-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OPnOyjB0hNma4o+3BCDUEjUAt9kBmNmW6guIs5ATH1vstGZBXftrhiOyO/YjRMNg XAOmQWVsxZ00CNhPWpPjMA== 0001170423-05-000002.txt : 20050105 0001170423-05-000002.hdr.sgml : 20050105 20050105150944 ACCESSION NUMBER: 0001170423-05-000002 CONFORMED SUBMISSION TYPE: 20FR12B/A PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20050105 DATE AS OF CHANGE: 20050105 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GEMSTAR RESOURCES LTD CENTRAL INDEX KEY: 0000906361 STANDARD INDUSTRIAL CLASSIFICATION: MINING, QUARRYING OF NONMETALLIC MINERALS (NO FUELS) [1400] IRS NUMBER: 000000000 STATE OF INCORPORATION: A1 FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 20FR12B/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-31799 FILM NUMBER: 05512260 BUSINESS ADDRESS: STREET 1: SUITE 1202-510 WEST HASTINGS ST STREET 2: VANCOUVER B C CITY: CANADA STATE: A1 ZIP: V6B1L8 MAIL ADDRESS: STREET 1: RR#1, SITE 10C STREET 2: MALASPINA DRIVE CITY: GABRIOLA ISLAND STATE: A1 ZIP: 00000 20FR12B/A 1 gemstar20fam5.txt 20-F AMENDMENT #5 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 20-F Amendment No. 5 SEC File No. 001-31799 (Mark One) _X_ Registration statement pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934 or Annual report pursuant to Section 13 or 15(d) of the Securities - ------ Exchange Act of 1934 For the fiscal year ended or ___ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ___________ to _________________ GEMSTAR RESOURCES LTD. ---------------------------------------------------------------- (Exact name of registrant as specified in this charter) British Columbia, Canada ---------------------------------------------------------------- (Jurisdiction of incorporation or organization) 220 Decourcy Drive, Gabriola Island, British Columbia, Canada, V0R 1X0 --------------------------------------------------------------------------- (Address of principal executive offices) Securities registered or to be registered pursuant to section 12(b) of the Act: None None ------------------------------ -------------------------- (Title of each class) (Name of each exchange on which registered) Securities registered or to be registered pursuant to Section 12(g) of the Act: Common Shares Without Par Value -------------------------------------------------- (Title of Class) Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None -------------------------------------------------- (Title of Class) Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report. 5,652,000 Common Shares -------------------------------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No . ---------- ---------- Indicate by check mark which financial statement item the registrant has elected to follow. Item 17 X Item 18 . -------- --------- II
TABLE OF CONTENTS PAGE PART I ITEM 1. Identity of Directors, Senior Management and Advisors...........................................1 1.1 Directors and Senior Management....................................................2 1.2 Advisors...........................................................................2 1.3 Auditors...........................................................................2 ITEM 2. Offer Statistics and Expected Timetable.........................................................2 ITEM 3. Key Information.............................................................................. 2 3.1 Selected Financial Data............................................................2 3.2 Capitalization and Indebtedness....................................................5 3.3 Reasons for the Offer and Use of Proceeds..........................................5 3.4 Risk Factors.......................................................................5 ITEM 4. Information on the Company.....................................................................10 4.1 History and Development...........................................................10 4.2 Dotted Lake Property..............................................................11 4.3 Competition.......................................................................13 4.4 Management & Employees............................................................13 4.5 Environmental Regulations.........................................................14 ITEM 5. Operating and Financial Review and Prospects...................................................15 5.1 Results of Operations.............................................................15 5.2 Liquidity.........................................................................16 ITEM 6. Directors, Senior Management and Employees.....................................................17 6.1 Directors and Senior Management...................................................17 6.2 Compensation of Directors.........................................................19 6.3 Board Practices...................................................................20 6.4 Employees.........................................................................20 6.5 Share Ownership of Directors and Officers.........................................20 ITEM 7. Major Shareholders and Related Party Transactions..............................................21 7.1 Beneficial Ownership..............................................................21 7.2 Related Party Transactions........................................................22 7.3 Interests of Experts and Counsel..................................................22 ITEM 8. Financial Information..........................................................................22 8.1 Legal Proceedings.................................................................22 8.2 Significant Changes...............................................................23
III
ITEM 9. The Offer and Listing..........................................................................23 9.1 Offering and Listing Details......................................................23 ITEM 10. Additional Information.........................................................................24 10.1 Share Capital....................................................................24 10.2 Memorandum and Articles of Association...........................................24 10.3 Material Contracts...............................................................25 10.4 Exchange Controls and other Limitations Affecting Security Holders...............26 10.5 Canadian Federal Income Tax Consequences to United States Investors........................................26 10.6 United States Federal Income Tax Consequences to U.S. Investors..................27 10.7 Statements by Experts............................................................31 10.8 Documents on Display.............................................................31 ITEM 11. Quantitative and Qualitative Disclosures About Market Risk..............................................31 ITEM 12. Descriptions of Securities Other than Equity Securities.................................................31 12.1 Warrants.........................................................................31 12.2 Stock Options....................................................................31 PART II ITEM 13. Defaults, Dividend Arrearages and Delinquencies.........................................................31 ITEM 14. Material Modifications to the Rights of Security Holders and Use of Proceeds............................31
PART III ITEM 17. Financial Statements ITEM 18. Financial Statements ITEM 19. Exhibits SIGNATURE IV FORWARD-LOOKING STATEMENTS -------------------------- We caution you that certain important factors (including without limitation those set forth in this Form 20-F) may affect our actual results and could cause such results to differ materially from any forward-looking statements that may be deemed to have been made in this Form 20-F registration statement, or that are otherwise made by or on our behalf. For this purpose, any statements contained in this registration statement that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as "may," "except," "believe," "anticipate," "intend," "could," estimate," or "continue," or the negative or other variations of comparable terminology, are intended to identify forward-looking statements. PART I ------ Item 1. Identity of Directors, Senior Management and Advisors 1.1 Directors and Senior Management: The following table sets forth the name, business address and position of each of the directors and executive officers of the Company: Name & Address Position -------------- -------- Linda Smith President, Chief Executive RR #1, Site 10C Officer and Director Malaspina Drive Gabriola Island, B.C. Canada Shannon Krell Director RR#1, Site 10C Malaspina Drive Gabriola Island, B.C. Canada Alexander Mancor Director 5715 Royal Oak Avenue Burnaby, B.C. Canada Brent Peters Secretary 747 17th Street, Suite 301 West Vancouver, B.C. Canada 1 1.2 Advisors: The following table sets forth the name, business address and position of each of the advisors to the Company: Name & Address Position -------------- -------- Bank of Montreal Banker Commercial Banking Main Floor, First Bank Tower P.O. Box 49500, 595 Burrard Street Vancouver, B.C., Canada V7X 1L7 Gregory S. Yanke Law Corporation Legal Counsel 200 - 675 West Hastings Street Vancouver, B.C., Canada V6B 1N2 1.3 Auditors Name & Address Position -------------- -------- Moen & Company Auditor Chartered Accountants P.O. Box 10129, Pacific Centre 701 West Georgia Street, Suite 1400 Vancouver, B.C., Canada V7Y 1C6 Our auditors are chartered by the Institute of Chartered Accountants of British Columbia and registered with the Canadian Public Accountability Board (CPAB) and Public Company Accounting Oversight Board (PCAOB) in the United States. Item 2. Offer Statistics and Expected Timetable Not applicable Item 3. Key Information 3.1 Selected Financial Data The following tables set forth the data of the Company for the fiscal years ended January 31, 2004, 2003, 2002, 2001 and 2000 and the six-month interim periods ended July 31, 2004 and July 31, 2003. We derived all figures from our financial statements, which were audited by our independent auditor. Our interim financial statements for the six-month periods ended July 31, 2003 and 2002 are 2 unaudited. This information should be read in conjunction with our audited financial statements for the three years ended January 31, 2004, 2003 and 2002 included in this registration statement. Our audited financial statements for the fiscal years ended January 31, 2001 and 2000 are not included in this registration statement. Our financial statements included in this registration statement and the table set forth below gave been prepared in accordance with accounting principles generally accepted in Canada. A reconciliation to United States generally accepted accounting principles is included in Note 9 to our audited financial statements. All amounts are expressed in Canadian dollars. The first table presents this financial data in accordance with United States generally accepted accounting principles. The second table presents the data in accordance with Canadian generally accepted accounting principles. U.S. Generally Accepted Accounting Principles
================================================================================================================================== Six-Month Six-Month Fiscal Year Fiscal Year Fiscal Year Fiscal year Fiscal Year Period Ended Period Ended ended ended ended ended Jan. ended Jan. July 31, 2004 July 31, 2003 Jan. 31, 2004 Jan. 31, 2003 Jan. 31, 2002 31, 2001 31, 2000 (unaudited) (unaudited) (in Cdn$) (in Cdn$) (in Cdn$) (in Cdn$) (in Cdn$) (in Cdn$) (in Cdn$) - ---------------------------------------------------------------------------------------------------------------------------------- Net Operating Nil Nil Nil Nil Nil Nil Nil Revenue - ---------------------------------------------------------------------------------------------------------------------------------- Loss from ($37,863) ($30,830) ($66,910) ($421,332) ($269,158) ($73,946) ($104,426) operations - ---------------------------------------------------------------------------------------------------------------------------------- Loss per ($0.01) ($0.01) ($0.01) ($0.07) ($0.05) ($0.01) ($0.02) common share - ---------------------------------------------------------------------------------------------------------------------------------- Total assets $4,288 $3,663 $4,202 $3,644 $160,781 $13,536 $3,246 - ---------------------------------------------------------------------------------------------------------------------------------- Net assets ($817,560) ($850,371) ($779,697) ($819,541) ($598,209) ($329,051) ($255,105) - ---------------------------------------------------------------------------------------------------------------------------------- Long term debt Nil Nil Nil Nil $608,250 $239,994 Nil - ---------------------------------------------------------------------------------------------------------------------------------- Cash dividends Nil Nil Nil Nil Nil Nil Nil per share - ---------------------------------------------------------------------------------------------------------------------------------- Deficit ($2,037,785) ($1,963,842) ($1,999,922) $ (1,933,012) ($1,718,055) ($1,448,897) ($1,374,951) - ---------------------------------------------------------------------------------------------------------------------------------- Capital stock $1,113,471 $1,113,471 $ 1,113,471 $ 1,113,471 $1,113,471 $1,113,471 $1,113,471 - ---------------------------------------------------------------------------------------------------------------------------------- Weighted 5,651,714 5,651,714 5,651,714 5,651,714 5,651,714 5,970,000 5,845,566 average number of common shares ==================================================================================================================================
