10-Q 1 uec20191031_10q.htm FORM 10-Q uec20191031_10q.htm
 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

[X]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended October 31, 2019

 

or

 

[   ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the transition period from _____ to _____

 

Commission File Number: 001-33706

 

URANIUM ENERGY CORP.

(Exact name of registrant as specified in its charter)

 

Nevada

 

98-0399476

State or other jurisdiction of incorporation of organization)

 

 (I.R.S. Employer Identification No.)

     

1030 West Georgia Street, Suite 1830, Vancouver, B.C., Canada

 

V6E 2Y3

(Address of principal executive offices)

 

   (Zip Code)

 

 

(604) 682-9775

 
 

(Registrant’s telephone number, including area code)

 
     
  N/A  
  (Former name, former address and former fiscal year, if changed since last report)  

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

UEC

NYSE American

 

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    No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes    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.

 

☐ Large accelerated filer   Accelerated filer
     
☐ Non-accelerated filer   Smaller reporting company
     
☐ Emerging growth company    

 

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

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:  183,291,962 shares of common stock outstanding as of December 6, 2019.

 

 

 

 

 

 URANIUM ENERGY CORP.

 

TABLE OF CONTENTS

 

PART I –FINANCIAL INFORMATION   4
         
Item 1.   Financial Statements    4
         
Item 2   Management's Discussion and Analysis of Financial Condition and Results of Operations   24
         
Item 3   Quantitative and Qualitative Disclosures About Market Risk   31
         
Item 4   Controls and Procedures   31
         
PART II – OTHER INFORMATION    32
         
Item 1.   Legal Proceedings   32
         
Item 1A.   Risk Factors   33
         
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds   43
         
Item 3.   Defaults Upon Senior Securities   43
         
Item 4.   Mine Safety Disclosures   43
         
Item 5.   Other Information   43
         
Item 6.   Exhibits   44
         
SIGNATURES       45

 

3

 

 

PART I – FINANCIAL INFORMATION

 

Item 1.     Financial Statements

 

4

 

 

 

 

 

 

URANIUM ENERGY CORP.

 

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

FOR THE THREE MONTHS ENDED OCTOBER 31, 2019

 

(Unaudited)

 

 

5

 

 

 
URANIUM ENERGY CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 


 

    Note(s)     October 31, 2019     July 31, 2019  
                         

CURRENT ASSETS

                       

Cash and cash equivalents

    5     $ 13,112,069     $ 6,058,186  

Term deposits

            -       11,831,671  

Inventories

            211,662       211,662  

Prepaid expenses and deposits

            1,428,520       1,343,458  

Other current assets

            136,913       264,956  
              14,889,164       19,709,933  
                         

MINERAL RIGHTS AND PROPERTIES

    3       63,534,003       63,536,895  

PROPERTY, PLANT AND EQUIPMENT

    4       7,044,000       7,042,359  

RESTRICTED CASH

    5       1,828,921       1,821,392  

EQUITY-ACCOUNTED INVESTMENT

    6       8,329,958       8,680,449  

OTHER LONG-TERM ASSETS

    7       1,070,450       249,214  
            $ 96,696,496     $ 101,040,242  
                         
                         

CURRENT LIABILITIES

                       

Accounts payable and accrued liabilities

          $ 1,641,517     $ 3,002,688  

Other current liabilities

    11       199,714       -  

Due to a related party

    8       80       68,680  
              1,841,311       3,071,368  
                         

LONG-TERM DEBT

    9       20,032,184       19,599,963  

ASSET RETIREMENT OBLIGATIONS

    10       3,589,390       3,541,082  

OTHER LONG-TERM LIABILITIES

    11       592,555       50,010  

DEFERRED TAX LIABILITIES

            548,873       550,551  
              26,604,313       26,812,974  
                         

STOCKHOLDERS' EQUITY

                       
Capital stock                        

Common stock $0.001 par value: 750,000,000 shares authorized, 181,360,946 shares issued and outstanding (July 31, 2019 - 180,896,431)

    12       181,361       180,896  

Additional paid-in capital

            337,151,616       336,047,595  

Share issuance obligation

    12       -       187,100  

Accumulated deficit

            (267,243,361 )     (262,200,784 )

Accumulated other comprehensive income

            2,567       12,461  
              70,092,183       74,227,268  
            $ 96,696,496     $ 101,040,242  
                         

COMMITMENTS AND CONTINGENCIES

    16                  

SUBSEQUENT EVENTS

    6,9                  

 

 

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

 

6

 

 

 
URANIUM ENERGY CORP.

 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

 (Unaudited)

 


 

              Three Months Ended October 31,  
      Note(s)       2019       2018  

COSTS AND EXPENSES

                       

Mineral property expenditures

    3     $ 1,523,451     $ 866,243  

General and administrative

    8,12       2,315,170       2,258,935  

Depreciation, amortization and accretion

    3,4,10       76,386       88,776  
              3,915,007       3,213,954  

LOSS FROM OPERATIONS

            (3,915,007 )     (3,213,954 )
                         

OTHER INCOME (EXPENSES)

                       

Interest income

            89,181       57,904  

Interest expenses and finance costs

    9       (885,125 )     (754,849 )

(Loss) income from equity-accounted investment

    6       (340,597 )     387,869  

Other income

            7,293       66,436  
              (1,129,248 )     (242,640 )

LOSS BEFORE INCOME TAXES

            (5,044,255 )     (3,456,594 )
                         

DEFERRED TAX BENEFITS

            1,678       5,168  

NET LOSS FOR THE PERIOD

            (5,042,577 )     (3,451,426 )
                         

OTHER COMPREHENSIVE LOSS,

                       

NET OF INCOME TAXES

            (9,894 )     -  

TOTAL COMPREHENSIVE LOSS FOR THE PERIOD

          $ (5,052,471 )   $ (3,451,426 )
                         

NET LOSS PER SHARE, BASIC AND DILUTED

    13     $ (0.03 )   $ (0.02 )
                         

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING, BASIC AND DILUTED

            181,240,702       166,397,293  

 

 

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

 

7

 

 

 

URANIUM ENERGY CORP.

 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 (Unaudited)

 


 

              Three Months Ended October 31,  

 

     Note(s)        2019        2018  
NET CASH PROVIDED BY (USED IN):                        
                         

OPERATING ACTIVITIES

                       

Net loss for the year

          $ (5,042,577 )   $ (3,451,426 )

Adjustments to reconcile net loss to cash flows in operating activities

                       

Stock-based compensation

    12       917,386       841,524  

Depreciation, amortization and accretion

    3,4,10       76,386       88,776  

Amortization of long-term debt discount

    9       432,221       307,771  

Deferred tax benefits

            (1,678 )     (5,168 )

Loss (income) from equity-accounted investment

    6       340,597       (387,869 )

Realized loss on available-for-sale securities

            -       799  

Changes in operating assets and liabilities

                       

Prepaid expenses and deposits

            (85,062 )     (387,917 )

Other current assets

            128,043       (10,801 )

Accounts payable and accrued liabilities

            (1,361,171 )     (966,472 )

Due to a related party

    8       (68,600 )     12,224  

Other liabilities

            (78,977 )     -  

NET CASH USED IN OPERATING ACTIVITIES

            (4,743,432 )     (3,958,559 )
                         

FINANCING ACTIVITIES

                       

Proceeds from share issuance, net of issuance costs

            -       21,639,005  

NET CASH PROVIDED BY FINANCING ACTIVITIES

            -       21,639,005  
                         

INVESTING ACTIVITIES

                       

Investment in mineral rights and properties

            -       (55,000 )

Purchase of property, plant and equipment

            (26,827 )     -  

Investment in term deposits

            -       (15,000,000 )

Proceeds from redemption of term deposits

            11,831,671       -  

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES

            11,804,844       (15,055,000 )
                         

NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

            7,061,412       2,625,446  

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD

      7,879,578       8,716,422  

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD

    5     $ 14,940,990     $ 11,341,868  
                         

SUPPLEMENTAL CASH FLOW INFORMATION

    11,15                  

 

 

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

 

8

 

 

 

URANIUM ENERGY CORP.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

 


 

   

Common Stock

   

Additional Paid-in

   

Share

Issuance

   

Accumulated

   

Accumulated

Other Comprehensive

   

Stockholders'

 
   

Shares

   

Amount

    Capital     Obligation     Deficit     Income (Loss)     Equity  

Balance, July 31, 2019

    180,896,431     $ 180,896     $ 336,047,595     $ 187,100     $ (262,200,784 )   $ 12,461     $ 74,227,268  

Stock-based compensation

                                                       

Common stock issued for consulting services

    29,167       29       31,763       -       -       -       31,792  

Common stock issued under Stock Incentive Plan

    435,348       436       410,026       (187,100 )     -       -       223,362  

Amortization of stock option expenses

    -       -       662,232       -       -       -       662,232  

Net loss for the period

    -       -       -       -       (5,042,577 )     -       (5,042,577 )

Other comprehensive loss

    -       -       -       -       -       (9,894 )     (9,894 )

