Exhibit 1 - Financial Statements


                                                     MOEN AND COMPANY
                                                  CHARTERED ACCOUNTANTS
<table>
<caption>

                                                                                    <c>
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
---------------------------------------------------------------------------------------------------------------------------
</table>
                                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"

<PAGE>

GEMSTAR RESOURCES LTD.
(a Development Stage Company)
BALANCE SHEET
January 31, 2005
(With Comparative Figures at January 31, 2004)
(In Canadian Dollars)

<TABLE>
<CAPTION>

                                                                                 January 31,
                                                                     2005                               2004
                                                                ----------------                   ---------------
<S>                                                                 <C>                                 <C>
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
=====================================================================================================================
</TABLE>
Nature and continuance of operations:  Note 1

APPROVED ON BEHALF OF THE BOARD:


"Linda Smith"
 -----------------------
 Chief Executive Officer, Director

"Shannon Krell"
------------------------
Chief Financial Officer, Director


See Accompanying Independent Auditors' Report and Notes to Financial Statements

<PAGE>

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)


<TABLE>
<CAPTION>
                                                                                  Year Ended
                                                                                  January 31,

                                                                       2005                           2004
                                                                  --------------                ---------------

<S>                                                                    <C>                            <C>
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)
=====================================================================================================================
</TABLE>

See Accompanying Independent Auditors' Report and Notes to Financial Statements

<PAGE>

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)


<TABLE>
<CAPTION>
                                                                                  Year Ended
                                                                                  January 31,

                                                                       2005                           2004
                                                                  --------------                ---------------

<S>                                                                <C>                            <C>

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)
---------------------------------------------------------------------------------------------------------------------
</TABLE>

See Accompanying Independent Auditors' Report and Notes to Financial Statements

<PAGE>

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)

<TABLE>
<CAPTION>
                                                                                  Year Ended
                                                                                  January 31,

                                                                       2005                           2004
                                                                  --------------                ---------------

<S>                                                                <C>                            <C>
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
=====================================================================================================================
</TABLE>
See Accompanying Independent Auditors' Report and Notes to Financial Statements



<PAGE>
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.


<PAGE>

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.

<PAGE>

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:

<TABLE>
<CAPTION>
                                                          Year Ended January 31,
                                                     2005                         2004
                                                --------------                ---------------
                                            Shares              $           Shares               $
                                            ------             ---          ------              ---
                                           Number of         Total of      Number of          Total of
                                            Common            Capital       Common              Capital
                                            shares             stock        shares               stock
                                          -----------       ----------    -----------         ----------
<S>                                       <C>                <C>           <C>               <C>
Balance, January 31, 2004 & 2003
Unchanged to January 31, 2005 & 2004      5,651,174         $1,113,471    5,651,714         $ 1,113,471
                                          =================================================================
</TABLE>

<PAGE>
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:

<TABLE>
<CAPTION>

                  Management     Office       Travel &
                     Fees       Expenses     Promotion        Total
                 -----------  -----------  -------------    ---------
<S>             <C>           <C>          <C>             <C>
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
=====================================================================
</TABLE>

<PAGE>

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:

<PAGE>

GEMSTAR RESOURCES LTD.
Notes to Financial Statements
January 31, 2005
--------------------------------------------------------------------------------
Note 9.    RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED
           ACCOUNTING PRINCIPLES (CONT'D)
<TABLE>
<CAPTION>

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
                                                             ----                --------         ---------          ---------
<S>                                                    <C>                   <C>             <C>                <C>
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
================================================================================================================================
</TABLE>

<PAGE>

GEMSTAR RESOURCES LTD.
Notes to Financial Statements
January 31, 2005
--------------------------------------------------------------------------------


Note 9.  RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED
         ACCOUNTING PRINCIPLES (CONT'D)

<TABLE>
<CAPTION>
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
                                                             ----                --------         ---------           ---------
<S>                                                    <C>                   <C>             <C>                  <C>
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)
================================================================================================================================
</TABLE>


<TABLE>
<CAPTION>
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
                                                             ----                --------         ---------           ---------
<S>                                                    <C>                   <C>             <C>                  <C>

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)
================================================================================================================================
</TABLE>



<PAGE>

GEMSTAR RESOURCES LTD.
Notes to Financial Statements
January 31, 2005
--------------------------------------------------------------------------------


Note 9.  RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED
         ACCOUNTING PRINCIPLES  (CONT'D)

<TABLE>
<CAPTION>
STATEMENT OF STOCKHOLDERS' EQUITY
 (In Canadian Dollars)

                                             Number of           Total         Loans from        Retained
                                              Common            Capital          Related         Earnings
                                              Shares             Stock            Party         (Deficit)          Total
                                           -------------  ----------------  --------------  ---------------  ---------------
<S>                                            <C>        <C>               <C>             <C>              <C>
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)
===========================================================================================================================
</TABLE>

<TABLE>
<CAPTION>
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
                                                             ----                --------         ---------           ---------
<S>                                                    <C>                   <C>             <C>                  <C>

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
================================================================================================================================
</TABLE>


<PAGE>

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.


<PAGE>

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.

<PAGE>

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.

