UNITED STATESSECURITIES AND EXCHANGE COMMISSION Washington, D.C.
20549

FORM 10-QSB

(Mark One)

|   |                                                  |                                                                        
|-- | ------------------------------------------------ | -----------------------------------------------------------------------
|   | [X]                                              | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
      SECURITIES     
|   |                                                  | EXCHANGE ACT
      OF 1934                                             
|   |                                                  | For the quarterly period ended March 31, 2006                          
|   |                                                 
|OR
|   |                                                 
|   | [
      ]                                        | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
      ACT  
|   |                                                  | For the transition period from _____________ to
      ______________   
|   |                                                 
|   |                                                  | Commission file number
      000-51241                                 
|   |                                                 
|   |                                                  | RED SKY
      RESOURCES INC.                                           
|   |                                                  | (Exact name of small business issuer
      as specified in its charter)
|   |                                                 
|   | Nevada                                           | 98-0443283                                                             
|   | (State or other jurisdiction of incorporation or | (IRS Employer
      Identification No.)                                
|   | organization)                                    |                                                                        

509-3495 Cambie
StreetVancouver, British Columbia, V5Z
4R3, Canada(Address of principal
executive offices)

(778) 863-2259(Issuers telephone number)

APPLICABLE ONLY TO CORPORATE
ISSUERS

Check whether the issuer (1) filed all
reports required to be filed by Section 13 or 15(d) of the Exchange Act during
the past 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No[ ]

State the number of shares outstanding of
each of the issuers classes of equity stock, as of the latest practicable date:
100,342,500 shares of common stock issued and outstanding as of May 8,
2006.

Transitional Small Business Disclosure
Format (Check one): Yes [ ] No [X]

Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ X ] No [ ]

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- 2 -

PART I  FINANCIAL
INFORMATION

Item 1.Financial StatementsThese financial statements have been prepared by Red Sky
Resources Inc. (the Company) without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC). Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted in accordance with such SEC rules and regulations. In the opinion of
management, the accompanying statements contain all adjustments necessary to
present fairly the financial position of the Company as of March 31, 2006, and
its results of operations, stockholders equity, and its cash flows for the
three month period ended March 31, 2006 and 2005. The results for these interim
periods are not necessarily indicative of the results for the entire year. The
accompanying financial statements should be read in conjunction with the
financial statements and the notes thereto filed as a part of the Companys Form
10-KSB.

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- 3 -

|RED SKY
      RESOURCES INC.                                                                       |   |          
|-------------------------------------------------------------------------------------------------- | - | ---------
|(An exploration stage
      enterprise)                                                            |   |          
|Balance Sheet                                                                                      |   |          
|(Unaudited)                                                                                        |   |          
|(Expressed in U.S. Dollars)                                                                        |   |          
|                                                                                                   |   | March 31,
|                                                                                                   |   | 2006     
|ASSETS                                                                                             |   |          
|                                                                                                   |   |          
|Current
      assets                                                                               |   |          
|Cash and cash equivalents                                                                          | $ | 31,517   
|                                                                                                   |   |          
|Total current assets                                                                               |   | 31,517   
|                                                                                                   |   |          
|Mineral Property (Note 3)                                                                          |   | -        
|                                                                                                   |   |          
|Total assets                                                                                       | $ | 31,517   
|                                                                                                  
|LIABILITIES                                                                                        |   |          
|                                                                                                   |   |          
|Current
      liabilities                                                                          |   |          
|Accounts payable and accrued expenses                                                              | $ | 17,501   
|                                                                                                   |   |          
|Total current liabilities                                                                          |   | 17,501   
|                                                                                                   |   |          
|STOCKHOLDERS
      EQUITY                                                                         |   |          
|Share
      capital                                                                                |   |          
|Preferred stock, $0.0001
      par value, 5,000,000 shares authorized, none issued and outstanding |   | -        
|Common stock, $0.0001 par
      value, 4,500,000,000 shares authorized, 100,342,500                |   |          
|issued and
      outstanding                                                                       |   | 10,034   
|                                                                                                   |   |          
|Additional
      paid-in capital                                                                   |   | 169,591  
|Deficit accumulated during the exploration
      stage                                             |   | (165,609)
|                                                                                                   |   |          
|Total stockholders equity                                                                         |   | 14,016   
|                                                                                                   |   |          
|Total liabilities and stockholders
      equity                                                   | $ | 31,517   

