================================================================================
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. as at January 31,
2004, and the Statements of Income, Retained Earnings (Deficit), and Cash Flows
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 audit.
We conducted our audit in accordance with Canadian 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.
The audited financial statements as of January 31, 2003 and January 31, 2002 and
for the years 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, and June 10, 2002, respectively.
"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 and January 31, 2002)
(In Canadian Dollars)
<table>
<caption>
=================================================================================================================================
2004 2003 2002
--------------- --------------- ---------------
<s> <c> <c> <c>
ASSETS
Current Assets
Cash (Note 2(g)) $ 587 $ 1,854 $ 308
Cash in lawyers' trust account (Note 2(g)) 354 -- --
Deposit on credit card (Note 2(g)) 6,900 6,900 6,900
GST receivable 2,458 1,790 1,573
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 10,299 10,544 8,781
Advance for exploration expenditures (Note 7) 152,000 152,000 152,000
Fixed Assets, net (Note 2) 1,157 -- --
Investment in mineral property (Note 6) 4,206 -- 200,000
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 167,662 $ 162,544 $ 360,781
=================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities $ 99,255 $ 100,883 $ 90,240
Loans from related parties (Note 4) 684,644 722,302 668,750
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 783,899 823,185 758,990
- ---------------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity
Share capital (Note 3)
Authorized:
100,000,000 common shares without par value
Issued:
5,651,714 common shares 1,113,471 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) (1,511,680)
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY (616,237) (660,641) (398,209)
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 167,662 $ 162,544 $ 360,781
=================================================================================================================================
</table>
Nature and continuance of operations: Note1
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 Years Ended January 31, 2003
and January 31, 2002)
(In Canadian Dollars)
<table>
<caption>
================================================================================================================================
2004 2003 2002
--------------- --------------- ---------------
<s> <c> <c> <c>
GENERAL AND ADMINISTRATION EXPENSES
Amortization $ 496 $ -- $ --
Audit fees 2,700 8,390 --
Bank charges and interest 604 292 2,286
Consulting 1,035 -- 4,684
Filing and transfer agent fees 711 647 8,755
Legal fees 1,218 -- 10,481
Management fees 30,000 30,000 20,000
Office expense 23,401 20,871 20,791
Travel and promotion 2,185 2,232 2,161
- --------------------------------------------------------------------------------------------------------------------------------
62,350 62,432 69,158
- --------------------------------------------------------------------------------------------------------------------------------
LOSS BEFORE BELOW ITEM (62,350) (62,432) (69,158)
Write off interest in mineral claims dropped -- (200,000) --
- --------------------------------------------------------------------------------------------------------------------------------
NET LOSS FOR THE YEAR $ (62,350) $ (262,432) $ (69,158)
================================================================================================================================
Weighted Average Number of Shares Outstanding
Basic 5,651,714 5,652,000 5,652,000
================================================================================================================================
Diluted 5,651,714 5,652,000 5,652,000
================================================================================================================================
NET PROFIT (LOSS) PER SHARE
Basic $ (0.01) $ (0.05) $ (0.05)
================================================================================================================================
Diluted $ (0.01) $ (0.05) $ (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 Years Ended January 31, 2003
and January 31, 2002)
(In Canadian Dollars)
<table>
<caption>
=============================================================================================================================
2004 2003 2002
--------------- --------------- ---------------
<s> <c> <c> <c>
Net loss for the year $ (62,350) $ (262,432) $ (69,158)
Retained earnings (Deficit), beginning of year (1,774,112) (1,511,680) (1,448,897)
Adjustments to opening retained earnings
- Cancellation of escrow shares (Note 2(j)) -- -- 6,375
- -----------------------------------------------------------------------------------------------------------------------------
Deficit, end of year $ (1,836,462) $ (1,774,112) $ (1,511,680)
=============================================================================================================================
</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 Years Ended January 31, 2003
and January 31, 2002)
(In Canadian Dollars)
<table>
<caption>
=================================================================================================================================
2004 2003 2002
--------------- --------------- ---------------
<s> <c> <c> <c>
FUNDS DERIVED FROM (APPLIED TO)
Operating activities
Net loss for the year $ (62,350) $ (262,432) $ (69,158)
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) (1,009)
Prepaids -- -- (152,000)
Cash in lawyers' trust account (354) -- --
Accounts payable and accrued (1,628) 55,143 48,147
- ---------------------------------------------------------------------------------------------------------------------------------
(64,504) (7,506) (174,020)
- ---------------------------------------------------------------------------------------------------------------------------------
Investing activities
Investment in mineral property (4,206) -- (200,000)
Purchase of fixed assets (1,653) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
(5,859) -- (200,000)
- ---------------------------------------------------------------------------------------------------------------------------------
Financing activities
Loans from related parties, net 69,096 9,052 368,256
- ---------------------------------------------------------------------------------------------------------------------------------
CASH INCREASE (DECREASE) DURING THE YEAR (1,267) 1,546 (5,764)
CASH, BEGINNING OF YEAR 1,854 308 6,072
- ---------------------------------------------------------------------------------------------------------------------------------
CASH, END OF YEAR $ 587 $ 1,854 $ 308
=================================================================================================================================
</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 2002
---------------- --------------- ----------------
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, 2002, there was no reduction in the
dollar amounts of issued share capital. The January 31, 2002,
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 2002
------------------------ ----------------------- ---------------------------
Shares $ Shares $ Shares $
--------- ---------- ---------- ---------- ----------- -------------
Number of Total of Number of Total of Number of Total of
Common Capital Common Capital Common Capital
shares stock shares stock shares stock
--------- ---------- --------- --------- ----------- -------------
<s> <c> <c> <c> <c> <c> <c>
Balance, January 31, 2003 and 2002 5,651,714 $ 1,113,471 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 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 and January 31, 2002)
(In Canadian Dollars)
<table>
<caption>
=========================================================================================================================
2004
------------------------------------------------
Adjustments
Canadian to Arrive at U.S.
