SKN RESOURCES LTD.
(Formerly Spokane Resources Ltd.)
Financial Statements
April 30, 2002 and 2001
INDEX
Auditors' Report to the Shareholders
Financial Statements
Balance Sheets
Statements of Operations and Deficit
Statements of Cash Flows
Notes to Financial Statements
Page
1
2
3
4
5-13
SmytheRatcliffe.com
SmytheRatcliffe.com
SmytheRatcliffe.com
SmytheRatcliffe.com
7th Floor, Marine Building
355 Burrard Street
Vancouver, B.C. V6C 2G8
facsimile: 604.688.4675
telephone: 604.687.1231
AUDITORS' REPORT
TO THE SHAREHOLDERS OF SKN RESOURCES LTD.
(Formerly Spokane Resources Ltd.)
We have audited the balance sheets of SKN Resources Ltd. (formerly Spokane Resources Ltd.) as at April 30,
2002 and 2001 and the statements of operations and deficit and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards. Those
standards require that we plan and perform an audit to obtain reasonable assurance whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation.
In our opinion, these financial statements present fairly, in all material respects, the financial position of
the Company as at April 30, 2002 and 2001 and the results of its operations and cash flows for the years
then ended in accordance with Canadian generally accepted accounting principles.
"Smythe Ratcliffe"
Chartered Accountants
Vancouver, British Columbia
June 11, 2002
1
2002
2001
$1,037
8,382
9,419
77,658
0
$1,593
66,071
67,664
19,178
3,994
2,096,810
1
10,000
1
2,089,314
1
34,000
1
$2,193,889
$2,214,152
$365,616
1,364,067
$345,902
1,214,053
1,729,683
1,559,955
11,652,818
(11,188,612)
11,652,818
(10,998,621)
464,206
654,197
$2,193,889
$2,214,152
SKN RESOURCES LTD.
(Formerly Spokane Resources Ltd.)
Balance Sheets (note 1)
April 30
Assets
Current
Cash
Accounts receivable
Portfolio Investments (note 4)
Fixed, net
Investment in and Expenditures on Resource Properties
(notes 3 and 5)
Mineral claims
Oil and gas lease
Reclamation deposits
Licensing Agreement (note 6)
Liabilities
Current
Accounts payable and accrued liabilities
Due to private companies (note 7)
Shareholders' Equity
Capital Stock (note 8)
Deficit
Approved on behalf of the Board:
"G.A. Armstrong"
............................................................ Director
G.A. Armstrong
"C. Brownie"
............................................................. Director
C. Brownie
See notes to financial statements.
2
SKN RESOURCES LTD.
(Formerly Spokane Resources Ltd.)
Statements of Operations and Deficit
Years Ended April 30
General and Administrative Expenses
Interest, net
Management fees
Salary and benefits
Rent
Professional fees
Property reclamation
Printing and shareholder relations
Filing and transfer agent fees
Office
Foreign exchange loss
B.C. corporation capital tax (recovery)
Depreciation
Write-down of Mineral Properties
Recovery of Expenditures on Mineral Property
Write-Down of Oil and Gas Property
Loss on Disposal of Capital Assets
Other Income
Net Loss for Year
Deficit, Beginning of Year
Deficit, End of Year
Loss Per Share
2002
2001
$105,558
30,000
19,028
18,661
12,237
8,109
8,079
4,550
3,234
0
(13,459)
0
195,997
0
0
0
3,994
(10,000)
189,991
10,998,621
$128,568
30,000
74,442
18,000
15,573
0
7,458
3,734
5,621
204
0
1,712
285,312
1,097,640
(21,011)
18,378
0
(26,667
1,353,652
9,644,969
$11,188,612
$10,998,621
$ 0.06
$ 0.44
Weighted Average Number of Shares
3,211,422
3,104,573
See notes to financial statements.
3
SKN RESOURCES LTD.
(Formerly Spokane Resources Ltd.)
