ltd.) and Emerick Resources Corp. (formerly Geocore Exploration Inc.,
formerly Anvil Resources Ltd.). This work included airphoto and satellite
imagery studies, geological mapping, prospecting, geochemical soil and rock
surveys, geophysical surveys consisting of ground magnetometer, VLF-EM,
Horizontal Loop EM and airborne Dighem V EM surveys, and shallow diamond
drilling.

During 1996, a total of 1,347 meters of diamond drilling were
completed in shallow holes on the Property. The highest assay interval was from
hole VW-1 which assayed, between 78 and 81.5 feet depth, 1844 ppm copper, 4693
ppm nickel, and 323 ppm cobalt.

The potential for the discovery of Voiseys Bay discovery
property style of mineralization exists on the Voiseys Bay West Project
property based on the following:

- the presence of compositionally-layered anorthosite and troctolite which
  underlies significant parts of the Voiseys Bay West Project property;
- untested, coincident magnetic and VLF-EM anomalies and other geophysical
  targets; and
- highly-anomalous copper-nickel-cobalt geochemistry in hole VW-1.

37

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Location and Accessibility



Access to the Voiseys Bay West Project is from Nain, Labrador
by float plane or helicopter, with the property being 40 kilometres from Nain by
flight.

2010 Exploration Program

During December 2010 the Companys exploration contractor,
Geotech Ltd. (Geotech) completed an airborne VTEM geophysical survey on
the Voiseys Bay West Project property designed to target Nickel-Copper sulfide
deposits similar to and along strike from the Voiseys Bay discovery property
deposit (the 2010 Survey).

38

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The Companys consultants obtained the raw data of the 2010
Survey from Geotech and in early 2011 and completed a preliminary assessment of
the information received. The results of these preliminary assessments were
announced by the Company in a news release on March 4, 2011 and indicate that
the data received from the 2010 Survey identifies multiple anomalies that
warrant further analysis and investigation.

On March 12, 2012 the Company announced that it obtained the
necessary approvals from the government of Newfoundland and Labrador to proceed
with the next stage of exploration on the Voiseys Bay West Project property.
The Company will conduct ground electromagnetic and magnetic geophysical survey
as a follow up to the VTEM airborne geophysical surveys completed in late 2010.
This ground follow up program is designed to target the anomalies identified in
the VTEM survey to confirm their location, existence, and to map the anomalies
in greater detail and to greater depth in order to provide targets for drill
testing.

As of the date of this Annual Report the Company is planning
  additional exploration activities on the Voiseys Bay West Project Property.

C.             Organizational
Structure

The following table shows the organizational structure of the
Companys significant subsidiaries.



The Company holds 100% of the voting securities of Continental
Resources (USA) Ltd. (CRL).

D.             Property,
Plants and Equipment

Gandhamardan Project

For a description of the Gandhamardan Project, see Item 4.B.
Business Overview - Gandhamardan Project.

Voiseys Bay West Project

For a description of the Voiseys Bay West Project, see Item
4.B. Business Overview  Voiseys Bay West Project.

ITEM
4A.             UNRESOLVED
STAFF COMMENTS

Not applicable.

39

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ITEM
5.             
 OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion should be read together with the
Companys financial statements for the three years ended December 31, 2011
included elsewhere in this document, the section entitled Information on the
Company in Item 4 of this document and with the section entitled Risk Factors
in Item 3 of this document. The financial statements have been prepared in US
GAAP, however, Note 2 of the annual financial statements included herein
provides a reconciliation to CAN GAAP.

General Discussion

The Company has limited operations. The Company has no
producing properties and, consequently, has no current operating income or cash
flow from its mineral interests.

Prior to the acquisition of CRL in October 2002, the Company
was in the business of constructing, installing and selling low impact
run-of-the-river hydroelectric power production systems which incorporated a
patent pending fish protective water inlet device. Following the acquisition of
CRL in October 2002, the Company changed its focus from the Pisces Project to
the exploration and development of the Gandhamardan Project and as of July 2010
the Company is also focusing its efforts on the Voiseys Bay West Project. The
Company is currently seeking approval from the Government in the State of Orissa
to an agreement with OMC relating to the Gandhamardan Project and the Company is
currently planning future exploration activities for the Voiseys Bay West
Project.

The Companys financial statements accompanying this Annual
Report are consolidated with the Companys wholly owned subsidiary, CRL for the
years 2011, 2010 and 2009. It is important to note that during the 2004 fiscal
year the Company wrote off $1,145,163 and related liabilities of investment in
the joint-venture company, COMPL, which was voluntarily dissolved. It is planned
that CRL will incorporate another entity to enter into a revised agreement with
OMC. As of the date of this filing, the Proposed Revised Joint Venture Agreement
has yet to be finalized. The Company anticipates that CRL will enter into such
revised agreement with OMC following obtaining the approval of the State
Government of Orissa.

A.             Operating
Results

Revenues and Expenses

The Companys working capital (deficit) as at December 31, 2011
was ($640,842) compared with a working capital position of ($599,690) as at
December 31, 2010. The increase in the working capital deficit is a result of
operations of the company and its expenditures on the Companys projects.
General and administrative expenses in the period totalled $99,916 (2010 
$148,400) and professional fees totalled $101,068 (2010  $196,497). Cash
provided by financing activities for the period was $391,600 (2010  $887,949).
The net loss of the Company for the year ended December 31, 2011 was $228,984 or
$0.00 per share compared with a net loss of $441,917 or $0.00 per share for the
year ended December 31, 2010. Significant components of the current periods
loss were expenses related to professional fees of $101,068 (2010-$196,497),
legal and accounting plus administration and general costs in the amount of
$99,916 (2010 - $148,400), stock-based compensation expenses was nil (2010 -
$78,257) and consulting fees and commissions of $4,000 (2010 - $11,487).

No revenues from the Companys operations were reported in 2011
or 2010 and no significant revenues are anticipated in 2012. The Company plans
to finance its operation and exploration cost by equity financing or joint
venture arrangements.

40

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Year Ended December 31, 2011

For the year ended December 31, 2011, the Company had a net
loss of $228,984 or $0.00 per share compared to a net loss of $441,917 or $0.00
per share during the corresponding period in 2010. Stock-based compensation
expense for this period was nil compared to $78,257 for the 2010. General and
administrative costs decreased to $99,916 from $148,400 in 2010. Of the $99,916
incurred by the Company $51,000 was for management fees and $20,770 was incurred
as travel expenses associated with Voiseys Bay West Project. The decrease in
general and administration costs were primarily due to no expenditures being
made toward the Gandhamardan Project during the year compared to $84,389
incurred during 2010. Consulting fees and commissions in 2011 totalled $4,000
(2010  $511,487) and professional fees totalled $101,068 (2010 - $196,497).

Year Ended December 31, 2010

For the year ended December 31, 2010, the Company had a net
loss of $441,917 or $0.00 per share compared to a net loss of $255,954 or $0.00
per share during the corresponding period in 2009. Stock-based compensation
expense for this period was $78,257 (2009 - $34,997). General and administrative
costs increased to $148,400 from $86,958 in 2009. Of the $148,400 incurred by
the Company $84,389 was expended toward the India Gandhamardan Project plus the
overall increase in operating costs related to entering into the Options Right
Agreement with JAL and subsequent contracts with its exploration contractors for
exploration of the Voiseys Bay West Project. Significant components of the
increase in general and administration costs were from compensation for officers
and directors, totalling $48,000 for 2010 compared to $31,000 resulting from
management agreements entered into in October 2009. Consulting fees and
commissions in 2010 totalled $11,487 (2009  $50,500) and professional fees
totalled $196,497 (2009 - $124,512).

The Company recorded forgiveness of debt in the amount of $nil
for the period (2009 - $182,653), which was related to amounts payable to
members of the Companys former management from years prior to 2002. The Company
has elected to write-down these amounts payable entirely due to the fact that
there have been no claims by the parties related to the amounts owing.

In addition to the normal course expenditures made in 2009, the
Company paid a settlement payment of $26,505 to VISA per the Settlement
Agreement entered into in September 2009, with the total settlement amount
recorded in that period being $111,640. During the period ended December 31,
2010, the Company did not any payments toward the balance owed to Visa during
2010.

The activities with VISA and the Voiseys Bay West Project also
led to an increase in professional fees in 2010, due largely to additional legal
fees incurred on matters related to consummating agreements and settlements.
CRL, the Companys wholly-owned subsidiary, had expenditures in India in 2010
totalling $84,389 compared to expenditures of $43,309 incurred in 2009. Also
included in the India expenditures are administrative costs associated with
office operations and meetings with government officials.

Year Ended December 31, 2009

For the year ended December 31, 2009, the Company had a net
loss of $255,954 or $0.00 per share compared to a net loss of $256,948 or $0.00
per share during the corresponding period in 2008. Stock-based compensation
expense for this period was $34,997 (2008 - $nil). Write-down of investments
totalled $nil in 2009 compared to $75,000 in 2008. Interest income was constant
at $nil during the year compared to $nil in 2008. General and administrative
costs decreased to $86,958 from $98,680 in 2008, as a result of managements
effort to settle matters with VISA, which brought focus away from development of
the Property itself. Significant components of the general and administration
costs included consulting fees and commissions of $50,500 (2008 
$nil) and professional fees of $124,512 (2008 - $83,268). Compensation for
officers and director totalled $nil for 2009 and $nil for 2008.

41

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The Company recorded forgiveness of debt in the amount of
$182,653 for the period (2008 - $nil), which was related to amounts payable to
members of the Companys former management from years prior to 2002. The Company
has elected to write-down these amounts payable entirely due to the fact that
there have been no claims by the parties related to the amounts owing.

In addition to the normal course expenditures made in 2009, the
Company paid a settlement payment of $26,505 to VISA per the Settlement
Agreement entered into in September 2009, with the total settlement amount
recorded in the period ($111,640). In late 2009, the Company focused on securing
the approval from the Government of Orissa for the Joint Venture Agreement with
OMC.

The activities with VISA also led to an increase in
professional fees in 2009, due largely to additional legal fees incurred in
India on matters related to consummating agreements and settlements, rather than
conducting further geological and engineering studies. CRL, the Companys
wholly-owned subsidiary, had expenditures in India in 2009 totalling $43,309
compared to expenditures of $68,666 incurred in 2008. This change in
expenditures relates to the fact that no engineering, geological or planning
work was done on the Project during 2009. Also included in the India
expenditures are administrative costs associated with office operations and
meetings with government officials.

Governmental Entities

The Company relies heavily on the cooperation of the State
Government of Orissa, OMC and other governmental agencies in the finalization of
joint venture relationships and the issuance of permits and licenses for the
development of the Gandhamardan Project. The political climate in India with
respect to the development of resources is currently positive. Orissa, a state
in the eastern part of India, is a resource rich state that has had negotiations
with several entities, including CRL, for the development of resources such as
bauxite.

The Company relies on the cooperation of the Government
Nunatsiavut and the Government of Newfoundland and Labrador and other
governmental agencies for the development of the Voiseys Bay West Project.

Foreign Currency Fluctuations and Inflation

The Company believes that the impact of foreign currency
fluctuations will not adversely affect the Company. The Canadian/US dollar
exchange rate improved in favour of the Canadian dollar during fiscal year 2011.
The Company does not take any steps to hedge against currency fluctuations. In
addition, the Company does not anticipate the impact of inflation to be material
to the Company in its efforts to both retain and attract partners for its
consortium for the development of the Gandhamardan Project. The Indian currency
is not expected to have an adverse affect on the Company during the initial
phases of negotiating with potential partners or adding members to a consortium
for the development of the project in India by CRL.

Plan of Operations

The Companys plan of operations for the next twelve months is
to focus on the exploration activities for the Voiseys Bay West Project as well
as seeking approval of the revised agreement with OMC from the Orissa Government
on the Gandhamardan Project. The Company is planning additional expenditures on
the Voiseys Bay West Project to meet the expenditure requirements under its
Option Agreement with JAL through a ground survey during the summer of 2012. The
Companys overhead is expected to range between $10,000 and $15,000 per month
for professional and administrative cost.

42

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The Company plans to raise additional working capital for its
day-to-day operations and expenditures on both its projects, by way private
placements of its common stock or through a joint venture arrangement.
Significant funding will be required for the exploration and potential
development of both of the Companys projects. As of December 31, 2011, the
Company had cash of $52,401 and a working capital deficit of $640,842.

Currently, the Company does not have adequate working capital
to maintain operations for the next 12 months and the Company is in discussions
to raise additional funding through financings. The Company has entered into an
agreement with VISA as a consortium partner and may also approach additional
partners to help finance, explore and develop the Gandhamardan Project.

Future funding sources and working capital for the Company
could also come from the exercise of warrants and options outstanding from
private placements.

The Company intends to hire employees and consultants on an as-needed
  basis. At present, the Company does not expect to hire any employees as it intends
  to utilize consultants to facilitate any work required.

B.            
Liquidity and Capital Resources

As of December 31, 2011 the Companys cash position was
$52,401, compared to $32,357 as of December 31, 2010. Preliminary discussions
are in progress to raise working capital. The Company had assets of $901,065 in
2011 of which $52,401 was in cash and assets of $436,198 of which $32,357 were
in cash on December 31, 2010. The increase in assets is directly related to the
Companys investment in the Voiseys Bay West Property. Net working capital was
a deficit for the years ended December 31, 2011 of $640,842 and $559,610 for
2010.

The Company is not able to meet its financial commitments as
they become due. There can be no assurance that the Company will continue to be
successful in raising additional capital to meet future obligations of the
Company. The Company is dependent on the proceeds of future financings to
finance the exploration and potential development of the both its projects and
its operations. Further funds will be required to develop the both the Companys
projects if they are determined to be economical.

The liabilities of the Company as of December 31, 2011 were
$718,835, as compared to $666,584 as of December 31, 2010.

As of December 31, 2011, the Company had an accumulated deficit
of $9,497,858, compared to $9,268,874 in 2010. This continued increase in
Companys accounted deficit was due to expenditures related to the Companys two
projects without offsetting revenues, which resulted in losses totalling
$228,984 in 2011, compared with losses totalling $441,917 in 2010 and
$255,954for 2009.

Recent Issuance of Securities

To clarify its initial announcement on March 24, 2010, the
Company announced on March 25, 2010 that it intended to undertake a non-brokered
private placement of up to 9,000,000 units at the price of $0.02 per unit for an
aggregate gross proceeds of $180,000 (the March 2010 Offering). The proceeds
of the March 2010 Offering were to be used for working capital. The completion
of the March 2010 Offering was subject to the execution of definitive
documentation with regulatory hold periods from the date of issuance. Each unit
of the March 2010 Offering consisted of one common share of the Company and two
common share purchase warrants of the Company, respectively an
A Warrant and a B Warrant. Each A Warrant will entitle the holder thereof to
purchase one common share of the Company at the exercise price of $0.03 for a
period of one year after the closing date of the March 2010 Offering and each B
Warrant will entitle the holder thereof to purchase one common share of the
Company at the exercise price of $0.03 for a period of two years after the
closing date of the March 2010 Offering.

43

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On March 25, 2010 the Company announced a clarification of the
announced amendment of March 24, 2010 regarding the reduction in exercise price
of 9,000,000 A Warrants and 9,000,000 B Warrants issued pursuant to a private
placement announced April 17, 2009 and debt settlements carried out in July of
2009. The announced reduction of the exercise price of the A Warrants and B
Warrants was such that the exercise price of all A Warrants was reduced from
$0.05 per share to $0.03 per share and the exercise price of all B Warrants was
reduced from $0.10 per share to $0.03 per share. All expiry dates for such A
Warrants and B Warrants remain unchanged. The affected A Warrants and B Warrants
are:

- On August 20, 2009 a total of 12,000,000 warrants were issued in the first
  tranche of the private placement (6,000,000 each of A and B Warrants) with
  such A Warrants to expire August 20, 2010 and B Warrants to expire August 20,
  2011.
- On October 16, 2009 a total of 2,000,000 warrants were issued in the second
  tranche of the private placement (1,000,000 each of A and B Warrants) with
  such A Warrants to expire on October 16, 2010 and B Warrants to expire on
  October 16, 2011.
- On July 23, 2009 a total of 4,000,000 warrants (2,000,000 each of A and B
  Warrants) were issued pursuant to the debt settlement agreements with such A
  Warrants to expire on July 23, 2010 and B Warrants to expire on July 23, 2011.

On July 28, 2010 the Company announced that, further to its
news releases of March 24 and March 25, 2010, it closed a non-brokered private
placement and received gross proceeds of US$180,000 for a total of 9,000,000
units of the Company. Each unit consisted of one common share of the Company and
two share purchase warrants (an A Warrant and a B Warrant, respectively).
Each A Warrant is exercisable to purchase one additional common share of the
Company at an exercise price of US$0.03 until July 27, 2011 and each B Warrant
is exercisable to purchase one additional common share of the Company at an
exercise price of US$0.03 until July 27, 2012. A finders fee was payable on a
small portion of the placement.

On July 29, 2010 the Company announced that it intended to
undertake a non-brokered private placement of up to 11 million units at the
price of $0.03 per unit for an aggregate gross proceeds of $330,000 (the July
2010 Offering). Each unit of the Offering was to consist of one common share of
the Company and one common share purchase warrants of the Company (Unit). Each
warrant will entitle the holder thereof to purchase one common share of the
Company at the exercise price of $0.04 for a period of one year after the
closing date of the July 2010 Offering. Up to 5.5 million of the unit shares
were to be designated as Flow-Through Shares for the purposes of the Income Tax
Act (Canada), at a price of $0.3 per Flow Through Share. The proceeds of the
July 2010 Offering were used for working capital.

On July 29, 2010 the Company further announced that it arranged
a convertible loan in the amount of $90,000 for a term of 24 months. The loan
will bear simple interest of 10%, payable upon the earlier of maturity or
conversion. Upon prior notice to the Company, the loan is convertible into units
of the Company at a deemed price of $0.03 per unit, each unit consisting of one
common share and one common share purchase warrant entitling the holder to
acquire an additional common shares at $0.04 per share, exercisable for a period
expiring one year from the conversion date of the loan.

44

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On August 4, 2010 the Company announced increases to the
private placement and convertible loan announced July 29, 2010. The private
placement was increased from 11 million unit to 14 million units for aggregate
gross proceeds of $420,000 (of which up to 7 million of the unit shares will be
designated as flow-through shares for the purposes of the Income Tax Act
(Canada)) and the convertible loan was increased from $90,000 to $210,000.

On August 9, 2010 the Company granted its directors a total of
1,100,000 options at an exercise price of US$0.05. The options expire on August
6, 2015.

On October 4, 2010 the Company announced that it closed the
first tranche of its non-brokered private placement announced July 29 and August
4, 2010 (proceeds of $343,950 from the sale of 11,465,000 Units). The Company
also announced that it had completed the previously announced convertible loan
transactions and issued convertible debentures for a total of $240,000 announced
the same dates.

On July 29, 2011 the Company announced that it closed the final
tranche of its non-brokered private placement announced July 29, August 4, and
October 4, 2010 (proceeds of $72,000 from the sale of 2,300,000 flow-through
Units and 100,000 non-flow through Units). Each warrant is exercisable to
purchase one additional Common Share at an exercise price of US$0.04 until July
25, 2012. Further, the securities sold pursuant to the final tranche are subject
to a hold period expiring November 26, 2011.

On November 16, 2011 the Company announced that it intended to
undertake a non-brokered private placement of up to 6,000,000 units at the price
of $0.03 per unit for an aggregate gross proceeds of $180,000 (the November
2011 Offering). Each unit will consist of one common share of the Company and
one common share purchase warrant of the Company. Each warrant entitles the
holder thereof to purchase one common share of the Company at an exercise price
of $0.035 for a period of one year from the closing date of the Offering. Up to
3,000,000 of the unit shares were to be designated as Flow-Through Shares for
the purposes of the Income Tax Act (Canada), at a price of $0.03 per Flow
Through Share. The Company may pay a finders fee on funds raised from certain
subscribers. The completion of the Offering is subject to the execution of
definitive documentation with investors. Insiders of the Company are
participating in the private placement. Closing of the private placement is
subject to the completion of subscription agreements with the investors. All
securities held in connection with the private placement will be subject to a
minimum four month hold period. The funds will be used for exploration and
development of the Voiseys Bay West Project property and working capital.

