================================================================================
MOEN AND COMPANY
CHARTERED ACCOUNTANTS
<table>
<caption>
<s> <c>
Member: Securities Commission Building
Canadian Institute of Chartered Accountants PO Box 10129, Pacific Centre
Institute of Chartered Accountants of British Columbia Suite 1400 - 701 West Georgia Street
Institute of Management Accountants (USA) (From 1965)
Vancouver, British Columbia
Registered with: Canada V7Y 1C6
Public Company Accounting Oversight Board (USA) (PCAOB) Telephone: (604) 662-8899
Canadian Public Accountability Board (CPAB) Fax: (604) 662-8809
Canada - British Columbia Public Practice Licence Email: moenca@telus.net
- --------------------------------------------------------------------------------------------------------------------------
</table>
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Shareholders and Directors of
Gemstar Resources Ltd. (An Exploration Stage Enterprise)
We have audited the Balance Sheet of Gemstar Resources Ltd. (An Exploration
Stage Enterprise) as at January 31, 2004 and the Statements of Income, Retained
Earnings (Deficit), Cash Flows, and stockholders' equity for the year ended
January 31, 2004. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audit in accordance with Canadian and United States generally
accepted auditing standards. Those standards require that we plan and perform an
audit to obtain reasonable assurance whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at January 31, 2004 and the
results of its operations and the cash flows for the year ended January 31, 2004
in accordance with Canadian generally accepted accounting principles applied on
a consistent basis, and as reconciled to United States generally accepted
accounting principles in Note 9 to the accompanying notes to the financial
statements.
The audited financial statements as of January 31, 2003 and for the year then
ended for Gemstar Resources Ltd. were audited by other auditors who expressed no
reservation in their opinion to the financial statements dated May 10, 2003.
"Moen and Company"
"Signed"
Chartered Accountants
Vancouver, British Columbia, Canada
July 6, 2004
Independent Accountants and Auditors
<page>
GEMSTAR RESOURCES LTD.
(a Development Stage Company)
BALANCE SHEET
January 31, 2004
(With Comparative Figures as at January 31, 2003)
(In Canadian Dollars)
<table>
<caption>
=================================================================================================================
2004 2003
--------------- ---------------
<s> <c> <c>
ASSETS
Current Assets
Cash (Note 2(g)) $ 587 $ 1,854
Cash in lawyers' trust account (Note 2(g)) 354 --
Deposit on credit card (Note 2(g)) 6,900 6,900
GST receivable 2,458 1,790
- -----------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 10,299 10,544
Advance for exploration expenditures (Note 7) 152,000 152,000
Fixed Assets, net (Note 2) 1,157 --
Investment in mineral property (Note 6) 4,206 --
- -----------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 167,662 $ 162,544
=================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities $ 99,255 $ 100,883
Loans from related parties (Note 4) 684,644 722,302
- -----------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 783,899 823,185
- ------------------------------------------------------------------------------------------------------------------
Shareholders' Equity
Share capital (Note 3)
Authorized:
100,000,000 common shares without par value
Issued:
5,651,714 common shares (
January 31, 2003 - 5,651,714 common shares) 1,113,471 1,113,471
Loans from related party (Note 4) 106,754 --
Retained earnings, accumulated during the development stage
(Notes 1 & 2(j)) (1,836,462) (1,774,112)
- ------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY (616,237) (660,641)
- ------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 167,662 $ 162,544
===================================================================================================================
</table>
Nature and continuance of operations: Note 1
APPROVED ON BEHALF OF THE BOARD:
"Linda Smith" Chief Executive Officer, Director
--------------------
"Shannon Krell" Chief Financial Officer, Director
--------------------
See Accompanying Auditors' Report and Notes to Financial Statements
<page>
GEMSTAR RESOURCES LTD.
(a Development Stage Company)
STATEMENT OF INCOME
For the Year Ended January 31, 2004
(With Comparative Figures for the Year Ended January 31, 2003)
(In Canadian Dollars)
<table>
<caption>
===================================================================================================================
2004 2003
--------------- -------------
<s> <c> <c>
GENERAL AND ADMINISTRATION EXPENSES
Amortization $ 496 $ --
Audit fees 2,700 8,390
Bank charges and interest 604 292
Consulting 1,035 --
Filing and transfer agent fees 711 647
Legal fees 1,218 --
Management fees 30,000 30,000
Office expense 23,401 20,871
Travel and promotion 2,185 2,232
- -------------------------------------------------------------------------------------------------------------------
62,350 62,432
- -------------------------------------------------------------------------------------------------------------------
LOSS BEFORE BELOW ITEM (62,350) (62,432)
Write off interest in mineral claims dropped -- (200,000)
NET LOSS FOR THE YEAR $ (62,350) $ (262,432)
===================================================================================================================
Weighted Average Number of Shares Outstanding
Basic 5,651,714 5,652,000
===================================================================================================================
Diluted 5,651,714 5,652,000
===================================================================================================================
NET PROFIT (LOSS) PER SHARE
Basic $ (0.01) $ (0.05)
===================================================================================================================
Diluted $ (0.01) $ (0.05)
===================================================================================================================
</table>
See Accompanying Auditors' Report and Notes to Financial Statements
<page>
GEMSTAR RESOURCES LTD.
(a Development Stage Company)
STATEMENT OF RETAINED EARNINGS
January 31, 2004
(With Comparative Figures for the Year Ended January 31, 2003)
(In Canadian Dollars)
<table>
<caption>
===================================================================================================================
2004 2003
--------------- -------------------
<s> <c> <c>
Net loss for the year $ (62,350) $ (262,432)
Retained earnings (Deficit), beginning of year (1,774,112) (1,518,055)
Adjustments to opening retained earnings
- Cancellation of escrow shares (Note 2(j)) -- 6,375
- -------------------------------------------------------------------------------------------------------------------
Deficit, end of year $ (1,836,462) $ (1,774,112)
====================================================================================================================
</table>
See Accompanying Auditors' Report and Notes to Financial Statements
<page>
GEMSTAR RESOURCES LTD.
(a Development Stage Company)
STATEMENT OF CASH FLOWS
For the Year Ended January 31, 2004
(With Comparative Figures for the Year Ended January 31, 2003)
(In Canadian Dollars)
<table>
<caption>
===================================================================================================================
2004 2003
--------------- ---------------
<s> <c> <c>
FUNDS DERIVED FROM (APPLIED TO)
Operating activities
Net loss for the year $ (62,350) $ (262,432)
Items not requiring use of cash
Amortization 496 --
Write off interest in mineral claims dropped -- 200,000
Changes in non-cash working capital items
GST receivable (668) (217)
Cash in lawyers' trust account (354) --
Accounts payable and accrued (1,628) 55,143
- -------------------------------------------------------------------------------------------------------------------
(64,504) (7,506)
- -------------------------------------------------------------------------------------------------------------------
Investing activities
Investment in mineral property (4,206) --
Purchase of fixed assets (1,653) --
- -------------------------------------------------------------------------------------------------------------------
(5,859) --
- -------------------------------------------------------------------------------------------------------------------
Financing activities
Loans from related parties, net 69,096 9,052
- -------------------------------------------------------------------------------------------------------------------
CASH INCREASE (DECREASE) DURING THE YEAR (1,267) 1,546
CASH, BEGINNING OF YEAR 1,854 308
- -------------------------------------------------------------------------------------------------------------------
CASH, END OF YEAR $ 587 $ 1,854
===================================================================================================================
</table>
See Accompanying Auditors' Report and Notes to Financial Statements
<page>
GEMSTAR RESOURCES LTD.
Notes to Financial Statements
January 31, 2004
================================================================================
Note 1. NATURE AND CONTINUANCE OF OPERATIONS
The Company was incorporated on March 31, 1998. The Company is in the
development stage relating to exploration and development of mineral
properties and has not generated any revenues from its planned
operations. The deficit has been accumulated during this development
stage.
These financial statement have been prepared in accordance with
Canadian generally accepted accounting principles applicable to a
going concern which assume that the Company will realize its assets
and discharge its liabilities in the normal course of business. The
Company has incurred losses since inception of $1,842,837 and has a
working capital deficit at January 31, 2004 of $773,600. These
factors create doubt as to the ability of the Company to continue as
a going concern unless sufficient funds are raised for the payment of
its current liabilities and for ongoing operations. Realization
values may be substantially different from the carrying values as
shown in these financial statements should the Company be unable to
continue as a going concern.
Note 2. SIGNIFICANT ACCOUNTING POLICIES
a) Fixed assets and amortization
The Company records amortization on computer equipment at 30%, on
a declining balance basis.