GAAP U.S. GAAP GAAP 2003 2002
--------------- ---------------- ------------- ------------ ----------------
<s> <c> <c> <c> <c> <c>
ASSETS
Current Assets
Cash $ 587 $ -- 587 $ 1,854 $ 308
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 1,573
- --------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 10,299 (7,254) 3,045 3,644 1,881
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 $ 1,881
===========================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities $ 99,255 $ -- $ 99,255 $ 100,883 90,240
Loans from related parties 684,644 -- 684,644 722,302 668,750
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 783,899 -- 783,899 823,185 $ 758,990
- ---------------------------------------------------------------------------------------------------------------------------
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 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) (1,870,580)
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY (616,237) (163,460) (779,697) (819,541) (757,109)
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 167,662 $ (163,460) $ 4,202 $ 3,644 $ 1,881
===========================================================================================================================
</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 Years Ended January 31, 2003
and January 31, 2002)
(In Canadian Dollars)
<table>
<caption>
=================================================================================================================================
2004
---------------------------------------------------
Adjustments
Canadian to Arrive at U.S.
GAAP U.S. GAAP GAAP 2003 2002
--------------- ---------------- -------------- -------------- ---------------
<s> <c> <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 2,286
Consulting 1,035 -- 1,035 -- 4,684
Advance for exploration expenditures -- -- -- -- 152,000
Exploration costs on mineral properties -- (b) 4,206 4,206 -- --
Filing and transfer agent fees 711 -- 711 647 8,755
Legal fees 1,218 (a) 354 1,572 -- 10,481
Management fees 30,000 -- 30,000 30,000 20,000
Office expense 23,401 -- 23,401 20,871 20,791
Travel and promotion 2,185 -- 2,185 2,232 9,061
Write off interest in mineral claims dropped -- -- -- -- 200,000
- ---------------------------------------------------------------------------------------------------------------------------------
NET LOSS FOR THE YEAR $ 62,350 $ 4,560 $ 66,910 $ 62,432 $ 428,058
=================================================================================================================================
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 $ 0.01 $ 0.01 $ 0.01 0.08
=================================================================================================================================
Diluted $ 0.01 $ 0.01 $ 0.01 0.08
=================================================================================================================================
</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 Years Ended January 31, 2003
and January 31, 2002)
(In Canadian Dollars)
<table>
<caption>
=================================================================================================================================
2004
----------------------------------------------
Adjustments
Canadian to Arrive at U.S.
GAAP U.S. GAAP GAAP 2003 2002
--------------- -------------- -------------- ------------- -----------------
<s> <c> <c> <c> <c> <c>
Net loss for the year $ (62,350) $ (4,560) $ (66,910) $ ( 62,432) (428,058)
- ------------------------------------------------------------------------------------------------------------------------------
Retained earnings (Deficit), beginning of year (1,774,112) (158,900) (1,933,012) (1,870,580) (1,448,897)
Adjustments to opening retained earnings
- Cancellation of escrow shares -- -- -- -- 6,375
- ------------------------------------------------------------------------------------------------------------------------------
(1,774,112) (158,900) (1,933,012) (1,870,580) (1,442,522)
- ------------------------------------------------------------------------------------------------------------------------------
Deficit, end of year $ (1,836,462) $ (163,460) $ (1,999,922) $ (1,933,012) (1,870,580)
=================================================================================================================================
</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, 2002 5,654,714 $ 1,113,471 $ -- $ (1,870,580) $ (757,109)
Loan from related party -- --
Net Loss for the year -- -- -- (62,432) (62,432)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance for
year ended 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 Years Ended January 31, 2003 and
January 31, 2002)
(In Canadian Dollars)
<table>
<caption>
=================================================================================================================================
2004
-------------------------------------------
Adjustments
Canadian to Arrive at U.S.
GAAP U.S. GAAP GAAP 2003 2002
------------- ------------- ------------ --------------- -----------------
<s> <c> <c> <c> <c> <c>
FUNDS DERIVED FROM (APPLIED TO)
Operating activities
Net loss for the year $ (62,350) $ (4,560) $ (66,910) $ ( 62,432) $ (428,058)
Items not requiring use of cash
Amortization 496 -- 496 -- --
Changes in non-cash working capital items
GST receivable (668) -- (668) (217) --
Prepaids -- -- -- -- (1,009)
Cash in lawyers' trust account (354) (a) 354 -- -- --
Deposit on credit card -- -- -- -- 6,900
Accounts payable and accrued (1,628) -- (1,628) 55,143 48,147
- ---------------------------------------------------------------------------------------------------------------------------------
(64,504) (4,206) (68,710) (7,506) (374,020)
- ---------------------------------------------------------------------------------------------------------------------------------
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 9,052 368,256
- ---------------------------------------------------------------------------------------------------------------------------------
CASH INCREASE (DECREASE)
DURING THE YEAR (1,267) -- (1,267) 1,546 (5,764)
CASH, BEGINNING OF YEAR 1,854 -- 1,854 308 6,072
- ---------------------------------------------------------------------------------------------------------------------------------
CASH, END OF YEAR $ 587 $ -- $ 587 $ 1,854 308
=================================================================================================================================
</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>
================================================================================
GEMSTAR RESOURCES LTD.
