EX-1 2 ex1.txt EXHIBIT 1 FINANCIAL STATEMENTS Exhibit 1 - Financial Statements 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 Sheets of Gemstar Resources Ltd. as at January 31, 2005 and January 31, 2004, and the Statements of Income, Retained Earnings (Deficit), and Cash Flows for the years ended January 31, 2005, and January 31, 2004. These financial statements are the responsibility of the Company s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits 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, 2005 and January 31, 2004 and the results of its operations and its cash flows for the years ended January 31, 2005 and January 31, 2004 in accordance with Canadian generally accepted accounting principles. "Moen and Company" Chartered Accountants Vancouver, British Columbia, Canada April 4, 2005 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 April 4, 2005 is expressed in accordance with Canadian reporting standards which do not permit a reference to such events and conditions in the auditors' report when they are properly accounted for and are adequately disclosed in the financial statements. "Moen and Company" Chartered Accountants Vancouver, British Columbia, Canada April 4, 2005 "Independent Accountants and Auditors" GEMSTAR RESOURCES LTD. (a Development Stage Company) BALANCE SHEET January 31, 2005 (With Comparative Figures at January 31, 2004) (In Canadian Dollars)
January 31, 2005 2004 ---------------- --------------- ASSETS Current Assets Cash (Note 2(g)) $2,989 $587 Cash in lawyers' trust account (Note 2(g)) 354 354 Deposit on credit card (Note 2(g)) 6,900 6,900 GST receivable 2,978 2,458 --------------------------------------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 13,221 10,299 Advance for exploration expenditures (Note 7 and 10) 152,000 152,000 Fixed Assets, net (Note 2) 809 1,157 Investment in mineral property (Note 6) 4,206 4,206 --------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $170,236 $167,662 ===================================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable and accrued liabilities $109,009 $99,255 Loans from related parties (Note 4) 881,795 782,402 --------------------------------------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 990,804 881,657 --------------------------------------------------------------------------------------------------------------------- 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 parties (Note 4) 4,597 8,996 Retained earnings, accumulated during the development stage (Notes 1 & 2(j)) (1,938,636) (1,836,462) --------------------------------------------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY (DEFICIT) (820,568) (713,995) --------------------------------------------------------------------------------------------------------------------- $ 170,236 $ 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 Independent Auditors' Report and Notes to Financial Statements GEMSTAR RESOURCES LTD. (a Development Stage Company) STATEMENT OF INCOME Year Ended January 31, 2005 (With Comparative Figures for the Year Ended January 31, 2004) (In Canadian Dollars)
Year Ended January 31, 2005 2004 -------------- --------------- GENERAL AND ADMINISTRATION EXPENSES Depreciation expenses $348 $496 Audit fees 14,605 2,700 Bank charges and interest 402 604 Management fees 30,000 30,000 Office expense 26,028 23,401 Professional fees 18,812 2,253 Transfer agent and filing fees 2,008 711 Travel and promotion 9,971 2,185 --------------------------------------------------------------------------------------------------------------------- 102,174 62,350 --------------------------------------------------------------------------------------------------------------------- NET LOSS FOR THE YEAR $(102,174) $(62,350) ===================================================================================================================== Weighted Average Number of Shares Outstanding Basic 5,651,714 5,651,714 ===================================================================================================================== Diluted 5,651,714 5,651,714 ===================================================================================================================== NET PROFIT (LOSS) PER SHARE Basic $(0.02) $(0.01) ===================================================================================================================== Diluted $(0.02) $(0.01) =====================================================================================================================
See Accompanying Independent Auditors' Report and Notes to Financial Statements GEMSTAR RESOURCES LTD. (a Development Stage Company) STATEMENT OF RETAINED EARNINGS Year Ended January 31, 2005 (With Comparative Figures for the Year Ended January 31, 2004) (In Canadian Dollars)
Year Ended January 31, 2005 2004 -------------- --------------- Net loss for the year $(102,174) $(62,350) Retained earnings (Deficit), beginning of year (1,836,462) (1,774,112) --------------------------------------------------------------------------------------------------------------------- Deficit, end of year $(1,938,636) $(1,836,462) ---------------------------------------------------------------------------------------------------------------------
See Accompanying Independent Auditors' Report and Notes to Financial Statements GEMSTAR RESOURCES LTD. (a Development Stage Company) STATEMENT OF CASH FLOWS Year Ended January 31, 2005 (With Comparative Figures for the Year Ended January 31, 2004) (In Canadian Dollars)