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

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- 4 -

|RED SKY
      RESOURCES INC.                                             |                       |                    |             |         |             |            |           |                              |               |         |         
|------------------------------------------------------------------------ | --------------------- | ------------------ | ----------- | ------- | ----------- | ---------- | --------- | ---------------------------- | ------------- | ------- | --------
|(An exploration stage
      enterprise)                                  |                       |                    |             |         |             |            |           |                              |               |         |         
|For the period from
      inception (October 14, 2001) to March 31, 2006 |                       |                    |             |         |             |            |           |                             
|Statements of
      Stockholders Equity                                 |                       |                    |             |         |             |            |           |                              |               |         |         
|(Unaudited)                                                              |                       |                    |             |         |             |            |           |                              |               |         |         
|                                                                         |                       |                    |             |         |             |            |           |                              |               |         |         
|(Expressed in U.S.
      Dollars)                                        |                       |                    |             |         |             |            |           |                              |               |         |         
|                                                                         |                       |                    |             |         |             |            |           |                              | Deficit       |         |         
|                                                                         |                       |                    |             |         |             |            |           | accumulated                  |               | Total  
|                                                                         |                       |                    |             |         |             | Additional |           | during                       | stockholders
|                                                                         | Preferred
      Stock | Common
      Stock |             | paid-in | exploration |            | (deficit)
|                                                                         | Shares                | Amount             | Shares      |         | Amount      |            | capital   |                              | stage         |         | equity  
|Stocks
      issued at $0.000002 per share in                            |                       |                    |             |         |             |            |           |                              |               |         |         
|October 2001                                                             | -                     | -                  | 67,500,000  | $       | 6,750       | $          | (6,600)   | $                            | -             | $       | 150     
|Net loss for the period                                                  | -                     | -                  | -           |         | -           |            | -         |                              | (542)         |         | (542)   
|Balance,December 31, 2001                                                | -                     | -                  | 67,500,000  |         | 6,750       |            | (6,600)   |                              | (542)         |         | (392)   
|Stocks
      issued at $0.003 per share in                               |                       |                    |             |         |             |            |           |                              |               |         |         
|February 2002                                                            | -                     | -                  | 8,842,500   |         | 884         |            | 28,591    |                              | -             |         | 29,475  
|Net loss for the period                                                  | -                     | -                  | -           |         | -           |            | -         |                              | (9,283)       |         | (9,283) 
|Balance,December 31, 2002                                                | -                     | -                  | 76,342,500  |         | 7,634       |            | 21,991    |                              | (9,825)       |         | 19,800  
|Net loss for the period                                                  | -                     | -                  | -           |         | -           |            | -         |                              | (24,450)      |         | (24,450)
|Balance,December 31, 2003                                                | -                     | -                  | 76,342,500  |         | 7,634       |            | 21,991    |                              | (34,275)      |         | (4,650) 
|Stocks issued
      at $0.0044 per share in                              |                       |                    |             |         |             |            |           |                              |               |         |         
|December 2004                                                            | -                     | -                  | 22,500,000  |         | 2,250       |            | 97,750    |                              | -             |         | 100,000 
|Net loss for the period                                                  | -                     | -                  | -           |         | -           |            | -         |                              | (16,241)      |         | (16,241)
|Balance,December 31, 2004                                                | -                     | -                  | 98,842,500  |         | 9,884       |            | 119,741   |                              | (50,516)      |         | 79,109  
|Net loss for the period                                                  | -                     | -                  | -           |         | -           |            | -         |                              | (87,565)      |         | (87,565)
|Balance,December 31, 2005                                                | -                     | -                  | 98,842,500  |         | 9,884       |            | 119,741   | (138,081)                    |               | (8,456)
|Stocks
      issued at $0.03 per share in                                |                       |                    |             |         |             |            |           |                              |               |         |         
|March 2006                                                               | -                     | -                  | 1,500,000   |         | 150         |            | 49,850    |                              | -             |         | 50,000  
|Net loss for the period                                                  | -                     | -                  | -           |         | -           |            | -         |                              | (27,528)      |         | (27,528)
|Balance,March 31,
      2006                                             | -                     | -                  | 100,342,500 | $       | 10,034      | $          | 169,591   | $           
      (165,609) | $             | 14,016 
|                                                                         |                       |                    |             |        

****

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



- 5 -

|RED SKY
      RESOURCES INC.              |                  |              |              |            |       |         
|----------------------------------------- | ---------------- | ------------ | ------------ | ---------- | ----- | --------
|(An exploration stage
      enterprise)   |                  |              |              |            |       |         
|Statements of
      Operations            |                  |              |              |            |       |         
|(Unaudited)                               |                  |              |              |            |       |         
|                                         
|(Expressed in U.S. Dollars)               |                  |              |              |            |       |         
|                                          | Cumulative       |              |              |            |      
|                                          | October 14,      | Three Months | Three Months
|                                          | 2001 (inception) |              | Ended        |            | Ended
|                                          | to March 31,     | March 31,    | March 31,   
|                                          |                  | 2006         |              | 2006       |       | 2005    
|                                         
|General and
      administrative expenses |                  |              |              |            |       |         
|Bank charges                              | $                | 989          | $            | 57         | $     | 147     
|Consulting
      fees                     |                  | 4,068        |              | -          |       | -       
|Management
      fees                     |                  | 16,050       |              | -          |       | -       
|Mineral property
      expenditures       |                  | 52,225       |              | -          |       | 1,737   
|Office and
      miscellaneous            |                  | 5,447        |              | 136        |       | 334     
|Professional
      fees                   |                  | 76,966       |              | 26,983     |       | 22,417  
|Transfer agent and filing fees            |                  | 9,864        |              | 352        |       | 3,456   
|                                         
|Net loss for the period                   | $                | (165,609)    | $            | (27,528)   | $     | (28,091)
|                                         
|Basic and
      diluted loss per share    |                  |              |              |            |       |         
|Net loss per share                        |                  |              | $            | (0.00)     | $     | (0.00)  
|                                         
|Weighted
      average number of          |                  |              |              |            |       |         
|common shares
      outstanding           |                  |              | 98,992,500   | 98,842,500

