---

|GEMSTAR RESOURCES LTD.      
|----------------------------
|                            
|                            
|FINANCIAL STATEMENTS        
|                            
|                            
|JANUARY 31, 2007 AND 2006   
|(Stated in Canadian Dollars)

---



AUDITORS' REPORT

|To the Shareholders of        
|------------------------------
|Gemstar Resources Ltd.        
|(An Exploration Stage Company)

We have audited the balance sheets of Gemstar Resources Ltd. as
at January 31, 2007 and 2006, and the related statements of operations and
deficit, and cash flows for each of the years ended January 31, 2007 and 2006.
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 and the standards of the Public Company Accounting
Oversight Board (United States). 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,
2007 and 2006, and the results of its operations and its cash flows for each of
the years ended January 31, 2007 and 2006, in accordance with Canadian generally
accepted accounting principles.

The financial statements for the year ended January 31, 2005
were audited by other auditors who have ceased operations. Those auditors
expressed an opinion without reservation in their report dated April 4, 2005.

|Vancouver, Canada | Morgan & Company   
|----------------- | ---------------------
|                  |                      
|May 18, 2007      | Chartered Accountants

Comments by Auditors for U.S. Readers on Canada  U.S.
Reporting Conflict

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 May 18, 2007 is expressed in accordance with Canadian
reporting standards, which do not permit a reference to such events and
conditions in the auditors report when these are adequately disclosed in the
financial statements.

|Vancouver, Canada | Morgan & Company   
|----------------- | ---------------------
|                  |                      
|May 18, 2007      | Chartered Accountants

|Tel: (604) 687-5841 |                                     | P.O. Box 10007 Pacific Centre
|------------------- | ----------------------------------- | -----------------------------
|Fax: (604) 687-0075 | Sute 1488 - 700 West Georgia Street
|www.morgan-cas.com  | Vancouver, B.C. V7Y 1A1            

---

|GEMSTAR RESOURCES LTD.      
|----------------------------
|                            
|BALANCE SHEETS              
|(Stated in Canadian Dollars)

|                                                        |   | JANUARY 31 |  
|------------------------------------------------------- | - | ---------- | -
|                                                        |   | 2007       |  
|                                                        |   |            |  
|ASSETS                                                  |   |            |  
|Current                                                 |   |            |  
|Cash                                                    | $ | 9,656      |  
|GST receivable                                          |   | -          |  
|                                                        |   | 9,656      |  
|                                                        |   |            |  
|Term Deposit(Note 3)                                    |   | 6,900      |  
|Mineral Properties And Deferred Exploration Costs       |   |            |  
|(Note 4)                                                |   | 70,439     |  
|Computer Equipment(Note 5)                              |   | 1,111      |  
|                                                        |   |            |  
|                                                        | $ | 88,106     |  
|                                                        |   |            |  
|LIABILITIES                                             |   |            |  
|Current                                                 |   |            |  
|Accounts payable and
      accrued liabilities          | $ | 129,331    |  
|Loans
      from related parties, including convertible |   |            |  
|promissory
      note (Note 6)                          |   | 1,100,674  |  
|                                                        |   | 1,230,005  |  
|Deferred Liability(Note 7)                              |   | -          |  
|                                                        |   | 1,230,005  |  
|                                                        |   |            |  
|SHAREHOLDERS DEFICIENCY                                |   |            |  
|                                                        |   |            |  
|Share Capital(Note 8)                                   |   |            |  
|Authorized:                                             |   |            |  
|100,000,000 common shares without par value             |   |            |  
|Issued:                                                 |   |            |  
|5,651,714 common shares                                 |   | 1,113,471  |  
|                                                        |   |            |  
|Equity Component Of Convertible Note(Note 6)            |   | 11,576     |  
|Deficit Accumulated During The Exploration Stage        |   | (2,266,946 | )
|                                                        |   | (1,141,899 | )
|                                                        |   |            |  
|                                                        | $ | 88,106     |  

Approved on Behalf of the Board of Directors:

|Linda Smith |  | Shannon Krell
|------------- |  | ---------------
|Director      |  | Director       

The accompanying notes are an integral part of these financial
statements.