Year Ended January 31, 2005 2004 -------------- --------------- FUNDS DERIVED FROM (APPLIED TO) Operating activities Net loss for the year $(102,174) $(62,350) Items not requiring use of cash Amortization 348 496 Changes in non-cash working capital items Deposit with lawyer trust account (354) GST receivable (520) (668) Accounts payable and accrued 9,754 (1,628) --------------------------------------------------------------------------------------------------------------------- (92,592) (64,504) --------------------------------------------------------------------------------------------------------------------- Investing activities Purchase of fixed assets -- (1,653) Investment in mineral property -- (4,206) --------------------------------------------------------------------------------------------------------------------- -- (5,859) --------------------------------------------------------------------------------------------------------------------- Financing activities Loans from related parties, net 94,994 69,096 --------------------------------------------------------------------------------------------------------------------- CASH INCREASE (DECREASE) DURING THE YEAR 2,402 (1,267) CASH, BEGINNING OF YEAR 587 1,854 --------------------------------------------------------------------------------------------------------------------- CASH, END OF YEAR $2,989 $587 =====================================================================================================================
See Accompanying Independent Auditors' Report and Notes to Financial Statements GEMSTAR RESOURCES LTD. Notes to Financial Statements January 31, 2005 -------------------------------------------------------------------------------- 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. Going Concern 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 incorporation and inception of $1,938,636 and has a working capital deficit at January 31, 2005 of $977,583. 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 depreciation The Company records depreciation on computer equipment at 30%, on a declining balance basis. January 31, 2005 2004 ------------ ---------- Cost $ 1,653 $ 1,653 Accumulated depreciation 844 496 ------------------------------------------------------------ $ 809 $ 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, 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 January 31, 2005 -------------------------------------------------------------------------------- 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 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, depreciation, 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, and no stock options are outstanding at January 31, 2005. g) Cash Cash and cash equivalents consist of $2,989 cash deposit in bank, $6,900 security deposit for credit card and $354 cash in lawyers' trust account as at January 31, 2005. GEMSTAR RESOURCES LTD. Notes to Financial Statements January 31, 2005 -------------------------------------------------------------------------------- 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) Reclassification of Comparative Figures Certain of the comparative figures have been reclassified to conform to the disclosure in these financial statements for 2005. Note 3. SHARE CAPITAL a) Authorized: 100,000,000 common shares without par value b) Issued and outstanding:
Year Ended January 31, 2005 2004 -------------- --------------- Shares $ Shares $ ------ --- ------ --- Number of Total of Number of Total of Common Capital Common Capital shares stock shares stock ----------- ---------- ----------- ---------- Balance, January 31, 2004 & 2003 Unchanged to January 31, 2005 & 2004 5,651,174 $1,113,471 5,651,714 $ 1,113,471 =================================================================
GEMSTAR RESOURCES LTD. Notes to Financial Statements January 31, 2005 -------------------------------------------------------------------------------- Note 4. RELATED PARTY TRANSACTIONS (a) (i) Loans from related parties of $779,638 as at January 31, 2005 ($684,644 - January 31, 2004) are unsecured, non interest bearing, with no specific terms of repayment. (ii) Loans from related party of $106,754 as at January 31, 2005 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. The summary of the loans from related parties are as follows: January 31, 2005 2004 ------------ ---------- Darcy Krell $ 291,152 $ 196,583 Linda Smith 413,486 413,061 Shannon Krell 75,000 75,000 ------------------------------------------------------------ 779,638 684,644 Ryan Krell 106,754 106,754 ------------------------------------------------------------ $ 886,392 $ 791,398 ============================================================ The company adopted Handbook 3860.A25, to recognize the residual valuation of equity component of the loans from Ryan Krell of $106,754. The liability component is valued first, and the difference between the conversion of the loans and the fair value of the liability is assigned to the equity component. The present value of the liability component is calculated using a discount rate of 4.5%, as shown below. Present value of loans - $106,754 payable at the end of 1year/ 2 years $102,157 $97,758 Equity component (by deduction) 4,597 8,996 ---------------------------------------------------------------- Conversion of the loans $106,754 106,754 ================================================================ (b) Management fees incurred and expenses paid on behalf of the Company for the year ended January 31, 2005 are as follows:
