URANIUM ENERGY CORP - Quarter Report: 2017 October (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended October 31, 2017

or

For the transition period from _____ to _____

Commission File Number: 001-33706

URANIUM ENERGY CORP.

(Exact name of registrant as specified in its charter)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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.

Yes x   No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x   No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨   No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 156,150,568 shares of common stock outstanding as of December 6, 2017.

URANIUM ENERGY CORP.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

URANIUM ENERGY CORP.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED OCTOBER 31, 2017

(Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements 

The accompanying notes are an integral part of these condensed consolidated financial statements 

The accompanying notes are an integral part of these condensed consolidated financial statements 

The accompanying notes are an integral part of these condensed consolidated financial statements

Uranium Energy Corp. was incorporated in the State of Nevada on May 16, 2003. Uranium Energy Corp. and its subsidiary companies and a controlled partnership (collectively, the “Company” or “we”) are engaged in uranium and titanium mining and related activities, including exploration, pre-extraction, extraction and processing of uranium concentrates and titanium minerals, on projects located in the United States and Paraguay.

Although planned principal operations have commenced from which significant revenues from sales of uranium concentrates were realized for the fiscal years ended July 31, 2015 (“Fiscal 2015”), July 31, 2013 (“Fiscal 2013”) and July 31, 2012 (“Fiscal 2012”), we have yet to achieve profitability and have had a history of operating losses resulting in an accumulated deficit balance since inception. No revenue from uranium sales was realized for the three months ended October 31, 2017, or for the fiscal years ended July 31, 2017 (“Fiscal 2017”), July 31, 2016 (“Fiscal 2016”) and July 31, 2014 (“Fiscal 2014”). Historically, we have been reliant primarily on equity financings from the sale of its common stock and, during Fiscal 2014 and Fiscal 2013, on debt financing in order to fund our operations, and this reliance is expected to continue for the foreseeable future.

At October 31, 2017, we had working capital of $18.6 million including cash and cash equivalents of approximately $10.0 million and short-term investments of approximately $8.6 million. The existing cash resources as at October 31, 2017 are expected to provide sufficient funds to carry out our planned operations for the next 12 months from the date that the condensed consolidated financial statements are issued. Our continuation as a going concern for a period beyond 12 months will be dependent upon our ability to obtain adequate additional financing, as our operations are capital intensive and future capital expenditures are expected to be substantial. Our continued operations, including the recoverability of the carrying values of our assets, are dependent ultimately on our ability to achieve and maintain profitability and positive cash flow from our operations.

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information and are presented in U.S. dollars. Accordingly, they do not include all of the information and footnotes required under U.S. GAAP for complete financial statements. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in our Annual Report on Form 10-K for the Fiscal 2017. In the opinion of management, all adjustments of a normal recurring nature and considered necessary for a fair presentation, have been made. Operating results for the three months ended October 31, 2017, are not necessarily indicative of the results that may be expected for the fiscal year ending July 31, 2018 (“Fiscal 2018”).

Exploration Stage

We have established the existence of mineralized materials for certain uranium projects, including for the Palangana Mine. We have not established proven or probable reserves, as defined by the United States Securities and Exchange Commission (the “SEC”) under Industry Guide 7, through the completion of a “final” or “bankable” feasibility study for any of our uranium projects, including the Palangana Mine. Furthermore, we have no plans to establish proven or probable reserves for any of our uranium projects for which we plan on utilizing in-situ recovery (“ISR”) mining, such as the Palangana Mine. As a result, and despite the fact that we commenced extraction of mineralized materials at the Palangana Mine in November 2010, we remain in the Exploration Stage as defined under Industry Guide 7, and will continue to remain in the Exploration Stage until such time proven or probable reserves have been established.

Since we commenced the extraction of mineralized materials at the Palangana Mine without having established proven or probable reserves, any mineralized materials established or extracted from the Palangana Mine should not in any way be associated with having established or produced from proven or probable reserves.

In accordance with U.S. GAAP, expenditures relating to the acquisition of mineral rights are initially capitalized as incurred while exploration and pre-extraction expenditures are expensed as incurred until such time we exit the Exploration Stage by establishing proven or probable reserves.  Expenditures relating to exploration activities such as drilling programs to establish mineralized materials are expensed as incurred. Expenditures relating to pre-extraction activities such as the construction of mine wellfields, ion exchange facilities and disposal wells are expensed as incurred until such time proven or probable reserves are established for that project, after which expenditures relating to mine development activities for that particular project are capitalized as incurred.