Balance, October 31, 2019

    181,360,946     $ 181,361     $ 337,151,616     $ -     $ (267,243,361 )   $ 2,567     $ 70,092,183  

 

   

Common Stock

   

Additional Paid-in

   

Share

Issuance

   

Accumulated

    Accumulated Other Comprehensive    

Stockholders'

 
   

Shares

   

Amount

    Capital     Obligation     Deficit     Income (Loss)     Equity  

Balance, July 31, 2018

    161,175,764     $ 161,176     $ 308,062,379     $ -     $ (245,151,636 )   $ 103,641     $ 63,175,560  

Common stock

                                                       

Issued for equity financing, net of issuance costs

    12,613,049       12,613       15,978,349       -       -       -       15,990,962  

Issued upon exercise of stock options

    100,422       100       72,262       -       -       -       72,362  

Issued upon exercise of warrants

    2,061,764       2,062       2,494,555       -       -       -       2,496,617  

Stock-based compensation

                                                       

Common stock issued for consulting services

    30,845       31       50,682       -       -       -       50,713  

Common stock issued under Stock Incentive Plan

    141,546       141       239,114       -       -       -       239,255  

Amortization of stock option expenses

    -       -       551,556       -       -       -       551,556  

Warrants

                                                       

Issued for equity financing

    -       -       2,606,884       -       -       -       2,606,884  

Issued for equity financing as issuance costs

    -       -       371,366       -       -       -       371,366  

Net loss for the period

    -       -       -       -       (3,451,426 )     -       (3,451,426 )

Reclassification upon adoption of ASU No. 2016-01

    -       -       -       -       103,641       (103,641 )     -  

Balance, October 31, 2018

    176,123,390     $ 176,123     $ 330,427,147     $ -     $ (248,499,421 )   $ -     $ 82,103,849  

 

 

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

 

9

 

 

URANIUM ENERGY CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2019
(Unaudited)

                                                                              


 

 

NOTE 1:     NATURE OF OPERATIONS

 

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, Canada and the Republic of 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, 2019, or for the fiscal years ended July 31, 2019 (“Fiscal 2019”), July 31, 2018 (“Fiscal 2018”), July 31, 2017 (“Fiscal 2017”), July 31, 2016 (“Fiscal 2016”) or July 31, 2014 (“Fiscal 2014”). Historically, we have been reliant primarily on equity financings from the sale of our common stock and on debt financing in order to fund our operations, and this reliance is expected to continue for the foreseeable future.

 

At October 31, 2019, we had cash and cash equivalents of $13.1 million and working capital of $13.0 million.  With a reduction of our cash burn rate from that incurred in Fiscal 2019 by curtailing expenditures on discretionary and non-core activities and paying certain management, consulting and service provider fees by the issuance of shares of the Company in lieu of cash, our existing cash resources and, if necessary, cash generated from the sale of the Company’s liquid asset, are expected to provide sufficient funds to carry out our planned operations for 12 months from the date that our condensed consolidated financial statements are issued.  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.

 

 

NOTE 2:     SUMMARY OF SIGNIFICANT POLICIES

 

Basis of Presentation

 

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with United States (“U.S.”) 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 Fiscal 2019. 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, 2019, are not necessarily indicative of the results that may be expected for the fiscal year ending July 31, 2020 (“Fiscal 2020”).

 

Exploration Stage

 

We have established the existence of mineralized materials for certain uranium projects, including for our 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 (“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.

 

10

 

 

URANIUM ENERGY CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2019
(Unaudited)

 


 

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 we 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.

 

Recently Adopted Accounting Standards

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification (“ASC”) 2016-02, “Leases”, (Topic 842), together with subsequent amendments. The new standard requires a lessee to recognize on its balance sheet, a liability to make lease payments (the lease liability) and the right-of-use (“ROU”) asset representing the right to the underlying asset for the lease term.

 

Effective August 1, 2019, the Company adopted this new standard using the modified retrospective approach with a cumulative-effect adjustment recorded at the beginning of the period of adoption.  Therefore, upon adoption, the Company has recognized and measured leases without revising comparative period information or disclosure. We elected the package of practical expedients permitted under the transition guidance, which applies to expired or existing leases and allows the Company not to reassess whether a contract contains a lease, the lease classification, and any initial direct costs incurred.

 

We also elected a number of optional practical expedients including the following:

 

 

we elected the short-term lease recognition exemption whereby ROU assets and lease liabilities will not be recognized for leasing arrangements with terms less than one year;

 

we elected the land easements practical expedient whereby existing land easements are not reassessed under the new standard;

 

we elected hindsight practical expedient when determining lease term; and

 

we elected the practical expedient not to separate non-lease components from lease components.

 

Based on contracts outstanding at August 1, 2019, the adoption of the new standard resulted in the recognition of operating lease ROU assets of $876,590 including $92,235 reclassified from Prepaid Expenses and Deposits, and lease liabilities of $784,355.  Adoption of this standard did not have a material impact to our Consolidated Statements of Operations and Comprehensive Loss and our Consolidated Statements of Cash Flows.  See Note 11: Lease Liabilities for additional qualitative and quantitative disclosures related to leasing arrangement

 

11

 

 

URANIUM ENERGY CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2019
(Unaudited)

 


 

Accounting Policy - Leases

 

The Company’s accounting policy as a result of adoption of ASC 842 is summarized below.

 

The Company determines if a contractual arrangement represents or contains a lease at inception. Operating leases with lease terms greater than 12 months are included in Other Long-term Assets and Other Current Liabilities and Other Long-term Liabilities in our Consolidated Balance Sheet. Finance leases are included in Property, Plant and Equipment and Other Current Liabilities and Other Long-term Liabilities in our Consolidated Balance Sheet.

 

Operating and finance lease ROU assets and lease liabilities are recognized based on the present value of the future lease payments over the lease term at commencement date. When the rate implicit to the lease cannot be readily determined, the Company utilizes its incremental borrowing rate in determining the present value of the future lease payments. The incremental borrowing rate is the rate of interest the Company would have to pay to borrow on a collateralized basis over a similar term and the amount equal to the lease payments in a similar economic environment.

 

The Company’s operating lease expenses are recognized on a straight-line basis over the lease term and included in General and Administration expenses. Short-term leases, which have an initial term of 12 months or less, are not recorded in our Condensed Consolidated Balance Sheets.

 

The Company has leases arrangements that include both lease and non-lease components. The Company accounts for each separate lease component and its associated non-lease components as a single lease component for all of its asset classes.

 

12

 

 

URANIUM ENERGY CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2019
(Unaudited)

 


 

 

NOTE 3:     MINERAL RIGHTS AND PROPERTIES

 

Mineral Rights

 

At October 31, 2019, we had mineral rights in the States of Arizona, Colorado, New Mexico, Wyoming and Texas, in Canada 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, 2019, annual maintenance payments of approximately $2.6 million will be required to maintain these mineral rights.

 

Mineral rights and property acquisition costs consisted of the following:

   

   

October 31, 2019

   

July 31, 2019

 

Mineral Rights and Properties

               

Palangana Mine

  $ 6,027,784     $ 6,027,784  

Goliad Project

    8,689,127       8,689,127  

Burke Hollow Project

    1,495,750       1,495,750  

Longhorn Project

    116,870       116,870  

Salvo Project

    14,905       14,905  

Anderson Project

    3,470,373       3,470,373  

Workman Creek Project

    699,854       699,854  

Los Cuatros Project

    257,250       257,250  

Reno Creek Project

    31,527,870       31,527,870  

Diabase Project

    546,938       546,938  

Yuty Project

    11,947,144       11,947,144  

Oviedo Project

    1,133,412       1,133,412  

Alto Paraná Titanium Project

    1,433,030       1,433,030  

Other Property Acquisitions

    91,080       91,080  
      67,451,387       67,451,387  

Accumulated Depletion

    (3,929,884 )     (3,929,884 )
      63,521,503       63,521,503  
                 

Databases

    2,410,038       2,410,038  

Accumulated Amortization

    (2,409,437 )     (2,409,188 )
      601       850  
                 

Land Use Agreements

    404,310       404,310  

Accumulated Amortization

    (392,411 )     (389,768 )
      11,899       14,542  
    $ 63,534,003     $ 63,536,895  

 

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, 2019 and 2018, 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 our Condensed Consolidated Financial Statements for the three months ended October 31, 2019 and 2018, respectively. 

