UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the quarterly period ended OCTOBER 31, 2007
[ ] Transition Report Under Section13 OR 15(d) of the Securities Exchange Act
of 1934 for the transition period from _____ to
Commission File Number: 333-127185
URANIUM ENERGY CORP.
_________________________________________________________________
(Exact name of small business issuer as specified in its charter)
NEVADA 98-0399476
_______________________________ ___________________
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
SUITE 230, 9801 ANDERSON MILL ROAD
AUSTIN, TEXAS 78750
________________________________________ __________
(Address of Principal Executive Offices) (Zip Code)
(512) 828-6980
___________________________
(Issuer's telephone number)
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.
(check one) Yes [X] No [ ]
Indicate by checkmark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). (check one) Yes [ ] No [X]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 37,735,988 SHARES OF COMMON STOCK AS
OF DECEMBER 10, 2007.
Transitional Small Business Disclosure Format: (check one) Yes [ ] No [X]
__________
URANIUM ENERGY CORP.
QUARTERLY REPORT ON FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 2007
FORWARD-LOOKING STATEMENTS
This Form 10-QSB for the quarterly period ended October 31, 2007 contains
forward-looking statements that involve risks and uncertainties. Forward-looking
statements in this document include, among others, statements regarding our
capital needs, business plans and expectations. Such forward-looking statements
involve assumptions, risks and uncertainties regarding, among others, the
success of our business plan, availability of funds, government regulations,
operating costs, our ability to achieve significant revenues, our business model
and products and other factors. Any statements contained herein that are not
statements of historical fact may be deemed to be forward-looking statements. In
some cases, you can identify forward-looking statements by terminology such as
"may", "will", "should", "expect", "plan", "intend", "anticipate", "believe",
"estimate", "predict", "potential" or "continue", the negative of such terms or
other comparable terminology. In evaluating these statements, you should
consider various factors, including the assumptions, risks and uncertainties set
forth in reports and other documents we have filed with or furnished to the SEC,
including, without limitation, our Form 10-KSB for the period ended July 31,
2007. These factors or any of them may cause our actual results to differ
materially from any forward-looking statement made in this document. While these
forward-looking statements, and any assumptions upon which they are based, are
made in good faith and reflect our current judgment regarding future events, our
actual results will likely vary, sometimes materially, from any estimates,
predictions, projections, assumptions or other future performance suggested
herein. The forward-looking statements in this document are made as of the date
of this document and we do not intend or undertake to update any of the
forward-looking statements to conform these statements to actual results, except
as required by applicable law, including the securities laws of the United
States.
__________
2
URANIUM ENERGY CORP.
TABLE OF CONTENTS
PART 1. FINANCIAL INFORMATION..................................................4
Item 1. Financial Statements................................................4
BALANCE SHEETS............................................................5
STATEMENTS OF OPERATIONS..................................................6
STATEMENTS OF CASH FLOWS..................................................8
NOTES TO THE FINANCIAL STATEMENTS.........................................9
Item 2. Management's Discussion and Analysis...............................20
Item III. Controls and Procedures..........................................31
PART II. OTHER INFORMATION....................................................32
Item 1. Legal Proceedings..................................................32
Item 2. Changes in Securities and Use of Proceeds..........................32
Item 3. Defaults Upon Senior Securities....................................32
Item 4. Submission of Matters to a Vote of Security Holders................32
Item 5. Other Information..................................................32
Item 6. Exhibits and Reports on Form 8-K...................................33
SIGNATURES....................................................................34
__________
3
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
URANIUM ENERGY CORP.
(An Exploration Stage Company)
FINANCIAL STATEMENTS
OCTOBER 31, 2007
(UNAUDITED)
4
URANIUM ENERGY CORP.
(An Exploration Stage Company)
BALANCE SHEETS (NOTE 1)
(UNAUDITED)
_________________________________________________________________________________________________________
October 31, 2007 July 31, 2007
_________________________________________________________________________________________________________
CURRENT ASSETS
Cash and cash equivalents $ 4,425,146 $ 9,083,453
Restricted cash (Note 3) 140,958 4,500
Available-for-sale securities (Note 4) 648,576 717,198
Accounts and interest receivable 1,347 4,415
Prepaid expenses and deposits 233,725 163,240
_________________________________________________________________________________________________________
5,449,752 9,972,806
PROPERTY AND EQUIPMENT (Notes 5 and 6) 759,408 553,530
_________________________________________________________________________________________________________
$ 6,209,160 $ 10,526,336
=========================================================================================================
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 529,056 $ 379,156
_________________________________________________________________________________________________________
STOCKHOLDERS' EQUITY
Capital stock (Note 8)
Common stock $0.001 par value: 750,000,000 shares authorized
37,725,988 shares issued and outstanding
(July 31, 2007 - 37,612,088) 37,726 37,612
Additional paid-in capital 43,412,232 42,950,985
Common share and warrant proceeds - 34,750
Deficit accumulated during the exploration stage (38,015,997) (33,163,154)
Accumulated other comprehensive income 246,143 286,987
_________________________________________________________________________________________________________
5,680,104 10,147,180
_________________________________________________________________________________________________________
$ 6,209,160 $ 10,526,336
=========================================================================================================
COMMITMENTS (Notes 5, 6 and 10)
The accompanying notes are an integral part of these financial statements.
5
URANIUM ENERGY CORP.
(An Exploration Stage Company)
STATEMENTS OF OPERATIONS
(UNAUDITED)
__________________________________________________________________________________________________
For the Period
Three months Three months from May 16,
Ended Ended 2003
October 31, October 31, (inception) to
2007 2006 October 31, 2007
__________________________________________________________________________________________________
EXPENSES
Consulting fees $ 154,889 $ 34,864 $ 1,116,470
Consulting fees - stock based (Note 8) 104,954 828,884 6,158,987
Depreciation 39,736 5,686 109,035
General and administrative 1,147,994 809,797 6,041,221
Impairment loss on mineral
Properties (Note 5) 1,173,519 1,721,616 13,107,755
Interest and finance charges - - 116,396
Management fees 143,698 82,650 1,267,104
Management fees - stock based (Note 8) - 162,500 2,697,753
Mineral property expenditures (Note 5) 1,790,906 320,992 6,326,673
Professional fees 120,133 74,506 862,962
Wages and benefits - stock
based (Note 8) 227,632 - 894,923
__________________________________________________________________________________________________
4,903,461 4,041,495 38,699,279
__________________________________________________________________________________________________
LOSS BEFORE OTHER ITEMS (4,903,461) (4,041,495) (38,699,279)
OTHER ITEMS
Interest income 78,396 29,725 474,714
Other income - 9,693 41,175
__________________________________________________________________________________________________
LOSS BEFORE INCOME TAXES (4,825,065) (4,002,077) (38,183,390)
INCOME TAXES
Deferred income tax (expense) benefit (27,778) - 167,393
__________________________________________________________________________________________________
NET LOSS FOR THE PERIOD (4,852,843) (4,002,077) (38,015,997)
OTHER COMPREHENSIVE INCOME
(NET OF INCOME TAXES) (40,844) - 246,143
__________________________________________________________________________________________________
TOTAL COMPREHENSIVE LOSS $(4,893,687) $(4,002,077) $(37,769,854)
FOR THE PERIOD
==================================================================================================
BASIC AND DILUTED NET
LOSS PER SHARE $ (0.13) $ (0.14)
=============================================================================
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING,
BASIC AND DILUTED 37,618,731 28,312,718
=============================================================================
The accompanying notes are an integral part of these financial statements.
6
URANIUM ENERGY, CORP.
(An Exploration Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
____________________________________________________________________________________________________________________________________
Accumulated
Additional Other
Common Stock Paid-in Subscriptions Accumulated Comprehensive Stockholders'
Shares Amount Capital Received Deficit Income Equity
____________________________________________________________________________________________________________________________________
Balance, July 31, 2007 37,612,088 $ 37,612 $42,950,985 $ 34,750 $(33,163,154) $ 286,987 $10,147,180
Common stock
Issued on the exercise of options 100,000 100 129,900 - - - 130,000
Issued on the exercise of warrants 13,900 14 34,736 (34,750) - - -
Prior period option grants - - 296,611 - - - 296,611
Net loss for the period - - - - (4,852,843) - (4,852,843)
Unrealized gain on available-for-sale
securities - - - - - (40,844) (40,844)
____________________________________________________________________________________________________________________________________
Balance, October 31, 2007 37,725,988 $ 37,726 $43,412,232 $ - $(38,015,997) $ 246,143 $ 5,680,104
====================================================================================================================================
All share amounts have been restated to reflect the 2:1 reverse share consolidation in January 2005 and the 1.5:1
forward share split as of the date of record, February 28, 2006.
The accompanying notes are an integral part of these financial statements.
7
URANIUM ENERGY CORP.
(An Exploration Stage Company)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
_________________________________________________________________________________________________________________________________
For the Period
Three months Three months From May 16, 2003
Ended Ended (inception) to
October 31, 2007 October 31, 2006 October 31, 2007
_________________________________________________________________________________________________________________________________
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period $ (4,852,843) $ (4,002,077) $ (38,015,997)
Adjustments to reconcile net loss to net cash from operating
activities:
Stock based compensation 332,586 991,384 9,751,663
Impairment loss on mineral properties 1,173,519 1,721,616 13,107,755
Non-cash interest and finance charges - - 116,396
Non-cash reduction of mineral property expenditures - (235,040) (235,040)
Depreciation 39,736 5,686 109,034
Deferred income tax expense (benefit) 27,778 - (167,393)
Changes in operating assets and liabilities:
Accounts and interest receivable 3,068 (5,898) (1,347)
Prepaid expenses and deposits (70,485) (138) (213,198)
Accounts payable and accrued liabilities 113,925 236,787 481,553
_________________________________________________________________________________________________________________________________
NET CASH FLOWS USED IN OPERATING ACTIVITIES (3,232,716) (1,287,680) (15,066,574)
_________________________________________________________________________________________________________________________________
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of shares for cash 130,000 38,333 25,244,896
Convertible debenture proceeds - - 20,000
Share issuance costs - - (329,700)
_________________________________________________________________________________________________________________________________
NET CASH FLOWS FROM FINANCING ACTIVITIES 130,000 38,333 24,935,196
_________________________________________________________________________________________________________________________________
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of mineral properties (1,173,519) (235,366) (4,434,076)
Purchase of property and equipment (245,614) (109,519) (868,442)
Restricted cash (136,458) (136,276) (140,958)
_________________________________________________________________________________________________________________________________
NET CASH FLOWS USED IN INVESTING ACTIVITIES (1,555,591) (481,161) (5,443,476)
_________________________________________________________________________________________________________________________________
(DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (4,658,307) (1,730,508) 4,425,146
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 9,083,453 3,597,009 -
_________________________________________________________________________________________________________________________________
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,425,146 $ 1,866,501 $ 4,425,146
=================================================================================================================================
CASH AND CASH EQUIVALENTS CONSIST OF:
Cash in bank $ 281,839 $ 264,406 $ 281,839
Term deposits 4,143,307 1,602,095 4,143,307
_________________________________________________________________________________________________________________________________
$ 4,425,146 $ 1,866,501 $ 4,425,146
=================================================================================================================================
SUPPLEMENTAL CASH FLOW INFORMATION AND
NONCASH INVESTING AND FINANCING ACTIVITIES (Note 11)
The accompanying notes are an integral part of these financial statements.
