# SECURITIES AND
EXCHANGE COMMISSION Washington, D.C. 20549

# FORM 10QSB

| | [X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
               OF 1934 For the quarterly period ended September 30, 2004
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------

| | [  ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE          SECURITIES EXCHANGE
ACT OF 1934          For the transition period from _________ to ____________
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Commission File
No. 000-27233
| |  | -----------------------------

LIVESTAR ENTERTAINMENT
GROUP, INC. (Exact name of
Registrant as specified in its charter)

|NEVADA                                                         | 98-0204736                             
|-------------------------------------------------------------- | ---------------------------------------
|(State or other jurisdiction of incorporation or
organization) | (I.R.S. Employer Identification Number)

62 W. 8th Avenue, 4th
Floor             Vancouver, British Columbia, Canada
                                     V5Y 1M7         (Address of principal executive
offices)                                   (Zip Code)

Issuer's telephone
number, including area code:      (604) 682-6541

Check whether the issuer

| | (1) | filed all reports required to be filed by Section 13 or 15(d) of the Exchange
                    Act during the past 12 months (or for such shorter period that the registrant
                    was required to file such reports), and
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | has been subject to such filing requirements for the past 90 days. Yes ( X ) No
                    (   )
| | --- | ---------------------------------------------------------------------------------------------------------

State the number of shares
outstanding of each of the issuers classes of common equity, as of the last
practicable date.

|Class                          | Outstanding as of September 30, 2004
|------------------------------ | ------------------------------------
|$0.0001 par value Common Stock | 185,864,682                         

Transitional Small
Business Disclosure Format (check one):  Yes [   ]  No [ X ]

# PART 1 
FINANCIAL INFORMATION

# Item 1. Financial Statements

The accompanying unaudited financial
statements have been prepared in accordance with the instructions to Form 10-QSB and Item
310 (b) of Regulation S-B, and, therefore, do not include all information and footnotes
necessary for a complete presentation of financial position, results of operations, cash
flows, and stockholders equity in conformity with generally accepted accounting
principles. In the opinion of management, all adjustments considered necessary for a fair
presentation of the results of operations and financial position have been included and
all such adjustments are of a normal recurring nature. Operating results for the three
months ended September 2004 are not necessarily indicative of the results that can be
expected for the year ending December 31, 2004.

# Item 2.
Managements Discussion and Analysis or Plan of Operations

# Forward Looking
Statements

Except
for the historical information and discussions contained herein, statements contained in
this Form 10-QSB may constitute forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements involve a number of
risks, uncertainties and other factors that could cause actual results to differ
materially, including any projections of earnings, revenues, or other financial items; any
statements of the plans, strategies, and objectives of management for future operation;
any statements concerning proposed new products, services, or developments, any statements
regarding future economic conditions or performance, statements of belief, statements of
assumptions underlying any of the foregoing and other risks, uncertainties and factors
discussed elsewhere in this Form 10-QSB or in the Companys other filings with the
Securities and Exchange Commission.

RESULTS
OF OPERATIONS

FOR
THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 2004

For
the three-month period ended September 30, 2004, the Company earned revenues of $100,187.
The revenues were related to ticket sales from concert productions through the
Companys live events business, from beverage sales and entry fees from the
Companys venues business.

During
the three month period ended September 30, 2004, the Company incurred operational expenses
of $728,463. These operating expenses included: consulting fees of $246,062, $68,282 in
wages and benefits, and professional fees of $65,412 for the three month period ending
September 30, 2004. The company continues to incur significant consulting costs, which
includes business development, in its effort to realize its business strategy and its
business plan.

During
the three month period ended September 30, 2004, the Company incurred a net loss from
operations of $676,030.

FOR
THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 2004, COMPARED TO THE THREE MONTH PERIOD ENDED
SEPTEMBER 30, 2003.

For
the three month period ended September 30, 2004, the Company earned revenues of $100,187,
as compared to revenues of $0 for the same period ended September 30, 2003. The revenues
in 2004 are realized from continued efforts in our Live Events business and our Venues
business that began in 2003.

For
the three month period ended September 30, 2004, the Company incurred operational expenses
of $728,463, as compared to $395,833 during the same period in 2003. These operating
expenses included: consulting fees and business development expenses $220,679 and $
258,008; wages & benefits of $68,282 and $1,755, and professional fees of $65,412 and
$119,391 for the three month period ended September 30, 2004, and 2003, respectively. The
variation in expenses from September 30, 2004 as compared to the same period in 2003 is
due to the increased level of business and operating activities in the Company.

The
Company incurred a net loss from operations of $676,030 for the fiscal quarter ended
September 30, 2004, as compared to $395,833 for the same period in 2003.

# Liquidity and Financial
Condition As Of September 30, 2004

We
had cash-on hand of totaling $0 as of September 30, 2004.

In order
to finance our acquisitions and developments, and our phases of implementation we plan to
raise investment capital through the execution of a number of development finance
strategies.

Current Development
Finance Strategy:

In order to finance the first and
second acquisition or development establishments the Company may use its preferred or
common stock to finance the acquisition or development or to raise the necessary capital
for acquisition or development.