 

13

 

 

Uranium Energy Corp.
Notes to the Condensed Consolidated Financial Statements
October 31, 2019
(Unaudited)

 


 

Mineral property expenditures incurred by major projects were as follows: 

 

   

Three Months Ended October 31,

 
   

2019

   

2018

 

Mineral Property Expenditures

               

Palangana Mine

  $ 320,027     $ 280,032  

Goliad Project

    59,965       18,822  

Burke Hollow Project

    648,861       108,545  

Longhorn Project

    10,157       15,376  

Salvo Project

    7,269       6,808  

Anderson Project

    16,053       22,214  

Workman Creek Project

    8,198       7,692  

Slick Rock Project

    13,134       17,224  

Reno Creek Project

    148,043       147,876  

Yuty Project

    14,196       23,403  

Oviedo Project

    105,938       20,725  

Alto Paraná Titanium Project

    56,248       25,833  

Other Mineral Property Expenditures

    115,362       171,693  
    $ 1,523,451     $ 866,243  

 

 

NOTE 4:     PROPERTY, PLANT AND EQUIPMENT

 

Property, plant and equipment consisted of the following:

 

   

October 31, 2019

   

July 31, 2019

 
   

Cost

   

Accumulated
Depreciation

   

Net Book
Value

   

Cost

   

Accumulated
Depreciation

   

Net Book
Value

 

Hobson Processing Facility

  $ 6,642,835     $ (773,933 )   $ 5,868,902     $ 6,642,835     $ (773,933 )   $ 5,868,902  

Mining Equipment

    2,472,297       (2,407,572 )     64,725       2,467,557       (2,402,681 )     64,876  

Logging Equipment and Vehicles

    1,970,124       (1,743,359 )     226,765       1,950,229       (1,730,905 )     219,324  

Computer Equipment

    574,743       (550,632 )     24,111       572,551       (546,652 )     25,899  

Furniture and Fixtures

    170,701       (169,522 )     1,179       170,701       (169,379 )     1,322  

Land and Buildings

    889,606       (31,288 )     858,318       889,606       (27,570 )     862,036  
    $ 12,720,306     $ (5,676,306 )   $ 7,044,000     $ 12,693,479     $ (5,651,120 )   $ 7,042,359  

 

During the three months ended October 31, 2019 and 2018, no uranium concentrate was processed at our Hobson Processing Facility due to the reduced operations at our Palangana Mine. As a result, no depreciation for the Hobson Processing Facility was recorded on our Consolidated Financial Statements for the three months ended October 31, 2019 and 2018, respectively.

 

14

 

 

Uranium Energy Corp.
Notes to the Condensed Consolidated Financial Statements
October 31, 2019
(Unaudited)

 


 

 

NOTE 5:      RESTRICTED CASH

 

Restricted cash includes cash and cash equivalents and money market funds as collateral for various bonds posted in favor of applicable state regulatory agencies in Arizona, Texas and Wyoming, and for estimated reclamation costs associated with our Palangana Mine, Hobson Processing Facility and Reno Creek Project. Restricted cash will be released upon completion of reclamation of a mineral property or restructuring of a surety and collateral arrangement.

 

   

October 31, 2019

   

July 31, 2019

 

Restricted cash, beginning of period

  $ 1,821,392     $ 1,789,899  

Interest received

    7,529       31,493  

Restricted cash, end of period

  $ 1,828,921     $ 1,821,392  

 

Cash, cash equivalents and restricted cash are included in the following accounts at October 31, 2019 and 2018:

 

   

October 31, 2019

   

October 31, 2018

 

Cash and cash equivalents

  $ 13,112,069     $ 9,545,339  

Restricted cash

    1,828,921       1,796,529  

Total cash, cash equivalents and restricted cash

  $ 14,940,990     $ 11,341,868  

 

 

NOTE 6:      EQUITY-ACCOUNTED INVESTMENT

 

As at October 31, 2019, we own 14,000,000 shares of Uranium Royalty Corp. (“URC”), a private entity investing in the uranium sector, representing a 31.3% interest in URC. In addition, two of our officers are members of URC’s board of directors, one of which is an officer of URC. As a consequence, our ability to exercise significant influence over URC’s operating and financing policies continued to exist during the three months ended October 31, 2019.

 

During the three months ended October 31, 2019, the change in carrying value of our investment in URC is summarized as follows:

 

Balance, July 31, 2019

  $ 8,680,449  

Share of loss from URC

    (669,227 )

Gain on ownership interest dilution

    328,630  

Translation loss

    (9,894 )

Balance, October 31, 2019

  $ 8,329,958  

 

Subsequent to October 31, 2019, URC completed an initial public offering which consisted of the issuance of 20,000,000 units of URC (each, a “URC Unit”).  Each URC Unit is comprised of one common share and one common share purchase warrant of URC.

 

 

NOTE 7:      OTHER LONG-TERM ASSETS

 

At October 31, 2019, other long-term assets totaled $1,070,450 (July 31, 2019: $249,214), which included ROU assets relating to the operating leases totaling $819,784 (July 31, 2019: $Nil) and the non-current portion of certain prepaid expenses of $250,666 (July 31, 2019: $249,214).

  

15

 

  

Uranium Energy Corp.
Notes to the Condensed Consolidated Financial Statements
October 31, 2019
(Unaudited)

 


 

 

NOTE 8:     RELATED PARTY TRANSACTIONS

 

During the three months ended October 31, 2019 and 2018, we incurred $32,833 and $37,704, respectively, in general and administrative costs paid to Blender Media Inc. (“Blender”), a company controlled by Arash Adnani, a direct family member 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.

 

At October 31, 2019, the amount owing to Blender was $80 (July 31, 2019: $68,680).

 

 

NOTE 9:      LONG-TERM DEBT     

 

As at October 31, 2019, our long-term debt consisted of the following:

 

   

October 31, 2019

   

July 31, 2019

 

Principal amount

  $ 20,000,000     $ 20,000,000  

Unamortized discount and accrued fees

    32,184       (400,037 )
    $ 20,032,184     $ 19,599,963  

 

For the three months ended October 31, 2019 and 2018, the amortization of debt discount totaled $432,221 and $307,771, respectively, which was recorded as interest expense and included in our Condensed Consolidated Statements of Operations and Comprehensive Loss.

 

The Company’s Credit Facility has a maturity date on January 31, 2022, with an interest rate of 8% per annum and an underlying effective interest rate of 16.67%.

 

The aggregate yearly maturities of long-term debt based on principal amounts outstanding at October 31, 2019 are as follows:

 

Fiscal 2020

  $ -  

Fiscal 2021

    -  

Fiscal 2022

    20,000,000  

Total

  $ 20,000,000  

 

Subsequent to October 31, 2019, and pursuant to the terms of our Third Amended and Restated Credit Agreement with our Lenders, we issued an aggregate of 1,743,462 shares with a fair value of $1,400,000 to our Lenders, representing 7% of the $20,000,000 principal balance outstanding at October 31, 2019, as payment of anniversary fees to our Lenders.

 

16

 

 

Uranium Energy Corp.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2019
(Unaudited)

 


 

 

NOTE 10:     ASSET RETIREMENT OBLIGATIONS

 

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

 

Balance, July 31, 2019

  $ 3,541,082  

Accretion

    48,308  

Balance, October 31, 2019

  $ 3,589,390  

 

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

 

   

October 31, 2019

 

July 31, 2019

 

Undiscounted amount of estimated cash flows

  $ 8,221,018   $ 8,221,018  
                       

Payable in years

    9 to 21     to 21  

Inflation rate

    1.56% to 2.17 %   1.56% to 2.17 %

Discount rate

    5.50% to 5.96 %   5.50%  to 5.96 %

 

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

 

Fiscal 2021

  $ -  

Fiscal 2022

    -  

Fiscal 2023

    -  

Fiscal 2024

    -  

Fiscal 2025

    -  

Remaining balance

    8,221,018  
    $ 8,221,018  

 

 

NOTE 11:     LEASE LIABILITIES

 

The Company primarily has operating leases for corporate offices and a processing facility with a remaining term of 1.6 to 20 years.  The lease for the processing facility has an evergreen option that can continue for so long as it is in operation.  Short-term leases, which have an initial term of 12 months or less, are not recorded in our Consolidated Balance Sheets.

 

During the three months ended October 31, 2019, total lease expenses include the following components:

 

Operating leases

  $ 59,630  

Short-term leases

    373,513  

Total Lease Expenses

  $ 433,143  

 

As at October 31, 2019, the weighted average remaining lease term was 13.7 years and weighted average discount rate was 4.7%.

 

During the three months ended October 31, 2019, cash paid for amounts included in the measurement of operating lease liabilities totaled $50,396.

 

17

 

 

URANIUM ENERGY CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2019
(Unaudited)

 


 

Minimum future lease payments under operating leases with terms longer than one year are as follows:

 

Fiscal 2020

  $ 169,802  

Fiscal 2021

    174,583  

Fiscal 2022

    220,000  

Fiscal 2023

    20,000  

Fiscal 2024

    20,000  

Thereafter

    320,000  

Total lease payments

    924,385  

Less: imputed interest

    (188,028 )

Present value of lease liabilities

  $ 736,357  
         

Currrent portion of lease liabilities

    191,756  

Non-curent portion of lease liabilities

  $ 544,601  

 

Current lease liabilities are included in Other Current Liabilities, and non-current liabilities are included in Other Long-term Liabilities in our Consolidated Balance Sheets.