8
URANIUM ENERGY CORP.
(An Exploration Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
OCTOBER 31, 2007 (UNAUDITED)
NOTE 1: NATURE OF OPERATIONS
________________________________________________________________________________
Uranium Energy Corp. (the "Company") was incorporated on May 16, 2003 in the
State of Nevada. Since November 1, 2004, the Company has acquired mineral leases
and entered into joint venture agreements, directly and under options, for the
purposes of exploring for economic deposits of uranium in the States of Arizona,
Colorado, New Mexico, Texas, Utah, and Wyoming. To October 31, 2007, interests
in approximately 51,206 net acres of mineral properties have been staked or
leased by the Company, including 3,291 net acres (6,717 gross acres) leased by
Cibola Resources LLC of which the Company holds a 49% interest.
These financial statements have been prepared in accordance with generally
accepted accounting principles in the United States of America.
The Company commenced operations on May 16, 2003 and has not realized any
significant revenues since inception. As at October 31, 2007, the Company has
working capital of $4,920,696 and an accumulated deficit of $38,015,997.
Existing cash resources are currently not expected to provide sufficient funds
through the upcoming year, the capital expenditures required to achieve planned
principal operations may be substantial. The continuation of the Company as a
going concern is dependent upon the ability of the Company to obtain necessary
financing to continue operations. The Company is in the exploration stage of its
mineral property development and to date has not yet established any proven
mineral reserves on its existing properties. The continued operations of the
Company and the recoverability of the carrying value of its assets is ultimately
dependent upon the ability of the Company to achieve profitable operations. To
date, the Company has completed private placements and received funding through
the exercise of stock options and share purchase warrants for net proceeds of
$24,935,196 from the issuance of shares of the Company's common stock.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying unaudited interim financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB of Regulation S-B. They do
not include all information and footnotes required by United States generally
accepted accounting principles for complete financial statements. However,
except as disclosed herein, there have been no material changes in the
information disclosed in the notes to the financial statements for the seven
months ended July 31, 2007 included in the Company's Annual Report on Form
10-KSB filed with the Securities and Exchange Commission. The interim unaudited
financial statements should be read in conjunction with those financial
statements included in the Form 10-KSB. In the opinion of management, all
adjustments considered necessary for a fair presentation, consisting solely of
normal recurring adjustments, have been made. Operating results for the three
months ended October 31, 2007 are not necessarily indicative of the results that
may be expected for the year ending July 31, 2008.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
________________________________________________________________________________
ORGANIZATION
The Company was incorporated on May 16, 2003 in the State of Nevada.
BASIS OF PRESENTATION
These financial statements are presented in United States dollars and have been
prepared in accordance with accounting principles generally accepted in the
United States of America.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid instruments with an original maturity of
three months or less at the time of issuance to be cash equivalents.
9
USE OF ESTIMATES
The preparation of financial statements in conformity with United States
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities at the
date of the financial statements and revenues and expenses during the period
reported. By their nature, these estimates are subject to measurement
uncertainty and the effect on the financial statements of changes in such
estimates in future periods could be significant. Significant areas requiring
management's estimates and assumptions are determining the fair value of
transactions involving common stock, valuation and impairment losses on mineral
property acquisitions, valuation of stock-based compensation, and valuation of
available-for-sale securities. Other areas requiring estimates include
allocations of expenditures to resource property interests and depreciation of
property and equipment. Actual results could differ from those estimates.
MINERAL PROPERTY COSTS
The Company is primarily engaged in the acquisition, exploration and development
of mineral properties.
Mineral property acquisition costs are initially capitalized as tangible assets
when purchased. At the end of each fiscal quarter end, the Company assesses the
carrying costs for impairment. If proven and probable reserves are established
for a property and it has been determined that a mineral property can be
economically developed, costs will be amortized using the units-of-production
method over the estimated life of the probable reserve.
Mineral property exploration costs are expensed as incurred.
Estimated future removal and site restoration costs, when determinable are
provided over the life of proven reserves on a units-of-production basis. Costs,
which include production equipment removal and environmental remediation, are
estimated each period by management based on current regulations, actual
expenses incurred, and technology and industry standards. Any charge is included
in exploration expense or the provision for depletion and depreciation during
the period and the actual restoration expenditures are charged to the
accumulated provision amounts as incurred.
As of the date of these financial statements, the Company has not established
any proven or probable reserves on its mineral properties and incurred only
acquisition and exploration costs.
RESTORATION AND REMEDIATION COSTS (ASSET RETIREMENT OBLIGATIONS)
Various federal and state mining laws and regulations require the Company to
reclaim the surface areas and restore underground water quality for its mine
projects to the pre-existing mine area average quality after the completion of
mining. In August 2001, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 143, "Accounting for Asset Retirement Obligations," which
established a uniform methodology for accounting for estimated reclamation and
abandonment costs.
Future reclamation and remediation costs are accrued based on management's best
estimate at the end of each period of the costs expected to be incurred at each
project. Such estimates are determined by the Company's engineering studies
calculating the cost of future surface and groundwater activities.
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate the carrying amount of an asset may not be recoverable.
Recoverability of these assets is measured by comparison of its carrying amount
to future undiscounted cash flows the assets are expected to generate.
FINANCIAL INSTRUMENTS
The fair values of cash and cash equivalents, restricted cash, other current
monetary assets, accounts payable and accrued liabilities were estimated to
approximate their carrying values due to the immediate or short-term maturity of
these financial instruments. The Company's operations and financing activities
are conducted primarily in United States dollars, and as a result the Company is
not subject to significant exposure to market risks from changes in foreign
currency rates. Management has determined that the Company is not exposed to
significant credit risk.
LOSS PER COMMON SHARE
Basic loss per share includes no dilution and is computed by dividing loss
attributable to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted earnings per share reflects the
potential dilution of securities that could share in the earnings (loss) of the
Company. The common shares potentially issuable on conversion of outstanding
convertible debentures and exercise of stock options were not included in the
calculation of weighted average number of shares outstanding because the effect
would be anti-dilutive.
10
FOREIGN CURRENCY TRANSLATION
The functional currency of the Company is United States dollars. In accordance
with SFAS No. 52, "Foreign Currency Translation", foreign denominated monetary
assets and liabilities are translated to their United States dollar equivalents
using foreign exchange rates which prevailed at the balance sheet date. Revenue
and expenses are translated at average rates of exchange during the year.
Related translation adjustments are reported as a separate component of
stockholders' equity, whereas gains or losses resulting from foreign currency
transactions are included in results of operations.
INCOME TAXES
The Company follows the liability method of accounting for income taxes. Under
this method, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
balances. Deferred tax assets and liabilities are measured using enacted or
substantially enacted tax rates expected to apply to the taxable income in the
years in which those differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the date of enactment or
substantive enactment. As at October 31, 2007 the Company had net operating loss
carry forwards; however, due to the uncertainty of realization, the Company has
provided a full valuation allowance for the potential deferred tax assets
resulting from these losses carry forwards.
STOCK-BASED COMPENSATION
On January 1, 2006, the Company adopted SFAS No. 123 (revised 2004) (SFAS No.
123R), Share-Based Payment, which addresses the accounting for stock-based
payment transactions in which an enterprise receives employee services in
exchange for (a) equity instruments of the enterprise or (b) liabilities that
are based on the fair value of the enterprise's equity instruments or that may
be settled by the issuance of such equity instruments. In January 2005, the
Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB)
No. 107, which provides supplemental implementation guidance for SFAS No. 123R.
SFAS No. 123R eliminates the ability to account for stock-based compensation
transactions using the intrinsic value method under Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock Issued to Employees, and instead
generally requires that such transactions be accounted for using a
fair-value-based method. The Company uses the Black-Scholes-Merton ("BSM")
option-pricing model to determine the fair-value of stock-based awards under
SFAS No. 123R, consistent with that used for pro forma disclosures under SFAS
No. 123, Accounting for Stock-Based Compensation. The Company has elected the
modified prospective transition method as permitted by SFAS No. 123R and
accordingly prior periods have not been restated to reflect the impact of SFAS
No. 123R. The modified prospective transition method requires that stock-based
compensation expense be recorded for all new and unvested stock options,
restricted stock, restricted stock units, and employee stock purchase plan
shares that are ultimately expected to vest as the requisite service is rendered
beginning on January 1, 2006 the first day of the Company's fiscal year 2006.
Stock-based compensation expense for awards granted prior to January 1, 2006 is
based on the grant date fair-value as determined under the pro forma provisions
of SFAS No. 123. On a quarerly basis, the Company estimates expected forfeitures
and updates the valuation accordingly.
Prior to the adoption of SFAS No. 123R, the Company measured compensation
expense for its employee stock-based compensation plans using the intrinsic
value method prescribed by APB Opinion No. 25. The Company applied the
disclosure provisions of SFAS No. 123 as amended by SFAS No. 148, Accounting for
Stock-Based Compensation - Transition and Disclosure, as if the fair-value-based
method had been applied in measuring compensation expense. Under APB Opinion No.
25, when the exercise price of the Company's employee stock options was equal to
the market price of the underlying stock on the date of the grant, no
compensation expense was recognized.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and are amortized using the
straight-line method over their estimated useful lives at the following rates:
Computer Equipment 3 years
Exploration Equipment 5 years
Furniture and Fixtures 5 years
Leasehold Improvements term of lease
Vehicles 5 years
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2006, FASB issued Interpretation No. 48. This interpretation clarifies
the accounting for uncertainty in income taxes recognized in an enterprise's
financial statements in accordance with SFAS Statement No. 109, "Accounting for
Income Taxes" ("FIN 48"). This Interpretation prescribes a recognition threshold
and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return.
This Interpretation also provides guidance on de-recognition, classification,
interest and penalties, accounting in interim periods, disclosure, and
transition. The Company adopted FIN 48 as of January 1, 2007. The adoption of
FIN 48 did not have an impact on the Company's financial statements during the
current period.