--------------------------------------------------------------------------------
<PAGE>


                                                     MOEN AND COMPANY
                                                  CHARTERED ACCOUNTANTS
<table>
<caption>

                                                                                    <c>
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
------------------------------------------------------------------------ --------------------------------------------------
</table>

                                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"


<page>


GEMSTAR RESOURCES LTD.
(a Development Stage Company)
BALANCE SHEET
January 31, 2004
(With Comparative Figures as at January 31, 2003 and January 31, 2002)
(In Canadian Dollars)

<table>
<caption>
=================================================================================================================================
                                                                               2004                2003                 2002
                                                                         ---------------     ---------------      ---------------

                                                                      <c>               <c>                    <c>
ASSETS
Current Assets
      Cash  (Note 2(g))                                                $            587  $          1,854      $          308
      Cash in lawyers' trust account (Note 2(g))                                    354                --                  --
      Deposit on credit card  (Note 2(g))                                         6,900             6,900               6,900
      GST receivable                                                              2,458             1,790               1,573
---------------------------------------------------------------------------------------------------------------------------------

                 TOTAL CURRENT ASSETS                                            10,299            10,544               8,781

Advance for exploration expenditures (Note 7)                                   152,000           152,000             152,000

Fixed Assets, net (Note 2)                                                        1,157                --                  --

Investment in mineral property (Note 6)                                           4,206                --             200,000
---------------------------------------------------------------------------------------------------------------------------------

                 TOTAL ASSETS                                          $        167,662  $        162,544      $      360,781
=================================================================================================================================

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities
      Accounts payable and accrued liabilities                         $         99,255  $        100,883      $       90,240
      Loans from related parties (Note 4)                                       684,644           722,302             668,750
---------------------------------------------------------------------------------------------------------------------------------
                 TOTAL CURRENT LIABILITIES                                      783,899           823,185             758,990
---------------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity
      Share capital (Note 3)
         Authorized:
                 100,000,000 common shares without par value
         Issued:
                 5,651,714 common shares                                      1,113,471         1,113,471           1,113,471
         Loans from related party (Note 4)                                      106,754               --                   --
      Retained earnings, accumulated during the
         development stage (Notes 1 & 2(j))                                  (1,836,462)       (1,774,112)         (1,511,680)
---------------------------------------------------------------------------------------------------------------------------------
                 TOTAL SHAREHOLDERS' EQUITY                                    (616,237)         (660,641)           (398,209)
---------------------------------------------------------------------------------------------------------------------------------
                 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY            $        167,662  $        162,544      $      360,781
=================================================================================================================================
</table>
Nature  and continuance of operations: Note1

APPROVED ON BEHALF OF THE BOARD:

       "Linda Smith"                        Chief Executive Officer, Director
  ------------------------------------
       "Shannon Krell"                      Chief Financial Officer, Director
  ------------------------------------


      See Accompanying Auditors' Report and Notes to Financial Statements

<page>

GEMSTAR RESOURCES LTD.
(a Development Stage Company)
STATEMENT OF INCOME
For the Year Ended January 31, 2004
(With Comparative Figures for the Years Ended January 31, 2003
and January 31, 2002)
(In Canadian Dollars)

<table>
<caption>
================================================================================================================================
                                                                       2004                2003                        2002
                                                                 ---------------     ---------------             ---------------

                                                             <c>                  <c>                        <c>
GENERAL AND ADMINISTRATION EXPENSES
      Amortization                                             $             496  $               --      $                   --
      Audit fees                                                           2,700               8,390                          --
      Bank charges and interest                                              604                 292                       2,286
      Consulting                                                           1,035                  --                       4,684
      Filing and transfer agent fees                                         711                 647                       8,755
      Legal fees                                                           1,218                  --                      10,481
      Management fees                                                     30,000              30,000                      20,000
      Office expense                                                      23,401              20,871                      20,791
      Travel and promotion                                                 2,185               2,232                       2,161
--------------------------------------------------------------------------------------------------------------------------------
                                                                          62,350              62,432                      69,158
--------------------------------------------------------------------------------------------------------------------------------
LOSS BEFORE BELOW ITEM                                                   (62,350)            (62,432)                    (69,158)
      Write off interest in mineral claims dropped                            --            (200,000)                         --
--------------------------------------------------------------------------------------------------------------------------------
NET LOSS FOR THE YEAR                                          $         (62,350)  $        (262,432)      $             (69,158)
================================================================================================================================


Weighted Average Number of Shares Outstanding
                         Basic                                         5,651,714           5,652,000                   5,652,000
================================================================================================================================
                         Diluted                                       5,651,714           5,652,000                   5,652,000
================================================================================================================================
NET PROFIT (LOSS) PER SHARE
                         Basic                                 $           (0.01)  $          (0.05)       $               (0.05)
================================================================================================================================
                         Diluted                               $           (0.01)  $          (0.05)       $               (0.05)
================================================================================================================================
</table>






      See Accompanying Auditors' Report and Notes to Financial Statements

<page>

GEMSTAR RESOURCES LTD.
(a Development Stage Company)
STATEMENT OF RETAINED EARNINGS
January 31, 2004
(With Comparative Figures for the Years Ended January 31, 2003
and January 31, 2002)
(In Canadian Dollars)
<table>
<caption>
=============================================================================================================================

                                                                         2004                2003                   2002
                                                                  ---------------     ---------------         ---------------

                                                                <c>                <c>                     <c>
Net loss for the year                                           $        (62,350)  $        (262,432)      $         (69,158)
Retained earnings (Deficit), beginning of year                        (1,774,112)         (1,511,680)             (1,448,897)
Adjustments to opening retained earnings
      - Cancellation of escrow shares (Note 2(j))                             --                  --                   6,375