Statements of Cash Flows
Years Ended April 30
Operating Activities
Net loss
Items not involving cash
Write-down of mineral properties
Write-down of oil and gas property
Recovery of expenditures on mineral property
Loss on disposal of capital assets
Depreciation
2002
2001
$(189,991)
$(1,353,652)
0
0
0
3,994
0
1,097,640
18,378
(21,011)
0
1,712
Operating Cash Flow
(185,997)
(256,933)
Changes in Non-Cash Working Capital
Accounts receivable
Accounts payable and accrued liabilities
(791)
19,714
18,923
(7,592)
42,494
34,902
Cash Used in Operating Activities
(167,074)
(222,031)
Investing Activities
Investment in mineral claims (net of recoveries)
Reclamation deposits
Cash Provided by (Used in) Investing Activities
Financing Activity
Advances from private company
Outflow of Cash
Cash, Beginning of Year
Cash, End of Year
(7,496)
24,000
16,504
(22,333)
(4,000)
(26,333)
150,014
247,201
(556)
1,593
$1,037
(1,163)
2,756
$1,593
See notes to financial statements.
4
SKN RESOURCES LTD.
(Formerly Spokane Resources Ltd.)
Notes to Financial Statements
Years Ended April 30, 2002 and 2001
1.
GOING CONCERN
These financial statements have been prepared by management in accordance with generally
accepted accounting principles on a going concern basis. This presumes funds will be available to
finance on-going development, operations and capital expenditures and the realization of assets
and the payment of liabilities in the normal course of operations for the foreseeable future.
The Company has minimal capital resources available to meet obligations which normally can be
expected to be incurred by similar companies and has an accumulated deficit of $11,188,612 (2001
- $10,998,621). These factors raise substantial doubt about the Company's ability to continue as a
going concern and is dependent on its ability to obtain and maintain an appropriate level of
financing on a timely basis and to achieve sufficient cash flows to cover obligations and expenses.
The outcome of these matters cannot be predicted. These financial statements do not give effect
to any adjustments to the amounts and classification of assets and liabilities which might be
necessary should the Company be unable to continue its operations as a going concern.
2.
SIGNIFICANT ACCOUNTING POLICIES
(a)
General
The Company is in the development stage and has yet to generate significant revenues.
(b)
Portfolio investments
Portfolio investments are carried at written down value.
(c)
Investment in and expenditures on resource properties
The Company is in the exploration stage with respect to its investment in mineral claims
and, accordingly, follows the practice of capitalizing all costs relating to the acquisition of,
exploration for and the development of mineral claims, net of all incidental revenues
received. At such time as commercial production commences, these costs will be charged
to operations on a unit-of-production method based on estimated recoverable reserves.
The aggregate costs related to abandoned mineral claims will be charged to operations at
the time of abandonment.
(d)
Income taxes
Income taxes are calculated using the liability method of tax accounting. Temporary
differences arising from the difference between the tax basis of an asset or liability and its
carrying amount on the balance sheet are used to calculate future income tax assets or
liabilities. Future income tax assets or liabilities are calculated using tax rates anticipated
to apply in the periods that the temporary differences are expected to reverse. A
valuation allowance is provided to reduce the asset to the net amount management
estimates to be reasonable to carry as a future income tax asset.
5
SKN RESOURCES LTD.
(Formerly Spokane Resources Ltd.)
Notes to Financial Statements
Years Ended April 30, 2002 and 2001
2.
SIGNIFICANT ACCOUNTING POLICIES (Continued)
(e)
Flow-through shares
The Company finances a portion of its exploration program with flow-through common
share issues. Income tax deductions relating to these expenditures are claimable only by
the investors. Proceeds from common shares issued pursuant to flow-through financing are
credited to capital stock.
(f)
Loss per share
Loss per share computations are based on the weighted average number of common shares
outstanding during the year.
(g)
Financial instruments
The Company's financial instruments consist of cash, accounts receivable, portfolio
investments, accounts payable and accrued liabilities and amounts due to private
companies. Unless otherwise noted, it is management's opinion that the Company is not
exposed to significant interest, currency or credit risks arising from these financial
instruments due to the immediate or short term maturity of these financial instruments.
Unless otherwise noted, the fair value of these financial instruments approximate their
carrying values.
(h)
Use of estimates
The preparation of financial statements in conformity with Canadian generally accepted
accounting principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those estimates
and would impact future results of operations and cash flows.
3.