11
In September 2006, FASB issued SFAS No. 157, "Fair Value Measurements" ("SFAS
157"). The objective of SFAS 157 is to increase consistency and comparability in
fair value measurements and to expand disclosures about fair value measurements.
SFAS 157 defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about fair
value measurements. SFAS 157 applies under other accounting pronouncements that
require or permit fair value measurements and does not require any new fair
value measurements. The provisions of SFAS 157 are effective for fair value
measurements made in fiscal years beginning after November 15, 2007. The Company
is currently assessing the impact of SFAS 157 on its financial position and
results of operations.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities". This Statement permits entities to
choose to measure many financial assets and financial liabilities at fair value.
Unrealized gains and losses on items for which the fair value option has been
elected are reported in earnings. SFAS No. 159 is effective for fiscal years
beginning after November 15, 2007. The Company is currently assessing the impact
of SFAS No. 159 on its financial position and results of operations.
NOTE 3: RESTRICTED CASH
________________________________________________________________________________
Restricted cash included certificates of deposit issued to the Wyoming
Department of Environmental Quality, Land Quality Division, in lieu of a surety
bond. The certificates of deposit accrue interest at 3.5% and 3.75% per annum,
are automatically renewable and are protected by federal insurance up to
$100,000. During the three months ended October 31, 2007, the Company
transferred certificates of deposits from the AB Claims project in the total
aggregate amount of $136,458 under the same terms as above for drill hole
reclamation bonding of the Burnt Wagon exploration project, Natrona county,
Wyoming.
NOTE 4: AVAILABLE-FOR-SALE SECURITIES
________________________________________________________________________________
Available-for-sale securities consist of shares in a publicly traded company
listed on the Toronto and Johannesburg Stock Exchanges. As of October 31, 2007
the Company reported the available-for-sale securities at market value and
accordingly, recorded a $246,143 unrealized gain which has been reported as
other comprehensive income, net of income taxes.
NOTE 5: MINERAL EXPLORATION PROPERTIES
________________________________________________________________________________
URANIUM EXPLORATION
Since November 1, 2004, the Company has been acquiring mineral leases for the
purpose of exploring for economic deposits of uranium in the states of Arizona,
Colorado, New Mexico, Texas, Utah, and Wyoming.
As of October 31, 2007, a total of 58,901 gross acres (51,206 net mineral acres)
of mineral properties have been staked or leased pursuant to option agreements
by the Company in the States of Arizona, Colorado, New Mexico, Texas, Utah, and
Wyoming for the purposes of uranium exploration for a total cost of $4,434,076,
excluding the fair value of non-cash compensation. The totals include 3,291 net
acres (6,717 gross acres leased by Cibola Resources LLC of which the Company
holds a 49% interest). These leases are subject to varying royalty interests,
some of which are indexed to the sale price of uranium. As of October 31, 2007,
total yearly recurring maintenance payments of $247,035 are required to maintain
existing mineral leases.
GOLIAD PROJECT
On October 11, 2005, the Company entered into a mineral asset option agreement
(the "Moore Option") granting the Company the option to acquire certain mineral
property leases in the State of Texas for total consideration of $200,000 and
3,000,000 post-split restricted common shares at a fair value of $0.33 per
share. In consideration for the Moore Option and its partial exercise over the
option term, the Company has made cash payments totaling $200,000 and issued
3,000,000 post-split shares of restricted common stock. Upon completion of the
terms of the Moore Option title to the leases were transferred to the Company.
HOLLEY OPTION
On March 28, 2007 the Company entered into a letter option agreement (the
"Holley Option") granting the Company the option to acquire certain mineral
property leases, which are located in the States of Colorado, New Mexico, and
Utah, together with certain historical database records for total consideration
of $1,594,690. Under the terms of the Holley Option, and in order to maintain
its option to acquire the assets, the Company is required to make the following
option payments totaling $1,500,000 to the order and direction of the Holley
Option holders in the following manner:
12
(a) an initial payment of $25,000 on the execution date (paid);
(b) a payment of $100,000 on March 28, 2007 (paid);
(c) a payment of $475,000 on or before April 27, 2007 (paid);
(d) a further payment of $500,000 on or before April 27, 2008; and
(e) a final payment of $400,000 on or before April 27, 2009.
Upon execution of the Holley Option the Company also reimbursed the Holley
Option holders with approximately $95,000 in prior regulatory fees and property
payments. In addition, the Company will be required to pay a royalty of 2% or 3%
of the gross proceeds received from the sale of any uranium or vanadium produced
in relation to any mineral claim covered under the Holley Option and, at any
time during the option period or thereafter, the Company may elect to purchase
the royalty interest at a base cost of $300,000 for each 1% interest it wishes
to acquire.
CIBOLA RESOURCES LLC
On April 27, 2007, with a reference date of April 26, 2007, the Company entered
into a joint venture with Neutron Energy Inc. ("NEI"), a Wyoming corporation, in
connection with the exploration of a property covering 6,717 acres located in
Cibola County, New Mexico (the "Property") for uranium resources. In connection
with the joint venture, Cibola Resources LLC ("Cibola"), a limited liability
company under the laws of the State of Delaware, was formed to undertake the
exploration activities as contemplated by the parties.
NEI acquired a ten year mining lease (the "Lease") to the Property from La
Merced del Pueblo de Cebolleta ("Cebolleta"), a private entity that has the
authority over the natural resources of the Property, pursuant to a Mining Lease
and Agreement between Cebolleta and NEI effective April 6, 2007 (the "Mining
Lease Agreement"), and has contributed the Lease to Cibola. Terms of the Lease
provide for:
(a) initial payments of $3,000,000 (paid by NEI, of which 49% was
reimbursed to NEI by the Company);
(b) an additional cash payment of $2,000,000 six months from the effective
date of the Lease ($980,000 paid, being the Company's portion);
(c) every year after April 6, 2007 until uranium production begins, an
advance royalty of $500,000 (to be deducted from any royalties paid in
that same year);
(d) a recoverable reserve payment of $1 per pound of recoverable uranium
reserves upon the completion of a feasibility study by an independent
mining engineering firm, which will be reduced by all prior payments
as described in clause (a) through (c) above;
(e) a production royalty of between 4.50% and 8.0% depending upon the sale
price of uranium; and
(f) the funding of a $30,000 per year scholarship program.
The Company has reimbursed an aggregate of $1,470,000 to NEI (49%) of the
capital invested to date. As a result, NEI and the Company hold a 51% and 49%
interest, respectively, in Cibola and the Company is obligated to pay 49% of all
future commitments under the terms of the Lease. Additionally, the Company has
paid $119,137 in exploration costs on behalf of Cibola for a cumulative
contribution of $2,569,137. As an exploration stage company, Cibola has no
assets or liabilities as of October 31, 2007 and accordingly, $2,486,750 in
acquisition costs have been capitalized while other contributions of exploration
costs have been charged to mineral property expenditures.
In December 2003, FASB issued FIN 46(R) "Consolidation of Variable Interest
Entities" which requires investors to consolidate the financial information of
investees in which they are the primary beneficiary. The Company is not the
primary beneficiary in Cibola and accordingly, no consolidated financial
information is required.
Mineral property acquisition costs on a regional basis are as follows:
_________________________________________________________________________________________________
For the Period
Three Months Three Months From May 16, 2006
Ended Ended (inception) to
October 31, 2007 October 31, 2006 October 31, 2007
_________________________________________________________________________________________________
CAPITALIZED ACQUISITION COSTS
Arizona $ 10,228 $ - $ 28,895
Colorado 1,762 - 171,913
Nevada - - 4,250
New Mexico 990,227 99,148 3,371,088
Texas 89,668 1,621,117 8,874,040
Utah 1,366 - 91,570
Wyoming 80,268 1,351 565,999
_________________________________________________________________________________________________
1,173,519 1,721,616 13,107,755
Write Down for Loss on Impairment (1,173,519) (1,721,616) (13,107,755)
_________________________________________________________________________________________________
$ - $ - $ -
_________________________________________________________________________________________________
13
Mineral property exploration costs on a regional basis are as follows:
_________________________________________________________________________________________________
For the Period
Three Months Three Months From May 16, 2006
Ended Ended (inception) to
October 31, 2007 October 31, 2006 October 31, 2007
_________________________________________________________________________________________________
EXPLORATION COSTS
Arizona $ 14,102 $ 28 $ 91,042
Colorado 48,557 - 99,582
Nevada - - 963
New Mexico 124,230 2,742 359,580
Texas 1,343,437 135,132 4,955,397
Utah 6,791 - 14,148
Wyoming 253,789 183,090 805,962
_________________________________________________________________________________________________
$ 1,790,906 $ 320,992 $ 6,326,674
_________________________________________________________________________________________________
NOTE 6: PROPERTY AND EQUIPMENT
________________________________________________________________________________
October 31, 2007 July 31, 2007
________________________________________________________________________________
Computer Equipment $ 135,288 $ 98,897
Exploration Equipment 130,148 126,951
Furniture and Fixtures 47,755 43,723
Land 115,644 -
Leasehold Improvements 8,728 8,728
Vehicles 430,879 344,529
________________________________________________________________________________
868,442 622,828
Less: accumulated depreciation (109,034) (69,298)
________________________________________________________________________________
$ 759,408 $ 553,530
================================================================================
Effective May 29, 2007, the Company committed to spend approximately $140,000 to
acquire a PFN assay tool, and $120,000 to build a second logging truck which is
currently under construction. As of October 31, 2007, a total of $65,000 has
been paid towards these commitments and has been included with vehicles.
NOTE 7: DUE TO RELATED PARTIES AND RELATED PARTY TRANSACTIONS
________________________________________________________________________________
During the three months ended October 31, 2007, the Company had transactions
with certain officers and directors of the Company as follows:
(a) incurred $143,698 in management fees; and
(b) incurred $25,862 in consulting fees, $14,794 in general and
administrative costs, and $8,888 in media and website development fees
paid to companies controlled by a direct family member of a current
officer.
All related party transactions involving provision of services or tangible
assets were recorded at the exchange amount, which is the value established and
agreed to by the related parties reflecting arms length consideration payable
for similar services or transfers.
NOTE 8: CAPITAL STOCK
________________________________________________________________________________
SHARE CAPITAL
The Company's capital stock as at October 31, 2007 was 750,000,000 authorized
common shares with a par value of $0.001 per share. On January 9, 2006, a
majority of shareholders voted to amend the Company's Articles of Incorporation
to increase the authorized capital from 75,000,000 shares of common stock to
750,000,000 shares of common stock. The increase in authorized capital was
effective on February 1, 2006.
