This Management Discussion and Analysis of Cypress Development Corp. (the "Company") provides analysis of the Company's financial results for the six-month period ended June 30, 2004. The following information should be read in conjunction with the accompanying unaudited financial statements and the notes to the financial statements.
1.1 Date of Report August 25, 2004
1.2 Overall Performance
Nature of Business and Overall Performance
Cypress Development Corp. is a public company listed on the TSX Venture Exchange under the symbol "CYP". The Company is primarily a junior exploration company. Activities include the process of exploring its mineral properties, reviewing and subsequently acquiring potential new mineral properties and conducting exploration programs to determine whether these properties contain ore reserves that are economically recoverable. The recoverability of amounts shown for the mineral properties and related deferred exploration costs is dependent upon the discovery of economically recoverable reserves, the ability of the Company to obtain necessary financing to complete the exploration of the property, and upon future profitable production.
During the first quarter of 2004, the Company closed a 1,250,000 unit non-brokered private placement at $0.10 per unit for gross proceeds of $125,000. (780,000 units on February 16, 2004 and 470,000 units on February 18, 2004) The 780,000 units are subject to a hold period until June 17, 2004 (now free-trading) and the share purchase warrants expire on February 16, 2005. The 470,000 units are subject to a hold period until June 19, 2004 (now free-trading) and the share purchase warrants are exercisable until February 18, 2005.
The Company also closed a 4,000,000 unit brokered private placement at $0.10 per unit on February 26, 2004 for gross proceeds of $400,000. Each unit consists of one share and one share purchase warrant entitling the holder to purchase one share at a purchase price of $0.10 per share until February 26, 2005. The Agent received a finder's fee of $40,000 cash, an administration fee of $2,000 and 800,000 Agents' Warrants.
The Company intends to utilize the $525,000 in gross proceeds from the private placements for general working capital purposes and a Phase I work program on the Company's Gunman Nevada, USA property.
As at June 30, 2004, the Company has incurred total mineral property costs of $2,695,041 on its six mineral properties, four of which are located in Ontario, Canada. Of the total amount, $2,148,906 relates to deferred exploration expenditures.
The most recent developments on the properties are as follows:
Dome Township, Red Lake Area, Ontario
The Company entered into an Acquisition Agreement dated March 25, 2004 with Dan Patrie Exploration Ltd. to acquire a 100% interest in and to one (1) mineral claim consisting of 6 units (approximately 240 acres) located in the Dome Township, Red Lake Area, Kenora Mining Division, Ontario. As consideration to Patrie for the mineral claim, the Company paid the sum of $3,000 and issued 65,000 common shares on April 1, 2004 for a value of $8,125. A 2% net smelter return royalty is reserved in favour of Patrie. Regulatory approval was received on April 1, 2004. This acquisition will form part of the McKenzie Island property of which Skyharbour Resources Ltd. has a 20% interest. As per the Second Agreement dated April 16, 2004, Skyharbour was vested with a 20% interest in this property for the sum of $2,400, which was applied against property acquisition costs.
East Humlin Claims, Ontario
The Company issued 25,000 common shares on March 5, 2004 in connection with the Company's 3rd tranche issuance pursuant to the terms of an Option Agreement dated February 21, 2002. The Company had been granted an option in and to the East Humlin Group Property, which forms part of the Company's jointly held McKenzie Island property, in Red Lake, Ontario. The shares are subject to a hold period and shall not trade before July 6, 2004.
South Voisey Bay Project, Labrador
Donald Huston, President, reported on April 16, 2004 that the Company has been advised that Falconbridge Limited will not be pursuing its option to earn a 50% interest in the South Voisey Bay Nickel Co. Ltd. property. Cypress and its South Voisey Bay Project partners continue to believe that the project has the potential to host a major nickel sulphide deposit and will continue to investigate various means to move the SVB project forward. Cypress holds an 11.4% interest in the South Voisey Bay Nickel Co. Ltd. that owns over 1,000 sq km of land holdings in northern Labrador.
White Pine Claims, Nevada
The Company commissioned a geological report on its Gunman Project. The report on the property, entitled "Exploration Recommendations" dated January 15, 2004, was prepared by Robert D. Marvin, B. SC., Geologist, of Red Rock Exploration Services, Reno, Nevada. The report presents a project summary and the results of exploration planning done to guide a recommended, aggressive drilling program to be commenced in spring 2004. Drilling and other project work would occur in three phases and result in total expenditures of approximately $600,000 USD.