Future Development
Financing Strategy:

In the future, we hope to fund the
majority of our new establishment locations through the selling of a minority interest in
the new establishments through the sale of up to 49% of the equity or through limited
partnerships. This minority interest is hoped to be sold to either individual investors
who wish to invest directly into an establishment or into a fund or partnership that will
be funded by investors wishing to diversify their investment over a number of
establishments that the fund or partnership may invest in. This proposed fund is planned
to be formed by LIVESTAR exclusively for LIVESTAR establishments. The Company has begun
the establishment of an internal corporate finance department and external network or
syndicate of investment advisors, investment bankers and broker dealers that will raise
capital via the direct investments strategy and/or form the fund or partnership that will
raise capital through the fund or partnership strategy. This planned internal corporate
finance department has commenced development through the recent formation of LIVESTAR
Entertainment Capital Corporation. It is planned that investors under this strategy are
planned to receive cash dividends and some capital stock or warrants in the Company.

In addition to the direct investment
and fund or partnership strategy the Company hopes to raise capital for its new
establishments through the forming of a real estate financing plan that is hoped to
utilize real estate financing to fund the purchase of properties and subsequently secure
construction financing to fund the renovations of the establishment.

We believe that this Future
Development Financing Strategy will enable us to achieve our development goals with a hope
over the long-term of reducing the potential dilution to our existing shareholders. By
raising capital directly in each establishment through our planned Future Development
Financing Strategy we may not have to dilute the existing shareholders to any great extent
to grow the business. As our cash producing businesses grow due to the planned
implementation and hopeful success of the Future Development Financing Strategy we plan to
utilize the available cash to pay for operations without having to use stock to pay for
large and important operational items item such as staff and consultants.

The result of this is that as our
cash flow may grow as our dilution may slow. More specifically, we have developed
comprehensive business and financial plans that result in our development of a network of
entertainment establishments that should operate on a cash positive basis and without
incurring substantial dilution to stockholders such that the Company can possibly increase
its overall valuation substantially. This possible increase in the Companys overall
valuation may be accomplished by using the positive cash flow to buy back the
Companys common stock from the public float. There is no current plans to implement
a stock buy back program, although one is intended over the long-term and will only be
implemented based on the success of the foregoing and solely of the discretion of the
Companys management and board of directors.

In addition to the above we plan we
plan to invite direct investments into the Company to provide funds for general corporate
purposes.

CAPITAL REQUIREMENTS

We believe that the first acquisition
or development of an entertainment establishment will require approximately a minimum of
$500,000 for the transaction, plus approximately $100,000 in legal, accounting and
administrative expenses. In addition our first acquisition or development will require a
minimum of another $400,000 for working capital and general corporate purposes. This is a
minimum total of approximately $1,000,000 that will be required in the next quarter during
which we are hoping to make the first acquisition or development. In the following 3
months, we plan to execute one or two additional acquisitions or developments. We believe
that the cost of a second and third acquisition or development project will be
approximately a minimum of $1,000,000 each and that approximately another $500,000 minimum
each will be required for the same purposes as listed above for the first acquisition or
development and for working capital and general corporate purposes. Thus, we anticipate
needing a minimum of $4,000,000 of investment capital during the next six months.

After the first two acquisitions or
development projects, we intend to develop other entertainment establishments from initial
build-out rather than from acquisitions. Our plan is to open the minimum of two additional
entertainment establishments by the end of 2005 and we anticipate that additional funding
(approximately $1,000,000) will be required to accomplish this. Management anticipates
that funding requirements for this plan will be less than the overall cost of opening
these nightclubs, since the revenues from the first two or three nightclubs is expected to
generate enough positive cash flow to reduce the level of external capital required. We
have developed comprehensive business and financial plans that result in our development
of a network of entertainment establishments that should operate on a cash positive basis
and hopefully without incurring substantial dilution to stockholders such that the Company
can possibly increase its overall valuation substantially. The Company believes it will
require approximately $1,000,000 to grow its live events business unit, including the cost
of acquisitions or development and their subsequent integration and for the venture
development of other potential lines of business for 2004 or 2005. The total additional
working capital financing described in this section is planned to also include the
development of other synergistic business units such as, including but not limited to,
membership services, brand licensing and merchandising.

CAPITAL ACQUIRING PLANS

Management plans on initiating a
series of securities offerings to raise the investment capital needed to meet our
acquisition and development plans. Although we will make efforts to minimize dilution to
current shareholders, we may not be able to avoid significant dilution due to many
factors, including but not limited to, the closing of financing at lower than the desired
market price of the Companys common stock. LIVESTAR hopes to secure the financing to
satisfy the capital needs for each phase of its implementation plan through the execution
of various funding methods, primarily financing through its Future Development Financing
Strategy, private placement investments or debt financing. LIVESTAR hopes to achieve this
by securing relationships with accredited individual investors, investment bankers,
venture capitalists, and/or finance investment advisors that have the experience and
relationships to aid LIVESTAR with its capital raising efforts. The source of the capital
may be comprised of a mix of principal shareholders, private investors and venture capital
companies.

If needed capital investment for our
acquisitions or developments is not available, in whole or in part, we intend to delay the
implementation plan regarding our acquisitions or development plans until sufficient
investment capital becomes available. We cannot give any assurances that we will raise
sufficient investment capital to meet the business plan. In addition to delays to the
implementation plan regarding our acquisition or development plans due to insufficiency of
investment capital, we may suffer other consequences, including but not limited to the
following: We may have to significantly alter the scope and/or direction of our business
plan and subsequent capital requirements; we may have to suspend or discontinue operations
of one or more of our business units; or we may have to suspend or discontinue operations
of the Company if we become insolvent as a result.