January 31,
----------------------------------
2004 2003
---------------- ---------------
Cost $ 1,653 $ -
Accumulated amortization 496 -
- ------------------------------------------------------------------------------
$ 1,157 $ -
==============================================================================
b) General and administration expenses
General and administration expenses are written off to
operations as incurred.
c) Financial Instruments
The Company's financial instruments consist of cash and cash
equivalents, GST receivable, prepaid expense and current
liabilities. It is management's opinion that the Company is not
exposed to significant interest, currency or credit risks
arising from these financial instruments. The fair value of
these financial statements approximates their carrying values.
The Company does not have any off-balance sheet debt.
<page>
GEMSTAR RESOURCES LTD.
Notes to Financial Statements
January 31, 2004
================================================================================
Note 2. SIGNIFICANT ACCOUNTING POLICIES (cont'd)
d) Translation of Foreign Currency
The accounts of the Company are translated into Canadian dollars
on the following basis:
-monetary assets and liabilities are translated at the rate of
exchange in effect at the balance sheet date
-non-monetary assets and liabilities are translated at the rate
prevailing when the transaction occurred
-revenue, general & administration expenses,and gains and losses
are translated at the average exchange rate in effect during
the period
-exchange gains or losses from conversion are included in the
current net income.
-depreciation or amortization of assets translated at historical
exchange rates are translated at the same exchange rates as the
assets to which they relate;
e) Use of estimates
The preparation of financial statements in accordance with
Canadian generally accepted accounting principles requires
management to make estimates that affect certain reported
amounts and disclosures. Estimates are used for, but are not
limited to, the accounting for doubtful accounts, amortization,
income taxes, and the recoverability of non-producing mining
property capitalized costs and deferred exploration
expenditures. Actual results may differ from those estimates.
f) Stock-based compensation plan
Effective January 1, 2002 the Company adopted, on a prospective
basis, CICA HB 3870 stock-based compensation and other
stock-based payments, which established standards for the
recognition, measurement, and disclosure of stock-based
payments made in exchange for goods and services. Stock-based
compensation and other stock-based payments require that
stock-based payments to non-employees be accounted for using a
fair value based method of accounting.
The new standards permit, and the Company has adopted, the use
of the intrinsic value based method, which recognizes
compensation costs for awards to employees only when the market
price exceeds the exercise price at date of grant, but requires
pro forma disclosure of earnings and earnings and earnings per
share as if the fair value based method had been adopted. No
stock options were issued during the period.
g) Cash and cash equivalents
Cash and cash equivalents consist of $587 cash deposit in bank,
$6,900 security deposit for credit card and $354 cash in
lawyers' trust account as at January 31, 2004.
<page>
GEMSTAR RESOURCES LTD.
Notes to Financial Statements
January 31, 2004
================================================================================
Note 2. SIGNIFICANT ACCOUNTING POLICIES (cont'd)
h) Mineral Properties
Acquisition costs of mineral properties are capitalized by the
Company, and are dealt with in the same manner as deferred
exploration costs. Mineral property sale proceeds or option
payments received for exploration rights are credited firstly
to mineral property costs, secondly, as a recovery of deferred
exploration costs, and thereafter, recognized as a gain or
loss in current operations.
i) Values
The amounts for deferred exploration costs and mineral
properties represent costs incurred to date and are not
intended to reflect present or future values. The
recoverability of the amounts shown for mineral properties and
deferred exploration costs is dependent on the confirmation of
economically recoverable reserves, the ability of the Company
to obtain the necessary financing to successfully complete
their development, including compliance with the requirements
of lenders who may provide this financing from time to time,
and upon future profitable operations.
j) Restatement of Prior Year Figures
On the cancellation of 637,500 escrow shares for the fiscal
year ended January 31, 2003, there was no reduction in the
dollar amounts of issued share capital. The January 31, 2003,
figures have been restated to reflect a reduction in issued
share capital of $6,375 and a credit to the retained earnings
(deficit) for $6,375 reflecting the cancellation of escrow
shares.
Note 3. SHARE CAPITAL
a) Authorized: 100,000,000 common shares without par value
b) Issued and outstanding:
<table>
<caption>
Year Ended January 31,
---------------------------------------------------
2004 2003
------------------------- -----------------------
Shares $ Shares $
--------- ---------- --------- ---------
Number of Total of Number of Total of
Common Capital Common Capital
shares stock shares stock
--------- ---------- --------- ---------
<s> <c> <c> <c> <c>
Balance, January 31, 2003 and 2002 5,651,714 $ 1,113,471 6,289,214 $ 1,119,846
Cancellation of escrow shares (Note 2(j)) -- -- (637,500) (6,375)
- -------------------------------------------------------------------------------------------------
Balance, January 31, 2004 and 2003 5,651,714 1,113,471 5,651,714 $ 1,113,471
=================================================================================================
</table>
<page>
GEMSTAR RESOURCES LTD.
Notes to Financial Statements
January 31, 2004
================================================================================
Note 4. RELATED PARTY TRANSACTIONS
(a) Loans from related parties of $684,644 as at January 31, 2004
($722,302 - January 31, 2003) are unsecured, non interest
bearing, with no specific terms of repayment. Loans from
related party of $106,754.15 as at January 31, 2004 is non
interest bearing, and shall mature on January 1, 2006 unless
it is converted into equity (each $0.05 of Principal
outstanding may be converted into one share) prior to the
maturity date.
(b) Management fees incurred and expenses paid on behalf of the
Company for the fiscal year ended January 31, 2004 are as
follows:
Management Office Travel&
Fees Expenses Promotion Total
--------- -------- --------- --------
Darcy Krell $ 30,000 $ 21,301 $ 1,039 $ 52,340
Linda Smith 0 668 143 811
------------------------------------------------------------------
$ 30,000 $ 21,969 $ 1,182 $ 53,151
==================================================================
Note 5. INCOME TAXES
The Company does not have any income tax liabilities during the
current year and, accordingly, no income taxes are recorded. The
potential income tax benefits associated with losses incurred by the
Company have not been recorded in the accounts as future taxation.
Note 6. INVESTMENT IN MINERAL PROPERTY
The claims that the Company acquired from L.C.M. Equity Inc. in the
Black River area in the, Thunder Bay Mining Division, Ontario,
expired during the fiscal year ended January 31, 2003, and
accordingly, costs of $200,000 were written off, resulting in a
charge to operations of $200,000 in that fiscal year. During the
current fiscal year ended January 31, 2004, the claims were restaked
and the costs of restaking the newly named claims are capitalized as
deferred exploration costs.
The Company has 100% interest in Dotted Lake Property (TB 3011450
expiring March 14, 2005, TB 3011451 expiring March 14, 2005, TB
3011452 expiring March 23, 2005, TB3011453 expiring March 23, 2005,
TB3011454 expiring March 23, 2005, Thunder Bay Mining Division,
Ontario, Canada. These claims are held in trust for the Company in
the name of 1179406 Ontario Limited, the latter of which is owned by
Mr. Robert Reukl, the original staker of the claims who transferred
the claims to1179406 Ontario Limited.
Geological fees of $4,206 covering staking of these claims were
incurred and capitalized for the year ended January 31, 2004.
<page>
GEMSTAR RESOURCES LTD.
Notes to Financial Statements
January 31, 2004
================================================================================
Note 7. ADVANCE FOR EXPLORATION EXPENDITURES
The advance for exploration expenditures of $152,000 is held by
L.C.M. Equity Inc. ("LCM") for exploration expenditures. LCM is
required to proceed with exploration upon notice from Gemstar
Resources Ltd. LCM is a private company which is not related to
Gemstar Resources Inc. Management has determined that there is no
impairment of this amount as at January 31, 2004.
Note 8. LAWSUIT
There is a claim by Ellis Foster that it is owed $51,680 for
accounting services it provided to the Company. The Company disputes
the payment of fees charged to it in the connection with the audit of
Dalian Maple Leaf International School, a private company owned by
the Company's former president, Mr. Sherman Jen.
Note 9. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
These financial statements are prepared in accordance with Canadian
generally accepted accounting principles (Canadian GAAP).
Differences at January 31, 2004 between Canadian GAAP and United
States generally accepted accounting principles (U.S. GAAP) are
described below, with the financial statement disclosure restated
from Canadian GAAP with adjustments shown to conform to U.S. GAAP:
<page>
GEMSTAR RESOURCES LTD.
Notes to Financial Statements
January 31, 2004
================================================================================
Note 9. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONT'D)
GEMSTAR RESOURCES LTD.