Companies in the Production Stage as defined under Industry Guide 7, having established proven and probable reserves and exited the Exploration Stage, typically capitalize expenditures relating to ongoing development activities, with corresponding depletion calculated over proven and probable reserves using the units-of-production method and allocated to future reporting periods to inventory and, as that inventory is sold, to cost of goods sold. We are in the Exploration Stage which has resulted in us reporting larger losses than if it had been in the Production Stage due to the expensing, rather than capitalizing, of expenditures relating to ongoing mill and mine development activities. Additionally, there would be no corresponding amortization allocated to future reporting periods of our Company since those costs would have been expensed previously, resulting in both lower inventory costs and cost of goods sold and results of operations with higher gross profits and lower losses than if we had been in the Production Stage. Any capitalized costs, such as expenditures relating to the acquisition of mineral rights, are depleted over the estimated extraction life using the straight-line method. As a result, our consolidated financial statements may not be directly comparable to the financial statements of companies in the Production Stage.

At October 31, 2017, prepaid expenses and deposits consisted of the following:

On August 9, 2017,we completed the acquisition of all of the issued and outstanding shares of Reno Creek Holdings Inc. (“RCHI”) and, indirectly thereby, 100% of its fully permitted Reno Creek in-situ recovery uranium project (the “Reno Creek Project”) located in the Powder River Basin, Wyoming, from each of the Pacific Roads Resources Funds (collectively, “PRRF” as to 97.27% of RCHI) and Bayswater Holdings Inc. (as to the remaining 2.73% of RCHI; and, collectively with PRRF, the “Reno Creek Vendors”), in accordance with the terms and conditions of a certain Share Purchase Agreement, dated May 9, 2017, as amended by a certain Amending Agreement, dated August 7, 2017 (collectively, the “Share Purchase Agreement” and, collectively, the “Reno Creek Acquisition”).

Pursuant to the terms of the original Share Purchase Agreement, we agreed to reimburse all costs and expenses (the “Reimbursable Expenses”) incurred by RCHI and its subsidiaries in the ordinary course of business from the effective date of the Share Purchase Agreement to closing, and, pursuant to the Amending Agreement, we also agreed with that the amount to be distributed from RCHI’s subsidiaries to RCHI at closing totalled $1,743,666, which was comprised of the Reimbursable Expenses and the amount of cash on hand held by RCHI’s subsidiaries at the time.

In connection with the completion of the Reno Creek Acquisition, we paid the following consideration:

In connection with the Reno Creek Acquisition, we also issued 353,160 common shares in settlement of the Reimbursable Expenses totalling $483,829, which was included in the mineral property expenditures on the condensed consolidated financial statements for the three months ended October 31, 2017.

In accordance with ASC 360: Property, Plant and Equipment, the Reno Creek Acquisition was accounted for as an asset acquisition as it was determined that the operations of the Reno Creek Project do not meet the definition of a business as defined in ASC 805: Business Combinations.

The fair value of the consideration paid and the allocation to the identifiable assets acquired and liabilities assumed are summarized as follows:

The Reno Creek Project is comprised of U.S. federal mineral lode claims, state mineral leases, and various private mineral leases, and surface use agreements which grant us the exclusive right to explore, develop and mine for uranium on a 19,437-acre area in Campbell County, Wyoming. The mineral leases and surface use agreements are subject to certain royalty interests with terms ranging from 5 to 15 years, some of which have extension provisions.

Mineral Rights

At October 31, 2017, we had mineral rights in the States of Arizona, Colorado, New Mexico, Wyoming and Texas and in the Republic of Paraguay. These mineral rights were acquired through staking, purchase or lease agreements and are subject to varying royalty interests, some of which are indexed to the sale price of uranium and titanium. At October 31, 2017, annual maintenance payments of approximately $1,719,000 will be required to maintain these mineral rights.

Mineral rights and property acquisition costs consisted of the following:

We have not established proven or probable reserves, as defined by the SEC under Industry Guide 7, for any of our mineral projects. We have established the existence of mineralized materials for certain mineral projects, including the Palangana Mine. Since we commenced uranium extraction at the Palangana Mine without having established proven or probable reserves, there may be greater inherent uncertainty as to whether or not any mineralized material can be economically extracted as originally planned and anticipated.

During the three months ended October 31, 2017, we issued 46,134 restricted shares with a fair value of $61,820 as an advance royalty payment for the Workman Creek Project, which was capitalized as Mineral Rights & Properties on the consolidated balance sheet as at October 31, 2017.

During the three months ended October 31, 2016, we abandoned certain non-core mineral interests at projects located in Arizona, Colorado and New Mexico with a combined acquisition cost of $143,168. As a result, an impairment loss on mineral properties of $143,168 was reported on the condensed consolidated statements of operations for the three months ended October 31, 2016.

During the three months ended October 31, 2017 and 2016, we continued with reduced operations at the Palangana Mine to capture residual uranium only. As a result, no depletion for the Palangana Mine was recorded on the condensed consolidated financial statements for the three months ended October 31, 2017 and 2016, respectively.