14
On February 14, 2006, the Company's Board of Directors, pursuant to minutes of
written consent in lieu of a special meeting, authorized and approved a forward
stock split on a 1.5 new for one old basis of the Company's total issued and
outstanding shares of common stock (the "Forward Stock Split"). The Forward
Stock Split was effectuated with a record date of February 28, 2006, upon filing
the appropriate documentation. The Forward Stock Split increased the Company's
issued and outstanding shares of common stock from 14,968,222 to approximately
22,452,338 shares of common stock. The common stock continued to have a $0.001
par value after the Forward Stock Split.
2008 SHARE TRANSACTIONS
During the three months ended October 31, 2007, 13,900 common share purchase
warrants were exercised for total proceeds of $34,750.
During the three months ended October 31, 2007, 100,000 common stock options
were exercised for total proceeds of $130,000.
SHARE PURCHASE WARRANTS
On June 15, 2007 the Company issued to certain investors an aggregate of 59,998
non-transferable common share purchase warrants to acquire an equivalent number
of common shares of the Company pursuant to the investors' respective December
22, 2006 private placement subscription agreements with the Company. These
warrants were issued as liquidated damages resulting from the Company's delay in
not having a registration statement respecting the investors' securities within
the Company declared effective by the SEC within four months from the original
date of issuance by the Company of the securities underlying the original
subscription agreements. This additional warrant issuance was provided for under
the terms of the original subscription agreements whereby 1/100 of an additional
warrant was issuable to each such investor for each $1.00 in aggregate
subscription price funds paid by the investor to the Company under the private
placement and in respect of each 30 day period (or partial period thereof) of
delay of the aforementioned registration statement effectiveness. Each resulting
warrant now entitles the holder thereof to purchase an additional share of the
Company's restricted common stock under the same terms as the original warrants
issued at the closing of the private placement in December of 2006. Under the
terms of the subscription agreements, the Company shall use its reasonable best
efforts to maintain the effectiveness of the registration statement for a period
of not less than nine months from the June 15, 2007 effective date. If the
Company fails to maintain the effectiveness of the registration statement for a
period of eight months from the initial deadline of April 22, 2007, additional
warrants may be issuable. As of October 31, 2007 the maximum number of warrants
issuable as liquidated damages through the eight month period expiring December
22, 2007 would be 120,000.
A summary of the Company's common share purchase warrants as of October 31, 2007
and changes during the period is presented below:
________________________________________________________________________________
Weighted average
Number of Weighted average remaining
warrants exercise price life (years)
________________________________________________________________________________
Balance, July 31, 2007 4,009,998 $ 2.66 1.70
Issued - - -
Exercised (13,900) (2.50) (0.50)
________________________________________________________________________________
Balance, June 30, 2007 3,996,098 $ 2.66 1.58
================================================================================
The aggregate intrinsic value ("AIV") under the provisions of SFAS No. 123R of
the 500,000 compensation warrants previously issued to consultants as at October
31, 2007 was estimated at $1,465,000.
STOCK OPTIONS
On December 19, 2005 the Board of Directors of the Company ratified, approved
and adopted a Stock Option Plan for the Company in the amount of 5,250,000
shares at $0.333 per share. On April 10, 2006 the Company amended its 2005 Stock
Option Plan whereby, subject to adjustment from time to time as provided in
Article 11.1, whereby the number of common shares available for issuance under
the Plan was increased from 3,500,000 shares to 7,500,000 shares. On October 10,
2006 the Company ratified the 2006 Stock Incentive Plan whereby, subject to
adjustment from time to time as provided in Article 18.1, the number of common
shares available for issuance under the Plan was increased to 10,000,000 shares.
On March 30, 2007, a total of 415,000 stock options were granted to employees
and officers at an exercise price of $5.70 per share. The term of these options
is ten years. The fair value of these options at the date of grant of $1,962,950
was estimated using the Black-Scholes option pricing model with an expected life
of 5 years, a risk free interest rate of 5.26%, a dividend yield of 0%, and an
expected volatility of 116%. During the three months ended October 31, 2007, the
$296,611 value of the options earned during the period has been recorded as
stock based consulting fees and wages and benefits.
15
A summary of the Company's stock options as of October 31, 2007 and changes
during the period is presented below:
________________________________________________________________________________
Weighted average
Number of Weighted average remaining
options exercise price life (years)
________________________________________________________________________________
Balance, July 31, 2007 3,832,500 $ 1.44 8.90
Issued - - -
Exercised (100,000) (1.00) (8.60)
________________________________________________________________________________
Balance, October 31, 2007 3,732,500 $ 1.45 8.56
================================================================================
The AIV under the provisions of SFAS No. 123R of all outstanding options at
October 31, 2007 was estimated at $9,829,108. Additionally, the AIV of options
exercised during the three months ended October 31, 2007 was estimated at
$260,000.
STOCK BASED COMPENSATION
A summary of stock based compensation expense as of October 31, 2007:
__________________________________________________________________________________________________________________
For the Period
Three Months Three Months From May 16, 2003
Ended Ended (inception) to
October 31, 2007 October 31, 2006 October 31, 2007
__________________________________________________________________________________________________________________
Stock Based Consulting
Amortization of deferred compensation $ - $828,884 $ 1,157,500
Common stock issuable for consulting services 35,975 - 116,950
Options issued to consultants 68,979 - 3,266,011
Warrants issued for consulting services - - 1,618,526
__________________________________________________________________________________________________________________
104,954 828,884 6,158,987
__________________________________________________________________________________________________________________
Stock Based Management Fees
Amortization of deferred compensation - 162,500 650,000
Options issued to management - - 2,047,753
__________________________________________________________________________________________________________________
- 162,500 2,697,753
__________________________________________________________________________________________________________________
Stock Based Wages and Benefits
Options issued to employees 227,632 - 894,923
__________________________________________________________________________________________________________________
$332,586 $991,384 $ 9,751,663
==================================================================================================================
NOTE 9: INCOME TAXES
________________________________________________________________________________
The Company has adopted FASB No. 109 for reporting purposes. As of October 31,
2007, the Company had net operating loss carry forwards of approximately
$23,538,371 that may be available to reduce future years' taxable income. These
carry forwards will begin to expire, if not utilized, commencing in 2023. Future
tax benefits which may arise as a result of these losses have not been
recognized in these financial statements, as their realization is determined not
likely to occur and accordingly, the Company has recorded a valuation allowance
for the deferred tax asset relating to these tax loss carry forwards.
The Company reviews its valuation allowance requirements on an annual basis
based on projected future operations. When circumstances change and this causes
a change in management's judgment about the recoverability of future tax assets,
the impact of the change on the valuation allowance is generally reflected in
current income.
A reconciliation of income tax computed at the federal and state statutory tax
rates and the Company's effective tax rate is as follows:
_________________________________________________________________________________________
Three Months Three Months
Ended Ended
October 31, 2007 October 31, 2006
_________________________________________________________________________________________
Federal income tax provision at statutory rate (35.00)% (35.00)%
States income tax provision at statutory rates,
net of federal income tax effect (5.48)% (5.48)%
_________________________________________________________________________________________
Total income tax provision (40.48)% (40.48)%
=========================================================================================
16
The actual income tax provisions differ from the expected amounts calculated by
applying the combined federal and state corporate income tax rates to the
Company's loss before income taxes. The components of these differences are as
follows:
_________________________________________________________________________________________
Three Months Three Months
Ended Ended
October 31, 2007 October 31, 2006
_________________________________________________________________________________________
Loss before income taxes $ (4,825,065) $ (4,002,077)
Corporate tax rate 40.48% 40.48%
_________________________________________________________________________________________
Expected tax expense (recovery) (1,953,120) (1,620,041)
Increase (decrease) resulting from:
Permanent differences 99,534 6,027
True-up adjustment 1,755 -
Non-qualified stock options - -
Change in valuation allowance 1,879,609 1,614,014
_________________________________________________________________________________________
From Operations 27,778 -
Unrecognized gain, other comprehensive income (27,778) -
_________________________________________________________________________________________
Future income tax provision (recovery) $ - $ -
=========================================================================================
The Company's deferred tax assets are as follows:
_________________________________________________________________________________________
October 31, 2007 July 31, 2007
_________________________________________________________________________________________
Deferred tax assets
Mineral property acquisitions $ 5,221,263 $ 4,782,209
Exploration costs 1,914,956 1,398,264
Permitting fees and expenditures 138,703 87,655
Stock option expense 587,593 1,195,355
Depreciable property 12,707 7,230
Charitable donations 7,475 7,475
Loss carry forwards 9,528,009 8,716,371
_________________________________________________________________________________________
17,410,707 16,194,559
Valuation allowance (17,243,314) (15,999,388)
_________________________________________________________________________________________
Net Deferred Tax Assets 167,393 195,171
Deferred tax liability, other comprehensive income (167,393) 195,171
_________________________________________________________________________________________
Net Deferred Income Tax Assets $ - $ -
=========================================================================================
As the criteria for recognizing future income tax assets have not been met due
to the uncertainty of realization, a valuation allowance of 100% has been
recorded for the current and prior year.
The Company's net operating loss carryforwards expire as follows:
________________________________________________________________________________
July 31, 2023 $ 24,132
July 31, 2024 74,499
July 31, 2025 403,227
July 31, 2026 13,113,235
July 31, 2027 7,918,175
July 31, 2028 2,005,103
________________________________________________________________________________
$23,538,371
================================================================================
For U.S. federal income tax purposes a change in ownership under IRC Section 382
may have occurred in a prior year. If an ownership change has occurred, the
utilization of these losses against future income would be subject to an annual
limitation. The annual limitation would be equal to the value of the Company
immediately prior to the change in ownership multiplied by the IRC Section 382
rate in effect during the month of the change.
17
NOTE 10 COMMITMENTS
________________________________________________________________________________
On February 1, 2007 the Company entered into a financial consulting agreement
for a 12 month term. The Consultant will: i) disseminate the Company's news
releases, investor packages, research reports and corporate and industry sector
materials; ii) promote investor awareness and manage financial public relations
to the investment community; and iii) arrange meetings with industry sector
analysts, stock brokers and portfolio managers. The Company will pay the
Consultant $6,500 and 2,500 restricted common shares per month. As of October
31, 2007, issuances of 2,500 shares for each of the months of July through
October (inclusive) have been accrued, and accordingly, an expense of $35,975
has been included in stock-based consulting fees based on the fair value of the
7,500 shares issuable during the period.
On April 6, 2007 the Company entered into a twelve month consulting services
agreement at $10,000 per month. The consultant will provide representation
before the executive and legislative branches of the federal government and
state governments in addition to providing consulting services on political
matters.
On September 6, 2007 the Company entered into an agreement for media
distribution services valued at approximately $270,000. Under the terms of the
agreement, the Company paid a retainer of $100,000, with the balance of the
agreement due upon completion of the services. As of October 31, 2007 no
services had been provided and accordingly, the $100,000 retainer is classified
as a prepaid expense.