In early April 2004, the Company received confirmation that all permits were now in place. The first phase of the reverse circulation and diamond drilling program, which included a minimum of 7,300 feet (18 holes), commenced on April 24, 2004 and was expected to take approximately 6 weeks to complete. The Gunman property consists of 120 Federal lode claims totaling 2,400 acres, located on the east flank of the Diamond Range, White Pine County, approximately 40 miles NNE of Eureka, Nevada.
The goal of the three phase 2004 drill programs will be to delineate extensions to the known high-grade oxide zinc-silver ore zone, the RH Zone, discovered during the 2000-2001 drill programs.
Subsequent to the June 30, 2004 reporting period, in August of 2004, the Company reported that the 2004 Phase I exploration program targeted interpreted extensions to the RH Zone by drilling geologic, geochemical and geophysical targets NNW and SSE of the R-H Zone and by exploring peripheral geophysical and geochemical anomalies. Thirty-Two reverse circulation drill holes totalling 8565 feet were completed.
The 2004 Phase II drill and exploration target recommendations are made based on the results of the Phase I program and other project/data. The estimated cost of the recommended program is $140,085 USD.
The Company renewed its consulting services agreement with R.J.P. Enterprises Ltd. (Robert Paul) for a further term of one year to January 31, 2005. The Company also renewed its office space and support services agreement with 98 Corporate Group Resources Ltd. for one year to December 31, 2004.
The Company granted the following incentive stock options during the period:
Date of Grant # of Stock Options Exercise Price Expiry Date
January 7, 2004 211,590 $0.14 January 7/2006
February 18, 2004 135,000 $0.12 February 18, 2006
February 26, 2004 570,000 $0.14 February 26, 2006
June 6, 2004 626,733 $0.145 June 6, 2006
1.3 Results of Operations for the Six-Month Period Ended June 30, 2004
The Company is in the exploration and development stage and does not generate any revenue. To date the Company has not earned any significant revenues other than minor interest income. Interest income for the six months ended June 30, 2004 was $2,613 (2003 - $1,749). The increase of $864 being attributable to higher cash balances and cash equivalents invested during the current period as compared to the same period in the previous year.
General and Administrative Expenses
The Company incurred a loss of $413,182 for the six month period ended June 30, 2004, or $0.019 per share. Comparatively, the loss for the same period in 2003 was $157,313 or $0.01 per share.
The Company's general and administrative expenses were higher during the current six month period than in the same period in 2003. General & administrative expenses increased by $244,415 to $415,795 (2003 - $171,380). However, $118,094 of the increase is attributable to a non-cash transaction wherein stock based compensation expense was realized under the Black-Scholes option-pricing method, when the Company issued stock options to directors and employees of the Company. This amount is offset by a credit to contributed surplus of $118,094. The expenses without the $118,094 would have been $297,702 or $126,322 greater than in the same period of the previous year. The Company relocated its offices in August/2003 resulting in lower monthly rental payments in the current period.
There are no trends, commitments, events or uncertainties presently known to management that are reasonably expected to have a material effect on the Company's business, financial condition or results of operation other than uncertainty as to the speculative nature of the business.
1.4 Summary of Quarterly Results
2nd (6 months) 1st (3 months) 4th (12 months) 3rd (9 months)
June 30, 2004 March 31, 2004 December 31/2003 September 30, 2003
(a) Revenue $ 2,613 $ 870 $ 1,902 $ 1,830
(b) Net loss $ 413,182 $ 164,998 $ 215,229 $ 221,519
(c) Net loss per share:Basic -Fully Diluted - $ 0.019$ 0.019 $ 0.008$ 0.008 $ 0.01$ 0.01 $ 0.014$ 0.014
2nd (6 months) 1st (3 months) 4th (12 months) 3rd (9 months)
June 30, 2003 March 31, 2003 December 31/2002 September 30, 2002
(a) Revenue $ 1,749 $ 1,492 $ 4,070 $ 21,109
(b) Net loss $ 157,313 $ 108,647 $ 862,121 $ 305,951
(c) Net loss per share:Basic -Fully Diluted - $ 0.010$ 0.010 $ 0.007$ 0.007 $ 0.06$ 0.06 $ 0.021$ 0.021
This financial data has been prepared in accordance with Canadian generally accepted accounting principles and all figures are stated in Canadian dollars.
