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EX-32.1 - EXHIBIT 32.1 - URANIUM ENERGY CORPex_189285.htm
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EX-31.1 - EXHIBIT 31.1 - URANIUM ENERGY CORPex_189283.htm
 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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


For the quarterly period ended April 30, 2020

 

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:  184,187,920 shares of common stock outstanding as of June 8, 2020.

 

2

 

 

 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

26

     

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

34

     

Item 4. 

Controls and Procedures

35

   

PART II – OTHER INFORMATION

36

   

Item 1.

Legal Proceedings

36

     

Item 1A.   

Risk Factors

36

     

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

47

     

Item 3.

Defaults Upon Senior Securities

47

     

Item 4.

Mine Safety Disclosures

47

     

Item 5.

Other Information

47

     

Item 6.

Exhibits

48

   

SIGNATURES

49

 

3

 

 

PART I – FINANCIAL INFORMATION

 

Item 1.     Financial Statements

 

 

 

 

 

 

 

 

 

 

4

 

 

 

 

 

 

 

 

 

 

 

URANIUM ENERGY CORP.

 

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

FOR THE NINE MONTHS ENDED APRIL 30, 2020

 

(Unaudited – Expressed in U.S. Dollars)

 

 

 

 

 

 

 

 

 

 

 

5

 

 

URANIUM ENERGY CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited – Expressed in U.S. Dollars)

 


 

   

Note(s)

   

April 30, 2020

   

July 31, 2019

 
                       

CURRENT ASSETS

                     

Cash and cash equivalents

  5     $ 7,407,189     $ 6,058,186  

Term deposits

          -       11,831,671  

Inventories

          211,662       211,662  

Prepaid expenses and deposits

          1,358,235       1,343,458  

Other current assets

          134,079       264,956  

TOTAL CURRENT ASSETS

          9,111,165       19,709,933  
                       

MINERAL RIGHTS AND PROPERTIES

  3       63,605,981       63,536,895  

PROPERTY, PLANT AND EQUIPMENT

  4       7,049,056       7,042,359  

RESTRICTED CASH

  5       1,839,119       1,821,392  

EQUITY-ACCOUNTED INVESTMENT

  6       11,199,978       8,680,449  

OTHER LONG-TERM ASSETS

  7       842,148       249,214  

TOTAL ASSETS

        $ 93,647,447     $ 101,040,242  
                       
                       

CURRENT LIABILITIES

                     

Accounts payable and accrued liabilities

        $ 1,780,073     $ 3,002,688  

Other current liabilities

  12       159,718       -  

Due to a related party

  8       16,175       68,680  

TOTAL CURRENT LIABILITIES

          1,955,966       3,071,368  
                       

LONG-TERM DEBT

  9       19,443,996       19,599,963  

GOVERNMENT LOAN PAYABLE

  10       28,756       -  

ASSET RETIREMENT OBLIGATIONS

  11       3,686,006       3,541,082  

OTHER LONG-TERM LIABILITIES

  12       526,067       50,010  

DEFERRED TAX LIABILITIES

          545,928       550,551  

TOTAL LIABILITIES

          26,186,719       26,812,974  
                       

STOCKHOLDERS' EQUITY

                     

Capital stock

                     

Common stock $0.001 par value: 750,000,000 shares authorized, 184,050,113 shares issued and outstanding (July 31, 2019 - 180,896,431)

  13       184,050       180,896  

Additional paid-in capital

          340,198,573       336,047,595  

Share issuance obligation

  13       -       187,100  

Accumulated deficit

          (272,405,666 )     (262,200,784 )

Accumulated other comprehensive (loss) income

          (516,229 )     12,461  

TOTAL EQUITY

          67,460,728       74,227,268  

TOTAL LIABILITIES AND EQUITY

        $ 93,647,447     $ 101,040,242  
                       

COMMITMENTS AND CONTINGENCIES

  17                  

SUBSEQUENT EVENT

  1,10                  

 

 

 

 

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 – Expressed in U.S. Dollars)

 


