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.