(an Exploration Stage Enterprise)(j)
BALANCE SHEET
January 31, 2004
(With Comparative Figures as at January 31, 2003)
(In Canadian Dollars)
<table>
<caption>
=================================================================================================================================
2004
----------------------------------------------------------
Adjustments
Canadian to Arrive at U.S.
GAAP U.S. GAAP GAAP 2003
--------------- ---------------- ---------------- ---------------
<s> <c> <c> <c> <c>
ASSETS
Current Assets
Cash $ 587 $ -- 587 $ 1,854
Cash in lawyer trust account 354 (a) (354) -- --
Deposit on credit card 6,900 (a) (6,900) -- --
GST receivable 2,458 -- 2,458 1,790
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 10,299 (7,254) 3,045 3,644
Advance for exploration expenditures 152,000 (a) (152,000) -- --
Fixed Assets, net 1,157 -- 1,157 --
Investment in mineral property 4,206 (b) (4,206) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 167,662 $ (163,460) $ 4,202 $ 3,644
=================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities $ 99,255 $ -- $ 99,255 $ 100,883
Loans from related parties 684,644 -- 684,644 722,302
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 783,899 -- 783,899 823,185
- ---------------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity
Share capital
Authorized:
100,000,000 common shares without par value
Issued:
5,651,714 common shares
(April 30, 2004 - 5,651,714 common shares) 1,113,471 -- 1,113,471 1,113,471
Loans from related party 106,754 -- 106,754 --
Retained earnings, accumulated during
the development stage (1,836,462) (163,460) (1,999,922) (1,933,012)
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY (616,237) (163,460) (779,697) (819,541)
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 167,662 $ (163,460) $ 4,202 $ 3,644
=================================================================================================================================
</table>
APPROVED ON BEHALF OF THE BOARD:
"Linda Smith"
-----------------
"Shannon Krell"
-----------------
<page>
GEMSTAR RESOURCES LTD.
Notes to Financial Statements
January 31, 2004
================================================================================
Note 9. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONT'D)
GEMSTAR RESOURCES LTD.
(an Exploration Stage Enterprise)(j)
STATEMENT OF INCOME
For the Year Ended January 31, 2004
(With Comparative Figures for the Year Ended January 31, 2003)
(In Canadian Dollars)
<table>
<caption>
=================================================================================================================================
2004
-----------------------------------------------------------
Adjustments
Canadian to Arrive at U.S.
GAAP U.S. GAAP GAAP 2003
--------------- ---------------- ---------------- ---------------
<s> <c> <c> <c> <c>
GENERAL AND ADMINISTRATION EXPENSES
Amortization $ 496 $ -- $ 496 $ --
Audit fees 2,700 -- 2,700 8,390
Bank charges and interest 604 -- 604 292
Consulting 1,035 -- 1,035 --
Advance for exploration expenditures -- -- -- 152,000
Exploration costs on mineral properties -- (b) 4,206 4,206 --
Filing and transfer agent fees 711 -- 711 647
Legal fees 1,218 (a) 354 1,572 --
Management fees 30,000 -- 30,000 30,000
Office expense 23,401 -- 23,401 20,871
Travel and promotion 2,185 -- 2,185 9,132
Write off interest in mineral claims dropped -- -- -- 200,000
- ---------------------------------------------------------------------------------------------------------------------------------
NET LOSS FOR THE YEAR $ 62,350 $ 4,560 $ 66,910 $ 421,332
=================================================================================================================================
Weighted Average Number of Shares Outstanding
Basic 5,651,714 5,651,714 5,651,714
=================================================================================================================================
Diluted 5,651,714 5,651,714 5,651,714
=================================================================================================================================
NET PROFIT (LOSS) PER SHARE
Basic $ 0.01 $ 0.01 $ 0.07
=================================================================================================================================
Diluted $ 0.01 $ 0.01 $ 0.07
=================================================================================================================================
</table>
<page>
GEMSTAR RESOURCES LTD.
Notes to Financial Statements
January 31, 2004
================================================================================
Note 9. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONT'D)
GEMSTAR RESOURCES LTD.
(an Exploration Stage Enterprise)(j)
STATEMENT OF RETAINED EARNINGS
January 31, 2004
(With Comparative Figures for the Year Ended January 31, 2003)
(In Canadian Dollars)
<table>
<caption>
=================================================================================================================================
2004
-----------------------------------------------------------
Adjustments
Canadian to Arrive at U.S.
GAAP U.S. GAAP GAAP 2003
--------------- ---------------- ---------------- ---------------
<s> <c> <c> <c> <c>
Net loss for the year $ (62,350) $ (4,560) $ (66,910) $ (421,332)
- ---------------------------------------------------------------------------------------------------------------------------------
Retained earnings (Deficit), beginning of year (1,774,112) (158,900) (1,933,012) (1,518,055)
Adjustments to opening retained earnings
- Cancellation of escrow shares -- -- -- 6,375
- ---------------------------------------------------------------------------------------------------------------------------------
(1,774,112) (158,900) (1,933,012) (1,511,680)
- ---------------------------------------------------------------------------------------------------------------------------------
Deficit, end of year $ (1,836,462) $ (163,460) $ (1,999,922) $ (1,933,012)
=================================================================================================================================
</table>
GEMSTAR RESOURCES LTD.
(an Exploration Stage Enterprise)(j)
Statement of Stockholders' Equity
For the Year Ended January 31, 2004
(In Canadian Dollars)
<table>
<caption>
=================================================================================================================================
Total Loans from Retained Total
Number of Capital Related Earnings Stockholders'
Shares Stock Party (Deficit) Equity
--------------- ---------------- ---------------- --------------- ----------------
<s> <c> <c> <c> <c> <c>
Balance, Beginning of Year
January 31, 2003 5,654,714 $ 1,113,471 $ -- $ (1,933,012) $ (819,541)
Loan from related party -- -- 106,754 -- 106,754
Net Loss for the year -- -- -- (66,910) (66,910)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, End of Year,
January 31, 2004 5,654,714 $ 1,113,471 $ 106,754 $ (1,999,922) $ (779,697)
=================================================================================================================================
</table>
<page>
GEMSTAR RESOURCES LTD.
Notes to Financial Statements
January 31, 2004
================================================================================
Note 9. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONT'D)
GEMSTAR RESOURCES LTD.
(an Exploration Stage Enterprise)(j)
STATEMENT OF CASH FLOWS
For the Year Ended January 31, 2004
(With Comparative Figures for the Year Ended January 31, 2003)
(In Canadian Dollars)
<table>
<caption>
=================================================================================================================================
2004
------------------------------------------------------------
Adjustments
Canadian to Arrive at U.S.
GAAP U.S. GAAP GAAP 2003
--------------- ---------------- ---------------- ---------------
<s> <c> <c> <c> <c>
FUNDS DERIVED FROM (APPLIED TO)
Operating activities
Net loss for the year $ (62,350) $ (4,560) $ (66,910) $ (421,332)
Items not requiring use of cash
Amortization 496 -- 496 --
Write off interest in mineral claims dropped -- -- -- 200,000
Changes in non-cash working capital items
GST receivable (668) -- (668) (217)
Advance for exploration expenditures -- -- -- 152,000
Cash in lawyers' trust account (354) (a) 354 -- --
Deposit on credit card -- -- -- 6,900
Accounts payable and accrued (1,628) -- (1,628) 55,143
- ---------------------------------------------------------------------------------------------------------------------------------
(64,504) (4,206) (68,710) (7,506)
- ---------------------------------------------------------------------------------------------------------------------------------
Investing activities
Investment in mineral property (4,206) 4,206 -- --
Purchase of fixed assets (1,653) -- (1,653) --
- ---------------------------------------------------------------------------------------------------------------------------------
(5,859) 4,206 (1,653) --
- ---------------------------------------------------------------------------------------------------------------------------------
Financing activities
Loans from related parties, net 69,096 -- 69,096 9,052
- ---------------------------------------------------------------------------------------------------------------------------------
CASH INCREASE (DECREASE)
DURING THE YEAR (1,267) -- (1,267) 1,546
CASH, BEGINNING OF YEAR 1,854 -- 1,854 308
- ---------------------------------------------------------------------------------------------------------------------------------
CASH, END OF YEAR $ 587 $ -- $ 587 $ 1,854
=================================================================================================================================
</table>
<page>
GEMSTAR RESOURCES LTD.