 

         

Three Months Ended April 30,

   

Nine Months Ended April 30,

 
   

Note(s)

   

2020

   

2019

   

2020

   

2019

 
                                       

COSTS AND EXPENSES

                                     

Mineral property expenditures

  3     $ 956,564     $ 1,453,358     $ 3,803,338     $ 3,218,818  

General and administrative

  8,13       2,127,887       1,952,616       6,837,851       6,395,014  

Depreciation, amortization and accretion

  3,4,11       74,060       86,387       232,198       259,970  

TOTAL COSTS AND EXPENSES

          3,158,511       3,492,361       10,873,387       9,873,802  

LOSS FROM OPERATIONS

          (3,158,511 )     (3,492,361 )     (10,873,387 )     (9,873,802 )
                                       

OTHER INCOME (EXPENSES)

                                     

Interest income

          30,403       136,173       171,925       311,155  

Interest expenses and finance costs

  9       (835,683 )     (815,258 )     (2,579,971 )     (2,383,916 )

Income (loss) from equity-accounted investment

  6       684,443       (872,851 )     3,048,219       (590,819 )

Other income

          4,475       17,837       21,693       114,092  

Gain on disposition of assets

          216       7,598       2,016       1,591,362  

TOTAL OTHER INCOME (EXPENSES)

          (116,146 )     (1,526,501 )     663,882       (958,126 )

LOSS BEFORE INCOME TAXES

          (3,274,657 )     (5,018,862 )     (10,209,505 )     (10,831,928 )
                                       

DEFERRED TAX BENEFITS

          1,013       1,305       4,623       13,271  

NET LOSS FOR THE PERIOD

          (3,273,644 )     (5,017,557 )     (10,204,882 )     (10,818,657 )
                                       

OTHER COMPREHENSIVE LOSS, NET OF INCOME TAXES

  6       (479,148 )     (159,954 )     (528,690 )     (121,722 )

TOTAL COMPREHENSIVE LOSS FOR THE PERIOD

        $ (3,752,792 )   $ (5,177,511 )   $ (10,733,572 )   $ (10,940,379 )
                                       

NET LOSS PER SHARE, BASIC AND DILUTED

  14     $ (0.02 )   $ (0.03 )   $ (0.06 )   $ (0.06 )
                                       

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING, BASIC AND DILUTED

          183,896,944       179,348,614       182,637,673       174,213,254  

 

 

 

 

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

 

7

 

 

URANIUM ENERGY CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 (Unaudited – Expressed in U.S. Dollars)

 


 

         

NineMonths Ended April 30,

   

Note(s)

   

2020

   

2019

 

NET CASH PROVIDED BY (USED IN):

                     
                       

OPERATING ACTIVITIES

                     

Net loss for the period

        $ (10,204,882 )   $ (10,818,657 )

Adjustments to reconcile net loss to cash flows in operating activities

                     

Stock-based compensation

  13       2,411,281       2,143,598  

Depreciation, amortization and accretion

  3,4,11       232,198       259,970  

Amortization of long-term debt discount

  9       1,244,032       1,050,671  

Gain on disposition of assets

          (2,016 )     (1,591,362 )

(Income) loss from equity-accounted investment

  6       (3,048,219 )     590,819  

Deferred tax benefits

          (4,623 )     (13,271 )

Realized loss on available-for-sale securities

          -       799  

Changes in operating assets and liabilities

                     

Prepaid expenses and deposits

          248,845       (408,301 )

Other current assets

          130,877       (18,481 )

Accounts payable and accrued liabilities

          (1,222,616 )     (869,562 )

Due to a related party

  8       (52,505 )     47,738  

Other liabilities

          (65,028 )     -  

NET CASH USED IN OPERATING ACTIVITIES

          (10,332,656 )     (9,626,039 )
                       

FINANCING ACTIVITIES

                     

Proceeds from share issuance, net of issuance costs

          -       23,843,995  

Proceeds from a government loan

          28,756       -  

NET CASH PROVIDED BY FINANCING ACTIVITIES

          28,756       23,843,995  
                       

INVESTING ACTIVITIES

                     