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

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- 6 -

|RED SKY
      RESOURCES INC.                           |                |           |           |              |              |          |       
|------------------------------------------------------ | -------------- | --------- | --------- | ------------ | ------------ | -------- | ------
|(An exploration stage
      enterprise)                |                |           |           |              |              |          |       
|Statements of Cash
      Flows                         |                |           |           |              |              |          |       
|(Unaudited)                                            |                |           |           |              |              |          |       
|                                                      
|(Expressed in U.S.
      Dollars)                      |                |           |           |              |              |          |       
|                                                      
|                                                       | Cumulative     |           |           |              |             
|                                                       | October 14,    |           |           |              |             
|                                                       |                |           | 2001      | Three Months | Three Months
|                                                       | (inception) to |           | Ended     |              | Ended       
|                                                       | March 31,      | March 31, | March 31,
|                                                       |                |           | 2006      |              | 2006         |          | 2005  
|                                                      
|Cash flows
      used in operating activities          |                |           |           |              |              |          |       
|Net loss for the
      period                          | $              | (165,609) | $         | (27,528)     | $            | (28,091)
|Changes in non-cash
      working capital items:       |                |           |           |              |              |          |       
|- accounts payable and accrued
      expenses          |                | 17,501    |           | 11,383       |              | 17,584  
|                                                      
|Net cash used in operating
      activities            |                | (148,108) |           | (16,145)     |              | (10,507)
|                                                      
|Cash flows
      from financing activities             |                |           |           |              |              |          |       
|Proceeds from issuance of
      common stock           |                | 179,625   |           | 50,000       |              | -       
|Advances from a related
      party                    |                |           | -         |              | 9,000        |          | -     
|Repayment of advances to a related
      party         |                |           | -         |              | (11,500)     |          | -     
|                                                      
|Net cash from financing
      activities               |                | 179,625   |           | 47,500       |              | -       
|                                                      
|Increase
      (decrease) in cash and cash equivalents |                | 31,517    |           | 31,355       |              | (10,507)
|                                                      
|Cash and cash equivalents,beginning
      of period    |                |           | -         |              | 162          |          | 81,934
|                                                      
|Cash and cash
      equivalents, end of period         | $              | 31,517    | $         | 31,517       | $            | 71,427  
|                                                      
|Supplemental
      cash flow information:              |                |           |           |              |              |          |       
|Interest expenses
      paid                           | $              | -         | $         | -            | $            | -       
|Income taxes paid                                      |                |           | -         |              | -            |          | -     
|                                                       |                |          

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



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- 7 -

RED SKY RESOURCES
INC.(An exploration stage
enterprise)Notes to Financial
StatementsMarch 31, 2006(Unaudited)(Expressed in
U.S. Dollars)

|1. | Basis of
    Presentation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   | The accompanying unaudited interim
      balance sheets, statements of operations, statements of shareholders
      equity and cash flows reflected all adjustments, consisting of normal
      recurring adjustments and other adjustments, that are, in the opinion of
      management, necessary for a fair presentation of the financial position of
      the Company, at March 31, 2006 and the results of operations,
      shareholders equity and cash flows for the interim period ended March 31,
      2006. The accompanying unaudited financial statements have been prepared
      in accordance with the instruction from Form 10-QSB pursuant to the rules
      and regulations of the Securities and Exchange Commission and, therefore,
      do not include all information and notes normally provided in audited
      financial statements and should be read in conjunction with the Companys
      financial statements for the fiscal year ended December 31, 2005. The
      result of operations for the interim periods presented is not necessarily
      indicative of the results to be expected for the full year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  
|   | The accompanying financial
      statements have been prepared in conformity with generally accepted
      accounting principles in the United States of America, which contemplates
      continuation of the Company as a going concern. However, the Company has
      sustained substantial operating losses in recent years resulting in a
      substantial accumulated deficit. As of March 31, 2006, the Company
      had a total of $31,517 in cash; however this amount is
      insufficient to sustain operations over the course of
      the next twelve months. These factors raise substantial doubt about the
      Companys ability to continue as a going concern. The ability of the
      Company to meet its commitments as they become payable is dependent on the
      ability of the Company to obtain necessary financing or achieving a
      profitable level of operations. To meet these objectives, the Company
      plans to seek additional equity and expects to raise funds through private
      or public equity investment in order to support existing operations and
      expand the range and scope of its business. There is no assurance that
      such additional funds will be available for the Company on acceptable
      terms, if at all. Management believes that actions presently taken to
      revise the Companys operating and financial requirements provide the
      opportunity for the Company to continue as a going concern. The Companys
      ability to achieve these objectives cannot be determined at this time.
      There are no assurances that the Company will be successful in achieving
      these goals.
|  
|   | a) Organization                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  