Notes to Financial Statements
January 31, 2004
================================================================================
Note 9. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONT'D)
Detailed adjustments from Canadian GAAP to U.S. GAAP, referenced to
disclosure restated, above, are as follows:
(a) Legal retainer, deposit in credit card, and advance for
exploration expenditure
Under Canadian GAAP, the legal retainer for $354, deposit in
credit card of $6,900 and advance for exploration expenditure
for $152,000 can be prepaid. Under United States GAAP, legal
retainer, deposit in credit card should be expensed as
incurred, and accordingly, the amount of $159,254 is expensed
in the current statement of income.
(b) Accounting for start-up costs - Mining Properties
Deferred Exploration Costs
Under Canadian accounting principles, these costs and
recoveries may be deferred prior to the commencement of
commercial operations. Accounting principles in the United
States require expenditures and revenue during the start-up of
operations to be charged to earnings. The exploration costs of
$4,206 which is deferred under Canadian accounting principles,
are expensed in the current statement of income for U.S. GAAP.
(c) Income taxes
The accounting for income taxes under Canadian GAAP and United
States GAAP is essentially the same, except that:
- income tax rates of enacted or substantively enacted tax law
must be used to calculate future income tax assets and
liabilities under Canadian GAAP.
- Only income tax rates of enacted tax law can be used under
United States GAAP.
For both Canadian GAAP and U.S. GAAP, no Future Income Tax
(Canadian GAAP) or Deferred Tax (U.S. GAAP) are either recorded
as assets or as liabilities, as they are offset by valuation
reserves due to uncertainty of utilization of tax losses.
<page>
GEMSTAR RESOURCES LTD.
Notes to Financial Statements
January 31, 2004
================================================================================
Note 9. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONT'D)
(d) Earnings (Loss) per Common Share
Loss per common share for Canadian GAAP for the year ended
January 31, 2004 is increased for U.S. GAAP due to fact that the
loss has been revised under U.S.
<table>
<caption>
Weighted Net Loss Loss Per Common Share
Average -------------------------- --------------------------
Common Shares Canadian US Canadian US
Outstanding GAAP GAAP GAAP GAAP
--------- ---------- ----------- ----------- -----------
<s> <c> <c> <c> <c> <c>
Basic Earnings (Loss)
Per common Share 5,651,714 $ (62,350) $ (66,910) $ (0.01) $ (0.01)
========================
Dilution Effect 0 0 0
- ------------------------------------------------------------------------
Diluted Earnings (Loss)
Per Common Share 5,651,714 $ (62,350) $ (66,910) $ (0.01) $ (0.01)
===================================================================================================
</table>
(e) Accounting for asset retirement obligations
In August of 2001, U.S. FASB issued Statement of Financial
Accounting Standards No. 143, "Accounting for Asset
Retirement Obligations" ("SFAS 143"). SFAS 143 addresses
financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets
and the associated asset retirement costs. SFAS 143 applies
to all entities. It applies to legal obligations associated
with the retirement of long-lived assets that result from
the acquisition, construction, development and / or the
normal operation of a long-lived asset, except for certain
obligations of lessees. SFAS 143 requires that the fair
value of a liability for an asset retirement obligation be
recognized in the period in which it is incurred if a
reasonable estimate of fair value can be made. The
associated asset retirement costs are capitalized as part of
the carrying amount of the long-lived asset. SFAS 143 is
effective for financial statements issued for fiscal years
beginning after June 15, 2002. The Company adopted SFAS 143
for the fiscal year beginning on February 1, 2003. The
Company believes that SFAS 143 will not have a material
effect on the Company's results of operations, financial
position or liquidity.
(f) Impairment of capital costs
Since February 1, 2003, the Company adopted CICA 3063.04 and
3063.09 for Impairment of capital costs of mineral properties
and considered the conditions set out in CICA 3063.09-.10. to
determine whether a write-down of capital costs is required.
The adoption of the Impairment of capital costs eliminates all
differences between Canadian and U.S. GAAP which impairment is
defined in FAX-144 as the condition that exists when the
carrying amount of a long-lived asset exceeds its fair value.
<page>
GEMSTAR RESOURCES LTD.
Notes to Financial Statements
January 31, 2004
================================================================================
Note 9. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONT'D)
(g) Accounting for costs associated with exit or disposal
activities
The U.S. FASB recently issued new Standard No. 146 relating to
accounting for costs associated with exit or disposal
activities. Effective February 1, 2003, the new standard
requires the recognition of costs associated with exit or
disposal activities when they are incurred rather than at the
date of a commitment to an exit or disposal plan. The Company
is required to apply the standard for U.S. GAAP purposes
prospectively to exit or disposal activities initiated after
February 1, 2003.
(h) Investment securities
U.S. GAAP requires that investment securities be classified as
either "available for sale" or "held to maturity", and
requires available for sale securities to be reported on the
balance sheet at their estimated fair values. Unrealized gains
and losses arising from changes in fair values of available
for sale securities are reported net of income taxes in other
comprehensive income. Other than temporary declines in fair
value are recorded by transferring the unrealized loss from
other comprehensive income to the statement of income. For
U.S. GAAP, the Company accounts for substantially all
investment securities as available for sale. Under Canadian
GAAP, investment securities are carried at cost or amortized
cost, with other than temporary declines in value recognized
based upon expected net realizable values.
(i) Statement of Stockholders' Equity
A separate Statement of Stockholders' Equity is not required
for Canadian GAAP; it is, however, required in accordance with
U.S. GAAP and, accordingly, is disclosed as a separate
statement in the abovementioned for U.S. GAAP.
(j) Exploration Stage Enterprise
Under the Canadian accounting principles, the Company is
considered to be a Development Stage Enterprise. In accordance
with U.S. accounting principles this reference is revised to
Exploration Stage Enterprise.
Additional disclosure of the following items is required under
U.S. accounting principles for exploration stage enterprises:
(1) separate caption in the shareholders' equity section of
the balance sheet reporting cumulative net losses during the
exploration stage, and this is disclosed in the abovementioned
balance sheet reconciled to U.S. GAAP. (2) cumulative amounts
of revenues and expenses since inception, (3) cumulative
statement of cash flows since inception, and (4) details of
each issuance of capital stock since inception. The Company
has been an exploration stage since March 31, 1998 and the
accumulated figures, for Items 2 and 3, are not available and
therefore are not disclosed.
<page>
================================================================================
MOEN AND COMPANY
CHARTERED ACCOUNTANTS
<table>
<caption>
<s> <c>
Member: Securities Commission Building
Canadian Institute of Chartered Accountants PO Box 10129, Pacific Centre
Institute of Chartered Accountants of British Columbia Suite 1400 - 701 West Georgia Street
Institute of Management Accountants (USA) (From 1965)
Vancouver, British Columbia
Registered with: Canada V7Y 1C6
Public Company Accounting Oversight Board (USA) (PCAOB) Telephone: (604) 662-8899
Canadian Public Accountability Board (CPAB) Fax: (604) 662-8809
Canada - British Columbia Public Practice Licence Email: moenca@telus.net
- --------------------------------------------------------------------------------------------------------------------------
</table>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
--------------------------------------
To the Board of Directors of
Gemstar Resources Ltd.
(An Exploration Stage Company)
We have reviewed the accompanying Balance Sheet of Gemstar Resources Ltd. (An
Exploration Stage Company) as of July 31, 2004, and the related Statements of
Income, Retained Earnings (Deficit), Cash Flows and Stockholders' Equity for the
six month period ended July 31, 2004, in accordance with Statements on Standards
for Accounting and Review Services issued by the American Institute of Certified
Public Accountants. All information included in these financial statements is
the representation of the management of Gemstar Resources Ltd.
A review consists principally of inquiries of company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
examination in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
On the basis of our review, we are not aware of any material modifications that
should be made to the accompanying financial statements in order for them to be
in conformity with U.S. generally accepted accounting principles, as disclosed
in the reconciliation of Canadian and United States generally accepted
accounting principles in Note 9 to the accompanying notes to the financial
statements.
We did not review the comparative figures for the six month period ended
July 31, 2003 as they were prepared by management, without independent review.
"Moen and Company"
("Signed")
Chartered Accountants
Vancouver, British Columbia, Canada
August 16, 2004
<page>
GEMSTAR RESOURCES LTD.