Until planned acquisitions (current
and future) and new development establishments begin to produce significant revenues and
subsequent positive cash flow, we will be reliant on capital received from private
placements, loans, and the exercise of options and warrants. Due to the depressed market
for our securities, we may not be able avoid significant dilution to current shareholders.
In addition, we expect to continue to retain certain management, staff and consultants,
such as legal counsel, and may need to compensate these individuals through the issuance
of our common stock as compensation. These stock based compensations may result in
significant dilution to current shareholders due to the depressed market for our
securities. We also continue to reduce or prevent collection of outstanding vendor debts
and accounts with creditors, such as suppliers and consultants, which could result in
litigation against the Company. There can be no guarantee that all of these negotiations
will be successful and the outcome of these negotiations may include settlements in cash
and/or issuance of common stock. These stock based settlements may result in significant
dilution to current shareholders due to the depressed market for our securities. We plan
on continuing to meet certain of our expenses through the issuance of our shares of common
stock, which may cause additional and significant dilution to existing shareholders due to
the depressed market for our securities.

# PART II  OTHER
INFORMATION

# Item 1. Legal Proceedings

In October 2004, Traci Niederriter
filed a lawsuit in the Lynchburg General District Court for the Commonwealth of Virginia.
The action concerned an alleged claim for unpaid wages of an employee of RRUN Labs, Inc.,
a subsidiary of LIVESTAR Entertainment Group, Inc. The amount of the lawsuit is $6,862.03,
not including interest accruing from October 30, 2001 plus court costs and attorney fees
of $679.50.

The Company believes that, as it
grows revenue-producing operations and as it raises capital, we will have the resources to
settle the abovementioned case and we have every intention of doing so. We are working to
reduce or prevent collection litigation by creditors or others. Settlements in stock may
result in unforeseen dilution to current shareholders.

# Item 2. Changes in
Securities

# Recent Sales of
Unregistered Securities

None.

# Item 3. Defaults upon
Senior Securities

None

# Item 4. Submission of Matters
to a Vote of Security Holders

In August 2004, our majority
shareholder voted their holding of approximately 58% (3,002,592,324) of the voting power
of the outstanding shares of the Companys Common and Preferred Stock (par value
$0.0001) to approve the following:

The reverse split of the
Companys Common and Preferred Stock (par value $0.0001) so that upon effectuation of
the split, one (1) New Share of the Companys Common and Preferred Stock will be
issued for up to each thousand (1,000) shares of the Companys Common and Preferred
Stock currently issued and outstanding with each fractional share rounded up to the next
whole share (the Reverse Split).

# Item 5. Other Information

None.

# Item 6. Exhibits and
Reports on Form 8-K.

# (a) Exhibits

| | 31.1 | Certification
by CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------

| | 31.2 | Certification
by CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------

| | 32.1 | Certification
by CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------

| | 32.2 | Certification
by CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------

# (b) Reports on Form 8-K

None.

# SIGNATURES

In
accordance with the requirements of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorised.

# LIVESTAR Entertainment
Group, Inc.

Date: November 22, 2004

By: /s/ Ray Hawkins
                                                             Ray Hawkins, President and
Chief Executive Officer

By: /s/ Edwin Kwong
                                                             Edwin Kwong, Principal
Accounting Officer and Chief Financial Officer

# LIVESTAR ENTERTAINMENT GROUP INC.(A Development Stage Company)CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2004 
(Unaudited)(Stated in U.S.
Dollars)

F-1

# LIVESTAR ENTERTAINMENT
GROUP INC.(A Development Stage Company)CONSOLIDATED BALANCE
SHEET (Unaudited)(Stated in U.S.
Dollars)

|                                                            | SEPTEMBER 30
2004 | DECEMBER 31
2003
|----------------------------------------------------------- | ----------------- | ----------------
|ASSETS                                                      |                   |                 
|Current                                                     |                   |                 
|Cash                                                        |                   |                 
|Accounts receivable                                         |                   |                 
|Goods and Services Tax recoverable                          |                   |                 
|Prepaid expense                                             |                   |                 
|Inventory                                                   |                   |                 
|                                                            |                   |                 
|                                                            |                   |                 
|Capital Assets (Note 4)                                     |                   |                 
|Advances Receivable                                         |                   |                 
|                                                            |                   |                 
|                                                            |                   |                 
|                                                            |                   |                 
|LIABILITIES                                                 |                   |                 
|Current                                                     |                   |                 
|Bank indebtedness                                           |                   |                 
|Accounts payable                                            |                   |                 
|Loans and advances payable (Note 7)                         |                   |                 
|                                                            |                   |                 
|                                                            |                   |                 
|                                                            |                   |                 
|STOCKHOLDERS' DEFICIENCY                                    |                   |                 
|Share Capital                                               |                   |                 
|Authorized:                                                 |                   |                 
|10,000,000,000 common shares, par value $0.0001 per share   |                   |                 
|2,000,000,000 preferred shares, par value $0.0001 per share |                   |                 
|Issued and outstanding:                                     |                   |                 
|185,864,682 common shares at September 30, 2004 and 280,468 |                   |                 
|at December 31, 2003                                        |                   |                 
|60,875 preferred shares at September 30, 2004 and 875       |                   |                 
|at December 31, 2003                                        |                   |                 
|Additional paid-in capital                                  |                   |                 
|Deficit                                                     |                   |                 
|                                                            |                   |                 
|                                                            |                   |                 
|                                                            |                   |                 
|                                                            |                   |                 
|                                                            |                   |                 