On January 10, 2012, the Company announced an increase to the
November 2011 Offering from 6,000,000 units to 34,000,000 units and amended the
price from $0.03 per unit to $0.025 per unit, for aggregate proceeds of $85,000.
Each unit consists of one common share of the Company and one common share
purchase warrant. Each warrant entitles the holder thereof to purchase one
common share of the Company at an exercise price of $0.035 for a period of 18
months from the closing date of the Offering. Up to 8,000,000 of the unit shares
may be designated as Flow-Through Shares for the purposes of the Income Tax Act
(Canada).

On March 19, 2012, the Company announced that it closed the
previously announced non-brokered private placement and received proceeds of
$85,000 from the sale of 3,400,000 Units of the Company. Each unit consists of
one common share of the Company and one share purchase warrant. Each warrant is
exercisable to purchase one additional common share at an exercise price of
$0.035 until September 13, 2013.

As of the date of this filing, the Company had outstanding
obligations to issue up to 16,600,000 common shares, an aggregate of 14,800,000
common shares pursuant to share purchase warrants at a price ranging from $0.03
to $0.04, and expiring between July 25, 2012 and July 27, 2012, and an aggregate
of 1,800,000 common shares pursuant to stock options at a price
ranging from $0.04 to $0.065 per share, and expiring between October 6, 2013 and
August 6, 2015. The stock options have all been issued under the Companys share
option plans.

45

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Critical Accounting Policies

The Companys financial statements included herein have been
prepared in accordance with accounting principles generally accepted in the
United States. A summary of the differences between accounting principles
generally accepted in Canada ("Canadian GAAP") and those generally accepted in
the United States ("US GAAP"), which affect the Company, is contained in Note 2
of the financial statements.

Use of estimates

The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.

Cash and cash equivalents

Cash and cash equivalents include deposits at Canadian and
United States financial institutions. The Company considers all highly liquid
investments with a maturity of three months or less when purchased to be cash
equivalents.

Mineral property

The Company expenses all exploration costs incurred on
properties other than acquisition costs prior to the establishment of proven and
probable reserves. The Company performs evaluations of its assets to assess the
recoverability of its investments in these assets. All long-lived assets are
reviewed for impairment whenever events or circumstances change which indicate
the carrying amount of an asset may not be recoverable utilizing established
guidelines based upon discounted future net cash flows from asset or upon the
determination that certain exploration properties do not have sufficient
potential for economic mineralization.

Costs related to the acquisition, exploration, development and
inherent costs to the management of the mineral properties are capitalized by
property until the commencement of commercial production. If commercially
profitable ore reserves are developed, capitalized costs of the related property
are reclassified as mining assets and amortized on the unit of production
method. If it is determined that capitalized acquisition, exploration and
development costs are not recoverable over the estimated economic life of the
property, or the project is abandoned, the project is written down to its net
realizable value. Recovery of the amounts recorded under mineral properties is
dependent upon the ability of the Company to obtain the financing needed to
complete the development, and future profitable production or proceeds from the
disposal thereof. The amount shown for mineral property does not necessarily
reflect future or present values.

Stock-based compensation

Effective January 1, 2004, the Company adopted Financial
Accounting Standard Board (FASB) Statement No. 123(R). This pronouncement
requires all share-based payments be recognized in the income statement based on
their fair values. The Company has employed the modified prospective method for accounting for these share-based payments. This
method entails recognizing the fair value of share-based payments after the
effective date (January 1, 2004) with no restatement for prior transactions of
this nature. The fair value of stock options is determined by the widely used
Black-Scholes Option Pricing Model with assumptions for risk-free interest
rates, dividend yields, volatility of the expected market price of the Companys
common shares and an expected life of the options. The fair value of direct
awards of stock is determined by the quoted market price of the Companys stock.

46

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Option-pricing models require the use of highly subjective
estimates and assumptions including the expected stock price volatility. Changes
in the underlying assumptions can materially affect the fair value estimates
and, therefore, existing models do not necessarily provide reliable measurement
of the fair value of the Companys stock options.

Income taxes

Income taxes are calculated using the asset and liability
method of tax accounting. Under this method, current income taxes are recognized
for the estimated income taxes payable for the current period. Future income tax
assets and liabilities are determined based on differences between the financial
reporting and tax bases of assets and liabilities and on unclaimed losses
carried forward and are measured using the substantially enacted tax rates that
will be in effect when the differences are expected to reverse or losses are
expected to be utilized. A valuation allowance is recognized to the extent that
the recoverability of future income tax assets is not considered more likely
than not.

Asset Retirement Obligations

The Company follows CICA Handbook Section 3110 Asset
Retirement Obligations which establishes standards for asset retirement
obligations and associated retirement costs related to site reclamation and
abandonment. The fair value of the liability for an asset retirement obligation
is recorded when it is incurred and the corresponding increase to the asset is
depreciated over the life of the asset. The liability is increased over time to
reflect an accretion element considered in the initial measurement at fair
value. As at December 31, 2010 the Company has not incurred any significant
asset retirement obligations related to the exploration and development of its
mineral properties.

Financial instruments

Financial assets and liabilities, including derivative
instruments, are initially recognized and subsequently measured based on their
classification as "held-for-trading", "available-for-sale" financial assets,
"held-to-maturity", "loans and receivables", or "other" financial liabilities.
Held-for-trading financial instruments are measured at their fair value with
changes in fair value recognized in net income for the period.
Available-for-sale financial assets are measured at their fair value and changes
in fair value are included in other comprehensive income until the asset is
removed from the balance sheet. Held-to-maturity investments, loans and
receivables and other financial liabilities are measured at amortized cost using
the effective interest rate method. Derivative instruments, including embedded
derivatives, are measured at their fair value with changes in fair value
recognized in net income for the period, unless the instrument is a cash flow
hedge and hedge accounting applies, in which case changes in fair value are
recognized in other comprehensive income.

Earnings (loss) per common share

Basic earnings (loss) per share is computed by dividing the
earnings (loss) for the period by the weighted average number of common shares
outstanding during the period, including contingently issuable shares which are
included when the conditions necessary for issuance have been met. Diluted
earnings per share is calculated in a similar manner, except that the weighted
average number of common shares outstanding is increased to include potentially
issuable common shares from the assumed exercise of common share purchase
options and warrants, if dilutive. The number of additional shares included in
the calculation is based on the treasury stock method for options and warrants.

47

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Foreign currency translation

The functional currency of the Company is the US dollar and the
financial statements use the US dollar as the unit of measurement. The monetary
assets and liabilities of the Company denominated in foreign currencies are
translated at the rate of exchange at the balance sheet date. Revenues and
expenses are translated at the average exchange rate prevailing during the
period. Exchange gains or losses are included in operations.

Financial instruments - disclosures and presentation

On January 1, 2008, the Company adopted CICA Handbook Section
3862 "Financial Instruments - Disclosures" and CICA Handbook Section 3863
"Financial Instruments - Presentation". The adoption of these standards
increased emphasis on disclosures about the nature and extent of risks arising
from financial instruments and how the entity manages those risks.

Goodwill and intangible assets

As of January 1, 2009, the Company is 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 has not had a material impact
on the Company's financial statements.

C.             Research
and Development, Patents and Licenses, etc.

Not applicable.

D.             Trend
Information

The Company and the Companys subsidiary, CRL, continue to have
capital requirements in excess of their current resources. As the Company and
CRL continue to explore and develop the Gandhamardan Project and the Voiseys
Bay West Project, they will continue to have increased expenses and
corresponding losses. Currently and for the foreseeable future, the Companys
only source of working capital is from the sale of its securities.

The Company believes that the impact of foreign currency
fluctuations will not adversely affect the Company. The Canadian/U.S. dollar
exchange rate has been improving in favour of the Canadian dollar. The Company
does not take any steps to hedge against currency fluctuations. There is
currently no concern about the effects of the Indian Rupee on the Companys
subsidiarys operations or plans for operations in India.

E.            
Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements
that have or are reasonably likely to have a current or future effect on the
Companys financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital
resources that is material to investors.

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F.             Tabular
Disclosure of Contractual Obligations

Payments due by periodLess Than
      One to Three
      Three to
      More thanContractual Obligations
      Total
      One Year
      Years
      Five Years
      Five YearsRelated Party Accounts Payable(1)
      9,512
      9,512
      -
      -
      -


|(1) | The accounts payable consists of $9,512 due to companies
      controlled by a shareholder of the Company with no stated
  terms.
|--- | ---------------------------------------------------------------------------------------------------------------------------------

G.            
Safe Harbour

The safe harbour provided in Section 27A of the U.S. Securities
Act and Section 21E of the Exchange Act applies to forward-looking information
provided pursuant to Item 5.E and F above.

ITEM
6.              
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A.            
Directors and Senior Management

Michael Rosa, Director, President and Chief Executive
Officer

Michael Rosa, age 78, who resides in Langley, British Columbia,
Canada, has served as director of the Company since January 2003. Mr. Rosa is an
experienced corporate director and has been involved in natural resource
projects and other entrepreneurial activities. Mr. Rosa drilled 17 oil wells in
Texas and has been involved in two gold projects (one in Oregon and the other in
British Columbia). His resource experience is beneficial in assisting the
Company in the development of the Gandhamardan Project and also in evaluating
other resource projects that may be presented to the Company. Mr. Rosa is not an
officer or director of any other company.

Except in his present capacity with the Company, Mr. Rosa has
not within the past five years been an officer and/or director of a public
company.

Paul Preston  Director and Chief Financial Officer

Paul Preston, age 78, who resides in Abbotsford, British
Columbia, Canada, has served as director and CFO of the Company since April
2009. Mr. Preston is an experienced corporate director and has been an
administrator for both public and private companies. He also has experience with
property management. Mr. Preston was previously the president of a publically
traded mining exploration company and this experience, combined with his
administrative experience, is beneficial to the Company. Mr. Preston is also the
director of a private company that is involved in the construction industry.

Except in his present capacity with the Company, Mr. Preston
has not within the past five years been an officer and/or director of a public
company.

Nicole Bouthillier, Director

Nicole Bouthillier, age 61, has been an independent business
consultant in Montreal since 2001. Prior to starting her own consulting business
she worked for Scotia McLeod as an Investment Executive starting with them in
1987. Ms. Bouthillier became a director of the Company in November 2005.

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Except in her present capacity with the Company, Ms.
Bouthillier has not within the past five years been an officer and/or director
of a public company.

B.             Compensation

On October 1, 2009 the Company entered into management services
contracts with Mr. Rosa and Mr. Preston (see Material Contracts). Prior to
this the Company had no standard arrangement pursuant to which officers are
compensated by the Company for their services in their capacity as officers
other than the unissued shares reserved for the grant of stock options. Total
consideration of $48,000 was paid and accrued to officers of the Company during
the Companys financial year ended December 31, 2010, compared with $31,000
payable to directors and/or officers during the Companys financial year ended
December 31, 2009. As of the date of this filing, $63,250 of such compensation
to the Companys officers and directors remains outstanding.

The Company intends to form a compensation committee when
working capital is sufficient to carry on the Companys operations to consider
compensation to management, officers and directors.

The Companys shareholders approved at the Annual General
Meeting in August 2005 the issuance of options to the Companys officers and
directors to purchase 400,000 common shares at $0.25 expiring on August 21,
2010. During 2010, 200,000 of such shares have expired and no options were
exercised.

On August 9, 2010, the board of directors approved the issuance
  of options to the Companys officers and directors to purchase 1,100,000
  shares at $0.05 expiring on August 6, 2015.

Summary Compensation Table

During the Companys financial year ended December 31, 2011,
the aggregate direct remuneration payable to the Companys directors and
executive officers by the Company and its subsidiaries, all of whose financial
statements are consolidated with those of the Company, was $51,000. The
compensation paid to the Companys directors and officers during the most
recently completed financial year is as set out below:

Name and Principal Position
      Year
      Annual Compensation
      Long Term Compensation
      All Other Compen- sation ($)Awards
      PayoutsSalary
        ($)
      Bonus
        ($)
      Other Annual
        Compen -sation ($)
      Securities Under
        Options Granted (#)
      Restricted Shares
        or Restricted Share Units (#)
      LTIP Payouts ($)Michael Rosa 
        President and Chief 
        Executive Officer, 
        Director
      2011
      30,000
      Nil
      Nil
      Nil
      Nil
      Nil
      NilPaul Preston 
        Chief Financial 
        Officer, Director
      2011
      21,000
      Nil
      Nil
      Nil
      Nil
      Nil
      NilNicole Bouthillier 
        Director
      2011
      Nil
      Nil
      Nil
      Nil
      Nil
      Nil
      Nil


No stock options were exercised during 2011. See Share
  Ownership below for more information on the Companys outstanding
  stock options.

50

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C.             Board
Practices

All directors hold office until the next annual meeting of shareholders
  and until their successors have been elected and qualified. Mr. Rosa has served
  as director of the Company since January 2003. Ms. Bouthillier joined the Companys
  Board of Directors in November 2005. Mr. Preston has served as a director and
  officer since April 2009. The Companys officers are appointed by the Board
  of Directors after each annual meeting of the Companys shareholders and
  hold office until their death, or until they resign or have been removed from
  office. The Company has an audit committee that operates under the terms of
  the Companys audit charter, on which Michael Rosa, Paul Preston and Nicole
  Bouthillier are members. The Company currently does not have a compensation
  or executive committee. There are no director service contracts that provide
  for benefits upon termination.

D.             Employees

The Company has no employees other than its officers and directors.
  The Company has two directors/officers involved in management and administration
  of the Company, Mr. Michael Rosa and Mr. Paul Preston, both of which have entered
  into management consulting contracts with the Company (see Material Contracts).

E.             Share
Ownership

Common Shares

Security Holdings of Directors and Officers

Name of Insider
    Shares owned or
      beneficially controlled
    Percentage of 143,746,070
      outstanding common shares as of the date of this
      filingMichael Rosa
    438,000(1)
    (4)Paul Preston
    423,000(3)
    (4)Nicole Bouthillier
    50,000 (2)
    (4)TOTAL:
    911,000


|(1) | In addition, Mr. Rosa holds 200,000 options with an
      exercise price of US$0.065 expiring on August 20, 2014 and 400,000 options
      with an exercise price of US$0.05 expiring on August 6, 2015.           
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | In addition, Ms. Bouthillier holds 100,000 options with
      an exercise price of US$0.065 expiring on August 20, 2014 and 300,000
      options with an exercise price of US$0.05 expiring on August 6,
    2015.
|(3) | In addition, Mr. Preston holds 200,000 options with an
      exercise price of US$0.065 expiring on August 20, 2014 and 400,000 options
      with an exercise price of US$0.05 expiring on August 6, 2015.        
|(4) | Less than 1%.                                                                                                                                                                                                      

51

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Options:

The following chart details all outstanding options as of the
  date of this filing:

Under the 2010 Stock Option PlanName of Officer/Director
      Amount of Securities
      Exercise Price
      Expiration Date For Options
      Percentage of Total Options
        IssuedMichael Rosa
      200,000
      US$0.065
      August 20, 2014400,000
      US$0.05
      August 6, 2015
      33.33Nicole Bouthillier
      100,000
      US$0.065
      August 20, 2014300,000
      US$0.05
      August 6, 2015
      22.22Paul Preston
      200,000
      US$0.065
      August 20, 2014400,000
      US$0.05
      August 6, 2015
      33.33Total
      1,600,000
      
      -


Stock Option Plans and Long-Term Incentive Plan
Awards

At the Companys annual general meeting held on December 22,
2010, the Company adopted a new stock option plan (the Option
Plan) to replace its 2004 Stock Option Plan. The Company has not in the
past adopted any stock option plans, retirement, pension, or profit sharing
plans for the benefit of the Companys officers and directors other than as
described herein. However, the Company has granted incentive stock options on an
individual basis to provide compensation for performance.

2010 Stock Option Plan

In 2004 the shareholders of the Company approved the adoption
of the 2004 stock option plan (the 2004 Plan). The 2004 Plan was
a fixed plan in which 3,000,000 Common Shares were reserved for issuance.

Considering that the Company may pursue a listing on a Canadian
stock exchange and that the policies of such exchange will likely require all of
its listed companies to have a stock option plan if the Company intends to grant
options; and, in order to increase the flexibility of the Company to provide
incentives to directors, officers, employees, management and others who provide
services to the Company, the Board approved a new rolling share option plan (the
Option Plan) on November 1, 2010 to replace the Existing Plan. The
Option Plan requires shareholder approval for continuation at every annual
meeting of the Company by ordinary resolution and was approved for adoption at
the Companys 2010 AGM held in December 2010.

The Option Plan, is a rolling plan, and a maximum of ten
percent (10%) of the issued and outstanding Common Shares of the Company at the
time an option is granted, less Common Shares reserved for issuance on exercise
of options then outstanding under the New Plan, are reserved for options to be
granted at the discretion of the Board to eligible optionees (an Optionee).
When the Option plan was approved at the 2010 AGM, all outstanding options under
the 2004 Plan were rolled into and deemed granted under the Option Plan.