REALIZATION OF ASSETS
The Company's investment in and expenditures on resource properties comprise substantially all of
the Company's assets. Realization of the Company's investment in these assets is dependent on
establishing legal ownership of the properties, on the attainment of successful production from the
properties or from the proceeds of their disposal.
6
SKN RESOURCES LTD.
(Formerly Spokane Resources Ltd.)
Notes to Financial Statements
Years Ended April 30, 2002 and 2001
4.
PORTFOLIO INVESTMENTS
International Enexco
Limited, 81,779 common
shares
Ivory Oils and Minerals Inc.
100,000 common shares
Rio Fortuna Exploration
Corp. 974,667 common
shares
2002
2001
Written
Down Value
Market
Written
Down Value
Market
$8,178
4,089
$8,178
$3,271
11,000
5,000
11,000
6,000
58,480
116,960
0
0
$77,658
$126,049
$19,178
$9,271
During the year ended April 30, 1998, the investments were written down to their fair market
value.
5.
INVESTMENT IN AND EXPENDITURES ON RESOURCE PROPERTIES
Rex Mountain Gold Property (note 5(a))
Cost
Deferred expenditures
Write-down of mineral property
Mac Molybdenum Property (note 5(b))
Cost
Deferred expenditures, net of revenues
$
Write-down of mineral property
Clearwater Property (note 5(c))
Deferred expenditures
Voisey's Bay Property (note 5(d))
Cost
Deferred expenditures
Write-down of mineral property
Mexico Properties (note 5(e))
Write-down of mineral property
Recovery of expenditures
7
2002
2001
$699,782
1,435,802
(2,135,584)
0
1,500,000
2,532,258
(2,016,128)
2,016,130
$699,782
1,435,802
(2,135,583)
1
1,500,000
2,532,258
(2,016,128)
2,016,130
80,679
73,182
11,500
45,964
(57,463)
1
0
0
0
$2,096,810
11,500
45,964
(57,463)
1
1,585,508
(1,496,635)
(88,873)
$2,089,314
SKN RESOURCES LTD.
(Formerly Spokane Resources Ltd.)
Notes to Financial Statements
Years Ended April 30, 2002 and 2001
5.
INTEREST IN AND EXPENDITURES ON RESOURCE PROPERTIES (Continued)
(a)
Rex Mountain Gold Property
The Company was granted an option to acquire a 100% undivided interest in fifteen mineral
claims and four crown grants located in the Lillooet Mining Division, British Columbia. The
option would be deemed to have been exercised when another $632,000 in royalties had
been paid to the optionor. Minimum royalty payments of $25,000 were to be paid to the
optionor on September 1 of each year (paid to August 31, 1999).
The Company owned a 100% undivided interest in seventeen additional mineral claims on
this property.
The option was terminated during the year ended April 30, 2002, and the claims are being
returned to the optionor.
(b)
Mac Molybdenum Property
During the year ended April 30, 1997, the Company acquired a 100% interest in eleven
mineral claims located in the Omineca Mining Division, British Columbia from Rio Algom
Exploration Inc. for the issue of 150,000 post consolidated common shares (note 8 (b)) of
the Company at a price of $10 per share of the Company. During the year ended April 30,
2000, the Company wrote down the property by 50% to management's assessed recoverable
value of the property. One claim was forfeited during the year ended April 30, 2002
bringing the total number of claims to ten.
(c)
Clearwater Property
During the year ended April 30, 1999, the Company acquired a 100% interest in 55 claim
units in the Kamloops Mining Division, British Columbia. The claims are in good standing
until November 2006.
(d)
Voisey's Bay Property
The Company owns a 45% undivided interest in 100 mineral claims located at Tasiuyak in
the Voisey's Bay area of Labrador, Newfoundland. During the year ended April 30, 2001,
the Company wrote down the property to one dollar ($1).
8
SKN RESOURCES LTD.
(Formerly Spokane Resources Ltd.)
Notes to Financial Statements
Years Ended April 30, 2002 and 2001
5.
INTEREST IN AND EXPENDITURES ON RESOURCE PROPERTIES (Continued)
(e)
Mexico Properties
In November 1997, the Company and Rio Fortuna Exploration Corp. (formerly Sand River
Resources Ltd.) ("Rio Fortuna") entered into a 50/50 Joint Venture to acquire and develop
mineral properties in Mexico. During the year ended April 30, 1998, the Joint Venture
signed three agreements with the Daniel Valenzuela Garcia group of Chihuahua, Mexico.