1.5 Liquidity and
1.6 Capital Resources
In management's view, given the nature of the Company's operations, which consist of exploration and evaluation of mining properties, the most relevant financial information relates primarily to current liquidity, solvency and planned property expenditures. The Company's financial success will be dependent upon the extent to which it can discover mineralization and the economic viability of developing its properties. Such development may take years to complete and the amount of resulting income, if any, is difficult to determine. The sales value of any minerals discovered by the Company is largely dependent upon factors beyond the Company's control, including the market value of the metals to be produced. The Company does not expect to receive significant income from any of its properties in the foreseeable future.
At June 30, 2004, the Company had cash and cash equivalents of $352,514 compared to $153,575 at December 31, 2003. The $153,575 included $150,000 held in a lawyer's trust account relating to the sale of its Alberta gas interest. The restricted cash at June 30, 2004 was $59,786 and December 31, 2003 was $15,405. The restricted cash relates to proceeds received from flow thru private placements and/or the exercise of flow thru warrants and can only be used for certain expenditures on the Company's Canadian properties. During the current period, the Company received $50,000 from the exercise of 500,000 flow thru warrants.
The Company's capital needs have been met by equity subscriptions (six months ended June 30, 2004 - $525,000) (fiscal 2003 - $Nil), the exercise of warrants (six months ended June 30, 2004 - $185,000) (fiscal 2003 - $5,000) and the exercise of options (six months ended June 30, 2004 - $51,198) (fiscal 2003 - $Nil).
Working capital was $296,543 at June 30, 2004 compared to a working capital of $71,921 at December 31, 2003. The gross proceeds from the private placements and the exercise of options and warrants have resulted in the working capital increase in the current period.
The Company's unrestricted cash position at December 31, 2003 was $153,575. As a result of expenditures incurred during the current period for general business expenses; gross proceeds of $525,000 received from private placements, $185,000 received from the exercise of warrants; $51,198 from the exercise of options; the expenditure in mineral properties of $8,000, in deferred exploration expenditures of $190,763 and the increase in accounts payable and accrued liabilities of $34,978 and receivables of $12,102, the Company's unrestricted cash position at June 30, 2004 was $352,514.
The Company has historically met all cash requirements for operation by equity financing. Future funding needs of the Company are dependent upon the Company's continued ability to obtain equity and/or debt financing to meet its financial obligations and to pursue further exploration on its properties.
1.7 Off-Balance Sheet Arrangements
At June 30, 2004, the Company had no material off-balance sheet arrangements such as guarantee contracts, contingent interest in assets transferred to an entity, derivative instruments obligations or any obligations that trigger financing, liquidity, market or credit risk to the Company.
1.8 Transactions With Related Parties
The aggregate amount of expenditures made to parties at non-arm's length to the issuer consists of the following:
March 31, 2004 March 31, 2003
(6 months) (6 months)
Consulting fees $ 6,000 $ 5,800
Management fees $21,000 $20,300
1.9 Proposed Transactions
There are currently no material proposed transactions being pursued or negotiated by the Company.
1.10 Changes In Accounting Policies Including Initial Adoption
There have been no changes in the Company's existing accounting policies during the period ended June 30, 2004.
During the year ended December 31, 2003, the Company elected to adopt the fair value method to value all stock based compensation. Under the transitional provisions of Section 3870, the method has been applied prospectively. In the six months ended June 30, 2004, the Company granted 1,543,323 stock options to employees and directors of the Company. As a result, the stock-based compensation expense recognized, using the Black-Scholes option-pricing model, was $118,094. This amount was also recorded as contributed surplus on the balance sheet.
1.11 Financial Instruments and Other Risks
The Company's financial instruments consist of cash and equivalents, receivables, and accounts payable and accrued liabilities. It is management's opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments. The fair market values of these financial instruments approximate their carrying values, unless otherwise noted.
In conducting business, the principal risks and uncertainties faced by the Company center around exploration and development and metal prices and market sentiment.
Exploration for minerals and development of mining operations involve many risks, many of which are outside the Company's control. In addition to the normal and usual risks of exploration and mining, the Company often works in remote locations that lack the benefit of infrastructure or easy access.
The prices of metals fluctuate and are affected by many factors outside of the Company's control. The relative prices of metals and future expectations for such prices have a significant impact on the market sentiment for investment in mining and mineral exploration companies. The Company relies on equity financing for it working capital requirements and to fund its exploration programs. The Company does not have sufficient funds to put any of its resource interests into production from its own financial resources. There is no assurance that such financing will be available to the Company, or that it will be available on acceptable terms.
The TSX Venture Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of the content of this news release.
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