 

 

NOTE 12:     CAPITAL STOCK

 

A summary of share purchase warrants outstanding and exercisable at October 31, 2019 is as follows:

 

Weighted Average
Exercise Price

   

Number of Warrants
Outstanding

   

Weighted Average

Remaining Contractual
Life (Years)

 

Expiry Date

 
$ 2.00       9,571,929       0.22  

January 20, 2020

 
  1.35       2,450,000       0.25  

January 30, 2020

 
  2.05       7,063,253       1.42  

April 3, 2021

 
  2.30       308,728       2.77  

August 9, 2022

 
  1.64       50,000       3.55  

May 21, 2023

 
$ 1.94       19,443,910       0.71      

 

Stock Options

 

At October 31, 2019, we had one stock option plan, our 2019 Stock Incentive Plan, which superseded and replaced our 2018 Stock Incentive Plan (now, the “Stock Incentive Plan”).

 

A summary of stock options granted by the Company during the three months ended October 31, 2019, including corresponding grant date fair values and assumptions using the Black Scholes option pricing model is as follows:

 

Date

 

Options
Granted

   

Exercise

Price

   

Term
(Years)

   

Fair
Value

   

Expected
Life (Years)

   

Risk-Free
Interest Rate

   

Dividend

Yield

   

Expected

Volatility

 

August 7, 2019

    597,650     $ 0.91       10.00     $ 303,160       5.00       1.51 %     0.00 %     66.10 %

 

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

 

18

 

 

URANIUM ENERGY CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2019
(Unaudited)

 


 

A continuity schedule of outstanding stock options for the underlying shares for the three months ended October 31, 2019, is as follows:

 

   

Number of Stock

Options

   

Weighted Average

Exercise Price

 

Balance, July 31, 2019

    15,738,350     $ 1.30  

Granted

    597,650       0.91  

Expired

    (5,990,000 )     1.34  

Balance, October 31, 2019

    10,346,000     $ 1.25  

 

A continuity schedule of outstanding unvested stock options at October 31, 2019, and the changes during the period, is as follows:

 

   

Number of Unvested

Stock Options

   

Weighted Average

Grant-Date Fair Value

 

Balance, July 31, 2019

    3,310,600     $ 0.59  

Granted

    597,650       0.51  

Vested

    (645,550 )     0.61  

Balance, October 31, 2019

    3,262,700     $ 0.57  

 

At October 31, 2019, unrecognized stock-based compensation expense related to the unvested portion of stock options totaled $1,064,845 to be recognized over the next 1.08 years.

 

At October 31, 2019, the aggregate intrinsic value under the provisions of ASC 718 of all outstanding stock options was estimated at $56,636 (vested: $26,254 and unvested: $30,382).

 

A summary of stock options outstanding and exercisable at October 31, 2019 is as follows:

  

          Options Outstanding     Options Exercisable  

Range of

Exercise Price

    Outstanding at
October 31, 2019
   

Weighted

Average

Exercise Price

   

Weighted Average

Remaining

Contractual Term

(Years)

    Exercisable at
October 31, 2019
   

Weighted

Average

Exercise Price

   

Weighted Average

Remaining

Contractual Term

(Years)

 
$0.91 to $0.99       4,240,750     $ 0.94       6.38       2,001,300     $ 0.94       2.60  
$1.00 to $1.49       3,610,000       1.22       2.15       3,545,000       1.22       2.11  
$1.50 to $3.75       2,495,250       1.84       3.21       1,537,000       2.03       2.88  
            10,346,000     $ 1.25       4.14       7,083,300     $ 1.32       2.42  

 

Restricted Stock Units

 

During Fiscal 2019, the Company granted 465,000 restricted stock units (each, a “RSU”) to certain directors and officers under our Stock Incentive Plan.

 

During the three months ended October 31, 2019, stock-based compensation relating to the RSUs totaled $66,928 (three months ended October 31, 2018: $Nil). At October 31, 2019, outstanding unvested RSUs totaled 465,000 (July 31, 2019: 465,000). At October 31, 2019, unrecognized compensation costs relating to unvested RSUs totaled $371,148, which is expected to be recognized over a period of approximately 2.75 years.

 

19

 

 

URANIUM ENERGY CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2019
(Unaudited)

 


 

Performance Based Restricted Stock Units

 

During Fiscal 2019, the Company granted 445,000 performance based restricted stock units (each, a “PRSU”) to the Company’s executive officers under our Stock Incentive Plan.

 

During the three months ended October 31, 2019, stock-based compensation relating to the PRSUs totaled $68,165 (three months ended October 31, 2018: $Nil). At October 31, 2019, outstanding unvested PRSUs totaled 445,000 (July 31, 2019: 445,000). At October 31, 2019, unrecognized compensation costs relating to unvested PRSUs totaled $443,846, which is expected to be recognized over a period of approximately 2.75 years.

 

Stock-Based Compensation

 

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

  

   

Three Months Ended October 31,

 
   

2019

   

2018

 

Stock-Based Compensation for Consultants

               

Common stock issued for consulting services

  $ 107,608     $ 130,803  

Amortization of stock option expenses

    46,971       54,402  
      154,579       185,205  

Stock-Based Compensation for Management

               

Common stock issued to management

    34,707       35,343  

Amortization of stock option expenses

    243,377       216,804  

Amortization of RSU & PRSU expenses

    135,093       -  
      413,177       252,147  

Stock-Based Compensation for Employees

               

Common stock issued to employees

    128,028       123,822  

Amortization of stock option expenses

    236,791       280,350  
      364,819       404,172  
                 

Settlement of share issuance obligation

    (15,189 )     -  
    $ 917,386     $ 841,524  

 

During the three months ended October 31, 2019, we issued 188,914 shares with a fair value of $171,911 under our Stock Incentive Plan as settlement of our then share issuance obligations totaling $187,100, which represented the fair value of the Fiscal 2019 share bonuses made by the Company at July 31, 2019 under the Stock Incentive Plan. The change in fair value of $15,189 between the measurement date of July 31, 2019 and the issuance date was recorded as a credit to the stock-based compensation for the three months ended October 31, 2019.

  

20

 

 

URANIUM ENERGY CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2019
(Unaudited)

   


 

 

NOTE 13:     LOSS PER SHARE

 

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

 

   

Three Months Ended October 31,

 
   

2019

   

2018

 

Numerator

               

Net Loss for the Period

  $ (5,042,577 )   $ (3,451,426 )
                 

Denominator

               

Basic Weighted Average Number of Shares

    181,240,702       166,397,293  

Dilutive Stock Options, Warrants, RSUs and PRSUs

    -       -  

Diluted Weighted Average Number of Shares

    181,240,702       166,397,293  
                 

Net Loss per Share, Basic and Diluted

  $ (0.03 )   $ (0.02 )


For the three months ended October 31, 2019 and 2018, all outstanding stock options, RSUs, PRSUs 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.

 

 

NOTE 14:      SEGMENTED INFORMATION

 

We currently operate in one reportable segment which is focused on uranium mining and related activities, including exploration, pre-extraction, extraction and processing of uranium concentrates.

 

At October 31, 2019, our long-term assets located in the United States totaled $57,917,076 or 71% of our total long-term assets of $81,807,332.

 

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

 

   

October 31, 2019

 

Balance Sheet Items

 

United States

   

 

   

 

   

 

 
   

Texas

   

Arizona

   

Wyoming

   

Other States

    Canada      Paraguay       Total    

Mineral Rights and Properties

  $ 12,430,560     $ 4,427,477     $ 31,527,870     $ 87,573     $ 546,938     $ 14,513,585     $ 63,534,003  

Property, Plant and Equipment

    6,324,336       -       338,798       -       11,634       369,232       7,044,000  

Restricted Cash

    1,739,948       15,000       73,973       -       -       -       1,828,921  

Equity-Accounted Investment

    -       -       -       -       8,329,958       -       8,329,958  

Other Long-Term Assets

    925,041       -       26,500       -       118,909       -       1,070,450  

Total Long-Term Assets

  $ 21,419,885     $ 4,442,477     $ 31,967,141     $ 87,573     $ 9,007,439     $ 14,882,817     $ 81,807,332  

 

  

   

July 31, 2019

 

Balance Sheet Items

 

United States

   

 

   

 

   

 

 
   

Texas

   

Arizona

   

Wyoming

   

Other States

    Canada     Paraguay     Total  

Mineral Rights and Properties

  $ 12,433,203     $ 4,427,477     $ 31,527,870     $ 87,822     $ 546,938     $ 14,513,585     $ 63,536,895  

Property, Plant and Equipment

    6,333,950       -       342,515       -       14,223       351,671       7,042,359  

Restricted Cash

    1,732,419       15,000       73,973       -       -       -       1,821,392  

Equity-Accounted Investment

    -       -       -       -       8,680,449       -       8,680,449  

Other Long-Term Assets

    221,214       -       28,000       -       -       -       249,214  

Total Long-Term Assets

  $ 20,720,786     $ 4,442,477     $ 31,972,358     $ 87,822     $ 9,241,610     $ 14,865,256     $ 81,330,309  

 

21

 

 

URANIUM ENERGY CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2019
(Unaudited)

 


 

The tables below provide a breakdown of our operating results by geographic segments for the three months ended October 31, 2019 and 2018. All intercompany transactions have been eliminated.