Financial Statements
For the fiscal years ended January 31, 2003 and 2002
(Prepared in Canadian dollars)
INDEX
Page
----
Auditors' Report 1
Financial Statements
Balance Sheet 2
Statement of Operations and Deficit 3
Statement of Cash Flows 4
Notes to Financial Statements 5
- -------------------------------------------------------------------------------
1
AUDITORS' REPORT
To the Shareholders of
Gemstar Resources Ltd.
We have audited the balance sheets of Gemstar Resources Ltd. as of January 31,
2003 and 2002 and the statements of operations and deficit and statement of cash
flows for each of the years in the three-year period ended January 31, 2003.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with Canadian 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. We believe that our audits provide a reasonable basis for our
opinion
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as of January 31, 2003 and 2002
and the results of its operations and cash flows for each of the years in the
three-year period ended January 31, 2003 in accordance with Canadian generally
accepted accounting principles. As required by the British Columbia Company Act,
we report that, in our opinion, these principles have been applied, on a basis
consistent with that of the preceding year.
Generally accepted accounting principles in Canada vary in certain significant
respects from generally accepted accounting principles in the United States.
Application of generally accepted accounting principles in the United States
would have affected results of operations, loss per share and cash flows for the
years ended January 31, 2003, 2002 and 2001 and total assets, share capital and
deficit at January 31, 2003 and 2002, to the extent summarized in Note 9 to the
financial statements.
/s/ S.G.and Associates
Chartered Accountants
Richmond, BC, Canada
May 10, 2003
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA-U.S. REPORTING DIFFERENCES
In the United States, reporting standards for auditors require the additions of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by conditions and events that cast substantial doubt on
the Company's ability to continue as a going concern, such as those described in
Note 1 to the financial statements. Our report to the shareholders dated May 10,
2003, is expressed in accordance with Canadian reporting standards, which do not
permit a reference to such events and conditions in the auditor's reports when
these are adequately disclosed in the financial statements.
Chartered Accountants
Richmond, BC, Canada
September 26, 2003
- --------------------------------------------------------------------------------
GEMSTAR RESOURCES LTD.
Balance Sheet
January 31, 2003
(Prepared in Canadian dollars)
================================================================================================
2003 2002
- ------------------------------------------------------------------------------------------------
Assets
Current assets
Cash $ 1,854 $ 308
Prepaid 152,000 152,000
GST receivable 1,790 1,573
-------------------------------------------------------------------------------------------
Total current assets 155,644 153,881
Interest in unproven mineral claims (Note 4) --- 200,000
Deposits (Note 3) 6,900 6,900
- ------------------------------------------------------------------------------------------------
Total assets $ 162,544 $ 360,781
================================================================================================
Liabilities and Shareholders' Deficit
Current liabilities
Accounts payable and accrued liabilities $ 100,883 $ 90,240
Accounts payable and accrued liabilities to related parties 105,000 60,500
-------------------------------------------------------------------------------------------
205,883 150,740
Loans Payable from related parties (Note 7) 617,302 608,250
- ------------------------------------------------------------------------------------------------
823,185 758,990
Shareholders' deficit
Share Capital (Note 5) 1,119,846 1,119,846
Deficit (1,780,487) (1,518,055)
-------------------------------------------------------------------------------------------
Total shareholders' deficit (660,641) (398,209)
- ------------------------------------------------------------------------------------------------
Total liabilities and shareholders' deficit $ 162,544 $ 360,781
================================================================================================
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
GEMSTAR RESOURCES LTD.
Statement of Operations and Deficit
For the years ended January 31, 2003 and 2002
(Prepared in Canadian dollars)
===============================================================================================
2003 2002 2001
- -----------------------------------------------------------------------------------------------
REVENUES $ --- $ --- $ ---
EXPENSES
Bank charges and interest $ 292 $ 2,286 $ 16,397
Advertising and promotion 24 725 ---
Consulting --- 4,684 ---
Listing and filing fees 2,050 5,970 5,063
Management fees 30,000 20,000 35,000
Office 20,871 20,791 7,248
Professional fees 8,390 10,481 9,086
Transfer Agent 647 2,785 1,152
Travel 158 1,436 ---
- ------------------------------------------------------------------------------------------------
62,432 69,158 73,946
- ------------------------------------------------------------------------------------------------
NET LOSS BEFORE THE FOLLOWING (62,432) (69,158) (73,946)
WRITE OFF INTEREST IN UNPROVEN MINERAL CLAIMS (200,000) --- ---
- ------------------------------------------------------------------------------------------------
NET LOSS FOR THE YEAR (262,432) (69,158) (73,946)
DEFICIT, BEGINNING OF YEAR (1,518,055) (1,448,897) (1,374,951)
- ------------------------------------------------------------------------------------------------
DEFICIT, END OF YEAR $ (1,780,487) $ (1,518,055) $ (1,448,897)
================================================================================================
LOSS PER SHARE:
Basic and diluted $ (0.05) $ (0.01) $ (0.01)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic and diluted 5,652,000 5,652,000 5,970,000
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
GEMSTAR RESOURCES LTD.