-----------------------------------------------------------------------------------------------------------------------------
Deficit, end of year                                            $     (1,836,462)  $      (1,774,112)      $      (1,511,680)
=============================================================================================================================
</table>











      See Accompanying Auditors' Report and Notes to Financial Statements

<page>

GEMSTAR RESOURCES LTD.
(a Development Stage Company)
STATEMENT OF CASH FLOWS
For the Year Ended January 31, 2004
(With Comparative Figures for the Years Ended January 31, 2003
and January 31, 2002)
(In Canadian Dollars)
<table>
<caption>
=================================================================================================================================
                                                                     2004                2003                        2002
                                                               ---------------     ---------------             ---------------

                                                          <c>                   <c>                          <c>
FUNDS DERIVED FROM (APPLIED TO)
Operating activities
      Net loss for the year                                   $        (62,350)  $        (262,432)       $          (69,158)
      Items not requiring use of cash
         Amortization                                                      496                  --                        --
         Write off interest in mineral claims dropped                       --             200,000                        --
      Changes in non-cash working capital items
         GST receivable                                                   (668)               (217)                   (1,009)
         Prepaids                                                           --                  --                  (152,000)
         Cash in lawyers' trust account                                   (354)                 --                        --
         Accounts payable and accrued                                   (1,628)             55,143                    48,147
---------------------------------------------------------------------------------------------------------------------------------
                                                                       (64,504)             (7,506)                 (174,020)
---------------------------------------------------------------------------------------------------------------------------------

Investing activities
      Investment in mineral property                                    (4,206)                 --                  (200,000)
      Purchase of fixed assets                                          (1,653)                 --                        --
---------------------------------------------------------------------------------------------------------------------------------
                                                                        (5,859)                 --                  (200,000)
---------------------------------------------------------------------------------------------------------------------------------
Financing activities
      Loans from related parties, net                                   69,096               9,052                   368,256
---------------------------------------------------------------------------------------------------------------------------------


CASH INCREASE (DECREASE) DURING THE YEAR                                (1,267)              1,546                    (5,764)
CASH, BEGINNING OF YEAR                                                  1,854                 308                     6,072
---------------------------------------------------------------------------------------------------------------------------------
CASH, END OF YEAR                                             $            587   $           1,854        $              308
=================================================================================================================================
</table>






      See Accompanying Auditors' Report and Notes to Financial Statements


<page>
GEMSTAR RESOURCES LTD.
Notes to Financial Statements
January 31, 2004
================================================================================

Note 1.   NATURE AND CONTINUANCE OF OPERATIONS

           The Company was incorporated on March 31, 1998. The Company is in the
           development  stage relating to exploration and development of mineral
           properties  and has not  generated  any  revenues  from  its  planned
           operations.  The deficit has been accumulated during this development
           stage.

           These  financial  statement  have been  prepared in  accordance  with
           Canadian generally  accepted  accounting  principles  applicable to a
           going  concern  which assume that the Company will realize its assets
           and discharge its  liabilities in the normal course of business.  The
           Company has incurred  losses since  inception of $1,842,837 and has a
           working  capital  deficit  at January  31,  2004 of  $773,600.  These
           factors  create doubt as to the ability of the Company to continue as
           a going concern unless sufficient funds are raised for the payment of
           its  current  liabilities  and for  ongoing  operations.  Realization
           values may be  substantially  different  from the carrying  values as
           shown in these financial  statements  should the Company be unable to
           continue as a going concern.

Note 2.   SIGNIFICANT ACCOUNTING POLICIES

           a)  Fixed assets and amortization

               The Company records amortization on computer equipment at 30%, on
               a declining balance basis.


                                               January 31,
                           -----------------------------------------------------
                                  2004              2003              2002
                           ----------------   ---------------   ----------------
Cost                      $      1,653       $           -                   -
Accumulated amortization           496                   -                   -
--------------------------------------------------------------------------------
                          $      1,157       $           -                   -
================================================================================

           b)  General and administration expenses

                General  and   administration   expenses   are  written  off  to
                operations as incurred.

           c)    Financial Instruments

                 The Company's  financial  instruments  consist of cash and cash
                 equivalents,  GST  receivable,   prepaid  expense  and  current
                 liabilities. It is management's opinion that the Company is not
                 exposed  to  significant  interest,  currency  or credit  risks
                 arising  from these  financial  instruments.  The fair value of
                 these financial statements  approximates their carrying values.
                 The Company does not have any off-balance sheet debt.

<page>

GEMSTAR RESOURCES LTD.
Notes to Financial Statements
January 31, 2004
================================================================================

Note 2.   SIGNIFICANT ACCOUNTING POLICIES (cont'd)

d)              Translation of Foreign Currency

                The accounts of the Company are translated into Canadian dollars
                on the following basis:

                -monetary  assets and  liabilities are translated at the rate of
                exchange  in  effect at the  balance  sheet  date
                -non-monetary assets and liabilities are  translated at the rate
                 prevailing when the transaction occurred
                -revenue, general & administration expenses, and gains and
                 losses are translated at the average  exchange rate in effect
                 during the period
                -exchange gains or losses from conversion are included in the
                 current net income.
                -depreciation or amortization of assets translated at
                 historical exchange rates are translated at the same   exchange
                 rates as the assets to which they relate;

e)               Use of estimates

                 The  preparation  of financial  statements in  accordance  with
                 Canadian  generally  accepted  accounting  principles  requires
                 management  to make  estimates  that  affect  certain  reported
                 amounts and  disclosures.  Estimates  are used for, but are not
                 limited to, the accounting for doubtful accounts, amortization,
                 income taxes, and the  recoverability  of non-producing  mining
                 property    capitalized   costs   and   deferred    exploration
                 expenditures. Actual results may differ from those estimates.

f)               Stock-based compensation plan

                 Effective January 1, 2002 the Company adopted, on a prospective
                 basis,   CICA  HB  3870  stock-based   compensation  and  other
                 stock-based  payments,  which  established  standards  for  the
                 recognition,   measurement,   and   disclosure  of  stock-based
                 payments made in exchange for goods and  services.  Stock-based
                 compensation  and  other  stock-based   payments  require  that
                 stock-based  payments to non-employees be accounted for using a
                 fair value based method of accounting.