Investment in mineral rights and properties

          (80,000 )     (105,000 )

Purchase of property, plant and equipment

          (83,841 )     (77,809 )

Investment in term deposits

          -       (29,858,126 )

Proceeds from redemption of term deposits

          11,831,671       15,000,000  

Proceeds from disposition of assets

          2,800       12,498  

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES

          11,670,630       (15,028,437 )
                       

NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

          1,366,730       (810,481 )
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     $ 9,246,308     $ 7,905,941  
                       

SUPPLEMENTAL CASH FLOW INFORMATION

  16                  

 

 

 

 

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

 

8

 

 

URANIUM ENERGY CORP.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited – Expressed in U.S. Dollars)

 


 

   

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

                                                       

Issued for credit facility

    1,743,462       1,743       1,398,257       -       -       -       1,400,000  

Stock-based compensation

                                                       

Common stock issued for consulting services

    313,201       313       277,644       -       -       -       277,957  

Common stock issued under Stock Incentive Plan

    256,206       257       234,535       -       -       -       234,792  

Amortization of stock option expenses

    -       -       485,268       -       -       -       485,268  

Warrants

                                                       

Issued for consulting services

    -       -       22,733       -       -       -       22,733  

Net loss for the period

    -       -       -       -       (1,888,661 )     -       (1,888,661 )

Other comprehensive loss

    -       -       -       -       -       (39,648 )     (39,648 )

Balance, January 31, 2020

    183,673,815     $ 183,674     $ 339,570,053     $ -     $ (269,132,022 )   $ (37,081 )   $ 70,584,624  

Stock-based compensation

                                                       

Common stock issued under Stock Incentive Plan

    376,298       376       246,826       -       -       -       247,202  

Amortization of stock option expenses

    -       -       381,694       -       -       -       381,694  

Net loss for the period

    -       -       -       -       (3,273,644 )     -       (3,273,644 )

Other comprehensive loss

    -       -       -       -       -       (479,148 )     (479,148 )

Balance, April 30, 2020

    184,050,113     $ 184,050     $ 340,198,573     $ -     $ (272,405,666 )   $ (516,229 )   $ 67,460,728  

 

 

 

 

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

 

9

 

URANIUM ENERGY CORP.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited – Expressed in U.S. Dollars)

 


 

   

Common Stock

   

Additional Paid-in

   

Accumulated

   

Accumulated Other Comprehensive

   

Stockholders'

 
   

Shares

   

Amount

    Capital     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  

Common stock

                                               

Issued upon exercise of stock options

    16,964       17       (17 )     -       -       -  

Issued for credit facility

    1,180,328       1,180       1,398,820       -       -       1,400,000  

Stock-based compensation

                                               

Common stock issued for consulting services

    98,861       98       127,643       -       -       127,741  

Common stock issued under Stock Incentive Plan

    223,156       225       290,013       -       -       290,238  

Amortization of stock option expenses

    -       -       357,022       -       -       357,022  

Net loss for the period

    -       -       -       (2,349,674 )     -       (2,349,674 )

Other comprehensive income

    -       -       -       -       38,232       38,232  

Balance, January 31, 2019

    177,642,699     $ 177,643     $ 332,600,628     $ (250,849,095 )   $ 38,232     $ 81,967,408  

Common stock

                                               

Issued upon exercise of stock options

    1,599       2       (1 )     -       -       1  

Issued upon exercise of warrants

    1,938,117       1,938       2,323,802       -       -       2,325,740  
Issued in exchange of warrants pursuant to Securities Exchange Agreement     750,000       750       976,813       -       -       977,563  

Stock-based compensation

                                               

Common stock issued for consulting services

    35,698       34       48,051       -       -       48,085  

Common stock issued under Stock Incentive Plan

    194,173       195       255,429       -       -       255,624  

Amortization of stock option expenses

    -       -       233,155       -       -       233,155  

Warrants

                                               
Exchanged for common stock pursuant to Securities Exchange Agreement     -       -       (4,950,000 )     -       -       (4,950,000 )