Statement of Cash Flows
(For the years ended January 31, 2003 and 2002
(Prepared in Canadian dollars)
===================================================================================================
2003 2002 2001
- ---------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net loss for the year $( 262,432) $ (69,158) $ (73,946)
Add items not affecting working capital
Write off of 200,000 --- ---
- ----------------------------------------------------------------------------------------------------
(62,432) (69,158) (73,946)
Net changes in non-cash working capital items:
Prepaids --- (152,000) ---
GST receivable (217) (1,009) 2,682
Accounts payable and accrued liabilities 55,143 48,147 42,177
- ---------------------------------------------------------------------------------------------------
Cash used in operating activities (7,506) (174,020) (29,087)
- ---------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Acquisition of interest in unproven mineral claim --- (200,000) ---
Deposits --- --- (6,900)
- ---------------------------------------------------------------------------------------------------
Cash used in investing activities --- (200,000) (6,900)
- ---------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Loans payable from related parties, net 9,052 368,256 42,074
- ---------------------------------------------------------------------------------------------------
Cash provide by financing activities 9,052 368,256 42,074
- ---------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH DURING THE YEAR 1,546 (5,764) 6,087
CASH, BEGINNING OF THE YEAR 308 6,072 (15)
- ---------------------------------------------------------------------------------------------------
CASH, END OF THE YEAR $ 1,854 $ 308 $ 6,072
===================================================================================================
SUPPLEMENTARY CASH FLOW INFORMATION:
Cash paid during the year for:
Interest expenses $ 140 $ 1,821 $ 15,894
Income taxes $ --- $ --- $ ---
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
GEMSTAR RESOURCES LTD.
Notes to the Financial Statements
January 31, 2003
(Prepared in Canadian dollars)
- --------------------------------------------------------------------------------
1. Nature of operations and going concern
The accompanying financial statements have been prepared in accordance with
Canadian generally accepted accounting principles, which contemplates
continuation of the Company as a going concern. The Company's ability to
continue as a going concern is dependent upon the ability of management to
obtain sufficient financing. Management is actively seeking additional
financing, and while they have been successful in the past, there is no
assurance they will be able to do so in the future. These matters raise
doubt about the company's ability to continue as a going concern. These
financial statements do not include adjustments that would be necessary
should the company be unable to continue as a going concern.
..
2. Significant accounting policies
These financial statements are expressed in Canadian dollars except where
noted otherwise. These financial statements are prepared in accordance with
accounting principles generally accepted in Canada which do not differ from
those established in the United States, except as described in Note 9.
(a) Use of estimates
The preparation of financial statements in conformity with Canadian
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amount of assets,
particularly the recoverability of accounts receivable, capital and
intangible assets, and accrued liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting year. Actual results could differ from estimates.
(b) Fair value of financial instruments
The carrying value of certain of the Company's financial instruments,
including cash, accounts receivable, accounts payable, and accrued
liabilities approximates fair value due to their short-term maturity.
It is management's position that the Company is not exposed to
significant interest, currency or credit risks arising from these
financial instruments.
(c)Loss per share
Loss per common share is calculated using the weighted average number
of common shares issued and outstanding during each year.
- --------------------------------------------------------------------------------
GEMSTAR RESOURCES LTD.
Notes to the Financial Statements
January 31, 2003
(Prepared in Canadian dollars)
- --------------------------------------------------------------------------------
2. Significant accounting policies
(d) Interest in Unproven Mineral Claims
The Company records its interest in unproven mineral claims at cost.
Exploration and development expenditures relating to these interests
are capitalized until the properties to which they related are placed
into production, sold or allowed to lapse. These expenditures will be
amortized over the estimated useful life of the property on the units
of production method following commencement of production, written off
if the interest in unproven mineral claims or projects are sold or
allowed to lapse. General exploration expenditures are expensed as
incurred. The Company is in the process of exploring and developing its
properties and has not yet full determined the amount of resources and
reserves available in its properties. Senior management reviews the
carrying values of deferred interest in unproven mineral claims
acquisition and exploration expenditures with a view to assessing
whether there has been any impairment in value. There have been no
events or changes in circumstances to indicate that the carrying values
of the properties should be reassessed. In the event that reserves are
determined to be insufficient to recover the carrying values of any
property, the carrying value will be written down or written off, as
appropriate.
(e) Income taxes
The Company follows the liability method of accounting for income
taxes. Under this method, income liabilities and assets are recognized
for the estimated tax consequences attributable to differences between
the amounts reported in the financial statements and their respective
tax bases, using enacted income tax rates. The effect of a change in
income tax rates on future income tax liabilities and assets is
recognized in income in the period that the change occurs. A valuation
allowance has been provided , no previous benefit has been recognized
in the financial statements.
3. Deposits
The deposits are subject to restrictions that prevent its use for current
purposes.
- --------------------------------------------------------------------------------
GEMSTAR RESOURCES LTD.