Mineral property expenditures incurred by major projects were as follows:

During the three months ended October 31, 2017, and in connection with the Reno Creek Acquisition, we issued 353,160 restricted shares as settlement of the Reimbursable Expenses totalling $483,829, which was included in the mineral property expenditures on the condensed consolidated statements of operations for the three months ended October 31, 2017. Refer to Note 4: Acquisition of Reno Creek Project.

Property, plant and equipment consisted of the following:

During the three months ended October 31, 2017 and 2016, no uranium concentrate was processed at the Hobson Processing Facility due to the reduced operations at the Palangana Mine. As a result, no depreciation for the Hobson Processing Facility was recorded on the consolidated financial statements for the three months ended October 31, 2017 and 2016, respectively.

During the three months ended October 31, 2017, in connection with the Reno Creek Acquisition, we acquired certain buildings with total acquisition costs of $297,518, which will be depreciated over the estimated useful life of 20 years using the straight line method.

We acquired a total of 2,000,000 shares of Uranium Royalty Corp. (“URC”), a private entity investing in the uranium sector, for a total consideration of $151,676. In addition, one of our officers was appointed as a member of the board of directors of URC. As at October 31, 2017, we own a 14.5% interest in URC and certain of our officers collectively own an additional 11.6% interest in URC. As a result, our ability to exercise significant influence over URC’s operating and financing policies continues to exist as at October 31, 2017.

During the three months ended October 31, 2017, the change in fair value of the investment in URC is summarized as below:

During the three months ended October 31, 2017 and 2016, we incurred $37,311 and $35,115, respectively, in general and administrative costs paid to Blender Media Inc. (“Blender”), a company controlled by Arash Adnani, the brother of our President and Chief Executive Officer, for various services including information technology, corporate branding, media, website design, maintenance and hosting, provided to the Company.

During the three months ended October 31, 2017 and 2016, we issued 104,706 and 88,822 restricted common shares with a fair value of $141,678 and $91,488, respectively, as settlement of the equivalent amounts owed to Blender.

At October 31, 2017, the amount owing to Blender was $3,258 (July 31, 2017: $768).

As at October 31, 2017, long-term debt consisted of the following:

For the three months ended October 31, 2017 and 2016, the amortization of debt discount totaled $297,422 and $295,329, respectively, which was recorded as interest expense and included in the condensed consolidated statements of operations and comprehensive income.

The aggregate yearly maturities of the long-term debt based on principal amounts outstanding at October 31, 2017, are as follows:

The asset retirement obligations (“ARO”) relate to future remediation and decommissioning activities at our Palangana Mine, Hobson Processing Facility, Reno Creek Project and Alto Paraná Titanium Project.

The estimated amounts and timing of cash flows and assumptions used for ARO estimates are as follows:

The undiscounted amounts of estimated cash flows for the next five fiscal years and beyond are as follows:

Share Transactions

A summary of the share transactions for the three months ended October 31, 2017 are as follows:

⁽¹⁾ 111,250 stock options were exercised on a forfeiture basis, resulting in 66,516 net shares being issued.

Share Purchase Warrants

A summary of share purchase warrants outstanding and exercisable at October 31, 2017 are as follows:

During the three months ended October 31, 2017, in connection with the Reno Creek Acquisition, we issued 11,308,728 Warrants, with each Warrant entitling the holder to acquire one share of the Company at an exercise price of $2.30 per share for a period of five years from the date of issuance. Refer to Note 4: Acquisition of Reno Creek Project.

Stock Options

At October 31, 2017, we had one stock option plan, the 2017 Stock Incentive Plan (the “2017 Plan”).  The 2017 Plan provides for not more than 22,439,420 shares of the Company that may be issued and consists of (i) 12,305,500 shares issuable pursuant to awards previously granted that were outstanding under the 2016 Stock Incentive Plan (the “2016 Plan”); (ii) 4,133,920 shares remaining available for issuance under the 2016 Plan; and (iii) 6,000,000 additional shares that may be issued pursuant to awards that may be granted under the 2017 Plan.  The 2017 Plan superseded and replaced our 2016 Plan, which superseded and replaced our prior 2015, 2014, 2013, 2009 and 2006 Stock Incentive Plans (collectively the “Stock Incentive Plan”), such that no further shares are issuable under those prior plans.

During the three months ended October 31, 2017, we granted stock options under the Stock Incentive Plan to certain directors, officers, employees and consultants to purchase a total of 1,854,000 shares of the Company exercisable at $1.28 per share with a term five years.

The majority of these stock options are subject to a 24-month vesting provision whereby at the end of the first three and six months after the grant date, 12.5% of the total stock options become exercisable, and whereby at the end of each of 12, 18 and 24 months after the grant date, 25% of the total stock options become exercisable.