The three agreements have been named Piedras Verdes, Sacramento and Minerales. By
way of these agreements the Joint Venture has the right to acquire 75% of the rights to 20
mining concessions and 80% of the rights to an additional 19 mining concessions for a
combination of work commitments and cash payments of $6,005,000 U.S. of which the
Joint Venture has spent approximately $1,800,000 U.S. In addition, the Company is to
issue 62,500 post consolidated common shares (note 8(b)) over a four year period of which
40,000 post consolidated common shares have been issued for a deemed value of $50,000.
During the year ended April 30, 2000, the Piedras Verdes and Minerales agreements which
include the rights to acquire 75% to the rights of 20 mining concessions were terminated.
During the year ended April 30, 2001, the Sacramento agreement which includes the rights
to acquire 80% of the rights to 19 mining concessions was terminated.
A fourth agreement named La Fortuna was signed by the Joint Venture with Guillermo
Espinosa Castillo to acquire a 100% interest in two mining lots in the State of Sonaro,
Mexico for a combination of work commitments and cash payments aggregating $1,850,000
U.S. over a four year period and a net smelter royalty of 4%. The Joint Venture has spent
approximately $118,000 U.S. against these commitments. During the year ended April 30,
2000, the Company terminated this agreement.
On May 12, 1999, the Company entered into an agreement with Ernesto Poblano Fernandez
whereby the Company has a right to acquire 100% of the rights to a single mining
concession named San Francisco for consideration of $210,000 U.S. over a three year
period, subject to a net smelter royalty of 2% with a payout of U.S. $500,000. During the
year ended April 30, 2001, the Company terminated this agreement.
By agreement dated March 2, 2000 the Company and Rio Fortuna terminated their Joint
Venture to explore the Mexican properties. Subject to regulatory approval, Rio Fortuna
has agreed to settle a $146,200 debt to the Company (for reimbursement of Rio Fortuna's
share of expenditures) by issuing the Company 974,667 shares of Rio Fortuna. During the
year ended April 30, 2002, the Company received the 974,667 shares. An amount of
$58,480 was recorded which represents the market value of Rio Fortuna's shares as at April
30, 2001 (note 4).
(f)
Oil and gas lease
The Company's "Sunrise Prospect" consists of a 0.562% working interest in a petroleum and
natural gas lease situated in Northeastern British Columbia. This lease is registered in the
name of Enermark Resources Inc., Calgary, Alberta. During the year ended 2001, the
Company wrote-down the property to one dollar ($1).
(g)
The Company has renounced $1,574,284 (2001 - $1,574,284) of its deferred exploration and
development expenditures for tax purposes to the investors of flow-through common
shares.
9
SKN RESOURCES LTD.
(Formerly Spokane Resources Ltd.)
Notes to Financial Statements
Years Ended April 30, 2002 and 2001
6.
LICENSING AGREEMENT
Pursuant to an agreement dated November 18, 1988, the Company was granted exclusive
worldwide manufacturing and distribution rights (excluding Canada) for the "Firelight II" barbecue.
Pursuant to an agreement dated June 30, 1990, the Company assigned all its rights, title and
interest in the Firelight II for consideration of $225,000 in future royalties based on $0.25 per unit
sold, to a maximum of 900,000 units with a minimum annual royalty of $12,500.
The licensing agreement was written-down to a carrying value of one dollar ($1) during the year
ended April 30, 1991. During the years ended April 30, 2002 and 2001, no royalties were received
by the Company.
7.
DUE TO PRIVATE COMPANIES
A private company has advanced $1,314,757 (2001 - $1,185,741), including accrued interest to April
30, 2002 of $106,014 (2001 - $129,325) to the Company. The amount bears interest at prime plus
5% (note 9(b)). The Company issued 1,000,000 post consolidated common shares (note 8(b)) at a
deemed price of $1.00 per share as a partial debt settlement during the prior year.
Included in this amount is $49,310 (2001 - $28,310) due to a company controlled by a director and a
company with common management.