Notes to the Financial Statements
January 31, 2003
(Prepared in Canadian dollars)
- --------------------------------------------------------------------------------
4. Interest in Unproven Mineral Claims
===========================================================================
2003 2002
---------------------------------------------------------------------------
Acquisition Costs
Dotted Lake Property, Ontario $ 200,000 $ 200,000
Write off of Interest in unproven mineral claims (200,000) ---
---------------------------------------------------------------------------
$ --- $ 200,000
===========================================================================
Dotted Lake Property, Ontario
The Company acquired a 100% undivided interest in seventy six mineral
claims located in the Black River Area, Thunder Bay Mining Division,
Ontario in the amount of $ 200,000.
During the year, the mineral claim lapsed and as a result the interest in
unproven mineral claims was written off.See Note 9
5. Share Capital
(a) The authorized share capital of the Company consists of 100,000,000
common shares without par value.
(b) The issued and outstanding common shares of the Company are as follows:
=======================================================================
Number of
shares Amount
-----------------------------------------------------------------------
Balance at January 31, 2000 6,289,214 $ 1,119,846
Cancellation of escrow shares (637,500) ---
-----------------------------------------------------------------------
Balance, January 31, 2002 and 2003 5,651,714 $ 1,119,846
=======================================================================
- --------------------------------------------------------------------------------
GEMSTAR RESOURCES LTD.
Notes to the Financial Statements
January 31, 2003
(Prepared in Canadian dollars)
- --------------------------------------------------------------------------------
6. Related Party Transactions
a) The Company paid and or accrued to a spouse of a director for the
following:
======================================================================
2003 2002 2001
----------------------------------------------------------------------
Office $ 18,000 $ 18,000 $ 7,500
Management Fees $ 30,000 $ 20,000 $ 35,000
----------------------------------------------------------------------
b) $105,000 (2002 - $ 60,500) included in accounts payable is an
amount due to a spouse of a director with respect for management
fees and office.
c) During the 2001 year, the Company was indebted to a company
controlled by a former director of the Company. This loan was
unsecured and repayable upon demand. This debt in the amount of
$215,705 was assigned to a spouse of a director.
d) These transactions are in the normal course of operations and are
measured at the exchange amount, which is the amount of
consideration established and agreed to by the related parties.
- --------------------------------------------------------------------------------
GEMSTAR RESOURCES LTD.
Notes to the Financial Statements
January 31, 2003
(Prepared in Canadian dollars)
- --------------------------------------------------------------------------------
7. Loans Payable from Related Parties
---------------------------------------------------------------------------------------
2003 2002
---------------------------------------------------------------------------------------
Unsecured non interest bearing loan without terms of repayment
from a spouse of a director of the Company. $ 22,231 77,639
Unsecured non interest bearing loan without terms of repayment
from a director of the Company. 413,317 423,857
Unsecured non interest bearing loan without terms of repayment
from a family member of a director of the Company. 181,754 106,754
---------------------------------------------------------------------------------------
617,302 608,250
8. Subsequent Event
Subsequent to January 31, 2003, the Company restaked the mineral claims
disclosed in Note 4.
9. United States Generally Accepted Accounting Principles
These financial statements have been prepared in accordance with generally
accepted accounting principles in Canada ("Canadian GAAP"), which differ in
certain respects from those principles and practices that the Company would
have followed had its financial statements been prepared in accordance with
generally accepted accounting principles in the United States ("US GAAP").
The Company is considered to be an exploration stage company under US GAAP.
Comprehensive earnings are the same as net earnings under US GAAP for all
periods presented. The following summarizes the significant differences
between Canadian GAAP and US GAAP as they relate to the Company:
(a) Interest in unproven mineral claims :
Under Canadian GAAP applicable to junior exploration companies, mineral
exploration expenditures related to interest in unproven mineral claims may
be initially capitalized if such costs have the characteristics of
property, plant and equipment and that capitalization is appropriate to its
circumstances. Under US GAAP, all interest in unproven mineral claims
acquisition costs and exploration expenditures are expensed until an
independent feasibility study has determined that the property is capable
of economic commercial production.
- --------------------------------------------------------------------------------
GEMSTAR RESOURCES LTD.
Notes to the Financial Statements
January 31, 2003
(Prepared in Canadian dollars)
- --------------------------------------------------------------------------------
9. United States Generally Accepted Accounting Principles (continued)
(b) Recent Accounting Pronouncements:
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity".
SFAS No. 150 establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both
liabilities and equity. It requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset in some
circumstances). The requirements of SFAS No. 150 apply to issuers'
classification and measurement of freestanding financial instruments,
including those that comprise more than one option or forward contract.
SFAS No. 150 does not apply to features that are embedded in a financial
instrument that is not a derivative in its entirety. SFAS No. 150 is
effective for financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003, except for mandatorily redeemable
financial instruments of nonpublic entities. It is to be implemented by
reporting the cumulative effect of a change in an accounting principle for
financial instruments created before the issuance date of SFAS No. 150 and
still existing at the beginning of the interim period of adoption.
Restatement is not permitted. The adoption of this standard is not expected
to have a material effect on the Company's results of operations or
financial position.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure", which amends SFAS No. 123 to
provide alternative methods of transition for a voluntary change to the
fair value based method of accounting for stock-based employee
compensation. In addition, SFAS No. 148 expands the disclosure requirements
of SFAS No. 123 to require more prominent disclosures in both annual and
interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported
results. The transition provisions of SFAS No. 148 are effective for fiscal
years ended after December 15, 2002. The disclosure provisions of SFAS No.