A summary of stock options granted by the Company during the three months ended October 31, 2017, including corresponding grant date fair values and assumptions using the Black Scholes option pricing model is as follows:

A continuity schedule of outstanding stock options for the underlying shares for the three months ended October 31, 2017 is as follows:

At October 31, 2017, the aggregate intrinsic value under the provisions of ASC 718 of all outstanding stock options was estimated at $741,003 (vested: $741,003 and unvested: $Nil).

At October 31, 2017, unrecognized stock-based compensation expense related to the unvested portion of stock options granted under the Stock Incentive Plan totaled $903,486 to be recognized over the next 1.10 years.

A summary of stock options outstanding and exercisable at October 31, 2017 is as follows:

Stock-Based Compensation

A summary of stock-based compensation expense is as follows:

On August 22, 2017, we issued 398,839 shares with a fair value of $510,529 under the Stock Incentive Plan as settlement of the share issuance obligations totaling $638,142, which represented the fair value of the Fiscal 2017 share bonuses made by the Company as at July 31, 2017 under the Stock Incentive Plan. The change in fair value of $127,615 between the measurement date of July 31, 2017 and the issuance date of August 22, 2017 was recorded as a credit to the stock-based compensation for the three months ended October 31, 2017.

The following table reconciles the weighted average number of shares used in the calculation of the basic and diluted loss per share:

For the three months ended October 31, 2017 and 2016, all outstanding stock options and share purchase warrants were excluded from the calculation of the diluted loss per share since we reported net losses for those periods and their effects would be anti-dilutive.

We currently operate in two reportable segments, which are uranium and titanium mining and related activities, including exploration, pre-extraction, extraction and processing of uranium and titanium minerals.

At October 31, 2017, the long-term assets located in the United States totaled $59,207,031 or 80% of our total long-term assets of $74,349,776.

The table below provides a breakdown of the long-term assets by geographic segments:

The tables below provide a breakdown of our operating results by geographic segments for the three months ended October 31, 2017 and 2016. All intercompany transactions have been eliminated.

During the three months ended October 31, 2017 and 2016, we issued 124,469 and 166,926 restricted shares with a fair value of $192,403 and $175,908, respectively, for consulting services.

During the three months ended October 31, 2017 and 2016, we issued 192,657 and 292,957 shares with a fair value of $274,801 and $291,770, respectively, as compensation to certain management, employees and consultants of the Company under the Stock Incentive Plan.

During the three months ended October 31, 2017, we issued 398,839 shares with a fair value of $510,528 as settlement of share issuance obligations of $638,142 relating to the Fiscal 2017 share bonuses made by the Company under the Stock Incentive Plan.

During the three months ended October 31, 2017 and 2016, we paid $408,889 and $408,889, respectively, in cash for interest on the long-term debt.

During the three months ended October 31, 2017 and 2016, we issued 104,706 and 88,822 restricted shares with a fair value of $141,678 and $91,488, respectively, as settlement of certain of the Company’s accounts payable.

During the three months ended October 31, 2017 and 2016, we issued 46,134 and 46,800 restricted shares with a fair value of $61,820 and $48,672, respectively, as an advance royalty payment for the Workman Creek Project.

During the three months ended October 31, 2017, we issued 14,634,748 restricted shares and paid $909,930 in cash as consideration to acquire the Reno Creek Project. In addition, we issued 353,160 restricted shares as payment of the Reimbursable Expenses totalling $483,829, and issued 217,702 restricted shares with a fair value of $283,012 as payment of certain transaction costs.

We are renting or leasing various office or storage space located in the United States, Canada and Paraguay with total monthly payments of $19,062. Office lease agreements for the United States and Canada expire between July 2018 and March 2021.

The aggregate minimum rental and lease payments over the next five fiscal years are as follows:

We are committed to paying our key executives a total of $707,000 per year for various management services.

We are subject to ordinary routine litigation incidental to our business. Except as disclosed below, we are not aware of any material legal proceedings pending or that have been threatened against the Company.