Management Office Travel & Fees Expenses Promotion Total ----------- ----------- ------------- --------- Darcy Krell $ 30,000 $20,927 $7,778 $58,705 Linda Smith 714 795 1,509 Shannon Krell 2,000 2,000 --------------------------------------------------------------------- $ 30,000 $23,641 $8,573 $62,214 =====================================================================
GEMSTAR RESOURCES LTD. Notes to Financial Statements January 31, 2005 -------------------------------------------------------------------------------- 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, as they are offset by valuation reserves due to uncertainty as to the utilization of tax losses. 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 fiscal year ended January 31, 2004, the claims were restaked and the costs of $4,260 for restaking the newly named claims are capitalized as investment in mineral property. 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. 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, 2005 Note 8. LAWSUIT There is a claim by Ellis Foster that it is owed $51,680 for accounting services it allegedly provided to the Company. The Company disputes the payment of fees charged to it as the fees are in 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, 2005 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, 2005 -------------------------------------------------------------------------------- Note 9. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONT'D)
BALANCE SHEET (In Canadian Dollars) January 31, 2005 ----------------------------------------------------- Adjustments January 31, Canadian To Arrive 2004 at GAAP U.S.GAAP U.S. GAAP U.S. GAAP ---- -------- --------- --------- ASSETS Current Assets Cash $ 2,989 $ -- $ 2,989 $ 587 Cash in lawyer trust account 354 (a) (354) -- -- Deposit on credit card 6,900 (a) (6,900) -- -- GST receivable 2,978 2,978 2,458 -------------------------------------------------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 13,221 (7,254) 5,967 3,045 Advance for exploration expenditures 152,000 (a) (152,000) -- -- Fixed Assets, net 809 -- 809 1,157 Investment in mineral property 4,206 (b) (4,206) -- -- -------------------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 170,236 $ (163,460) $ 6,776 $ 4,202 ================================================================================================================================ LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable and accrued liabilities $ 109,009 $ -- $ 109,009 $ 99,255 Loans from related parties 881,795 -- 881,795 782,402 -------------------------------------------------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 990,804 -- 990,804 881,657 -------------------------------------------------------------------------------------------------------------------------------- Shareholders' Equity Share capital Authorized: 100,000,000 common shares without par value Issued: 5,651,714 common shares 1,113,471 -- 1,113,471 1,113,471 (January 31, 2004 - 5,651,714 common shares) Loans from related party -- 4,597 4,597 8,996 Retained earnings, accumulated during the development stage (1,938,636) (163,460) (2,102,096) (1,999,922) -------------------------------------------------------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY (820,568) (163,460) (984,028) (877,455) -------------------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 170,236 $ (163,460) $ 6,776 $ 4,202 ================================================================================================================================
GEMSTAR RESOURCES LTD. Notes to Financial Statements January 31, 2005 -------------------------------------------------------------------------------- Note 9. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONT'D)
STATEMENT OF INCOME (In Canadian Dollars) Year Ended ---------------------------------------------------------------------- January 31, 2005 --------------------------------------------------- Adjustments January 31, Canadian To Arrive 2004 at GAAP U.S.GAAP U.S. GAAP U.S. GAAP ---- -------- --------- --------- General and Administration Expenses Amortization $ 348 $ -- $ 348 $ 496 Audit fees 14,605 -- 14,605 2,700 Bank charges and interest 402 -- 402 604 Management fees 30,000 -- 30,000 30,000 Exploration costs on mineral properties -- -- -- 4,206 Office expense 26,028 -- 26,028 23,401 Professional fees 18,812 -- 18,812 2,607 Transfer agent and filing fees 2,008 -- 2,008 711 Travel and promotion 9,971 -- 9,971 2,185 -------------------------------------------------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 102,174 102,174 66,910 -------------------------------------------------------------------------------------------------------------------------------- Net Loss for the Period $ (102,174) $ $ (102,174) $ (66,910) ================================================================================================================================