3 Canadian Generally Accepted Accounting Principles
================================================================================================================================== Six-Month Six-Month Fiscal Year Fiscal Year Fiscal Year Fiscal year Fiscal Year Period Ended Period Ended ended ended ended ended ended July 31, 2004 July 31, 2003 Jan. 31, Jan. 31, 2003 Jan. 31, 2002 Jan. 31, 2001 Jan. 31, (unaudited) (unaudited) 2004 2000 (in Cdn$) (in Cdn$) (in Cdn$) (in Cdn$) (in Cdn$) (in Cdn$) (in Cdn$) - ---------------------------------------------------------------------------------------------------------------------------------- Net Operating Nil Nil Nil Nil Nil Nil Nil Revenue - ---------------------------------------------------------------------------------------------------------------------------------- Loss from ($37,863) ($26,624) ($62,350) $ (262,432) $ (69,158) $ (73,946) $ (104,426) operations - ---------------------------------------------------------------------------------------------------------------------------------- Loss per ($0.01) ($0.00) ($0.01) ($0.05) ($0.01) ($0.01) ($0.02) common share - ---------------------------------------------------------------------------------------------------------------------------------- Total assets $167,748 $166,769 $167,662 $ 162,544 $ 360,781 $13,536 $3,246 - ---------------------------------------------------------------------------------------------------------------------------------- Net assets ($654,100) ($687,265) ($616,237) ($ 660,641) ($ 398,209) ($329,051) ($255,105) - ---------------------------------------------------------------------------------------------------------------------------------- Long term debt Nil Nil Nil Nil $ 608,250 $239,994 Nil - ---------------------------------------------------------------------------------------------------------------------------------- Cash dividends Nil Nil Nil Nil Nil Nil Nil per share - ---------------------------------------------------------------------------------------------------------------------------------- Deficit ($1,874,325) ($1,800,736) ($1,836,462) ($ 1,774,112) ($1,518,055) ($1,448,897) ($1,374,951) - ---------------------------------------------------------------------------------------------------------------------------------- Capital stock $1,113,471 $1,113,471 $1,113,471 $ 1,113,471 $1,113,471 $1,113,471 $1,119,846 - ---------------------------------------------------------------------------------------------------------------------------------- Weighted 5,651,714 5,651,714 5,651,714 5,651,714 5,652,000 5,970,000 5,845,566 average number of common shares ==================================================================================================================================
Since June 1, 1970, the government of Canada has permitted a floating exchange rate to determine the value of the Canadian dollar as compared to the United States dollar. On December 31, 2004, the exchange rate in effect for Canadian dollars exchanged for United States dollars, expressed in terms of Canadian dollars was $1.2034. This exchange rate is based on the noon buying rates in New York City, for cable transfers in Canadian dollars, as certified for customs purposes by the Federal Reserve Bank of New York. For the past fiscal years ended January 31 and for the six-month period between June 30, 2004 and November 30, 2004, the following exchange rates were in effect for Canadian dollars exchanged for United States dollars, calculated in the same manner as above: 4 Time Period Average Exchange Rate for Period ----------- -------------------------------- Year ended Jan 31, 2004 $1.3422 Year ended Jan 31, 2003 $1.5650 Year ended Jan 31, 2002 $1.5596 Year ended Jan 31, 2001 $1.4910 Year ended Jan 31, 2000 $1.4779 Time Period Low - High ----------- ---------- Month ended July 31, 2004 $1.3082 - $1.3353 Month ended August 31, 2004 $1.2964 - $1.3323 Month ended September 30, 2004 $1.2648 - $1.3071 Month ended October 31, 2004 $1.2194 - $1.2726 Month ended November 30, 2004 $1.1775 - $1.2263 Month ended December 31, 2004 $1.1856 - $1.2401 3.2 Capitalization and Indebtedness The following table sets forth our capitalization and indebtedness as at November 30, 2004. ============================================================================ As at November 30, 2004 ---------------------------------------------------------------------------- Short term debt (unsecured and not guaranteed) $857,515 ---------------------------------------------------------------------------- Long term debt Nil ---------------------------------------------------------------------------- Total debt $857,515 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Shareholder's Equity ---------------------------------------------------------------------------- Common shares $1,220,225 ---------------------------------------------------------------------------- Retained earnings (accumulated deficit) ($1,904,397) ---------------------------------------------------------------------------- Total shareholders' equity ($684,172) ============================================================================ 3.3 Reasons for the Offer and Use of Proceeds Not Applicable 3.4 Risk Factors Any investment in our common shares involves a high degree of risk. You should consider carefully the following information before you decide to buy our common shares. If any of the events discussed in the following risk factors actually occurs, our business, financial condition or results of operations would likely suffer. In this case, the market price of our common shares could decline, and you could lose all or part of your investment in our shares The following is a list of all known material risks relating to our business and an investment in our common shares: 5 We have a history of losses. Our inability to achieve profitability will negatively impact any investment in our shares. We have incurred losses in our business operations since inception, and we expect that we will continue to lose money for the foreseeable future. Since our incorporation on March 31, 1998 to July 31, 2004, we have incurred losses totalling $1,874,325 (US GAAP - $2,037,785). Very few junior resource companies ever become profitable. Failure to achieve and maintain profitability may adversely affect the market price of our common stock. We have limited financial resources and no source of cash flow. If we are unable to generate generate revenue, our business will fail. We have limited financial resources, no source of operating cash flow and no commitments for additional funding for further exploration of the Dotted Lake property. Failure to obtain such additional financing could result in delay or indefinite postponement of further exploration and ultimately the failure of our business. Very few mineral properties are ultimately developed into producing mines. If we are unable to prove that a mineral reserve exists on our Dotted Lake property, our business may fail. The business of exploration for minerals and mining involves a high degree of risk. Few properties that are explored are ultimately developed into producing mines. At present, our mineral properties have no known body of commercial ore. Most exploration projects do not result in the discovery of commercially mineable deposits of ore. Substantial expenditures are required for us to establish ore reserves through drilling, to develop metallurgical processes, to extract the metal from the ore and, in the case of new properties, to develop the mining and processing facilities and infrastructure at any site chosen for mining. It is unknown whether we will discover minerals in sufficient quantities to justify commercial operations or that we can obtain the funds required for development on a timely basis. The probability of an individual mineral exploration prospect such as the Dotted Lake Property ever containing reserves is extremely remote. It is unlikely that the property contains reserves, so any funds expended on the property will most likely be lost. If we do not obtain additional financing, our business will fail. As at January 5, 2004, we had cash in the amount of $378. Our ability to continue as a going concern is dependent upon the ability of management to obtain sufficient financing. Management is actively seeking additional financing, but has no specific commitments for investment. 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. 6 Because management has only limited experience in resource exploration, the business has a higher risk of failure. Our management has only limited experience in resource exploration. None of our directors or officers has any significant technical training or experience in resource exploration for, starting and operating a mine. With no direct training or experience in this sector, our management may not be fully aware of many of the specific requirements related to working within the industry. Their business decisions may not take into account standard engineering or managerial approaches that mineral exploration companies with qualified management commonly use. As a result, our operations, earnings and ultimate financial success could suffer irreparable harm due to management's lack of experience in this industry. Mineral exploration involves a high degree of risk against which we are not currently insured. Environmental liability that we incurred may irreparably harm our business. Unusual or unexpected rock formations, formation pressures, fires, power outages, labour disruptions, flooding, cave-ins, landslides and the inability to obtain suitable or adequate machinery, equipment or labour are risks involved in the operation of mines and the conduct of exploration programs. It is not always possible to fully insure against such risks and we may decide not to take out insurance against such risks as a result of high premiums or other reasons. Should such liabilities arise, they could reduce or eliminate any future profitability and result in increasing costs and a decline in the value of our common stock. We do not currently maintain insurance against environmental risks relating to the Dotted Lake property. If title to the Dotted Lake is disputed, we may lose our sole business asset and our business may fail. The Dotted Lake property may be subject to prior unregistered agreements or transfers or native land claims and title may be affected by undetected defects. There is a risk that the property boundaries could be challenged. In such circumstances, we will incur costs defending our title to the Dotted Lake property and may lose our interest in the claims, causing our business to fail. We may require permits and licenses that we may not be able to obtain. If we are unable to obtain such permits and licenses, our business plan will fail. Our operations may require licenses and permits from various governmental authorities. If we are unable to obtain such licenses and permits, we will not be able to continue exploration and development of the Dotted Lake property and we may have to abandon our business plan. We will be required to obtain work permits from the Ontario Ministry of Northern Development and Mines for the Phase II drilling program and any subsequent exploration work that results in a physical disturbance to the land if the program calls for the disturbance of more than 10,000 square meters of the property surface, or such areas that would total that amount when combined. A work permit is also required for the erection of structures on the property. There is no charge to obtain a work permit under the Mining Act. 7 Metal prices fluctuate widely. A decrease in metal prices may prevent us from raising the capital necessary to continue our business plan in the future. As well, low metal prices will reduce the value of any reserve we discover on the Dotted Lake property. Factors beyond our control may affect the marketability of any minerals we discover. Metal prices have fluctuated widely, particularly in recent years. Our ability to raise capital for continuing exploration of the Dotted Lake property depends to a large degree on the market price for metals generally, as well as for gold in particular. In addition, the value of any reserve we discover on the Dotted Lake property will fluctuate depending on current metal prices. Low metal prices may make it uneconomical to commence production on the Dotted Lake property if a reserve is established, of which there is no guarantee. The resource industry is very competitive. The competitive nature of the business may increase our cost of operations and prevent us from obtaining interests in additional mineral properties. The resource industry is intensely competitive in all its phases. We compete with many companies possessing greater financial resources and technical facilities than us for the acquisition of mineral concessions, claims, leases and other mineral interests as well as for the recruitment and retention of qualified employees. In conducting exploration on the Dotted Lake property, we will be subject to environmental regulations. In addition, our operations may be adversely affected by changes in environmental regulations. A significant change in such regulations may prevent us from proceeding with our business plan. Our operations are be subject to environmental regulations promulgated by government agencies from time to time. Environmental legislation provides for restrictions and prohibitions on spills, release or emissions of various substances produced in association with certain mining industry operations, such as seepage from tailings disposal areas, which would result in environmental pollution. A breach of such legislation may result in the imposition of fines and penalties. In addition, certain types of operations require the submission and approval of environmental impact assessments. Environmental legislation is evolving in a manner which means that standards, enforcement, fines and penalties for non-compliance are more stringent. Environmental assessments of proposed projects carry a heightened degree of responsibility for us and our directors, officers and consultants. The cost of compliance with changes in governmental regulations has a potential to reduce the profitability of our operations. We do not maintain environmental liability insurance. When our exploration program on the Dotted Lake property proceeds to the drilling stage, we may be required to post small bonds if the rights of a private land owner may be affected. We may also be required to file statements of work with the Ministry of Northern Development and Mines. We will also be required to undertake remediation work on any exploration that results in physical disturbance to the land. The cost of remediation work will vary according to the degree of physical disturbance. 