---

|GEMSTAR RESOURCES LTD.              
|------------------------------------
|                                    
|STATEMENTS OF OPERATIONS AND DEFICIT
|(Stated in Canadian Dollars)        

|                                               |   | YEARS ENDED JANUARY 31 |  
|---------------------------------------------- | - | ---------------------- | -
|                                               |   | 2007                   |  
|                                               |   |                        |  
|General And Administration Expenses            |   |                        |  
|Amortization                                   | $ | 614                    |  
|Accounting and audit fees                      |   | 30,150                 |  
|Accretion of convertible
      note            |   | 1,356                  |  
|Bad debt
      expense                         |   | 8,169                  |  
|Management fees                                |   | 30,000                 |  
|Office
      and sundry                        |   | 47,456                 |  
|Professional fees                              |   | 20,150                 |  
|Transfer
      agent and filing fees           |   | 9,194                  |  
|Travel and promotion                           |   | 35,333                 |  
|                                               |   |                        |  
|Net Loss For The Year                          |   | (182,422               | )
|                                               |   |                        |  
|Deficit, Beginning Of Year                     |   | (2,084,524             | )
|                                               |   |                        |  
|Deficit, End
      Of Year                     | $ | (2,266,946             | )
|                                               |   |                        |  
|                                               |   |                        |  
|Weighted Average Number Of Common
      Shares |   |                        |  
|Outstanding, Basic and diluted                 |   | 5,651,714              |  
|                                               |   |                        |  
|                                               |   |                        |  
|Net Loss Per Common Share, Basic and diluted   | $ | (0.03                  | )

The accompanying notes are an integral part of these financial
statements.

---

|GEMSTAR RESOURCES LTD.      
|----------------------------
|                            
|STATEMENTS OF CASH FLOWS    
|(Stated in Canadian Dollars)

|                                                    |   | YEARS ENDED JANUARY 31 |  
|--------------------------------------------------- | - | ---------------------- | -
|                                                    |   | 2007                   |  
|                                                    |   |                        |  
|Cash Flows Provided By (Used In):                   |   |                        |  
|                                                    |   |                        |  
|Operating Activities                                |   |                        |  
|Net loss for the year                               | $ | (182,422               | )
|Items not
      requiring use of cash:              |   |                        |  
|Amortization                                        |   | 614                    |  
|Accretion on convertible note                       |   | 1,356                  |  
|                                                    |   | (180,452               | )
|Changes in
      non-cash working capital items:    |   |                        |  
|GST receivable                                      |   | 5,080                  |  
|Accounts payable and accrued liabilities            |   | 9,957                  |  
|                                                    |   | (165,415               | )
|                                                    |   |                        |  
|Investing Activities                                |   |                        |  
|Refund of
      exploration advance                 |   | -                      |  
|Investment in mineral properties
      and deferred |   |                        |  
|exploration costs                                   |   | -                      |  
|Purchase of computer equipment                      |   | -                      |  
|                                                    |   | -                      |  
|                                                    |   |                        |  
|Financing Activities                                |   |                        |  
|Loans from related parties, net                     |   | 158,126                |  
|Long-term debt                                      |   | -                      |  
|                                                    |   | 158,126                |  
|                                                    |   |                        |  
|Increase (Decrease) In Cash                         |   | (7,289                 | )
|                                                    |   |                        |  
|Cash, Beginning Of Year                             |   | 16,945                 |  
|                                                    |   |                        |  
|Cash, End Of
      Year                             | $ | 9,656                  |  
|                                                    |   |                        |  
|                                                    |   |                        |  
|Supplemental Cash Flow Information                  |   |                        |  
|Non-cash expenditures investing
      activities   | $ | -                      |  
|Interest paid                                       | $ | -                      |  
|Income taxes paid                                   | $ | -                      |  

The accompanying notes are an integral part of these financial
statements.