F-2

# LIVESTAR ENTERTAINMENT
GROUP INC.(A Development Stage Company)CONSOLIDATED STATEMENT OF
OPERATIONS (Unaudited) (Stated in U.S.
Dollars)

|                                        | THREE MONTHS ENDED
SEPTEMBER 30 | NINE MONTHS ENDED
SEPTEMBER 30 | INCEPTION
OCTOBER 12
2000 TO
SEPTEMBER 30 |         |  
|--------------------------------------- | ------------------------------- | ------------------------------ | ----------------------------------------- | ------- | -
|
|Revenue                                 |                                 |                                |                                           |         |  
|Live events                             |                                 |                                | $                                         | 4,553   |  
|Night clubs                             |                                 |                                |                                           | 95,634  |  
|                                        |                                 |                                |                                           |         |  
|                                        |                                 |                                |                                           | 100,187 |  
|Cost Of Sales                           |                                 |                                |                                           | (37,754 | )
|                                        |                                 |                                |                                           |         |  
|                                        |                                 |                                |                                           | 62,433  |  
|                                        |                                 |                                |                                           |         |  
|Expenses                                |                                 |                               
|Administrative services                 |                                 |                                |                                           | 9,596   |  
|Amortization                            |                                 |                                |                                           | 940     |  
|Business development                    |                                 |                                |                                           | (25,383 | )
|Consulting                              |                                 |                                |                                           | 246,062 |  
|Equipment leases                        |                                 |                                |                                           | (11,466 | )
|Investor relations                      |                                 |                                |                                           | 6,702   |  
|Marketing                               |                                 |                                |                                           | (13,978 | )
|Media design                            |                                 |                                |                                           | (2,164  | )
|Night club operating costs              |                                 |                                |                                           | 222,658 |  
|Office, rent and sundry                 |                                 |                                |                                           | 118,533 |  
|Professional fees                       |                                 |                                |                                           | 65,412  |  
|Software development                    |                                 |                                |                                           | --      |  
|Travel                                  |                                 |                                |                                           | 53,269  |  
|Wages and benefits                      |                                 |                                |                                           | 68,282  |  
|                                        |                                 |                                |                                           |         |  
|                                        |                                 |                                |                                           | 738,463 |  
|                                        |                                 |                                |                                           |         |  
|Loss Before The Following               |                                 |                                |                                           | 676,030 |  
|Forgiveness Of Debt                     |                                 |                                |                                           | --      |  
|Write Down Of Investment                |                                 |                                |                                           | --      |  
|Minority Interest In Loss Of Subsidiary |                                 |                               
|                                        |                                 |                                |                                           | --      |  
|                                        |                                 |                                |                                           |         |  
|Loss From Continuing Operations         |                                 |                                |                                           | 676,030 |  
|Gain On Disposition Of Subsidiary       |                                 |                               
|                                        |                                 |                                |                                           | --      |  
|Gain From Discontinued Operations       |                                 |                               
|                                        |                                 |                                |                                           | --      |  
|                                        |                                 |                                |                                           |         |  
|Net Loss For The Period                 |                                 |                                | $                                         | 676,030 |  
|                                        |                                 |                                |                                           |         |  

F-3

# LIVESTAR ENTERTAINMENT
GROUP INC.(A Development Stage Company)CONSOLIDATED STATEMENT OF
OPERATIONS (Continued)(Unaudited) (Stated in U.S.
Dollars)

|                                         | THREE MONTHS ENDED
SEPTEMBER 30 | NINE MONTHS ENDED
SEPTEMBER 30 | INCEPTION
OCTOBER 12
2000 TO
SEPTEMBER 30 |  | 
|---------------------------------------- | ------------------------------- | ------------------------------ | ----------------------------------------- |  | 
|
|Net Loss Per Share Before Discontinued   |                                 |                                |                                           |  | 
|Operations, Basic and diluted            |                                 |                               
|                                         |                                 |                                | $          0.01                           |  | 
|                                         |                                 |                                |                                           |  | 
|Net Loss Per Share, Basic and diluted    |                                 |                               
|                                         |                                 |                                | $          0.01                           |  | 
|                                         |                                 |                                |                                           |  | 
|Weighted Average Number Of Common Shares |                                 |                               
|Outstanding                              |                                 |                                | 6,083,449                                 |  | 
|                                         |                                 |                                |                                           |  | 