(a Development Stage Company)
BALANCE SHEET
July 31, 2004
(With Comparative Figures at January 31, 2004)
(In Canadian Dollars)
<table>
<caption>
=================================================================================================================================
July 31, January 31,
2004 2004
---------------- ---------------
(Unaudited) (Audited)
<s> <c> <c>
ASSETS
Current Assets
Cash (Note 2(g)) $ 496 $ 587
Cash in lawyers' trust account (Note 2(g)) 354 354
Deposit on credit card (Note 2(g)) 6,900 6,900
GST receivable 2,809 2,458
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 10,559 10,299
Advance for exploration expenditures (Note 7) 152,000 152,000
Fixed Assets, net (Note 2) 983 1,157
Investment in mineral property (Note 6) 4,206 4,206
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 167,748 $ 167,662
================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities $ 96,212 $ 99,255
Loans from related parties (Note 4) 725,636 684,644
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 821,848 783,899
- --------------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity
Share capital (Note 3)
Authorized:
100,000,000 common shares without par value
Issued:
5,651,714 common shares, unchanged from
January 31, 2004 1,113,471 1,113,471
Loans from related party (Note 4) 106,754 106,754
Retained earnings, accumulated during the development stage
(Notes 1 & 2(j)) (1,874,325) (1,836,462)
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) (654,100) (616,237)
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 167,748 $ 167,662
===============================================================================================================================
</table>
Nature and continuance of operations: Note 1
APPROVED ON BEHALF OF THE BOARD:
"Linda Smith" Chief Executive Officer, Director
- ---------------------
"Shannon Krell" Chief Financial Officer, Director
- ---------------------
See Accompanying Review Engagement Report and Notes to Financial Statements
<page>
GEMSTAR RESOURCES LTD.
(a Development Stage Company)
STATEMENT OF INCOME
For the Six Month Period Ended July 31, 2004
(With Comparative Figures for the Six Month Period Ended July 31, 2003)
(In Canadian Dollars)
<table>
<caption>
=================================================================================================================================
Three Month Period Ended Six Month Period Ended
July 31, July 31,
------------------------------------- --------------------------------
2004 2003 2004 2003
--------------- ------------ ------------ -----------
<s> <c> <c> <c> <c>
GENERAL AND ADMINISTRATION EXPENSES
Amortization $ 87 $ -- $ 174 $ --
Audit fees 3,000 -- 3,000 400
Bank charges and interest 102 250 144 463
Consulting 2,205 -- 2,205 1,035
Management fees 7,500 7,500 15,000 15,000
Office expense 7,487 5,008 13,615 9,726
Travel and promotion 1,663 -- 3,725 --
- ---------------------------------------------------------------------------------------------------------------------------------
22,044 12,758 37,863 26,624
- --------------------------------------------------------------------------------------------------------------------------------
NET LOSS FOR THE PERIOD $ (22,044) $ (12,758) $ (37,863) $ (26,624)
=================================================================================================================================
Weighted Average Number of Shares Outstanding
Basic 5,651,714 5,651,714 5,651,714 5,651,714
=================================================================================================================================
Diluted 5,651,714 5,651,714 5,651,714 5,651,714
=================================================================================================================================
NET PROFIT (LOSS) PER SHARE
Basic $ (0.00) $ (0.00) $ (0.01) $ (0.00)
=================================================================================================================================
Diluted $ (0.00) $ (0.00) $ (0.01) $ (0.00)
=================================================================================================================================
</table>
See Accompanying Review Engagement Report and Notes to Financial Statements
<page>
GEMSTAR RESOURCES LTD.
(a Development Stage Company)
STATEMENT OF RETAINED EARNINGS
July 31, 2004
(With Comparative Figures for the Six Month Period Ended July 31, 2003)
(In Canadian Dollars)
<table>
<caption>
=================================================================================================================================
Three Month Period Ended Six Month Period Ended
July 31, July 31,
------------------------------------- -------------------------------------
2004 2003 2004 2003
--------------- ---------------- --------------- ---------------
<s> <c> <c> <c> <c>
Net loss for the period $ (22,044) $ (12,758) $ (37,863) $ (26,624)
Retained earnings (Deficit), beginning of period (1,852,281) (1,787,978) (1,836,462) (1,774,112)
- ---------------------------------------------------------------------------------------------------------------------------------
Deficit, end of period $ (1,874,325) $ (1,800,736) $ (1,874,325) $ (1,800,736)
=================================================================================================================================
</table>
See Accompanying Review Engagement Report and Notes to Financial Statements
<page>
GEMSTAR RESOURCES LTD.
(a Development Stage Company)
STATEMENT OF CASH FLOWS
For the Six Month Period Ended July 31, 2004
(With Comparative Figures for the Six Month Period Ended July 31, 2003)
(In Canadian Dollars)
<table>
<caption>
=================================================================================================================================
Three Month Period Ended Six Month Period Ended
July 31, July 31,
------------------------------------- -------------------------------
2004 2003 2004 2003
--------------- ------------ ------------- -------------
<s> <c> <c> <c> <c>
FUNDS DERIVED FROM (APPLIED TO)
Operating activities
Net loss for the period $ (22,044) $ (12,758) $ (37,863) $ (26,624)
Items not requiring use of cash
Amortization 87 -- 174 --
Changes in non-cash working capital items
GST receivable (182) -- (351) --
Accounts payable and accrued (1,635) 9,680 (3,043) 22,154
- ---------------------------------------------------------------------------------------------------------------------------------
(23,774) (3,078) (41,083) (4,470)
Investing activities
Investment in mineral property -- -- (4,206)
- ---------------------------------------------------------------------------------------------------------------------------------
Financing activities
Loans from related parties, net 24,990 2,999 40,992 8,695
- -------- ------------------------------------------------------------------------------------------------------------------------
CASH INCREASE (DECREASE)
DURING THE PERIOD 1,216 (79) (91) 19
CASH (BANK OVERDRAFT),
BEGINNING OF PERIOD (720) 1,952 587 1,854
- ---------------------------------------------------------------------------------------------------------------------------------
CASH, END OF PERIOD $ 496 $ 1,873 $ 496 $ 1,873
=================================================================================================================================
</table>
See Accompanying Review Engagement Report and Notes to Financial Statements
<page>
GEMSTAR RESOURCES LTD.
Notes to Financial Statements
July 31, 2004
(Unaudited)
- --------------------------------------------------------------------------------
Note 1. NATURE AND CONTINUANCE OF OPERATIONS
The Company was incorporated on March 31, 1998. The Company is in the
development stage relating to exploration and development of mineral
properties and has not generated any revenues from its planned
operations. The deficit has been accumulated during this development
stage.
While the information presented in the accompanying interim six month
to July 31, 2004 financial statements is unaudited, it includes all
adjustments which are, in the opinion of management necessary to
present fairly the financial position, results of operations and cash
flows for the interim periods presented.
These financial statement have been prepared in accordance with
Canadian generally accepted accounting principles applicable to a
going concern which assume that the Company will realize its assets
and discharge its liabilities in the normal course of business. The
Company has incurred losses since inception of $1,880,700 and has a
working capital deficit at July 31, 2004 of $811,289. These factors
create doubt as to the ability of the Company to continue as a going
concern unless sufficient funds are raised for the payment of its
current liabilities and for ongoing operations. Realization values
may be substantially different from the carrying values as shown in
these financial statements should the Company be unable to continue
as a going concern.
Note 2. SIGNIFICANT ACCOUNTING POLICIES
a) Fixed assets and amortization
The Company records amortization on computer equipment at 30%, on
a declining balance basis.
July 31,
----------------------------------
2004 2003
---------------- ---------------
Cost $ 1,653 $ -
Accumulated amortization 670 -
- ------------------------------------------------------------------------------
$ 983 $ -
==============================================================================
b) General and administration expenses
General and administration expenses are written off to
operations as incurred.
c) Financial Instruments
The Company's financial instruments consist of cash and bank
overdraft, GST receivable, and current liabilities. It is
management's opinion that the Company is not exposed to
significant interest, currency or credit risks arising from
these financial instruments. The fair value of these financial
statements approximates their carrying values.
<page>
GEMSTAR RESOURCES LTD.
Notes to Financial Statements
July 31, 2004
(Unaudited)
- --------------------------------------------------------------------------------
Note 2. SIGNIFICANT ACCOUNTING POLICIES (cont'd)
d) Translation of Foreign Currency
The accounts of the Company are translated into Canadian dollars
on the following basis:
-monetary assets and liabilities are translated at the rate of
exchange in effect at the balance sheet date
-non-monetary assets and liabilities are translated at the rate
prevailing when the transaction occurred
-revenue, general & administration expenses, and gains and
losses are translated at the average exchange rate in effect
during the period
-exchange gains or losses from conversion are included in the
current net income.