---

|GEMSTAR RESOURCES LTD.       
|-----------------------------
|NOTES TO FINANCIAL STATEMENTS
|JANUARY 31, 2007 AND 2006    
|(Stated in Canadian Dollars) 

|1. | NATURE AND CONTINUANCE OF OPERATIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Gemstar Resources Ltd. (the Company) was incorporated
      in British Columbia, on March 31, 1998, which is also the date of
      inception. The Company is engaged in the acquisition, exploration and
      development of mineral resource properties and has not generated any
      revenue to date. The deficit has been accumulated during the exploration
      stage.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Going Concern                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | These financial statements have been prepared in
      accordance with Canadian generally accepted accounting principles
      applicable to a going concern which assumes the Company will realize its
      assets and discharge its liabilities in the normal course of business. As
      at January 31, 2007, the Company had a working capital deficiency of
      $1,220,349 (January 31, 2006 - $998,865) and has incurred losses since
      inception of $2,266,946. Further losses are anticipated in the development
      of its business and there can be no assurance that the Company will be
      able to achieve or maintain profitability. Management is trying to
      identify sources of additional financing, including loans from related
      parties, to fund third party liabilities and the ongoing development of
      the Companys business. There can be no assurance that financing will be
      available as necessary to meet the Companys working capital requirements
      or, if available, that it will be on terms acceptable to the Company.
      These factors raise substantial doubt as to the Companys ability to
      continue as a going concern. Realization values may be substantially
      different from the carrying values shown in these financial statements
      should the Company be unable to continue as a going concern.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|2. | SUMMARY OF SIGNIFICANT ACCOUNTING
  POLICIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | These financial statements have been prepared in
      accordance with Canadian generally accepted accounting principles and
      reflect managements consideration of the following significant accounting
      policies:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

---

|GEMSTAR RESOURCES LTD.       
|-----------------------------
|NOTES TO FINANCIAL STATEMENTS
|JANUARY 31, 2007 AND 2006    
|(Stated in Canadian Dollars) 

|2. | SIGNIFICANT ACCOUNTING POLICIES(Continued)
|-- | ------------------------------------------
|   |                                           
|   | b)                                        
|   |                                           
|   |                                           
|   |                                           
|   | c)                                        
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   |                                           

---

|GEMSTAR RESOURCES LTD.       
|-----------------------------
|NOTES TO FINANCIAL STATEMENTS
|JANUARY 31, 2007 AND 2006    
|(Stated in Canadian Dollars) 

|2. | SIGNIFICANT ACCOUNTING POLICIES(Continued)
|-- | ------------------------------------------
|   |                                           
|   | d)                                        
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   | e)                                        
|   |                                           
|   |                                           
|   |                                           
|   | f)                                        
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   | g)                                        
|   |                                           
|   |                                           

---

|GEMSTAR RESOURCES LTD.       
|-----------------------------
|NOTES TO FINANCIAL STATEMENTS
|JANUARY 31, 2007 AND 2006    
|(Stated in Canadian Dollars) 

|2. | SIGNIFICANT ACCOUNTING POLICIES(Continued)
|-- | ------------------------------------------
|   |                                           
|   | h)                                        
|   |                                           
|   |                                           
|   |                                           
|   | i)                                        
|   |                                           
|   |                                           
|   |                                           
|   | j)                                        
|   |                                           
|   |                                           

---

|GEMSTAR RESOURCES LTD.       
|-----------------------------
|NOTES TO FINANCIAL STATEMENTS
|JANUARY 31, 2007 AND 2006    
|(Stated in Canadian Dollars) 

|2. | SIGNIFICANT ACCOUNTING POLICIES(Continued)
|-- | ------------------------------------------
|   |                                           
|   | k)                                        
|   |                                           
|   |                                           
|   |                                           
|   | l)                                        
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   | m)                                        
|   |                                           
|   |                                           