F-4

# LIVESTAR ENTERTAINMENT
GROUP INC.(A Development Stage Company)CONSOLIDATED STATEMENT OF
CASH FLOWS (Unaudited) (Stated in U.S.
Dollars)

|                                                      | NINE MONTHS ENDED
SEPTEMBER 30 | INCEPTION
OCTOBER 17
2000 TO
SEPTEMBER 30 |  
|----------------------------------------------------- | ------------------------------ | ----------------------------------------- | -
|
|Cash Flows From Operating Activities                  |                                |                                           |  
|Loss for the period from continuing operations        |                                |                                           | $
|Adjustments To Reconcile Net Loss To Net Cash Used By |                                |                                          
|Operating Activities                                  |                                |                                          
|Amortization                                          |                                |                                           |  
|Stock based compensation                              |                                |                                           |  
|Issue of common stock for expenses                    |                                |                                           |  
|Write down of investment                              |                                |                                           |  
|Minority interest in loss of subsidiary               |                                |                                           |  
|Accounts receivable                                   |                                |                                           |  
|Goods and Services Tax recoverable                    |                                |                                           |  
|Prepaid expense                                       |                                |                                           |  
|Notes receivable                                      |                                |                                           |  
|Inventory                                             |                                |                                           |  
|Accounts payable                                      |                                |                                           |  
|                                                      |                                |                                           |  
|                                                      |                                |                                           |  
|                                                      |                                |                                           |  
|Cash Flows From Investing Activities                  |                                |                                          
|Net asset deficiency of legal parent at date of       |                                |                                          
|reverse take-over transaction                         |                                |                                           |  
|Purchase of capital assets                            |                                |                                           |  
|Advances receivable                                   |                                |                                           |  
|                                                      |                                |                                           |  
|                                                      |                                |                                           |  
|                                                      |                                |                                           |  
|Cash Flows From Financing Activities                  |                                |                                          
|Loans and advances payable                            |                                |                                           |  
|Shares issued for cash                                |                                |                                           |  
|Share subscriptions received                          |                                |                                           |  
|                                                      |                                |                                           |  
|                                                      |                                |                                           |  
|                                                      |                                |                                           |  
|Increase (Decrease) In Cash                           |                                |                                           |  
|Net Cash From Discontinued Operations                 |                                |                                           |  
|Cash Acquired On Acquisition Of Subsidiary            |                                |                                           |  
|Cash, Beginning Of Period                             |                                |                                           |  
|                                                      |                                |                                           |  
|Cash (Bank Indebtedness), End Of Period               |                                |                                           | $
|                                                      |                                |                                           |  

# SUPPLEMENTAL OF CASH
FLOW INFORMATION

During the period ended September 30, 2004,
the Company issued 51,000 common shares to settle $102,000 in accounts payable, and 60,000
Series B convertible preferred shares on conversion of $102,000 of loans payable.

During the period ended September 30,
2003, the Company issued 3,673 common shares on conversion of $13,541 of loans payable,
and 26,888 common shares to settle $85,153 in accounts payable.

F-5

# LIVESTAR ENTERTAINMENT
GROUP INC.(A Development Stage Company)CONSOLIDATED STATEMENT OF
STOCKHOLDERS DEFICIENCY(Unaudited) (Stated in U.S.
Dollars)

|                                            | PREFERRED STOCK | COMMON STOCK |  |        |   |   |   
|------------------------------------------- | --------------- | ------------ |  | ------ | - | - | --
|
|Balance, December 31, 2001                  |                 |              |  | --     |   | $ | --
|Shares issued for debt                      |                 |              |  | --     |   |   | --
|Shares issued for services                  |                 |              |  | --     |   |   | --
|Shares issued for cash and notes receivable |                 |              |  | --     |   |   | --
|Shares cancelled                            |                 |              |  | --     |   |   | --
|Forgiveness of shareholder debt             |                 |              |  | --     |   |   | --
|Loss for the year                           |                 |              |  | --     |   |   | --
|                                            |                 |              |  |        |   |   |   
|Balance, December 31, 2002                  |                 |              |  | --     |   |   | --
|Shares issued for debt                      |                 |              |  | --     |   |   | --
|Shares issued for services                  |                 |              |  | --     |   |   | --
|Shares issued for cash                      |                 |              |  | --     |   |   | --
|Shares issued                               |                 |              |  | 1,000  |   |   | --
|Shares redeemed                             |                 |              |  | (125   | ) |   | --
|Stock based compensation                    |                 |              |  | --     |   |   | --
|Loss for the year                           |                 |              |  | --     |   |   | --
|                                            |                 |              |  |        |   |   |   
|Balance, December 31, 2003                  |                 |              |  | 875    |   |   | --
|Shares issued for debt                      |                 |              |  | --     |   |   | --
|Shares issued for services                  |                 |              |  | --     |   |   | --
|Shares issued for cash                      |                 |              |  | --     |   |   | --
|Shares issued for debt                      |                 |              |  | 60,000 |   |   | 6 
|Stock based compensation                    |                 |              |  | --     |   |   | --
|Loss for the period                         |                 |              |  | --     |   |   | --
|                                            |                 |              |  |        |   |   |   
|Balance, September 30, 2004                 |                 |              |  | 60,875 |   | $ | 6 
|                                            |                 |              |  |        |   |   |   

F-6

# LIVESTAR ENTERTAINMENT
GROUP INC.(A Development Stage Company)NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS(Unaudited) (Stated in U.S.
Dollars)