 

   

Three months ended October 31, 2019

 

Statement of Operations

 

United States

   

 

   

 

   

 

 
   

Texas

   

Arizona

   

Wyoming

   

Other States

    Canada      Paraguay       Total    

Costs and Expenses:

                                                       

Mineral property expenditures

  $ 1,154,342     $ 24,572     $ 148,043     $ 20,111     $ -     $ 176,383     $ 1,523,451  

General and administrative

    1,700,877       3,389       34,713       652       553,706       21,833       2,315,170  

Depreciation, amortization and accretion

    67,496       -       3,717       249       2,589       2,335       76,386  
      2,922,715       27,961       186,473       21,012       556,295       200,551       3,915,007  

Loss from operations

    (2,922,715 )     (27,961 )     (186,473 )     (21,012 )     (556,295 )     (200,551 )     (3,915,007 )
                                                         

Other income (expenses)

    (1,215,203 )     (4,767 )     -       -       89,181       1,541       (1,129,248 )

Loss before income taxes

  $ (4,137,918 )   $ (32,728 )   $ (186,473 )   $ (21,012 )   $ (467,114 )   $ (199,010 )   $ (5,044,255 )

 

   

Three months ended October 31, 2018

 

Statement of Operations

 

United States

   

 

   

 

   

 

 
   

Texas

   

Arizona

   

Wyoming

   

Other States

    Canada     Paraguay     Total  

Costs and Expenses:

                                                       

Mineral property expenditures

  $ 578,822     $ 30,121     $ 147,876     $ 23,875     $ 15,588     $ 69,961     $ 866,243  

General and administrative

    1,561,757       3,389       31,370       261       611,470       50,688       2,258,935  

Depreciation, amortization and accretion

    80,085       -       3,719       249       3,898       825       88,776  
      2,220,664       33,510       182,965       24,385       630,956       121,474       3,213,954  

Loss from operations

    (2,220,664 )     (33,510 )     (182,965 )     (24,385 )     (630,956 )     (121,474 )     (3,213,954 )
                                                         

Other income (expenses)

    (627,583 )     (4,767 )     300       -       387,869       1,541       (242,640 )

Loss before income taxes

  $ (2,848,247 )   $ (38,277 )   $ (182,665 )   $ (24,385 )   $ (243,087 )   $ (119,933 )   $ (3,456,594 )

 

 

NOTE 15:     SUPPLEMENTAL CASH FLOW INFORMATION

 

During the three months ended October 31, 2019 and 2018, we issued 29,167 and 30,845 shares with a fair value of $31,792 and $50,713, respectively, for consulting services.

 

During the three months ended October 31, 2019 and 2018, we issued 435,348 and 141,546 shares with a fair value of $410,462 and $239,255, respectively, as compensation to certain management, employees and consultants of the Company under our Stock Incentive Plan.

 

During the three months ended October 31, 2019 and 2018, we paid $408,889 and $408,889, respectively, in cash to the Lenders for interest on the long-term debt.

 

 

NOTE 16:     COMMITMENTS AND CONTINGENCIES

 

We are committed to paying our key executives a total of $704,000 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.

 

22

 

 

URANIUM ENERGY CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2019
(Unaudited)

 


 

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 250th 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.

 

The Company has had communications and filings with the Ministry of Public Works and Communications (“MOPC”), the mining regulator in Paraguay, whereby the MOPC is taking the position that certain concessions forming part of the Company’s Yuty and Alto Parana projects are not eligible for extension as to exploration or continuation to exploitation in their current stages. While the Company remains fully committed to its development path forward in Paraguay, it caused its legal counsel to file an appeal in Paraguay to reverse the MOPC’s position in order to protect the Company’s continuing rights in those concessions.

 

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 do not expect that such settlements will, individually or in the aggregate, have a material effect on our financial position, results of operations or cash flows.

 

23

 

 

 

Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following management’s discussion and analysis of the Company’s financial condition and results of operations (the “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 and, including, without limitation, this Form 10-Q Quarterly Report for the three months ended October 31, 2019, and our Form 10-K Annual Report for the fiscal year ended July 31, 2019, 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, 2019, 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, 2019, our most recently completed year end, to October 31, 2019, and our results of operations for the three months ended October 31, 2019, 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 2019.

 

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 2019.

 

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, 2019, 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, Texas and Wyoming, in Canada 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.

 

24

 

 

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, 2019, 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.

 

Results of Operations

 

For the three months ended October 31, 2019 and 2018, we recorded net losses of $5,042,577 ($0.03 per share) and $3,451,426 ($0.02 per share), respectively.

 

During the three months ended October 31, 2019, 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, 2019. At October 31, 2019, the total value of inventories was $211,662 (July 31, 2019: $211,662).

 

Costs and Expenses

 

For the three months ended October 31, 2019 and 2018, costs and expenses totaled $3,915,007 and $3,213,954, respectively, which were comprised of mineral property expenditures of $1,523,451 and $866,243, general and administrative expenses of $2,315,170 and $2,258,935, and depreciation, amortization and accretion of $76,386 and $88,776, respectively.

 

Mineral Property Expenditures

 

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

 

During the three months ended October 31, 2019 and 2018, mineral property expenditures totaled $1,523,451 and $866,243, respectively, of which $349,135 and $303,644 were directly related to maintaining operational readiness and permitting compliance for our Palangana Mine and Hobson Processing Facility, respectively.

 

25

 

 

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

 

   

Three Months Ended October 31,

 
   

2019

   

2018

 

Mineral Property Expenditures

               

Palangana Mine

  $ 320,027     $ 280,032  

Goliad Project

    59,965       18,822  

Burke Hollow Project

    648,861       108,545  

Longhorn Project

    10,157       15,376  

Salvo Project

    7,269       6,808  

Anderson Project

    16,053       22,214  

Workman Creek Project

    8,198       7,692  

Slick Rock Project

    13,134       17,224  

Reno Creek Project

    148,043       147,876  

Yuty Project

    14,196       23,403  

Oviedo Project

    105,938       20,725  

Alto Paraná Titanium Project

    56,248       25,833  

Other Mineral Property Expenditures

    115,362       171,693  
    $ 1,523,451     $ 866,243  

 

During the three months ended October 31, 2019, we drilled 26 exploration holes and 21 monitor wells totaling 21,069 feet, at our Burke Hollow Project. Since the commencement of the 2019 drilling campaign in March 2019, a total of 57 exploration and delineation holes and 72 monitor wells were completed.

 

General and Administrative

 

During the three months ended October 31, 2019, general and administrative expenses totaled $2,315,170, which was consistent compared to $2,258,935 for the three months ended October 31, 2018.

 

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:

 

 

for the three months ended October 31, 2019, salaries, management and consulting fees totaled $464,038, which was consistent with $498,110 for the three months ended October 31, 2018;

 

 

for the three months ended October 31, 2019, office, insurance, filing and listing fees, investor relations, corporate development and travel expenses totaled $799,113, which was consistent with $746,612 for the three months ended October 31, 2018; 

 

 

for the three months ended October 31, 2019, professional fees totaled $134,633, which decreased by $38,055 compared to $172,688 for the three months ended October 31, 2018. The decrease in professional fees was primarily the result of the dismissal of legal claims. Professional fees are primarily comprised of legal services related to certain transactional activities, regulatory compliance and ongoing legal claims, in addition to audit and tax services; and

 

 

for the three months ended October 31, 2019, stock-based compensation totaled $917,386, which is consistent with $841,525 for the three months ended October 31, 2018.  During the three months ended October 31, 2019, we continued to utilize equity-based payments to compensate certain directors, officers, employees and consultants for services provided as part of our continuing efforts to reduce cash outlays.  In July and August 2019, we granted approximately 2.5 million stock options, to our directors, officers, employees and certain consultants and, in July 2019 we awarded 465,000 RSUs and 445,000 PRSUs to certain of our directors and officers. The changes in stock-based compensation expenses represented the fair value of compensation shares issued and the amortization of the fair value of the stock awards over the vesting periods on an accelerated basis, resulting in a higher stock-based compensation expense being recognized at the beginning of the vesting periods than at the end of the vesting periods. 

 

26

 

 

Depreciation, Amortization and Accretion

 

During the three months ended October 31, 2019, depreciation, amortization and accretion totaled $76,386, which were consistent compared to $88,776 for the three months ended October 31, 2018.

 

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.

 

Other Income and Expenses

 

Interest and Finance Costs

 

During the three months ended October 31, 2019, interest and finance costs totaled $885,125, which increased by $130,276 compared to $754,849 for the three months ended October 31, 2018.    The increases primarily resulted from an increased amortization of debt discount.

 

For the three months ended October 31, 2019 and 2018, interest and finance costs were primarily comprised of interest paid on long-term debt of $408,889 and $408,889, amortization of debt discount of $432,221 and $307,771, and amortization of annual surety bond premiums of $34,626 and $31,228, respectively.

 

Income or Loss from Equity-Accounted Investment

 

During the three months ended October 31, 2019, we recorded a loss of $340,597 from an equity-accounted investment compared to an income of $387,869 for the three months ended October 31, 2018. The difference in loss from equity-accounted investment arose primarily from the Company’s increased ownership interest in URC from 6.9% at October 31, 2018 to 31.3% at October 31, 2019.