8.
CAPITAL STOCK
(a)
(b)
Authorized
100,000,000 Common shares without par value
Issued and allotted
Issued
2002
2001
Number
of Shares
Amount
Number
of Shares
Amount
Balance, beginning of year
32,114,220
$11,652,818
22,114,220
$10,652,818
Issued during year
debt settlement (note 7)
0
0
10,000,000
1,000,000
Reverse split one for ten
(28,902,798)
0
(28,902,798)
0
32,114,220
11,652,818
32,114,220
11,652,818
Balance, end of year
3,211,422
$11,652,818
3,211,422
$11,652,818
On July 25, 2001, the Company consolidated its shares on the basis of one new common share
issued for every ten old common shares issued and increased its authorized capital to 100,000,000
common shares. These financial statements have been retroactively restated to reflect this
adjustment.
10
SKN RESOURCES LTD.
(Formerly Spokane Resources Ltd.)
Notes to Financial Statements
Years Ended April 30, 2002 and 2001
8.
CAPITAL STOCK (Continued)
(c)
Stock option plan
Expiry Date
Exercise
Price
Number of Shares
2002
2001
February 28, 2002
$ 1.00
0
80,000
The following activity occurred within the stock option plan:
Options outstanding as of April 30, 2000
Options cancelled or expired
Options outstanding as of April 30, 2001
Reverse split one for ten
Options expired
Number
of Options
Weighted
Average Price
1,450,000
(650,000)
800,000
(720,000)
(80,000)
$ 0.11
$ 0.16
$ 0.10
$ 0.00
$ 0.00
Options outstanding as of April 30, 2002
$0
$ 0.00
9.
RELATED PARTY TRANSACTIONS
(a)
Included in accounts payable are the following amounts payable to:
A law firm in which an officer and director is
the proprietor
A company controlled by an officer and
director
An accounting firm in which a former officer
and director is the proprietor
Directors for directors' fees
2002
2001
$119,140
$119,140
114,802
87,932
81,679
44,800
81,679
44,800
$360,421
$333,551
(b)
The amount due to private companies includes $1,314,757 (2001 - $1,185,741) due to a
company controlled by a director of the Company (note 7). Interest of $106,014 (2001 -
$129,325) included in the above balance was expensed by the Company.
The amount also includes $19,392 (2001 - $9,892) due to a company controlled by a
director and $29,918 (2001 - $18,418) due to a law firm of which a director is the
proprietor. Neither of these two amounts is subject to interest or stated terms of
repayment.
11
SKN RESOURCES LTD.
(Formerly Spokane Resources Ltd.)
Notes to Financial Statements
Years Ended April 30, 2002 and 2001
9.
RELATED PARTY TRANSACTIONS (Continued)
(c)
The Company was charged the following amounts:
Legal fees by a law firm in which an officer
and director is the proprietor
Management fees by a company controlled by
an officer and director
Office rental by a company controlled by an
officer and director
2002
2001
$1,338
$12,908
30,000
30,000
18,000
18,000
(d)
Other income is derived from consulting fees charged to two companies with common
directors. During the year ended April 30, 2002, the Company discontinued their
consulting service.
10.
INCOME TAXES
The components of the future income tax assets are as follows:
Future income tax assets
Non-capital loss carry-forwards
$2,308,900
$2,243,400
2002
2001
Unused cumulative exploration and
development expenses
Taxable portion of write-down of
marketable securities
Approximate tax rate
Less: Valuation allowance
2,821,000
2,834,000
68,267
68,267
5,182,207
45%
5,145,667
45%
2,339,175
(2,339,175)
2,315,565
(2,315,565)
$0
$0
The valuation allowance reflects the Company's estimate that the tax assets, more likely than not,
will not be realized.
12
SKN RESOURCES LTD.
(Formerly Spokane Resources Ltd.)
Notes to Financial Statements
Years Ended April 30, 2002 and 2001
10.
INCOME TAXES (Continued)
The non-capital losses which may be carried forward to apply against future years' income for
Canadian income tax purposes will expire as follows:
2003
2004
2005
2006
2007
2008
2009
$251,000
409,900
316,900
508,000
401,100
236,000
186,000
$2,308,900
13