-depreciation or amortization of assets translated at historical
exchange rates are translated at the same exchange rates as the
assets to which they relate;
e) Use of estimates
The preparation of financial statements in accordance with
Canadian generally accepted accounting principles requires
management to make estimates that affect certain reported
amounts and disclosures. Estimates are used for, but are not
limited to, the accounting for doubtful accounts, amortization,
income taxes, and the recoverability of non-producing mining
property capitalized costs and deferred exploration
expenditures. Actual results may differ from those estimates.
f) Stock-based compensation plan
Effective January 1, 2002 the Company adopted, on a prospective
basis, CICA HB 3870 stock-based compensation and other
stock-based payments, which established standards for the
recognition, measurement, and disclosure of stock-based
payments made in exchange for goods and services. Stock-based
compensation and other stock-based payments require that
stock-based payments to non-employees be accounted for using a
fair value based method of accounting.
The new standards permit, and the Company has adopted, the use
of the intrinsic value based method, which recognizes
compensation costs for awards to employees only when the market
price exceeds the exercise price at date of grant, but requires
pro forma disclosure of earnings and earnings and earnings per
share as if the fair value based method had been adopted. No
stock options were issued during the period.
g) Cash
Cash and cash equivalents consist of $496 cash deposit in bank,
$6,900 security deposit for credit card and $354 cash in
lawyers' trust account as at July 31, 2004.
<page>
GEMSTAR RESOURCES LTD.
Notes to Financial Statements
July 31, 2004
(Unaudited)
- --------------------------------------------------------------------------------
Note 2. SIGNIFICANT ACCOUNTING POLICIES (cont'd)
h) Mineral Properties
Acquisition costs of mineral properties are capitalized by
the Company, and are dealt with in the same manner as
deferred exploration costs. Mineral property sale proceeds
or option payments received for exploration rights are
credited firstly to mineral property costs, secondly, as a
recovery of deferred exploration costs, and thereafter,
recognized as a gain or loss in current operations.
i) Values
The amounts for deferred exploration costs and mineral
properties represent costs incurred to date and are not
intended to reflect present or future values. The
recoverability of the amounts shown for mineral properties
and deferred exploration costs is dependent on the
confirmation of economically recoverable reserves, the
ability of the Company to obtain the necessary financing to
successfully complete their development, including
compliance with the requirements of lenders who may provide
this financing from time to time, and upon future profitable
operations.
j) Restatement of Prior Year Figures
On the cancellation of 637,500 escrow shares for the fiscal
year ended January 31, 2003, there was no reduction in the
dollar amounts of issued share capital. The January 31, 2003,
figures have been restated to reflect a reduction in issued
share capital of $6,375 and a credit to the retained earnings
(deficit) for $6,375 reflecting the cancellation of escrow
shares.
k) In the opinion of management the unaudited quarterly financial
statements reflect all adjustments consisting only of normal
recurring adjustments, necessary to present fairly the
financial position at July 31, 2004, the results of operations
and changes in cash flows for the six month period ended July
31, 2004, in accordance with accounting principles generally
accepted in Canada. These financial statements should be read
in conjunction with the Company's financial statements and
notes thereto related to the year ended January 31, 2004.
<page>
GEMSTAR RESOURCES LTD.
Notes to Financial Statements
July 31, 2004
(Unaudited)
- --------------------------------------------------------------------------------
Note 3. SHARE CAPITAL
a) Authorized: 100,000,000 common shares without par value
b) Issued and outstanding:
<table>
<caption>
Six Month Period Ended July 31,
---------------------------------------------------
2004 2003
------------------------- ----------------------
Shares $ Shares $
--------- ---------- --------- ----------
Number of Total of Number of Total of
Common Capital Common Capital
shares stock shares stock
--------- ---------- --------- ---------
<s> <c> <c> <c> <c>
Balance, January 31, 2004 and 2003
Unchanged to July 31, 2004 & 2003 5,651,714 $ 1,113,471 5,651,714 $ 1,113,471
====================================================
</table>
Note 4. RELATED PARTY TRANSACTIONS
(a) (i) Loans from related parties of $725,636 as at July 31, 2004
($684,644 - January 31, 2004) are unsecured, non interest bearing,
with no specific terms of repayment.
(ii)Loans from related party of $106,754.15 as at July 31, 2004 is
non interest bearing, and shall mature on January 1, 2006 unless
it is converted into equity (each $0.05 of Principal outstanding
may be converted into one share) prior to the maturity date. This
amount is disclosed as equity.
(b) Management fees incurred and expenses paid on behalf of the
Company for the period ended July 31, 2004 are as follows:
Management Office Travel&
Fees Expenses Promotion Total
--------- -------- --------- --------
Darcy Krell $ 15,000 $ 11,327 $ 3,726 $ 30,053
Linda Smith 950 950
------------------------------------------------------------------
$ 15,000 $ 12,277 $ 3,726 $ 31,003
==================================================================
Note 5. INCOME TAXES
The Company does not have any income tax liabilities during the
current year and, accordingly, no income taxes are recorded. The
potential income tax benefits associated with losses incurred by the
Company have not been recorded in the accounts as future taxation,
due to uncertainty as to the utilization of tax losses.
<page>
GEMSTAR RESOURCES LTD.
Notes to Financial Statements
July 31, 2004
(Unaudited)
- --------------------------------------------------------------------------------
Note 6. INVESTMENT IN MINERAL PROPERTY
The claims that the Company acquired from L.C.M. Equity Inc. in
the Black River area in the, Thunder Bay Mining Division,
Ontario, expired during the fiscal year ended January 31, 2003, and
accordingly, costs of $200,000 were written off, resulting in a
charge to operations of $200,000 in that fiscal year. During the
current fiscal year ended January 31, 2004, the claims were restaked
and the costs of restaking the newly named claims are capitalized as
deferred exploration costs.
The Company has 100% interest in Dotted Lake Property (TB 3011450
expiring March 14, 2005, TB 3011451 expiring March 14, 2005, TB
3011452 expiring March 23, 2005, TB3011453 expiring March 23, 2005,
TB3011454 expiring March 23, 2005, Thunder Bay Mining Division,
Ontario, Canada. These claims are held in trust for the Company in
the name of 1179406 Ontario Limited, the latter of which is owned by
Mr. Robert Reukl, the original staker of the claims who transferred
the claims to1179406 Ontario Limited.
Geological fees of $4,206 covering staking of these claims were
incurred and capitalized for the year ended January 31, 2004.
Note 7. ADVANCE FOR EXPLORATION EXPENDITURES
The advance for exploration expenditures of $152,000 is held by
L.C.M. Equity Inc. ("LCM") for exploration expenditures. LCM is
required to proceed with exploration upon notice from Gemstar
Resources Ltd. LCM is a private company which is not related to
Gemstar Resources Inc. Management has determined that there is no
impairment of this amount as at July 31, 2004.
Note 8. LAWSUIT
There is a claim by Ellis Foster that it is owed $51,680 for
accounting services it provided to the Company. The Company disputes
the payment of fees charged to it in the connection with the audit of
Dalian Maple Leaf International School, a private company owned by
the Company's former president, Mr. Sherman Jen.
Note 9. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
These financial statements are prepared in accordance with Canadian
generally accepted accounting principles (Canadian GAAP).
Differences at July 31, 2004 between Canadian GAAP and United
States generally accepted accounting principles (U.S. GAAP) are
described below, with the financial statement disclosure restated
from Canadian GAAP with adjustments shown to conform to U.S. GAAP:
<page>
GEMSTAR RESOURCES LTD.
Notes to Financial Statements
July 31, 2004
(Unaudited)
- --------------------------------------------------------------------------------
Note 9. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONT'D)
GEMSTAR RESOURCES LTD.
(an Exploration Stage Enterprise)(j)
BALANCE SHEET
July 31, 2004
(With Comparative Figures as at July 31, 2003)
(In Canadian Dollars)
<table>
<caption>
=================================================================================================================================
2004
----------------------------------------------------------
Adjustments
Canadian to Arrive at U.S.