Difference from Securities Exchange Agreement

    -       -       3,952,500       -       -       3,952,500  

Net loss for the period

    -       -       -       (5,017,557 )     -       (5,017,557 )

Other comprehensive loss

    -       -       -       -       (159,954 )     (159,954 )

Balance, April 30, 2019

    180,562,286     $ 180,562     $ 335,440,377     $ (255,866,652 )   $ (121,722 )   $ 79,632,565  

 

 

 

 

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

 

10

 

URANIUM ENERGY CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

April 30, 2020

 (Unaudited – Expressed in U.S. Dollars)

 


 

 

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 nine months ended April 30, 2020, 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 April 30, 2020, we had a working capital of $7.2 million including cash and cash equivalents of $7.4 million. Subsequent to April 30, 2020, we received a loan of $277,250 under the Paycheck Protection Program (the “PPP Program”; and the “PPP Loan”) as part of the Coronavirus Aid, Relief, and Economic Security Act (“CARES”) enacted by the U.S. Congress in response to the COVID-19 pandemic.   During the three months ended April 30, 2020, in response to the significant financial market uncertainty as a result of the COVID 19 pandemic, we implemented corporate-wide cost-cutting and cash saving measures to reduce cash outlays.  By further curtailing expenditures on discretionary and non-core activities and paying directors, management, employees and certain consulting and service providers fees by way of issuance of shares of the Company in lieu of cash, our existing cash resources and cash generated from the sale of the Company’s liquid assets 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 nine months ended April 30, 2020 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.

 

11

 

URANIUM ENERGY CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

April 30, 2020

 (Unaudited – Expressed in U.S. Dollars)

 


 

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 elected the following optional practical expedients:

 

 

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 12: Lease Liabilities for additional qualitative and quantitative disclosures related to leasing arrangements.

 

12

 

URANIUM ENERGY CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

April 30, 2020

 (Unaudited – Expressed in U.S. Dollars)

 


 

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. Assets under finance leases are included in Property, Plant and Equipment and the related lease liabilities in 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 the 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.

 

 

NOTE 3:        MINERAL RIGHTS AND PROPERTIES

 

Mineral Rights

 

At April 30, 2020, 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 April 30, 2020 annual maintenance payments of approximately $1.2 million will be required to maintain these mineral rights.

 

13

 

URANIUM ENERGY CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

April 30, 2020

 (Unaudited – Expressed in U.S. Dollars)

 


 

Mineral rights and property acquisition costs consisted of the following:

             
   

April 30, 2020

   

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

    749,854       699,854  

Los Cuatros Project

    257,250       257,250  

Slick Rock Project

    30,000       -  

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  
      67,531,387       67,451,387  

Accumulated Depletion

    (3,929,884 )     (3,929,884 )
      63,601,503       63,521,503  
                 

Databases

    2,410,038       2,410,038  

Accumulated Amortization

    (2,409,935 )     (2,409,188 )
      103       850  
                 

Land Use Agreements

    48,770       404,310  

Accumulated Amortization

    (44,395 )     (389,768 )
      4,375       14,542  
    $ 63,605,981     $ 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 our 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 nine months ended April 30, 2020 and 2019, 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 and nine months ended April 30, 2020 and 2019.

 

14

 

URANIUM ENERGY CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

April 30, 2020

 (Unaudited – Expressed in U.S. Dollars)

 


 

Mineral property expenditures incurred on our projects were as follows:

             
   

Three Months Ended April 30,

   

Nine Months Ended April 30,

 
   

2020

   

2019

   

2020

   

2019

 

Mineral Property Expenditures

                               