On September 15, 2007 the Company entered into a three month consulting services
agreement valued at approximately (euro)84,000 ($116,633 US). The Consultant
will provide advice on public and investor relations related matters. Under the
terms of the agreement, the Company paid a retainer of approximately
(euro)55,000 ($76,367 US), and will pay two additional installments of
approximately (euro)10,000 ($13,885 US) each 30 and 60 days from the date of the
agreement respectively. Additionally, the Company will pay a service fee of
approximately (euro)3,000 ($4,165 US) per month during the three month term.
On September 25, 2007 the Company entered into an agreement to purchase a
database consisting of drilling, mapping and logging reports covering uranium
and associated metals prospects located primarily in New Mexico and Wyoming.
Consideration for the asset purchase was $100,000, consisting of (i) a $50,000
cash payment upon acceptance (paid); and a final $50,000 installment prior to
January 11, 2008.
The Company is committed to pay its key executives a total of approximately
$450,000 per year for management services.
The Company is currently leasing office premises in New Mexico, Texas, and
Wyoming with total monthly payments of $10,645, with all agreements having a
maximum term of no more than three years. Additionally, the Company is renting
office space in Vancouver, Canada on a month to month basis at approximately
$2,365 per month.
The aggregate minimum payments over the next five years are as follows:
================================================================================
October 31, 2008 $804,857
October 31, 2009 144,359
October 31, 2010 16,154
________________________________________________________________________________
$965,370
================================================================================
NOTE 11 SUPPLEMENTAL CASH FLOW INFORMATION AND
NONCASH INVESTING AND FINANCING ACTIVITIES
________________________________________________________________________________
Three Months Ended
October 31, 2007 October 31, 2006
________________________________________________________________________________
Interest paid $ - $ -
Income taxes paid $ - $ -
================================================================================
18
NOTE 12: SUBSEQUENT EVENTS
________________________________________________________________________________
(a) On November 1, 2007 the Company entered into an asset purchase
agreement for a mineral exploration claim and related database
information located in Maricopa County, Arizona. Under the terms of
the agreement, the Company will pay total consideration of $1,200,000
including i) a $10,000 deposit upon execution (paid), ii) installments
of $95,000 cash on January 10, 2008 and August 15, 2008, and iii)
installments totaling $100,000 on January 10 and August 15 of each
year for the period from January 10, 2009 through August 15, 2013.
Additionally, the Company has granted the seller security interest on
the acquired assets until the agreement is paid in full.
(b) On November 1, 2007 the Company granted 660,000 common stock options
with an exercise price of $3.80 to certain consultants, directors and
employees. The term of the options is ten years.
(c) On November 13, 2007 the Company entered into an agreement to acquire
certain mineral property leases located in Cibola County, New Mexico
for total consideration of $400,000. Under the terms of the agreement,
the Company paid an initial deposit of $100,000 upon closing with the
remaining balance due in three installments of $100,000 due on March
31, 2008, December 31, 2008, and December 31, 2009. At the Company's
option, the final two installments may be paid in stock, based on the
average trading price of the Company's common stock over the 10 days
immediately preceding the due date.
(d) On November 27, 2007, the Company filed a registration statement on
Form S-8 with the SEC to register for resale an aggregate of 5,500,000
shares of the Company's common stock, par value $0.001 per share,
issuable by the Company pursuant to awards to eligible participants
under its 2006 Stock Incentive Plan. As a result all 10,000,000 shares
of the Company's common stock both issued and available for issuance
under the Company's 2006 Stock Incentive Plan have now been registered
for resale with the SEC.
__________
19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
Uranium Energy Corp. is a corporation organized under the laws of the State of
Nevada. After the effective date of our registration statement filed with the
Securities and Exchange Commission (December 5, 2005), we commenced trading on
the Over-the-Counter Bulletin Board under the symbol "URME:OB". As of September
28, 2007 we commenced trading on the American Stock Exchange under the symbol
"UEC".
Please note that throughout this Quarterly Report, and unless otherwise noted,
the words "we," "our," "us," the "Company," or "Uranium Energy," refers to
Uranium Energy Corp.
CURRENT BUSINESS OPERATIONS
We are a natural resource exploration and development company engaged in the
exploration and development of properties that may contain uranium minerals in
the United States. Our strategy is to acquire properties that are thought to
contain economic quantities of uranium ore and have undergone some degree of
uranium exploration but have not yet been mined. As of the date of this
Quarterly Report, we have acquired interests in uranium exploration mineral
properties totaling 59,541 gross acres (51,846 net mineral acres) of leased or
staked mineral properties, consisting of claim blocks located in the States of
Arizona, Colorado, New Mexico, Texas, Utah, and Wyoming that have been either
leased or staked, which we intend to explore for economic deposits of uranium.
The totals include 3,291 net acres (6,717 gross acres leased by Cibola Resources
LLC of which the Company holds a 49% interest). These leases are subject to
varying royalty interests, some of which are indexed to the sale price of
uranium. Many of these properties has been the subject of historical exploration
by other mining companies. Their historical results indicate that further
exploration for uranium is warranted. Our view that our properties are
prospective for mineral exploration is based on either prior exploration
conducted by other companies, or management information and work products
derived from various reports, maps, radioactive rock samples, exploratory drill
logs, state organization reports, consultants, geological study, and other
exploratory information.
Our principal mineral properties are the Goliad project in Goliad County, Texas
and the Cibola Resources LLC Cebolleta joint venture project in Cibola County,
New Mexico.
The acreage and location of our mineral properties is summarized as follows:
________________________________________________________________________________
GROSS ACRES NET ACRES (*)
________________________________________________________________________________
Arizona 2,871.28 2,871.28
Colorado 5,041.04 5,041.04
New Mexico 25,844.02 18,958.82
Texas 6,279.34 5,470.05
Utah 2,226.94 2,226.94
Wyoming 17,278.29 17,278.29
________________________________________________________________________________
59,540.91 51,846.43
================================================================================
(*) Certain of our interests in our mineral properties in Texas and New Mexico
are less than 100%. Accordingly, we have presented the acreage of our mineral
properties on a net acre basis.
During the 2008 fiscal year through the date of this Quarterly Report, we
acquired an additional 4,544 gross acres (4,154 net acres) in the States of
Arizona, Texas and Wyoming for an aggregate paid consideration of $1,173,519.
We plan to use our database of exploration data in order to target additional
exploration properties for acquisition. For the remainder of the 2008 fiscal
year, we plan to acquire further acres of mineral properties consisting of claim
blocks located in, but not limited to the states of Arizona, Colorado, New
Mexico, Texas, Utah and Wyoming. Our ability to complete these acquisitions will
be subject to obtaining sufficient financing and being able to conclude
agreements with the property owners on terms that are acceptable to us. These
potential acquisition properties have not yet been specifically identified.
20
Our properties do not have any reserves. We plan to conduct exploration programs
on these properties with the objective of ascertaining whether any of our
properties contain economic concentrations of uranium that are prospective for
mining. As such, we are considered an exploration or exploratory stage company.
Since we are an exploration stage company, there is no assurance that a
commercially viable mineral deposit exists on any of our properties, and a great
deal of further exploration will be required before a final evaluation as to the
economic and legal feasibility for our future exploration is determined. We have
no known reserves of uranium or any other type of mineral. Since inception, we
have not established any proven or probable reserves on our mineral property
interests.
MINERALS EXPLORATION PROPERTIES
We are participating in our mineral properties in the States of Arizona,
Colorado, New Mexico, Texas, Utah and Wyoming by way of mining claims and
mineral leases. Certain properties were staked and claimed by us and registered
with the United States Bureau of Land Management ("BLM"). Claim blocks acquired
in this manner exist in Arizona, Colorado, New Mexico and Wyoming. We have
surface access and complete mineral rights to an unlimited depth below surface.
The claims are in effect for an indefinite period provided the claims are kept
in good standing with the BLM and the counties. Annual maintenance fees to be
paid to the BLM are relatively nominal. We will also be required to remediate
the land upon release of the claim - bringing the land back into the state it
was originally, prior to the commencement of our exploration activities. These
costs are determined by the BLM and bonded accordingly.
In the States of New Mexico, Utah and Texas, we are participating in our mineral
properties by way of property lease directly from the owners of the land/mineral
rights. These leases give us similar access and privileges as described above,
however with some important differences. Although we will have access to the
surface, the mineral rights below surface are restricted to uranium and
associated fissionable minerals only, with any other minerals and hydro carbons,
including, for example, petroleum, retained by the lessor. The lease terms are
for five years, and include five-year renewal periods. After the expiration of
the second five-year term, the leases will be either held by production or the
leases will be terminated. These leases are subject to varying royalty
interests, some of which are indexed to the sale price of uranium at the time of
production. Royalty payments must be made to the lessor in the event that we
extract uranium ore from the properties. All royalties are based on the gross
sales revenue less certain charges and fees.
These properties do not have any indicated or inferred minerals or reserves. We
plan to conduct exploration programs on these properties with the intent to
prove or disprove the existence of economic concentrations of uranium. Since
inception, we have not established any proven or probable reserves on our
mineral property interests.
GOLIAD
During the 2008 fiscal year and through the date of this Quarterly report, we
continued the initial confirmation drilling at our 100% controlled Goliad
project in Goliad County, Texas (the "Goliad Lease"). Our drilling program
consists of ongoing drilling in order to confirm and expand the existence of
historically drill-indicative resources on the property (as identified by Moore
Energy Corporation during the 1980's) and extending historically identified
mineralized trends.
As of the date of this Quarterly Report, current drilling is filling in gaps and
defining boundaries within the historically delineated ore bodies as originally
developed by Moore Energy Corporation in the 1980s based on 190,000 feet of
drilling in approximately 450 holes. To date, our drilling has concentrated in
the areas of the A and B Sand ore bodies, with a further total of 541 holes
drilled, consisting of 177,472 feet.
HOLLEY OPTION
On March 28, 2007, we entered into an option agreement (the "Holley Option")
granting us the option to acquire certain mineral property leases, which are
located in the States of Colorado, New Mexico, and Utah, together with certain
historical database records for total consideration of $1,594,690. Under the
terms of the Holley Option, and in order to maintain its option to acquire the
assets, we are required to make the following option price payments totaling
$1,500,000 to the order and direction of the Holley Option holders in the
following manner:
21
(a) an initial payment of $25,000 on the execution date (paid);
(b) a payment of $100,000 on March 28, 2007 (paid);
(c) a payment of $475,000 on or before April 27, 2007 (paid);
(d) a further payment of $500,000 on or before April 27, 2008;
(e) a final payment of $400,000 on or before April 27, 2009.