8 If a market our common shares does not develop, shareholders may be unable to sell their shares. Our common shares do not trade on any recognized stock exchange or quotation system. Unless a market develops, it will be difficult for shareholders to sell their stock. As a result, shareholders may find that they are unable to achieve benefits from their investment. When our securities become listed, they will be subject to penny stock regulation, which may impede an investor's ability to purchase our common shares. If a market for our securities develops, the price of our common stock will be below $5.00 per share and we will be subject to "penny stock" regulation. "Penny stock" rules impose additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together with a spouse). For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of such securities and have received the purchaser's written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the rules require the delivery, prior to the transaction, of a disclosure schedule prescribed by the Commission relating to the penny stock market. The broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements must be sent disclosing recent price information on the limited market in penny stocks. Consequently, the "penny stock" rules may restrict the ability of broker-dealers to sell our shares of common stock. The market price of our shares would likely suffer as a result. Enforcement of legal process may be difficult. All members of our Board of Directors and management reside in Canada. As well, our address for service is a Canadian address. Accordingly, investors will not be able to: 1. effect service of process upon us, or upon individuals related to us within the United States; 2. enforce judgments obtained in United States courts against us based upon the civil liability provisions of the United States securities law;or 3. enforce judgments of United States court judgments based upon the civil liability provisions of the United States federal securities law. However, investors may commence original actions against us, our directors and officers and our experts in British Columbia courts. However, as our sole mineral property asset is located in Ontario, additional legal proceedings would need to be commenced in that province in order to satisfy any judgment. 9 Investors may not be able to seek judgment in British Columbia or Ontario if the court determines that it is unable to rule in a matter that involves determinations respecting United States securities laws. In such circumstances, investors would be prevented from obtaining judgment that is enforceable against us. As we are incorporated pursuant to the laws of British Columbia, duties of our directors and officers, and the ability of shareholders to initiate a lawsuit on our behalf, are governed by the British Columbia Company Act. Item 4 Information on the Company 4.1 History and Development We were incorporated under the name "Gemstar Resources Ltd." pursuant to the Company Act in the Province of British Columbia, Canada by registration of our Memorandum and Articles of Association and the issuance by the Registrar of Companies of a Certificate of Incorporation on March 31, 1988. We are an exploration stage company that owns mineral claims in Ontario, Canada. There is no assurance that a commercially viable mineral deposit exists on our claims. Further exploration will be necessary before a final evaluation as to the economic and legal feasibility of our claims is determined. Our head office is located at 220 Decourcy Drive, Gabriola Island, British Columbia, Canada, V0R 1X0. Our telephone number is (604) 837-2739. We have not been involved in any bankruptcy, receivership or similar proceedings, nor have we been a party to any material reclassification, merger, consolidation or purchase or sale of a significant amount of assets. We currently own a 100% interest in five contiguous mineral claims known collectively as the Dotted Lake property which are situated in the Blake River area, Thunder Bay Mining Division of Ontario, Canada. There is no assurance that a commercially viable mineral deposit exists on the Dotted Lake property. Further exploration will be required before a final evaluation as to the economic feasibility of the property is determined. No exploration activity has been conducted on the Dotted Lake property in the past 12 years. Prior to that, only limited exploration was conducted on the claims. We originally acquired the Dotted Lake property from LCM Equities Ltd., a private British Columbia company owned by Mr. John Donaldson, pursuant to a mineral property purchase agreement dated October 27, 2000. Pursuant to that agreement, we paid $200,000 to acquire a 100% interest in the Dotted Lake property. In our most recently completed fiscal year, our interest in the Dotted Lake property lapsed due to our failure to complete the minimum required assessment 10 exploration work on the claims. Management determined that it would be less expensive to allow the claims to lapse and then restake them, rather than completing the required assessment work. We re-acquired the property by staking the property in accordance with Ontario laws. This involves retaining a prospector to go to the location of the claims and physically driving wooden posts into the ground and affixing metal tags to the posts that describe information respecting the claims. Information regarding the staking procedures is then filed with the Ontario Ministry of Northern Development and Mines. 4.2 Dotted Lake Property Location and Access - ------------------- The Dotted Lake property is situated in north central Ontario, approximately 50 kilometers northeast of Lake Superior and 260 kilometers east-northeast from the city of Thunder Bay. Manitouwadge (45 kilometers to the north), Marathon (45 kilometers southwest) and White River (50 kilometers southeast) are the closest towns. The latter two communities are situated along Highway 17, part of the Trans-Canada Highway network, while the property itself lies some 20 kilometers north of Highway 17. Currently, there is no road access directly on to the Dotted Lake property. From Highway 614, located 13 kilometres north of Highway 17, a bush road leads seven kilometers north-eastward to the southwest shore of Dead Otter Lake. From there, the property may be conveniently reached by boat in summer or by snowmobile in winter. Alternatively, another bush road that connects with Highway 614, some 19.2 kilometers north of Hwy 17, terminates approximately 0.7 kilometers north of the north claim boundary. Title and Claim Status - ---------------------- We own a 100% interest in the Dotted Lake property, which consists of five contiguous mineral claims registered in the name of 1179406 Ontario Ltd., a private Ontario company that holds the claims in trust for us. It is a common procedure to have such claims held in trust given the expense that we would incur in registering as a recorded claim holder and an extraprovincial company in Ontario. We can request that the claims be registered in our name at any time. The five mineral claims, recorded as claims numbered 3011450, 3011451, 3011452, 3011453 and 3011454, cover 1,216 hectares. In order to keep the claims in good standing, we must spend at least $31,200 on exploration of the Dotted Lake property by March 14, 2005 (with respect to claims 3011450 and 3011451) and March 23, 2005 (with respect to claims 3011452, 3011453 and 3011454). We do not have any other third party obligations with respect to the claims. The principal benefit of having a trustee hold the claims on our behalf is that we avoid the expense that we would incur in registering as a recorded claim holder and an extraprovincial company in Ontario. However, if the trustee becomes bankrupt or transfers the claims to a third party, we may incur significant legal expenses in enforcing our interest in the claims in Ontario courts. 11 The registration of the claims in the name of a trustee does not impact a third party's ability to commence an action against us respecting the Dotted Lake property or to seize the claims after obtaining judgment. Previous Exploration - -------------------- Several companies and individuals have conducted exploration activities on various parts of the Dotted Lake property. To date, no mineral deposit has been delineated on the property, and consequently there has been no production from the property nor any reserve or resource estimated. We have not yet conducted any exploration on the Dotted Lake property. Proposed Exploration - -------------------- In his geological report on the Dotted Lake property, our consulting geologist, Mr. James G. Burns, P.Eng., recommends a two phase exploration program for the Dotted Lake property. The report covered the claims that were previously staked on our behalf rather than the area covered by the current claims. However, Mr. Burns advises that the recommendations in his report remain the same for the re-staked claims. Mr. James G. Burns, of 190 Graye Crescent, Timmins, Ontario, P4N 8K8, holds a Bachelor of Science degree in geological science from Queen's University in Kingston, Ontario. He has practiced continuously as a geologist since that date. Mr. Burns is a member of the Association of Professional Engineers of Ontario, the Canadian Institute of Mining and Metallurgy and the Prospectors and Developers Association of Canada. Mr. Burn's has reviewed the summary of his geological report in this registration statement and concur will its contents. The first phase should consist of line cutting, a induced polarization survey, a magnetic survey and a VLF survey. Mr. Burns recommends a phase two exploration program consisting of the drilling of targets identified from the results of the phase one work. He suggests the following budgets: Phase I Line cutting: $36,800 Induced polarization survey: $66,000 Detailing IP survey: $ 6,000 Magnetic and VLF surveys: $17,250 Supervision: $ 5,000 Geophysical interpretation and reporting: $ 7,000 Contingency: $13,950 Total: $152,000 Phase II Diamond drilling: $150,000 Assays: $ 4,000 Geologist: $ 25,000 Core shack/office rental: $ 5,000 Reporting: $ 1,750 Drafting: $ 2,000 Contingency: $ 2,000 Total: $206,000 12 We intend to commence the Phase I exploration program on the Dotted Lake property in the spring of 2005, when the weather in northern Ontario is more conducive to exploration. We anticipate completing the phase one program, as well as a review of the results of the program over a period of two months. We intend to commence the Phase II exploration program in the summer or fall of 2005. The program, including interpretation of results is expected to take two to three months. The Dotted Lake property area experiences a temperate climate with moderate to long cold winters and short warm to hot summers. Total precipitation is about 1,000 millimeters, including over three meters of snow. Break up or freeze up conditions may impinge upon exploration activities, but normally exploration and mining may be conducted year round. However, it is more economical to conduct exploration programs in spring and summer when access to and travel across the property are easier, and when snow removal for surface exploration is not required. 4.3 Competition The mineral property exploration business, in general, is intensively competitive and there is not any assurance that even if commercial quantities of ore are discovered, a ready market will exist for sale of same. Numerous factors beyond our control may affect the marketability of any substances discovered. These factors include market fluctuations, the proximity and capacity of natural resource markets and processing equipment, government regulations, including regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of mineral and environmental protection. The exact effect of these factors cannot be accurately predicted, but the combination of these factors may make it difficult for us to receive an adequate return on investment. We compete with many companies possessing greater financial resources and technical facilities for the acquisition of mineral concessions, claims, leases and other mineral interests as well as for the recruitment and retention of qualified employees. 4.4 Management & Employees We do not have any employees other than our directors and officers. We are a party to an agreement with Darcy Krell, spouse of Linda Smith, President and a Director of the Company, whereby Mr. Krell is engaged to perform certain management relations services on our behalf at a fee of $2,500 per month. We retain Mr. Krell to arrange and negotiate mineral property acquisitions and exploration contracts (subject to director approval), arrange for and secure financings for the company, arrange for the collection of all receivables and the payment of all obligations, establishing and maintaining suitable banking relations, ensuring the maintenance of proper accounting records and perusing and replying to all corporate inquiries and correspondence. 