                 The new standards permit, and the Company has adopted,  the use
                 of  the  intrinsic   value  based  method,   which   recognizes
                 compensation costs for awards to employees only when the market
                 price exceeds the exercise price at date of grant, but requires
                 pro forma  disclosure of earnings and earnings and earnings per
                 share as if the fair value based  method had been  adopted.  No
                 stock options were issued during the period.

g)               Cash and cash equivalents

                 Cash and cash equivalents consist of $587 cash deposit in bank,
                 $6,900  security  deposit  for  credit  card and  $354  cash in
                 lawyers' trust account as at January 31, 2004.

<page>

GEMSTAR RESOURCES LTD.
Notes to Financial Statements
January 31, 2004
================================================================================

Note 2.   SIGNIFICANT ACCOUNTING POLICIES (cont'd)

h)                Mineral Properties

                  Acquisition costs of mineral properties are capitalized by the
                  Company,  and are dealt  with in the same  manner as  deferred
                  exploration  costs.  Mineral  property sale proceeds or option
                  payments received for exploration  rights are credited firstly
                  to mineral property costs, secondly, as a recovery of deferred
                  exploration  costs,  and  thereafter,  recognized as a gain or
                  loss in current operations.

i)                Values

                  The  amounts  for  deferred   exploration  costs  and  mineral
                  properties  represent  costs  incurred  to  date  and  are not
                  intended   to   reflect   present   or  future   values.   The
                  recoverability of the amounts shown for mineral properties and
                  deferred exploration costs is dependent on the confirmation of
                  economically  recoverable reserves, the ability of the Company
                  to obtain the  necessary  financing to  successfully  complete
                  their development,  including compliance with the requirements
                  of lenders who may provide this  financing  from time to time,
                  and upon future profitable operations.

j)                Restatement of Prior Year Figures

                  On the  cancellation  of 637,500  escrow shares for the fiscal
                  year ended  January 31,  2002,  there was no  reduction in the
                  dollar amounts of issued share capital.  The January 31, 2002,
                  figures  have been  restated to reflect a reduction  in issued
                  share capital of $6,375 and a credit to the retained  earnings
                  (deficit) for $6,375  reflecting  the  cancellation  of escrow
                  shares.

Note 3.   SHARE CAPITAL

a)                Authorized: 100,000,000 common shares without par value

b)                Issued and outstanding:

<table>
<caption>
                                                                           Year Ended January 31,
                                             ---------------------------------------------------------------------------------
                                                       2004                        2003                      2002
                                             ------------------------    -----------------------   ---------------------------
                                               Shares           $          Shares          $        Shares            $
                                             ---------      ----------  ----------    ----------   -----------   -------------
                                             Number of       Total of     Number of     Total of    Number of     Total of
                                              Common         Capital       Common        Capital     Common        Capital
                                              shares          stock        shares         stock      shares         stock
                                             ---------      ----------   ---------     ---------   -----------   -------------

                                          <c>            <c>           <c>          <c>         <c>           <c>
Balance, January 31, 2003 and 2002           5,651,714     $ 1,113,471   5,651,714   $ 1,113,471    6,289,214    $  1,119,846
Cancellation of escrow shares (Note 2(j))          --              --           --            --     (637,500)         (6,375)
------------------------------------------------------------------------------------------------------------------------------
Balance, January 31, 2004 and 2003           5,651,714       1,113,471   5,651,714   $ 1,113,471    5,651,714    $  1,113,471
==============================================================================================================================
</table>


<page>

GEMSTAR RESOURCES LTD.
Notes to Financial Statements
January 31, 2004
================================================================================

Note 4.   RELATED PARTY TRANSACTIONS

           (a)    Loans from related  parties of $684,644 as at January 31, 2004
                  ($722,302  - January 31,  2003) are  unsecured,  non  interest
                  bearing,  with no  specific  terms of  repayment.  Loans  from
                  related  party of  $106,754.15  as at January  31, 2004 is non
                  interest  bearing,  and shall mature on January 1, 2006 unless
                  it  is   converted   into  equity  (each  $0.05  of  Principal
                  outstanding  may be  converted  into one  share)  prior to the
                  maturity date.

           (b)    Management fees incurred and expenses paid on behalf of the
                  Company for the fiscal year ended January 31, 2004 are as
                  follows:


                               Management    Office     Travel&
                                  Fees      Expenses   Promotion     Total
                               ---------    --------   ---------    --------
          Darcy Krell          $  30,000   $  21,301   $   1,039   $  52,340
          Linda Smith                  0         668         143         811
          ------------------------------------------------------------------
                               $  30,000   $  21,969   $   1,182   $  53,151
          ==================================================================

Note 5.  INCOME TAXES

           The  Company  does not have any  income  tax  liabilities  during the
           current  year and,  accordingly,  no income taxes are  recorded.  The
           potential income tax benefits  associated with losses incurred by the
           Company have not been recorded in the accounts as future taxation.