The Option Plan is subject to the following restrictions:

52

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| | (a) | The Company must not grant an option to any one director,
      employee, consultant, or consultant company (the Service Provider) in
      any twelve (12) month period that exceeds five percent (5%) of the
      outstanding shares, unless the Company has obtained by a majority of the
      votes cast by the shareholders of the Company eligible to vote at a
      shareholders meeting, excluding votes attaching to shares beneficially
      owned by Insiders and their Associates (Disinterested Shareholder
      Approval);
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (b) | The aggregate number of options granted to a Service
      Provider conducting Investor Relations Activities in any twelve (12) month
      period must not exceed two percent (2%) of the outstanding shares
      calculated at the date of the grant, if applicable, without the prior
      consent of the stock exchange the Company is listed on;                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (c) | The Company must not grant an option to a Consultant in
      any twelve (12) month period that exceeds two percent (2%) of the
      outstanding shares calculated at the date of the grant of the
    option;                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (d) | The aggregate number of Common Shares reserved for
      issuance under options granted to insiders must not exceed ten percent
      (10%) of the outstanding shares (in the event that the New Plan is amended
      to reserve for issuance more than ten percent (10%) of the outstanding
      shares) unless the Company has obtained Disinterested Shareholder Approval
      to do so;                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (e) | The number of optioned shares issued to insiders in any
      twelve (12) month period must not exceed ten percent (10%) of the
      outstanding shares (in the event that the New Plan is amended to reserve
      for issuance more than ten percent (10%) of the outstanding shares) unless
      the Company has obtained Disinterested Shareholder Approval to do
    so;                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (f) | The exercise price of an option previously granted to an
      insider must not be reduced, unless the Company has obtained Disinterested
      Shareholder Approval to do so.                                                                                                                                                                                                                                                                                                                                                                    

Material Terms of the New Plan

The following is a summary of the material terms of the Option
Plan:

| | (a) | Persons who are Service Providers to the Company or its
      affiliates, or who are providing services to the Company or its
      affiliates, are eligible to receive grants of options under the Option
      Plan;                                                                                                                                                                                                                                                                                                                                 
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (b) | Options granted under the Option Plan are non-assignable
      and non-transferable and are issuable for a period of up to ten (10)
      years;                                                                                                                                                                                                                                                                                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (c) | For options granted to Service Providers, the Company
      must ensure that the proposed Optionee is a bona fide Service Provider of
      the Company or its affiliates;                                                                                                                                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (d) | an Option granted to any Service Provider will expire
      within one year (or such other time, not to exceed one year, as shall be
      determined by the Board as at the date of grant or agreed to by the Board
      and the Optionee at any time prior to expiry of the Option), after the
      date the Optionee ceases to be employed by or provide services to the
      Company, but only to the extent that such Option was vested at the date
      the Optionee ceased to be so employed by or to provide services to the
      Company;

53

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| | (e) | if an Optionee dies, any vested option held by him or her
      at the date of death will become exercisable by the Optionees lawful
      personal representatives, heirs or executors until the earlier of one year
      after the date of death of such Optionee and the date of expiration of the
      term otherwise applicable to such option;                                                                                                                                                                                                                                                                      
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (f) | in the case of an Optionee being dismissed from
      employment or service for cause, such Optionees options, whether or not
      vested at the date of dismissal, will immediately terminate without right
      to exercise same;                                                                                                                                                                                                                                                                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (g) | the exercise price of each option will be set by the
      Board on the effective date of the option and will not be less than the
      Discounted Market Price (as defined in the Option Plan);                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (h) | vesting of options shall be at the discretion of the
      Board, and will generally be subject to: (i) the Service Provider
      remaining employed by or continuing to provide services to the Company or
      its affiliates, as well as, at the discretion of the Board, achieving
      certain milestones which may be defined by the Board from time to time or
      receiving a satisfactory performance review by the Company or its
      affiliates during the vesting period; or (ii) the Service Provider
      remaining as a Director of the Company or its affiliates during the
      vesting period; and
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (i) | The Board reserves the right in its absolute discretion
      to amend, suspend, terminate or discontinue the Option Plan with respect
      to all Option Plan shares in respect of options which have not yet been
      granted under the Option Plan.                                                                                                                                                                                                                                                                                                                                                                    

The Board has determined that, in order to reasonably protect
the rights of participants, as a matter of administration, it is necessary to
clarify when amendments to the Option Plan may be made by the Board without
shareholder approval. At the 2010 AGM shareholders of the Company approved that
the Board may, without shareholder approval:

| | (a) | amend the Option Plan to correct typographical,
      grammatical or clerical errors;                                                                                                                                                                                         
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                               
| | (b) | change the vesting provisions of an option granted under
      the Option Plan, subject to prior written approval of whatever stock
      exchange the Company may be listed on, if applicable;                                                                               
| |     |                                                                                                                                                                                                                                                                               
| | (c) | change the termination provision of an option granted
      under the Option Plan if it does not entail an extension beyond the
      original expiry date of such option;                                                                                                    
| |     |                                                                                                                                                                                                                                                                               
| | (d) | make such amendments to the Option Plan as are necessary
      or desirable to reflect changes to securities laws applicable to the
      Company;                                                                                                                            
| |     |                                                                                                                                                                                                                                                                               
| | (e) | if applicable, make such amendments as may otherwise be
      permitted by the policies of whatever stock exchange the Company is listed
      on;                                                                                                                            
| |     |                                                                                                                                                                                                                                                                               
| | (f) | if the Company becomes listed or quoted on a stock
      exchange or stock market senior to whatever stock exchange the Company is
      currently listed on, make such amendments as may be required by the
      policies of such senior stock exchange or stock market; and
| |     |                                                                                                                                                                                                                                                                               
| | (g) | amend the Option Plan to reduce the benefits that may be
      granted to Service Providers.                                                                                                                                                                                  

54

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The Committee

The Option Plan provides for the granting by a committee of the
Board of Directors of the Company (the Committee) who will be Option
Plan administrators of Options to directors, officers, employees and consultants
of the Company. The Committee administers and interprets the Option Plan and has
authority to grant Options to all eligible persons.

Stock Subject To The Option Plan

The total number of common shares allotted and reserved for issuance
  under the Option Plan is a maximum of ten percent (10%) of the issued and outstanding
  Common Shares of the Company at the time of the grant of common share purchase
  options. At the time of this filing, a total of 14,374,607 common shares were
  available for option grants pursuant to the Option Plan. Such common shares
  will be reserved for Options to be granted at the discretion of the Committee.
  Options to purchase an aggregate of 1,800,000 common shares, representing 1.25%
  of the issued and outstanding capital as of the date hereof, have been granted
  under the Option Plan and are outstanding as of the date of this filing, leaving
  a balance of 12,574,607 available for further grants.

On August 6, 2010, the board of directors approved the issuance
  of options to the Companys officers and directors to purchase 1,100,000
  shares at $0.05 expiring on August 6, 2015.

ITEM
7.             MAJOR
SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A.             Major
Shareholders

Perial Ltd. holds 25,000,000 common shares or 17.39% of all
issued and outstanding shares as of the date of this filing. There are currently
no agreements in place that could result in a change of control of the Company.
The common shares held by Perial do not have different voting rights than those
held by other shareholders. As of the date of this filing, the total number of
common shares held by US residents is 43,960,414, or 30.22% of all issued and
outstanding common shares of the Company, with such shares being held by 119
record holders. As of the date of this filing, the total number of common shares
held by Canadian residents is 98,025,001, or 68.19% of all issued and
outstanding common shares of the Company, with such shares being held by 255
record holders.

The following table sets forth the common share ownership of
each person known by the Company to be the beneficial owner of five percent or
more of the Companys common shares. Each person has sole voting and investment
power with respect to the shares of common stock shown, and all ownership is of
record and beneficial.

Name and address of owner
    Number of Shares
    Position
    Percent of Class as of the date
      of this filingPerial Ltd. 191 Eglinton Avenue East Suite 302
      Toronto, Ontario Canada M4P 1K1
    25,000,000
    Shareholder
    17.39%


55

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B.             Related
Party Transactions

Except as disclosed herein, directors, senior officers and
principal shareholders of the Company, or any associate or affiliate of the
foregoing, have not participated in and have no other interest, direct or
indirect, in any material transactions in which the Company has participated, or
in any proposed transaction which has materially affected or will materially
affect the Company during the previous two fiscal years to the date of this
filing.

Related party transactions are in the normal course of operations
  and are measured at the exchange amount, which is the amount of consideration
  established and agreed to by the related parties. Related party transactions
  include the following:

- At December 31, 2011, the Company had outstanding payables to related
  parties for services rendered totalling $9,512 and for 2010, 9,512.

C.            
Interests of Experts and Counsel

Not applicable.

ITEM 8.     
         FINANCIAL INFORMATION

A.             Consolidated
Statements and Other Financial Information

See Item 17 Financial Statements and Item 3.A Selected
Financial Data of this Form 20-F.

Legal Proceedings

Other than as disclosed herein, no material legal proceedings
to which the Company is a party are pending nor are any known to be contemplated
and the Company knows of no legal proceedings pending or threatened, or
judgments entered against, any director or officer of the Company in his or her
capacity other than as disclosed herein.

On July 27, 2000, the Company entered into an employment
agreement with Ron Brown, the Companys former President and later Vice
President. Under the terms of the agreement Mr. Brown agreed to perform the
services commonly associated with President and Chief Executive Officer in
consideration of a salary of at least $15,000 per month, reimbursement of all
expenses incurred, a life insurance policy in the amount of $1,500,000, medical
and health benefits for Mr. Brown and all of his family members, and a vehicle
allowance. In addition to the foregoing, the Company was obligated to issue to
Mr. Brown options to acquire 5% of the shares issued and outstanding after the
first year, 5% of the shares issued and outstanding after the second year, and
5% of the shares issued and outstanding at the end of the third year (or a total
of 15% of the total outstanding shares of the Company after three years). The
term of the agreement was from June 30, 2000 to May 31, 2003. The Company had
the right to terminate the agreement for just cause or for any act or omission
that was a breach under the agreement that was not remedied within thirty days.
It was also a term of the agreement that Mr. Brown could be terminated for
cause. On February 12, 2001, Mr. Brown was terminated for cause. Mr. Brown
brought an action in the Chancery Court for Williamson County, Tennessee, Case
No. 27720, seeking a declaratory judgment that the foregoing employment contract
was in full force and effect. On September 1, 2005 the Company entered into a
Settlement Agreement with Mr. Brown, under which the Company agreed to pay Mr.
Brown $100,000 in cash consideration and a sum or sums equal to .5% (one half of
one percent) of any payment, proceeds or other consideration directly or
indirectly received by the Company or any of its subsidiaries or affiliates
relating to the sale or production from the Gandhamardan Project. The .5% of the
proceeds continues until Mr. Brown receives $5,000,000 in total
consideration in addition to the $100,000 in cash. The Company paid Mr. Brown
the $100,000 in two equal payments with the first payment of $50,000 in October
2005 and the second payment of $50,000 in May 2006. Management of the Company
does not view this contingent liability as a major detriment to the Companys
overall performance.

56

---

On March 29, 2004, an action was brought by Roderick Christie
against the Company in the Supreme Court of British Columbia. The Statement of
Claim alleged that Christie acquired 260,000 shares of the Company from Balaton
Power Corporation S.A. and that the Company had an obligation to transfer these
shares to Mr. Christie, despite the Company refusing to do so. Mr. Christie
sought $260,000 in damages or 260,000 common shares in the Company plus that
amount of Canadian currency that was equal to the difference between the price
at which the shares are trading at the time of delivery and $1.00. On October 7,
2009, the Company and Mr. Christie entered into a settlement agreement and
release whereby the Company paid Mr. Christie the sum of $12,000 for full
settlement and release of the action.

On March 10, 2009, the Company received a letter from Balaton
  Power Corporation S.A. (BSA), the patent holder and licensor
  to the Company, regarding its position that the Company was in default of the
  conditions of the licensing agreement between the parties (see Material
  Contracts). The Company and BSA have been in discussions regarding the
  licensing agreement and the March 10, 2009 letter, but the Company is no longer
  pursuing this interest in the Pisces Process. There can be no assurances that
  the Company will continue to hold an interest in the Pisces Process as a result
  of the outcome of the discussions. An adverse outcome in the discussions is
  not expected to have a material adverse effect on the Companys business,
  financial condition or results of operations.

On July 17, 2009, upon filing of the required records by the
Company, the British Columbia Securities Commission (the Commission) granted a
full revocation of the cease trade order issued by the Commission against the
Company dated May 12, 2009 (the 2009 CTO). The 2009 CTO had been
imposed by the Commission due to deficiencies identified in the Companys
filings for the year ended December 31, 2008. All of the Companys continuous
disclosure documents can be reviewed on SEDAR.

On October 2, 2009, the Company announced that its wholly owned
subsidiary, CRL, entered into an agreement in settlement of the litigation with
VISA. Under the terms of the settlement CRL settled all outstanding disputes
with VISA and thereby reinstated its agreement dated February 15, 2005, whereby
VISA (as to 74%) and CRL (as to 26%) will establish a corporation in the State
of Orissa, India to jointly develop the Gandhamardan Project. Under the terms of
the agreement CRL will receive from VISA incremental cash payments, upon the
achievement of certain milestones during the development of the Gandhamardan
Project.

On May 10, 2010, the Commission issued a cease trade order
against the Company relating to the Companys failure to file continuous
disclosure prescribed by securities law (the 2010 CTO). On July 8,
2010, upon filing of the required records by the Company, the British Columbia
Securities Commission (the Commission) granted a full revocation of the 2010
CTO.

On May 10, 2011 the Commission issued a cease trade order
against the Company relating to the Companys failure to file continuous
disclosure prescribed by securities law (the 2011 CTO). On June 23,
2011, upon filing of the required records by the Company, the Commission granted
a full revocation of the 2011 CTO.

On May 8, 2012 the Commission issued a cease trade order
against the Company relating to the Companys failure to file continuous
disclosure prescribed by securities law (the 2012 CTO). As of the date of this filing, the Company is endeavouring to file such
required continuous disclosure to obtain a revocation of the 2012 CTO from the
Commission.

57

---

Except as otherwise mentioned above, the Company met its
obligations in each of the above mentioned settlements in a timely manner.

Dividends Policy

No dividend has been paid on the Common Shares since inception,
and none is contemplated in the foreseeable future.

B.             Significant
Changes

None.

ITEM
9.              
THE OFFER AND LISTING

A.             Offer
and Listing Details

For the five most recent full financial years, the annual high
  and low market prices for the Companys common stock were as follows in
  U.S. Dollars:

2011
    2010
    2009
    2008
    2007High (U.S. $)
    $0.1040
    $0.105
    $0.22
    $0.23
    $0.50Low (U.S. $)
    $0.0215
    $0.031
    $0.01
    $0.01
    $0.16


For the two most recent full financial years, the high and low
market prices for each full financial quarter for the Companys common stock
were as follows

2011
    
    
    
    2010Q1
    Q2
    Q3
    Q4
    Q1
    Q2
    Q3
    Q4High (U.S. $)
    $0.104
    $0.080
    $0.0600
    $0.044
    $0.090
    $0.049
    $0.095
    $0.1050Low (U.S. $)
    $0.045
    $0.041
    $0.0215
    $0.0265
    $0.031
    $0.035
    $0.034
    $0.0316


For the most recent six months, the high and low market prices
for each month for the Companys common stock were as follows:

May 2012
    April
    Mar
    Feb
    Jan 2012
    Dec2012
    2012
    2012
    
    2011High (U.S. $)
    $0.030
    $0.035
    $0.045
    $0.0430
    $0.047
    $0.0375Low (U.S. $)
    $0.006
    $0.020
    $0.030
    $0.0305
    $0.031
    $0.0281


B.            
Plan of Distribution

Not applicable.

58

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C.            
Markets

The shares of the Company have traded on the Over-the-Counter
  Bulletin Board Quotation System under the symbol BPWRF since November
  26, 2001.

D.             Selling
Shareholders

Not applicable.

E.             Dilution

Not applicable.

F.             Expenses
of the Issue

Not applicable.

ITEM
10.            
ADDITIONAL INFORMATION

A.             Share
Capital

Not applicable.

B.             Memorandum
and Articles of Association

Information regarding the Companys Memorandum and Articles of
Association is set out in the Companys Annual Report on Form 20-F filed July
15, 2002 and is incorporated herein by reference and is hereby confirmed that
this information has not changed since the filing on July 15, 2002.

C.Material Contracts

Joint Venture Agreement dated April 18, 1997

On April 18, 1997, Continental entered the Joint Venture Agreement
  with OMC to form a 50-50 joint venture company in the State of Orissa with its
  primary purpose to explore and exploit the Gandhamardan Bauxite Deposit. Continental
  managed the daily operations of COMPL, the joint venture company. Under the
  Joint Venture Agreement, OMC had an option to participate in Continentals
  proposed aluminium complex (including refinery, power plant and smelter). This
  option was to be exercised within one year from the date of transfer of leases
  concerning the Gandhamardan Project, of which such option could be extended
  by mutual consent. Pursuant to the Joint Venture Agreement, Continental bore
  all costs associated with the preparation of a feasibility report and exploration.
  Continental transferred its interest in the deposit to CRL, an unrelated company,
  with the result that CRL and OMC became joint venture partners. During 2004,
  COMPL was voluntarily dissolved at the request of OMC. CRL and OMC plan to incorporate
  a new entity that will direct the development of the Gandhamardan Project according
  to the new terms and conditions of the Proposed Revised Joint Venture Agreement
  being submitted to the Orissa Government for approval between OMC and CRL. As
  of the date of this filing, the approval for the Proposed Revised Joint Venture
  Agreement between OMC and CRL has not been received from the Orissa Government.

Stock Exchange Agreement dated September 30,
2002

59

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On September 3, 2002 the Company entered into an agreement to
acquire 100% of CRL from Perial in consideration for 33,000,000 common shares of
the Company. 25,000,000 of these shares were issued to Perial and 8,000,000 were
issued as a finders fee. The transaction was completed on October 31, 2002 and
resulted in a change of control of the Company and the focus of the Companys
business on the Gandhamardan Project. See Information on the Company for a
description of this transaction.

Settlement Agreement and Mutual Release of Claims dated
September 23, 2009

On September 23, 2009, CRL, the Companys wholly-owned
subsidiary, and VISA entered into a settlement and mutual release agreement (the
Settlement Agreement) dated September 23, 2009. Among other
things, the Settlement Agreement provides that the parties agree to settle all
outstanding disputes between themselves and reinstate the consortium agreement
between CRL and VISA dated February 15, 2005, under which VISA and CRL were to
establish a corporation in the State of Orissa, India to jointly develop the
Gandhamardan Bauxite Project.

Purchase of Options Right Agreement dated July 27, 2010
and amended March 3, 2011

On July 27, 2010, the Company and JAL entered into a purchase
of rights option agreement (the Options Right Agreement) with JAL
pursuant to which the Company purchased the right (the Right) to enter
into an option agreement with JAL and obtain two property options relating to
three mineral rights licences comprising 200 claims and approximately 5,000
hectares comprising the Voiseys Bay West Project. On March 4, 2011 the parties
entered into an amended and restated purchase of rights option agreement to
amend the Options Rights Agreement (the Amended and Restated Purchase of
Options Right Agreement).

Option Agreement dated March 4, 2011

On March 4, 2011 the Company elected to exercise the Right as
provided under the Options Right Agreement, as amended, made the required
payment to JAL and entered into an option agreement (the Option
Agreement) with JAL pursuant to which the Company can acquire up two
property options to an undivided an 80% interest in the Voiseys Bay West
Project. The Option Agreement was amended on December 21, 2011 (see The Amended
Option Agreement  Voiseys Bay West Project).

Management Services
Agreements

Effective October 1, 2009 the Company entered into an agreement
with Michael Rosa relating to his services to the Company as Chief Executive
Officer.

Effective October 1, 2009 the Company entered into an agreement
with Paul Preston relating to his services to the Company as Chief Financial
Officer.

D.             Exchange
Controls

The Company is a corporation incorporated under the laws of the
Province of British Columbia, Canada. Canada has no system of exchange controls.
There are no exchange restrictions on borrowings from foreign countries or on
the remittance of dividends, interest, royalties and similar payments,
management fees, loan repayments, settlement of trade debts, or the repatriation
of capital. The Investment Canada Act (the ICA) enacted on June
20, 1985, as amended by the Canada-United States Free Trade Agreement
Implementation Act (Canada), requires the notification and, in certain cases,
advance review and approval by the Government of Canada of the acquisition by a
non-Canadian of control of a Canadian business, all as defined in the ICA. For the purposes of the
ICA, control can be acquired through the acquisition of all or substantially
all of the assets used in carrying on the Canadian business, or the direct or
indirect acquisition of interests in an entity that carries on a Canadian
business or which controls the entity, which carries on the Canadian business.
Under the ICA, control of a corporation is deemed to be acquired through the
acquisition of a majority of the voting shares of a corporation, and is presumed
to be acquired where one third or more, but less than a majority, of the voting
shares of a corporation are acquired, unless it can be established that the
corporation is not controlled in fact by the acquirer through the ownership of
voting shares. Other rules apply with respect to the acquisition of
non-corporate entities.

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To the best of the Companys knowledge, there are no
governmental laws, decrees or regulations in Canada relating to restriction on
the import/export of capital, or which affect the remittance of interest,
dividends, or other payments to non-resident holders of the Companys common
stock. Any such remittance to United States residents, however, is subject to a
15% withholding tax pursuant to Articles X, Xl, and XII of the reciprocal
Canada-United States Income Tax Convention. Except for the ICA, there are no
limitations under the laws of Canada, the Province of British Columbia, or in
the Charter or any other constituent documents of the registrant on the rights
of foreigners to hold and/or vote the shares of the registrant. The provisions
of the ICA provide legislative guidelines for screening and evaluating new
foreign investment in Canada. The purpose of the legislation is to:

| | (a) | encourage investment in Canada that contributes to
      economic growth and employment; and                        
| | --- | --------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                     
| | (b) | provide for the review of significant investments in
      Canada by non-Canadians to ensure such benefit to
Canada.