13 4.5 Environmental Regulations We will be required to comply with all regulations, rules and directives of governmental authorities and agencies applicable to the exploration of minerals in Canada generally, and in the Province of Ontario, specifically. Under these laws, prior to production, we have the right to explore the property, subject only to a notice of work which may entail posting a bond. To date, we have not been required to post a bond with respect to exploration on the Dotted Lake property. In addition, production of minerals in Ontario will require prior approval of applicable governmental regulatory agencies. We can provide no assurance to investors that such approvals will be obtained. The cost and delay involved in attempting to obtain such approvals cannot be known at this time. We have budgeted for regulatory compliance costs as part of our operations. We will have to sustain the cost of reclamation and environmental mediation for all exploration work undertaken. The amount of these costs is not known at this time as we do not know the extent of future exploration. Permits and regulations will control all aspects of any production program if the project continues to that stage because of the potential impact on the environment. Examples of regulatory requirements include: - Water discharge will have to meet water standards; - Dust generation will have to be minimal or otherwise re-mediated; - Dumping of material on the surface will have to be re-contoured and re-vegetated; - An assessment of all material to be left on the surface will need to be environmentally benign; - Ground water will have to be monitored for any potential contaminants; - The socio-economic impact of the project will have to be evaluated and if deemed negative, will have to be re-mediated; and - There will have to be an impact report of the work on the local fauna and flora. While we do not require any authorization to proceed with the initial phase of the recommended exploration program, we will be required to obtain work permits from the Ontario Ministry of Northern Development and Mines for the Phase II drilling program and any subsequent exploration work that results in a physical disturbance to the land if the program calls for the disturbance of more than 10,000 square meters of the property surface, or such areas that would total that amount when combined. There is no charge to obtain a work permit under the Mining Act. 14 When our exploration program proceeds to the drilling stage, we may be required to post small bonds if the rights of a private land owner may be affected. We may also be required to file statements of work with the Ministry of Northern Development and Mines and to undertake remediation work on any exploration that results in physical disturbance to the land. The cost of remediation work will vary according to the degree of physical disturbance. Item 5. Operating and Financial Review and Prospects 5.1 Results of Operations We are an exploration stage company that intends to commence exploration of the Dotted Lake property located in Ontario. To date, a majority of our operations and our expenditures have been as a result of related party transactions. In 1997, we entered into an agreement to acquire 95% all of the property, assets and undertaking associated with the Dalian Maple Leaf International School located in the City of Dalian, China. In consideration for the school assets, we agreed to issue to the owners of the school 45,780,000 common shares and 5,500,000 performance escrow shares having a total deemed value of $11,500,000. Due to difficulties meeting Vancouver Stock Exchange requirements, in our fiscal year ended January 31, 1999, we agreed with the Dalian Maple Leaf International School to terminate our agreement. During that fiscal year, we incurred a loss of $144,437 consisting of management fees $60,000, interest and bank charges of $34,942, legal fees $24,725, brokerage sponsorship fees of $15,000 payable in connection with the acquisition of the Dalian school, listing and transfer fees of $6,233, accounting and audit fees of $1,865 and conference costs of $1,672. We were essentially inactive during the fiscal year ended January 31, 2000. Management investigated several business acquisition opportunities in China, but did not reach any agreements to acquire assets. During the fiscal year, we incurred a loss of $104,426 consisting entirely of the following administrative fees: accounting and legal fees of $42,882, management fees of $30,000, interest and bank charges of $24,426, listing and transfer fees of $6,498 and office costs of $620. In our fiscal year ended January 31, 2001, we underwent a complete change in management. Mr. Sherman Jen, Wei Shao and Wang Qing Li resigned as directors in place of Linda Smith, Alexander Mancor, Frank McGill and Shannon Krell. Ms. Smith replaced Mr. Jen as our president. Upon the change of management, we entered into an agreement whereby we acquired a 100% interest in the Dotted Lake property consisting of 76 mineral claim units. The property is located in the Thunder Bay Mining Division approximately 16 miles south-southeast of Manitouwadge, Ontario. During the fiscal year, we spent $73,946 on administrative expenses consisting of management fees of $35,000, bank charges and interest of $16,397, accounting and legal fees of $9,086, office costs of $7,248, listing and filing fees of $5,063 and transfer agent fees of $1,152. 15 In the following fiscal year ended January 31, 2002, we completed our acquisition of the Dotted Lake property by paying $200,000 in cash to the vendor, LCM Equities Ltd., a private arm's length British Columbia company. We also advanced $152,000 to LCM Equities Ltd. as an advance for exploration of the Dotted Lake property. We acquired the funds for the property payment and exploration advance from director and shareholder loans. We incurred a net loss of $269,158 in the fiscal year ended January 31, 2002 consisting of the $200,000 payment we made in connection with the Dotted Lake property acquisition, $20,791 in office costs, $20,000 in management fees, $10,481 in accounting and legal costs, $5,970 in listing and filing fees, $4,684 in consulting fees, $2,785 in transfer agent fees, $2,286 in bank charges and interest, $1,436 in travel costs and $725 in advertising and promotion expenses. In comparison with fiscal 2001, our net loss increased substantially due to the payment made in connection with our property acquisition. Administrative expenses decreased slightly in fiscal 2002 due to a reduction in fees charged by new management. In the fiscal year ended January 31, 2003, we incurred a net loss of $421,332 consisting of a write off of mineral claims recorded at $200,000, an advance of $152,000 for exploration expenditures, management fees of $30,000, office costs of $20,871, audit fees of $8,390, travel and promotion costs of $9,132, filing and transfer agent fees of $647 and bank charges and interest of $292. Our net loss increased in comparison with fiscal 2002 primarily due to the write off of the Dotted Lake property, which was subsequently restaked, and the advance of $152,000 for exploration of the property. In the fiscal year ended January 31, 2004, we incurred a net loss of $66,910 consisting of management fees of $30,000, office costs of $23,401, exploration costs of $4,206 relating to the restaking of the Dotted Lake property, audit fees of $2,700, travel and promotion costs of $2,185, legal fees of $1,572, consulting fees of $1,035, filing and transfer agent fees of $711, bank charges and interest of $604 and amortization costs of $496. During the six-month period ended July 31, 2004, we incurred a net loss of $37,863. This amount consisted of management fees ($15,000), office costs ($13,615), travel and promotion expenses ($3,725), audit fees ($3,000), consulting fees ($2,205), amortization costs ($174) and bank charges and interest ($144). At July 31, 2004, we had cash on hand of $496, fixed assets recorded at $983 and goods and services tax receivable of $2,809. We also had accounts payable and accrued liabilities of $96,212 and loans payable of $725,636. 5.2 Liquidity and Capital Resources Since our incorporation, we have financed our operations almost exclusively through the sale of our common shares to investors. We expect to finance operations through the sale of equity in the foreseeable future or through director and shareholder loans, as we have no source of revenue from our business operations. There is no guarantee that we will be successful in arranging financing on acceptable terms. 16 In the next twelve months, we expect to complete the recommended phase one and phase two exploration programs on the Dotted Lake property. We anticipate that the programs will cost approximately $152,000 and $206,000 respectively. We also anticipate spending an additional $30,000 on professional fees, including fees payable in connection with the filing of this registration statement and complying with reporting obligations. Administrative expenses over the period are expected to be approximately $60,000. Total expenditures over the next 12 months are therefore expected to be $448,000. We have advanced $152,000 as an exploration advance in order to fund the recommended phase one program on the Dotted Lake property. We do not have sufficient funds on hand in order to proceed with the phase two recommended program or to cover our anticipated professional and administrative costs. We anticipate that additional funding will be required in the form of equity financing from the sale of our common stock. However, we cannot provide investors with any assurance that we will be able to raise sufficient funding from the sale of our common stock to fund the second phase of the exploration program. We believe that debt financing will not be an alternative for funding the complete exploration program. We do not have any arrangements in place for any future equity financing. To a significant extent, our ability to raise capital is affected by trends and uncertainties beyond our control. These include the market prices for base and precious metals and results from our exploration programs. Our ability to attain our business objectives may be significantly impaired if prices for metals such as gold, copper and platinum fall or if results from our intended exploration programs on our properties are unsuccessful. Item 6. Directors, Senior Management and Employees 6.1 Directors and Senior Management Directors: Name of Director Age - ---------------------- ---- Linda Smith 55 Shannon Krell 27 Alexander Mancor 56 Ms. Linda Smith's husband is the father of Ms. Shannon Krell. 17 Executive Officers: Name of Officer Age Office - -------------------- ----- ------- Linda Smith 55 President and Chief Executive Officer Brent Peters 51 Secretary The following describes the business experience of our directors and executive officers, including other directorships held in reporting companies: Linda Smith Linda Smith has acted as our president and as a director since October 27, 2000. Ms. Smith also acted as Blue Lightning Ventures Inc.'s president and as a director from October 1999 to July 2004. She also acted in the same capacities for Big Bar Gold Corporation from August 1999 to June 2003 and for Candorado Operating Company Ltd. from June 2000 to November 2001. All of these companies are British Columbia and Alberta reporting corporations involved in mineral property exploration. Mr. Smith was also employed part-time as a dental assistant from 1995 to 2002. Ms. Smith aids Mr. Darcy Krell in providing management services to us. She is not currently compensated for her services. Ms. Smith does not have any professional training or technical credentials in the field of mineral property exploration or development. About 50% of her business time is devoted to our affairs. The remainder of her business time is devoted to Blue Lightning Ventures Inc. Shannon Krell Shannon Krell has acted as our director since October 27, 2000. She has been a psychology student for the past five years and is currently attending Douglas College and the University of British Columbia. She is pursuing her undergraduate degree. Ms. Krell does not have any professional training or technical credentials in the field of mineral property exploration or development. She devotes approximately 10% of her time to our affairs. Alexander Mancor Mr. Mancor has acted as our director since October 27, 2000. For the past five years, Mr. Mancor has owned and managed a series of residential rental properties in Burnaby, British Columbia. From 1973 to 1995, he acted as a contract distributor for Pacific Press Ltd. where he was in charge of wholesale and retail distribution of the Vancouver Province and Vancouver Sun newspapers in the Burnaby region. Mr. Mancor does not have any professional training or technical credentials in the field of mineral property exploration or development. He devotes approximately 10% of his time to our affairs. The rest of his business time is devoted to his private property management business. 18 Brent Peters Mr. Peters has acted as our secretary since August 21, 2003. Since 1980, he has acted as President and owner of Colwood Enterprises Ltd., a private British Columbia company that provides management and consulting services to reporting companies in British Columbia and Alberta. He has acted as president and a director of Blue Lightning Ventures Inc. (from July 2004 to present), a director of Consolidated Jaba Inc. (from November 1997 to present), as chief financial officer and a director of Strikezone Minerals (Canada) Ltd. (from August 2002 to present) and as president, chief executive officer and a director of B2B Solutions Inc. (from March 2000 to present), all of which are British Columbia and Alberta reporting companies involved in mineral property exploration. Mr. Peters does not have any professional training or technical credentials in the field of mineral property exploration or development. He devotes approximately 10% of his time to our affairs. The majority of his business time is devoted to the affairs of Consolidated Jaba Inc., Strikezone Minerals (Canada) Ltd. and B2B Solutions Inc. There are no arrangements or understandings between any of our directors or executive officers, pursuant to which they were selected to be a director or executive officer, nor are there any family relationships among any of our directors and officers. 6.2 Compensation of Directors We are required, under applicable securities legislation in Canada, to disclose to our shareholders details of compensation paid to our directors. The following fairly reflects all material information regarding compensation paid to our directors in our fiscal year ended January 31, 2004. Summary Compensation Table