On or about March 9, 2011, the Texas Commission on Environmental Quality (the “TCEQ”) granted the Company’s applications for a Class III Injection Well Permit, Production Area Authorization and Aquifer Exemption for its Goliad Project.  On or about December 4, 2012, the U.S. Environmental Protection Agency (the “EPA”) concurred with the TCEQ issuance of the Aquifer Exemption permit (the “AE”).  With the receipt of this concurrence, the final authorization required for uranium extraction, the Goliad Project achieved fully-permitted status.  On or about May 24, 2011, a group of petitioners, inclusive of Goliad County, appealed the TCEQ action to the 250^th District Court in Travis County, Texas.  A motion filed by the Company to intervene in this matter was granted. The petitioners’ appeal lay dormant until on or about June 14, 2013, when the petitioners filed their initial brief in support of their position.  On or about January 18, 2013, a different group of petitioners, exclusive of Goliad County, filed a petition for review with the Court of Appeals for the Fifth Circuit in the United States (the “Fifth Circuit”) to appeal the EPA’s decision.  On or about March 5, 2013, a motion filed by the Company to intervene in this matter was granted.  The parties attempted to resolve both appeals, to facilitate discussions and avoid further legal costs. The parties jointly agreed, through mediation initially conducted through the Fifth Circuit on or about August 8, 2013, to abate the proceedings in the State District Court. On or about August 21, 2013, the State District Court agreed to abate the proceedings.  The EPA subsequently filed a motion to remand without vacatur with the Fifth Circuit wherein the EPA’s stated purpose was to elicit additional public input and further explain its rationale for the approval.  In requesting the remand without vacatur, which would allow the AE to remain in place during the review period, the EPA denied the existence of legal error and stated that it was unaware of any additional information that would merit reversal of the AE.  The Company and the TCEQ filed a request to the Fifth Circuit for the motion to remand without vacatur, and if granted, to be limited to a 60-day review period.  On December 9, 2013, by way of a procedural order from a three-judge panel of the Fifth Circuit, the Court granted the remand without vacatur and initially limited the review period to 60 days. In March of 2014, at the EPA’s request, the Fifth Circuit extended the EPA’s time period for review and additionally, during that same period, the Company conducted a joint groundwater survey of the site, the result of which reaffirmed the Company’s previously filed groundwater direction studies. On or about June 17, 2014, the EPA reaffirmed its earlier decision to uphold the granting of the Company’s existing AE, with the exception of a northwestern portion containing less than 10% of the uranium resource which was withdrawn, but not denied, from the AE area until additional information is provided in the normal course of mine development. On or about September 9, 2014, the petitioners filed a status report with the State District Court which included a request to remove the stay agreed to in August 2013 and to set a briefing schedule (the “Status Report”). In that Status Report, the petitioners also stated that they had decided not to pursue their appeal at the Fifth Circuit. The Company continues to believe that the pending appeal is without merit and is continuing as planned towards uranium extraction at its fully-permitted Goliad Project.

On or about April 3, 2012, the Company received notification of a lawsuit filed in the State of Arizona, in the Superior Court for the County of Yavapai, by certain petitioners (the “Plaintiffs”) against a group of defendants, including the Company and former management and board members of Concentric Energy Corp. (“Concentric”). The lawsuit asserts certain claims relating to the Plaintiffs’ equity investments in Concentric, including allegations that the former management and board members of Concentric engaged in various wrongful acts prior to and/or in conjunction with the merger of Concentric. The lawsuit originally further alleged that the Company was contractually liable for liquidated damages arising from a pre-merger transaction which the Company previously acknowledged and recorded as an accrued liability, and which portion of the lawsuit was settled in full by a cash payment of $149,194 to the Plaintiffs and subsequently dismissed. The Court dismissed several other claims set forth in the Plaintiffs’ initial complaint, but granted the Plaintiffs leave to file an amended complaint.  The Court denied a subsequent motion to dismiss the amended complaint, finding that the pleading met the minimal pleading requirements under the applicable procedural rules.  In October 2013, the Company filed a formal response denying liability for any of the Plaintiffs’ remaining claims. The Court set the case for a four-week jury trial that was to take place in Yavapai County, Arizona, in April 2016.  In November 2015, after the completion of discovery, the Company and the remaining defendants filed motions for summary judgment, seeking to dismiss all of the Plaintiffs’ remaining claims.  While those motions were pending, the parties reached a settlement agreement with respect to all claims asserted by the Plaintiffs in that lawsuit.  A formal settlement and release agreement was subsequently executed, pursuant to which all of the Plaintiffs’ claims in the Arizona lawsuit were dismissed with prejudice.  Pursuant to the terms of the settlement agreement, the Defendants collectively paid $500,000 to the Plaintiffs, of which $50,000 was paid by the Company.

On June 1, 2015, the Company received notice that Westminster Securities Corporation (“Westminster”) filed a suit in the United States District Court for the Southern District of New York, alleging a breach of contract relating to certain four-year warrants issued by Concentric in December 2008.  Although the Concentric warrants expired by their terms on December 31, 2012, Westminster bases its claim upon transactions allegedly occurring prior to UEC’s merger with Concentric.  The Company believes that this claim lacks merit and intends to vigorously defend the same.

On or about June 29, 2015, Heather M. Stephens filed a class action complaint against the Company and two of its executive officers in the United States District Court, Southern District of Texas, with an amended class action complaint filed on November 16, 2015 (the “Securities Case”), seeking unspecified damages and alleging the defendants violated Section 17(b) of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. The Company filed a motion to dismiss and on July 15, 2016, the U.S. District Court for the Southern District of Texas entered a final judgement dismissing the case in its entirety with prejudice. On September 22, 2016, the plaintiffs voluntarily dismissed their appeal of the District Court’s judgment and on September 26, 2016 the Fifth Circuit dismissed the Securities Case pursuant to the plaintiffs’ motion. As a result, the judgment in favor of the Company is final. No settlement payments or any other consideration was paid by the Company to the plaintiffs in connection with the Securities Case dismissal.