---

|GEMSTAR RESOURCES LTD.       
|-----------------------------
|NOTES TO FINANCIAL STATEMENTS
|JANUARY 31, 2007 AND 2006    
|(Stated in Canadian Dollars) 

|2. | SIGNIFICANT ACCOUNTING POLICIES(Continued)                                                                                                                                                                                                      
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                 
|   | n)                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                 
|   | o)                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                 
|   | p)                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                 
|3. | TERM DEPOSIT  RESTRICTED ON CREDIT CARD                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                 
|   | The amount of $6,900 as at January 31, 2007 has been invested into a one-year guaranteed investment certificate with interest at 2.75% maturing on October 29, 2007. It is required by the bank as security for the Companys
credit card usage.

---

|GEMSTAR RESOURCES LTD.       
|-----------------------------
|NOTES TO FINANCIAL STATEMENTS
|JANUARY 31, 2007 AND 2006    
|(Stated in Canadian Dollars) 

|4. | MINERAL PROPERTIES AND DEFERRED EXPLORATION
      COSTS
|-- | -------------------------------------------------------

The Company staked the Dotted Lake
Property in the Thunder Mining District of the province of Ontario, Canada, in
March 2003, and holds a 100% interest in 1 mineral claim comprising 15 claim
units with a due date now extended to March 14, 2008. The claim is presently in
good standing and held in trust for the Company by an unrelated private company
in Ontario. In order to maintain the mineral claim in good standing, the Company
is required to spend approximately $4,000 in exploration on the property by
March 14, 2008. As at January 31, 2007, the Company has invested the following
amounts:

| |                            |   | 2007   |  |   | 2006   | 
| | -------------------------- | - | ------ |  | - | ------ | 
| |                            |   |        |  |   |        | 
| | Mineral properties         |   |        |  |   |        | 
| | Staking                    | $ | 4,206  |  | $ | 4,206  | 
| |                            |   |        |  |   |        | 
| | Deferred exploration costs |   |        |  |   |        | 
| | Geological
      survey    |   | 40,000 |  |   | 40,000 | 
| | Geological consulting fees |   | 26,233 |  |   | 26,233 | 
| |                            |   | 66,233 |  |   | 66,233 | 
| |                            |   |        |  |   |        | 
| |                            | $ | 70,439 |  | $ | 70,439 | 

The Company maintains this property for
future expenditures and has determined there is no asset impairment as at
January 31, 2007.

|5. | COMPUTER EQUIPMENT
|-- | ------------------

| |                          |   | 2007   |   |   | 2006   |  
| | ------------------------ | - | ------ | - | - | ------ | -
| | Cost                     | $ | 3,309  |   | $ | 3,309  |  
| | Accumulated amortization |   | (2,198 | ) |   | (1,584 | )
| |                          | $ | 1,111  |   | $ | 1,725  |  

---

|GEMSTAR RESOURCES LTD.       
|-----------------------------
|NOTES TO FINANCIAL STATEMENTS
|JANUARY 31, 2007 AND 2006    
|(Stated in Canadian Dollars) 

|6. | LOANS FROM RELATED PARTIES, INCLUDING CONVERTIBLE
      PROMISSORY NOTE                                                                                                                                                                                                                                                                              
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                      
|   | a)                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                      
|   | b)                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                      
|   | c)                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                      
|7. | DEFERRED LIABILITY                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                      
|   | On January 25, 2006, a Company lawyer signed a debt
      deferral agreement to a date beyond July 31, 2007 regarding $39,676 of
      unpaid legal fees. At January 31, 2007, this amount was reclassified to
      current liabilities since it is potentially due within the next twelve
      months. It remains unsecured and bears no
interest.