Palangana Mine

  $ 260,438     $ 248,687     $ 1,109,164     $ 775,311  

Goliad Project

    54,486       34,071       151,293       71,949  

Burke Hollow Project

    154,672       605,025       1,024,345       880,039  

Longhorn Project

    2,289       10,157       14,735       35,691  

Salvo Project

    7,843       6,702       21,813       20,211  

Anderson Project

    19,519       15,097       49,004       52,367  

Workman Creek Project

    8,168       7,673       24,533       23,037  

Slick Rock Project

    13,123       12,206       39,527       41,637  

Reno Creek Project

    159,088       178,722       451,312       474,015  

Yuty Project

    27,664       8,297       58,578       94,299  

Oviedo Project

    69,446       105,724       298,505       167,207  

Alto Paraná Titanium Project

    36,323       78,325       202,656       138,588  

Other Mineral Property Expenditures

    143,505       142,672       357,873       444,467  
    $ 956,564     $ 1,453,358     $ 3,803,338     $ 3,218,818  

 

 

NOTE 4:        PROPERTY, PLANT AND EQUIPMENT

 

Property, plant and equipment consisted of the following:

             
   

April 30, 2020

   

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

    2,393,579       (2,338,287 )     55,292       2,467,557       (2,402,681 )     64,876  

Logging Equipment and Vehicles

    1,948,557       (1,747,522 )     201,035       1,950,229       (1,730,905 )     219,324  

Computer Equipment

    550,243       (478,190 )     72,053       572,551       (546,652 )     25,899  

Furniture and Fixtures

    170,701       (169,805 )     896       170,701       (169,379 )     1,322  

Land and Buildings

    889,606       (38,728 )     850,878       889,606       (27,570 )     862,036  
    $ 12,595,521     $ (5,546,465 )   $ 7,049,056     $ 12,693,479     $ (5,651,120 )   $ 7,042,359  

 

During the nine months ended April 30, 2020 and 2019, 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 and nine months ended April 30, 2020 and 2019.

 

 

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.

             
   

April 30, 2020

   

July 31, 2019

 

Restricted cash, beginning of period

  $ 1,821,392     $ 1,789,899  

Interest received

    17,727       31,493  

Restricted cash, end of period

  $ 1,839,119     $ 1,821,392  

 

15

 

URANIUM ENERGY CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

April 30, 2020

(Unaudited – Expressed in U.S. Dollars)

 


 

Cash, cash equivalents and restricted cash are included in the following accounts at April 30, 2020 and 2019:

             
   

April 30, 2020

   

April 30, 2019

 

Cash and cash equivalents

  $ 7,407,189     $ 6,093,098  

Restricted cash

    1,839,119       1,812,843  
Total cash, cash equivalents and restricted cash   $ 9,246,308     $ 7,905,941  

 

 

NOTE 6:         EQUITY-ACCOUNTED INVESTMENT

 

As at April 30, 2020, we own 14,000,000 shares of Uranium Royalty Corp. (“URC”).

 

During the nine months ended April 30, 2020, 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. URC is now listed for trading on the TSX Venture Exchange (the “TSXV”) with the trading symbol “URC.V”.

 

As at April 30, 2020, we owned a 19.5% (July 31, 2019: 32.6%) 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 and nine months ended April 30, 2020.

 

During the nine months ended April 30, 2020, URC acquired a 0.5% net profit interest royalty in our Reno Creek Project from a third party.

 

During the nine months ended April 30, 2020, 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

    (8,437 )

Gain on ownership interest dilution

    3,056,656  

Translation loss

    (528,690 )

Balance, April 30, 2020

  $ 11,199,978  

 

 

NOTE 7:         OTHER LONG-TERM ASSETS

 

At April 30, 2020 other long-term assets totaled $842,148 (July 31, 2019: $249,214), which included ROU assets relating to the operating leases totaling $700,806 (July 31, 2019: $Nil) and the non-current portion of certain prepaid expenses of $141,342 (July 31, 2019: $249,214).

 

 

NOTE 8:        RELATED PARTY TRANSACTIONS

 

During the three months ended April 30, 2020 and 2019, we incurred $36,849 and $39,365 (nine months ended April 30, 2020 and 2019: $105,339 and $117,086), 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 April 30, 2020, the amount owing to Blender was $16,175 (July 31, 2019: $68,680).