On or about September 10, 2015, John Price filed a stockholder derivative complaint on behalf of the Company against the Company’s Board of Directors, executive management and three of its vice presidents in the United States District Court, Southern District of Texas, with an amended stockholder derivative complaint filed on December 4, 2015 (the “Federal Derivative Case”), seeking unspecified damages on behalf of the Company against the defendants for allegedly breaching their fiduciary duties to the Company with respect to the allegations in the Securities Case. The Company filed a motion to dismiss. The plaintiff ultimately abandoned the Federal Derivative Case, which the Court dismissed on or about November 17, 2016. No settlement payments or any other consideration was paid by the Company to the plaintiff in connection with the plaintiff’s abandonment of the Federal Derivative Case

On or about October 2, 2015, Marnie W. McMahon filed a stockholder derivative complaint on behalf of the Company against the Company’s Board of Directors, executive management and three of its vice presidents in the District Court of Nevada (the “Nevada Derivative Case”) (collectively, with the Federal Derivative Case, the “Derivative Cases”) seeking unspecified damages on behalf of the Company against the defendants for allegedly breaching their fiduciary duties to the Company with respect to the allegations in the Securities Case. On January 21, 2016, the Court granted the Company’s motion to stay the Nevada Derivative Case pending the outcome of the Federal Derivative Case. Following the voluntary dismissal of the Federal Derivative Case, Ms. McMahon filed an amended complaint on February 10, 2017, which again asserted that the Company’s directors breached their fiduciary duties relating to the factual allegations in the Securities Case. The Company filed a motion to dismiss and on September 13, 2017, the Court granted the Company’s motion to dismiss the Nevada Derivative Case. On or about October 5, 2017, the Plaintiff filed a notice of appeal with the Court.

The Company’s Board of Directors received a shareholder demand letter dated September 10, 2015 relating to the allegations in the Securities Case (the “Shareholder Demand”). The letter demands that the Board of Directors initiate an action against the Company’s Board of Directors and two of its executive officers to recover damages allegedly caused to the Company. The Board of Directors appointed a committee of independent directors to evaluate the allegations in the demand letter. Subsequently, the Federal District Court dismissed the Securities Case, which was based on similar factual allegations, and the Federal Derivative Case was abandoned. The committee of independent directors has now completed its evaluation and recommended that the Board of Directors reject the demand. After considering the committee’s recommendation and all other material information relevant to the investigation, the Board of Directors voted to reject the demand letter.

At any given time, we may enter into negotiations to settle outstanding legal proceedings and any resulting accruals will be estimated based on the relevant facts and circumstances applicable at that time.  We does not expect that such settlements will, individually or in the aggregate, have a material effect on its financial position, results of operations or cash flows.

Subsequent to October 31, 2017, we entered into a definitive purchase agreement (the “Purchase Agreement”) with Uranerz Energy Corporation (“Uranerz”), a wholly owned subsidiary of Energy Fuels Inc., to acquire 100% of its advanced stage North Reno Creek project (“North Reno Creek Project”) located immediately adjacent to and within our existing Reno Creek Project permitting boundary in the Powder River Basin, Wyoming.

According to the Definitive Purchase Agreement, we will provide to Uranerz the following consideration at the closing of this transaction:

(a)        $2,940,000 in cash; and

(b)        $2,450,000 in shares of the Company (each, a “UEC Share”), with the number of UEC Shares to be calculated based on a deemed issuance price per UEC Share based on the volume weighted average price of our common shares on the NYSE American for the five trading days immediately prior to the closing date of the Purchase Agreement.

The following management’s discussion and analysis of the Company’s financial condition and results of operations (“MD&A”) contain forward-looking statements that involve risks, uncertainties and assumptions including, among others, statements regarding our capital needs, business plans and expectations. In evaluating these statements, you should consider various factors, including the risks, uncertainties and assumptions set forth in reports and other documents we have filed with or furnished to the SEC, including, without limitation, this Form 10-Q Quarterly Report for the three months ended October 31, 2017, and our Form 10-K Annual Report for the fiscal year ended July 31, 2017, including the consolidated financial statements and related notes contained therein. These factors, or any one of them, may cause our actual results or actions in the future to differ materially from any forward-looking statement made in this document. Refer to “Cautionary Note Regarding Forward-Looking Statements” as disclosed in our Form 10-K Annual Report for the fiscal year ended July 31, 2017, and Item 1A, Risk Factors under Part II - Other Information of this Quarterly Report.

Introduction

This MD&A is focused on material changes in our financial condition from July 31, 2017, our most recently completed year end, to October 31, 2017, and our results of operations for the three months ended October 31, 2017 and 2016, and should be read in conjunction with Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations as contained in our Form 10-K Annual Report for Fiscal 2017.