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- 8 -

RED SKY RESOURCES
INC.(An exploration stage
enterprise)Notes to Financial
StatementsMarch 31, 2006(Unaudited)(Expressed in
U.S. Dollars)

|   | underlying mineral claims, the
      ability of the Company to obtain necessary financing to complete the
      exploration and upon future profitable production.                                                                                                                                                                                                                                                                                                                              
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|b) | Going Concern                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   | These financial statements have been prepared in
      accordance with generally accepted accounting principles applicable to a
      going concern, which contemplates the realization of assets and the
      satisfaction of liabilities and commitments in the normal course of
      business. The Company has not generated any revenue and requires
      additional funds to maintain its operations. Managements plans in this
      regard are to raise equity financing as required.
|  
|   | These conditions raise substantial doubt about the
      Companys ability to continue as a going concern. These financial
      statements do not include any adjustments that might result from this
      uncertainty.                                                                                                                                                                                                                                                                       
|  
|   | The Company has not generated any material operating
      revenues to date.                                                                                                                                                                                                                                                                                                                                                                                                                    
|  

|2. | Significant
      Accounting Policies
|-- | -------------------------------------
|  
|   | a)                                   
|  
|   |                                      
|  
|   | b)                                   
|  
|   |                                      
|  
|   | c)                                   
|  
|   |                                      
|  
|   | d)                                   
|  
|   |                                      
|  
|   | e)                                   
|  
|   |                                      
|  
|   |                                      
|  

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- 9 -

RED SKY RESOURCES
INC.(An exploration stage
enterprise)Notes to Financial
StatementsMarch 31, 2006(Unaudited)(Expressed in
U.S. Dollars)



|   | resulting foreign exchange gains and losses
      are included in operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|f) | Fair Value of Financial Instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|   | The Companys financial instruments consist of cash and
      cash equivalents, accounts payable and accrued expenses. The carrying
      amounts of these financial instruments approximate fair value due to the
      short-term nature of these items. Management is of the opinion that the
      Company is not exposed to significant interest, currency or credit risks
      arising from these financial instruments.                                                                                                                                                                                                                                                                         
|  
|g) | Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   | The Company has adopted Statement of Financial
      Accounting Standards (SFAS) No. 109, Accounting for Income Taxes, which
      requires the Company to recognize deferred tax liabilities and assets for
      the expected future tax consequences of events that have been recognized
      in the Companys financial statements or tax returns using the liability
      method. Under this method, deferred tax liabilities and assets are
      determined based on the temporary differences between the financial
      statements and tax bases of assets and liabilities using enacted tax rates
      in effect in the periods in which the differences are expected to
      reverse.
|  
|h) | Comprehensive Income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  
|   | The Company adopted SFAS No. 130, Reporting
      Comprehensive Income, which requires inclusion of foreign currency
      translation adjustments, reported separately in its Statement of
      Stockholders Equity, in other comprehensive income. The Company had no
      other comprehensive income for the periods presented.                                                                                                                                                                                                                                                                                                                                                                 
|  
|i) | Loss Per Share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|   | Loss per share is computed using the weighted average
      number of shares outstanding during the periods. The Company has adopted
      SFAS No. 128, Earnings Per Share. Diluted loss per share is equivalent
      to basic loss per share as there are no dilutive securities
      outstanding.                                                                                                                                                                                                                                                                                                                                                                                                
|  
|   | On February 3, 2006, the Company approved a forward
      stock split of its common stock on a 30-new-for-1-old basis to
      stockholders of record on February 17, 2006. The par value of common stock
      was not changed.                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  
|   | The accompanying financial statements are presented on a
      post-split basis. The loss per share for the periods ended March 31, 2006
      and 2005, have been adjusted accordingly.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|j) | Stock-based Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|   | Prior to January 1, 2006, the Company accounted for
      stock-based awards under the intrinsic value method, which followed the
      recognition and measurement principles of APB Opinion No. 25, Accounting
      for Stock Issued to Employees, and related Interpretations. The intrinsic
      value method of accounting resulted in compensation expense for stock
      options to the extent that the exercise prices were set below the fair
      market price of the Companys stock at the date of grant.                                                                                                                                                                             
|  

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- 10 -

RED SKY RESOURCES
INC.(An exploration stage
enterprise)Notes to Financial
StatementsMarch 31, 2006(Unaudited)(Expressed in
U.S. Dollars)



|   | As of January 1, 2006, the Company
      adopted SFAS No. 123(R) using the modified prospective method, which
      requires measurement of compensation cost for all stock-based awards at
      fair value on the date of grant and recognition of compensation over the
      service period for awards expected to vest. The fair value of stock
      options is determined using the Black-Scholes valuation model, which is
      consistent with the Companys valuation techniques previously utilized for
      options in footnote disclosures required under SFAS No. 123, Accounting
      for Stock Based Compensation, as amended by SFAS No. 148, Accounting for
      Stock Based Compensation Transition and Disclosure.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Since the Company did not issue stock
      options to employees during the three months ended March 31, 2006 or 2005,
      there is no effect on net loss or earnings per share had the Company
      applied the fair value recognition provisions of SFAS No. 123(R) to
      stock-based employee compensation. When the Company issues shares of
      common stock to employees and others, the shares of common stock are
      valued based on the market price at the date the shares of common stock
      are approved for issuance.                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|k) | New Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   | There have been no new pronouncements issued that would
      have a material impact to the Companys financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  