 

16

 

URANIUM ENERGY CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

April 30, 2020

 (Unaudited – Expressed in U.S. Dollars)

 


 

 

NOTE 9:         LONG-TERM DEBT     

 

As at April 30, 2020, our long-term debt consisted of the following:

             
   

April 30, 2020

   

July 31, 2019

 

Principal amount

  $ 20,000,000     $ 20,000,000  

Unamortized discount and accrued fees

    (556,004 )     (400,037 )

Long-term debt, net of unamortized discount

  $ 19,443,996     $ 19,599,963  

 

For the three months ended April 30, 2020 and 2019, amortization of debt discount totaled $399,231 and $384,551, (nine months ended April 30, 2020 and 2019: $1,244,032 and $1,050,671), respectively, which was recorded as interest expense and included in our Condensed Consolidated Statements of Operations and Comprehensive Loss.

 

During the nine months ended April 30, 2020, and pursuant to the terms of our Third Amended and Restated Credit Agreement with our lenders (the “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.

 

The Company’s credit facility with our Lenders (the “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%.

 

As at April 30, 2020, we had a working capital ratio of 4.7:1, which was in compliance with the debt covenant requirement being working capital ratio not less than 1:1.

 

The aggregate yearly maturities of long-term debt based on principal amounts outstanding at April 30, 2020 are as follows:

         

Fiscal 2020

  $ -  

Fiscal 2021

    -  

Fiscal 2022

    20,000,000  

Total

  $ 20,000,000  

 

 

NOTE 10:       GOVERNMENT LOAN PAYABLE

 

In April 2020 our Canadian subsidiary received a loan of $28,756 (CAD$40,000) through the Canadian Emergency Business Account Program (“CEBA Loan”), which provides financial relief for Canadian small businesses during the COVID-19 pandemic. The CEBA Loan has an initial term date on December 31, 2022 (the “Initial Term Date”) and may be extended to December 31, 2025. The CEBA Loan is non-revolving, with an interest rate being 0% per annum prior to the Initial Term Date and 5% per annum thereafter during any extended term, which is calculated daily and paid monthly. The CEBA Loan can be repaid at any time without penalty and, if at least 75% of the CEBA Loan is paid prior to the Initial Term Date, the remaining balance of the CEBA Loan will be forgiven. We anticipate repaying the CEBA Loan prior to the Initial Term Date.

 

On April 28, 2020, we entered into a business loan agreement with Kleberg Bank, N.A., under the PPP Program administered by the Small Business Administration. The PPP Program is a part of the CARES enacted by the U.S. Congress on March 27, 2020 in response to the COVID-19 pandemic. The total loan amount we qualified for was $277,250, which was received subsequent to April 30, 2020, on May 5, 2020.

 

17

 

URANIUM ENERGY CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

April 30, 2020

 (Unaudited – Expressed in U.S. Dollars)

 


 

Under the PPP Program the repayment of these loans, including interest, will be forgiven based on payroll, payroll-related and other allowable costs incurred in the eight-week period following the funding of the loan pursuant to the following requirements:

 

 

that not less than 75% of the loan proceeds be applied to eligible payroll costs;

 

that the remaining 25% of the loan proceeds be applied to any additional payroll costs above 75%, rent payments on leases dated before February 15, 2020 and/or utility payments under any services agreements dated before February 15, 2020; and

 

to maintain employee compensation levels (subject to specific program requirements).

 

The PPP Program provides for an initial six-month deferral of payments. The PPP Loan has a two-year maturity ending on April 28, 2022 with an interest rate of 1% per annum.

 

 

NOTE 11:       ASSET RETIREMENT OBLIGATIONS

 

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

         

Balance, July 31, 2019

  $ 3,541,082  

Accretion

    144,924  

Balance, April 30, 2020

  $ 3,686,006  

 

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

                 
   

April 30, 2020

   

July 31, 2019

 

Undiscounted amount of estimated cash flows

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

Payable in years

   9 to 21      9 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 12:       LEASE LIABILITIES

 

The Company primarily has operating leases for corporate offices and a processing facility with a remaining term of 0.9 to 19.1 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.