Business

We are pre-dominantly engaged in uranium mining and related activities, including exploration, pre-extraction, extraction and processing, on uranium projects located in the United States and Paraguay, as more fully described in our Form 10-K Annual Report for Fiscal 2017.

We utilize in-situ recovery (“ISR”) mining where possible which we believe, when compared to conventional open pit or underground mining, requires lower capital and operating expenditures with a shorter lead time to extraction and a reduced impact on the environment. We have one uranium mine located in the State of Texas, the Palangana Mine, which utilizes ISR mining and commenced extraction of uranium concentrates (“U₃O₈”), or yellowcake, in November 2010. We have one uranium processing facility located in the State of Texas, the Hobson Processing Facility, which processes material from the Palangana Mine into drums of U₃O₈, our only sales product and source of revenue, for shipping to a third-party storage and sales facility. At October 31, 2017, we had no uranium supply or off-take agreements in place.

Our fully-licensed and 100%-owned Hobson Processing Facility forms the basis for our regional operating strategy in the State of Texas, specifically the South Texas Uranium Belt where we utilize ISR mining. We utilize a “hub-and-spoke” strategy whereby the Hobson Processing Facility acts as the central processing site (the “hub”) for the Palangana Mine and future satellite uranium mining activities, such as our Burke Hollow and Goliad Projects, located within the South Texas Uranium Belt (the “spokes”). The Hobson Processing Facility has a physical capacity to process uranium-loaded resins up to a total of two million pounds of U₃O₈ annually and is licensed to process up to one million pounds of U₃O₈ annually.

We acquired the fully permitted Reno Creek Project in August 2017 and expanded our operations to the strategic Powder River Basin in Wyoming.

We also hold certain mineral rights in various stages in the States of Arizona, Colorado, New Mexico, and Texas and in the Republic of Paraguay, many of which are located in historically successful mining areas and have been the subject of past exploration and pre-extraction activities by other mining companies. We do not expect, however, to utilize ISR mining for all of the uranium mineral rights in which case we would expect to rely on conventional open pit and/or underground mining techniques.

Since we completed the acquisition of the Alto Paraná Titanium Project located in Paraguay in July 2017, we are also involved in titanium mining and related activities, including exploration, development, extraction and processing of titanium minerals such as ilmenite.

Our operating and strategic framework is based on expanding our uranium and titanium extraction activities, which includes advancing certain projects with established mineralized materials towards extraction, and establishing additional mineralized materials on our existing uranium and titanium projects or through the acquisition of additional projects.

During the three months ended October 31, 2017, we continued our strategic plan for reduced operations implemented in September 2013 to align our operations to a weak uranium market in a challenging post-Fukushima environment. As part of this strategy, we operated the Palangana Mine at a reduced pace to capture residual uranium only, while maintaining the Palangana Mine and Hobson Facility in a state of operational readiness. This strategy also included the deferral of major exploration and pre-extraction expenditures and maintaining our core exploration projects in good standing in anticipation of a recovery in uranium prices.

Mineral Rights and Properties

The following is a summary of significant activities by project for the three months ended October 31, 2017:

Burke Hollow Project

During the three months ended October 31, 2017, we continued to advance the applications of the Radioactive Material License for the Burke Hollow Project after receipt of the Mine Area Permit and Aquifer Exemption in Fiscal 2017 and two Class I disposal well permits in Fiscal 2016. The Radioactive Material License application remains under technical review by the TCEQ. 

During the three months ended October 31, 2017, we completed a drilling campaign initiated in April 2017 and drilled 132 exploration holes totaling 58,020 feet at the Burke Hollow Project.

Yuty Project

During the three months ended October 31, 2017, we continued work on the Preliminary Economic Assessment in accordance with the provisions of National Instrument 43-101 for the Yuty Project. Initial leach testing performed by a United States laboratory on split core samples from the Yuty Project clearly demonstrated that acceptable uranium recoveries can be achieved upon optimization of the chemistry. Additional testing to refine the leach chemistry for the Yuty Project will be undertaken throughout the remainder of calendar 2017. 

Acquisition of Reno Creek Project

On August 9, 2017, we completed our acquisition of all of the issued and outstanding shares of RCHI and, indirectly thereby, 100% of its fully permitted Reno Creek Project located in the Powder River Basin, Wyoming, in accordance with the terms and conditions of the Share Purchase Agreement, dated May 9, 2017, as amended by an Amending Agreement, dated August 7, 2017.

Refer to Note 4: Acquisition of Reno Creek Project of the Notes to the Condensed Consolidated Financial Statements for the three months ended October 31, 2017.