# 1. BASIS OF PRESENTATION

| | The
unaudited consolidated financial statements as of September 30, 2004 included herein have
been prepared without audit pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with United States of America generally
accepted accounting principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. It is suggested
that these consolidated financial statements be read in conjunction with the December 31,
2003 audited consolidated financial statements and notes thereto.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# 2. NATURE OF OPERATIONS

|a) | Organization
|-- | ------------

| | The Company
was incorporated in the State of Nevada, U.S.A., on October 12, 2000.
| | ---------------------------------------------------------------------------------

| |  | On September
1, 2004, the Company consolidated its issued and outstanding share capital on the basis
of one share for every 1,000 previously held shares.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

|b) | Development
Stage Activities
|-- | ----------------------------

| | The
Company was organized as a holding company to develop or acquire innovative ventures with
an emphasis on serving the lifestyle needs of the 18  34 year Digital Generation
through the production and marketing of lifestyle products and services. The
Companys initial venture is RAHX, a business concept previously focused on
delivering, for its customers, a consolidated Entertainment Experience Network comprised
of many services ranging from digital media peer to peer file exchange to live
entertainment and online video games. At this time, the Companys focus is the
developing of a live entertainment business, specifically nightclubs and live events.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-7

# LIVESTAR ENTERTAINMENT
GROUP INC.(A Development Stage Company)NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS(Unaudited) (Stated in U.S.
Dollars)

2.    
          NATURE OF OPERATIONS (Continued)

c)
Going Concern

| | Since
inception, the Company has suffered recurring losses, net cash outflows from operations
and, at September 30, 2004, has a working capital deficiency of $1,972,146. The Company
expects to continue to incur substantial losses to complete the development of its
business. Since its inception, the Company has funded operations through common stock
issuances and related party loans in order to meet its strategic objectives. Management
believes that sufficient funding will be available to meet its business objectives,
including anticipated cash needs for working capital, and is currently evaluating several
financing options. However, there can be no assurance that the Company will be able to
obtain sufficient funds to continue the development of and, if successful, to commence the
sale of its products under development. As a result of the foregoing, there exists
substantial doubt about the Companys ability to continue as a going concern. These
consolidated financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# 3. SIGNIFICANT
ACCOUNTING POLICIES

| | The
consolidated financial statements of the Company have been prepared in accordance with
generally accepted accounting principles in the United States of America. Because a
precise determination of many assets and liabilities is dependent upon future events, the
preparation of consolidated financial statements for a period necessarily involves the use
of estimates which have been made using careful judgement.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
consolidated financial statements have, in managements opinion, been properly
prepared within reasonable limits of materiality and within the framework of the
significant accounting policies summarized below:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a)
          Consolidation
| | --------------------------

| | These
consolidated financial statements include the accounts of the Company, its 100% owned
subsidiaries, RRUN Labs Inc., Livestar Entertainment Canada Inc., Livestar Entertainment
Establishment Ltd., and 1615496 Ontario Ltd., 1614718 Ontario Ltd. and its 67% owned
subsidiary, RAHX, Inc.,
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-8

# LIVESTAR ENTERTAINMENT
GROUP INC.(A Development Stage Company)NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS(Unaudited) (Stated in U.S.
Dollars)

3.    
          SIGNIFICANT ACCOUNTING POLICIES(Continued)

| | b)
Development Stage Company
| | ----------------------------

| | The
Company is a development stage company as defined in the Statements of Financial
Accounting Standards No. 7. The Company is devoting substantially all of its present
efforts to establish a new business. All losses accumulated since inception have been
considered as part of the Companys development stage activities.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c)
          Investments
| | ------------------------

| | Investments
in companies owned less than 20% are recorded at the lower of cost or fair market value.
| | ----------------------------------------------------------------------------------------------------

| | d)
Software Development Costs
| | -----------------------------

| | The
costs to develop new software products and enhancements to existing software products
will be expensed as incurred until technological feasibility has been established. Once
technological feasibility has been established, any additional costs will be capitalized.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | e)
          Income Taxes
| | -------------------------

| | The
Company has adopted Statement of Financial Accounting Standards No. 109 Accounting
for Income Taxes (SFAS 109). This standard requires the use of an asset and
liability approach for financial accounting and reporting on income taxes. If it is more
likely than not that some portion or all if a deferred tax asset will not be realized, a
valuation allowance is recognized.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | f)
          Amortization
| | -------------------------

| | Capital
assets are being amortized on the declining balance basis at the following rates:
| | -----------------------------------------------------------------------------------------

|                               | 
|------------------------------ | 
|Computer equipment             | 
|Leasehold improvements         | 
|Computer software              | 
|Office furniture and equipment | 

F-9

# LIVESTAR ENTERTAINMENT
GROUP INC.(A Development Stage Company)NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS(Unaudited) (Stated in U.S.
Dollars)

3.    
          SIGNIFICANT ACCOUNTING POLICIES(Continued)

g)
Stock Based Compensation

| | The
Company accounts for stock based employee compensation arrangements in accordance with
the provisions of Accounting Principles Board Opinion No. 25  Accounting for
Stock Issued to Employees (APB No. 25) and complies with the disclosure provisions
of Statement of Financial Accounting Standards No. 123  Accounting for Stock
Based Compensation (SFAS No. 123). Under APB No. 25, compensation expense is
recognized based on the difference, if any, on the date of grant between the estimated
fair value of the Companys stock and the amount an employee must pay to acquire the
stock. Compensation expense is recognized immediately for past services and rateably for
future services over the option vesting period.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

h)
Financial Instruments

| | The
Companys financial instruments consist of cash, GST recoverable and accounts
payable.
| | ------------------------------------------------------------------------------------------

| | Unless
otherwise noted, it is managements opinion that this Company is not exposed to
significant interest or credit risks arising from these financial instruments. The fair
value of these financial instruments approximate their carrying values, unless otherwise
noted.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

i)
Net Loss Per Share

| | In
February 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128  Earnings Per Share (SFAS 128).
Under SFAS 128, basic and diluted earnings per share are to be presented. Basic earnings
per share is computed by dividing income available to common shareholders by the weighted
average number of common shares outstanding in the period. Diluted earnings per share
takes into consideration common shares outstanding (computed under basic earnings per
share) and potentially dilutive common shares. Diluted loss per share is not presented
separately from loss per share as the exercise of any options and warrants would be
anti-dilutive.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-10