Summary Compensation Table ======================================================================================================================= Name and Principal Position Year Annual Compensation Long-term Compensation - ----------------------------------------------------------------------------------------------------------------------- Awards Securities Other Restricted Underlying Salary Bonus Annual Stock Awards Options/ LTIP All Other Compensation SAR's payouts Compensation - ----------------------------------------------------------------------------------------------------------------------- Linda Smith 2004 Nil Nil Nil Nil Nil Nil Nil President, Chief Executive Officer and Director - ----------------------------------------------------------------------------------------------------------------------- Shannon Krell 2004 Nil Nil Nil Nil Nil Nil Nil Director - ----------------------------------------------------------------------------------------------------------------------- Alexander Mancor 2004 Nil Nil Nil Nil Nil Nil Nil Director ----------------------------------------------------------------------------------------------------------------------- Brent Peters 2004 Nil Nil Nil Nil Nil Nil Nil Secretary =======================================================================================================================
19 We did not paid compensation to our directors in our most recently completed fiscal year. Management fees are paid to Mr. Darcy Krell, the husband of Ms. Linda Smith, at a rate of $2,500 per month. Mr. Krell is not a director or officer. 6.3 Board Practices Linda Smith has acted as our President and a director since October 27, 2000. Alexander Mancor and Shannon Krell directors on the same date. The directors hold office until the next annual general meeting of the shareholders at which time they may stand for re-election. We are required to hold an annual general meeting once in every calendar year and not longer than thirteen months from the last annual general meeting. We are a party to an agreement with Darcy Krell, spouse of Linda Smith, our president and a director, whereby Mr. Krell is engaged to perform certain management relations services on our behalf at a fee of $2,500 per month. Our audit committee is comprised of Linda Smith, Alexander Mancor and Shannon Krell. We have not appointed a remuneration committee. 6.4 Employees We have not had any employees other than our directors and officers. When required, we have retained geological and other consultants. 6.5 Share Ownership of Directors and Officers Our directors and officers own beneficially the following shares as of the date of this registration statement: Percentage of Outstanding Number of Shares Owned Common Shares ---------------------- -------------- Linda Smith: 567,825 10.05% Shannon Krell: 0 0.00% Alexander Mancor: 0 0.00% Brent Peters: 0 0.00% 20 The above percentages are based on the number of common shares issued and outstanding in our capital stock as of the date of this registration statement which is 5,651,714. No incentive stock options are outstanding to our directors and officers. Item 7. Major Shareholders and Related Party Transactions 7.1 Beneficial Ownership As used in this section, the term "beneficial ownership" with respect to a security is defined by Regulation 228.403 under the Securities exchange Act of 1934, as amended, as consisting of: (1) any person who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise has or shares voting power (which includes the power to vote, or to direct the voting of such security) or investment power (which includes the power to dispose, or to direct the disposition of, such security); and (2) any person who, directly or indirectly, creates or uses a trust, proxy, power of attorney, pooling arrangement or any other contract, arrangement or device with the purpose or effect of divesting such person of beneficial ownership of a security or preventing the vesting of such beneficial ownership. As of the date of this registration statement, 5,651,714 common shares are issued and outstanding. The Company is authorized to issue up to 100,000,000 common shares without par value. As of the date of this registration statement, the following persons known to us were the beneficial owner of more than five percent of our outstanding common shares. Name of Shareholder Number of Shares Percentage of Issued Shares ------------------- ---------------- --------------------------- Darcy Krell* 900,000 15.92% Sherman Jen 637,500 11.28% Linda Smith* 567,825 10.05% Ryan Krell* 500,000 8.85% Frank McGill 409,119 7.24% * Darcy Krell and Linda Smith are husband and wife. Ryan Krell is the son of Darcy Krell. Each of our issued shares entitles the holder to one vote in general meeting. There are no disproportionate or weighted voting privileges. We are not controlled directly or indirectly by any other corporation or any other foreign government or by any other natural or legal person, severally or jointly. There are no arrangements the operation of which at a subsequent date may result in a change in our control. 21 7.2 Related Party Transactions Since January 31, 2000, there are no transactions which have materially affected or will materially affect us in which any director, executive officer or beneficial holder of more than 10% of our outstanding common stock, or any of their respective relatives, spouses, associates or affiliates, has had or will have any direct or material indirect interest except as follows: a) since November 2000, we have recorded $2,500 per month for management fees to Darcy Krell doing business as DK Financial Consultants. Mr. Krell is the spouse of our president, Ms. Linda Smith; b) since November 2000, we have recorded $1,500 per month for rent and office expenses to Darcy Krell doing business as DK Financial Consultants; c) on February 15, 2002, Shannon Krell, one of our directors, advanced $75,000 to us as a non-interest bearing loan with no fixed terms of repayment; d) between November 2000 and July 2001, Ryan Krell, brother of Shannon Krell, advanced a total of $106,574 to us as a non-interest bearing loan with no fixed terms of repayment; e) between November 2000 and December 2001, Linda Smith, our president and a director, advanced a total of $413,061 to us as a non-interest bearing loan with no fixed terms of repayment; f) between August 2000 and February 2003, Darcy Krell, spouse of Ms. Linda Smith, advanced a total of $330,930 to us as a non-interest bearing loan with no fixed terms of repayment. We have repaid $270,355 of this amount; and g) up to July 31, 2004, Darcy Krell doing business as DK Financial, advanced a total of $177,000 to us as a non-interest bearing loan with no fixed terms of repayment. We believe that the above related party contracts are more favorable than those that would be obtained in arm's length transactions with third parties. All loans from related parties do not bear interest. Our management and rent agreements with Mr. Darcy Krell are comparable to other such agreements in the industry. 7.3 Interests of Experts and Counsel Our experts and legal counsel have no interest in our shareholdings. Item 8. Financial Information 8.1 Legal Proceedings To the best of our knowledge there are no legal or arbitration proceedings threatened, pending or in progress against us, except for a British Columbia Supreme Court action by Ellis Foster, Chartered Accountants, our form auditor, for $51,680.54 as at June 30, 2001, plus interest accruing thereafter at a rate of 1% per month. 22 Ellis Foster commenced legal action against us, Dalian Maple Leaf International School, Sherman Investment Ltd. and Shu Liang Sherman Jen and Lan Ying Li on October 19, 2001. The claim alleges that Ellis Foster provided accounting and audit services to the defendants in connection with the preparation of financial statements relating to our proposed acquisition of Dalian Maple Leaf International School. We have filed a Statement of Defence in the action denying that we retained Ellis Foster to provide accounting and audit services in connection with the preparation of financial statements for Dalian Maple Leaf International School. We further state that the other defendants are responsible for any fees incurred. Ellis Foster has not taken any steps to proceed with its legal claim since November 23, 2001. 8.2 Significant Changes There have been no significant changes since the date of the audited financial statements included herein. Item 9. The Offer and Listing 9.1 Offer and Listing Details Our common shares previously traded on the Canadian Venture Exchange and Vancouver Stock Exchange under the symbol "GMS". On July 12, 2001, our shares were suspended from trading on the TSX Venture Exchange due to our failure to meet the exchange's minimum working capital requirements. TSX Venture Exchange rules require that listed companies have a minimum of $50,000 in allocated working capital. At the time, we did not meet this requirement and trading in our shares was suspended. Accordingly, there is no current market for our common shares. The following table sets forth the high and low closing prices in Canadian funds of our common shares during the time they traded through the facilities of the Canadian Venture Exchange, and its predecessor, the Vancouver Stock Exchange: Period High Low ------ ----- ---- February 1, 1999 to January 31, 2000 $0.15 $0.03 February 1, 2000 to January 31, 2001 $0.25 $0.06 February 1, 2001 to July 12, 2001 $0.10 $0.06 We intend to apply to have our common shares quoted on the National Association of Securities Dealers' over-the-counter electronic bulletin board. However, there is no certainty that such listing or any other stock exchange listing will occur. 23 Item 10. Additional Information 10.1 Share Capital Our authorized share capital consists of 100,000,000 common shares without par value. Our issued share capital as of the date of this registration statement is 5,651,714 fully paid common shares without par value. We did not issue any common shares in our capital in our fiscal year ended January 31, 2003, and we have not issued any common shares since that date. All shares issued and to be issued in the future must be and have been approved by authorizing resolution consisting of a simple majority of our board of directors. We do not hold any of our own shares. We do not have any potential obligations to increase our issued capital. Since February 1, 2000, we have not issued any common shares in our capital. 10.2 Memorandum and Articles of Association We were incorporated under the Company Act of British Columbia by registration of our articles of incorporation and memorandum. Pursuant to the provisions of the Company Act, a company may conduct any business that it is not restricted by the terms of its articles from conducting. Our articles contain no such restrictions. Our directors are required to disclose to the board of directors the nature and extent of their interest in any proposed transaction or contract and must thereafter refrain from voting in respect thereof. An interested director may be counted in the quorum when a determination as to such director's remuneration is being considered but may not vote in respect thereof. The directors have an unlimited power to borrow money, issue debt obligations and mortgage or charge our assets provided such actions are conducted bona fide and in our best interests. There are no mandatory retirement ages for directors or any required shareholdings. All holders of common shares are entitled to receive dividends out of assets legally available therefor at such times and in such amounts as the board of directors may from time to time determine. All holders of common shares will share equally on a per share basis in any dividend declared by the board of directors. The dividend entitlement time limit will be fixed by the board of directors at the time any such dividend is declared. Each outstanding common share is entitled to one vote on all matters submitted to a vote of our shareholders in general meeting. There are no cumulative voting rights attached to any of our shares and, accordingly, the holders of more than half of the shares represented at a general meeting can elect all of the directors to be elected in a general meeting. All directors stand for re-election annually. Upon any liquidation, dissolution or winding up, all common shareholders are entitled to share ratably in all net assets available for distribution after payment to creditors. The common shares are not convertible or redeemable and have no preemptive, subscription or conversion rights. In the event of a merger or consolidation, all common shareholders will be entitled to receive the same per share consideration. 