148 are effective for financial statements for interim periods beginning
after December 15, 2002. The Company adopted SFAS No. 148 on February 1,
2003 and as the Company has not granted stock options for the prior three
fiscal years, its impact did not have a material effect on the Company's
results of operations or financial position.
In June, 2002, FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities". The provisions of this Statement are
effective for exit or disposal activities that are initiated after December
31, 2002, with early application encouraged. This Statement addresses
financial accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force (EITF) Issue
No. 94-3, "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)". This Statement requires that a liability for a cost
associated with an exit or disposal activity be recognized when the
liability is incurred. The Company adopted SFAS No. 146 on January 1, 2003
and its impact did not have a material effect on its financial position or
results of operations.
FASB has also issued SFAS No. 145, 147 and 149 but they will not have any
relationship to the operations of the Company therefore a description of
each and their respective impact on the Company's operations have not been
disclosed.
- --------------------------------------------------------------------------------
GEMSTAR RESOURCES LTD.
Notes to the Financial Statements
January 31, 2003
(Prepared in Canadian dollars)
- --------------------------------------------------------------------------------
9. United States Generally Accepted Accounting Principles (continued)
The effect of differences in accounting under Canadian GAAP and US GAAP on
the statements of loss are as follows:
============================================================================
2003 2002 2001
----------------------------------------------------------------------------
Net loss for the year, under Canadian GAAP $ (262,432) $ (69,158) $ (73,946)
Difference in accounting for interest in
unproven mineral claims costs 200,000 (200,000) ---
----------------------------------------------------------------------------
Net loss for the year, under US GAAP $ (62,432) $(269,158) $ (73,946)
============================================================================
Net loss for the year under US GAAP per
common share:
Basic and diluted $ (0.01) $ (0.05) $ (0.01)
The effect of the differences in accounting under Canadian GAAP and US GAAP
on the balance sheets are as follows:
=========================================================================================================
January 31, 2003 January 31, 2002
---------------- ----------------
Canadian United States Canadian United States
GAAP GAAP GAAP GAAP
----------------------------------------------------------------------------------------------------------
Current assets $ 155,644 $ 155,644 $ 153,881 $ 153,881
Interest in unproven mineral claims --- --- 200,000 ---
Deposits 6,900 6,900 6,900 6,900
---------------------------------------------------------------------------------------------------------
$ 162,544 $ 162,544 $ 360,781 $ 160,781
---------------------------------------------------------------------------------------------------------
Current liabilities $ 205,883 $ 205,883 $ 150,740 $ 150,740
Loans payable from related parties 617,302 617,302 608,250 608,250
Share Capital 1,119,846 1,119,846 1,119,846 1,119,846
Deficit (1,780,487) (1,780,487) (1,518,055) (1,718,055)
---------------------------------------------------------------------------------------------------------
$ 162,544 $ 162,544 $ 360,781 $ 160,781
=========================================================================================================
- --------------------------------------------------------------------------------
GEMSTAR RESOURCES LTD.
Notes to the Financial Statements
January 31, 2003
(Prepared in Canadian dollars)
- --------------------------------------------------------------------------------
9. United States Generally Accepted Accounting Principles (continued)
The effect of the differences in accounting under Canadian GAAP and US GAAP
on the statements of cash flows are as follows:
------------------------------------------------------------------------------------------
2003 2002 2001
------------------------------------------------------------------------------------------
Cash used in operating activities,
under Canadian GAAP $ (7,506) $ (174,020) $ (29,087)
Difference in accounting for interest
in unproven mineral claims costs --- (200,000) ---
-------------------------------------------------------------------------------------------
Cash used in operating activities,
under US GAAP $ (7,506) $ (374,020) $ (29,087)
-------------------------------------------------------------------------------------------
Cash used in investing activities,
under Canadian GAAP $ --- $ (200,000) $ (6,900)
Difference in accounting for interest
in unproven mineral claims costs --- 200,000 ---
-------------------------------------------------------------------------------------------
Cash used in investing activities,
under US GAAP $ --- $ --- $ (6,900)
-------------------------------------------------------------------------------------------
Cash used in financing activities,
under Canadian GAAP $ 9,052 $ 368,256 $ 42,074
Difference in accounting for interest --- --- ---
-------------------------------------------------------------------------------------------
Cash used in financing activities,
under US GAAP $ 9,052 $ 368,256 $ 42,074
-------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GEMSTAR RESOURCES LTD.
----------------------
Financial Statements
For the Three Month period ended April 30, 2003
(Prepared in Canadian dollars)
- --------------------------------------------------------------------------------
GEMSTAR RESOURCES LTD.
Balance Sheet
April 30, 2003
(Prepared in Canadian dollars)
=================================================================================================
April 30, January 31,
2003 2003
=================================================================================================
Assets
Current assets
Cash $ 1,952 $ 1,854
Prepaid 152,000 152,000
GST receivable 1,790 1,790
-------------------------------------------------------------------------------------------
Total current assets 155,742 155,644
Interest in unproven mineral claims (Note 1) 4,206 ---
Deposits 6,900 6,900
- ------------------------------------------------------------------------------------------------
Total assets $ 166,848 $ 162,544
================================================================================================
Liabilities and Shareholders' Deficit
Current liabilities
Accounts payable and accrued liabilities $ 101,357 $ 100,883
Accounts payable and accrued liabilities to related parties $ 117,000 $ 105,000
-------------------------------------------------------------------------------------------
218,357 205,883
Loans Payable from related parties 622,998 617,302
- ------------------------------------------------------------------------------------------------
841,355 823,185
Shareholders' deficit
Share Capital 1,119,846 1,119,846
Deficit (1,794,353) (1,780,487)
-------------------------------------------------------------------------------------------
Total shareholders' deficit (674,507) (660,641)
- ------------------------------------------------------------------------------------------------
Total liabilities and shareholders' deficit $ 166,848 $ 162,544
================================================================================================
- --------------------------------------------------------------------------------
GEMSTAR RESOURCES LTD.