Note 6.    INVESTMENT IN MINERAL PROPERTY

           The claims that the Company  acquired from L.C.M.  Equity Inc. in the
           Black  River  area in the,  Thunder  Bay  Mining  Division,  Ontario,
           expired   during  the  fiscal  year  ended  January  31,  2003,   and
           accordingly,  costs of $200,000  were  written  off,  resulting  in a
           charge to  operations  of $200,000 in that  fiscal  year.  During the
           current  fiscal year ended January 31, 2004, the claims were restaked
           and the costs of restaking the newly named claims are  capitalized as
           deferred exploration costs.

           The Company has 100%  interest  in Dotted Lake  Property  (TB 3011450
           expiring  March 14, 2005,  TB 3011451  expiring  March 14,  2005,  TB
           3011452 expiring March 23, 2005,  TB3011453  expiring March 23, 2005,
           TB3011454  expiring  March 23,  2005,  Thunder  Bay Mining  Division,
           Ontario,  Canada.  These  claims are held in trust for the Company in
           the name of 1179406 Ontario Limited,  the latter of which is owned by
           Mr. Robert Reukl,  the original  staker of the claims who transferred
           the claims to1179406 Ontario Limited.

           Geological  fees of $4,206  covering  staking  of these  claims  were
           incurred and capitalized for the year ended January 31, 2004.

<page>

GEMSTAR RESOURCES LTD.
Notes to Financial Statements
January 31, 2004
================================================================================


Note 7.    ADVANCE FOR EXPLORATION EXPENDITURES

           The  advance  for  exploration  expenditures  of  $152,000 is held by
           L.C.M.  Equity Inc.  ("LCM")  for  exploration  expenditures.  LCM is
           required  to  proceed  with  exploration  upon  notice  from  Gemstar
           Resources  Ltd.  LCM is a private  company  which is not  related  to
           Gemstar  Resources Inc.  Management  has determined  that there is no
           impairment of this amount as at January 31, 2004.

Note 8.    LAWSUIT

           There  is a  claim  by  Ellis  Foster  that it is  owed  $51,680  for
           accounting services it provided to the Company.  The Company disputes
           the payment of fees charged to it in the connection with the audit of
           Dalian Maple Leaf  International  School,  a private company owned by
           the Company's former president, Mr. Sherman Jen.

Note 9.    RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED
           ACCOUNTING PRINCIPLES

             These financial statements are prepared in accordance with Canadian
             generally   accepted   accounting   principles   (Canadian   GAAP).
             Differences  at January 31, 2004 between  Canadian  GAAP and United
             States  generally  accepted  accounting  principles (U.S. GAAP) are
             described below, with the financial  statement  disclosure restated
             from Canadian GAAP with adjustments shown to conform to U.S. GAAP:












<page>


GEMSTAR RESOURCES LTD.
Notes to Financial Statements
January 31, 2004
================================================================================

Note 9.      RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED
             ACCOUNTING PRINCIPLES (CONT'D)


GEMSTAR RESOURCES LTD.
(an Exploration Stage Enterprise)(j)
BALANCE SHEET
January 31, 2004
(With Comparative Figures as at January 31, 2003 and January 31, 2002)
(In Canadian Dollars)

<table>
<caption>
=========================================================================================================================
                                                               2004
                                         ------------------------------------------------
                                                            Adjustments
                                             Canadian       to Arrive at        U.S.
                                               GAAP           U.S. GAAP         GAAP         2003              2002
                                         ---------------  ----------------  ------------- ------------   ----------------

                                          <c>           <c>               <c>           <c>            <c>
ASSETS
Current Assets
  Cash                                      $        587      $        --            587  $       1,854   $           308
  Cash in lawyer trust account                       354  (a)        (354)            --             --                --
  Deposit on credit card                           6,900  (a)      (6,900)            --             --                --
  GST receivable                                   2,458               --          2,458          1,790             1,573
--------------------------------------------------------------------------------------------------------------------------
             TOTAL CURRENT ASSETS                 10,299           (7,254)         3,045          3,644             1,881

Advance for exploration expenditures             152,000  (a)    (152,000)            --             --                --

Fixed Assets, net                                  1,157               --          1,157             --                --

Investment in mineral property                     4,206  (b)      (4,206)            --             --                --
---------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS                                $    167,662      $  (163,460) $       4,202  $       3,644   $         1,881
===========================================================================================================================

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities
Accounts payable and accrued liabilities    $     99,255      $        --  $      99,255  $     100,883             90,240
Loans from related parties                       684,644               --        684,644        722,302            668,750
---------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES                        783,899               --        783,899        823,185   $        758,990
---------------------------------------------------------------------------------------------------------------------------

Shareholders' Equity
  Share capital
  Authorized:
   100,000,000 common shares without par value
  Issued:
   5,651,714 common shares
   (April 30, 2004 - 5,651,714 common shares)  1,113,471               --      1,113,471      1,113,471          1,113,471
  Loans from related party                       106,754               --        106,754            --                  --
  Retained earnings, accumulated during
   the development stage                      (1,836,462)        (163,460)    (1,999,922)    (1,933,012)        (1,870,580)
---------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY                      (616,237)        (163,460)      (779,697)      (819,541)          (757,109)
---------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY  $    167,662      $  (163,460) $       4,202  $       3,644   $          1,881
===========================================================================================================================
</table>