24 The rights of shareholders may only be altered by the shareholders passing a special resolution at a general meeting. A special resolution may only be passed when it has been circulated to all shareholders by way of an information circular and then must be passed by seventy-five percent of the votes cast at the general meeting. The board of directors may call annual and extraordinary general meetings when required. One or more shareholders holding in aggregate five percent or more of our issued shares may requisition an extraordinary meeting and the directors are required to hold such meeting within four months of such requisition. Only registered shareholders or persons duly appointed by proxy may be admitted to meetings unless otherwise permitted by the chairman of the meeting. There are no national limitations or restrictions on the right to own our common shares. There are no provisions in our articles of association that would have the effect of delaying, deferring or preventing a change in control. There are no provisions in our articles of association that establish any threshold for disclosure of ownership. However, the British Columbia and Alberta Securities Commissions require that persons that are the registered owners of, and/or have voting control over 10% or more of our common shares must file insider reports disclosing securities holdings. 10.3 Material Contracts We have not entered into any material contracts within the past two years. 10.4 Exchange Controls and other Limitations Affecting Security Holders There is no law or governmental decree or regulation in Canada that restricts the export or import of capital, or affects the remittance of dividends, interest or other payments to a non-resident holder of common shares, other than withholding tax requirements. See "Item 10.5. Taxation" --------- There is no limitation imposed by Canadian law or by our constituent documents on the right of a non-resident to hold or vote common shares, other than are provided in the Investment Canada Act (Canada). The following summarizes the principal features of the Investment Canada Act (Canada). The Investment Canada Act (Canada) requires certain "non-Canadian" individuals, governments, corporation or other entities who wish to acquire a "Canadian business" (as defined in the Investment Canada Act), or establish a "new Canadian business" (as defined in the Investment Canada Act) to file either a notification or an application for review with a governmental agency known as "Investment Canada". The Investment Canada Act requires that certain acquisition 25 of control of Canadian business by a "non-Canadian" must be reviewed and approved by the Minister responsible for the Investment Canada Act on the basis that the Minister is satisfied that the acquisition is "likely to be of net benefit to Canada", having regard to criteria set forth in the Investment Canada Act. Only acquisitions of control are reviewable under the Investment Canada Act; however, the Investment Canada Act provides detailed rules for the determination of whether control has been acquired and, pursuant to those rules, the acquisition of one-third or more of the voting shares of a corporation may, in some circumstances, be considered to constitute an acquisition of control. Certain reviewable acquisitions of control may not be implemented before being approved by the Minister; if the Minister does not ultimately approve a reviewable acquisition, which has been completed, the acquired Canadian business must be divested. Failure to comply with the review provisions of the Investment Canada Act could result in, amongst other things, an injunction or a court order directing disposition of assets of shares. 10.5 Canadian Federal Income Tax Consequences to United States Investors A brief description of certain provisions of the tax treaty between Canada and the United States is included below, together with a brief outline of certain taxes, including withholding provisions to which United States security holders are subject under existing laws and regulations of Canada and United States; the consequences, if any, of state and local taxes are not considered. The following information is general and security holders are urged to seek the advice of their own tax advisors, tax counsel or accountants with respect to the applicability or effect on their own individual circumstances of not only the matters referred to herein, but also any state or local taxes. Canadian federal tax legislation generally requires a 25% withholding from dividends paid or deemed to be paid to the Company's nonresident shareholders. However, shareholders resident in the United States will generally have this rate reduced to 15% through the tax treaty between Canada and the United States. The amount of stock dividends paid to non-residents of Canada will be subject to withholding tax at the same rate as cash dividends. The amount of stock dividend (for tax purposes) would generally be equal to the amount by which our stated capital has increased by reason of the payment of such dividend. We will furnish additional tax information to shareholders in the event of such a dividend. Interest paid or deemed to be paid on our debt securities held by non-Canadian residents may also be subject to Canadian withholding tax, depending upon the terms and provisions of such securities and any applicable tax treaty. Under present legislation in the United States, we are generally not subject to United States back up withholding rules, which would require withholding at a rate of 20% on dividends and interest paid to certain United States persons who have not provided us with a taxpayer identification number. Gains derived from a disposition of shares of the company by a non-resident shareholder will be subject to tax in Canada only if not less than 25% of any class of our shares was owned by the nonresident shareholder and/or persons with whom the nonresident did not deal at arm's length at any time during the five-year period immediately preceding the disposition. In such cases gains derived by a U.S. shareholder from a disposition of our shares would likely be exempt from tax in Canada by virtue of the Canada-U.S. tax treaty. 26 10.6 United States Federal Income Tax Consequences to United States Investors The following general discussion sets forth a summary of the material United States federal income tax consequences that are applicable to the following persons who invest in and hold our common shares as capital assets ("U.S. Shareholders"): (i) citizens or residents (as specially defined for federal income tax purposes) of the United States, (ii) corporations or partnerships created or organized in the United States or under the laws of the United States or of any state and (iii) estates or trust the income of which is subject to United States federal income taxation regardless of its source. This discussion does not deal with (a) all aspects of federal income taxation that may be relevant to a particular U.S. Shareholder based on such U.S. Shareholder's particular circumstances (including potential application of the alternative minimum tax, (b) certain U.S. Investors subject to special treatment under federal income tax laws or foreign individuals or entities, (c) U.S. Investors owning directly or by attribution 10% or more of our common shares, or (d) any aspect of state, local or non-United States tax laws. Additionally, the following discussion assumes that the Company will not be classified as a "foreign personal holding company" under the Internal Revenue Code of 1986 as amended (the "Code"). Passive Foreign Investment Company For any of our taxable years, if 75% or more of our gross income is "passive income" (as defined in the Code) or if at least 50% of our assets, by average fair market value (or adjusted income basis if the Company elects), are assets that produce or are held for the production of passive income, we will be deemed to be a Passive Foreign Investment Company ("PFIC"). A U.S. Shareholder of a PFIC is subject to special U.S. federal income tax rules in Section 1291 to 1297 of the Code. As described below, these provisions set forth two alternative tax regimes at the election of each such U.S. Shareholder, depending upon whether the U.S. Shareholder elects to treat us as a "qualified electing fund" (a QEF election"). U.S. SHAREHOLDERS ARE STRONGLY URGED TO CONSIDER MAKING A QEF ELECTION TO AVOID CERTAIN POTENTIALLY SIGNIFICANT ADVERSE U.S. TAX CONSEQUENCES The QEF Election Alternative Each U.S. Shareholder is strongly urged to consider making a QEF Election because of the potential benefits of such election that are discussed below, and because we anticipate that we will not have any earnings and profits (as computed for United States federal income tax purposes) for the current taxable year and little, if any, earnings and profits for any future taxable year in which we are a PFIC. There can be no assurance, however, that this will be the case. Accordingly, the timely making of the QEF election, as discussed below, generally should, subject to the discussion below under "Other PFIC Rules", avoid any significant adverse United State federal income tax consequences resulting from any classification of us as a PFIC, although this may depend on a particular U.S. Shareholder's particular circumstances. 27 A U.S. Shareholder who elects in a timely manner to treat us as a QEF (an "Electing U.S. Shareholder") will be subject, under Section 1293 of the Code, to current federal income tax for any taxable year in which we are a PFIC (or is treated as a PFIC with respect to the U.S. Shareholder) on such Electing U.S. Shareholder's pro-rata share of our (i) "net capital gain" (the excess of net long-term capital gain over short-term capital loss), which will be taxed as long-term capital gain to the Electing U.S. Shareholder and (ii) "ordinary earnings" (the excess of earnings and profits over net capital gain), which will be taxed as ordinary income to the Electing U.S. Shareholder, in each case, for the shareholder's taxable year in which, or with which, our taxable year ends, regardless of whether such amounts actually are distributed. An Electing U.S. Shareholder, however, would not take into account any income with respect to any of our taxable years for which we have no earnings and profits. Adjustments are provided generally to prevent double taxation at the time of later distributions on or dispositions of Common Shares. The QEF election also allows the Electing U.S. Shareholder to (i) generally treat any gain realized on the disposition of our common shares (or deemed to be realized on the pledge of such shareholder's common shares) as capital gain; (ii) treat such shareholder's share of our net capital gain, if any, as long-term capital gain instead of ordinary income; (iii) probably (although in the absence of regulations this matter is not free from doubt) retain in the case of an individual Electing U.S. Shareholder, the "step-up" in the tax basis of Common Shares to the fair market value of such shares on the date of such Electing U.S. Shareholder's death (which would otherwise not be retained); and (iv) generally avoid interest charges resulting from PFIC status altogether. In the event we are deemed a PFIC, we intend to comply with the reporting requirements prescribed by Treasury regulations. In particular, we will maintain information so that our ordinary earnings and net capital gain may be determined. However, future regulations may contain reporting and record-keeping requirements that are so onerous that it would not be practicable for us to comply. If, after review of the requirements, we decide not to comply with the PFIC record-keeping requirements, we will so notify our shareholders. A QEF Election must be made by attaching the following documents to the timely filed U.S. federal income tax return for the first taxable year of the U.S. Shareholder in which or with which our taxable year during which we were a PFIC and the U.S. Shareholder held (or was considered to have held) common shares ends: (i) a "Shareholder Section 1295 Election Statement" executed by the U.S. Shareholder, (ii) a "PFIC Annual Information Statement" received by the U.S. Shareholder from us, and (iii) a Form 8621. In addition, the Electing U.S. Shareholder must file a copy of the Shareholder Section 1295 Election Statement with the Internal Revenue Center, PO Box 21086, Philadelphia, PA 19114. In the case of common shares owned through a U.S entity, the election is made at the entity level. The following three paragraphs apply to Electing U.S. Shareholders: Dividends Paid on Common Shares: Dividends paid on our common shares (including any Canadian taxes withheld) to an Electing U.S. Shareholder will be treated as ordinary dividend income for 28 United States federal income tax purposes to the extent of our current and accumulated earnings and profits (as computed for U.S. federal income tax purposes) unless paid out of earnings and profits that were taxed to the Electing U.S. Shareholder under the QEF rules. Such dividends generally will not qualify for the dividends-received deduction available to corporations. Amount in excess of such earnings and profits will be applied against the Electing U.S. Shareholder's tax basis in the common shares, and to the extent in excess of such tax basis, will be treated as gain from a sale or exchange of such common shares. Credit for Canadian Taxes Withheld: Subject to the limitations set forth in Section 904 of the Code (which generally restricts the availability of foreign tax credits to a U.S. Shareholder's tax