---

|GEMSTAR RESOURCES LTD.       
|-----------------------------
|NOTES TO FINANCIAL STATEMENTS
|JANUARY 31, 2007 AND 2006    
|(Stated in Canadian Dollars) 

|8. | SHARE CAPITAL                                                                                                                                                                                                                                                                                                       
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                     
|   | As at January 31, 2007 and 2006, the Company has issued 5,651,714 of its total authorized share capital of 100,000,000 common shares. There were no shares issued by the Company for the years ended January 31, 2007 and 2006.                                                                                     
|   |                                                                                                                                                                                                                                                                                                                     
|   | The Company has no share purchase warrants outstanding. However, the previously described promissory note payable is convertible into 2,135,080 common shares of the Company prior to its January 1, 2008 maturity date on the basis
of each $0.05 of principal outstanding being convertible into one common share.
|   |                                                                                                                                                                                                                                                                                                                     
|   | Stock Option Plan                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                     
|   | In December 2006, the Company adopted a Stock Option Plan (the Plan) to be administered under the following basic terms and conditions:                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                     
|   | (i)                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                     
|   | (ii)                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                     
|   | (iii)                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                     
|   | (iv)                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                     
|   | (v)                                                                                                                                                                                                                                                                                                                 
|   | No stock options have been granted and no stock options are outstanding.                                                                                                                                                                                                                                            

---

|GEMSTAR RESOURCES LTD.       
|-----------------------------
|NOTES TO FINANCIAL STATEMENTS
|JANUARY 31, 2007 AND 2006    
|(Stated in Canadian Dollars) 

|9. | INCOME TAXES
|-- | ------------
|   |             
|   | a)          

| |                                             |   | 2007    |   |   | 2006    |  
| | ------------------------------------------- | - | ------- | - | - | ------- | -
| | Computed expected (benefit of) income taxes | $ | 61,900  |   | $ | 47,200  |  
| | Increase in valuation allowance             |   | (61,900 | ) |   | (47,200 | )
| | Income tax provision                        | $ | -       |   | $ | -       |  

| | b) | Significant components of the Companys future income tax
      assets are as follows:
| | -- | --------------------------------------------------------------------------------------

| |                            |   | 2007      |   |   | 2006      |  
| | -------------------------- | - | --------- | - | - | --------- | -
| | Operating loss carryfoward | $ | 2,267,000 |   | $ | 2,085,000 |  
| | Statutory tax rate         |   | 34%       |   |   | 34%       |  
| | Future income tax asset    |   | 770,800   |   |   | 708,900   |  
| | Valuation allowance        |   | (770,800  | ) |   | (708,900  | )
| | Net future tax assets      | $ | -         |   | $ | -         |  

| | c) | The Company has incurred operating losses of
      approximately $2,267,000 which, if unutilized, will expire through to
      2007. Future tax benefits, which may arise as a result of these losses,
      have not been recognized in these financial statements, and have been
      offset by a valuation allowance.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|GEMSTAR RESOURCES LTD.       
|-----------------------------
|NOTES TO FINANCIAL STATEMENTS
|JANUARY 31, 2007 AND 2006    
|(Stated in Canadian Dollars) 