|3. | Mineral
  Property                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   | During the year ended December
      31, 2004, the Company staked twenty-five mining claims located in the
      Iliamna Recording District of Southwestern Alaska. As the claims do not
      contain any known reserves, the exploration costs were expensed during the
      periods. The mineral claims are renewable on the first day of every
      September conditional on paying the annual filing fee of $2,500 to the
      State of Alaska by November 30, 2006 and meeting mineral exploration
      expenditure of $10,000 or by paying cash in lieu of mineral exploration
      expenditures.
|  
|4. | Related Party
      Transactions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   | During the quarter ended March
      31, 2006, the Company received $9,000 in advances from its sole officer
      and director of the Company. The $9,000, together with $2,500 advanced
      during the year ended December 31, 2005, were repaid in full during the
      current quarter.                                                                                                                                                                                                                                                                                                               
|  
|5. | Subsequent
  Events                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|   | On April 3, 2006, the Company
      approved a forward stock split of its common stock on a 1.5-new-for-1-old
      basis to stockholders of record on April 17, 2006. All share and per share
      amounts in these financial statements have been adjusted to give
      retroactive effect to the forward stock split. The par value of common
      stock was not changed.                                                                                                                                                                                                                              
|  
|   | Subsequent to the quarter ended
      March 31, 2006, the Company entered into a non-binding letter of intent to
      acquire all of the issued and outstanding shares of 1223121 Alberta Ltd.
      (Albertaco), a privately-owned Alberta corporation engaged in the oil
      and gas business. Albertacos principal interest is a right to farm-in to
      certain petroleum and natural gas exploration properties in the Province
      of Saskatchewan pursuant to a farm-out agreement.                                                                                                         
|  

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- 11 -

RED SKY RESOURCES
INC.(An exploration stage
enterprise)Notes to Financial
StatementsMarch 31, 2006(Unaudited)(Expressed in
U.S. Dollars)

The Company proposes to purchase all of
the issued shares of Albertaco by way of a share exchange for 32,000,000 common
shares of the Company, which will be issued to Albertaco shareholders on a
pro-rata basis in proportion to their Albertaco shareholdings.

In connection with the proposed
acquisition, the Company completed a private placement of US$2,000,000 through
the issuance of units at a price of US$1.00 per unit on May 11, 2006. Each unit
consisted of one common share of the Company and two common share purchase
warrants, with one warrant exercisable into one common share at the price of
US$1.25 for a period of 2 years, and the second warrant exercisable into one
common share at the price of US$1.50 for a period of 2 years. The proceeds of
the private placement will be used to fund the Companys exploration rights and
obligations under the farm-out agreement and for general working
capital.

The letter of intent is non-binding. The
proposed transactions are subject to the completion of a mutual due-diligence
review, the execution of formal agreements in form and substance satisfactory to
both parties, and satisfaction of conditions in keeping with commercial
transactions of a like nature. The proposed acquisition will also be subject to
the approval of Albertaco shareholders.

---

- 12 -

Item 2. Managements Discussion and
Analysis or Plan of Operation.

FORWARD LOOKING
STATEMENTS

This Quarterly Report may contain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 that involve risks and uncertainties. In particular such
forward-looking statements may be found in this section. The following
discussion and analysis of the financial condition and results of operations
should be read in conjunction with the financial statements and related notes
included elsewhere in this Quarterly Report. Words or phrases such as hope,
expect, intend, plan or similar expressions are generally intended to
identify forward-looking statements. Those statements involve risks and
uncertainties that could cause actual results to differ materially from the
results discussed herein. The principal risks and uncertainties that may affect
our actual performance and results of operations include the following: general
economic conditions; exploration successes, the acquisition of oil and gas
assets, continued availability of capital and financing; adverse weather;
governmental regulations; changes in governmental and public policy; changes in
economic conditions specific to our business; competition; availability of
equipment and qualified personnel and unexpected operational difficulties. Other
risks and uncertainties may also affect the outcome of our actual performance
and results of operations. You are cautioned not to place undue reliance on the
forward-looking statements made in this Managements Discussion and Analysis or
Plan of Operations.

Overview

We are in the business of mineral
exploration. We acquired twenty-five mineral claims in southwestern Alaska via
staking which we believe are prospective for gold and copper. Our mineral claims
consist of twenty-five quarter sections which cover approximately 4,000 acres or
6.25 square miles. The State of Alaska requires an annual rental fee of $2,500
and a minimum exploration work expenditure of $10,000 on the 1stof September of each
year to keep the claims in good standing. The $2,500 payment and proof of work
must be paid and filed with the State of Alaska within 90 days of the
1stof
September. We extended the mineral claims to September 1, 2006 by paying the
necessary filing fee of $2,500 and filing documentation to support a minimum of
$10,000 was spent on the claims.