All investments that meet the following criteria are subject to
a review:

| | (a) | direct acquisition of control of an existing Canadian
      business with assets of five million dollars or more by a non-WTO
      investor;                                                                                                                
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                              
| | (b) | indirect acquisition of an existing Canadian business
      with assets of fifty million dollars or more by a non-WTO
  investor;                                                                                                                            
| |     |                                                                                                                                                                                                                                                              
| | (c) | indirect acquisition of control of an existing Canadian
      business with assets of five million dollars or more where the assets of
      the Canadian business being acquired exceed 50% of the total assets
      involved in the worldwide transaction;
| |     |                                                                                                                                                                                                                                                              
| | (d) | direct acquisition of control of an existing Canadian
      business with assets of $281 million dollars or more by a WTO investor;
      and                                                                                                                
| |     |                                                                                                                                                                                                                                                              
| | (e) | investments in prescribed areas related to cultural
      heritage or national identity where the discretionary authority to review
      is exercised                                                                                                       

E.             Taxation

Material Canadian Federal Income Tax Consequences for United
States Residents

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The following discussion summarizes the principal Canadian
federal income tax considerations generally applicable to a person (an
Investor) who acquires one or more Common Shares of the Company, and
who at all material times and for the purposes of the Income Tax Act (Canada)
(the Canadian Act) deals at arms length with the Company, holds all
Common Shares solely as capital property, is a nonresident of Canada, and does
not, and is not deemed to, use or hold any Common Shares in or in the course of
carrying on business in Canada. It is assumed that the Common Shares will at all
material time be listed on a stock exchange that is prescribed for the purposes
of the Canadian Act.

This summary is based on the current provisions of the Canadian
Act, including the regulations thereunder, and the Canada-United States Income
Tax Convention (1980) (the Treaty) as amended. This summary takes into
account all specific proposals to amend the Canadian Act and the regulations
thereunder publicly announced by the government of Canada to the date hereof and
the Companys understanding of the current published administrative and
assessing practices of the Canada Revenue Agency (CRA). It is assumed
that all such amendments will be enacted substantially as currently proposed,
and that there will be no other material change to any such law or practice,
although no assurances can be given in these respects. This summary does not
take into account any provincial, territorial or foreign income tax law or
treaty other than the Treaty.

This summary is not, and is not to be construed as, tax
advice to any particular Investor. Each prospective and current Investor is
urged to obtain independent advice as to the Canadian income tax consequences of
an investment in Common Shares applicable to the Investors particular
circumstances.

An Investor generally will not be subject to tax pursuant to
the Canadian Act on any capital gain realized by the Investor on a disposition
of a Common Share unless the Common Share is taxable Canadian property, and is
not treaty-protected property, of the Investor for purposes of the Canadian
Act. A Common Share that is disposed of by an Investor will generally not
constitute taxable Canadian property of the Investor provided that neither the
Investor, nor one or more persons with whom the Investor did not deal at arms
length, alone or together at any time in the 60 months immediately preceding the
disposition owned 25% or more of the issued shares of any class of the capital
stock of the Company. In addition, the Common Share will be a treaty-protected
property of the Investor if, under the terms of an applicable bilateral tax
treaty, any gain realized by the Investor on disposition of the share is exempt
from Canadian income tax under Part I of the Canadian Act.

An Investor whose Common Shares constitute taxable Canadian
property and are not treaty-protected property, and who disposes of one or more
Common Shares in a taxation year, will realize a capital gain (capital loss)
equal to the amount by which the proceeds of disposition therefor exceed (are
exceeded by) the adjusted cost base thereof to the Investor and the Investors
reasonable costs of disposition. The Investor will be required to include one
half of any such capital gain (taxable capital gain) in the Investors taxable
income earned in Canada for the taxation year and to pay Canadian income tax
accordingly. The Investor will be entitled to deduct one half of any such
capital loss (allowable capital loss) against taxable capital gains included in
the Investors taxable income earned in Canada in the taxation year and, to the
extent not so deductible, against taxable capital gains included in the
Investors taxable income earned in Canada in any of the three preceding
taxation years or in any subsequent taxation year.

Each Investor will be required to pay Canadian withholding tax
on the amount of any dividend, including any stock dividend, paid or credited or
deemed to be paid or credited by the Company to the Investor on a Common Share.
The rate of withholding tax is 25% of the gross amount of the dividend, or such
lesser rate as may be available under an applicable income tax treaty. In
accordance with the Treaty, the rate of withholding tax applicable to a dividend
paid on a Common Share to an eligible Investor who is a resident of the United States for the purposes of the Treaty
and who takes appropriate steps, is 5% if the Investor is a company that owns at
least 10% of the voting stock of the Company, and 15% in any other case, of the
gross amount of the dividend. The Company will be required to withhold any such
tax from the dividend, and remit the tax directly to CRA for the account of the
Investor.

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Investors are advised to consult their tax advisors with
respect to the tax implications of acquiring, holding or disposing of Common
Shares and the application of any applicable income tax treaty.

Dividends

Dividends paid or credited, or deemed to be paid or credited to
a U.S. Holder by the Company will be subject to Canadian withholding tax. Under
the Treaty, the rate of withholding tax on dividends paid to a U.S. Holder is
generally limited to 15% of the gross amount of the dividend (or 5% if the U.S.
Holder is a corporation and beneficially owns at least 10% of the Companys
voting shares). The Company will be required to withhold the applicable
withholding tax from any such dividend and remit it to the Canadian government.

Disposition

A U.S. Holder is subject to tax under the Tax Act in respect of
a capital gain realized on the disposition or deemed disposition of a Common
Share unless the U.S. Holder is entitled to relief under the Treaty. For this
purpose, the U.S. Holders capital gain (or loss) from a disposition or deemed
disposition of a Common Share is the amount by which the proceeds of disposition
exceed (or are exceeded by) the aggregate of the U.S. Holders adjusted cost
base of the Common Share for purposes of the Tax Act and any reasonable expenses
of disposition. Absent Treaty relief, one-half of any capital gain so realized
is included in computing the U.S. Holders income for purposes of the Tax Act.

A U.S. Holder may generally qualify for relief under the Treaty
in respect of such tax on such capital gain if and provided that the value of
shares of the Company is not derived principally from real property situated in
Canada at the relevant time. Management believes that the value of the Companys
common shares is not currently derived principally from real property situated
in Canada.

A U.S. Holder wishing to claim any such applicable Treaty
relief should consult with the U.S. Holders own tax advisors regarding the
procedure for claiming the relief in a relevant Canadian tax return reporting
the disposition or deemed disposition. In addition, notwithstanding any
potentially applicable Treaty relief, a disposition or deemed disposition of
Common Shares is subject to certain tax clearance certificate and withholding
procedures that should also be discussed with the U.S. Holders own tax advisors
in advance of a disposition.

United States Tax Consequences

United States Federal Income Tax Consequences

The following is a discussion of all material United States
federal income tax consequences, under current law, generally applicable to a
U.S. Holder (as hereinafter defined) of common shares of the Company. This
discussion does not address all potentially relevant federal income tax matters
and it does not address consequences peculiar to persons subject to special
provisions of federal income tax law, such as those described below as excluded
from the definition of a U.S. Holder. In addition, this discussion does not
cover any state, local or foreign tax consequences. (See Taxation  Canadian
Federal Income Tax Consequences above). Accordingly, we urge holders and
prospective holders of common shares of the Company to consult their own tax
advisors about the specific federal, state, local, and foreign tax consequences to them of purchasing, owning and disposing of
common shares of the Company, based upon their individual circumstances.

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The following discussion is based upon the sections of the
Internal Revenue Code of 1986, as amended (the Code), Treasury
Regulations, published Internal Revenue Service (IRS) rulings,
published administrative positions of the IRS and court decisions that are
currently applicable, any or all of which could be materially and adversely
changed, possibly on a retroactive basis, at any time and which are subject to
differing interpretations. This discussion does not consider the potential
effects, both adverse and beneficial, of any proposed legislation, which, if
enacted, could be applied, possibly on a retroactive basis, at any time.

U.S. Holders

As used herein, a U.S. Holder means a holder of common
shares of the Company who is a citizen or individual resident of the United
States, a corporation or partnership created or organized in or under the laws
of the United States or of any political subdivision thereof, an estate whose
income is taxable in the United States irrespective of source or a trust subject
to the primary supervision of a court within the United States and control of a
United States fiduciary as described Section 7701(a)(30) of the Code. This
summary does not address the tax consequences to, and U.S. Holder does not
include, persons subject to specific provisions of federal income tax law, such
as tax-exempt organizations, qualified retirement plans, individual retirement
accounts and other tax-deferred accounts, financial institutions, insurance
companies, real estate investment trusts, regulated investment companies,
broker-dealers, non-resident alien individuals, persons or entities that have a
functional currency other than the U.S. dollar, shareholders subject to the
alternative minimum tax, shareholders who hold common shares as part of a
straddle, hedging or conversion transaction, and shareholders who acquired their
common shares through the exercise of employee stock options or otherwise as
compensation for services. This summary is limited to U.S. Holders who own
common shares as capital assets and who own (directly and indirectly, pursuant
to applicable rules of constructive ownership) no more than 5% of the value of
the total outstanding stock of the Company. This summary does not address the
consequences to a person or entity holding an interest in a shareholder or the
consequences to a person of the ownership, exercise or disposition of any
options, warrants or other rights to acquire common shares. In addition, this
summary does not address special rules applicable to United States persons (as
defined in Section 7701(a)(30) of the Code) holding common shares through a
foreign partnership or to foreign persons holding common shares through a
domestic partnership.

Distribution on Common Shares of the Company

In general, U.S. Holders receiving dividend distributions
(including constructive dividends) with respect to common shares of the Company
are required to include in gross income for United States federal income tax
purposes the gross amount of such distributions, equal to the U.S. dollar value
of such distributions on the date of receipt (based on the exchange rate on such
date), to the extent that the Company has current or accumulated earnings and
profits, without reduction for any Canadian income tax withheld from such
distributions. Such Canadian tax withheld may be credited, subject to certain
limitations, against the U.S. Holders federal income tax liability or,
alternatively, may be deducted in computing the U.S. Holders federal taxable
income by those who itemize deductions. (See more detailed discussion at
Foreign Tax Credit below). To the extent that distributions exceed current or
accumulated earnings and profits of the Company, they will be treated first as a
return of capital up to the U.S. Holders adjusted basis in the common shares
and thereafter as gain from the sale or exchange of property. Preferential tax
rates for long-term capital gains are applicable to a U.S. Holder, which is an
individual, estate or trust. There are currently no preferential tax rates for
long-term capital gains for a U.S. Holder, which is a corporation.

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In the case of foreign currency received as a dividend that is
not converted by the recipient into U.S. dollars on the date of receipt, a U.S.
Holder will have a tax basis in the foreign currency equal to its U.S. dollar
value on the date of receipt. Generally any gain or loss recognized upon a
subsequent sale or other disposition of the foreign currency, including the
exchange for U.S. dollars, will be ordinary income or loss. However, an
individual whose realized gain does not exceed $200 will not recognize that
gain, provided that there are no expenses associated with the transaction that
meet the requirements for deductibility as a trade or business expense (other
than travel expenses in connection with a business trip) or as an expense for
the production of income.

Dividends paid on the common shares of the Company generally
will not be eligible for the dividends received deduction provided to
corporations receiving dividends from certain United States corporations. A U.S.
Holder which is a corporation and which owns shares representing at least 10% of
the voting power and value of the Company may, under certain circumstances, be
entitled to a 70% (or 80% if the U.S. Holder owns shares representing at least
20% of the voting power and value of the Company) deduction of the United States
source portion of dividends received from the Company (unless the Company
qualifies as a foreign personal holding company or a passive foreign
investment company, as defined below). The Company does not anticipate that it
will earn any United States income, however, and therefore does not anticipate
that any U.S. Holder will be eligible for the dividends received deduction.

Under current Treasury Regulations, dividends paid on the
Companys common shares, if any, generally will not be subject to information
reporting and generally will not be subject to U.S. backup withholding tax.
However, dividends and the proceeds from a sale of the Companys common shares
paid in the U.S. through a U.S. or U.S. related paying agent (including a
broker) will be subject to U.S. information reporting requirements and may also
be subject to the 31% U.S. backup withholding tax, unless the paying agent is
furnished with a duly completed and signed Form W-9. Any amounts withheld under
the U.S. backup withholding tax rules will be allowed as a refund or a credit
against the U.S. Holders U.S. federal income tax liability, provided the
required information is furnished to the IRS.

Foreign Tax Credit

A U.S. Holder who pays (or has withheld from distributions)
Canadian income tax with respect to the ownership of common shares of the
Company may be entitled, at the option of the U.S. Holder, to either receive a
deduction or a tax credit for such foreign tax paid or withheld. Generally, it
will be more advantageous to claim a credit because a credit reduces United
States federal income taxes on a dollar-for-dollar basis, while a deduction
merely reduces the taxpayers income subject to tax. This election is made on a
year-by-year basis and generally applies to all foreign taxes paid by (or
withheld from) the U.S. Holder during that year. There are significant and
complex limitations, which apply to the credit, among which is the general
limitation that the credit cannot exceed the proportionate share of the U.S.
Holders United States income tax liability that the U.S. Holders foreign
source income bears to his or its worldwide taxable income. In the determination
of the application of this limitation, the various items of income and deduction
must be classified into foreign and domestic sources. Complex rules govern this
classification process. In addition, this limitation is calculated separately
with respect to specific classes of income such as passive income, high
withholding tax interest, financial services income, shipping income, and
certain other classifications of income. Dividends distributed by the Company
will generally constitute passive income or, in the case of certain U.S.
Holders, financial services income for these purposes. The availability of the
foreign tax credit and the application of the limitations on the credit are fact
specific, and U.S. Holders of common shares of the Company should consult their
own tax advisors regarding their individual circumstances.

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Disposition of Common Shares of the Company

In general, U.S. Holders will recognize gain or loss upon the
sale of common shares of the Company equal to the difference, if any, between
(i) the amount of cash plus the fair market value of any property received, and
(ii) the shareholders tax basis in the common shares of the Company.
Preferential tax rates apply to long-term capital gains of U.S. Holders, which
are individuals, estates or trusts. In general, gain or loss on the sale of
common shares of the Company will be long-term capital gain or loss if the
common shares are a capital asset in the hands of the U.S. Holder and are held
for more than one year. Deductions for net capital losses are subject to
significant limitations. For U.S. Holders, which are not corporations, any
unused portion of such net capital loss may be carried over to be used in later
tax years until such net capital loss is thereby exhausted. For U.S. Holders
that are corporations (other than corporations subject to Subchapter S of the
Code), an unused net capital loss may be carried back three years and carried
forward five years from the loss year to be offset against capital gains until
such net capital loss is thereby exhausted.

Other Considerations

Set forth below are certain material exceptions to the
above-described general rules describing the United States federal income tax
consequences resulting from the holding and disposition of common shares:

Foreign Personal Holding Company

If at any time during a taxable year more than 50% of the total
combined voting power or the total value of the Companys outstanding shares is
owned, directly or indirectly (pursuant to applicable rules of constructive
ownership), by five or fewer individuals who are citizens or residents of the
United States and 60% or more of the Companys gross income for such year is
derived from certain passive sources (e.g., from certain interest and
dividends), the Company may be treated as a foreign personal holding company.
In that event, U.S. Holders that hold common shares would be required to include
in gross income for such year their allocable portions of such passive income to
the extent the Company does not actually distribute such income. The Company
does not believe that it currently qualifies as a foreign personal holding
company. However, there can be no assurance that the Company will not be
considered a foreign personal holding company for the current or any future
taxable year.

Foreign Investment Company

If 50% or more of the combined voting power or total value of
the Companys outstanding shares is held, directly or indirectly, by citizens or
residents of the United States, United States domestic partnerships or
corporations, or estates or trusts other than foreign estates or trusts (as
defined by the Code Section 7701(a)(31)), and the Company is found to be engaged
primarily in the business of investing, reinvesting, or trading in securities,
commodities, or any interest therein, it is possible that the Company may be
treated as a foreign investment company as defined in Section 1246 of the
Code, causing all or part of any gain realized by a U.S. Holder selling or
exchanging common shares to be treated as ordinary income rather than capital
gain. The Company does not believe that it currently qualifies as a foreign
investment company. However, there can be no assurance that the Company will not
be considered a foreign investment company for the current or any future taxable
year.

Passive Foreign Investment Company

United States income tax law contains rules governing passive
foreign investment companies (PFIC) which can have significant tax
effects on U.S. Holders of foreign corporations. These rules do not apply to
non-U.S. Holders. Section 1297 of the Code defines a PFIC as a corporation that
is not formed in the United States if, for any taxable year, either (i) 75% or more
of its gross income is passive income, which includes interest, dividends and
certain rents and royalties or (ii) the average percentage, by fair market value
(or, if the corporation is not publicly traded and either is a controlled
foreign corporation or makes an election, by adjusted tax basis), of its assets
that produce or are held for the production of passive income is 50% or more.
Each U.S. Holder of the Company is urged to consult a tax advisor with respect
to how the PFIC rules affect such U.S. Holders tax situation with respect to
ownership of the Companys shares.

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Each U.S. Holder who holds stock in a foreign corporation
during any year in which such corporation qualifies as a PFIC is subject to
United States federal income taxation under one of three alternative tax regimes
at the election of such U.S. Holder. The following is a discussion of such
alternative tax regimes applied to such U.S. Holders of the Company. In
addition, special rules apply if a foreign corporation qualifies as both a PFIC
and a controlled foreign corporation (as defined below) and a U.S. Holder
owns, actually or constructively, 10% or more of the total combined voting power
of all classes of stock entitled to vote of such foreign corporation (See more
detailed discussion at Controlled Foreign Corporation below).

A U.S. Holder who elects to treat the Company as a qualified
electing fund (QEF) will be subject, under Section 1293 of the Code, to
current federal income tax for any taxable year to which the election applies in
which the Company qualifies as a PFIC on his pro rata share of the Companys (i)
net capital gain (the excess of net long-term capital gain over net short-term
capital loss), which will be taxed as long-term capital gain, and (ii) ordinary
earnings (the excess of earnings and profits over net capital gain), which will
be taxed as ordinary income, in each case, for the shareholders taxable year in
which (or with which) the Companys taxable year ends, regardless of whether
such amounts are actually distributed. A U.S. Holders tax basis in the common
shares will be increased by any such amount that is included in income but not
distributed.

The procedure a U.S. Holder must comply with in making an
effective QEF election, and the consequences of such election, will depend on
whether the year of the election is the first year in the U.S. Holders holding
period in which the Company is a PFIC. If the U.S. Holder makes a QEF election
in such first year, i.e., a timely QEF election, then the U.S. Holder may make
the QEF election by simply filing the appropriate documents at the time the U.S.
Holder files his tax return for such first year. If, however, the Company
qualified as a PFIC in a prior year during the U.S. Holders holding period,
then, in order to avoid the Section 1291 rules discussed below, in addition to
filing documents, the U.S. Holder must elect to recognize under the rules of
Section 1291 of the Code (discussed herein), (i) any gain that he would
otherwise recognize if the U.S. Holder sold his stock on the qualification date
or (ii) if the Company is a controlled foreign corporation, the U.S. Holders
pro rata share of the Companys post-1986 earnings and profits as of the
qualification date. The qualification date is the first day of the Companys
first tax year in which the Company qualified as a QEF with respect to such U.S.
Holder. For purposes of this discussion, a U.S. Holder who makes (i) a timely
QEF election, or (ii) an untimely QEF election and either of the above-described
gain-recognition elections under Section 1291 is referred to herein as an
Electing U.S. Holder. A U.S. Holder who holds common shares at any time during
a year of the Company in which the Company is a PFIC and who is not an Electing
U.S. Holder (including a U.S. Holder who makes an untimely QEF election and
makes neither of the above-described gain-recognition elections) is referred to
herein as a Non-Electing U.S. Holder. An Electing U.S. Holder (i)generally
treats any gain realized on the disposition of his the Company common shares as
capital gain; and (ii)may either avoid interest charges resulting from PFIC
status altogether, or make an annual election, subject to certain limitations,
to defer payment of current taxes on his share of the Companys annual realized
net capital gain and ordinary earnings subject, however, to an interest charge.
If the U.S. Holder is not a corporation, any interest charge imposed under the
PFIC regime would be treated as personal interest that is not deductible.