Upon execution of the Holley Option, we also reimbursed the Holley Option
holders with approximately $95,000 in prior regulatory property payments having
been made by the same. In addition, we will be required to pay a royalty of 2%
or 3% of the gross proceeds received from the sale of any Uranium or Vanadium
produced in relation to any mineral claim covered under the Holley Option and,
at any time during the option period or thereafter, we may elect to purchase the
royalty interest at a base cost of $300,000 for each 1% royalty interest we wish
to acquire.
CIBOLA RESOURCES LLC
On April 27, 2007, we entered into a joint venture (the "Joint Venture") with
Neutron Energy Inc., a Wyoming corporation ("NEI") in connection with
exploration of property covering 6,717 acres located in Cibola County, New
Mexico (the "Property") for uranium resources. In connection with the Joint
Venture, Cibola Resources LLC, a Delaware limited liability company ("Cibola"),
was formed for purposes of undertaking exploration activities contemplated by
the Joint Venture.
On April 6, 2007, NEI and La Merced del Pueblo de Cebolleta, a private entity
that has authority over the natural resources of the Property ("Cebolleta"),
entered into a mining lease agreement (the "Mining Lease Agreement"), pursuant
to which NEI acquired the mining lease to the Property from Cebolleta (the
"Lease") for cash payments of $3,000,000. As of June 30, 2007, we have
reimbursed NEI an aggregate of $1,470,000. As a result, we have a 49% equity
interest in Cibola and NEI has a 51% equity interest in Cibola, respectively.
NEI contributed the Lease to Cibola Resources LLC.
Under terms of a Letter Agreement (the "Letter Agreement") between Cebolleta and
NEI, further payments to the order and direction of Cebolleta are required as
follows:
(a) $2,000,000 six months from the effective date of the Letter Agreement
(paid $980,000, being the Company's portion);
(b) $500,000 representing an advanced royalty, every 12 months from the
effective date of the Letter Agreement until uranium production begins
(to be deducted from any royalties paid in that same year);
(c) $1.00 per pound upon an independent mining engineering firm's
completion of a feasibility study, and all prior payments made to
Cebolleta will be credited to the recoverable reserve payment;
(d) 4.50% to 8.00% production royalty payments depending upon the uranium
sale price; and
(e) $30,000 per year towards a scholarship fund.
We are required to contribute 49% of the aforementioned payments in order to
retain our interest in the Joint Venture. Through the date of this Quarterly
Report, the Company has paid $2,486,750 in acquisition costs and an additional
$119,137 in exploration costs on behalf of Cibola for a cumulative contribution
of $2,569,137.
NEW RIVER PROJECT
Effective November 1, 2007, we entered into a binding letter Agreement to
Purchase Assets (the "Agreement") with Melvin O. Stairs, Jr. ("Mr. Stairs"),
whereby we acquired from Mr. Stairs an undivided 100% legal, beneficial and
registered interest in and to a certain mineral exploration claim represented by
permit number 08-111678, which is located at T7N R3E, Section 32, in Maricopa
County, Arizona (the "Mineral Claim"), together with a certain database
containing various material information respecting the subject Mineral Claim
(the Mineral Claim and its database, collectively, the "Assets"). As
consideration for acquisition of the Assets, we have agreed to make the
following payments (each a "Purchase Price Payment") and the following Mineral
Claim maintenance payments (each a "Purchase Price Maintenance Payment") to Mr.
Stairs in the following manner at the following times after November 1, 2007
(the "Acceptance Date"):
22
(a) Purchase Price Payments: pay to the order and direction of Mr. Stairs
the following Purchase Price Payments in the aggregate sum of U.S.
$1,200,000 in the following manner and at the following times:
i) an initial and non-refundable Purchase Price Payment of U.S.
$10,000 immediately upon the Acceptance Date of the Agreement
(paid);
ii) further non-refundable Purchase Price Payments of U.S. $95,000 on
or before January 10, 2008 and August 15, 2008; and
iii) further non-refundable Purchase Price Payments of U.S. $100,000
every six months commencing on or before January 10, 2009 and
ending August 15, 2013.
(b) Purchase Price Maintenance Payments: pay, or cause to be paid, all
outstanding, existing and future underlying regulatory and
governmental fees, payments and assessment work required to keep the
Mineral Claim interests comprising the Assets in good standing during
the continuance of the Agreement and prior to our satisfaction of the
entire Purchase Price consideration and including, without limitation,
all permitting costs, transfer fees and any reclamation costs
associated in any manner with the Mineral Claim interests comprising
the Assets.
Pursuant to the terms of the Agreement, in order to secure the complete and
timely payment of our purchase price obligations to Mr. Stairs under the
Agreement, we granted a security interest in and to, a lien upon and a right of
set-off against our right, title and interest in and to the Assets.
In addition, and pursuant to the terms of the Agreement, at any time prior to
the earlier of the payment of the entire Purchase Price by us to Mr. Stairs or
the termination of the Agreement for any reason, we have a right of first
refusal to acquire all or any portion of any interest in the Agreement or to any
mineral property interest which Mr. Stairs may have an interest in at anytime
and which Mr. Stairs desires to dispose of (collectively, the "Holding"). If Mr.
Stairs receives a BONA FIDE offer to purchase from, or where a sale is solicited
by Mr. Stairs, then upon settling the proposed terms thereof with a third party
for the purchase or sale of the Holding, Mr. Stairs shall offer to sell the
Holding to us. The offer to sell to us shall be on the same terms and conditions
and of equivalent dollar value as those contained in the offer to the third
party; provided, however, that should Mr. Stairs and us fail to agree upon a
determination of the equivalent dollar value for any such offer, such equivalent
dollar value shall be determined by arbitration under the provisions of the
Agreement. We shall be entitled to elect, by notice to Mr. Stairs within 30
calendar days from the date of receipt of the offer to sell, to acquire the
Holding, on the same terms and conditions as those set forth in the offer to the
third party. If we do not exercise its right to acquire the Holding, Mr. Stairs
may, for a period of 60 calendar days following the last date upon which we
could have made the election, dispose of the Holding, but only on the same terms
and conditions as set forth in that offer.
F-33 ACQUISITION
On November 13, 2007, we entered into an agreement to acquire certain mineral
property leases located in Cibola County, New Mexico for total consideration of
$400,000. Under the terms of the agreement, we paid an initial deposit of
$100,000 upon closing with the remaining balance due in three installments of
$100,000 due on March 31, 2008, December 31, 2008, and December 31, 2009. At our
option, the final two installments may be paid in stock, based on the average
trading price of our common stock over the 10 days immediately preceding the due
date.
RESULTS OF OPERATIONS
THREE MONTHS ENDED OCTOBER 31, 2007 COMPARED TO THREE MONTHS ENDED OCTOBER 31,
2006
We are an exploration stage company and net revenues during the three months
ended October 31, 2007 and 2006 were $Nil. Our net loss for the three months
ended October 31, 2007 was $4,852,843 compared to a net loss of $4,002,077
during the three months ended October 31, 2006.
Operating expenses incurred during the three months ended October 31, 2007
increased to $4,903,461 from $4,041,495 over the same period ended October 31,
2006. The increase is primarily due to the expansion of current operations and
the corresponding change in exploration costs associated with the increased
acquisition and development of our uranium properties and related
infrastructure. Significant expenditures and changes are outlined as follows:
23
o Consulting fees increased to $154,889 during the three months ended
October 31, 2007 from $34,864 during the same period months ended
October 31, 2006 due primarily to increased reliance on third party
service providers as the Company expands its operations.
o Consulting fees - stock based decreased to $104,954 during the three
months ended October 31, 2007 from $828,884 during the three months
ended October 31, 2006. The current period expense consists of the
fair value of option grants earned during the period, whereas the
prior period expense consisted of the amortization of significant
stock and warrant grants issued to consultants.
o Depreciation increased to $39,736 during the three months ended
October 31, 2007 from $5,686 during the three months ended October 31,
2006 due to significant investments in property and equipment during
the current period, the seven month period ended July 31, 2007, and
the last half of the 2006 calendar year.
o General and administrative costs increased to $1,147,994 during the
three months ended October 31, 2007 from $809,797 during the three
months ended October 31, 2006 due to the general expansion in
operations and personnel in the current period as compared to the
prior period.
o Impairment loss on mineral properties decreased to $1,173,519 during
the three months ended October 31, 2007 from $1,721,616 during the
three months ended October 31, 2006. Current year acquisition costs
that have been written off to impairment include the Company's
$980,000 portion of Cibola payment due in the current period. Prior
period acquisition costs written off to impairment include $1,437,500
in stock based costs on the issuance of shares pursuant to the Moore
Option agreement.
o Management fees increased to $143,698 during the three months ended
October 31, 2007 from $82,650 during the three months ended October
31, 2006 due primarily to increases in executive compensation
agreements.
o Management fees - stock based decreased to $Nil during the three
months ended October 31, 2007 from $162,500 during the three months
ended October 31, 2006 as the Company did not issue any options or
warrants as compensation to management during the current period.
o Mineral property expenditures increased to $1,790,906 during the three
months ended October 31, 2007 from $320,992 during the three months
ended October 31, 2006 due to the expansion of exploration activities
over the prior period, primarily in the Goliad project.
o Professional fees increased to $120,133 during the three months ended
October 31, 2007 from $74,506 during the three months ended October
31, 2006 due primarily to increases in audit and review costs in
addition to increases in counsel fees associated with the growth in
the Company's operations.
o Wages and benefits - stock based increased to $227,632 during the
three months ended October 31, 2007 from $Nil during the three months
ended October 31, 2006. The current year expense consists of the fair
value of option grants earned during the period.
Interest and other income increased to $78,396 during the three months ended
October 31, 2007, from $39,418 during the three months ended October 31, 2006,
due to higher cash balances maintained throughout the current period.
Deferred tax expense increased to $27,778 during the three months ended October
31, 2007 from $Nil during the three months ended October 31, 2006. The deferred
tax benefit is calculated on the estimated unrealized gain on available-for-sale
securities in the current fiscal period which is reflected in other
comprehensive income.
Our net loss during the three months ended October 31, 2007 was $4,852,843 or
($0.13) per share, compared to a net loss of $4,002,077 or ($0.14) per share
during the three months ended October 31, 2006. The weighted average number of
shares outstanding was 37,618,731 for the three months ended October 31, 2007
compared to 28,312,718 for the three months ended October 31, 2006.
TRANSACTIONS WITH OFFICERS AND DIRECTORS
Of the $4,903,461 incurred as operating expenses during the three months ended
October 31, 2007 an aggregate of $143,698 was incurred payable to certain
officers and directors and recorded as management fees. At October 31, 2007
there were no amounts due and owing to our directors and officers.