Statement of Operations and Deficit
For the Three Month period ended April 30,2003
(Prepared in Canadian dollars)
- ------------------------------
==================================================================================
Three Month Three Month
April 30, April 30,
2003 2002
==================================================================================
REVENUES $ --- $ ---
EXPENSES
Advertising $ --- $ 137
Bank charges and interest 213 101
Consulting 1,035 ---
Management fees 7,500 7,500
Office 4,718 4,788
Professional fees 400 ---
Transfer Agent --- 147
Travel --- 45
- ----------------------------------------------------------------------------------
13,866 12,718
- ----------------------------------------------------------------------------------
NET LOSS FOR THE PERIOD (13,866) (12,718)
DEFICIT, BEGINNING OF PERIOD (1,780,487) (1,518,055)
- ----------------------------------------------------------------------------------
DEFICIT, END OF PERIOD $ (1,794,353) $ (1,530,773)
===================================================================================
LOSS PER SHARE:
Basic and diluted $ (0.01) $ (0.01)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic and diluted 5,652,000 5,652,000
- --------------------------------------------------------------------------------
GEMSTAR RESOURCES LTD.
Statement of Cash Flows
For the Three Month period ended April 30, 2003
(Prepared in Canadian dollars)
========================================================================================
Three Month Three Month
April 30, April 30,
2003 2002
- ----------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net loss for the period $ (13,866) $ (12,718)
Net Changes in non-cash working capital items:
Accounts payable 12,474 12,208
GST receivable --- (40)
- ----------------------------------------------------------------------------------------
Cash used in operating activities (1,392) (550)
- ----------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Increase in Interest in unproven mineral claims (4,206) ---
- ----------------------------------------------------------------------------------------
Cash used in investing activities (4,206) ---
- ---------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Loans payable from related parties, net 5,696 135,500
- ----------------------------------------------------------------------------------------
Cash provided by financing activities 5,696 135,500
- ----------------------------------------------------------------------------------------
INCREASE IN CASH DURING THE PERIOD 98 134,950
CASH, BEGINNING OF THE PERIOD 1,854 308
- ----------------------------------------------------------------------------------------
CASH, END OF THE PERIOD $ 1,952 $ 135,258
========================================================================================
SUPPLEMENTARY CASH FLOW INFORMATION:
Cash paid in the period for:
Interest expense $ 159 $ 50
Income taxes $ --- $ --
- --------------------------------------------------------------------------------
GEMSTAR RESOURCES LTD.
Notes to the Financial Statements
April 30, 2003
(Prepared in Canadian dollars)
- --------------------------------------------------------------------------------
Interim Reporting
While the information presented in the accompanying interim three month to April
30, 2003 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.
Significant Accounting Policies
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 April 30, 2003, the
results of operations and changes in cash flows for the three month period ended
April 30, 2003, 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, 2003.
Notes to the Financial Statements
1. Interest in Unproven Mineral Claims
==============================================================================
April 30, January 31,
2003 2003
==============================================================================
Acquisition Costs
Dotted Lake Property, Ontario $ 4,206 $ 200,000
Deferred Exploration Costs
Dotted Lake Property, Ontario --- ---
Write off of Interest in unproven mineral claims --- (200,000)
------------------------------------------------------------------------------
$ 4,206 $ ---
==============================================================================
- --------------------------------------------------------------------------------
GEMSTAR RESOURCES LTD.
Notes to the Financial Statements
April 30, 2003
(Prepared in Canadian dollars)
- --------------------------------------------------------------------------------
10. United States Generally Accepted Accounting Principles
These financial statements have been prepared in accordance with generally
accepted accounting principles in Canada ("Canadian GAAP"), which differ in
certain respects from those principles and practices that the Company would
have followed had its financial statements been prepared in accordance with
generally accepted accounting principles in the United States ("US GAAP").
The Company is considered to be an exploration stage company under US GAAP.
Comprehensive earnings are the same as net earnings under US GAAP for all
periods presented. The following summarizes the significant differences
between Canadian GAAP and US GAAP as they relate to the Company:
(a) Interest in Unproven Mineral Claims:
Under Canadian GAAP applicable to junior exploration companies, mineral
exploration expenditures related to interest in unproven mineral claims may
be initially capitalized if such costs have the characteristics of
property, plant and equipment and that capitalization is appropriate to its
circumstances. Under US GAAP, all interest in unproven mineral claims
acquisition costs and exploration expenditures are expensed until an
independent feasibility study has determined that the property is capable
of economic commercial production
(b) Recent Accounting Pronouncements:
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity".
SFAS No. 150 establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both
liabilities and equity. It requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset in some
circumstances). The requirements of SFAS No. 150 apply to issuers'
classification and measurement of freestanding financial instruments,
including those that comprise more than one option or forward contract.