|10. | SEGMENTED INFORMATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | As at January 31, 2007 and 2006, the Company operated in
      one reportable operating segment being the exploration of precious metals
      and in one geographic segment being Canada.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|11. | MATERIAL DIFFERENCES BETWEEN CANADIAN AND UNITED
      STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | These financial statements have been prepared in
      accordance with Canadian generally accepted accounting principles
      (Canadian GAAP) which differ in certain respects from those principles
      that the Company would have followed had its financial statements been
      prepared in accordance with accounting principles generally accepted in
      the United States (US GAAP). The material differences between Canadian
      and US GAAP, which affect the Companys financial statements, are
      described and quantified below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | Mineral Properties and Deferred Exploration
  Costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | Under Canadian GAAP, companies have the option to
      capitalize exploration expenditures on prospective properties until such
      time as it is determined that further work is not warranted, at which
      point capitalized costs would be written off. Under US GAAP, mineral
      property acquisition costs are capitalized and exploration costs are
      expensed as incurred until such time as economic reserves are quantified.
      The Company has considered the guidance under EITF 04-2 and has determined
      that capitalization of mineral property acquisition costs is inappropriate
      at the current stage of the Companys mineral property exploration
      activities under US GAAP. To date, the Companys mineral interests consist
      mainly of exploration stage properties. Furthermore, there is uncertainty
      as to the Companys ability to fund the exploration work necessary to
      determine if the properties have recoverable reserves or any future
      economic benefits. As a result, acquisition costs to date are considered
      to be impaired and accordingly, have been written off as mineral property
      expenditures.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | At this stage, the Company has not yet identified
      economically recoverable reserves on any of its interests. Accordingly,
      under US GAAP, all exploration costs incurred are expensed. The effect of
      this difference on these financial statements is quantified
  below:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

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|GEMSTAR RESOURCES LTD.       
|-----------------------------
|NOTES TO FINANCIAL STATEMENTS
|JANUARY 31, 2007 AND 2006    
|(Stated in Canadian Dollars) 

|11. | MATERIAL DIFFERENCES BETWEEN CANADIAN AND
      UNITEDSTATES**GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
      (GAAP)**(Continued)
|--- | --------------------------------------------------------------------------------------------------------------------------------

| | a) | Effect on Balance Sheets
| | -- | ------------------------

| |                                                         |   | 2007       |   |   | 2006       |  
| | ------------------------------------------------------- | - | ---------- | - | - | ---------- | -
| | Mineral properties and deferred exploration
      costs |   |            |   |   |            |  
| | Per Canadian GAAP                                       | $ | 70,439     |   | $ | 70,439     |  
| | Deferred exploration costs written off                  |   | (66,233    | ) |   | (66,233    | )
| | Per United States GAAP                                  | $ | 4,206      |   | $ | 4,206      |  
| | Shareholders deficiency                                |   |            |   |   |            |  
| | Per Canadian GAAP                                       | $ | (1,141,899 | ) | $ | (959,477   | )
| | Deferred exploration costs written off                  |   | (66,233    | ) |   | (66,233    | )
| | Per United States GAAP                                  | $ | (1,208,132 | ) | $ | (1,025,710 | )

| | b) | Effect on Statements of Operations and Deficit
| | -- | ----------------------------------------------

| |                                        |   | 2007     |   |   | 2006     |   |   | 2005    |  
| | -------------------------------------- | - | -------- | - | - | -------- | - | - | ------- | -
| | Net loss for the year                  |   |          |   |   |          |   |   |         |  
| | Per Canadian GAAP                      | $ | (182,422 | ) | $ | (138,379 | ) | $ | (92,349 | )
| | Deferred exploration costs written off |   | -        |   |   | (66,233  | ) |   | -       |  
| | Per United States GAAP                 | $ | (182,422 | ) | $ | (204,612 | ) | $ | (92,349 | )
| |                                        |   |          |   |   |          |   |   |         |  
| | Net loss per common share, basic and   |   |          |   |   |          |   |   |         |  
| | diluted                                |   |          |   |   |          |   |   |         |  
| | Per Canadian GAAP                      | $ | (0.02    | ) | $ | (0.02    | ) | $ | (0.02   | )
| | Deferred exploration costs written off |   | -        |   |   | (0.02    | ) |   | -       |  
| | Per United States GAAP                 | $ | (0.02    | ) | $ | (0.04    | ) | $ | (0.02   | )