 

Summary of Quarterly Results

   

   

For the Quarters Ended

 
   

October 31, 2019

   

July 31, 2019

   

April 30, 2019

   

January 31, 2019

 

Net loss

  $ (5,042,577 )     (6,334,132 )     (5,017,557 )     (2,349,674 )

Total comprehensive loss

    (5,052,471 )     (6,199,949 )     (5,177,511 )     (2,311,442 )

Basic and diluted loss per share

    (0.03 )     (0.04 )     (0.03 )     (0.01 )

Total assets

    96,696,496       101,040,242       105,055,912       106,958,178  

 

   

For the Quarters Ended

 
   

October 31, 2018

   

July 31, 2018

   

April 30, 2018

   

January 31, 2018

 

Net loss

  $ (3,451,426 )     (4,770,335 )     (4,146,646 )     (4,353,813 )

Total comprehensive loss

    (3,451,426 )     (4,652,380 )     (4,146,394 )     (4,354,060 )

Basic and diluted loss per share

    (0.02 )     (0.03 )     (0.03 )     (0.03 )

Total assets

    108,046,108       89,611,309       88,958,320       92,046,979  

 

Liquidity and Capital Resources 

 

   

October 31, 2019

   

July 31, 2019

 

Cash and cash equivalents

  $ 13,112,069     $ 6,058,186  

Term deposits

    -       11,831,671  

Current assets

    14,889,164       19,709,933  

Current liabilities

    1,841,311       3,071,368  

Working capital

    13,047,853       16,638,565  

 

At October 31, 2019, we had working capital of $13,047,853, which decreased by $3,590,712 from the working capital of $16,638,565 at July 31, 2019.  With a reduction of our cash burn rate from that incurred in Fiscal 2019 by curtailing expenditures on discretionary and non-core activities and paying certain management, consulting and service provider fees by the issuance of shares of the Company in lieu of cash, our existing cash resources and, if necessary, cash generated from the sale of the Company’s liquid asset,  are expected to provide sufficient funds to carry out our planned operations for 12 months from the date of this Quarterly Report. 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.

 

27

 

 

Historically, we have been reliant primarily on equity financings from the sale of our common stock and on debt financing in order to fund our operations. We have also relied, to a limited extent, on cash flows generated from our mining activities during Fiscal 2015, Fiscal 2013 and Fiscal 2012. However, we have yet to achieve profitability or develop positive cash flow from operations and we do not expect to achieve profitability or develop positive cash flow from operations in the near term. Our reliance on equity and debt financings is expected to continue for the foreseeable future, and their availability whenever such additional financing is required will be dependent on many factors beyond our control including, but not limited to, the market price of uranium, the continuing public support of nuclear power as a viable source of electrical generation, the volatility in the global financial markets affecting our stock price and the status of the worldwide economy, any one of which may cause significant challenges in our ability to access additional financing, including access to the equity and credit markets. We may also be required to seek other forms of financing, such as asset divestitures or joint venture arrangements to continue advancing our uranium projects which would depend entirely on finding a suitable third party willing to enter into such an arrangement, typically involving an assignment of a percentage interest in the mineral project. However, there is no assurance that we will be successful in securing any form of additional financing when required and on terms favorable to us.

 

Our operations are capital intensive and future capital expenditures are expected to be substantial. We will require significant additional financing to fund our operations, including continuing with our exploration and pre-extraction activities and acquiring additional mineral projects. In the absence of such additional financing, we would not be able to fund our operations, including continuing with our exploration and pre-extraction activities, which may result in delays, curtailment or abandonment of any one or all of our mineral projects.

 

Our anticipated operations, including exploration and pre-extraction activities, will be dependent on and may change as a result of our financial position, the market price of uranium and other considerations, and such change may include accelerating the pace or broadening the scope of reducing our operations as originally announced in September 2013.

 

Our ability to secure adequate funding for these activities will be impacted by our operating performance, other uses of cash, the market price of commodities, the market price of our common stock and other factors which may be beyond our control. Specific examples of such factors include, but are not limited to:

 

 

if the weakness in the market price of uranium experienced in Fiscal 2019 continues or weakens further during Fiscal 2020;

 

 

if the weakness in the market price of our common stock experienced in Fiscal 2019 continues or weakens further during Fiscal 2020;

 

 

if we default on making scheduled payments of fees and complying with the restrictive covenants as required under our Credit Facility, and it results in accelerated repayment of our indebtedness and/or enforcement by the Lenders against our key assets securing our indebtedness; and

 

 

if another nuclear incident, such as the events that occurred at Fukushima in March 2011, were to occur during Fiscal 2020, continuing public support of nuclear power as a viable source of electrical generation may be adversely affected, which may result in significant and adverse effects on both the nuclear and uranium industries.

 

Our long-term success, including the recoverability of the carrying values of our assets and our ability to acquire additional mineral projects and to continue with exploration and pre-extraction activities and mining activities on our existing mineral projects, will depend ultimately on our ability to achieve and maintain profitability and positive cash flow from our operations by establishing ore bodies that contain commercially recoverable minerals and to develop these into profitable mining activities.

 

28

 

 

Equity Financings

 

We filed a Form S-3 shelf registration statement under the United States Securities Act of 1933, as amended (the “Securities Act”), which was declared effective on March 10, 2017 (the “2017 Shelf”), providing for the public offer and sale of certain securities of our Company from time to time, at our discretion, of up to an aggregate offering amount of $100 million.

 

As at April 7, 2019, a total of $68.4 million of the 2017 Shelf was utilized through the registration of our shares of common stock underlying outstanding common share purchase warrants from previous registered offerings with a remaining available balance of $31.6 million under the 2017 Shelf. On April 8, 2019 we filed an additional Form S-3 shelf registration statement pursuant to Rule 462(b) of the Securities Act, which became effective upon filing on April 8, 2019, providing for the public offer and sale of certain additional securities of our Company representing an additional 20%, or $6.3 million, of the then remaining $31.6 million available under the 2017 Shelf, which increased the remaining amount available under the 2017 Shelf to $37.9 million.

 

On April 9, 2019, we entered into an At The Market Offering Agreement (the “Offering Agreement”) with H.C. Wainwright & Co., LLC (as the “Lead Manager”) and the co-managers set forth on the signature page of the Offering Agreement (each, a “Co-Manager” and, collectively, with the Lead Manager, the “Managers”); under which the Company may, from time to time, sell shares of its common stock having an aggregate offering price of up to $37.9 million through the Managers (collectively, the “ATM”). In connection with the ATM, on April 9, 2019, we filed a prospectus supplement to the 2017 Shelf providing for the public offer and sale of the Company’s shares having an aggregate offering price of up to $37.9 million through one or more at-the-market offerings pursuant to the ATM. At October 31, 2019, no public offer or sale of the Company’s shares has been completed under the ATM.

 

As at October 31, 2019, all $106.3 million under the 2017 Shelf was utilized through the registration of our shares of common stock and shares of common stock underlying outstanding common share purchase warrants from previous registered offerings as well as our shares of common stock to be sold under the ATM.

 

Debt Financing

 

On December 5, 2018, we entered into the Third Amended and Restated Credit Agreement with our Lenders, whereby we and the Lenders agreed to certain further amendments to the Credit Facility, under which initial funding of $10,000,000 was received by the Company upon closing of the Credit Facility on July 30, 2013, and additional funding of $10,000,000 was received by the Company upon closing of the amended Credit Facility on March 13, 2014. The Credit Facility is non-revolving with an amended term of 8.5 years maturing on January 31, 2022, subject to an interest rate of 8% per annum, compounded and payable on a monthly basis.

 

The Third Credit Amended and Restated Agreement supersedes, in their entirety, the Second Amended and Restated Credit Agreement dated and effective February 9, 2016, the Amended and Restated Credit Agreement dated and effective March 13, 2014 and the Credit Agreement dated and effective July 30, 2013 with our Lenders.

 

Subsequent to October 31, 2019, and pursuant to the terms of the Third Amended and Restated Credit Agreement, we issued an aggregate of 1,743,462 shares to our Lenders, with a fair value of $1,400,000, representing 7% of the $20,000,000 principal balance outstanding at October 31, 2019, as payment of anniversary fees to our Lenders.

 

Refer to Note 9: Long-Term Debt of the Notes to the Condensed Consolidated Financial Statements for the three months ended October 31, 2019 and Note 10: Long-Term Debt of the Notes to the Consolidated Financial Statements for Fiscal 2019.

 

Operating Activities

 

Net cash used in operating activities during the three months ended October 31, 2019 and 2018 was $4,743,432 and $3,958,559, respectively. Significant operating expenditures included mineral property expenditures, general and administrative expenses and interest payments.

 

29

 

 

Financing Activities

 

During the three months ended October 31, 2019 and 2018, net cash provided by financing activities was $Nil and $21,639,005, respectively, which was from our October 2018 Offering of 12,613,049 units at a price of $1.60 per unit.

 

Investing Activities

 

During the three months ended October 31, 2019, net cash provided by the investing activities totaled $11,804,844 primarily from cash received from the redemption of term deposits totaling $11,831,671, offset by $26,827 cash used for the purchase of property, plant and equipment. During the three months ended October 31, 2018, net cash used in investing activities totaled $15,055,000, primarily for the purchase of term deposits of $15,000,000, and investment in mineral rights and properties of $55,000. 

