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CYCLONE URANIUM CORP - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations.(Edgar Glimpses Via Acquire Media NewsEdge) Cautionary Statement about Forward-Looking Statements This Form 10-Q contains forward-looking statements regarding future events and the Company's future results that are subject to the safe harbors created under the Securities Act of 1933 (the "Securities Act") and the Securities Exchange Act of 1934 (the "Exchange Act"). These statements are based on current expectations, estimates, forecasts, and projections about the industry in which the Company operates and the beliefs and assumptions of the Company's management. Words such as "hopes," "expects," "anticipates," "targets," "goals," "projects," "intends," "plans," "believes," "seeks," "estimates," "continues," "may," variations of such words, and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of the Company's future financial performance, the Company's plans for a drill program, the Company's potential for joint venture partners, and other characterizations of future events or circumstances are forward-looking statements. The Company's properties are without known reserves and any proposed projects or drill programs are exploratory in nature. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict, including those identified under "Risk Factors" in our Form 10-K for the year ended January 31, 2014. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. The Company is under no duty to update any of these forward-looking statements after the date of this report. You should not place undue reliance on these forward-looking statements. 12 -------------------------------------------------------------------------------- Overview Cyclone Uranium Corporation (formerly known as Fischer-Watt Gold Company, Inc., collectively with its subsidiaries, "Cyclone Uranium", "Cyclone" or the "Company"), was formed under the laws of the State of Nevada in 1986. Cyclone Uranium's primary business is mining and mineral exploration, and to that end to own, acquire, improve, sell, lease, convey lands or mineral claims or any right, title or interest therein; and to search, explore, prospect or drill for and exploit ores and minerals therein or thereupon. Mineral Properties Through several acquisitions, the Company evolved and has focused on building a portfolio of uranium mining claims in Wyoming, and Arizona, the most recent of which was the March 14, 2012 acquisition of New Fork. New Fork's assets are comprised of 521 federal mining claims covering about 10,000 acres of BLM land. These claims cover a large portion of the sinuous, uranium bearing roll-front that exists in this part of south-central Wyoming. The Company's existing Cyclone Rim claims cover a 28-mile extent of the western portion of this same roll-front trend. This area of Sweetwater County is a historical uranium-mining district that is seeing a resurgence of development activity. The Company now holds significant acreage on key uranium ground in the Red Desert. On March 19, 2012, James G. Baughman was appointed Chairman, President, CEO, and acting Chief Financial Officer to succeed Peter Bojtos who had held those positions since 2005. Mr. Baughman is an experienced geologist and mining company executive with proven management skills, and possesses an international background in the mining industry. Mr. Baughman has worked as a geologist for more than 25 years in mining operations and mineral exploration projects for precious, base metals, and uranium and has also provided technical services and project management for a number of major and junior mining companies. Corporate Strategy Management believes that given the global supply and demand outlook for uranium over the next several years that demand could likely exceed supply which in turn could cause uranium prices to increase substantially from their current levels as well as prompt the large uranium producers to acquire uranium properties that could one day go into production. The Company has strategically amassed a portfolio of mining claims that are largely focused on a historically productive uranium mining region in Wyoming and can maintain control of these claims going forward for an annual cost of between $150,000 and $200,000 annually in lease payments to the Bureau of Land Management. 13 --------------------------------------------------------------------------------Although the Company can maintain control of these claims going forward for a fairly minimal cost, management believes that it can significantly increase the value of the properties by investing in drill programs to define the resource of these claims. The strategy would be to implement drill programs focused on our Cyclone Rim and New Fork properties in a phased approach over the next couple of years. Management estimates the total required investment for these drill programs to be between $8 million and $15 million with the costs being weighted more heavily toward the later phases and depending on the results from the earlier phases. The Company's business plan will require additional capital through debt or equity financing to fund these programs, which may not be available at reasonable terms, if at all. The advantages of implementing a phased drill program are that the Company can assess the results of the earlier phases to be more strategic in investing in the later, more expensive phases and by raising capital incrementally for each phase, management believes that it can minimize the dilutive effect of each subsequent equity raise by demonstrating added value of its claims with each drill program. Assuming these drill programs are successful, management believes that they will substantially increase the value of it properties which would increase shareholder value. Results of Operations The following discussion involves the results of operations for the three and six months ended July 31, 2014 and July 31, 2013. The Company had no revenue from production during the three and six months ended July 31, 2014 or 2013 as the Company had no properties in production. Exploration expenses for the three months ended July 31, 2014 were $35,147 compared to $54,166 for the three months ended July 31, 2013. For the six months ended July 31, 2014 and July 31, 2013, the exploration expenses were $69,147 and $102,914, respectively. This decrease for the three and six months are attributed to management's decision to not renew certain claims that were deemed to be more speculative in the last year which weren't adding to the Company's strategy. General and administrative expenses for the three months ended July 31, 