APPROVED ON BEHALF OF THE BOARD:

 "Linda Smith"
 -----------------
 "Shannon Krell"
 -----------------

<page>

GEMSTAR RESOURCES LTD.
Notes to Financial Statements
January 31, 2004
================================================================================
Note 9.      RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED
             ACCOUNTING PRINCIPLES (CONT'D)


GEMSTAR RESOURCES LTD.
(an Exploration Stage Enterprise)(j)
STATEMENT OF INCOME
For the Year Ended January 31, 2004
(With Comparative Figures for the Years Ended January 31, 2003
and January 31, 2002)
(In Canadian Dollars)
<table>
<caption>
=================================================================================================================================
                                                                  2004
                                          ---------------------------------------------------
                                                               Adjustments
                                             Canadian          to Arrive at         U.S.
                                               GAAP              U.S. GAAP          GAAP             2003             2002
                                          ---------------    ----------------  --------------   --------------   ---------------

                                             <c>             <c>             <c>              <c>              <c>
GENERAL AND ADMINISTRATION EXPENSES
   Amortization                             $         496      $          --  $           496  $         --      $            --
   Audit fees                                       2,700                 --            2,700         8,390                   --
   Bank charges and interest                          604                 --              604           292                2,286
   Consulting                                       1,035                 --            1,035            --                4,684
   Advance for exploration expenditures                --                 --               --            --              152,000
   Exploration costs on mineral properties             --  (b)         4,206            4,206            --                   --
   Filing and transfer agent fees                     711                 --              711           647                8,755
   Legal fees                                       1,218  (a)           354            1,572            --               10,481
   Management fees                                 30,000                 --           30,000        30,000               20,000
   Office expense                                  23,401                 --           23,401        20,871               20,791
   Travel and promotion                             2,185                 --            2,185         2,232                9,061
   Write off interest in mineral claims dropped        --                 --               --            --              200,000
---------------------------------------------------------------------------------------------------------------------------------
NET LOSS FOR THE YEAR                       $      62,350      $       4,560  $        66,910  $     62,432      $       428,058
=================================================================================================================================

Weighted Average Number of Shares Outstanding
          Basic                                 5,651,714                           5,651,714     5,651,714            5,651,714
=================================================================================================================================
          Diluted                               5,651,714                           5,651,714     5,651,714            5,651,714
=================================================================================================================================
NET PROFIT (LOSS) PER SHARE
          Basic                             $        0.01                     $          0.01  $       0.01                 0.08
=================================================================================================================================
          Diluted                           $        0.01                     $          0.01  $       0.01                 0.08
=================================================================================================================================
</table>

<page>


GEMSTAR RESOURCES LTD.
Notes to Financial Statements
January 31, 2004
================================================================================
Note 9.      RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED
             ACCOUNTING PRINCIPLES (CONT'D)


GEMSTAR RESOURCES LTD.
(an Exploration Stage Enterprise)(j)
STATEMENT OF RETAINED EARNINGS
January 31, 2004
(With Comparative Figures for the Years Ended January 31, 2003
and January 31, 2002)
(In Canadian Dollars)

<table>
<caption>
=================================================================================================================================
                                                                  2004
                                            ----------------------------------------------
                                                               Adjustments
                                                Canadian       to Arrive at        U.S.
                                                  GAAP          U.S. GAAP          GAAP           2003              2002
                                            ---------------  --------------  --------------  -------------   -----------------

                                            <c>                    <c>       <c>            <c>             <c>
Net loss for the year                        $     (62,350)  $      (4,560)  $     (66,910)  $   ( 62,432)           (428,058)
------------------------------------------------------------------------------------------------------------------------------
Retained earnings (Deficit), beginning of year  (1,774,112)       (158,900)     (1,933,012)    (1,870,580)         (1,448,897)
Adjustments to opening retained earnings
  - Cancellation of escrow shares                       --              --             --               --              6,375
------------------------------------------------------------------------------------------------------------------------------
                                                (1,774,112)       (158,900)     (1,933,012)    (1,870,580)         (1,442,522)
------------------------------------------------------------------------------------------------------------------------------
Deficit, end of year                         $  (1,836,462)  $    (163,460)  $  (1,999,922)  $ (1,933,012)         (1,870,580)
=================================================================================================================================
</table>





GEMSTAR RESOURCES LTD.
(an Exploration Stage Enterprise)(j)
Statement of Stockholders' Equity
For the Year Ended January 31, 2004
(In Canadian Dollars)
<table>
<caption>
=================================================================================================================================
                                                          Total             Loans from            Retained              Total
                                Number of                Capital              Related             Earnings          Stockholders'
                                  Shares                  Stock                Party             (Deficit)              Equity
                            ---------------        ----------------     ----------------     ---------------     ----------------

                           <c>                   <c>                  <c>                 <c>                  <c>
Balance, Beginning of Year
  January 31, 2002                5,654,714       $       1,113,471  $                --   $     (1,870,580)   $        (757,109)
Loan from related party                  --                      --
Net Loss for the year                    --                      --                   --            (62,432)             (62,432)
---------------------------------------------------------------------------------------------------------------------------------
Balance for
year ended January 31, 2003       5,654,714       $       1,113,471  $                --   $     (1,933,012)   $        (819,541)
Loan from related party                  --                      --              106,754                 --              106,754
Net Loss for the year                                            --                   --            (66,910)             (66,910)
---------------------------------------------------------------------------------------------------------------------------------
Balance, End of Year,
  January 31, 2004                5,654,714       $       1,113,471  $           106,754   $     (1,999,922)   $        (779,697)
=================================================================================================================================
</table>