 

18

 

URANIUM ENERGY CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

April 30, 2020

 (Unaudited – Expressed in U.S. Dollars)

 


 

During the three and nine months ended April 30, 2020 total lease expenses include the following components:

             
   

Three Months Ended

   

Nine Months Ended

 
   

April 30, 2020

   

April 30, 2020

 

Operating leases

  $ 63,073     $ 182,012  

Short-term leases

    23,289       420,318  

Total Lease Expenses

  $ 86,362     $ 602,330  

 

As at April 30, 2020, the weighted average remaining lease term was 15.0 years and weighted average discount rate was 4.7%.

 

During the nine months ended April 30, 2020, cash paid for amounts included in the measurement of operating lease liabilities totaled $148,115.

 

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

 

    Operating leases  

Fiscal 2020

    64,382  

Fiscal 2021

    160,885  

Fiscal 2022

    220,000  

Fiscal 2023

    20,000  

Fiscal 2024

    20,000  

Thereafter

    320,000  

Total lease payments

    805,267  

Less: imputed interest

    (171,502 )

Present value of lease liabilities

    633,765  
         

Currrent portion of lease liabilities

    151,403  

Non-curent portion of lease liabilities

    482,362  

 

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 13:       CAPITAL STOCK

 

A summary of share purchase warrants outstanding and exercisable at April 30, 2020 is as follows:

 

 

Weighted Average
Exercise Price

   

Number of Warrants
Outstanding

   

Weighted Average

Remaining Contractual
Life (Years)

 

Expiry Date

 

  $ 1.25       150,000     0.65  

December 23, 2020

    1.50       150,000     0.65  

December 23, 2020

    2.05       7,063,253     0.93  

April 3, 2021

    2.30       308,728     2.28  

August 9, 2022

    1.64       50,000     3.06  

May 21, 2023

  $ 2.03       7,721,981     0.98    

 

19

 

URANIUM ENERGY CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

April 30, 2020

 (Unaudited – Expressed in U.S. Dollars)

 


 

A continuity schedule of outstanding share purchase warrants for the nine months ended April 30, 2020 is as follows:

             
   

Number of
Warrants

   

Weighted Average
Exercise Price

 

Balance, July 31, 2019

    19,443,910       1.94  

Issued

    300,000       1.38  

Expired

    (12,021,929 )     1.87  

Balance, April 30, 2020

    7,721,981     $ 2.03  

 

Stock Options

 

At April 30, 2020, 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 nine months ended April 30, 2020, 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)

   

Grant Date

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 %

April 13, 2020

    200,000       0.80       5.00       50,829       4.00       0.37 %     0.00 %     57.04 %

April 17, 2020

    50,000       0.83       5.00       18,031       4.00       0.31 %     0.00 %     56.95 %

April 29, 2020

    125,000       1.18       5.00       67,655       4.00       0.30 %     0.00 %     60.59 %

Total

    972,650                     $ 439,675                                  

 

The stock options granted in August 2019 are subject to a 24-month vesting provision, whereby at the end of the first three and nine 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. The stock options granted in April 2020 are subject to a 12-month vesting provision, whereby one-quarter of the stock options become exercisable immediately and at each of four, eight and 12 months from the grant date.

 

A continuity schedule of outstanding stock options for the underlying shares for the nine months ended April 30, 2020 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  

Forfeited

    (21,875 )     1.19  

Expired

    (37,500 )     1.20  

Balance, January 31, 2020

    10,286,625       1.25  

Granted

    375,000       0.93  

Forfeited

    (107,469 )     1.09  

Expired

    (160,656 )     2.84  

Balance, April 30, 2020

    10,393,500     $ 1.22  

 

20

 

URANIUM ENERGY CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

April 30, 2020

 (Unaudited – Expressed in U.S. Dollars)

 


 

A continuity schedule of outstanding unvested stock options at April 30, 2020, 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  

Vested

    (806,534 )     0.62  

Forfeited

    (21,875 )     0.59  

Balance, January 31, 2020

    2,434,291     $ 0.55  

Granted

    375,000       0.36  

Vested

    (184,049 )     0.45  

Forfeited

    (27,500 )     0.52  

Balance, April 30, 2020

    2,597,742     $ 0.53  

 

At April 30, 2020, unrecognized stock-based compensation expense related to the unvested portion of stock options totaled $576,611 to be recognized over the next 0.80 years.