SFAS No. 150 does not apply to features that are embedded in a financial
instrument that is not a derivative in its entirety. SFAS No. 150 is
effective for financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003, except for mandatorily redeemable
financial instruments of nonpublic entities. It is to be implemented by
reporting the cumulative effect of a change in an accounting principle for
financial instruments created before the issuance date of SFAS No. 150 and
still existing at the beginning of the interim period of adoption.
Restatement is not permitted. The adoption of this standard is not expected
to have a material effect on the Company's results of operations or
financial position.
- --------------------------------------------------------------------------------
GEMSTAR RESOURCES LTD.
Notes to the Financial Statements
April 30, 2003
(Prepared in Canadian dollars)
- --------------------------------------------------------------------------------
2. United States Generally Accepted Accounting Principles (Continued):
(b) Recent Accounting Pronouncements:
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure", which amends SFAS No. 123 to
provide alternative methods of transition for a voluntary change to the
fair value based method of accounting for stock-based employee
compensation. In addition, SFAS No. 148 expands the disclosure requirements
of SFAS No. 123 to require more prominent disclosures in both annual and
interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported
results. The transition provisions of SFAS No. 148 are effective for fiscal
years ended after December 15, 2002. The disclosure provisions of SFAS No.
148 are effective for financial statements for interim periods beginning
after December 15, 2002. The Company adopted SFAS No. 148 on February 1,
2003 and as the Company has not granted
stock options for the prior three fiscal years, its impact did not have a
material effect on the Company's results of operations or financial
position.
In June, 2002, FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities". The provisions of this Statement are
effective for exit or disposal activities that are initiated after December
31, 2002, with early application encouraged. This Statement addresses
financial accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force (EITF) Issue
No. 94-3, "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)". This Statement requires that a liability for a cost
associated with an exit or disposal activity be recognized when the
liability is incurred. The Company adopted SFAS No. 146 on January 1, 2003
and its impact did not have a material effect on its financial position or
results of operations.
FASB has also issued SFAS No. 145, 147 and 149 but they will not have any
relationship to the operations of the Company therefore a description of
each and their respective impact on the Company's operations have not been
disclosed.
The effect of differences in accounting under Canadian GAAP and US GAAP on
the statements of loss are as follows:
--------------------------------------------------------------------------
April 30, April 30,
2003 2002
--------------------------------------------------------------------------
Net loss for the period, under Canadian GAAP $ (13,866) $ (12,718)
Difference in accounting for interest in
unproven mineral claims (4,206) ---
--------------------------------------------------------------------------
Net loss for the year, under US GAAP $ (18,072) $ (12,718)
--------------------------------------------------------------------------
Net loss for the year under US GAAP per common share:
Basic and diluted $ (0.01) $ (0.01)
- --------------------------------------------------------------------------------
GEMSTAR RESOURCES LTD.
Notes to the Financial Statements
April 30, 2003
(Prepared in Canadian dollars)
- --------------------------------------------------------------------------------
3. United States Generally Accepted Accounting Principles (Continued):
The effect of the differences in accounting under Canadian GAAP and US GAAP
on the balance sheets are as follows:
---------------------------------------------------------------------------------------------------------
April 30, 2003 January 31, 2003
-------------- -----------------
Canadian United States Canadian United States
GAAP GAAP GAAP GAAP
---------------------------------------------------------------------------------------------------------
Current assets $ 155,742 $ 155,742 $ 155,644 $ 155,644
Interest in Unproven Mineral Claims 4,206 --- --- ---
Deposits 6,900 6,900 6,900 6,900
---------------------------------------------------------------------------------------------------------
$ 166,848 $ 162,642 $ 162,544 $ 162,544
---------------------------------------------------------------------------------------------------------
Current liabilities $ 218,357 $ 218,357 $ 205,883 $ 205,883
Loans payable 622,998 622,998 617,302 617,302
Share Capital 1,119,846 1,119,846 1,119,846 1,119,846
Deficit (1,794,353) (1,798,559) (1,780,487) (1,780,487)
---------------------------------------------------------------------------------------------------------
$ 166,848 $ 162,642 $ 162,544 $ 162,544
---------------------------------------------------------------------------------------------------------
The effect of the differences in accounting under Canadian GAAP and US GAAP
on the statements of cash flows are as follows:
----------------------------------------------------------------------------------------------
April 30 April 30,
2003 2002
----------------------------------------------------------------------------------------------
Cash used in operating activities,
under Canadian GAAP $ (1,392) $ (12,718)
Difference in accounting for interest in unproven mineral claims (4,206) ---
----------------------------------------------------------------------------------------------
Cash used in operating activities,
under US GAAP $ (5,598) $ ---
----------------------------------------------------------------------------------------------
Cash used in investing activities,
under Canadian GAAP $ (4,206) $ ---
Difference in accounting for interest in unproven mineral claims 4,206 ---
----------------------------------------------------------------------------------------------
Cash used in investing activities,
under US GAAP $ --- $ ---
----------------------------------------------------------------------------------------------
Cash used in financing activities,
under Canadian GAAP $ 5,696 $ 135,500
Difference in accounting for interest in unproven mineral claims --- ---
----------------------------------------------------------------------------------------------
Cash used in financing activities,
under US GAAP $ 5,696 $ 135,500
----------------------------------------------------------------------------------------------
<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.