---

|GEMSTAR RESOURCES LTD.       
|-----------------------------
|NOTES TO FINANCIAL STATEMENTS
|JANUARY 31, 2007 AND 2006    
|(Stated in Canadian Dollars) 

|11. | MATERIAL DIFFERENCES BETWEEN CANADIAN AND
      UNITEDSTATES**GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
      (GAAP)**(Continued)
|--- | --------------------------------------------------------------------------------------------------------------------------------

| | c) | Effect on Statements of Cash Flows
| | -- | ----------------------------------

| |                                              |   | 2007     |   |   | 2006     |   |   | 2005    |  
| | -------------------------------------------- | - | -------- | - | - | -------- | - | - | ------- | -
| | Cash flows provided by (used in)             |   |          |   |   |          |   |   |         |  
| | Operating activities                         |   |          |   |   |          |   |   |         |  
| | Per Canadian GAAP                            | $ | (165,415 | ) | $ | (167,696 | ) | $ | (92,592 | )
| | Deferred
      exploration costs written off |   | -        |   |   | (26,233  | ) |   | -       |  
| | Per United States GAAP                       | $ | (165,415 | ) | $ | (193,929 | ) | $ | (92,592 | )
| | Investing activities                         |   |          |   |   |          |   |   |         |  
| | Per Canadian GAAP                            | $ | -        |   | $ | 84,111   |   | $ | -       |  
| | Deferred
      exploration costs             |   |          |   |   |          |   |   |         |  
| | reclassified to operating activities         |   | -        |   |   | 26,233   |   |   | -       |  
| | Per United States GAAP                       | $ | -        |   | $ | 110,344  |   | $ | -       |  

| | d) | Recent United States Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | In February 2006, the FASB issued SFAS No. 155,
      Accounting for Certain Hybrid Financial Instruments-an amendment of FASB
      Statements No. 133 and 140, to simplify and make more consistent the
      accounting for certain financial instruments. SFAS No. 155 amends SFAS No.
      133, Accounting for Derivative Instruments and Hedging Activities, to
      permit fair value re-measurement for any hybrid financial instrument with
      an embedded derivative that otherwise would require bifurcation, provided
      that the whole instrument is accounted for on a fair value basis. SFAS No.
      155 amends SFAS No. 140, Accounting for the Impairment or Disposal of
      Long-Lived Assets, to allow a qualifying special-purpose entity to hold a
      derivative financial instrument that pertains to a beneficial interest
      other than another derivative financial instrument. SFAS No. 155 applies
      to all financial instruments acquired or issued after the beginning of an
      entity's first fiscal year that begins after September 15, 2006, with
      earlier application allowed. The adoption of SFAS No. 155 had no impact on
      the financial position or results of operations of the
  Company.

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|GEMSTAR RESOURCES LTD.       
|-----------------------------
|NOTES TO FINANCIAL STATEMENTS
|JANUARY 31, 2007 AND 2006    
|(Stated in Canadian Dollars) 

|11. | MATERIAL DIFFERENCES BETWEEN CANADIAN AND
      UNITED STATES **GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
      (GAAP)**(Continued)
|--- | ----------------------------------------------------------------------------------------------------------------------------------