<page>


GEMSTAR RESOURCES LTD.
Notes to Financial Statements
January 31, 2004
================================================================================
Note 9.      RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED
             ACCOUNTING PRINCIPLES (CONT'D)


GEMSTAR RESOURCES LTD.
(an Exploration Stage Enterprise)(j)
STATEMENT OF CASH FLOWS
For the Year Ended January 31, 2004
(With Comparative Figures for the Years Ended January 31, 2003 and
January 31, 2002)
(In Canadian Dollars)
<table>
<caption>
=================================================================================================================================
                                                                 2004
                                             -------------------------------------------
                                                              Adjustments
                                               Canadian       to Arrive at      U.S.
                                                 GAAP          U.S. GAAP        GAAP            2003                 2002
                                             -------------   -------------  ------------   ---------------    -----------------

                                           <c>            <c>                <c>         <c>                  <c>
FUNDS DERIVED FROM (APPLIED TO)
Operating activities
  Net loss for the year                      $    (62,350)   $     (4,560)  $   (66,910)  $        ( 62,432)   $      (428,058)
  Items not requiring use of cash
  Amortization                                        496              --           496                  --                 --
  Changes in non-cash working capital items
  GST receivable                                     (668)             --          (668)               (217)                --
  Prepaids                                             --              --            --                  --             (1,009)
  Cash in lawyers' trust account                     (354) (a)        354            --                  --                 --
  Deposit on credit card                               --              --            --                  --              6,900
  Accounts payable and accrued                     (1,628)             --        (1,628)             55,143             48,147
---------------------------------------------------------------------------------------------------------------------------------
                                                  (64,504)         (4,206)      (68,710)             (7,506)          (374,020)
---------------------------------------------------------------------------------------------------------------------------------

Investing activities
  Investment in mineral property                   (4,206)          4,206            --                  --                 --
  Purchase of fixed assets                         (1,653)             --        (1,653)                 --                 --
---------------------------------------------------------------------------------------------------------------------------------
                                                   (5,859)          4,206        (1,653)                 --                 --
---------------------------------------------------------------------------------------------------------------------------------

Financing activities
  Loans from related parties, net                  69,096             --         69,096               9,052            368,256
---------------------------------------------------------------------------------------------------------------------------------


CASH INCREASE (DECREASE)
 DURING THE YEAR                                   (1,267)            --         (1,267)              1,546             (5,764)

CASH, BEGINNING OF YEAR                             1,854             --          1,854                 308              6,072
---------------------------------------------------------------------------------------------------------------------------------

CASH, END OF YEAR                            $        587    $        --   $        587   $           1,854                308
=================================================================================================================================
</table>


<page>


GEMSTAR RESOURCES LTD.
Notes to Financial Statements
January 31, 2004
================================================================================


Note 9.      RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED
             ACCOUNTING PRINCIPLES  (CONT'D)

             Detailed adjustments from Canadian GAAP to U.S. GAAP, referenced to
             disclosure restated, above, are as follows:

(a)      Legal retainer, deposit in credit card, and advance for exploration
         expenditure

                  Under Canadian  GAAP, the legal retainer for $354,  deposit in
                  credit card of $6,900 and advance for exploration  expenditure
                  for $152,000 can be prepaid.  Under United States GAAP,  legal
                  retainer,  deposit  in  credit  card  should  be  expensed  as
                  incurred, and accordingly,  the amount of $159,254 is expensed
                  in the current statement of income.

(b)      Accounting for start-up costs - Mining Properties

                  Deferred Exploration Costs

                  Under  Canadian   accounting   principles,   these  costs  and
                  recoveries  may  be  deferred  prior  to the  commencement  of
                  commercial  operations.  Accounting  principles  in the United
                  States require expenditures and revenue during the start-up of
                  operations to be charged to earnings. The exploration costs of
                  $4,206 which is deferred under Canadian accounting principles,
                  are expensed in the current statement of income for U.S. GAAP.

(c)      Income taxes

                 The  accounting for income taxes under Canadian GAAP and United
                 States GAAP is essentially the same, except that:

                 - income tax rates of enacted or  substantively enacted tax law
                 must be used to calculate  future income tax assets and
                 liabilities  under Canadian GAAP.
                 - Only income tax rates of enacted tax law can be used under
                 United States GAAP.

                 For both  Canadian  GAAP and U.S.  GAAP,  no Future  Income Tax
                 (Canadian GAAP) or Deferred Tax (U.S. GAAP) are either recorded
                 as assets or as  liabilities,  as they are offset by  valuation
                 reserves due to uncertainty of utilization of tax losses.

<page>

GEMSTAR RESOURCES LTD.
Notes to Financial Statements
January 31, 2004
================================================================================


Note 9.      RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED
             ACCOUNTING PRINCIPLES  (CONT'D)

(d)      Earnings (Loss) per Common Share

                   Loss per common  share for  Canadian  GAAP for the year ended
             January 31, 2004 is  increased  for U.S.  GAAP due to fact that the
             loss has been revised under U.S.