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In order for a U.S. Holder to make (or maintain) a valid QEF
election, the Company must provide certain information regarding its net capital
gains and ordinary earnings and permit its books and records to be examined to
verify such information. The Company intends to make the necessary information
available to U.S. Holders to permit them to make (and maintain) QEF elections
with respect to the Company. The Company urges each U.S. Holder to consult a tax
advisor regarding the availability of, and procedure for making, the QEF
election.

A QEF election, once made with respect to the Company, applies
to the tax year for which it was made and to all subsequent tax years, unless
the election is invalidated or terminated, or the IRS consents to revocation of
the election. If an QEF election is made by a U.S. Holder and the Company ceases
to qualify as a PFIC in a subsequent tax year, the QEF election will remain in
effect, although not applicable, during those tax years in which the Company
does not qualify as a PFIC. Therefore, if the Company again qualifies as a PFIC
in a subsequent tax year, the QEF election will be effective and the U.S. Holder
will be subject to the rules described above for Electing U.S. Holders in such
tax year and any subsequent tax years in which the Company qualifies as a PFIC.
In addition, the QEF election remains in effect, although not applicable, with
respect to an Electing U.S. Holder even after such U.S. Holder disposes of all
of his or its direct and indirect interest in the shares of the Company.
Therefore, if such U.S. Holder reacquires an interest in the Company, that U.S.
Holder will be subject to the rules described above for Electing U.S. Holders
for each tax year in which the Company qualifies as a PFIC.

In the case of a Non-Electing U.S. Holder, special taxation
rules under Section 1291 of the Code will apply to (i) gains realized on the
disposition (or deemed to be realized by reasons of a pledge) of his Balaton
common shares and (ii) certain excess distributions, as defined in Section
1291(b), by the Company.

A Non-Electing U.S. Holder generally would be required to pro
rate all gains realized on the disposition of his Balaton common shares and all
excess distributions on his Balaton common shares over the entire holding period
for the common shares. All gains or excess distributions allocated to prior
years of the U.S. Holder (excluding any portion of the holders period prior to
the first day of the first year of the Company (i) which began after December
31, 1986, and (ii) for which the Company was a PFIC) would be taxed at the
highest tax rate for each such prior year applicable to ordinary income. The
Non-Electing U.S. Holder also would be liable for interest on the foregoing tax
liability for each such prior year calculated as if such liability had been due
with respect to each such prior year. A Non-Electing U.S. Holder that is not a
corporation must treat this interest charge as personal interest which, as
discussed above, is wholly non-deductible. The balance, if any, of the gain or
the excess distribution will be treated as ordinary income in the year of the
disposition or distribution, and no interest charge will be incurred with
respect to such balance. In certain circumstances, the sum of the tax and the
PFIC interest charge may exceed the amount of the excess distribution received,
or the amount of proceeds of disposition realized, by the U.S. Holder.

If the Company is a PFIC for any taxable year during which a
Non-Electing U.S. Holder holds the Company common shares, then the Company will
continue to be treated as a PFIC with respect to such Balaton common shares,
even if it is no longer definitionally a PFIC. A Non-Electing U.S. Holder may
terminate this deemed PFIC status by electing to recognize gain (which will be
taxed under the rules discussed above for Non-Electing U.S. Holders) as if the
Companys common shares had been sold on the last day of the last taxable year
for which it was a PFIC.

Effective for tax years of U.S. Holders beginning after
December 31, 1997, U.S. Holders who hold (actually or constructively) marketable
stock of a foreign corporation that qualifies as a PFIC may elect to mark such
stock to the market annually (a mark-to-market election). If such an
election is made, such U.S. Holder will generally not be subject to the special
taxation rules of Section 1291 discussed above.

68

---

However, if the market-to-market election is made by a
Non-Electing U.S. Holder after the beginning of the holding period for the PFIC
stock, then the Section 1291 rules will apply to certain dispositions of,
distributions on and other amounts taxable with respect to the Companys common
shares. A U.S. Holder who makes the mark-to-market election will include in
income for each taxable year for which the election is in effect an amount equal
to the excess, if any, of the fair market value of the common shares of the
Company as of the close of such tax year over such U.S. Holders adjusted basis
in such common shares. In addition, the U.S. Holder is allowed a deduction for
the lesser of (i) the excess, if any, of such U.S. Holders adjusted tax basis
in the common shares over the fair market value of such shares as of the close
of the tax year, or (ii) the excess, if any, of (A)the mark-to-market gains for
the common shares in the Company included by such U.S. Holder for prior tax
years, including any amount which would have been treated as a mark-to-market
gain for any prior tax year but for the Section 1291 rules discussed above with
respect to Non-Electing U.S. Holders, over (B)the mark-to-market losses for
shares that were allowed as deductions for prior tax years. A U.S. Holders
adjusted tax basis in the common shares of the Company will be adjusted to
reflect the amount included in or deducted from income as a result of a
mark-to-market election. A mark-to-market election applies to the taxable year
in which the election is made and to each subsequent taxable year, unless the
Companys common shares cease to be marketable, as specifically defined, or the
IRS consents to revocation of the election. Because the IRS has not established
procedures for making a mark-to-market election, U.S. Holders should consult
their tax advisor regarding the manner of making such an election. No view is
expressed regarding whether common shares of the Company are marketable for
these purposes or whether the election will be available.

Under Section 1291(f) of the Code, the IRS has issued Proposed
Treasury Regulations that, subject to certain exceptions, would treat as taxable
certain transfers of PFIC stock by Non-Electing U.S. Holders that are generally
not otherwise taxed, such as gifts, exchanges pursuant to corporate
reorganizations, and transfers at death. Generally, in such cases the basis of
Balaton common shares in the hands of the transferee and the basis of any
property received in the exchange for those common shares would be increased by
the amount of gain recognized. Under the Proposed Treasury Regulations, an
Electing U.S. Holder would not be taxed on certain transfers of PFIC stock, such
as gifts, exchanges pursuant to corporate reorganizations, and transfers at
death. The transferees basis in this case will depend on the manner of the
transfer. In the case of a transfer by an Electing U.S. Holder upon death, for
example, the transferees basis is generally equal to the fair market value of
the Electing U.S. Holders common shares as of the date of death under Section
1014 of the Code. The specific tax effect to the U.S. Holder and the transferee
may vary based on the manner in which the common shares are transferred. Each
U.S. Holder of the Company is urged to consult a tax advisor with respect to how
the PFIC rules affect his or its tax situation.

Whether or not a U.S. Holder makes a timely QEF election with
respect to common shares of the Company, certain adverse rules may apply in the
event that both the Company and any foreign corporation in which the Company
directly or indirectly holds shares is a PFIC (a lower-tier PFIC).
Pursuant to certain Proposed Treasury Regulations, a U.S. Holder would be
treated as owning his or its proportionate amount of any lower-tier PFIC shares,
and generally would be subject to the PFIC rules with respect to such
indirectly-held PFIC shares unless such U.S. Holder makes a timely QEF election
with respect thereto. The Company intends to make the necessary information
available to U.S. Holders to permit them to make (and maintain) QEF elections
with respect to each subsidiary of the Company that is a PFIC.

Under the Proposed Treasury Regulations, a U.S. Holder who does
not make a timely QEF election with respect to a lower-tier PFIC generally would
be subject to tax (and the PFIC interest charge) on (i) any excess distribution
deemed to have been received with respect to his or its lower-tier PFIC shares
and (ii) any gain deemed to arise from a so-called indirect disposition of
such shares. For this purpose, an indirect disposition of lower-tier PFIC shares would generally
include (i) a disposition by the Company (or an intermediate entity) of
lower-tier PFIC shares, and (ii) any other transaction resulting in a diminution
of the U.S. Holders proportionate ownership of the lower-tier PFIC, including
an issuance of additional common shares by the Company (or an intermediate
entity). Accordingly, each prospective U.S. Holder should be aware that he or it
could be subject to tax even if such U.S. Holder receives no distributions from
the Company and does not dispose of its common shares. The Company strongly
urges each prospective U.S. Holder to consult a tax advisor with respect to the
adverse rules applicable, under the Proposed Treasury Regulations, to U.S.
Holders of lower-tier PFIC shares.

69

---

Certain special, generally adverse, rules will apply with
respect to Balaton common shares while Balaton is a PFIC unless the U.S. Holder
makes a timely QEF election. For example under Section 1298(b)(6) of the Code, a
U.S. Holder who uses PFIC stock as security for a loan (including a margin loan)
will, except as may be provided in regulations, be treated as having made a
taxable disposition of such shares.

Controlled Foreign Corporation

If more than 50% of the total combined voting power of all classes
  of shares entitled to vote or the total value of the shares of Balaton is owned,
  actually or constructively, by citizens or residents of the United States, United
  States domestic partnerships or corporation, or estates or trusts other than
  foreign estates or trusts (as defined by the Code Section 7701(a)(31)), each
  of which own, actually or constructively, 10% or more of the total combined
  voting power of all classes of shares entitled to vote of Balaton (United
  States Shareholder), Balaton could be treated as a controlled foreign
  corporation (CFC) under Subpart F of the Code. This classification
  would effect many complex results, one of which is the inclusion of certain
  income of a CFC which is subject to current U.S. tax. The United States generally
  taxes United States Shareholders of a CFC currently on their pro rata shares
  of the Subpart F income of the CFC. Such United States Shareholders are generally
  treated as having received a current distribution out of the CFCs Subpart
  F income and are also subject to current U.S. tax on their pro rata shares of
  increases in the CFCs earnings invested in U.S. property. The foreign
  tax credit described above may reduce the U.S. tax on these amounts. In addition,
  under Section 1248 of the Code, gain from the sale or exchange of shares by
  a U.S. Holder of common shares of Balaton which is or was a United States Shareholder
  at any time during the five-year period ending on the date of the sale or exchange
  is treated as ordinary income to the extent of earnings and profits of Balaton
  attributable to the shares sold or exchanged. If a foreign corporation is both
  a PFIC and a CFC, the foreign corporation generally will not be treated as a
  PFIC with respect to United States Shareholders of the CFC. This rule generally
  will be effective for taxable years of United States Shareholders beginning
  after 1997 and for taxable years of foreign corporations ending with or within
  such taxable years of United States Shareholders. Special rules apply to United
  States Shareholders who are subject to the special taxation rules under Section1291
  discussed above with respect to a PFIC. Because of the complexity of Subpart
  F, a more detailed review of these rules is outside of the scope of this discussion.
  The Company does not believe that it currently qualifies as a CFC. However,
  there can be no assurance that Balaton will not be considered a CFC for the
  current or any future taxable year.

F.            
Dividends and Paying Agents

Not applicable.

G.             Statement
by Experts

Not applicable.

70

---

H.             Documents
on Display

Exhibits attached to this Annual Report are also available for
viewing at the offices of the Company at Suite 206, 20257 54th
Avenue, Langley, British Columbia V3A 3W2 or on request of the Company at the
same address, attention: Corporate Secretary. Copies of the Companys financial
statements and other continuous disclosure documents required under the British
Columbia Securities Act are available for viewing on the internet at
www.SEDAR.com, and copies of the Companys continuous disclosure under
the U.S. Exchange Act are available for viewing on the internet at www.sec.gov.

I.             Subsidiary
Information

Not applicable.

ITEM
11.             QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is not subject to any material market risks at this
  time.

ITEM
12.             DESCRIPTION
OF SECURITIES OTHER THAN EQUITY SECURITIES

A.            
Debt Securities

Not applicable.

B.             Warrants
and Rights

Not applicable.

C.             Other
Securities

Not applicable.

D.             American
Depositary Shares

Not applicable.

PART II

ITEM
13.             DEFAULTS,
DIVIDEND ARREARAGES AND DELINQUENCIES

None.

ITEM
14.             MATERIAL
MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

None.

ITEM
15.             CONTROLS
AND PROCEDURES

Our Chief Executive Officer and our Chief Financial Officer
have evaluated the effectiveness of our disclosure controls and procedures as of
December 31, 2010, pursuant to Rule 13a-15(b) promulgated under the Exchange Act. As part of such evaluation, management
considered the matters discussed below relating to internal control over
financial reporting. Based on this evaluation, the Companys Chief Executive
Officer and Chief Financial Officer have concluded that the Companys disclosure
controls and procedures were effective as of December 31, 2010.

71

---

Management Report on Internal Control Over Financial
Reporting

Our management is responsible for establishing and maintaining
adequate internal control over financial reporting as such term is defined in
Rule 13a-15(f) of the Exchange Act. Management (under the supervision and with
the participation of the Chief Executive Officer and the Chief Financial
Officer) assessed the effectiveness of the Companys internal control over
financial reporting as of December 31, 2010. In making this assessment,
management used the framework set forth in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based upon this assessment, our management concluded that, as of
December 31, 2010, our internal control over financial reporting was
effective.

This Annual Report does not include an attestation report of
  the Companys registered public accounting firm regarding internal control
  over financial reporting. Our management's report is not subject to attestation
  by the Companys registered public accounting firm.

Changes in Internal Control over Financial Reporting

There were no changes during the period covered by this Annual
Report in the Companys internal controls over financial reporting that have
materially affected, or are reasonably likely to materially affect the Companys
internal control over financial reporting.

ITEM
16.             [RESERVED]

ITEM
16A.           AUDIT
COMMITTEE FINANCIAL EXPERT

The Company does not have a financial expert serving on its
audit committee. The Company has had some difficulty in attracting financial
experts to serve on its board of directors, due to the Companys small size. The
Companys financial statements are not complex, and the Company does not view
the retention of a financial expert as critical to its further development.
Regardless, the Company is currently considering appointing a director to the
board and to the audit committee who would be a financial expert.

ITEM
16B.           CODE OF
ETHICS

The Company has not formally adopted a written code of ethics.
The Company is reviewing the adoption of a formal code of ethics. The Company
has guided its conduct by the provisions of the British Columbia Business
Corporations Actand the securities legislation applicable to it. Due to its
size, management had not deemed it necessary to adopt a formal written code of
ethics at this time.

72

---

ITEM
16C.           PRINCIPAL
ACCOUNTANT FEES AND SERVICES

Year ending December 31,
      2011
    Year ending December 31,
      2010Audit fees
    $30,000
    $32,161Audit-related fees
    -
    -Tax fees
    -
    -All other fees
    -
    -Total fees billed
    $30,000
    $32,161


A.             Audit
Fees

Audit fees were for professional services rendered by the
Companys auditors, for the audit of the Company's annual financial statements
and services provided in connection with statutory and regulatory filings or
engagements.

B.            
Audit-Related Fees

Audit-related fees were for assurance and related services
reasonably related to the performance of the audit or review of the annual
statements that are not reported under Audit Fees above.

C.             Tax
Fees

Tax fees were for tax compliance, tax advice and tax planning
professional services. These services consisted of: tax compliance including the
review of tax returns, and tax planning and advisory services relating to common
forms of domestic and international taxation (i.e. income tax, capital tax,
goods and services tax, payroll tax and value added tax).

D.            
All Other Fees

Fees disclosed in the table above under the item all other
fees were incurred for services other than the audit fees, audit-related fees
and tax fees described above.

ITEM
16D.           EXEMPTIONS FROM
THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not applicable.

ITEM
16E.           PURCHASES
OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

None.

ITEM
16F.           CHANGE IN
REGISTRANTS CERTIFYING ACCOUNTANT

None.

73

---

ITEM
16G.           CORPORATE
GOVERNANCE

Not applicable.

74

---

PART III

ITEM
17.             FINANCIAL
STATEMENTS

This Annual Report on Form 20-F includes the Companys audited
financial statements for the years ended December 31, 2011, 2010 and 2009,
including the following:

|1. | Report of Independent Registered Public Accounting
      Firm.                                                       
|-- | ---------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                      
|2. | Consolidated Balance Sheets as at December 31, 2011 and
      December 31, 2010.                                     
|   |                                                                                                                      
|3. | Consolidated Statements of Operations for the years ended
      December 31, 2011, 2010 and 2009.                    
|   |                                                                                                                      
|4. | Consolidated Statements of Cash Flows for the years ended
      December 31, 2011, 2010 and 2009.                    
|   |                                                                                                                      
|5. | Consolidated Statements of Stockholders Equity (Deficit)
      for the years ended December 31, 2011, 2010 and 2009.
|   |                                                                                                                      
|6. | Notes to the Consolidated Financial
  Statements.                                                                    

ITEM
18.             FINANCIAL
STATEMENTS

Not applicable.

75

---

ITEM
19.           
 EXHIBITS

The following financial statements, related schedules and
exhibits are included in this Annual Report:

EXHIBIT NUMBER
      DESCRIPTION OF EXHIBIT4.1
      Stock Exchange Agreement dated September 30,
        2002 between Balaton Power Inc. and Perial Ltd.(1)4.2
      Stock Option Plan dated for reference November
        1, 2010(3)4.3
      Settlement and Mutual Release Agreement dated
        September 23, 2009 between Continental Resources (USA) Ltd. and VISA International
        Ltd. (2)4.4
      Purchase of Options Right Agreement dated July
        27, 2010, as amended and restated March 3, 2011, between Balaton Power
        Inc. and JAL Exploration Inc. (3)4.5
      Option Agreement dated March 4, 2011 between
        Balaton Power Inc. and JAL Exploration Inc. (3)4.6
      Management Services Agreement dated effective
        October 1, 2009 between Balaton Power Inc. and Michael Rosa(2)4.7
      Management Services Agreement dated effective
        October 1, 2009 between Balaton Power Inc. and Paul Preston(2)4.8
      Amended and Restated Option Agreement dated December 21, 2011 between Balaton Power Inc. and JAL Exploration Inc.12.1
      Certification of Chief
        Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of
        2002(4)12.2
      Certification of Chief
        Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of
        2002(4)13.1
      Certification pursuant
        to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
        Act of 2002(4)


|(1) | Filed as an exhibit to the Companys Annual Report on
      Form 20-F for the fiscal year ended December 31, 2003 (SEC File No.
      000-32255) filed on July 15, 2004, and incorporated by reference
      herein.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                     
|(2) | Filed as an exhibit to the Companys Annual Report on
      Form 20-F for the fiscal year ended December 31, 2009 (SEC File No.
      000-32255) filed on June 28, 2010, and incorporated by reference
      herein.
|    |                                                                                                                                                                                                                     
|(3) | Filed as an exhibit to the  Companys Annual Report on Form 20-F
    for the fiscal year ended December 31, 2010.                                                                                                   
|    |                                                                                                                                                                                                                     
|(4) | Filed as an exhibit to this Annual Report on Form 20-F
      for the fiscal year ended December 31, 2011.                                                                                                           

76

---

- 77 -

SIGNATURES

The Company certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this Annual Report on its behalf.

BALATON POWER INC.

/s/ Paul Preston Paul PrestonChief Financial Officer

DATED: May 31, 2012

77

---





BALATON POWER INC.

Consolidated Financial Statements(Expressed in US Dollars)

December 31, 2011 and 2010





---

|Balaton Power Inc.               
|---------------------------------
|Consolidated Financial Statements
|(Expressed in US Dollars)        
|Index                            

|                                                          | Page
|--------------------------------------------------------- | ----
|                                                          |     
|Report of independent registered public accounting firm   | 1   
|                                                          |     
|Consolidated balance sheet                                | 2   
|                                                          |     
|Consolidated statements of operations                     | 3   
|                                                          |     
|Consolidated statements of cash flows                     | 4   
|                                                          |     
|Consolidated statements of stockholders' equity (deficit) | 5   
|                                                          |     
|Notes to consolidated financial statements                | 6-22

---

Page 1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Balaton
Power, Inc. 
  Langley, British Columbia, Canada

We have audited the accompanying consolidated balance sheets of
Balaton Power, Inc. as of December 31, 2011 and 2010, and the related
consolidated statements of operations, stockholders equity, and cash flows for
each of the years in the three-year period ended December 31, 2011. Balaton
Power Inc.s management is responsible for these consolidated financial
statements. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with the auditing
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial reporting. Our audit
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Companys internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements,
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial position of
Balaton Power, Inc. as of December 31, 2011 and 2010, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 2011 in conformity with accounting principles generally
accepted in the United States of America.