2014 amounted to $21,445 compared to $126,452 for the three months ended July 31, 2013. For the six months ended July 31, 2014 and 2013, general and administrative expenses were $106,681 and $230,391, respectively. This decrease for the three and six month comparable periods are attributed primarily to a decrease in professional services in 2014. Total other expenses for the three months ended July 31, 2014 were $54,249 compared to $44,104 for the three months ended July 31, 2013. Total other expenses for the six months ended July 31, 2014 and July 31, 2013 were $106,681 and $230,391, respectively. The increase in both comparable periods were due to increased interest expense recorded for all short-term notes given the Company's additional debt issued during the past year. For the three months ended July 31, 2014, the Company reported a net loss of $110,841 compared to a net loss of $224,722 for the three months ended July 31, 2013. For the six months ended July 31, 2014, the Company reported a net loss of $282,557 compared to a net loss of $421,305 for the six months ended July 31, 2013. Liquidity and Financial Condition The Company had unrestricted cash on hand at July 31, 2014, of $3,251 compared to $2,582 on January 31, 2014. The Company also holds restricted cash of $35,184 relating to reclamation bonds covering the mineral properties acquired from Tournigan Energy. 14 --------------------------------------------------------------------------------Current liabilities amounted to $1,645,563 on July 31, 2014 compared to $1,540,163 on January 31, 2014. This increase of $105,400 is associated with interest and accrued expenses recorded during the six months ended July 31, 2014. Current assets amounted to $50,896 resulting in a working capital deficit of $1,594,667 at July 31, 2014. Cash used in operating activities for the six months ended July 31, 2014 was $99,331 compared to $158,760 for the three months ended July 31, 2013. Cash provided by financing activities for the six months ended July 31, 2014 was $100,000 compared to $160,000 for the six months ended July 31, 2013. The first phase of drilling activities on the Wyoming properties will likely cost between $3 million and $4 million. If we are unable to raise the additional capital necessary for these activities at favorable terms, we will postpone these drilling programs until we are able to do so and cash used in operating activities would remain in line with current levels. The Company recognizes its need for additional funding either from equity sales or borrowings to create a more favorable working capital ratio and allow for a more aggressive property acquisition program. The Company also recognizes that there is no assurance that adequate additional financing is either available or achievable on terms acceptable to it. Management intends to raise between $3 million and $4 million in capital from the issuance of equity over the next twelve months to fund the first phases of drilling programs for the Company's Cyclone Rim and New Fork properties. The scope of this phase would likely drilling as many as 100 drill holes on these properties to determine the presence or absence of uranium mineralization with the intent of being able to eventually establish and support an inferred mineral resource calculation for these claims. If the Company is unable to raise this capital at favorable terms, management has the ability to postpone these activities until it is able to raise the level of capital needed. Should that be the case, management has the ability to run the Company at its current level of activity and operating cash requirements going forward which require raising approximately $500,000 in capital over the next twelve months. The Company's financial statements are prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has experienced significant net losses since inception and has a significant negative working capital position. These issues raise substantial doubt about the Company's ability to continue as a going concern. Other Management believes that the Company has adequately reserved its reclamation commitments. Management also believes that the Company is substantially in compliance with all environmental regulations. While it intends to continue with its uranium exploration, management also continues to evaluate precious and/or base-metal mineral properties with a view to developing into a cash generating, profitable, producing mine. The chief area of interest is in the western United States. 15 --------------------------------------------------------------------------------Off Balance Sheet Arrangements The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our shareholders. Recently Issued and Adopted Accounting Pronouncements In June 2014, the FASB issued ASU No. 2014-10, which amended Accounting Standards Codification (ASC) Topic 915 Development Stage Entities. The amendment eliminates certain financial reporting requirements surrounding development stage entities, including an amendment to the variable interest entities guidance in ASC Topic 810, Consolidation. The amendment removes the definition of a development stage entity from the ASC, thereby removing the financial reporting distinction between development stage entities and other entities from U.S. GAAP. Consequently, the amendment eliminates the requirements for development stage entities to (1) present inception-to-date information in the statements of income, cash flows and shareholder equity, (2) label the financial statements as those of a development stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage. This amendment is effective for fiscal years beginning after December 15, 2014, and interim periods therein. Early application of each of the amendments is permitted for any annual reporting period or interim period for which the entity's financial statements have not yet been issued. The Company has made the election to early adopt this amendment effective June 30, 2014 and, as a result, the Company is no longer presenting or disclosing the information previously required under Topic 915. The early adoption was made to reduce data maintenance by removing all incremental financial reporting requirements for development stage entities. The adoption of this amendment alters the disclosure requirements of the Company, but it does not have any material impact on the Company's financial position or results of operations for the current or any prior reporting periods. There were various other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries. None of the other updates are expected to have a material impact on the Company's consolidated financial statements. |