CANARC RESOURCE CORP.

Management Discussion and Analysis

Second Quarter Report for the Period Ended June 30, 2002

Financial Analysis

This Management Discussion and Analysis (MD&A) for the Second Quarter Report, 2002 should be read in conjunction with the interim consolidated financial statements for the three-month period ended June 30, 2002.  It is assumed that readers are already familiar with the MD&A and financial statements contained in the Second Quarter Report, 2001.  The MD&A is an assessment of the financial affairs of the Company for the most recent fiscal period.  All figures are in $US.

Overview

Since its incorporation the Company has endeavored to secure valuable mineral properties that in due course could be explored, developed and brought into production to provide the Company with positive cash flow.  To that end, the Company has expended its funds exploring and developing mineral properties each year since incorporation.  As a result, the Company has incurred losses during each of its fiscal years since incorporation.  Losses are typical of development-stage exploration and mining companies and are expected to continue until positive cash flow is achieved.

The Company knows of no trends, demands, commitments, events or uncertainties outside of the normal course of business that may result in the Company�s liquidity either materially increasing or decreasing at the present time or in the foreseeable future. Material increases or decreases in the Company�s liquidity are substantially determined by the success or failure of the Company�s exploration programs and overall market conditions for smaller resource companies.  The Company is not aware of any seasonality in the business that have a material effect upon its financial condition, results of operations or cash flows other than those normally encountered by public reporting smaller resource companies.  The Company is not aware of any changes in it�s the results of its operations that are other than those normally encountered in its ongoing business.

Liquidity and Capital Resources

The Company had positive working capital of $604,000 at June 30, 2002 as compared to $141,000 at June 30, 2001.  Current assets rose 62% to $659,000 and current liabilities fell 40% to $55,000 during the Second Quarter of 2002 as the Company raised funds through the sale of marketable securities, a small equity financing and the exercise of some warrants.  The Company�s principal sources of funds continue to be the annual cash payments from our partner on the Bellavista project in Costa Rica and the raising of capital from time to time by issuing securities.

Results of Operations

The Company experienced a loss of $5,427,000 ($0.12 per share) for the three month period ended June 30, 2002, a large jump compared to the loss of $62,000 ($0.001 per share) for the three month period ended June 30, 2001.  This loss is entirely attributable to the $5,516,000 write-down of the New Polaris exploration expenditures that were previously capitalized.  The Company incurred cash expenditures totalling $66,000 on general, administrative, and other costs in the Second Quarter of 2002, an 18% increase compared to $55,000 in the First Quarter of 2002. The use of capital during the period was mainly directed toward company operating expenses.

 

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• Consolidated FInancial Statements
• Management Discussion and Analysis