The accompanying consolidated financial statements have been
prepared assuming the Company will continue as a going concern. As discussed in
Note 2 to the consolidated financial statements, the Company has no revenues
from operations and has substantial accumulated deficit and working capital
deficiency that raises substantial doubt about its ability to continue as a
going concern. Managements plans in regard to these matters are also described
in Note 2. The 2011 and 2010 consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.

/s/ KWCO, PC

KWCO, PC (formerly Killman, Murrell & Company, P.C.)
Odessa, Texas 
  June 1, 2012

---

Page 2

|Balaton Power Inc.              
|--------------------------------
|Consolidated Balance Sheets     
|As at December 31, 2011 and 2010
|(Expressed in US
      Dollars) 

|                                                                                                                                                         |   | 2011       |   |   | 2010       |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ---------- | - | - | ---------- | -
|ASSETS                                                                                                                                                   |  
|                                                                                                                                                         |   |            |   |   |            |  
|Current                                                                                                                                                  |   |            |   |   |            |  
|Cash                                                                                                                                                     | $ | 52,401     |   | $ | 32,357     |  
|Accounts receivable                                                                                                                                      |   | 25,592     |   |   | 34,537     |  
|                                                                                                                                                         |   |            |   |   |            |  
|Total current assets                                                                                                                                     |   | 77,993     |   |   | 66,894     |  
|Voisey's Bay property                                                                                                                                    |   | 823,072    |   |   | 369,304    |  
|                                                                                                                                                         |   |            |   |   |            |  
|Total assets                                                                                                                                             | $ | 901,065    |   | $ | 436,198    |  
|                                                                                                                                                         |   |            |   |   |            |  
|LIABILITIES AND STOCKHOLDERS'
      EQUITY (DEFICIT)                                                                                                     |  
|                                                                                                                                                         |   |            |   |   |            |  
|Current                                                                                                                                                  |   |            |   |   |            |  
|Accounts payable and accrued liabilities                                                                                                                 | $ | 415,323    |   | $ | 417,072    |  
|Accounts payable
      - related parties                                                                                                                 |   | 9,512      |   |   | 9,512      |  
|Convertible debentures payable (Note
      12)                                                                                                           |   | 240,000    |   |   | -          |  
|Share subscriptions
      received                                                                                                                       |   | 54,000     |   |   | -          |  
|                                                                                                                                                         |   |            |   |   |            |  
|Total current liabilities                                                                                                                                |   | 718,835    |   |   | 426,584    |  
|Convertible debentures payable (Note 12)                                                                                                                 |   | -          |   |   | 240,000    |  
|                                                                                                                                                         |   |            |   |   |            |  
|Total current liabilities                                                                                                                                |   | 718,835    |   |   | 666,584    |  
|                                                                                                                                                         |   |            |   |   |            |  
|                                                                                                                                                         |   |            |   |   |            |  
|STOCKHOLDERS' EQUITY (DEFICIT)                                                                                                                           |  
|                                                                                                                                                         |   |            |   |   |            |  
|Common stock, no par value, unlimited shares
      authorized,       137,846,070 and 123,941,070 shares
      issued and outstanding,       respectively |   | 6,630,848  |   |   | 6,024,026  |  
|Additional paid in capital                                                                                                                               |   | 3,049,240  |   |   | 3,014,462  |  
|Deficit                                                                                                                                                  |   | (9,497,858 | ) |   | (9,268,874 | )
|                                                                                                                                                         |   |            |   |   |            |  
|Total stockholders' equity (deficit)                                                                                                                     |   | 182,230    |   |   | (230,386   | )
|                                                                                                                                                         |   |            |   |   |            |  
|Total liabilities and stockholders' equity
      (deficit)                                                                                               | $ | 901,065    |   | $ | 436,198    |  

Approved by the Board

|Director "Paul Preston" | Director "Michael Rosa"
|----------------------- | -----------------------
|                        |                        
|"Signed"                | "Signed                

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Page 3

|Balaton Power Inc.                                  
|----------------------------------------------------
|Consolidated Statements of Operations               
|For the Years Ended December 31, 2011, 2010 and 2009
|(Expressed in US
      Dollars)                     

|                                                           |   | 2011        |   |   | 2010        |   |   | 2009       |  
|---------------------------------------------------------- | - | ----------- | - | - | ----------- | - | - | ---------- | -
|                                                           |   |             |   |   |             |   |   |            |  
|Revenue                                                    | $ | -           |   | $ | -           |   | $ | -          |  
|                                                           |   |             |   |   |             |   |   |            |  
|Expenses                                                   |   |             |   |   |             |   |   |            |  
|Professional fees                                          |   | 101,068     |   |   | 196,497     |   |   | 124,512    |  
|Administration
      and general                           |   | 99,916      |   |   | 148,400     |   |   | 86,958     |  
|Stock based compensation                                   |   | -           |   |   | 78,257      |   |   | 34,997     |  
|Consulting fees                                            |   | 4,000       |   |   | 11,487      |   |   | 50,500     |  
|Lawsuit settlement                                         |   | -           |   |   | -           |   |   | 111,640    |  
|                                                           |   |             |   |   |             |   |   |            |  
|                                                           |   | 204,984     |   |   | 434,641     |   |   | 408,607    |  
|                                                           |   |             |   |   |             |   |   |            |  
|Other income (expense)                                     |   | (204,984    | ) |   | (434,641    | ) |   | (408,607   | )
|                                                           |   |             |   |   |             |   |   |            |  
|Interest expense                                           |   | (24,000     | ) |   | (7,276      | ) |   | -          |  
|Forgiveness of debt                                        |   | -           |   |   | -           |   |   | 182,653    |  
|                                                           |   |             |   |   |             |   |   |            |  
|Net loss                                                   | $ | (228,984    | ) | $ | (441,917    | ) | $ | (225,954   | )
|                                                           |   |             |   |   |             |   |   |            |  
|Loss per common share - Basic and
      diluted            | $ | 0.00        |   | $ | 0.00        |   | $ | 0.00       |  
|                                                           |   |             |   |   |             |   |   |            |  
|Weighted average number of common shares
      outstanding |   | 132,203,153 |   |   | 107,322,737 |   |   | 87,817,209 |  

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Page 4

|Balaton Power Inc.                                  
|----------------------------------------------------
|Consolidated Statements of Cash Flows               
|For the Years Ended December 31, 2011, 2010 and 2009
|(Expressed in US
      Dollars)                     

|                                                                      |   | 2011     |   |   | 2010     |   |   | 2009     |  
|--------------------------------------------------------------------- | - | -------- | - | - | -------- | - | - | -------- | -
|                                                                      |   |          |   |   |          |   |   |          |  
|Operating activities                                                  |   |          |   |   |          |   |   |          |  
|Net loss                                                              | $ | (228,984 | ) | $ | (441,917 | ) | $ | (225,954 | )
|Adjustment to reconcile net loss
      to net cash used in operations |   |          |   |   |          |   |   |          |  
|Stock based compensation                                              |   | -        |   |   | 76,757   |   |   | 34,997   |  
|Stock issued for finder's fees                                        |   | -        |   |   | 1,500    |   |   | -        |  
|Stock issued for consulting                                           |   | 4,000    |   |   | -        |   |   | -        |  
|Forgiveness of debt                                                   |   | -        |   |   | -        |   |   | (182,653 | )
|Changes in
      operating assets and liabilities                     |   |          |   |   |          |   |   |          |  
|Accounts receivable                                                   |   | 8,947    |   |   | (31,536  | ) |   | -        |  
|Accounts receivable - related parties                                 |   | -        |   |   | 28,906   |   |   | -        |  
|Accounts payable and accrued liabilities                              |   | (1,751   | ) |   | 60,510   |   |   | 163,104  |  
|Accounts payable - related parties                                    |   | -        |   |   | (313,506 | ) |   | (84,591  | )
|                                                                      |   |          |   |   |          |   |   |          |  
|Cash used in operating activities                                     |   | (217,788 | ) |   | (619,286 | ) |   | (295,097 | )
|                                                                      |   |          |   |   |          |   |   |          |  
|Investing activities                                                  |   |          |   |   |          |   |   |          |  
|Voisey's Bay investment                                               |   | (153,768 | ) |   | (249,304 | ) |   | -        |  
|                                                                      |   |          |   |   |          |   |   |          |  
|Cash used in investing activities                                     |   | (153,768 | ) |   | (249,304 | ) |   | -        |  
|                                                                      |   |          |   |   |          |   |   |          |  
|Financing activities                                                  |   |          |   |   |          |   |   |          |  
|Cash overdraft                                                        |   | -        |   |   | -        |   |   | (75      | )
|Convertible debentures                                                |   | -        |   |   | 240,000  |   |   | -        |  
|Common stock sold                                                     |   | 72,000   |   |   | 512,949  |   |   | 210,000  |  
|Warrants exercised                                                    |   | 265,600  |   |   | 135,000  |   |   | 98,170   |  
|Share subscriptions received                                          |   | 54,000   |   |   | -        |   |   | -        |  
|                                                                      |   |          |   |   |          |   |   |          |  
|                                                                      |   | 391,600  |   |   | 887,949  |   |   | 308,095  |  
|                                                                      |   |          |   |   |          |   |   |          |  
|Net increase                                                          |   | 20,044   |   |   | 19,359   |   |   | 12,998   |  
|Cash, beginning of year                                               |   | 32,357   |   |   | 12,998   |   |   | -        |  
|                                                                      |   |          |   |   |          |   |   |          |  
|Cash, end of year                                                     | $ | 52,401   |   | $ | 32,357   |   | $ | 12,998   |  
|                                                                      |   |          |   |   |          |   |   |          |  
|Supplemental disclosure of cash flow information:                     |   |          |   |   |          |   |   |          |  
|                                                                      |   |          |   |   |          |   |   |          |  
|Cash paid during the year for income taxes                            | $ | -        |   | $ | -        |   | $ | -        |  
|Cash paid during the year for interest                                | $ | -        |   | $ | 1,161    |   | $ | -        |  

---

Page 5

|Balaton Power Inc.                                            
|--------------------------------------------------------------
|Consolidated Statement of Stockholders' Equity
      (Deficit)
|For the Years Ended December 31, 2011, 2010 and 2009          
|(Expressed in US
      Dollars)                               

Common Shares
      
      
      Paid-in
      
      
      AccumulatedNumber
      
      
      No Par Value
      
      
      Capital
      
      
      (Deficit)
      
      
      TotalBalances as of December 31, 2008
      
      83,453,737
      
      $
      5,537,404
      
      $
      2,251,710
      
      $
      (8,601,003
      )
      $
      (811,889
      )Share units issued in private placement
      
      7,000,000
      
      
      36,288
      
      
      173,712
      
      
      
      
      
      210,000Shares issued in settlement of debt
      
      2,000,000
      
      
      8,105
      
      
      51,895
      
      
      
      
      
      60,000Shares issued in exercise of warrants
      
      3,272,333
      
      
      98,170
      
      
      
      
      
      
      
      
      98,170Stock-based compensation
      
      
      
      
      
      
      
      34,997
      
      
      
      
      
      34,997Net (loss) for the year ended     December
        31, 2009
      
      
      
      
      
      
      
      
      
      
      (225,954
      )
      
      (225,954
      )Balance as of December 31, 2009
      
      95,726,070
      
      
      5,679,967
      
      
      2,512,314
      
      
      (8,826,957
      )
      
      (634,676
      )Share units issued in private placement 
           for cash (net of finders fees)
      
      20,665,000
      
      
      88,593
      
      
      424,357
      
      
      
      
      
      512,950Shares issued per JAL agreement
      
      3,000,000
      
      
      120,000
      
      
      
      
      
      
      
      
      120,000Shares issued in exercise of warrants
      
      4,500,000
      
      
      135,000
      
      
      
      
      
      
      
      
      135,000Stock-based compensation
      
      
      
      
      
      
      
      76,757
      
      
      
      
      
      76,757Finders fees
      
      50,000
      
      
      466
      
      
      1034
      
      
      
      
      
      1,500Net (loss) for the year ended     December
        31, 2010
      
      
      
      
      
      
      
      
      
      
      (441,917
      )
      
      (441,917
      )Balance as of December 31, 2010
      
      123,941,070
      
      
      6,024,026
      
      
      3,014,462
      
      
      (9,268,874
      )
      
      (230,386
      )Shares issued per Voiseys Bay 
           Option agreement
      
      3,000,000
      
      
      300,000
      
      
      
      
      
      
      
      
      300,000Shares issued in exercise of warrants
      
      8,405,000
      
      
      265,600
      
      
      
      
      
      
      
      
      265,600Shares issued in private placements for cash
      
      2,400,000
      
      
      37,222
      
      
      34,778
      
      
      
      
      
      72,000Shares issued to a consultant
      
      100,000
      
      
      4,000
      
      
      
      
      
      
      
      
      4,000Net (loss) for the year ended    
        December 31, 2011
      
      
      
      
      
      
      
      
      
      
      (228,984
      )
      
      (228,984
      )Balance as of December 31, 2011
      
      137,846,070
      
      $
      6,630,848
      
      $
      3,049,240
      
      $
      (9,497,858
      )
      $
      182,230


---

Page 6

|Balaton Power Inc.                            
|----------------------------------------------
|Notes to Consolidated Financial Statements    
|For the Years Ended December 31, 2011 and 2010
|(Expressed in US
      Dollars)               

|1. | Incorporation and nature of operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | Balaton Power, Inc. ("Balaton" or the "Company") was
      incorporated under the British Columbia Business Corporation Act under the
      laws of the Province of British Columbia on June 25, 1986. On October 31,
      2002, Continental Resources (USA) LTD. (CRL) became a wholly-owned
      subsidiary of Balaton. CRL was originally incorporated in July of 1997
      under the laws of the State of Delaware, USA and was reincorporated in
      July of 2004 under the laws of the state Nevada, USA.                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | The Company's principal business is focused on the
      exploration of a bauxite deposit in the State of Orissa in India and the
      exploration of its Voisey Bay property in northern Labrador, Canada. The
      Company is currently seeking approval from the State of Orissa Government
      for a joint venture agreement relating to the bauxite deposit.                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|2. | Basis of presentation and going concern
      uncertainty                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | The accompanying consolidated financial statements
      include the accounts of Balaton and CRL (collectively the Company). All
      inter-company balances and transactions have been eliminated in
      consolidation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | The Company has prepared its consolidated financial
      statements in conformity with generally accepted accounting principles of
      the United States of America since 2009. Prior to 2009, the Company
      prepared its consolidated financial statements in accordance with Canadian
      generally accepted accounting principles. In the years 2008 and before
      there were no accounting differences in U.S. and Canadian GAAP. Had the
      financial statements been presented in Canadian GAAP for the year ended
      December 31, 2009, there would have been a decrease in additional paid-in
      capital and an increase in common stock of $364,538 for the exercise of
      the 3,272,333 warrants.                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | The business of mining and exploring for minerals
      involves a high degree of risk and there can be no assurance that current
      exploration programs will result in profitable mining operations. The
      recoverability of the carrying value of exploration properties and the
      Companys continued existence is dependent upon the preservation of its
      interest in the underlying properties, the discovery of economically
      recoverable reserves, the achievement of profitable operations, or the
      ability of the Company to raise alternative financing, if necessary, or
      alternatively upon the Companys ability to dispose of its interests on an
      advantageous basis. Changes in future conditions could require material
      write downs of the carrying values.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | Going concern uncertainty                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | These financial statements have been prepared on the
      basis of accounting principles applicable to a going concern, which assume
      that the Company will continue in operation for the foreseeable future and
      will be able to realize its assets and discharge its liabilities in the
      normal course of operations. These financial statements do not include
      adjustments to the amounts and classification of assets and liabilities
      that might be necessary should the Company be unable to continue in
      business.                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | Accounting estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | The preparation of financial statements in conformity
      with generally accepted accounting principles of the United States of
      America requires management to make estimates and assumptions that affect
      the reported amounts of assets and liabilities at the date of the
      financial statements and the reported amounts of revenues and expenses
      during the reporting periods. Actual results could differ from those
      estimates and assumptions.                                                                                                                                                                                                                                                                                                                                     

---

Page 7

|Balaton Power Inc.                            
|----------------------------------------------
|Notes to Consolidated Financial Statements    
|For the Years Ended December 31, 2011 and 2010
|(Expressed in US
      Dollars)               

|3. | Significant accounting policies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Cash and cash equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Cash and cash equivalents include deposits at Canadian and United States financial institutions. The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Mineral property                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Costs related to the acquisition, exploration, development and inherent costs to the management of the mineral properties are capitalized by property until the commencement of commercial production. If commercially profitable ore
reserves are developed, capitalized costs of the related property are reclassified as mining assets and amortized on the unit of production method. If it is determined that capitalized acquisition, exploration and development costs are not
recoverable over the estimated economic life of the property, or the project is abandoned, the project is written down to its net realizable value. Recovery of the amounts recorded under mineral properties is dependent upon the ability of the
Company to obtain the financing needed to complete the development, and future profitable production or proceeds from the disposal thereof. The amount shown for mineral property does not necessarily reflect future or present values.                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Stock-based compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | The Company records stock-based compensation in accordance with ASC 718 "Compensation-Stock Compensation", which requires the measurement and recognition of compensation expense based on estimated fair values for all share-based
awards made to employees and directors, including stock options. ASC 718 requires companies to estimate the fair value of share-based awards on the date of grant using an option-pricing model. The Company uses the Black-Scholes option-pricing model
as its method of determining fair value. The model is affected by the Company's stock price as well as assumptions regarding a number of subjective variables. These subjective variables include, but are not limited to the Company's expected stock
price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. The value of the portion of the award that is ultimately expected to vest is recognized as an expense in the statement of operations
over the requisite service period.                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Earnings (loss) per share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Basic net income (loss) per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding for the reporting period. Diluted net income (loss) per share
reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. For the calculation of diluted net income (loss) per share, the basic weighted average number of
shares is increased by the dilutive effect of stock options determined using the treasury stock method. However, if it is anti-dilutive, the dilutive effect of the stock options is not included in the calculation of diluted net income (loss) per
share. Stock options with exercise prices exceeding current market prices that were excluded from the computation of net income (loss) per share amounted to approximately 1,800,000 shares, 1,600,000 shares and 700,000 shares for the fiscal year
ended December 31, 2011, 2010 and 2009 respectively.