liability attributable to foreign-source income of the same type as the income with respect to which the tax was imposed, as determined under complex U.S. tax rules), the Canadian tax withheld or paid with respect to dividends on the common shares generally may be taken as a foreign tax credit against United States federal income taxes by an Electing U.S. Shareholder who chooses to claim such a credit for the taxable year. Electing U.S. Shareholders who do not choose to claim foreign tax credits for a taxable year may claim United States tax deduction for such Canadian tax in such taxable year. Disposition of Common Shares: Any gain or loss on a sale or exchange of common shares by an Electing U.S. Shareholder will be capital gain or loss, which will be long-term capital gain or loss if the common shares have been held for more than one year, and otherwise will be short-term capital or loss. The sale of common shares through certain brokers may be subject to the information reporting and back-up withholdings rules of the Code. 1. The Non-QEF Election Alternative If a U.S. Shareholder does not timely make a QEF Election for the first taxable year during which he holds (or is considered to hold) the common shares in question and we are a PFIC (a "Non-electing U.S. Shareholder"), then special rules under Section 1291 will apply to (i) gains realized on the disposition (or deemed to be realized by reason of a pledge) of common shares, and (ii) certain "excess distribution" (as defined in the Code) by us. We have never made any distributions with respect to our common shares and we do not anticipate making any such distribution in the foreseeable future. A non-electing U.S. Shareholder generally would be required to pro-rate all gains realized on the disposition of our common shares and all excess distributions over such shareholder's entire holding period for the common shares. All gains or excess distributions allocated to prior years of the U.S. Shareholder (provided such U.S. Shareholder's holding period and beginning after December 31, 1986 for which it was a PFIC) would be taxed at the highest tax rates for each such prior year applicable to ordinary income. Special foreign tax credit rules apply with respect to withholding taxes imposed on amounts that are treated as excess distributions. The Non-electing U.S. Shareholder also 29 would be liable for interest on the foregoing tax liability for each such prior year calculated as if such liability had been due with respect to each such prior year. A Non-electing U.S. Shareholder that is not a corporation must treat this interest charge as "personal interest" which is non-deductible. The balance of the gain or the excess distribution will be treated as ordinary income in the year of the disposition or distribution and no interest charge will be incurred with respect to such balance. If we are a PFIC for any taxable year during which a non-electing U.S. Shareholder holds, or is considered to hold, our common shares, then we will continue to be treated as a PFIC with respect to such common shares, even if we no longer meet the definition of a PFIC. A Non-electing U.S. Shareholder may determine this deemed PFIC status by electing to recognize gain (which will be taxed under the rules discussed above for Non-electing U.S. Shareholders) as if such common shares had been sold on the last day of the last taxable year for which it was a PFIC. Certain other elections are also available to Non-Electing U.S. Shareholders. Other PFIC Rules Certain special, generally adverse, rules will apply with respect to our common shares while we are a PFIC, regardless of whether the common shares are held, or considered to be held, by an Electing or Non-electing U.S. Shareholder. For example, under Section 1297(b)(6) of the Code, a U.S. Shareholder who uses PFIC stock as security for a loan (including a margin loan) will, except as may be provided in regulations, be treated as having made a taxable disposition of such stock. In addition, under Section 1291(f) of the Code, the Treasury has authority to issue regulations that would treat as taxable certain transfers that are generally not so treated, such as gifts, exchanges pursuant to corporate reorganizations, and transfers at death, although it is not clear that such authority extends to transfers by Electing U.S. Shareholders. Future Developments The foregoing discussion is based on existing provisions of the Code, existing and proposed regulations thereafter, and current administrative rulings and court decisions, all of which are subject to change. Any such changes could affect the validity of this discussion. In addition, the implementation of certain aspects of the PFIC rules requires the issuance of regulations which in many such instances have not yet been promulgated and which may have retroactive effect. Furthermore, legislation has been proposed which would replace the PFIC provisions with a consolidated anti-deferral regime. While this legislation was vetoed, it may be re-introduced in subsequent years. ALL PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF PURCHASING THE COMMON SHARES. 30 10.7 Statement by Experts We have placed reliance upon Moen & Company, Chartered Accountants, of 701 West Georgia Street, Suite 1400, Vancouver, B.C., Canada V7Y 1C6, as experts in accounting and auditing matters relating to the disclosure in this registration statement and the financial statements included therein. All financial information and related contents included in this registration statement has been reviewed and authorized by Moen & Company. 10.8 Documents on Display You may review a copy of our filings with the SEC, including exhibits and schedules filed with it, at the SEC's public reference facilities in Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. You may call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. The SEC maintains a Web site (HTTP://WWW.SEC.GOV) that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC . Although we may make our filings with the SEC electronically as a foreign private issuer, we are not obligated to do so until after the effective date of this registration statement. Item 11. Quantitative and Qualitative Disclosures About Market Risk Not applicable. Item 12. Descriptions of Securities Other than Equity Securities 12.1 Warrants We have no warrants issued and outstanding. 12.2 Stock Options We have no incentive stock options issued and outstanding. PART II Item 13. Defaults, Dividend Arrearages and Delinquencies Not applicable Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds Not applicable Item 15. Not applicable 31 Item 16. Not applicable 32 PART III Item 17. Financial Statements Our audited financial statements include: o our balance sheets as at January 31, 2004, January 31, 2003 and January 31, 2002; o the following statements for the fiscal years ended January 31, 2004, 2003 and 2002: o statements of operations and deficit; and o statements of cash flows; and o notes to the financial statements. All of these were audited by our auditor, Moen & Company, Chartered Accountants, except for the information relating to the fiscal years ended January 31, 2003 and January 31, 2002, which was audited by our former auditor, S.G. & Associates, Chartered Accountants. The financial statements are prepared in accordance with generally accepted accounting principles in Canada and are reconciled to United States generally accepted accounting principles in Note 9. All figures are expressed in Canadian dollars. Our unaudited financial statements include: o our balance sheets at July 31, 2004 and January 31, 2004; o our statements of loss and deficit for the three-month period ended July 31, 2004 and the six-month period ended July 31, 2004; o our statements of cash flows for the three-month period ended July 31, 2004 and The six-month period ended July 31, 2004; and o notes to the financial statements. All of these were prepared in accordance with interim reporting requirements under United States generally accepted accounting principles. All figures are expressed in Canadian dollars. Item 18. Financial Statements See "Item 17 Financial Statement" ------------------- 33 Item 19. Exhibits Exhibit 1: Financial Statements Exhibit 2: Certificate of Incorporation* Exhibit 3: Memorandum and Articles of Association* Exhibit 4: Management Agreement dated November 1, 2000 between Gemstar Resources Ltd. and Darcy Krell doing business as DK Financial Consultants.* Exhibit 5: Consent of Geologist** Exhibit 6: Consent of Moen & Company, Chartered Accountants Exhibit 7: Consent of SG & Associates, Chartered Accoutants * Previously filed with Form 20-F on September 16, 2003 ** Previously filed with Form 20-F on December 20, 2004 SIGNATURE The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly cause and authorized the undersigned to sign this statement on its behalf. GEMSTAR RESOURCES LTD. Dated: January 5, 2004 By: /s/ Linda Smith ---------------------- Linda Smith, President EX-1 3 exhibit1fs.txt EXHIBIT 1 MOEN AND COMPANY CHARTERED ACCOUNTANTS
Member: Canadian Institute of Chartered Accountants Securities Commission Building Institute of Chartered Accountants of British Columbia PO Box 10129, Pacific Centre Institute of Management Accountants (USA) (From 1965) Suite 1400 - 701 West Georgia Street Registered with: Vancouver, British Columbia Public Company Accounting Oversight Board (USA) (PCAOB) Canada V7Y 1C6 Canadian Public Accountability Board (CPAB) Telephone: (604) 662-8899 Canada - British Columbia Public Practice Licence Fax: (604) 662-8809 Email: moenca@telus.net - ------------------------------------------------------------------------ --------------------------------------------------
AUDITORS' REPORT ---------------- To the Shareholders of Gemstar Resources Ltd. 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. Comments by Auditor for U.S. Readers On Canada-U.S. Reporting Difference In the United States, reporting standards for auditors require the addition 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 July 6, 2004 is expressed in accordance with Canadian reporting standards which do not permit a reference to such events and conditions in the auditor's report when these are adequately disclosed in the financial statements. "Moen and Company" Chartered Accountants Vancouver, British Columbia, Canada July 6, 2004 "Independent Accountants and Auditors" 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)
================================================================================================================================= 2004 2003 2002 --------------- --------------- --------------- 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 =================================================================================================================================
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 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)
================================================================================================================================ 2004 2003 2002 --------------- --------------- --------------- 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) ================================================================================================================================
See Accompanying Auditors' Report and Notes to Financial Statements 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)
============================================================================================================================= 2004 2003 2002 --------------- --------------- --------------- 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) =============================================================================================================================
See Accompanying Auditors' Report and Notes to Financial Statements 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)
================================================================================================================================= 2004 2003 2002 --------------- --------------- --------------- 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 =================================================================================================================================
See Accompanying Auditors' Report and Notes to Financial Statements 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. 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. 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:
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 --------- ---------- --------- --------- ----------- ------------- 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 ==============================================================================================================================
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. 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: 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)
========================================================================================================================= 2004 ------------------------------------------------ Adjustments Canadian to Arrive at U.S. GAAP U.S. GAAP GAAP 2003 2002 --------------- ---------------- ------------- ------------ ---------------- 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 ===========================================================================================================================
APPROVED ON BEHALF OF THE BOARD: "Linda Smith" ----------------- "Shannon Krell" ----------------- 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)