24
LIQUIDITY AND CAPITAL RESOURCES
Our financial statements have been prepared assuming that we will continue as a
going concern and, accordingly, do not include adjustments relating to the
recoverability and realization of assets and classification of liabilities that
might be necessary should we be unable to continue in operation.
At October 31, 2007 the Company had $4,425,146 in cash. Generally, the Company
has financed its operations through the proceeds from the private placement of
equity securities and the exercise of stock options and warrants. The Company
used $4,658,307 net cash during the three months ended October 31, 2007.
OPERATING ACTIVITIES
Net cash used in operating activities during the three months ended October 31,
2007 was $3,232,716 compared to $1,287,680 in the corresponding period of 2006.
Significant operating expenditures during the current period included mineral
property expenditures, and general and administrative costs.
FINANCING ACTIVITIES
Net cash provided by financing activities during the three months ended October
31, 2007 was $130,000 compared to $38,333 in the corresponding period of 2006.
During the current period, the Company received net proceeds of $130,000 from
the exercise of options during the period.
INVESTING ACTIVITIES
Net cash used in investing activities during the three months ended October 31,
2007 was $1,555,591 compared to $481,161 in the corresponding period of 2006.
Significant investing expenditures during the current period included mineral
property acquisitions, including the $980,000 payment related to the Cibola
Resources LLC agreement, and purchases of property and equipment.
STOCK OPTIONS AND WARRANTS
At October 31, 2007 we had 3,732,500 stock options and 3,996,098 share purchase
warrants outstanding. The outstanding stock options have a weighted average
exercise price of $1.45 per share and the outstanding warrants have a weighted
average exercise price of $2.66 per share. Accordingly, as of October 31, 2007
the outstanding options and warrants represented a total of 7,728,598 shares
issuable for proceeds of approximately $16,000,000 if these options and warrants
were exercised in full. The exercise of these options and warrants is completely
at the discretion of the holders. There is no assurance that any of these
options or warrants will be exercised.
PLAN OF OPERATION AND FUNDING
Existing working capital is not expected to be adequate to fund our operations
over the next twelve months. We have no lines of credit or other bank financing
arrangements. Generally, we have financed operations to date through the
proceeds of the private placement of equity and debt instruments and the
exercise of Stock Options and Warrants. In connection with our business plan,
management anticipates additional increases in operating expenses and capital
expenditures relating to: (i) uranium exploration operating activities; (ii)
possible future reserve definition; (iii) possible future mining initiatives on
current and future properties; and (iv) future possible property acquisitions.
We intend to finance these expenses with further issuances of securities, and
debt issuances. We expect we will need to raise additional capital to meet
long-term operating requirements. Additional issuances of equity or convertible
debt securities will result in dilution to our current shareholders. Further,
such securities might have rights, preferences or privileges senior to our
common stock. Additional financing may not be available upon acceptable terms,
or at all. If adequate funds are not available or are not available on
acceptable terms, we may not be able to take advantage of prospective new
business endeavors or opportunities, which could significantly and materially
restrict our business operations.
25
GOING CONCERN
We commenced operations on May 16, 2003, and have not realized any significant
revenues since inception. As at October 31, 2007, we have working capital of
$4,920,696 and an accumulated deficit of $38,015,997. Existing cash resources
are currently not expected to provide sufficient funds through the upcoming
year, the capital expenditures required to achieve planned principal operations
may be substantial. The continuation of the Company as a going concern is
dependent upon the ability of the Company to obtain necessary financing to
continue operations. We are in the exploration stage of our mineral property
development and to date have not yet established any known mineral reserves on
any of our existing properties. Our continued operations and the recoverability
of the carrying value of our assets is ultimately dependent upon our ability to
achieve profitable operations. To date we have completed private placements and
exercised stock options for net proceeds of $24,935,196 from the issuance of
shares of the our common stock.
MATERIAL COMMITMENTS
EPOCH FINANCIAL CONSULTING AGREEMENT
On February 1, 2007, we entered into a financial consulting agreement with Epoch
Financial Group, Inc. ("Epoch") for a twelve month term (the "Epoch Financial
Consulting Agreement"). In accordance with the terms and provisions of the Epoch
Financial Consulting Agreement: (i) Epoch will disseminate our news releases,
investor packages, research reports and corporate and industry sector materials;
ii) Epoch will promote investor awareness to the investment community; (iii)
Epoch will arrange meetings with industry sector analysts, stock brokers and
portfolio managers; and (iv) we will pay Epoch a monthly fee of $6,500 and issue
to Epoch an aggregate of 2,500 restricted common shares per month. See "Part II.
Other Information. Item 2. Changes in Securities and Use of Proceeds."
HOLLEY OPTION
On March 28, 2007, we entered into the Holley Option granting us the option to
acquire certain mineral property leases, which are located in the States of
Colorado, New Mexico, and Utah, together with certain historical database
records for total consideration of $1,594,690. Under the terms of the Holley
Option, and in order to maintain our option to acquire the assets, we are
required to make the following option price payments totaling $1,500,000 to the
order and direction of the Holley Option holders in the following manner:
(a) an initial payment of $25,000 on the execution date (paid);
(b) a payment of $100,000 on March 28, 2007 (paid);
(c) a payment of $475,000 on or before April 27, 2007 (paid);
(d) a further payment of $500,000 on or before April 27, 2008;
(e) a final payment of $400,000 on or before April 27, 2009.
Upon execution of the Holley Option, we also reimbursed the Holley Option
holders approximately $95,000 for prior regulatory property payments having been
made to the New Mexico Bureau of Land Management. In addition, we will be
required to pay a royalty of 2% or 3% of the gross proceeds received from the
sale of any Uranium or Vanadium produced in relation to any mineral claim
covered under the Holley Option and, at any time during the option period or
thereafter, we may elect to purchase the royalty interest at a base cost of
$300,000 for each 1% royalty interest it wishes to acquire.
CONSULTING AGREEMENT
On April 6, 2007 the Company entered into a twelve month consulting services
agreement valued at $10,000 per month. The consultant will provide
representation before the executive and legislative branches of the federal
government and state governments in addition to providing consulting services on
political matters.
CIBOLA RESOURCES LLC
On April 27, 2007, we entered into a joint venture (the "Joint Venture") with
Neutron Energy Inc., a Wyoming corporation ("NEI") in connection with
exploration of property covering 6,717 acres located in Cibola County, New
Mexico (the "Property") for uranium resources. In connection with the Joint
Venture, Cibola Resources LLC, a Delaware limited liability company ("Cibola"),
was formed for purposes of undertaking exploration activities contemplated by
the Joint Venture.
26
On April 6, 2007, NEI and La Merced del Pueblo de Cebolleta, a private entity
that has authority over the natural resources of the Property ("Cebolleta"),
entered into a mining lease agreement (the "Mining Lease Agreement"), pursuant
to which NEI acquired the mining lease to the Property from Cebolleta (the
"Lease") for cash payments of $3,000,000. As of June 30, 2007, we have
reimbursed NEI an aggregate of $1,470,000. As a result, we have a 49% equity
interest in Cibola and NEI has a 51% equity interest in Cibola, respectively.
NEI contributed the Lease to Cibola Resources LLC.
Under terms of a Letter Agreement (the "Letter Agreement") between Cebolleta and
NEI, further payments to the order and direction of Cebolleta are required as
follows:
(a) $2,000,000 six months from the effective date of the Letter Agreement
(paid $980,000, being the Company's portion);
(b) $500,000 representing an advanced royalty, every 12 months from the
effective date of the Letter Agreement until uranium production begins
(to be deducted from any royalties paid in that same year);
(c) $1.00 per pound upon an independent mining engineering firm's
completion of a feasibility study, and all prior payments made to
Cebolleta will be credited to the recoverable reserve payment;
(d) 4.50% to 8.00% production royalty payments depending upon the uranium
sale price; and
(e) $30,000 per year towards a scholarship fund.
We are required to contribute 49% of the aforementioned payments in order to
retain our interest in the Joint Venture. Through the date of this Quarterly
Report, the Company has paid $2,486,750 in acquisition costs and an additional
$119,137 in exploration costs on behalf of Cibola for a cumulative contribution
of $2,569,137.
CONSULTING AGREEMENTS
On September 15, 2007 we entered into a three month consulting services
agreement valued at approximately (euro)84,000 ($116,633 US). The Consultant
will provide advice on public and investor relations related matters. Under the
terms of the agreement, we paid a retainer of approximately (euro)55,000
($76,367 US), and will pay two additional installments of approximately
(euro)10,000 ($13,885 US) each 30 and 60 days from the date of the agreement
respectively. Additionally, we will pay a service fee of approximately
(euro)3,000 ($4,165 US) per month during the three month term.
On September 6, 2007 we entered into an agreement for media distribution
services valued at approximately $270,000. Under the terms of the agreement, we
paid a retainer of $100,000, with the balance of the agreement due upon
completion of the services.
DATABASE ACQUISITION
On September 25, 2007 we entered into an agreement to purchase a database
consisting of drilling, mapping and logging reports covering uranium and
associated metals prospects located primarily in New Mexicoa and Wyoming.
Consideration for the asset purchase was $100,000, consisting of (i) a $50,000
cash payment upon acceptance (paid); and a final $50,000 installment prior to
January 11, 2008.
NEW RIVER PROJECT ACQUISITION
On November 1, 2007 we entered into a binding letter Agreement to Purchase
Assets with Melvin O. Stairs, Jr. ("Mr. Stairs"), for a mineral exploration
claim and related database information located in Maricopa County, Arizona.
Under the terms of the agreement, the Company will pay total consideration of
$1,200,000 including i) a $10,000 deposit upon execution (paid), ii)
installments of $95,000 cash on January 10, 2008 and August 15, 2008, and iii)
installments totaling $100,000 on January 10 and August 15 of each year for the
period from January 10, 2009 through August 15, 2013. Additionally, the Company
has granted the seller security interest on the acquired assets until the
agreement is paid in full.
27
F-33 ACQUISITION
On November 13, 2007, we entered into an agreement to acquire certain mineral
property leases located in Cibola County, New Mexico for total consideration of
$400,000. Under the terms of the agreement, we paid an initial deposit of
$100,000 upon closing with the remaining balance due in three installments of
$100,000 due on March 31, 2008, December 31, 2008, and December 31, 2009. At our
option, the final two installments may be paid in stock, based on the average
trading price of our common stock over the 10 days immediately preceding the due
date.
MANAGEMENT FEES
We are committed to pay our key executives a total of approximately $450,000 per
year for management services.
OFFICE LEASES
We are currently leasing office premises in New Mexico, Texas, and Wyoming for
monthly payments totaling $10,645. All office lease agreements having a maximum
term of no more than three years.