 

Stock Options and Warrants

 

At October 31, 2019, we had stock options outstanding representing 10,346,000 shares at a weighted-average exercise price of $1.25 per share and share purchase warrants outstanding representing 19,443,910 shares at a weighted-average exercise price of $1.94 per share. At October 31, 2019, outstanding stock options and warrants represented a total 29,789,910 shares issuable for gross proceeds of approximately $50.7 million should these stock options and warrants be exercised in full on a cash basis. At October 31, 2019, outstanding in-the-money stock options and warrants represented a total of 3,940,750 shares exercisable for gross proceeds of approximately $3.7 million should these in-the-money stock options and warrants be exercised in full on a cash basis. The exercise of these stock options and warrants is at the discretion of the respective holders and, accordingly, there is no assurance that any of these stock options or warrants will be exercised in the future.

 

Transactions with a Related Party

 

During the three months ended October 31, 2019 and 2018, we incurred $32,833 and $37,704, respectively, in general and administrative costs paid to Blender, a company controlled by Arash Adnani, a direct family member 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.

 

At October 31, 2019, the amount owing to Blender was $80 (July 31, 2019: $68,680).

 

Material Commitments

 

Long-Term Debt Obligations

 

At October 31, 2019, we have made all scheduled payments and complied with all covenants under our Credit Facility, and we expect to continue complying with all scheduled payments and covenants during Fiscal 2020.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

 

Critical Accounting Policies

 

For a complete summary of all of our significant accounting policies, refer to Note 2: Summary of Significant Accounting Policies of the Notes to the Consolidated Financial Statements as presented under Item 8. Financial Statements and Supplementary Data in our Form 10-K Annual Report for Fiscal 2019.

 

Refer to “Critical Accounting Policies” under Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Form 10-K Annual Report for Fiscal 2019.

  

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Subsequent Events

 

Subsequent to October 31, 2019, and pursuant to the terms of our Third Amended and Restated Credit Agreement, we issued an aggregate of 1,743,462 shares to our Lenders, with a fair value of $1,400,000 as payment of anniversary fees to our Lenders.

 

Subsequent to October 31, 2019, URC completed an initial public offering which consisted of the issuance of 20,000,000 URC Units.  Each URC Unit is comprised of one common share and one common share purchase warrant of URC.

 

Item 3.     Quantitative and Qualitative Disclosures About Market Risk

 

Refer to Item 7A. Quantitative and Qualitative Disclosures About Market Risk in our Form 10-K Annual Report for Fiscal 2019.

 

Item 4.      Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Our management, with the participation of our Principal Executive Officer and Principal Financial Officer, has evaluated the effectiveness of our internal controls over financial reporting and disclosure controls and procedures (as such terms are defined in Rules 13a-15(e) and 15d-15(e) under the United States Securities Exchange Act of 1933, as amended (the “Exchange Act”) as of the end of the period covered by this Quarterly Report, our Principal Executive Officer and Principal Financial Officer have concluded that, as of the end of the period covered by this Quarterly Report, our disclosure controls and procedures were ineffective.

 

In our assessment of the effectiveness of our Company’s internal control over financial reporting as at July 31, 2019, material weaknesses were identified in assessing the complexity of the valuation and accounting of a significant non-routine transaction, in a control surrounding information technology general control (“ITGC”), and in our Risk Assessment and Control Activity components of the COSO Framework related to the aggregation of open control deficiencies across our financial reporting process. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements could not be prevented or detected on a timely basis.

 

During the fiscal quarter ended October 31, 2019, in response to the material weakness relating to ITGC, we reassigned and restricted certain access rights of a senior financial person to our accounting system for sufficient segregation of duties. As a result, the material weakness relating to ITGC has been remediated as of October 31, 2019. In addition, we have redesigned the control procedures around non-routine transactions. We are also in the process of implementing other control procedures for other control deficiencies. However, the Company’s management will not consider these material weaknesses remediated until the remedial control procedures implemented, operate for a period of time and the control procedures are tested to ensure they are operating effectively. We expect testing and full remediation of the material weakness to occur prior to the year end of our Fiscal 2020. As the remediation has not yet been tested, our Principal Executive Officer and Principal Financial Officer have concluded that the disclosure controls and procedures cannot be deemed effective at a level that provides reasonable assurance as of the date of this Quarterly Report.

 

It should be noted that any system of controls is based in part upon certain assumptions designed to obtain reasonable (and not absolute) assurance as to its effectiveness, and there can be no assurance that any design will succeed in achieving its stated goals.

 

Changes in Internal Controls

 

Except for the remediation procedures described above, there have been no other changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during our fiscal quarter ended October 31, 2019, that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

 

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PART II – OTHER INFORMATION

 

Item 1.     Legal Proceedings

 

As of the date of this Quarterly Report, other than as disclosed below, there are no material pending legal proceedings, other than ordinary routine litigation incidental to our business, to which the Company or any of its subsidiaries is a party or of which any of their property is subject, and no director, officer, affiliate or record or beneficial owner of more than 5% of our common stock, or any associate or any such director, officer, affiliate or security holder is: (i) a party adverse to us or any of our subsidiaries in any legal proceeding; or (ii) has an adverse interest to us or any of our subsidiaries in any legal proceeding. Other than as disclosed below, management is not aware of any other material legal proceedings pending or that have been threatened against us or our properties.

 

On or about March 9, 2011, 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 250th 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.

 

The Company has had communications and filings with the MOPC, the mining regulator in Paraguay, whereby the MOPC is taking the position that certain concessions forming part of the Company’s Yuty and Alto Parana projects are not eligible for extension as to exploration or continuation to exploitation in their current stages. While the Company remains fully committed to its development path forward in Paraguay, it caused its legal counsel to file an appeal in Paraguay to reverse the MOPC’s position in order to protect the Company’s continuing rights in those concessions.

 

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Item 1A.     Risk Factors

 

In addition to the information contained in our Form 10-K Annual Report for Fiscal 2019, and this Form 10-Q Quarterly Report, we have identified the following material risks and uncertainties which reflect our outlook and conditions known to us as of the date of this Quarterly Report. These material risks and uncertainties should be carefully reviewed by our stockholders and any potential investors in evaluating the Company, our business and the market value of our common stock. Furthermore, any one of these material risks and uncertainties has the potential to cause actual results, performance, achievements or events to be materially different from any future results, performance, achievements or events implied, suggested or expressed by any forward-looking statements made by us or by persons acting on our behalf. Refer to “Cautionary Note Regarding Forward-looking Statements” as disclosed in our Form 10-K Annual Report for Fiscal 2019.

 

There is no assurance that we will be successful in preventing the material adverse effects that any one or more of the following material risks and uncertainties may cause on our business, prospects, financial condition and operating results, which may result in a significant decrease in the market price of our common stock. Furthermore, there is no assurance that these material risks and uncertainties represent a complete list of the material risks and uncertainties facing us. There may be additional risks and uncertainties of a material nature that, as of the date of this Quarterly Report, we are unaware of or that we consider immaterial that may become material in the future, any one or more of which may result in a material adverse effect on us. You could lose all or a significant portion of your investment due to any one of these material risks and uncertainties.

 

Risks Related to Our Company and Business

 

Evaluating our future performance may be difficult since we have a limited financial and operating history, with significant negative cash flow and accumulated deficit to date. Our long-term success will depend ultimately on our ability to achieve and maintain profitability and to develop positive cash flow from our mining activities.

 

As more fully described under Item 1. Business in our Form 10-K Annual Report for Fiscal 2019, we were incorporated under the laws of the State of Nevada on May 16, 2003, and since 2004, we have been predominantly engaged in uranium mining and related activities, including exploration, pre-extraction, extraction and processing, on projects located in the United States and Paraguay. In November 2010, we commenced uranium extraction for the first time at the Palangana Mine utilizing ISR and processed those materials at the Hobson Processing Facility into drums of U3O8, our only sales product and source of revenue. We also hold uranium projects in various stages of exploration and pre-extraction in the States of Arizona, Colorado, New Mexico, Texas and Wyoming, in Canada and the Republic of Paraguay. Since we completed the acquisition of the Alto Paraná Project located in the Republic of Paraguay in July 2017, we are also involved in mining and related activities, including exploration, pre-extraction, extraction and processing of titanium minerals.

 

As more fully described under “Liquidity and Capital Resources” of Item 2. Management’s Discussion and Analysis of Financial Condition and Result of Operations, we have a history of significant negative cash flow and net losses, with an accumulated deficit balance since inception of $267.2 million at October 31, 2019. Historically, we have been reliant primarily on equity financings from the sale of our common stock and on debt financing in order to fund our operations. Although we generated revenues from sales of U3O8 during Fiscal 2015, Fiscal 2013 and Fiscal 2012 of $3.1 million, $9.0 million and $13.8 million, respectively, with no revenues from sales of U3O8 generated during the three months ended October 31, 2019, Fiscal 2016 to Fiscal 2019, Fiscal 2014 or for any periods prior to Fiscal 2012, we have yet to achieve profitability or develop positive cash flow from our operations, and we do not expect to achieve profitability or develop positive cash flow from operations in the near term. As a result of our limited financial and operating history, including our significant negative cash flow and net losses to date, it may be difficult to evaluate our future performance.