Acquisition of North Reno Creek Project

Subsequent to October 31, 2017, we entered into a definitive Purchase Agreement with Uranerz, a wholly owned subsidiary of Energy Fuels Inc., to acquire 100% of its advanced stage North Reno Creek Project, located immediately adjacent to and within our existing Reno Creek Project permitting boundary located in the Powder River Basin, Wyoming.

According to the Purchase Agreement, we will provide to Uranerz the following consideration at the closing of the Purchase Agreement:

(a)        $2,940,000 in cash; and

(b)        $2,450,000 in UEC Shares, with the number of UEC Shares to be calculated based on a deemed issuance price per UEC Share based on the volume weighted average price of our common shares on the NYSE American for the five trading days immediately prior to the closing date of the Purchase Agreement.

Acquisition of the North Reno Creek Project will add further scale to our existing Reno Creek Project and enable us to realize significant project synergies in the consolidated development in the Powder River Basin area.

Results of Operations

For the three months ended October 31, 2017 and 2016, we recorded net losses of $4,555,840 ($0.03 per share) and $4,252,694 ($0.04 per share), respectively. Costs and expenses during the three months ended October 31, 2017 and 2016, were $4,021,997 and $3,527,570, respectively.

During the three months ended October 31, 2017 and 2016, we continued with our strategic plan for reduced operations implemented in September 2013 and continued reduced operations at the Palangana Mine to capture residual pounds of U₃O₈ only.  As a result, no U₃O₈ extraction or processing costs were capitalized to inventories during the three months ended October 31, 2017 and 2016. At October 31, 2017, the total value of inventories was $211,662 (July 31, 2017: $211,662).

Costs and Expenses

For the three months ended October 31, 2017, costs and expenses totaled $4,021,997 and $3,527,570, comprised of, mineral property expenditures of $1,676,700 and $890,118, general and administrative expenditures of $2,254,962 and $2,282,238, depreciation, amortization and accretion of $90,335 and $151,352, impairment loss on mineral properties of $Nil and $143,168, and an inventory write-down of $Nil and $60,694 respectively.

Mineral Property Expenditures

Mineral property expenditures were primarily comprised of costs relating to permitting, property maintenance, exploration and pre-extraction activities and all other non-extraction related activities on our projects.

During the three months ended October 31, 2017 and 2016, mineral property expenditures totaled $1,676,700 and $890,118, of which $320,926 and $345,388, respectively, were directly related to maintaining operational readiness and permitting compliance for the Palangana Mine and Hobson Processing Facility.

During the three months ended October 31, 2017, pursuant to the Share Purchase Agreement and in connection with the closing of the Reno Creek Acquisition, we paid Reimbursable Expenses of $483,829 for the property maintenance costs incurred at the Reno Creek Project prior to the closing of the Reno Creek Acquisition, which were included in the mineral property expenditures for the three months ended October 31, 2017.

The following table provides mineral property expenditures on our projects for the periods indicated:

General and Administrative

During the three months ended October 31, 2017 and 2016, general and administrative expenses totaled $2,254,962 and $2,282,238, respectively.

The following summary provides a discussion of the major expense categories, including analyses of the factors that caused significant variances compared to the same periods last year:

Depreciation, Amortization and Accretion

During the three months ended October 31, 2017, depreciation, amortization and accretion totaled $90,335, which decreased by $61,017, compared to $151,352 for the three months ended October 31, 2016. This decrease was primarily the result of certain property and equipment having reached full depreciation or amortization and less accretion expenses on the reduced asset retirement obligations associated with the Palangana Mine as a result of downward revisions during Fiscal 2016 and Fiscal 2017.

Depreciation, amortization and accretion include depreciation and amortization of long-term assets acquired in the normal course of operations and accretion of asset retirement obligations.

Impairment Loss on Mineral Properties

During the three months ended October 31, 2017, we did not record any impairment loss on our mineral properties, while for the three months ended October 31, 2016, we recorded an impairment loss on mineral properties of $143,168 as a result of abandonment of certain mineral interests at projects located in Arizona, Colorado and New Mexico.

Other Income and Expenses

Interest and Finance Costs

During the three months ended October 31, 2017, interest and finance costs totaled $740,292, which have remained consistent compared to $738,103 for the three months ended October 31, 2016.

For the three months ended October 31, 2017, interest and finance costs were primarily comprised of interest paid on long-term debt of $408,889, amortization of debt discount of $297,422, and amortization of annual surety bond premium of $29,214.

For the three months ended October 31, 2016, interest and finance costs were primarily comprised of interest paid on long-term debt of $408,889, amortization of debt discount of $295,329, and amortization of annual surety bond premium of $29,118.

Share of gain from equity-accounted investment

During the three month ended October 31, 2017, we recorded share of gain from equity-accounted investment of $108,789, which was comprised of a gain on ownership interest dilution of $129,156, offset by the share of loss from URC of $20,367.

Summary of Quarterly Results