---

Page 8

|Balaton Power Inc.                            
|----------------------------------------------
|Notes to Consolidated Financial Statements    
|For the Years Ended December 31, 2011 and 2010
|(Expressed in US
      Dollars)               

|3. | Significant accounting policies(cont'd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Foreign currency translation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | The Company uses the United States Dollar as its
      functional currency. The Company accounts for foreign currency
      transactions in accordance with ASC 830, Foreign Currency Matters (ASC
      830). Monetary assets and liabilities denominated in foreign currencies
      are translated into United States Dollars at the period-end exchange
      rates. Non-monetary assets and liabilities are translated at the
      historical rates in effect when the assets were acquired or obligations
      incurred. Transactions occurring during the period are translated at rates
      in effect at the time of the transaction. The resulting foreign exchange
      gains and losses are included in operations.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Fair value of financial instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | ASC 820 Fair Value Measurements and Disclosures
      requires an entity to maximize the use of observable inputs and minimize
      the use of unobservable inputs when measuring fair value. ASC 820
      establishes a fair value hierarchy based on the level of independent,
      objective evidence surrounding the inputs used to measure fair value. A
      financial instruments categorization within the fair value hierarchy is
      based upon the lowest level of input that is significant to the fair value
      measurement. SFAS No. 157 ASC 820 prioritizes the inputs into three levels
      that may be used to measure fair value:                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Level 1 - Quoted prices in active markets for identical
      assets or liabilities;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | Level 2 - Inputs other than quoted prices included within
      Level 1 that are either directly or indirectly observable; and 
      Level 3 -
        Unobservable inputs that are supported by little or no market activity,
        therefore requiring an entity to develop its own assumptions about the
    assumptions that market participants would use in pricings.                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | The Companys financial instruments consist principally
      of cash and cash equivalents, accounts receivable, accounts payable and
      accrued liabilities. Pursuant to ASC 820, the fair value of our cash and
      cash equivalents is determined based on Level 1 inputs, which consist of
      quoted prices in active markets for identical assets. The Company believes
      that the recorded values of all of the other financial instruments
      approximate their current fair values because of their nature and
      respective maturity dates or durations.                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | The following table illustrates the classification of the
      Company's financial instruments recorded at fair value within the fair
      value hierarchy as at December 31, 2011 and
2010:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

| | 2011           |   |         |  |   |         |  |   |         |  |   |         | 
| | -------------- | - | ------- |  | - | ------- |  | - | ------- |  | - | ------- | 
| |                |   | Level 1 |  |   | Level 2 |  |   | Level 3 |  |   | Total   | 
| |                |   |         |  |   |         |  |   |         |  |   |         | 
| | Stock warrants | $ |        |  | $ | 34,778  |  | $ |        |  | $ | 34,778  | 
| | Common shares  |   | 304,000 |  |   |        |  |   |        |  |   | 304,000 | 
| |                |   |         |  |   |         |  |   |         |  |   |         | 
| | 2010           |   |         |  |   |         |  |   |         |  |   |         | 
| |                |   |         |  |   |         |  |   |         |  |   |         | 
| | Stock warrants |   |        |  |   | 425,391 |  |   |        |  |   | 425,391 | 
| | Stock options  |   |        |  |   | 76,757  |  |   |        |  |   | 76,757  | 
| | Common shares  |   | 120,466 |  |   |        |  |   |        |  |   | 120,466 | 

There were no financial instruments
categorized in Level 3 for the years ended December 31, 2011 and 2010. There
were no transfers between levels during fiscal year 2011. The Companys
financial instruments are exposed to certain financial risks, including currency
risk, credit risk, liquidity risk and interest risk.

---

Page 9

|Balaton Power Inc.                            
|----------------------------------------------
|Notes to Consolidated Financial Statements    
|For the Years Ended December 31, 2011 and 2010
|(Expressed in US
      Dollars)               

|3. | Significant accounting policies(cont'd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | Currency risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | The Company's property interests in India and Canada make it subject to foreign currency fluctuations and inflationary pressures which may adversely affect the Company's financial position, results of operations and
cash flows. The Company is affected by changes in exchange rates between the US Dollar, the Canadian Dollar and foreign functional currencies. The Company does not invest in foreign currency contracts to mitigate the risks.                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | Credit risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | The Company's cash and cash equivalents are held in Canadian and U.S. financial institutions. The Company does not have any asset-backed commercial paper in its cash and cash equivalents. The Company's accounts
receivable consists primarily of goods and services tax due from the federal government of Canada.                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | Liquidity risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company manages liquidity risk through the management of its capital structure.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | Accounts payable and accrued liabilities and advances payable are due within the current operating period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | Interest rate risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The risk that the Company will realize a loss as a result of a decline
in the fair value of the cash and cash equivalents is limited because they are generally held to maturity.                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | Concentration of credit risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | The Company places its cash and cash equivalent with high credit quality financial institution.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | Income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, "Income Taxes". The asset and liability method provides that deferred tax assets and liabilities are recognized for the
expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the
currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.

---

Page 10

|Balaton Power Inc.                            
|----------------------------------------------
|Notes to Consolidated Financial Statements    
|For the Years Ended December 31, 2011 and 2010
|(Expressed in US
      Dollars)               

|3. | Significant accounting policies(cont'd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | New Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | In December 2011, the Financial Accounting Standards Board ("FASB") issued ASU No. 2011-11, "Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities" ("ASU 2011-11"). ASU
2011-11 enhances current disclosures about financial instruments and derivative instruments that are either offset on the statement of financial position or subject to an enforceable master netting arrangement or similar agreement, irrespective of
whether they are offset on the statement of financial position. Entities are required to provide both net and gross information for these assets and liabilities in order to facilitate comparability between financial statements prepared on the basis
of U.S. GAAP and financial statements prepared on the basis of IFRS. ASU 2011-11 is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. ASU 2011-11 is not expected to have a
material impact on the Company's financial position or results of operations.                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | In September 2011, the FASB issued Accounting Standards Update No. 2011-08 ("ASU 2011-08"), which updates the guidance in ASC Topic 350, Intangibles – Goodwill & Other. The amendments in ASU 2011-08 permit an
entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than the carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill
impairment test described in ASC Topic 350. The more-likely-than-not threshold is defined as having a likelihood of more than fifty percent. If, after assessing the totality of events or circumstances, an entity determines that it is more likely
than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. The amendments in ASU 2011-08 include examples of events and circumstances that an entity should consider
in evaluating whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. However, the examples are not intended to be all-inclusive and an entity may identify other relevant events and circumstances
to consider in making the determination.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | The examples in this ASU 2011-08 supersede the previous examples under ASC Topic 350 of events and circumstances an entity should consider in determining whether it should test for impairment between annual tests, and also
supersede the examples of events and circumstances that an entity having a reporting unit with a zero or negative carrying amount should consider in determining whether to perform the second step of the impairment test. Under the amendments in ASU
2011-08, an entity is no longer permitted to carry forward its detailed calculation of a reporting unit's fair value from a prior year as previously permitted under ASC Topic 350. ASU 2011-08 is effective for annual and interim goodwill
impairment tests performed for fiscal years beginning after December 15, 2011. ASU 2011-08 is not expected to have a material impact on the Company's financial position or results of operations.                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | In May 2011, the FASB issued Accounting Standards Update 2011-04 ("ASU 2011-04"), which updated the guidance in ASC Topic 820, Fair Value Measurement. The amendments in ASU 2011-04 generally represent clarifications of
Topic 820, but also include some instances where a particular principle or requirement for measuring fair value or disclosing information about fair value measurements has changed. ASU 2011-04 results in common principles and requirements for
measuring fair value and for disclosing information about fair value measurements in accordance with U.S. GAAP and International Financial Reporting Standards. The amendments in ASU 2011-04 are to be applied prospectively. For public entities, the
amendments are effective for interim and annual periods beginning after December 15, 2011, and early application is not permitted. ASU 2011-04 is not expected to have a material impact on the Company's financial position or results of
operations.                                                                                                                                                                                                                                                                                              

---

Page 11

|Balaton Power Inc.                            
|----------------------------------------------
|Notes to Consolidated Financial Statements    
|For the Years Ended December 31, 2011 and 2010
|(Expressed in US
      Dollars)               

|3. | Significant accounting policies(cont'd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | New Accounting Pronouncements(cont'd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | In December 2010, the FASB issued ASU 2010-29, "Business Combinations (ASC Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations" ("ASU 2010-29"). The amendments in ASU
2010-29 affect any public entity as defined by ASC Topic 805 that enters into business combinations that are material on an individual or aggregate basis. The amendments in ASU 2010-29 specify that if a public entity presents comparative financial
statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The
amendments also expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma
revenue and earnings. The amendments in ASU 2010-29 are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. The
adoption of ASU 2010-29 did not have a material impact on the Company's results of operations or financial condition.                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | In December 2010, the FASB issued ASU 2010-28, "Intangibles — Goodwill and Other (ASC Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts"
("ASU 2010-28"). The amendments in ASU 2010-28 modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill
impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors
indicating that an impairment may exist. The qualitative factors are consistent with the existing guidance and examples, which require that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or
circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | For public entities, the amendments in ASU 2010-28 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. The adoption of ASU 2010-28 did not have a material impact on the
Company's results of operations or financial condition.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | In April 2010, the FASB issued ASU 2010-17, "Revenue Recognition — Milestone Method" ("ASU 2010-17"). ASU 2010-17 provides guidance on the criteria that should be met for determining whether the
milestone method of revenue recognition is appropriate. A vendor can recognize consideration that is contingent upon achievement of a milestone in its entirety as revenue in the period in which the milestone is achieved only if the milestone meets
all criteria to be considered substantive. The following criteria must be met for a milestone to be considered substantive: the consideration earned by achieving the milestone should (i) be commensurate with either the level of effort required to
achieve the milestone or the enhancement of the value of the item delivered as a result of a specific outcome resulting from the vendor's performance to achieve the milestone; (ii) be related solely to past performance; and (iii) be reasonable
relative to all deliverables and payment terms in the arrangement. No bifurcation of an individual milestone is allowed and there can be more than one milestone in an arrangement. Accordingly, an arrangement may contain both substantive and
non-substantive milestones. ASU 2010-17 is effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. The adoption of ASU 2010-17 did not have a material
effect on the Company's results of operations or financial condition.

---

Page 12

|Balaton Power Inc.                            
|----------------------------------------------
|Notes to Consolidated Financial Statements    
|For the Years Ended December 31, 2011 and 2010
|(Expressed in US
      Dollars)               

|3. | Significant accounting policies(cont'd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | New Accounting Pronouncements(cont'd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | Management does not believe there would have been a material effect on the accompanying financial statements had any other recently issued, but not yet effective, accounting standards been adopted in the current period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4. | Common stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | During 2011, the Company issued 3,000,000 common shares to JAL as part of the terms of the "Option Agreement" (Note 6). The shares were measured at their fair value at the grant date ($0.10/sh).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | During the year ended December 31, 2011, the Company entered into Flow Through Unit Subscription Agreements to issue 2,300,000 Flow Through Units for US $0.03 per unit, for an aggregate amount of $69,000. Each Flow Through
Unit consists of one flow-through common share (a "FT share") and one non-flow-through common share purchase warrant. Each purchase warrant entitling the holder to acquire one common share of the Company (a "Warrant Share")
for a period of one year at a price of $0.04 per warrant share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | On July 25, 2011 the Company entered into Subscription Agreement to issue 100,000 Units for US $0.03 per unit, for an aggregate amount of $3,000. Each Unit consists of one common share and one common share purchase
warrant. Each purchase warrant entitling the holder to acquire one common share of the Company (a "Warrant Share") for a period of one year at a price of $0.04 per warrant share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | On August 3, 2011 the company entered into a consulting agreement for consulting services related to the planning, acquisition, processing and interpretation of geophysical data from the Company's Voisey's Bay West
property. Under the terms of the agreement the Company issued to the Consultant 100,000 common shares. The shares were valued at their fair value at the grant date ($0.04/sh).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | During 2011, 8,405,000 share purchase warrants were exercised for aggregate cash proceeds of $265,600.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | On November 16, 2011, the Company announced a non-brokered private placement of up to 6 million units at the price of $0.025 per unit for an aggregate gross proceeds of $180,000 (the "Offering"). Each unit of the Offering
will consist of one common share of the Company and one common share purchase warrants of the Company. Each warrant will entitle the holder thereof to purchase one common share of the Company at an exercise price of $0.035 for a period of one
year from the closing date of the Offering. Up to 3 million of the unit shares will be designated as flow-through shares (the "Flow Through Shares") for the purposes of the Income Tax Act (Canada), at a price of $0.025 per Flow Through Share.
The Company may pay a finder's fee on funds raised from certain subscribers. The funds from the private placements will be used for exploration and development of the Voisey's Bay West Property in Labrador and working capital. The Company completed
the private placement on March 13, 2012 and issued 3,400,000 units for an aggregate cash proceeds of $85,000, of which, $54,000 was received in the year and is included in share subscription received in the trial balance.

---

Page 13

|Balaton Power Inc.                            
|----------------------------------------------
|Notes to Consolidated Financial Statements    
|For the Years Ended December 31, 2011 and 2010
|(Expressed in US
      Dollars)               

|4. | Common stock(cont'd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | During 2010, the Company completed a private placement whereby 9,000,000 units were issued at US $0.02 per unit for gross cash proceeds of $180,000. Each unit consists of one common share of the Company and two share
purchase warrants (an A warrant and a B warrant, respectively). Each A Warrant is exercisable to purchase one additional common share of the Company at an exercise price of US $0.03 until July 27, 2011 and each B Warrant is exercisable to
purchase on additional common share of the Company at an exercise price of US $0.03 until July 27, 2012. The fair value of the 9,000,000 A and B warrants has been estimated using the Black-Scholes Option Pricing Model. Refer to the warrant and
option table below for the details of the variable assumptions and the allocation to contributed surplus.                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | During 2010, the Company completed a private placement whereby 11,465,000 units were issued at US $0.03 per unit for gross cash proceeds of $343,950. Each unit consists of one common share of the Company and one share
purchase warrant (a "Warrant"). Each Warrant is exercisable to purchase one additional Common Share at an exercise price of US $0.04 until September 29, 2011. Finders' fees of US $16,000 in cash and 647,500 finder's
share purchase warrants were issued pursuant to the first tranche private placement. The finder's share purchase warrants are subject to the same terms as the Unit Warrants. In addition, compensation was issued in the form of 50,000 Units,
subject to the same terms as the first tranche private placement units. The securities contain a holding period expiring January 30, 2011. In October 2010, the Company completed a private placement whereby 200,000 units were issued at $0.03 per
unit for gross cash proceeds of $6,000. Each unit consists of one common share of the Company and one share purchase warrant. Each warrant exercisable to purchase one additional common share of the Company at an exercise price of US $0.04
until September 29, 2011.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | On July 27, 2010, the Company entered into an agreement (the "Purchase of Options Right Agreement") with JAL Exploration Inc. (JAL) pursuant to which the Company has purchased the right ( the "Right") to
enter into a subsequent option agreement (the "Option Agreement") and obtain two property options (the "Options") relating to three mineral rights licenses comprising 200 claims and approximately 5,000 hectares located on the
east coast of northern Labrador, Canada known as Voisey's Bay West Property (the "Property").                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | Under the terms of the "Right", the Company issued 3,000,000 common shares to JAL on July 27, 2010. The shares were measured at their fair value at the grant date ($0.04/sh).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | During 2010, the Company granted to its directors an aggregate of 1,100,000 options at an exercise price of US $0.05. The options expire on August 6, 2015.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | During 2010, the Company issued a total of 4,500,000 shares at $0.03 per warrant exercised for cash proceeds of $135,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | During 2009, the Company completed a private placement whereby 6,000,000 units were issued at US $0.03 per unit for gross cash proceeds of $180,000. Each unit consists of one common share of the Company and two share
purchase warrants (an A warrant and a B warrant, respectively). Each A Warrant is exercisable to purchase one additional common share of the Company at an exercise price of US $0.03 until August 20, 2010 and each B Warrant is exercisable to
purchase one additional common share of the Company at an exercise price of US $0.03 until August 20, 2011. The fair value of the 6,000,000 A and B warrants has been estimated using the Black-Scholes Option Pricing Model. Refer to the warrant
and option table below for the details of the variable assumptions and the allocation to contributed surplus.                                                                                                                                                                                                                                                                                                                                                                                     

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Page 14

|Balaton Power Inc.                            
|----------------------------------------------
|Notes to Consolidated Financial Statements    
|For the Years Ended December 31, 2011 and 2010
|(Expressed in US
      Dollars)               

|4. | Common stock(cont'd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | During 2009, the Company completed a private placement whereby 1,000,000 units were issued at US $0.03 per units for gross cash proceeds of $30,000. Each unit consists of one common share of the Company and two share
purchase warrants (an A Warrant and a B Warrant, respectively). Each A Warrant is exercisable to purchase one additional Common Share at an exercise price of US $0.03 until October 16, 2010 and each B Warrant is exercisable to purchase one
additional Common Share at an exercise price of US $0.03 until October 16, 2011. The fair value of the 1,000,000 A and B warrants has been estimated using the Black-Scholes Option Pricing Model. Refer to the warrant and option table below for
the details of the variable assumptions and the allocation to the contributed surplus.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | During 2009, the Company issued units to a creditor of the Company pursuant to a $30,000 debt settlement whereby 1,000,000 units were issued at US $0.03 per unit. Each unit consists of one common share of the Company and
two share purchase warrants (an A Warrant and a B Warrant, respectively). Each A Warrant is exercisable to purchase one additional Common Share at an exercise price of US $0.03 until July 28, 2010 and each B Warrant is exercisable to purchase
one additional Common Share at an exercise price of US $0.03 until July 28, 2011.                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | During 2009, the Company issued units to another creditor of the Company pursuant to a $30,000 debt settlement whereby 1,000,000 units were issued at US $0.03 per unit. Each unit consists of one common share of the Company
and two share purchase warrants (an A Warrant and a B Warrant), respectively). Each A Warrant is exercisable to purchase one additional Common Share at an exercise price of US $0.03 until July 23, 2010 and each B Warrant is exercisable to
purchase one additional Common Share at an exercise price of US $0.03 until July 23, 2011.                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | The fair value of the 2,000,000 A and B warrants related to the above two debt settlement issues has been estimated using the Black-Scholes Option Pricing Model.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | During 2009, the Company granted to its directors an aggregate of 500,000 options at an exercise price of US $0.065. The options expire on August 20, 2014.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | In March 2009, the Company granted an extension to May 21, 2009 and reduction of exercise price to $0.03 per share on 7,426,120 unit Warrants that were to expire on March 21, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | During 2009, the Company issued a total of 3,272,333 shares for cash proceeds of $98,170 upon exercise by warrant holders.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

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Page 15

|Balaton Power Inc.                            
|----------------------------------------------
|Notes to Consolidated Financial Statements    
|For the Years Ended December 31, 2011 and 2010
|(Expressed in US
      Dollars)               

|4. | Common stock(cont'd)                                                                                                                                    
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                         
|   | The fair value of warrants and options issued during 2010
      and 2011 using Black-Scholes options pricing model with the following
      assumptions:

Number
    
    
    
    
    
    Fair ValueClass of
    of Warrants
    Risk free
    
    
    
    Expected
    credited toWarrants/
    /Options
    interest
    Dividend
    
    
    Life
    ContributedOptions
    Issued
    rate
    Yield
    Volatility
    Strike Price
    (in Years)
    SurplusOptionsOption
    1,100,000
    1.42%
    0
    258.36%
    0.05
    5
    $
      76,757WarrantsA
    9,000,000
    1.42%
    0
    266.68%
    0.03
    1
    66,229B
    9,000,000
    1.42%
    0
    266.68%
    0.03
    2
    74,525A
    11,465,000
    1.42%
    0
    232.89%
    0.04
    1
    237,177A
    647,500
    1.42%
    0
    232.89%
    0.04
    1
    43,149A
    50,000
    1.42%
    0
    232.89%
    0.04
    1
    1,034B
    200,000
    1.38%
    0
    213.46%
    0.04
    1
    3,277A
    2,400,000
    1.47%
    0
    206.65%
    0.04
    1
    34,77832,762,500
    
    
    
    
    
    $ 460,169


WarrantsBalance, December 31, 2009
    
    18,000,000Issued in 2010
    
    30,362,500Expired
    
    (4,500,000
    )Exercised
    
    (4,500,000
    )Balance, December 31, 2010
    
    39,362,500Issued in 2011
    
    2,400,000Expired
    
    (21,957,500
    )Exercised
    
    (8,405,000
    )Balance, December 31, 2011
    
    11,400,000


At December 31, 2011, the following
warrants were outstanding:

Number
    Price
    Expiration2,400,000
    0.04
    July 25, 20129,000,000
    0.03
    July 27, 2012


