EX-1 3 gemstarfs013103.txt AUDITED FINANCIAL STATEMENTS JANUARY 31, 2003 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 AUDITOR'S 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/ SG and Associates --------------------- Chartered Accountants Richmond, BC, Canada May 10, 2003 1 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 Resource Assets (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 $ 205,883 $ 150,740 Loans Payable (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. On behalf of the Board /s/ Linda Smith Director /s/ Shannon Krell Director ----------------------- ------------------------- 2 GEMSTAR RESOURCES LTD. Statement of Operations and Deficit For the years ended January 31, 2003 and 2002 (Prepared in Canadian dollars)
======================================================================================================= 2003 2002 2001 ------------------------------------------------------------------------------------------------------- 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 OF MINERAL PROPERTY (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. 3 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 Mineral Properties 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 resource assets --- (200,000) --- Deposits --- --- (6,900) ------------------------------------------------------------------------------------------------------- Cash used in investing activities --- (200,000) (6,900) ------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Loans payable, 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. 4 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. 5 GEMSTAR RESOURCES LTD. Notes to the Financial Statements January 31, 2003 (Prepared in Canadian dollars) -------------------------------------------------------------------------------- 2. Significant accounting policies (d) Resource Assets The Company records its interest in mineral properties 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 mineral properties 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 mineral property 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. 3. Deposits The deposits are subject to restrictions that prevent its use for current purposes. 4. Resource Assets =========================================================================== 2003 2002 --------------------------------------------------------------------------- Acquisition Costs Dotted Lake Property, Ontario $ 200,000 $ 200,000 Write off of Mineral Property (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 mineral property was written off. See Note 9 6 GEMSTAR RESOURCES LTD. Notes to the Financial Statements January 31, 2003 (Prepared in Canadian dollars) -------------------------------------------------------------------------------- 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 =========================================================================== 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. 7 GEMSTAR RESOURCES LTD. Notes to the Financial Statements January 31, 2003 (Prepared in Canadian dollars) -------------------------------------------------------------------------------- 7. Loans Payable
--------------------------------------------------------------------------------------------------------- 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) Mineral Properties: Under Canadian GAAP applicable to junior exploration companies, mineral exploration expenditures related to mineral property interests 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 mineral property acquisition costs and exploration expenditures are expensed until an independent feasibility study has determined that the property is capable of economic commercial production. 8 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. 9 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 mineral property 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 Resource assets --- --- 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 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 ---------------------------------------------------------------------------------------------------------
10 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 mineral property 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 mineral property 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 mineral property costs --- --- --- --------------------------------------------------------------------------------------------------------- Cash used in financing activities, under US GAAP $ 9,052 $ 368,256 $ 42,074 ---------------------------------------------------------------------------------------------------------
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