<table>
<caption>

                              Weighted              Net Loss                Loss Per Common Share
                               Average     --------------------------    --------------------------
                             Common Shares  Canadian           US          Canadian          US
                              Outstanding     GAAP            GAAP           GAAP           GAAP
                              ---------    ----------     -----------    -----------    -----------

                           <c>           <c>           <c>             <c>            <c>
Basic Earnings (Loss)
 Per common Share             5,651,714   $   (62,350)   $    (66,910)   $     (0.01)   $    (0.01)
                                                                           ========================
Dilution Effect                       0             0               0
------------------------------------------------------------------------
Diluted Earnings (Loss)
 Per Common Share             5,651,714   $   (62,350)   $   (66,910)    $     (0.01)   $    (0.01)
===================================================================================================
</table>

(e)      Accounting for asset retirement obligations

                    In August of 2001,  U.S. FASB issued  Statement of Financial
                    Accounting   Standards  No.  143,   "Accounting   for  Asset
                    Retirement  Obligations"  ("SFAS  143").  SFAS 143 addresses
                    financial   accounting   and   reporting   for   obligations
                    associated with the retirement of tangible long-lived assets
                    and the associated asset retirement  costs. SFAS 143 applies
                    to all entities. It applies to legal obligations  associated
                    with the  retirement of  long-lived  assets that result from
                    the  acquisition,  construction,  development  and / or  the
                    normal operation of a long-lived  asset,  except for certain
                    obligations  of  lessees.  SFAS 143  requires  that the fair
                    value of a liability for an asset  retirement  obligation be
                    recognized  in the  period  in  which  it is  incurred  if a
                    reasonable   estimate  of  fair  value  can  be  made.   The
                    associated asset retirement costs are capitalized as part of
                    the carrying  amount of the  long-lived  asset.  SFAS 143 is
                    effective for financial  statements  issued for fiscal years
                    beginning  after June 15, 2002. The Company adopted SFAS 143
                    for the fiscal  year  beginning  on  February  1, 2003.  The
                    Company  believes  that  SFAS 143  will not have a  material
                    effect on the  Company's  results of  operations,  financial
                    position or liquidity.

(f)      Impairment of capital costs

                  Since February 1, 2003,  the Company  adopted CICA 3063.04 and
                  3063.09 for Impairment of capital costs of mineral  properties
                  and considered the conditions set out in CICA 3063.09-.10.  to
                  determine  whether a write-down  of capital costs is required.
                  The adoption of the Impairment of capital costs eliminates all
                  differences between Canadian and U.S. GAAP which impairment is
                  defined in  FAX-144  as the  condition  that  exists  when the
                  carrying amount of a long-lived asset exceeds its fair value.

<page>

GEMSTAR RESOURCES LTD.
Notes to Financial Statements
January 31, 2004
================================================================================

Note 9.      RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED
             ACCOUNTING PRINCIPLES  (CONT'D)

(g)      Accounting for costs associated with exit or disposal activities

                  The U.S. FASB recently issued new Standard No. 146 relating to
                  accounting  for  costs   associated   with  exit  or  disposal
                  activities.  Effective  February  1,  2003,  the new  standard
                  requires  the  recognition  of costs  associated  with exit or
                  disposal  activities when they are incurred rather than at the
                  date of a commitment to an exit or disposal  plan. The Company
                  is  required  to apply the  standard  for U.S.  GAAP  purposes
                  prospectively to exit or disposal  activities  initiated after
                  February 1, 2003.

(h)      Investment securities

                  U.S. GAAP requires that investment securities be classified as
                  either  "available  for  sale"  or  "held  to  maturity",  and
                  requires  available for sale  securities to be reported on the
                  balance sheet at their estimated fair values. Unrealized gains
                  and losses  arising  from  changes in fair values of available
                  for sale  securities are reported net of income taxes in other
                  comprehensive  income.  Other than temporary  declines in fair
                  value are recorded by  transferring  the unrealized  loss from
                  other  comprehensive  income to the  statement of income.  For
                  U.S.  GAAP,  the  Company  accounts  for   substantially   all
                  investment  securities as available for sale.  Under  Canadian
                  GAAP,  investment  securities are carried at cost or amortized
                  cost, with other than temporary  declines in value  recognized
                  based upon expected net realizable values.

(i)      Statement of Stockholders' Equity

                  A separate  Statement of Stockholders'  Equity is not required
                  for Canadian GAAP; it is, however, required in accordance with
                  U.S.  GAAP  and,  accordingly,  is  disclosed  as  a  separate
                  statement in the abovementioned for U.S. GAAP.

(j)      Exploration Stage Enterprise

                  Under the  Canadian  accounting  principles,  the  Company  is
                  considered to be a Development Stage Enterprise. In accordance
                  with U.S.  accounting  principles this reference is revised to
                  Exploration Stage Enterprise.

                  Additional disclosure of the following items is required under
                  U.S. accounting  principles for exploration stage enterprises:
                  (1) separate  caption in the  shareholders'  equity section of
                  the balance sheet  reporting  cumulative net losses during the
                  exploration stage, and this is disclosed in the abovementioned
                  balance sheet reconciled to U.S. GAAP. (2) cumulative  amounts
                  of revenues  and  expenses  since  inception,  (3)  cumulative
                  statement  of cash flows since  inception,  and (4) details of
                  each  issuance of capital stock since  inception.  The Company
                  has been an  exploration  stage  since  March 31, 1998 and the
                  accumulated  figures, for Items 2 and 3, are not available and
                  therefore are not disclosed.