Our objective has been to conduct mineral
exploration activities on the property in order to assess whether it possesses
commercially exploitable reserves of minerals. To date, we have not discovered
an economically viable mineral deposit on the mineral claims, and there is no
assurance that we will ever discover one. A great deal of further exploration
will be required before a final evaluation as to the economic and legal
feasibility for our future development is determined.

Phase One Exploration of Mineral
Claims

In late May 2005, we conducted the first
phase of exploration on the mineral claims consisting of an induced polarization
survey and a ground magnetic survey. The cost of the program was approximately
$37,800 which exceeded our initial estimate by $7,800. The increase was a result
of higher than expected costs for mobilization, demobilization and labor. The
work program commenced in mid May 2005 and lasted approximately ten days.

We commissioned a report on the results of
phase one from a consulting geophysics firm. The report stated the induced
polarization survey encountered various ground conditions during the survey
resulting in varying degrees of quality data. There were features of interest on
several of the induced polarization lines surveyed but no conclusive evidence
can be obtained from the acquired chargeability readings. The combined effects
of poor weather conditions, a possible frost layer and the existence of a highly
resistive overburden resulted in very low voltage potential.

Plan of Operations

Unless our board of directors decides to
pursue other business to improve our shareholders value, our plan of operations
for the next twelve months is to continue exploration of our mineral claims by
completing the following objectives within the time periods specified. Our
ability to complete these

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- 13 -

objectives is contingent upon obtaining
the funding necessary, which we plan on doing through issuance of our equity
securities:

1. We plan to repeat certain portions of
the induced polarization survey conducted in phase one in order to gather data
before making a decision to move to phase two. The costs to repeat phase one is
budgeted at $35,000 and additional funds will have to be raised in order to
conduct this work program.

2. If warranted by the results of phase
one, we intend to proceed with phase two of our recommended exploration program.
Phase two is estimated to cost $23,000. We anticipate that we will have to raise
additional funding in order to conduct the phase two program. If we obtain the
necessary financing, we anticipate that phase two may be conducted during the
summer of 2006 or 2007 and would take approximately six weeks to
complete.

3. We anticipate spending approximately
$2,000 in ongoing general and administrative expenses per month for the next
twelve months, for a total anticipated expenditure of $24,000 over the next
twelve months. The general and administrative expenses for the year will consist
primarily of professional fees for the audit and legal work relating to our
regulatory filings throughout the year, as well as transfer agent fees, annual
mineral claim fees and general office expenses.

During the next twelve month period, we
anticipate that we will not generate any revenue. Accordingly, we will be
required to obtain additional financing in order to continue our plan of
operations. We believe that debt financing will not be an alternative for
funding additional phases of exploration as we do not have tangible assets to
secure any debt financing. We anticipate that additional funding will be in the
form of equity financing from the sale of our common stock or through
shareholder or related party loans. However, we cannot provide investors with
any assurance that we will be able to raise sufficient funding from the sale of
our common stock to fund our exploration programs. In the absence of such
financing, we will not be able to continue exploration of our mineral claims and
our business plan will fail. Even if we are successful in obtaining equity
financing to fund our exploration program, there is no assurance that we will
obtain the funding necessary to pursue any advanced exploration of our mineral
claims following the completion of phase two. If we do not continue to obtain
additional financing, we will be forced to abandon our mineral claims and our
plan of operations We may consider entering into a joint venture arrangement to
provide the required funding to develop the mineral claims. We have not
undertaken any efforts to locate a joint venture partner for the mineral claims.
Even if we determined to pursue a joint venture partner, there is no assurance
that any third party would enter into a joint venture agreement with us in order
to fund exploration of our mineral claims. If we entered into a joint venture
arrangement, we would likely have to assign a percentage of our interest in our
mineral claims to the joint venture partner.

New Business

Subsequent to the quarter ended March 31,
2006, we entered into a non-binding letter of intent to acquire all of the
issued and outstanding shares of 1223121 Alberta Ltd. (Albertaco), a
privately-owned Alberta corporation engaged in the oil and gas business.
Albertacos principal asset is a right to farm-in to certain petroleum and
natural gas exploration properties in the Province of Saskatchewan, Canada,
pursuant to a farm-out agreement with Western Petrochemical Corp.

We propose to purchase all of the issued
shares of Albertaco by way of a share exchange for 32,000,000 common shares of
us, which will be issued to Albertaco shareholders on a pro-rata basis in
proportion to their Albertaco shareholdings.

In connection with the proposed
acquisition, we have committed in principle to complete a private placement of
US$2,000,000 through the issuance of units at a price of US$1.00 per unit. Each
unit will consist of one common share and two common share purchase warrants,
with one warrant exercisable into one common share at the price of US$1.25 for a
period of 2 years, and the second warrant exercisable into one common share at
the price of US$1.50 for a period of 2 years. The proceeds of the

---

- 14 -

private placement will be used to fund the Companys exploration rights and obligations under the farm-out agreement and for general working capital.

We and Albertaco also agreed that, in conjunction with the acquisition, we will change our name to Source Petroleum Inc. to better reflect our new business focus. The proposed change of name has received the requisite
approval of our shareholders.  We have filed and mailed out an Information Statement on Schedule 14C on May 3, 2006. The name change will take effect on May 25, 2006.