GAAP U.S. GAAP GAAP 2003
--------------- ---------------- ---------------- ---------------
<s> <c> <c> <c> <c>
ASSETS
Current Assets
Cash $ 496 $ -- $ 496 $ 1,873
Cash in lawyer trust account 354 (a) (354) -- --
Deposit on credit card 6,900 (a) (6,900) -- --
GST receivable 2,809 -- 2,809 1,790
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 10,559 (7,254) 3,305 3,663
Advance for exploration expenditures 152,000 (a) (152,000) -- --
Fixed Assets, net 983 -- 983 --
Investment in mineral property 4,206 (b) (4,206) -- --
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 167,748 $ (163,460) $ 4,288 $ 3,663
===============================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities $ 96,212 $ -- $ 96,212 $ 228,037
Loans from related parties 725,636 -- 725,636 625,997
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 821,848 -- 821,848 854,034
- -------------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity
Share capital
Authorized:
100,000,000 common shares without par value
Issued:
5,651,714 common shares
(July 31, 2004 - 5,651,714 common shares) 1,113,471 -- 1,113,471 1,113,471
Loans from related party 106,754 -- 106,754 --
Retained earnings, accumulated during
the development stage (1,874,325) (163,460) (2,037,785) (1,963,842)
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY (654,100) (163,460) (817,560) (850,371)
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 167,748 $ (163,460) $ 4,288 $ 3,663
===============================================================================================================================
</table>
APPROVED ON BEHALF OF THE BOARD:
"Linda Smith"
- ---------------
"Shannon Krell"
- ---------------
<page>
GEMSTAR RESOURCES LTD.
Notes to Financial Statements
July 31, 2004
(Unaudited)
- --------------------------------------------------------------------------------
Note 9. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONT'D)
GEMSTAR RESOURCES LTD.
(an Exploration Stage Enterprise)(j)
STATEMENT OF INCOME
For the Period Ended July 31, 2004
(With Comparative Figures for the Period Ended July 31 2003)
(In Canadian Dollars)
(Unaudited)
<table>
<caption>
=================================================================================================================================
Six Month Period Ended
---------------------------------------------------------------------------------
2004
-----------------------------------------------------------
Adjustments
Canadian to Arrive at U.S.
GAAP U.S. GAAP GAAP 2003
--------------- ---------------- ---------------- ----------------
<s> <c> <c> <c> <c>
GENERAL AND ADMINISTRATION EXPENSES
Amortization $ 174 $ -- $ 174 --
Audit fees 3,000 -- 3,000 400
Bank charges and interest 144 -- 144 463
Consulting 2,205 -- 2,205 1,035
Exploration costs on mineral properties -- -- -- 4,206
Management fees 15,000 -- 15,000 15,000
Office expense 13,615 -- 13,615 9,726
Travel and promotion 3,725 -- 3,725 --
- ---------------------------------------------------------------------------------------------------------------------------------
37,863 -- 37,863 30,830
- ---------------------------------------------------------------------------------------------------------------------------------
NET LOSS FOR THE PERIOD $ (37,863) $ -- $ (37,863) $ (30,830)
=================================================================================================================================
Weighted Average Number of Shares Outstanding
Basic 5,651,714 5,651,714 5,651,714
=================================================================================================================================
Diluted 5,651,714 5,651,714 5,651,714
=================================================================================================================================
NET PROFIT (LOSS) PER SHARE
Basic $ (0.01) $ (0.01) $ (0.01)
=================================================================================================================================
Diluted $ (0.01) $ (0.01) $ (0.01)
=================================================================================================================================
</table>
<table>
<caption>
Three Month Period Ended
---------------------------------------------------------------------------------
2004
-----------------------------------------------------------
Adjustments
Canadian to Arrive at U.S.
GAAP U.S. GAAP GAAP 2003
--------------- ---------------- ---------------- ----------------
<s> <c> <c> <c> <c>
GENERAL AND ADMINISTRATION EXPENSES
Amortization $ 87 $ -- $ 87 --
Audit fees 3,000 -- 3,000 --
Bank charges and interest 102 -- 102 250
Consulting 2,205 -- 2,205 --
Management fees 7,500 -- 7,500 7,500
Office expense 7,487 -- 7,487 5,008
Travel and promotion 1,663 -- 1,663 --
- ---------------------------------------------------------------------------------------------------------------------------------
22,044 -- 22,044 12,758
- ---------------------------------------------------------------------------------------------------------------------------------
NET LOSS FOR THE PERIOD $ (22,044) $ -- $ (22,044) $ (12,758)
=================================================================================================================================
Weighted Average Number of Shares Outstanding
Basic 5,651,714 5,651,714 5,651,714
=================================================================================================================================
Diluted 5,651,714 5,651,714 5,651,714
=================================================================================================================================
NET PROFIT (LOSS) PER SHARE
Basic $ (0.00) $ (0.00) $ (0.00)
=================================================================================================================================
Diluted $ (0.00) $ (0.00) $ (0.00)
=================================================================================================================================
</table>
<page>
GEMSTAR RESOURCES LTD.
Notes to Financial Statements
July 31, 2004
(Unaudited)
- --------------------------------------------------------------------------------
Note 9. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONT'D)
GEMSTAR RESOURCES LTD.
(an Exploration Stage Enterprise)(j)
STATEMENT OF RETAINED EARNINGS
July 31, 2004
(With Comparative Figures for the Period Ended July 31 2003)
(In Canadian Dollars)
(Unaudited)
<table>
<caption>
=================================================================================================================================
Six Month Period Ended
------------------------------------------------------------------
2004
------------------------------------------------------
Adjustments
Canadian to Arrive at U.S.
GAAP U.S. GAAP GAAP 2003
-------------- -------------- ---------------- ---------------
<s> <c> <c> <c> <c>
Net loss for the period $ (37,863) $ -- $ (37,863) $ (30,830)
Retained earnings (Deficit), beginning of period (1,836,462) (163,460) (1,999,922) (1,933,012)
- ---------------------------------------------------------------------------------------------------------------------------------
Deficit, end of period $ (1,874,325) $ (163,460) $ (2,037,785) $ (1,963,842)
=================================================================================================================================
</table>
<table>
<caption>
Three Month Period Ended
------------------------------------------------------------------
2004
------------------------------------------------------
Adjustments
Canadian to Arrive at U.S.
GAAP U.S. GAAP GAAP 2003
-------------- -------------- ---------------- ---------------
<s> <c> <c> <c> <c>
Net loss for the period $ (22,044) $ -- $ (22,044) $ (12,758)
Retained earnings (Deficit), beginning of period (1,852,281) (163,460) (2,015,741) (1,951,084)
- ---------------------------------------------------------------------------------------------------------------------------------
Deficit, end of period $ (1,874,325) $ (163,460) $ (2,037,785) $ (1,963,842)
=================================================================================================================================
</table>
GEMSTAR RESOURCES LTD.
(an Exploration Stage Enterprise)(j)
Statement of Stockholders' Equity
Period Ended July 31, 2004
(In Canadian Dollars)
(Unaudited)
<table>
<caption>
=================================================================================================================================
Total Loans from Retained Total
Number of Capital Related Earnings Stockholders'
Shares Stock Party (Deficit) Equity
--------------- ---------------- ------------- --------------- --------------
<s> <c> <c> <c> <c> <c>
Balance, Beginning of Year
January 31, 2003 5,654,714 $ 1,113,471 $ $ (1,933,012) $ (819,541)
Loan from related party 106,754 106,754
Net Loss for the year (66,910) (66,910)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, End of Year,
January 31, 2004 5,654,714 $ 1,113,471 $ 106,754 $ (1,999,922) $ (779,697)
Net loss for the period (37,863) (37,863)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, End of Period
July 31, 2004 5,654,714 $ 1,113,471 $ 106,754 $ (2,037,785) $ (817,560)
=================================================================================================================================
</table>
<page>
GEMSTAR RESOURCES LTD.
Notes to Financial Statements
July 31, 2004
(Unaudited)
- --------------------------------------------------------------------------------
Note 9. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONT'D)
GEMSTAR RESOURCES LTD.
(an Exploration Stage Enterprise)(j)
STATEMENT OF CASH FLOWS
For the Period Ended July 31, 2004
(With Comparative Figures for the Period Ended July 31 2003)
(In Canadian Dollars)
(Unaudited)
<table>
<caption>
=================================================================================================================================
Six Month Period Ended
------------------------------------------------------------------
2004
------------------------------------------------------
Adjustments
Canadian to Arrive at U.S.
GAAP U.S. GAAP GAAP 2003
-------------- -------------- ---------------- ---------------
<s> <c> <c> <c> <c>
FUNDS DERIVED FROM (APPLIED TO)
Operating activities
Net loss for the period $ (37,863) $ -- $ (37,863) $ (30,830)
Items not requiring use of cash
Amortization 174 -- 174 --
Changes in non-cash working capital items
GST receivable (351) -- (351) --
Accounts payable and accrued (3,043) -- (3,043) 22,154
- ---------------------------------------------------------------------------------------------------------------------------------
(41,083) -- (41,083) (8,676)
- ---------------------------------------------------------------------------------------------------------------------------------
Investing activities -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Financing activities
Loans from related parties, net 40,992 -- 40,992 8,695
- ---------------------------------------------------------------------------------------------------------------------------------
CASH INCREASE (DECREASE)
DURING THE PERIOD (91) -- (91) 19
CASH, BEGINNING OF PERIOD 587 -- 587 1,854
- ---------------------------------------------------------------------------------------------------------------------------------
CASH, END OF PERIOD $ 496 $ -- $ 496 $ 1,873
=================================================================================================================================
</table>
<table>
<caption>
Three Month Period Ended
------------------------------------------------------------------
2004
------------------------------------------------------
Adjustments
Canadian to Arrive at U.S.