STATEMENT OF RETAINED EARNINGS (In Canadian Dollars) Year Ended ---------------------------------------------------------------------- January 31, 2005 --------------------------------------------------- Adjustments January 31, Canadian To Arrive 2004 at GAAP U.S.GAAP U.S. GAAP U.S. GAAP ---- -------- --------- --------- Net loss for the year $ (102,174) $ -- $ (102,174) $ (66,910) Retained earnings (Deficit), beginning of year (1,836,462) (163,460) (1,999,922) (1,933,012) -------------------------------------------------------------------------------------------------------------------------------- Deficit, end of year $ (1,938,636) $ (163,460) (2,102,096) $ (1,999,922) ================================================================================================================================
GEMSTAR RESOURCES LTD. Notes to Financial Statements January 31, 2005 -------------------------------------------------------------------------------- Note 9. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONT'D)
STATEMENT OF STOCKHOLDERS' EQUITY (In Canadian Dollars) Number of Total Loans from Retained Common Capital Related Earnings Shares Stock Party (Deficit) Total ------------- ---------------- -------------- --------------- --------------- Balance, Beginning of Year January 31, 2003 5,651,714 $ 1,113,471 $ -- $ (1,933,012) $ (819,541) Loan from related party 8,996 8,996 Net loss for the year (66,910) (66,910) --------------------------------------------------------------------------------------------------------------------------- Balance, End of Year, January 31, 2004 5,651,714 1,113,471 8,996 (1,999,922) (877,455) Loan from related party (4,399) (4,399) Net loss for year ended January 31, 2005 (102,174) (102,174) --------------------------------------------------------------------------------------------------------------------------- Balance, End of Period January 31, 2005 5,651,714 $ 1,113,471 $ 4,597 $ (2,102,096) $ (984,028) ===========================================================================================================================
STATEMENT OF CASH FLOWS (In Canadian Dollars) Year Ended ---------------------------------------------------------------------- January 31, 2005 --------------------------------------------------- Adjustments January 31, Canadian To Arrive 2004 at GAAP U.S.GAAP U.S. GAAP U.S. GAAP ---- -------- --------- --------- FUNDS DERIVED FROM (APPLIED TO) Operating activities Net loss for the period $ (102,174) $ -- $ (102,174) $ (66,910) Items not requiring use of cash Amortization 348 -- 348 496 Changes in non-cash working capital items GST receivable (520) -- (520) (668) Accounts payable and accrued 9,754 -- 9,754 (1,628) -------------------------------------------------------------------------------------------------------------------------------- (92,592) -- (92,592) (68,710) -------------------------------------------------------------------------------------------------------------------------------- Investing activities Purchase of fixed assets -- -- -- (1,653) -------------------------------------------------------------------------------------------------------------------------------- Financing activities Loans from related parties, net 94,994 -- 94,994 69,096 -------------------------------------------------------------------------------------------------------------------------------- Cash Increase (Decrease) During the Period 2,402 -- 2,402 (1,267) Cash, Beginning of Period 587 -- 587 1,854 -------------------------------------------------------------------------------------------------------------------------------- Cash, End of Period $ 2,989 $ -- 2,989 $ 587 ================================================================================================================================
GEMSTAR RESOURCES LTD. Notes to Financial Statements January 31, 2005 -------------------------------------------------------------------------------- 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 on 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 on 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 previous statement of income for the year ended January 31, 2004. (b) Accounting for start-up costs - Mining Properties Cost of Mineral Property and 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 mining property costs of $4,206 which are deferred under Canadian accounting principles, are expensed in the previous statement of income for the year ended January 31, 2004 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, 2005 -------------------------------------------------------------------------------- Note 9. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONT'D) (d) 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. (e) 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 FAS-144 as the condition that exists when the carrying amount of a long-lived asset exceeds its fair value. (f) 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. GEMSTAR RESOURCES LTD. Notes to Financial Statements January 31, 2005 -------------------------------------------------------------------------------- Note 9. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONT'D) (g) 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. (h) 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. (i) 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. Note 10. SUBSEQUENT EVENT Of the $152,000 advanced to L.C.M. Equity Inc. (Note 7) for exploration expenditures, approximately $50,000 thereof has been expended on exploration after January 31, 2005. -------------------------------------------------------------------------------- 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.