The letter of intent is non-binding. The proposed transactions are subject to the completion of a mutual due-diligence review, the execution of formal agreements in form and substance satisfactory to both parties, and
satisfaction of conditions in keeping with commercial transactions of a like nature. The proposed acquisition will also be subject to the approval of Albertaco shareholders.

Results of Operations

We have had no operating revenues since our inception on October 14, 2001 through to the March 31, 2006. We anticipate that we will not generate any revenues while we are solely an exploration stage company. Our activities
have been financed from the proceeds of share subscriptions. From our inception on October 14, 2001 to March 31, 2006, we have raised a total of $179,625 from private offerings of our securities.

For the three months ended March 31, 2006, we incurred operating costs of $27,528 compared to operating costs of $28,091 during the three months ended March 31, 2005. The expenses were comparable during both periods
and primarily dealt with our continued reporting requirements under the Securities Exchange Act of 1934.During the three months ended March 31, 2006, we incurred $26,983 in professional fees for the legal and
accounting costs of our Form 10-KSB and the legal costs of our stock split. During the three months ended March 31, 2005, we incurred $22,417 in professional fees for the legal costs for general corporate matters and our Form SB-2. We will
continue to incur legal and accounting costs as a reporting company.

Liquidity and Capital Resources

At March 31, 2006, we had cash on hand of $31,517 and working capital of $14,016.

Cash used in operating activities was $16,145 for the three months ended March 31, 2006 largely due to our professional fees incurred during the period related to our Form 10-KSB. This
compares with cash used in operating activities of $10,507 for the three months ended March 31, 2005.

By November 30, 2006, we must make payment to the State of Alaska of an annual rental fee of a total of $2,500 for our twenty-five mineral claims, to keep our claims in good standing. We believe we have met the
$10,000 annual labor commitment for the period ended September 1, 2006, but there are no assurances the State of Alaska will accept our report of annual labor.

As stated above in the Plan of Operations section, in the next twelve months, we expect to incur at least $35,000 if we decide to repeat certain portions of the induced polarization survey conducted in phase one of our
recommended exploration program. If we decide to proceed to phase two of the exploration program, we can expect to incur an additional $23,000. Furthermore, we anticipate that we will require $24,000 to cover our ongoing general and
administrative expenses for the next twelve months. We do not believe our cash on hand is sufficient to carry out our plan of operations and pay for the costs of our general and administrative expenses for the next twelve months. Our ability to
complete the next phase of our recommended work program will be subject to us obtaining adequate financing as these expenditures will exceed our cash reserves. We anticipate that additional funding will be in the form of equity financing from the
sale of our common stock or through shareholder or related party loans, although there are no assurances any such financing will be completed.

On February 3, 2006, our board of directors approved a thirty (30) for one (1) forward stock split of our authorized, issued and outstanding shares of common stock. On April 3, 2006, our board of directors approved an
additional one and a half (1.5) for one (1) forward stock split of our authorized, issued and

---

- 15 -

outstanding shares of common stock. We
amended our Articles of Incorporation by filing Certificate of Changes with the
Nevada Secretary of State.

As a result, our authorized capital
increased from 100,000,000 shares of common stock with a par value of $0.0001
per share and 5,000,000 shares of Preferred Stock at a par value of $0.0001 per
share to 4,500,000,000 shares of common stock with a par value of $0.0001 per
share and 5,000,000 shares of Preferred Stock at a par value of $0.0001 per
share. This also increased our issued and outstanding share capital from
2,196,500 shares of common stock to 100,342,500 shares of common stock,
inclusive of the private placement completed during the current
quarter.

On May 11, 2006, we completed a private
placement of US$2,000,000 through the issuance of units at a price of US$1.00
per unit. Each unit consisted of one common share of the Company and two common
share purchase warrants, with one warrant exercisable into one common share at
the price of US$1.25 for a period of 2 years, and the second warrant exercisable
into one common share at the price of US$1.50 for a period of 2 years. The
proceeds of the private placement will be used to fund our exploration rights
and obligations under the farm-out agreement and for general working
capital.

Off-Balance Sheet
Arrangements

We have no off-balance sheet arrangements
that have or are reasonably likely to have a current or future effect on our
financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources that
is material to stockholders.

Critical Accounting Policies and
Estimates

The preparation of financial statements in
conformity with United States generally accepted accounting principles requires
our management to make estimates and assumptions that affect the reported amount
of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. Our management routinely makes judgments and estimates about the
effects of matters that are inherently uncertain.

Our significant accounting policies are
disclosed in Note 2 to the unaudited financial statements included in this
Quarterly Report on Form 10-QSB.

Item 8A.Controls and
Procedures.As required by Rule 13a-15
under the Exchange Act, we carried out an evaluation of the effectiveness of the
design and operation of our disclosure controls and procedures as of March 31,
2006, being the end of the period covered by this quarterly report. This
evaluation was carried out under the supervision and with the participation of
our Chief Executive Officer and Chief Financial Officer, Mr. Jeff Gillis. Based
upon that evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures are effective in timely
alerting management to material information relating to us required to be
included in our periodic SEC filings as at the end of the period covered by this
report. There have been no changes in our internal controls or in other factors
that could significantly affect internal controls subsequent to the date we
carried out our evaluation.