# LIVESTAR ENTERTAINMENT
GROUP INC.(A Development Stage Company)NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS(Unaudited) (Stated in U.S.
Dollars)

3.    
          SIGNIFICANT ACCOUNTING POLICIES(Continued)

j)
Foreign Currency Translation

| | Transaction
amounts denominated in foreign currencies are translated at exchange rates prevailing at
transaction dates. Carrying values of monetary assets and liabilities are adjusted at
each balance sheet date to reflect the exchange rate at that date. Non-monetary assets
and liabilities are translated at the exchange rate on the original transaction date.
Gains and losses from restatement of foreign currency monetary and non-monetary assets
and liabilities are included in the statements of operations. Revenues and expenses are
translated at the rates of exchange prevailing on the dates such items are recognized in
the statements of operations.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# 4. CAPITAL ASSETS

|                               | 2004 | 2003 |   |       
|------------------------------ | ---- | ---- | - | ------
|
|Computer equipment             |      |      | $ | 14,897
|Leasehold improvements         |      |      |   | 14,724
|Computer software              |      |      |   | 456   
|Office furniture and equipment |      |      |   | 6,412 
|                               |      |      |   |       
|                               |      |      | $ | 36,489
|                               |      |      |   |       
|                               |      |      |   |       

# 5. STOCK OPTIONS AND
WARRANTS OUTSTANDING

Stock
Options

| | As
at September 30, 2004, options were outstanding for the purchase of common shares as
follows:
| | ------------------------------------------------------------------------------------------------

|NUMBER
OF SHARES | PRICE
PER SHARE | EXPIRY
DATE
|---------------- | --------------- | -----------
|                 | 380             |            
|                 | 1,200,000       |            
|                 | 1,200,000       |            
|                 | 4,000,000       |            
|                 | 36,000,000      |            
|                 | 90,000,000      |            
|                 | 180,000,000     |            
|                 | 240,000,000     |            

F-11

# LIVESTAR ENTERTAINMENT
GROUP INC.(A Development Stage Company)NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS(Unaudited) (Stated in U.S.
Dollars)

5.    
          STOCK OPTIONS AND WARRANTS OUTSTANDING (Continued)

Stock
Options (Continued)

| | In
accordance with the vesting provisions of these agreements, 552,400,380 stock options are
exercisable at September 30, 2004.
| | -------------------------------------------------------------------------------------------------------------------------------

| | A
summary of the changes in stock options for the period ended September 30, 2004 is
presented below:
| | -----------------------------------------------------------------------------------------------------

|                            | SHARES | WEIGHTED
AVERAGE
EXERCISE
PRICE
|--------------------------- | ------ | -------------------------------
|Balance, December 31, 2001  |        |                                
|Granted                     |        |                                
|Exercised                   |        |                                
|Expired                     |        |                                
|                            |        |                                
|Balance, December 31, 2002  |        |                                
|Granted                     |        |                                
|Exercised                   |        |                                
|Expired                     |        |                                
|                            |        |                                
|Balance, December 31, 2003  |        |                                
|Granted                     |        |                                
|Exercised                   |        |                                
|Expired                     |        |                                
|                            |        |                                
|Balance, September 30, 2004 |        |                                
|                            |        |                                

F-12

# LIVESTAR ENTERTAINMENT
GROUP INC.(A Development Stage Company)NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS(Unaudited) (Stated in U.S.
Dollars)

5.    
          STOCK OPTIONS AND WARRANTS OUTSTANDING (Continued)

Share
Purchase Warrants

| | As
at September 30, 2004, share purchase warrants were outstanding for the purchase of
common shares as follows:
| | ----------------------------------------------------------------------------------------------------------------

|NUMBER
OF SHARES | PRICE
PER SHARE
|---------------- | ---------------
|                 | 1,882          
|                 | 1,332          
|                 | 2,230          
|                 | 169            
|                 | 568            
|                 | 420            
|                 | 100            
|                 | 340            
|                 | 100            
|                 | 1,649          

| | The
warrants expire between October 1, 2004 and January 17, 2006.
| | -----------------------------------------------------------------

| | A
summary of the changes in share  purchase  warrants  for the period  ended  September
 30, 2004 is presented      below:
| | --------------------------------------------------------------------------------------------------------------------------

|                            | SHARES | WEIGHTED
AVERAGE
EXERCISE
PRICE
|--------------------------- | ------ | -------------------------------
|Balance, December 31, 2001  |        |                                
|Granted                     |        |                                
|Exercised                   |        |                                
|Cancelled                   |        |                                
|                            |        |                                
|Balance, December 31, 2002  |        |                                
|Granted                     |        |                                
|                            |        |                                
|Balance, December 31, 2003  |        |                                
|Expired                     |        |                                
|                            |        |                                
|                            |        |                                
|Balance, September 30, 2004 |        |                                
|                            |        |                                