 

At October 31, 2019, we had cash and cash equivalents of $13.1 million and working capital of $13.0 million.   With reduction of our cash burn rate from that incurred in Fiscal 2019 by curtailing expenditures on discretionary and non-core activities and paying certain management, consulting and service provider fees by issuance of shares of the Company in lieu of cash, our existing cash resources and, if necessary, cash generated from the sale of the Company’s liquid asset, are expected to provide sufficient funds to carry out our planned operations for 12 months from the date of this Quarterly Report. As we do not expect to achieve and maintain profitability in the near term, our continuation as a going concern is dependent upon our ability to obtain adequate additional financing which we have successfully secured since our inception, including those from asset divestitures.  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.

 

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Our reliance on equity and debt financings is expected to continue for the foreseeable future, and their availability whenever such additional financing is required, will be dependent on many factors beyond our control including, but not limited to, the market price of uranium, the continuing public support of nuclear power as a viable source of electrical generation, the volatility in the global financial markets affecting our stock price and the status of the worldwide economy, any one of which may cause significant challenges in our ability to access additional financing, including access to the equity and credit markets. We may also be required to seek other forms of financing, such as asset divestitures or joint venture arrangements to continue advancing our uranium projects which would depend entirely on finding a suitable third party willing to enter into such an arrangement, typically involving an assignment of a percentage interest in the mineral project.

 

Our long-term success, including the recoverability of the carrying values of our assets and our ability to acquire additional uranium projects and continue with exploration and pre-extraction activities and mining activities on our existing uranium projects, will depend ultimately on our ability to achieve and maintain profitability and positive cash flow from our operations by establishing ore bodies that contain commercially recoverable uranium and to develop these into profitable mining activities. The economic viability of our mining activities, including the expected duration and profitability of the Palangana Mine and of any future satellite ISR mines, such as the Burke Hollow and Goliad Projects, located within the South Texas Uranium Belt, and the Reno Creek Project located in the Powder River Basin, Wyoming, and our projects in Canada and in the Republic of Paraguay, have many risks and uncertainties. These include, but are not limited to: (i) a significant, prolonged decrease in the market price of uranium and titanium minerals; (ii) difficulty in marketing and/or selling uranium concentrates; (iii) significantly higher than expected capital costs to construct the mine and/or processing plant; (iv) significantly higher than expected extraction costs; (v) significantly lower than expected mineral extraction; (vi) significant delays, reductions or stoppages of uranium extraction activities; and (vi) the introduction of significantly more stringent regulatory laws and regulations. Our mining activities may change as a result of any one or more of these risks and uncertainties and there is no assurance that any ore body that we extract mineralized materials from will result in achieving and maintaining profitability and developing positive cash flow.

 

Our operations are capital intensive and we will require significant additional financing to acquire additional mineral projects and continue with our exploration and pre-extraction activities on our existing projects.

 

Our operations are capital intensive and future capital expenditures are expected to be substantial. We will require significant additional financing to fund our operations, including acquiring additional projects and continuing with our exploration and pre-extraction activities which include assaying, drilling, geological and geochemical analysis and mine construction costs. In the absence of such additional financing we would not be able to fund our operations or continue with our exploration and pre-extraction activities, which may result in delays, curtailment or abandonment of any one or all of our projects.

 

If we are unable to service our indebtedness, we may be faced with accelerated repayments or lose the assets securing our indebtedness. Furthermore, restrictive covenants governing our indebtedness may restrict our ability to pursue our business strategies.

 

On December 5, 2018, we entered into the Third Amended and Restated Credit Agreement with our Lenders under which we had previously drawn down the maximum $20 million in principal. The Credit Facility requires monthly interest payments calculated at 8% per annum and other periodic fees. Our ability to continue making these scheduled payments will be dependent on and may change as a result of our financial condition and operating results. Failure to make any of these scheduled payments will put us in default with the Credit Facility which, if not addressed or waived, could require accelerated repayment of our indebtedness and/or enforcement by the Lenders against our assets. Enforcement against our assets would have a material adverse effect on our financial condition and operating results. Furthermore, our Credit Facility includes restrictive covenants that, among other things, limit our ability to sell our assets or to incur additional indebtedness other than permitted indebtedness, which may restrict our ability to pursue certain business strategies from time to time. If we do not comply with these restrictive covenants, we could be in default which, if not addressed or waived, could require accelerated repayment of our indebtedness and/or enforcement by the Lenders against our assets.

 

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Our uranium extraction and sales history is limited, with our uranium extraction to date originating from a single uranium mine. Our ability to continue generating revenue is subject to a number of factors, any one or more of which may adversely affect our financial condition and operating results.

 

We have a limited history of uranium extraction and generating revenue. In November 2010, we commenced uranium extraction at the Palangana Mine, which has been our sole source of U3O8 sold to generate the revenues during Fiscal 2015, Fiscal 2013 and Fiscal 2012 of $3.1 million, $9.0 million and $13.8 million, respectively, with no revenues from sales of U3O8 generated during the three months ended October 31, 2019, Fiscal 2016 to Fiscal 2019, Fiscal 2014 or for any periods prior to Fiscal 2012.

 

During the three months ended October 31, 2019, we continued to operate the Palangana Mine at a reduced pace since implementing our strategic plan in September 2013 to align our operations to a weak uranium commodity market in a challenging post-Fukushima environment. This strategy has included the deferral of major pre-extraction expenditures and remaining in a state of operational readiness in anticipation of a recovery in uranium prices.  Our ability to continue generating revenue from the Palangana Mine is subject to a number of factors which include, but are not limited to: (i) a significant, prolonged decrease in the market price of uranium; (ii) difficulty in marketing and/or selling uranium concentrates; (iii) significantly higher than expected capital costs to construct the mine and/or processing plant; (iv) significantly higher than expected extraction costs; (v) significantly lower than expected uranium extraction; (vi) significant delays, reductions or stoppages of uranium extraction activities; and (vii) the introduction of significantly more stringent regulatory laws and regulations. Furthermore, continued mining activities at the Palangana Mine will eventually deplete the Palangana Mine or cause such activities to become uneconomical, and if we are unable to directly acquire or develop existing uranium projects, such as our Burke Hollow and Goliad Projects, into additional uranium mines from which we can commence uranium extraction, it will negatively impact our ability to generate revenues. Any one or more of these occurrences may adversely affect our financial condition and operating results.

 

Exploration and pre-extraction programs and mining activities are inherently subject to numerous significant risks and uncertainties, and actual results may differ significantly from expectations or anticipated amounts. Furthermore, exploration programs conducted on our projects may not result in the establishment of ore bodies that contain commercially recoverable uranium.

 

Exploration and pre-extraction programs and mining activities are inherently subject to numerous significant risks and uncertainties, with many beyond our control and including, but not limited to: (i) unanticipated ground and water conditions and adverse claims to water rights; (ii) unusual or unexpected geological formations; (iii) metallurgical and other processing problems; (iv) the occurrence of unusual weather or operating conditions and other force majeure events; (v) lower than expected ore grades; (vi) industrial accidents; (vii) delays in the receipt of or failure to receive necessary government permits; (viii) delays in transportation; (ix) availability of contractors and labor; (x) government permit restrictions and regulation restrictions; (xi) unavailability of materials and equipment; and (xii) the failure of equipment or processes to operate in accordance with specifications or expectations. These risks and uncertainties could result in: (i) delays, reductions or stoppages in our mining activities; (ii) increased capital and/or extraction costs; (iii) damage to, or destruction of, our mineral projects, extraction facilities or other properties; (iv) personal injuries; (v) environmental damage; (vi) monetary losses; and (vii) legal claims.

 

Success in mineral exploration is dependent on many factors, including, without limitation, the experience and capabilities of a company’s management, the availability of geological expertise and the availability of sufficient funds to conduct the exploration program. Even if an exploration program is successful and commercially recoverable material is established, it may take a number of years from the initial phases of drilling and identification of the mineralization until extraction is possible, during which time the economic feasibility of extraction may change such that the material ceases to be economically recoverable. Exploration is frequently non-productive due, for example, to poor exploration results or the inability to establish ore bodies that contain commercially recoverable material, in which case the project may be abandoned and written-off. Furthermore, we will not be able to benefit from our exploration efforts and recover the expenditures that we incur on our exploration programs if we do not establish ore bodies that contain commercially recoverable material and develop these projects into profitable mining activities, and there is no assurance that we will be successful in doing so for any of our projects.

 

Whether an ore body contains commercially recoverable material depends on many factors including, without limitation: (i) the particular attributes, including material changes to those attributes, of the ore body such as size, grade, recovery rates and proximity to infrastructure; (ii) the market price of uranium, which may be volatile; and (iii) government regulations and regulatory requirements including, without limitation, those relating to environmental protection, permitting and land use, taxes, land tenure and transportation.