================================================================================================================================= 2004 --------------------------------------------------- Adjustments Canadian to Arrive at U.S. GAAP U.S. GAAP GAAP 2003 2002 --------------- ---------------- -------------- -------------- --------------- 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 =================================================================================================================================
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)
================================================================================================================================= 2004 ---------------------------------------------- Adjustments Canadian to Arrive at U.S. GAAP U.S. GAAP GAAP 2003 2002 --------------- -------------- -------------- ------------- ----------------- 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) =================================================================================================================================
GEMSTAR RESOURCES LTD. (an Exploration Stage Enterprise)(j) Statement of Stockholders' Equity For the Year Ended January 31, 2004 (In Canadian Dollars)
================================================================================================================================= Total Loans from Retained Total Number of Capital Related Earnings Stockholders' Shares Stock Party (Deficit) Equity --------------- ---------------- ---------------- --------------- ---------------- 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) =================================================================================================================================
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)
================================================================================================================================= 2004 ------------------------------------------- Adjustments Canadian to Arrive at U.S. GAAP U.S. GAAP GAAP 2003 2002 ------------- ------------- ------------ --------------- ----------------- 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 =================================================================================================================================
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. 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.
Weighted Net Loss Loss Per Common Share Average -------------------------- -------------------------- Common Shares Canadian US Canadian US Outstanding GAAP GAAP GAAP GAAP --------- ---------- ----------- ----------- ----------- 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) ===================================================================================================
(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. 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. ================================================================================ 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 -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- ================================================================================ MOEN AND COMPANY CHARTERED ACCOUNTANTS
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 - --------------------------------------------------------------------------------------------------------------------------
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 GEMSTAR RESOURCES LTD. (a Development Stage Company) BALANCE SHEET July 31, 2004 (With Comparative Figures at January 31, 2004) (In Canadian Dollars)
================================================================================================================================= July 31, January 31, 2004 2004 ---------------- --------------- (Unaudited) (Audited) 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 ===============================================================================================================================
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 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)
================================================================================================================================= Three Month Period Ended Six Month Period Ended July 31, July 31, ------------------------------------- -------------------------------- 2004 2003 2004 2003 --------------- ------------ ------------ ----------- 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) =================================================================================================================================
See Accompanying Review Engagement Report and Notes to Financial Statements 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)
================================================================================================================================= Three Month Period Ended Six Month Period Ended July 31, July 31, ------------------------------------- ------------------------------------- 2004 2003 2004 2003 --------------- ---------------- --------------- --------------- 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) =================================================================================================================================
See Accompanying Review Engagement Report and Notes to Financial Statements 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)
================================================================================================================================= Three Month Period Ended Six Month Period Ended July 31, July 31, ------------------------------------- ------------------------------- 2004 2003 2004 2003 --------------- ------------ ------------- ------------- 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 =================================================================================================================================
See Accompanying Review Engagement Report and Notes to Financial Statements 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. 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. 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. 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:
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 --------- ---------- --------- --------- Balance, January 31, 2004 and 2003 Unchanged to July 31, 2004 & 2003 5,651,714 $ 1,113,471 5,651,714 $ 1,113,471 ====================================================
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. 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: 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)
================================================================================================================================= 2004 ---------------------------------------------------------- Adjustments Canadian to Arrive at U.S. GAAP U.S. GAAP GAAP 2003 --------------- ---------------- ---------------- --------------- 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 ===============================================================================================================================
APPROVED ON BEHALF OF THE BOARD: "Linda Smith" - --------------- "Shannon Krell" - --------------- 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)
================================================================================================================================= Six Month Period Ended --------------------------------------------------------------------------------- 2004 ----------------------------------------------------------- Adjustments Canadian to Arrive at U.S. GAAP U.S. GAAP GAAP 2003 --------------- ---------------- ---------------- ---------------- 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) =================================================================================================================================
Three Month Period Ended --------------------------------------------------------------------------------- 2004 ----------------------------------------------------------- Adjustments Canadian to Arrive at U.S. GAAP U.S. GAAP GAAP 2003 --------------- ---------------- ---------------- ---------------- 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) =================================================================================================================================
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)
================================================================================================================================= Six Month Period Ended ------------------------------------------------------------------ 2004 ------------------------------------------------------ Adjustments Canadian to Arrive at U.S. GAAP U.S. GAAP GAAP 2003 -------------- -------------- ---------------- --------------- 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) =================================================================================================================================
Three Month Period Ended ------------------------------------------------------------------ 2004 ------------------------------------------------------ Adjustments Canadian to Arrive at U.S. GAAP U.S. GAAP GAAP 2003 -------------- -------------- ---------------- --------------- 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) =================================================================================================================================
GEMSTAR RESOURCES LTD. (an Exploration Stage Enterprise)(j) Statement of Stockholders' Equity Period Ended July 31, 2004 (In Canadian Dollars) (Unaudited)
================================================================================================================================= Total Loans from Retained Total Number of Capital Related Earnings Stockholders' Shares Stock Party (Deficit) Equity --------------- ---------------- ------------- --------------- -------------- 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) =================================================================================================================================
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)
================================================================================================================================= Six Month Period Ended ------------------------------------------------------------------ 2004 ------------------------------------------------------ Adjustments Canadian to Arrive at U.S. GAAP U.S. GAAP GAAP 2003 -------------- -------------- ---------------- --------------- 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 =================================================================================================================================
Three Month Period Ended ------------------------------------------------------------------ 2004 ------------------------------------------------------ Adjustments Canadian to Arrive at U.S. GAAP U.S. GAAP GAAP 2003 -------------- -------------- ---------------- --------------- 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 =================================================================================================================================
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. 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.
Weighted Net Loss Loss Per Common Share Average -------------------------- -------------------------- Common Shares Canadian US Canadian US Outstanding GAAP GAAP GAAP GAAP --------- ---------- ----------- ----------- ----------- 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) ===================================================================================================
(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. 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. 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. EX-7.1 4 exhibit6.txt EXHIBIT 6 ================================================================================ Exhibit 6 MOEN AND COMPANY CHARTERED ACCOUNTANTS
Member: Canadian Institute of Chartered Accountants Securities Commission Building Institute of Chartered Accountants of British Columbia PO Box 10129, Pacific Centre Institute of Management Accountants (USA) (From 1965) Suite 1400 - 701 West Georgia Street Registered with: Vancouver, British Columbia Public Company Accounting Oversight Board (USA) (PCAOB) Canada V7Y 1C6 Canadian Public Accountability Board (CPAB) Telephone: (604) 662-8899 Canada - British Columbia Public Practice Licence Fax: (604) 662-8809 Email: moenca@telus.net - --------------------------------------------------------------------------------------------------------------------------
CONSENT OF INDEPENDENT AUDITORS We hereby consent to the inclusion of our Independent Auditors' Report dated July 6, 2004 on the financial statements of Gemstar Resources Inc. as at January 31, 2004, and for the year then ended, in the Company's Registration Statement on Form 20-F when such financial statements are read in conjunction with the financial statements referred to in our Report. Moen and Company Chartered Accountants "Moen and Company" (Signed) - ------------------------------ Vancouver, British Columbia, Canada January 5, 2005 "Independent Accountants and Auditors" EX-7.2 5 exhibit7.txt EXHIBIT 7 ================================================================================ Exhibit 7 SG AND ASSOCIATES Chartered Accountants CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the inclusion of our Independent Auditors' Report dated May 10, 2003 on the financial statements of Gemstar Resources Ltd. as at January 31, 2003 and January 31, 2002 in the Company's Registration Statement on Form 20-F when such financial statements are read in conjunction with the financial statements referred to in our Report. Richmond, Canada /s/ SG and Associates ---------------------------------------- SG and Associates, Chartered Accountants January 5, 2005 -----END PRIVACY-ENHANCED MESSAGE-----