---

Page 16

|Balaton Power Inc.                            
|----------------------------------------------
|Notes to Consolidated Financial Statements    
|For the Years Ended December 31, 2011 and 2010
|(Expressed in US
      Dollars)               

|5. | Stock-based compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | Under the employee stock option plan, the Company may
      grant options to its officers, directors, employees and consultants.
      Options granted under the plan have a maximum term of 5 years, with
      vesting terms and conditions determined by the board of directors when
      granted.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | During 2011, the Company entered into a investor
      relations consulting agreement. Under the agreement the Company granted to
      the consultants 200,000 stock options. The optioned shares were granted
      with an exercise price of 0.04 per share and expire on October 6, 2013.
      The optioned shares will fully vest over a period not less than 12 months
      as to 25% on the date that is three months from October 6, 2011 grant
      date, and a further 25% on each successive date that is three months from
      the date of the previous vesting. The fair value of these stock options
      was estimated at the date of grant using the Black-Scholes option -
      pricing model assuming an expected life of 2 years, a risk - free rate of
      1.09%, an expected volatility of 213%, and a 0% dividend yield. The
      estimated stock option compensation expense is $6,960 and will be
      recognized based on the vesting terms starting in 2012.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | During 2010, the Company authorized and issued 1,100,000
      stock options to purchase shares of common stock to certain officers and
      directors of the Company pursuant to the 2004 plan. The options were
      granted with an exercise price of $0.05 per share and expire on August 15,
      2015. The fair value of these stock options was estimated at the date of
      grant using the Black-Scholes option - pricing model assuming an expected
      life of 5 years, a risk - free rate of 1.42%, an expected volatility of
      258%, and a 0% dividend yield.                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | During the year end December 31, 2010, the Company
      recorded stock-based compensation expense of $76,757.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | A summary of the status of the Company's employee stock
      option plan as of December 31, 2011 and 2010 and changes during the
      periods then ended are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

| |                                    |  |           |  |   | 2011             |  |  |           |   |   | 2010             | 
| | ---------------------------------- |  | --------- |  | - | ---------------- |  |  | --------- | - | - | ---------------- | 
| |                                    |  |           |  |   | Weighted Average |  |  |           |   |   | Weighted Average | 
| |                                    |  | Number of |  |   | Exercise         |  |  | Number of |   |   | Exercise         | 
| |                                    |  | options   |  |   | Price            |  |  | options   |   |   | Price            | 
| |                                    |  |           |  |   |                  |  |  |           |   |   |                  | 
| | Outstanding, beginning of period   |  | 1,600,000 |  | $ | 0.06             |  |  | 700,000   |   | $ | 0.12             | 
| | Expired                            |  | -         |  |   | -                |  |  | (200,000  | ) |   | 0.25             | 
| | Granted                            |  | 200,000   |  |   | 0.04             |  |  | 1,100,000 |   |   | 0.05             | 
| |                                    |  |           |  |   |                  |  |  |           |   |   |                  | 
| | Outstanding, end of period         |  | 1,800,000 |  |   | 0.05             |  |  | 1,600,000 |   |   | 0.06             | 
| |                                    |  |           |  |   |                  |  |  |           |   |   |                  | 
| | Options exercisable, end of period |  | 1,800,000 |  | $ | 0.05             |  |  | 1,600,000 |   | $ | 0.06             | 

At December 31, 2011, the following
employee stock options were outstanding:

Amount
    Price
    Expiry200,000
    $ 
       0.04
    October 6, 2013500,000
    $ 0.065
    August 20, 20141,100,000
    $  
      0.05
    August 6, 20151,800,000


---

Page 17

|Balaton Power Inc.                            
|----------------------------------------------
|Notes to Consolidated Financial Statements    
|For the Years Ended December 31, 2011 and 2010
|(Expressed in US
      Dollars)               

|6. | Voisey's Bay property                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | The Company has entered into an agreement dated July 27,
      2010 (the Purchase of Options Right Agreement) with JAL Exploration Inc.
      (JAL) pursuant to which the Company has purchased the right (the
      Right) to enter into a subsequent option agreement (the Option
      Agreement) and obtain two property options (the Options) relating to
      three mineral rights licenses comprising 200 claims and approximately
      5,000 hectares located on the east coast of northern Labrador, Canada
      known as the Voiseys Bay West Property (the Property). JAL is owned by
      a minority shareholder of the Company.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | The Right                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | The Right, if exercised by the Company, allows the
      Company the opportunity to enter into the Option Agreement, with the
      Option Agreement providing the Company options to acquire up to an
      undivided 80% interest in the Property, subject to a 2% NSR. The Company
      is to pay the purchase price for the Right by:                                                                                                                                                                                                                                                                                                                   

| | 1. | Paying US$30,000 at the signing of the Purchase of
      Options Right Agreement, or by no later than July 27, 2010 (which payment
      has been made);
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2. | Issuing 3,000,000 common shares of the Company (the
      Shares) by July 30, 2010 (which shares have been issued;                                    
| | 3. | Paying US$30,000 by August 15, 2010 (which payment has
      been made);                                                                                
| | 4. | Paying US$40,000 by August 31, 2010 (which payment has
      been made);                                                                                
| | 5. | Spending no less than US$150,000 in exploration
      expenditures on the Property by December 31, 2010;                                                
| | 6. | Reimbursing JAL for its expenses incurred in the
      application for the approval of the 2010 work
program.                                           

At any time after the completion of the
purchase of the Right described above, which purchase is a firm commitment, but
by no later than March 4, 2011, the Company may elect to exercise the Right and
thereby enter into the Option Agreement with JAL for a further payment of
US$25,000. On March 3, 2011 the Company paid the $25,000 and exercised its right
to enter into the Option Agreement.

During 2011, the Company acquired from
JAL an additional license comprising of 188 mineral claims adjacent to the
Company's Voisey's Bay West Property located on the east coast of North
Labrador, Canada.

The Company's acquisition of the
additional License has increased the Company's land position under option at the
Property from 200 to 388 claims and the Property now covers an area of
approximately 9,700 hectares (23,969 acres).

On March 4, 2011 the Company reached an
agreement to amend the terms of its option agreement with JAL to acquire two
property options relating to four mineral rights licenses comprising 388 claims
and approximately 9,700 hectares (the Option Agreement).

---

Page 18

|Balaton Power Inc.                            
|----------------------------------------------
|Notes to Consolidated Financial Statements    
|For the Years Ended December 31, 2011 and 2010
|(Expressed in US
      Dollars)               

|6. | Voisey's Bay property(cont'd)                                                                                                                                                                                                                                          
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                        
|   | The Options                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                        
|   | Pursuant to the terms of the amended Option Agreement,
      the conditions for acquiring the first of the two phases of the Options
      (the First Option) have been changed such that now the Company may
      exercise the First Option by, among other
things:

| | 1. | issuing to JAL, upon entry into the Option Agreement,
      3,000,000 common shares of the Company (Shares) (this has been
      completed);                                                                                                               
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2. | paying JAL a total of US$240,000 by December 31,
    2014;                                                                                                                                                                                                   
| | 3. | issuing to JAL an additional 10,000,000 Shares by
      December 31, 2014;                                                                                                                                                                                   
| | 4. | spending no less than US$4,000,000 in exploration
      expenditures on the Property by December 31, 2014;                                                                                                                                                   
| | 5. | issuing an amount of Shares to JAL that is equal to 10%
      of the then issued and outstanding capital of the Company within five
      business days of such election or deemed election of the First Option (and
      by not later than March 31, 2015);
| | 6. | causing a pre-feasibility report pertaining to the
      Property to be prepared by June 30, 2015; and                                                                                                                                                       
| | 7. | causing the Shares to be listed on either the Canadian
      National Stock Exchange, the Toronto Stock Exchange or the TSX Venture
      Exchange by February 28, 2013.                                                                                     

Once the Company has exercised the
First Option it may then choose to proceed with phase two (the Second Option),
whereby the Company will acquire a further 25% interest (for an aggregate 80%
interest) in the Property. Under the amended Option Agreement, the Company may
exercise the Second Option by, among other things:

| | 1. | paying JAL a total of US$400,000 by July 31,
  2017;                                                                                                                                                                                           
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2. | issuing to JAL an additional 10,000,000 Shares by July
      31, 2016;                                                                                                                                                                         
| | 3. | issuing to JAL an amount of Shares equal to 10% of the
      then issued and outstanding capital of the Company within five business
      days of the notice of election of the Second Option (and by not later than
      December 31, 2017);
| | 4. | causing a feasibility report pertaining to the Property
      to be prepared by December 31, 2017; and                                                                                                                                         
| | 5. | arranging for a semi-carried financing relating to the
      further development of the Property by December 31, 2017 whereby the
      funding is advanced to JAL by March 31, 2019.                                                          

In addition, the Company and JAL agreed
in the amended Option Agreement that in the event of one or more deposits being
located or discovered on the Property, the most significant of the deposits will
be named the Alec Deposit, in memory of the late Alec Lenec whose persistence
and belief in the Property led to its continued exploration. Also, the parties
further agreed that should the Property be commercially mined, the mine itself
will be named the Alec Mine in further honour of Alec.

The Option Agreement has been amended
to account for the increase in the Companys land position, as detailed above.

Pursuant to the amended Option
Agreement, the Company is required to issue to JAL 2,000,000 common shares of
the Company as one of the conditions to allow it to exercise the first phase of
the amended Option Agreement. Subsequent to the year end, the Company issued
2,000,000 common shares to JAL.

---

Page 19

|Balaton Power Inc.                            
|----------------------------------------------
|Notes to Consolidated Financial Statements    
|For the Years Ended December 31, 2011 and 2010
|(Expressed in US
      Dollars)               

|7. | Related party transactions                                                                                                                                                                                                                                                                            
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                       
|   | Related party transactions are in the normal course of
      operations and are measured at the exchange amount, which is the amount of
      consideration established and agreed to by the related parties. Related
      party payables consist of the following at December 31, 2011 and
    2010:

| |                                                      |   | 2011  |  |   | 2010  | 
| | ---------------------------------------------------- | - | ----- |  | - | ----- | 
| |                                                      |   |       |  |   |       | 
| | Payable to an affiliate owned by a
      shareholder | $ | 9,512 |  | $ | 9,512 | 
| |                                                      |   |       |  |   |       | 
| |                                                      | $ | 9,512 |  | $ | 9,512 | 

|   | In October 2009 and as amended in July 2010 the Company
      entered into management agreements with its Chief Executive and Chief
      Financial Officers. Each agreement is for an initial one year term and
      will automatically renew annually. Management fees paid to these
      individuals aggregated $51,000 (2010 - $48,000 and $Nil in 2009) for the
      year ended December 31, 2011.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                           
|8. | Accounts payable and accrued
  liabilities                                                                                                                                                                                                                                                                                                                                                                

| |                                    |   | 2011    |  |   | 2010    | 
| | ---------------------------------- | - | ------- |  | - | ------- | 
| |                                    |   |         |  |   |         | 
| | Accounts payable - trade           | $ | 261,235 |  | $ | 322,593 | 
| | Lawsuit settlement liability       |   | 73,135  |  |   | 73,135  | 
| | Accrued interest                   |   | 30,115  |  |   | 6,115   | 
| | Accrued management fees            |   | 40,750  |  |   | 7,000   | 
| | Accured professional fees          |   | 10,088  |  |   | -       | 
| | Accrued Voisey's Bay reimbursement |   | -       |  |   | 8,229   | 
| |                                    |   |         |  |   |         | 
| |                                    | $ | 415,323 |  | $ | 417,072 | 

|9. | Contingent liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | On February 21, 2001, Ronald Brown, a former President of
      the Company, filed a lawsuit for wrongful termination against the Company.
      On September 1, 2005, the Company entered into a settlement agreement with
      Mr. Brown. The agreement entitled Mr. Brown to $100,000 (which has been
      paid) and 0.5% of any proceeds received by the Company or its subsidiaries
      from the sale, transfer or production of any raw materials from mineral
      properties currently being negotiated, located in India. The maximum
      payout that Mr. Brown can receive is $5,000,000.                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | During 2009, Continental Resources LTD. (CRL), the
      Companys wholly-owned subsidiary, and VISA International LTD (VISA)
      entered into a settlement and mutual release agreement (the Settlement
      Agreement) dated September 23, 2009. The agreement states that the
      parties agree to settle all outstanding disputes between themselves and
      reinstate the consortium agreement between CRL and VISA dated February 15,
      2005 (the Consortium Agreement), under which VISA and CRL were to
      establish a corporation in the State of Orissa, India to jointly develop
      the Gandhamardan Bauxite Project.

---

Page 20

|Balaton Power Inc.                            
|----------------------------------------------
|Notes to Consolidated Financial Statements    
|For the Years Ended December 31, 2011 and 2010
|(Expressed in US
      Dollars)               

|9.  | Contingent liabilities(cont'd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | In consideration for entering into the Settlement
      Agreement and thereby settling the claims, CRL will pay to VISA all legal
      expenses incurred by VISA, amounting to 4,700,000 INR ($99,640 US) for
      filing and contesting the proceedings filed against CRL, with 1,250,000
      INR ($26,505 US) of the settlement amount (the Initial Payment) due on
      September 23, 2009 paid in 2009 and the remaining sum of 3,450,000 INR
      ($73,135 US) of the Settlement Amount to be adjusted towards payments to
      be made by VISA to CRL under certain provision of the consortium
      agreement. The $73,135 is regarded as a liability in these consolidated
      financial statements.                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | Among other things, under the Consortium Agreement CRL
      and VISA have agreed to incorporate a SPV in the name of VISA Aluminium
      Limited, whereby CRL will retain 26% of the issued and paid up equity
      share capital with the remaining balance of 74% of the equity share
      capital held by VISA. Based on the terms of the Consortium Agreement VISA
      has agreed to pay 74% of the pre project expenditures incurred by CRL
      amounting to $1,000,000 US, therefore $740,000 US of the cost will have to
      be borne by VISA upon (1) the signing of the Joint Venture agreement with
      the Orissa Mining Corporation and (2) on receipt of approval from the
      Government of Orissa and the Government of India to the proposed
    SPV.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|10. | Income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | The Company accounts for income taxes under ASC 740,
      "Income Taxes". Deferred income tax assets and liabilities are determined
      based upon differences between financial reporting and tax bases of assets
      and liabilities and are are measured using the enacted tax rates and laws
      that will be in effect when the differences are expected to
  reverse.                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | Income tax expense differs from the amount that would
      result from applying the U.S. federal and state income tax rates to
      earnings before income taxes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | Pursuant to ASC 740 the potential benefit benefit of net
      operating loss carry forwards has not been recognized in the financial
      statements since the Company cannot be assured that it is more likely than
      not that such benefit will be utilized in future years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | The Company is subject to United States and Canadian
      federal and state income taxes at an approximate rate of 34%. The
      reconciliation of the provision for income taxes at Canadian and United
      States statutory rates compared to the Companys income tax expense as
      reported is as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                              

| |                                |   | 2011     |   |   | 2010     |   |   | 2009     |  
| | ------------------------------ | - | -------- | - | - | -------- | - | - | -------- | -
| |                                |   |          |   |   |          |   |   |          |  
| | Loss before income taxes       | $ | (228,984 | ) | $ | (441,917 | ) | $ | (225,954 | )
| | Income tax rate                |   | 34%      |   |   | 34%      |   |   | 34%      |  
| | Income tax recovery            |   | (77,800  | ) |   | (150,252 | ) |   | (76,800  | )
| | Permanent differences          |   | (1,394   | ) |   | 130,895  |   |   | (39,126  | )
| | Expired losses                 |   | 149,600  |   |   | -        |   |   | -        |  
| | Valuation allowance change     |   | (70,406  | ) |   | 19,357   |   |   | 115,926  |  
| |                                |   |          |   |   |          |   |   |          |  
| | Deferred income tax (recovery) | $ | -        |   | $ | -        |   | $ | -        |  

---

Page 21

|Balaton Power Inc.                            
|----------------------------------------------
|Notes to Consolidated Financial Statements    
|For the Years Ended December 31, 2011 and 2010
|(Expressed in US
      Dollars)               

|10. | Income taxes(cont'd)                                                                                                                                                                                                                             
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                  
|    | Future income taxes arise from temporary differences in
      the recognition of income and expenses for financial reporting and tax
      purposes. The significant components of future income tax assets and
      liabilities are as follows:

| |                                 |   | 2011       |   |   | 2010       |   |   | 2009       |  
| | ------------------------------- | - | ---------- | - | - | ---------- | - | - | ---------- | -
| |                                 |   |            |   |   |            |   |   |            |  
| | Total deferred tax assets       | $ | 1,847,300  |   | $ | 1,917,706  |   | $ | 1,898,349  |  
| | Valuation allowance             |   | (1,847,300 | ) |   | (1,917,706 | ) |   | (1,898,349 | )
| |                                 |   |            |   |   |            |   |   |            |  
| | Net deferred tax assets         | $ | -          |   | $ | -          |   | $ | -          |  
| | Deferred income tax (liability) | $ | -          |   | $ | -          |   | $ | -          |  

|    | The Company has recognized a valuation allowance for the
      deferred tax assets for which it is more likely than not that the
      realization will not occur. The valuation allowance is reviewed
      periodically. When circumstance change and this causes a change in
      management's judgment about the realizability of deferred tax assets, the
      impact of the change on the valuation allowance is generally reflected in
      current income.                                                                                                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | The net operating loss carryforwards for income tax
      purposes are approximately $5,433,000 and will begin to expire in
    2012.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | Pursuant to Section 382 of the Internal Revenue Code, use
      of the Companys net operating loss carryforwards may be limited if the
      Company experiences a cumulative change in ownership of greater than 50%
      in a moving three year period. Ownership changes could impact the
      Companys ability to utilize net operating losses and credit carryforwards
      remaining at the ownership change date. The limitation will be determined
      by the fair market value of common stock outstanding prior to the
      ownership change, multiplied by the applicable federal rate. The Canadian
      non-capital loss carryforwards may also be limited by a change in Company
      ownership.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|11. | Convertible debenture                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | The carrying value of the convertible debentures payable
      is as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

| | Balance, December 31, 2011 | $ | 240,000 | 
| | -------------------------- | - | ------- | 
| | Interest Accrued           |   | 30,115  | 
| |                            |   |         | 
| | Balance, December 31, 2011 | $ | 270,115 | 

The Company issued convertible
debentures having a total face value of US $240,000 and maturing September 29,
2012. The debentures bear simple interest of 10%, payable upon the earlier of
maturity or conversion, and are convertible into units of the Company at a
deemed price of $0.03 per unit, upon prior notice to the Company. The debt
component of the convertible debenture is represented by managements estimate
of fair value based on a coupon rate of 10%, an interest rate of comparable debt
of 30% and a face value of US $240,000.

---

Page 22

|Balaton Power Inc.                            
|----------------------------------------------
|Notes to Consolidated Financial Statements    
|For the Years Ended December 31, 2011 and 2010
|(Expressed in US
      Dollars)               

|12. | Supplemental disclosure with respect to cash flows                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | During the year ended December 31, 2011, the Company issued 3,000,000 common shares to JAL as part of the terms of the "Option Agreement". The shares were measured at their fair value at the grant date
($0.10/sh).                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | On August 3, 2011 the company entered into a consulting agreement for consulting services related to the planning, acquisition, processing and interpretation of geophysical data from the Company's Voisey's Bay West
property. Under the terms of the agreement the Company issued to the Consultant 100,000 common shares. The shares were valued at their fair value at the grant date ($0.04/sh).                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | During the year ended December 31, 2010, the Company issued 647,500 finder's share purchase warrants with a fair value of $43,149 and 50,000 Units with a fair value of $1,500 as compensation pursuant to the first tranche
private placement dated September 29, 2010. In addition, the Company issued 3,000,000 common shares with a fair value of $120,000 as mineral property acquisition costs.                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|13. | Subsequent events                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | Subsequent to the year end, the Company issued 2,000,000 to JAL in accordance with the amended option agreement (Note 6).                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | Subsequent to the year end the Company completed private placement (Note 4) and issued 3,400,000 units for an aggregate cash proceeds of $85,000, of which, $54,000 was received in 2011 and is included in share subscription
received in the trial balance. Each unit of the Offering will consist of one flow-through common share of the Company and one common share purchase warrants of the Company. Each warrant will entitle the holder thereof to purchase one common share of
the Company at an exercise price of $0.035 and expire on September 13, 2013.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | Subsequent to the year end 500,000 purchase warrants of the Company were exercised for cash proceeds of $15,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                     

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