| | d) | Recent United States Accounting Pronouncements (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    | In March 2006, the FASB issued SFAS No. 156, "Accounting
        for Servicing of Financial Assets, an amendment of FASB Statement No.
        140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments
        of Liabilities". This statement requires all separately recognized servicing
        assets and servicing liabilities be initially measured at fair value,
        if practicable, and permits for subsequent measurement using either fair
        value measurement with changes in fair value reflected in earnings or
        the amortization and impairment requirements of Statement No. 140. The
        subsequent measurement of separately recognized servicing assets and servicing
        liabilities at fair value eliminates the necessity for entities that manage
        the risks inherent in servicing assets and servicing liabilities with
        derivatives to qualify for hedge accounting treatment and eliminates the
        characterization of declines in fair value as impairments or direct write-downs.
        SFAS No. 156 is effective for an entity's first fiscal year beginning
        after September 15, 2006. The adoption of SFAS No. 156 had no impact on
        the financial position or results of operations of the Company.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    | In September 2006, the FASB issued SFAS No. 157, “Fair
        Value Measures” (“SFAS No. 157”). This Statement defines
        fair value, establishes a framework for measuring fair value in generally
        accepted accounting principles (GAAP), expands disclosures about fair
        value measurements, and applies under other accounting pronouncements
        that require or permit fair value measurements. SFAS No. 157 does not
        require any new fair value measurements. However, the FASB anticipates
        that for some entities, the application of SFAS No. 157 will change current
        practice. SFAS No. 157 is effective for financial statements issued for
        fiscal years beginning after November 15, 2007, which for the Company
        would be its fiscal year beginning January 1, 2008. The Company is currently
        evaluating the impact of SFAS No. 157 but does not expect that it will
        have a material impact on its financial statements.                                                                                                                                                                                                                                                                                                        
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    | In September 2006, the FASB issued SFAS No. 158, Employers
        Accounting for Defined Benefit Pension and Other Postretirement Plans.
        This Statement requires an employer to recognize the over funded or under
        funded status of a defined benefit post retirement plan (other than a
        multiemployer plan) as an asset or liability in its statement of financial
        position, and to recognize changes in that funded status in the year in
        which the changes occur through comprehensive income. SFAS No. 158 is
        effective for fiscal years ending after December 15, 2006. The adoption
        of SFAS No.158  had no impact on the financial position or results
        of operations of the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

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|GEMSTAR RESOURCES LTD.       
|-----------------------------
|NOTES TO FINANCIAL STATEMENTS
|JANUARY 31, 2007 AND 2006    
|(Stated in Canadian Dollars) 

|11. | MATERIAL DIFFERENCES BETWEEN CANADIAN AND
      UNITED STATES **GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
      (GAAP)**(Continued)
|--- | ----------------------------------------------------------------------------------------------------------------------------------

| | d) | Recent United States Accounting Pronouncements
      (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | In February 2007, the FASB issued SFAS No. 159, The Fair
      Value Option for Financial Assets and Financial Liabilities. This
      Statement permits entities to choose to measure many financial assets and
      financial liabilities at fair value. Unrealized gains and losses on items
      for which the fair value option has been elected are reported in earnings.
      SFAS No. 159 is effective for fiscal years beginning after November 15,
      2007. The Company is currently assessing the impact of SFAS No. 159 on its
      financial position and results of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | In September 2006, the SEC issued Staff Accounting
      Bulletin (SAB) No. 108, Considering the Effects of Prior Year
      Misstatements when Quantifying Misstatements in Current Year Financial
      Statements. SAB No. 108 addresses how the effects of prior year
      uncorrected misstatements should be considered when quantifying
      misstatements in current year financial statements. SAB No. 108 requires
      companies to quantify misstatements using a balance sheet and income
      statement approach and to evaluate whether either approach results in
      quantifying an error that is material in light of relevant quantitative
      and qualitative factors. SAB No. 108 is effective for periods ending after
      November 15, 2006. The adoption of SAB No.108 had no impact on the
      financial position or results of operations of the Company.                                                                                                                                                       
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | In June 2006, FASB issued Interpretation No. 48,
      Accounting for Uncertainty in Income Taxes-an Interpretation of FASB
      Statement No. 109 (SFAS 48). This Interpretation clarifies the
      accounting for uncertainty in income taxes recognized in an enterprises
      financial statements in accordance with FASB No. 109, Accounting for
      Income Taxes. This Interpretation prescribes a recognition threshold
      and measurement attribute for the financial statement recognition and
      measurement of a tax position taken or expected to be taken in a tax
      return. This Interpretation also provides guidance on derecognition,
      classification, interest and penalties, accounting in interim periods,
      disclosure and transition. This Interpretation is effective for fiscal
      years beginning after December 15, 2006. The Company has determined that
      the adoption of SFAS 48 does not have any material impact on the Companys
      results of operations or financial position.

---