GAAP U.S. GAAP GAAP 2003
-------------- -------------- ---------------- ---------------
<s> <c> <c> <c> <c>
FUNDS DERIVED FROM (APPLIED TO)
Operating activities
Net loss for the period $ (22,044) $ -- $ (22,044) $ (12,758)
Items not requiring use of cash
Amortization 87 -- 87 --
Changes in non-cash working capital items
GST receivable (182) -- (182) --
Accounts payable and accrued (1,635) -- (1,635) 9,680
- ---------------------------------------------------------------------------------------------------------------------------------
(23,774) -- (23,774) (3,078)
- ---------------------------------------------------------------------------------------------------------------------------------
Investing activities -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Financing activities
Loans from related parties, net 24,990 -- 24,990 2,999
- ---------------------------------------------------------------------------------------------------------------------------------
CASH INCREASE (DECREASE)
DURING THE PERIOD 1,216 -- 1,216 (79)
CASH, BEGINNING OF PERIOD (720) -- (720) 1,952
- ---------------------------------------------------------------------------------------------------------------------------------
CASH, END OF PERIOD $ 496 $ -- $ 496 $ 1,873
=================================================================================================================================
</table>
<page>
GEMSTAR RESOURCES LTD.
Notes to Financial Statements
July 31, 2004
(Unaudited)
- --------------------------------------------------------------------------------
Note 9. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONT'D)
Detailed adjustments from Canadian GAAP to U.S. GAAP, referenced to
disclosure restated, above, are as follows:
(a) Deposit in credit card, legal retainer, and advance for
exploration expenditure
Under Canadian GAAP, deposit in credit card of $6,900, legal
retainer of $354, and advance for exploration expenditure for
$152,000 can be prepaid. Under United States GAAP, deposit in
credit card, legal retainer and advance for exploration
expenditure should be expensed as incurred, and accordingly,
the amount of $159,254 is expensed in the current statement of
income.
(b) Accounting for start-up costs - Mining Properties
Deferred Exploration Costs
Under Canadian accounting principles, these costs and
recoveries may be deferred prior to the commencement of
commercial operations. Accounting principles in the United
States require expenditures and revenue during the start-up of
operations to be charged to earnings. The exploration costs of
$4,206 which are deferred under Canadian accounting
principles, are expensed in the current statement of income
for U.S. GAAP.
(c) Income taxes
The accounting for income taxes under Canadian GAAP and United
States GAAP is essentially the same, except that:
- income tax rates of enacted or substantively enacted tax law
must be used to calculate future income tax assets and
liabilities under Canadian GAAP.
- Only income tax rates of enacted tax law can be used under
United States GAAP.
For both Canadian GAAP and U.S. GAAP, no Future Income Tax
(Canadian GAAP) or Deferred Tax (U.S. GAAP) are either recorded
as assets or as liabilities, as they are offset by valuation
reserves due to uncertainty of utilization of tax losses.
<page>
GEMSTAR RESOURCES LTD.
Notes to Financial Statements
July 31, 2004
(Unaudited)
- --------------------------------------------------------------------------------
Note 9. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONT'D)
(d) Earnings (Loss) per Common Share
Loss per common share for Canadian GAAP for the period ended
July 31, 2004 is increased for U.S. GAAP due to fact that the
loss has been revised under U.S. GAAP.
<table>
<caption>
Weighted Net Loss Loss Per Common Share
Average -------------------------- --------------------------
Common Shares Canadian US Canadian US
Outstanding GAAP GAAP GAAP GAAP
--------- ---------- ----------- ----------- -----------
<s> <c> <c> <c> <c> <c>
Basic Earnings (Loss)
Per common Share 5,651,714 $ (37,863) $ (37,863) $ (0.01) $ (0.01)
========================
Dilution Effect 0 0 0
- ------------------------------------------------------------------------
Diluted Earnings (Loss)
Per Common Share 5,651,714 $ (37,863) $ (37,863) $ (0.01) $ (0.01)
===================================================================================================
</table>
(e) Accounting for asset retirement obligations
In August of 2001, U.S. FASB issued Statement of Financial
Accounting Standards No. 143, "Accounting for Asset
Retirement Obligations" ("SFAS 143"). SFAS 143 addresses
financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets
and the associated asset retirement costs. SFAS 143 applies
to all entities. It applies to legal obligations associated
with the retirement of long-lived assets that result from
the acquisition, construction, development and / or the
normal operation of a long-lived asset, except for certain
obligations of lessees. SFAS 143 requires that the fair
value of a liability for an asset retirement obligation be
recognized in the period in which it is incurred if a
reasonable estimate of fair value can be made. The
associated asset retirement costs are capitalized as part of
the carrying amount of the long-lived asset. SFAS 143 is
effective for financial statements issued for fiscal years
beginning after June 15, 2002. The Company adopted SFAS 143
for the fiscal year beginning on February 1, 2003. The
Company believes that SFAS 143 will not have a material
effect on the Company's results of operations, financial
position or liquidity.
<page>
GEMSTAR RESOURCES LTD.
Notes to Financial Statements
July 31, 2004
(Unaudited)
- --------------------------------------------------------------------------------
Note 9. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONT'D)
(f) Impairment of capital costs
Since February 1, 2003, the Company adopted CICA 3063.04 and
3063.09 for Impairment of capital costs of mineral
properties and considered the conditions set out in CICA
3063.09-.10. to determine whether a write-down of capital
costs is required. The adoption of the Impairment of capital
costs eliminates all differences between Canadian and U.S.
GAAP which impairment is defined in FAX-144 as the condition
that exists when the carrying amount of a long-lived asset
exceeds its fair value.
(g)Accounting for costs associated with exit or disposal activities
The U.S. FASB recently issued new Standard No. 146 relating to
accounting for costs associated with exit or disposal
activities. Effective February 1, 2003, the new standard
requires the recognition of costs associated with exit or
disposal activities when they are incurred rather than at the
date of a commitment to an exit or disposal plan. The Company
is required to apply the standard for U.S. GAAP purposes
prospectively to exit or disposal activities initiated after
February 1, 2003.
(h) Investment securities
U.S. GAAP requires that investment securities be classified as
either "available for sale" or "held to maturity", and
requires available for sale securities to be reported on the
balance sheet at their estimated fair values. Unrealized gains
and losses arising from changes in fair values of available
for sale securities are reported net of income taxes in other
comprehensive income. Other than temporary declines in fair
value are recorded by transferring the unrealized loss from
other comprehensive income to the statement of income. For
U.S. GAAP, the Company accounts for substantially all
investment securities as available for sale. Under Canadian
GAAP, investment securities are carried at cost or amortized
cost, with other than temporary declines in value recognized
based upon expected net realizable values.
(i) Statement of Stockholders' Equity
A separate Statement of Stockholders' Equity is not required
for Canadian GAAP; it is, however, required in accordance with
U.S. GAAP and, accordingly, is disclosed as a separate
statement in the abovementioned for U.S. GAAP.
<page>
GEMSTAR RESOURCES LTD.
Notes to Financial Statements
July 31, 2004
(Unaudited)
- --------------------------------------------------------------------------------
Note 9. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONT'D)
(j) Exploration Stage Enterprise
Under the Canadian accounting principles, the Company is
considered to be a Development Stage Enterprise. In accordance
with U.S. accounting principles this reference is revised to
Exploration Stage Enterprise.
Additional disclosure of the following items is required under
U.S. accounting principles for exploration stage enterprises:
(1) separate caption in the shareholders' equity section of
the balance sheet reporting cumulative net losses during the
exploration stage, and this is disclosed in the abovementioned
balance sheet reconciled to U.S. GAAP. (2) cumulative amounts
of revenues and expenses since inception, (3) cumulative
statement of cash flows since inception, and (4) details of
each issuance of capital stock since inception. The Company
has been an exploration stage since March 31, 1998 and the
accumulated figures, for Items 2 and 3, are not available and
therefore are not disclosed.