F-13

# LIVESTAR ENTERTAINMENT
GROUP INC.(A Development Stage Company)NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS(Unaudited) (Stated in U.S.
Dollars)

# 6. STOCK BASED
COMPENSATION

| | On
January 30, 2004, March 5, 2004, May 6, 2004, June 28, 2004 and August 2, 2004
respectively, the Board of Directors approved the Employee Stock Incentive Plan for the
Year 2004 No. 1, No. 2, No. 3, No. 4 and No. 5 under which designated officers and
employees of the Company and its subsidiaries may be granted stock options. The Company
may grant options to acquire up to 5,850,000 shares of common stock under the plans.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Employee
Stock Incentive Plan for year 2004, No. 4 also approved the issue to non-employees,
directors and consultants of up to 350,000 shares of common stock at a price of $0.70 for
fees for services performed or to be performed.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Employee
Stock Incentive Plan for year 2004, No. 5 also approved the issue to employees, directors
and consultants of up to 1,000 shares of common stock at a price of $0.20 for fees for
services performed or to be performed.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
the period ended September 30, 2004, the Company granted stock options to officers and
employees to acquire up to 712,798,000 shares of common stock at weighted average exercise
prices of $0.01 per share, expiring up to June 2014. All of these options vest
immediately.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
fair value of the options granted during the period was estimated at the date of grant
using the Black-Scholes option pricing model with the following assumptions: risk free
interest rate of 3.20%, expected volatility ranging from 29% to 1,252%, an expected option
life of one week, and no expected dividends. Had the Company determined compensation cost
based on the fair value at the date of grant for its employees stock options, the net loss
would have increased by $623,056 for the period ended September 30, 2004. During the
period ended September 30, 2004, the Company recognized stock based compensation for the
intrinsic value of employee awards in the amount of $164,006.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                      | 2004 | 2003
|--------------------------------------------------------------------- | ---- | ----
|Net loss, as reported                                                 |      |     
|Add:  Stock based compensation expense included in net loss, as       |      |     
|reported                                                              |      |     
|Deduct:  Stock based compensation expense determined under fair value |      |     
|method                                                                |      |     
|                                                                      |      |     
|Net loss, pro-forma                                                   |      |     
|                                                                      |      |     

F-14

# LIVESTAR ENTERTAINMENT
GROUP INC.(A Development Stage Company)NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS(Unaudited) (Stated in U.S.
Dollars)

6.    
          STOCK BASED COMPENSATION (Continued)

|                                                    | 2004 | 2003
|--------------------------------------------------- | ---- | ----
|Net loss per share (basic and diluted), as reported |      |     
|                                                    |      |     
|Net loss per share (basic and diluted), pro-forma   |      |     
|                                                    |      |     

# 7. LOANS AND ADVANCES
PAYABLE

| | Loans
and advances payable are interest free and are repayable within one year. Certain of the
loans and advances are convertible to common shares as follows:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------

|AMOUNT | CONVERSION
PRICE | CONVERSION
AFTER
|------ | ---------------- | ----------------
|$      | 11,570           |                 
|$      | 1,000            |                 
|$      | 400              |                 
|$      | 263,087          |                 
|$      | 107,321          |                 

8.RELATED PARTY
TRANSACTIONS

| | a) | Included in accounts payable at September 30, 2004 is $519,368 (2003 
                    $519,936) owing to directors or companies controlled by a director.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) | Included in loans and advances payable at September 30, 2004 is $271,252 (2003
                     $378,710) owing to directors or a company controlled by a director.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c) | During the period ended September 30, 2004, the Company incurred $70,000 (2003
                     $150,003) in consulting and business development expenses with directors,
                    or a company controlled by a director.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-15

# LIVESTAR ENTERTAINMENT
GROUP INC.(A Development Stage Company)NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS(Unaudited) (Stated in U.S.
Dollars)

# 9. COMMITMENTS

| | a) | During the year ended December 31, 2002, the Company executed Management
          Services Memorandums with three key directors/officers which were effective
          January 1, 2002. In addition to total signing bonuses of $258,000 which have no
          specific payment date and are payable in cash or shares of the Company or its
          subsidiary, RAHX, Inc., the memorandums provide for performance bonuses and
          total annual compensation as follows:
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                             | 
|---------------------------- | 
|Year ended December 31, 2004 | 
|Year ended December 31, 2005 | 
|Year ended December 31, 2006 | 

| | b) | In connection with its nightclub operation, the Company has leased real estate
          for a five year term at an annual rate of $52,946.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------

# 10. SUBSEQUENT EVENTS

Subsequent
to September 30, 2004:

| | a) | The Company consolidated its issued and outstanding share capital on the basis
          of one share for every 2,000 previously held shares.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------

| | b) | The Company issued 80,000,000 shares of Series B preferred stock to a director
          for settlement of debt.
| | -- | ----------------------------------------------------------------------------------------------------------------

| | c) | The Company reduced the par value of common stock from $0.0001 per share to
          $0.00001 per share.
| | -- | ---------------------------------------------------------------------------------------------------------

F-16