PURCHASE OF SIGNIFICANT EQUIPMENT
Effective May 29, 2007, we committed to spend approximately $140,000 to acquire
a PFN assay tool and $120,000 to build a second logging truck which is currently
under construction. As of the date of this Quarterly Report a total of $65,000
has been paid towards these commitments and has been included with vehicles.
OFF-BALANCE SHEET ARRANGEMENTS
As of the date of this Quarterly Report, we do not have any 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 investors. The term "off-balance sheet
arrangement" generally means any transaction, agreement or other contractual
arrangement to which an entity unconsolidated with us is a party, under which we
have: (i) any obligation arising under a guaranteed contract, derivative
instrument or variable interest; or (ii) a retained or contingent interest in
assets transferred to such entity or similar arrangement that serves as credit,
liquidity or market risk support for such assets.
CRITICAL ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with United States
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities at the
date of the financial statements and revenues and expenses during the period
reported. By their nature, these estimates are subject to measurement
uncertainty and the effect on the financial statements of changes in such
estimates in future periods could be significant. Significant areas requiring
management's estimates and assumptions are determining the fair value of
transactions involving common stock, valuation and impairment losses on mineral
property acquisitions, valuation of stock-based compensation, and valuation of
available-for-sale securities. Other areas requiring estimates include
allocations of expenditures to resource property interests and depreciation of
property and equipment. Actual results could differ from those estimates.
MINERAL PROPERTY COSTS
The Company is primarily engaged in the acquisition, exploration and development
of mineral properties.
Mineral property acquisition costs are initially capitalized as tangible assets
when purchased. At the end of each fiscal quarter end, the Company assesses the
carrying costs for impairment. If proven and probable reserves are established
for a property and it has been determined that a mineral property can be
economically developed, costs will be amortized using the units-of-production
method over the estimated life of the probable reserve.
Mineral property exploration costs are expensed as incurred.
28
Estimated future removal and site restoration costs, when determinable are
provided over the life of proven reserves on a units-of-production basis. Costs,
which include production equipment removal and environmental remediation, are
estimated each period by management based on current regulations, actual
expenses incurred, and technology and industry standards. Any charge is included
in exploration expense or the provision for depletion and depreciation during
the period and the actual restoration expenditures are charged to the
accumulated provision amounts as incurred.
As of the date of these financial statements, the Company has not established
any proven or probable reserves on its mineral properties and incurred only
acquisition and exploration costs.
RESTORATION AND REMEDIATION COSTS (ASSET RETIREMENT OBLIGATIONS)
Various federal and state mining laws and regulations require the Company to
reclaim the surface areas and restore underground water quality for its mine
projects to the pre-existing mine area average quality after the completion of
mining. In August 2001, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 143, "Accounting for Asset Retirement Obligations," which
established a uniform methodology for accounting for estimated reclamation and
abandonment costs.
In March 2005, the FASB issued Interpretation 47 ("FIN 47"), "Accounting for
Conditional Asset Retirement Obligations"--an interpretation of FASB No. 143.
FIN 47 clarifies that the term "conditional asset retirement obligation" as used
in SFAS No. 143 refers to a legal obligation to perform an asset retirement
activity in which the timing and/or method of settlement are conditional on a
future event that may or may not be within the control of the entity. The
obligation to perform the asset retirement activity is unconditional even though
uncertainty exists about the timing and/or method of settlement. FIN 47 requires
a liability to be recognized for the fair value of a conditional asset
retirement obligation if the fair value of the liability can be reasonably
estimated.
Future reclamation and remediation costs are accrued based on management's best
estimate at the end of each period of the costs expected to be incurred at each
project. Such estimates would be determined by the Company's engineering studies
calculating the cost of future surface and groundwater activities.
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate the carrying amount of an asset may not be recoverable.
Recoverability of these assets is measured by comparison of its carrying amount
to future undiscounted cash flows the assets are expected to generate.
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2006, FASB issued Interpretation No. 48. This interpretation clarifies
the accounting for uncertainty in income taxes recognized in an enterprise's
financial statements in accordance with SFAS Statement No. 109, "Accounting for
Income Taxes" ("FIN 48"). This Interpretation prescribes a recognition threshold
and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return.
This Interpretation also provides guidance on de-recognition, classification,
interest and penalties, accounting in interim periods, disclosure, and
transition. The Company adopted FIN 48 as of January 1, 2007. The adoption of
FIN 48 did not have an impact on the Company's financial statements during the
current period.
In September 2006, FASB issued SFAS No. 157, "Fair Value Measurements" ("SFAS
157"). The objective of SFAS 157 is to increase consistency and comparability in
fair value measurements and to expand disclosures about fair value measurements.
SFAS 157 defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about fair
value measurements. SFAS 157 applies under other accounting pronouncements that
require or permit fair value measurements and does not require any new fair
value measurements. The provisions of SFAS 157 are effective for fair value
measurements made in fiscal years beginning after November 15, 2007. The Company
is currently assessing the impact of SFAS 157 on its financial position and
results of operations.
29
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities". This Statement permits entities to
choose to measure many financial assets and financial liabilities at fair value.
Unrealized gains and losses on items for which the fair value option has been
elected are reported in earnings. SFAS No. 159 is effective for fiscal years
beginning after November 15, 2007. The Company is currently assessing the impact
of SFAS No. 159 on its financial position and results of operations.
__________
30
ITEM III. CONTROLS AND PROCEDURES
Our management is responsible for establishing and maintaining a system of
disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e)
under the Exchange Act) that is designed to ensure that information required to
be disclosed by us in the reports that we file or submit under the Exchange Act
is recorded, processed, summarized and reported, within the time periods
specified in the Commission's rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by an issuer in the reports
that it files or submits under the Exchange Act is accumulated and communicated
to the issuer's management, including its principal executive officer or
officers and principal financial officer or officers, or persons performing
similar functions, as appropriate to allow timely decisions regarding required
disclosure.
In accordance with Exchange Act Rules 13a-15 and 15d-15, an evaluation was
completed under the supervision and with the participation of our management,
including Mr. Amir Adnani, our Chief Executive Officer, and Mr. Pat Obara, our
Chief Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures as of the end of the period covered by this
Quarterly Report. Based on that evaluation, our management including the Chief
Executive Officer and Chief Financial Officer, concluded that our disclosure
controls and procedures are effective, to provide reasonable assurance that
information required to be disclosed in our reports filed or submitted under the
Exchange Act is recorded, processed, summarized, and reported within the time
periods specified in the Commission's rules and forms. There have been no
changes to our internal controls over financial reporting (as defined in Rule
13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) that occurred
during our three-month quarterly period ended June 30, 2007, that materially
affected, or were reasonably likely to materially affect, our internal controls
over financial reporting.
AUDIT COMMITTEE REPORT
The Board of Directors has established an audit committee. The members of the
audit committee are Mr. Erik Essiger, Mr. Ivan Obolensky and Mr. Vincent Della
Volpe. The three members of the audit committee are "independent" within the
meaning of Rule 10A-3 under the Exchange Act. The audit committee was
reorganized in July 2007 and operates under a written charter adopted by our
Board of Directors.
The audit committee has reviewed and discussed with management our unaudited
financial statements as of and for the three month period ended October 31,
2007. The audit committee has also discussed with Ernst & Young LLP the matters
required to be discussed by Statement on Auditing Standards No. 61,
Communication with Audit Committees, as amended, by the Auditing Standards Board
of the American Institute of Certified Public Accountants. The audit committee
has received and reviewed the written disclosures and the letter from Ernst &
Young LLP required by Independence Standards Board Standard No. 1, Independence
Discussions with Audit Committees, as amended, and has discussed with Ernst &
Young LLP their independence.
Based on the reviews and discussions referred to above, the audit committee has
recommended to the Board of Directors that the unaudited financial statements
referred to above be included in our Quarterly Report on Form 10-QSB for the
three month period ended October 31, 2007 filed with the Securities and Exchange
Commission.
__________
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Management is not aware of any legal proceedings contemplated by any
governmental authority or any other party involving us or our properties. As of
the date of this Quarterly Report, no director, officer or affiliate is (i) a
party adverse to us in any legal proceeding, or (ii) has an adverse interest to
us in any legal proceedings. Management is not aware of any other legal
proceedings pending or that have been threatened against us or our properties.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
EPOCH FINANCIAL GROUP, INC.
On February 1, 2007 the Company entered into the Epoch Financial Consulting
Agreement. In accordance with the terms and provisions of the Epoch Financial
Consulting Agreement, on November 6, 2007 we issued 10,000 shares of our
restricted common stock.
SHARE PURCHASE WARRANTS
During the three months ended October 31, 2007 and through the date of this
Quarterly Report, we issued an aggregate of 13,900 shares of our common stock
pursuant to the exercise of 13,900 stock purchase warrants for net proceeds of
$34,750.
STOCK OPTIONS
On November 27, 2007, the Company filed a registration statement on Form S-8
with the SEC to register for resale an aggregate of 5,500,000 shares of the
Company's common stock, par value $0.001 per share, issuable by the Company
pursuant to awards to eligible participants under its 2006 Stock Incentive Plan.
As a result all 10,000,000 shares of the Company's common stock both issued and
available for issuance under the Company's 2006 Stock Incentive Plan have now
been registered for resale with the SEC.
During the three months ended October 31, 2007 and through the date of this
Quarterly Report, we issued an aggregate of 100,000 restricted shares of our
common stock pursuant to the exercise of 100,000 stock options for net proceeds
of $130,000.
During the three months ended October 31, 2007 and through the date of this
Quarterly Report, we granted an aggregate amount of 660,000 stock options to
certain officers, directors, employees and consultants having an exercise price
of $3.80 per share and a 10 year expiry period.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
No report required.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No report required.
ITEM 5. OTHER INFORMATION
No report required.
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ITEM 6. EXHIBITS
EXHIBIT DESCRIPTION OF EXHIBIT
________________________________________________________________________________
31.1 Certification of Chief Executive Officer pursuant to
Securities Exchange Act of 1934 Rule 13a-14(a) or
15d-14(a).
31.2 Certification of Chief Financial Officer pursuant to
Securities Exchange Act of 1934 Rule 13a-14(a) or
15d-14(a).
32.1 Certifications pursuant to Securities Exchange Act of
1934 Rule 13a-14(b) or 15d-14(b) and 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
________________________________________________________________________________
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
URANIUM ENERGY CORP.
/s/ "Amir Adnani"
________________________________________________
AMIR ADNANI
President, Chief Executive Officer and Principal
Executive Officer
Date: December 12, 2007
/s/ "Pat Obara"
________________________________________________
PAT OBARA
Secretary, Treasurer, Chief Financial Officer,
Principal Accounting Officer
Date: December 12, 2007
34