Disclosure controls and procedures are
controls and other procedures that are designed to ensure that information
required to be disclosed in our reports filed or submitted under the Exchange
Act is recorded, processed, summarized and reported, within the time periods
specified in the SECs rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed in our reports filed under the Exchange Act
is accumulated and communicated to management, including our Chief Executive
Officer and our Chief Financial Officer, to allow timely decisions regarding
required disclosure.

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- 16 -

During our most recently completed fiscal
quarter ended March 31, 2006 there were no changes in our internal control over
financial reporting that have materially affected, or are reasonably likely to
affect, our internal control over financial reporting.

The term internal control over financial
reporting is defined as a process designed by, or under the supervision of, our
principal executive and principal financial officers, or persons performing
similar functions, and effected by our board of directors, management and other
personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles and
includes those policies and procedures that:

|(a) | Pertain to the maintenance of
      records that in reasonable detail accurately and fairly reflect the
      transactions and dispositions of our assets;                                                                                                                                                                                              
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) | Provide reasonable assurance that
      transactions are recorded as necessary to permit preparation of financial
      statements in accordance with generally accepted accounting principles,
      and that receipts and expenditures of our company are being made only in
      accordance with authorizations of our management and directors; and
|   
|(c) | Provide reasonable assurance
      regarding prevention or timely detection of unauthorized acquisition, use
      or disposition of our assets that could have a material effect on the
      financial statements.                                                                                                                                    
|   

PART II  Other
Information

Item 1. Legal
Proceedings.We are not party to any
legal proceedings.

Item 2. Unregistered Sales of Equity
Securities and Use of Proceeds.

Reported on 8 k dated March 22,
2006.

|Item  3.  Default upon
      Senior Securities.  None.  
      Item  4.  Submission of
      Matters to a Vote of Security Holders.
|-----------------------------------------------------------------------------------------------------------------------------------
|
|

No matters were submitted to our security
holders for a vote during the first quarter of our fiscal year ending December
31, 2006.

|Item  5.  Other
      Information.  None.    Item  6 .  Exhibits.
|-----------------------------------------------------------------
|
|

Exhibit Number Description of
Exhibit

|3.1(1) | Articles of
      Incorporation.                                           
|------ | ---------------------------------------------------------------------------
|      
|3.2(1) | By-Laws.                                                                   
|      
|3.3(1) | Articles of
      Merger, as filed with the Nevada Secretary of State.     
|      
|3.4(1) | Certificate
      of Merger, as filed with the Delaware Secretary of State.
|      

---

- 17 -

Exhibit Number Description of
Exhibit

|3.5 (4) | Certificate of Change as filed with the Nevada Secretary
      of State.                                
|------- | --------------------------------------------------------------------------------------------------------
|       
|10.1(1) | Farmout
      Agreement with Banks Energy Inc. (formerly, Banks Ventures Ltd.)
      dated June 1, 2003.
|       

|10.2(1) | Mining
      Quitclaim Deed dated August 16, 2004.                                                                  
|------- | --------------------------------------------------------------------------------------------------------------------
|       
|10.3(2) | Agreement and
      Plan of Merger between Red Sky Resources Inc. and Pacific Petroleum Inc. dated December 6, 2004.
|       

|10.4(2) | Mineral Exploration
      Management Services Agreement between Red Sky Resources       
|------- | ----------------------------------------------------------------------------------------
|        | Inc. and Alaska Earth
      Sciences Inc. dated March 7, 2005.                          
|       
|10.5(3) | Geophysical Survey
      Agreement between Red Sky Resources Inc. and SJ Geophysical    
|        | Ltd. dated April 14,
      2005.                                                        
|       
|31.1(5) | Certification Statement of
      the Chief Executive Officer and Chief Financial Officer
|        | pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002.                        
|       
|32.1(5) | Certification Statement of
      the Chief Executive Officer and Chief Financial Officer
|        | pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002.                        

|(1) | Filed as an exhibit to our
      registration statement on Form SB-2 filed with the Commission on January
      28, 2005                      
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Filed as an exhibit to our
      Amendment No. 1 to our registration statement on Form SB-2 filed with the
      Commission on March 15, 2005.
|(3) | Filed as an exhibit to our
      Form 10-QSB filed with the Commission on May 13, 2005.                                                       
|(4) | Filed as an exhibit to our
      Form 8-K filed with the Commission on February 10, 2006.                                                     
|(5) | Filed as an exhibit to this
      Form 10-QSB                                                                                                 
|   

SIGNATURES

In accordance with the requirements of the
Exchange Act, the registrant caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

|RED SKY RESOURCES INC.    |                                                          
|------------------------- | ---------------------------------------------------------
|                         
|Signature                 | Title                                                    
|                          | President,
      Chief Executive Officer, Chief Financial
|**/s/
      Jeff Gillis** | Officer and
      Director (Principal Executive Officer  
|**Jeff Gillis**           | and Principal
      Accounting Officer)                  
|                          |                                                          

---