 

At April 30, 2020, the aggregate intrinsic value under the provisions of ASC 718 of all outstanding stock options was estimated at $759,834 (vested: $403,047 and unvested: $356,787).

 

A summary of stock options outstanding and exercisable at April 30, 2020 is as follows:

             

 

 

Options Outstanding

   

Options Exercisable

 

Range of

Exercise

Prices

 

 

Outstanding at

April 30, 2020

   

Weighted

Average

Exercise Price

   

Weighted Average

Remaining

Contractual

Term (Years)

   

Exercisable at
April 30, 2020

   

Weighted

Average

Exercise Price

   

Weighted Average

Remaining

Contractual Term

(Years)

 

$0.80

to  $0.99     4,403,250     $ 0.92     5.85       2,394,008     $ 0.93       3.33  

$1.00

to  $1.49     3,630,000       1.22     1.81       3,511,250       1.22       1.71  

$1.50

to  $3.28     2,360,250       1.76     2.82       1,890,500       1.81       2.72  
          10,393,500     $ 1.22     3.75       7,795,758     $ 1.27       2.45  

 

Restricted Stock Units

 

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

 

During the three and nine months ended April 30, 2020, stock-based compensation relating to the RSUs totaled $66,928 and $200,784 (three and nine months ended April 30, 2019: $Nil and $Nil), respectively. At April 30, 2020 outstanding unvested RSUs totaled 465,000 (July 31, 2019: 465,000), and unrecognized compensation costs relating to unvested RSUs totaled $237,292, which is expected to be recognized over a period of approximately 2.25 years.

 

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.

 

21

 

URANIUM ENERGY CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

April 30, 2020

 (Unaudited – Expressed in U.S. Dollars)

 


 

During the three and nine months ended April 30, 2020, stock-based compensation relating to the PRSUs totaled $68,165 and $204,495 (three and nine months ended April 30, 2019: $Nil and $Nil), respectively. At April 30, 2020 outstanding unvested PRSUs totaled 445,000 (July 31, 2019: 445,000), and unrecognized compensation costs relating to unvested PRSUs totaled $307,517, which is expected to be recognized over a period of approximately 2.25 years.

 

Stock-Based Compensation

 

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

             
   

Three Months Ended April 30,

   

Nine Months Ended April 30,

 
   

2020

   

2019

   

2020

   

2019

 

Stock-Based Compensation for Consultants

                               

Common stock issued for consulting services

  $ 131,516     $ 155,813     $ 365,274     $ 516,423  

Amortization of stock option expenses

    57,130       37,336       157,655       122,056  
      188,646       193,149       522,929       638,479  

Stock-Based Compensation for Management

                               

Common stock issued to management

    24,308       33,126       93,115       104,109  

Amortization of stock option expenses

    100,317       70,395       506,422       427,099  

Amortization of RSU & PRSU expenses

    135,093       -       405,279       -  
      259,718       103,521       1,004,816       531,208  

Stock-Based Compensation for Employees

                               

Common stock issued to employees

    158,127       132,638       416,152       381,333  

Amortization of stock option expenses

    89,154       125,424       482,573       592,578  
      247,281       258,062       898,725       973,911  
                                 

Settlement of share issuance obligation

    -       -       (15,189 )     -  
    $ 695,645     $ 554,732     $ 2,411,281     $ 2,143,598  

 

During the nine months ended April 30, 2020, 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 nine months ended April 30, 2020.

 

 

NOTE 14:       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 April 30,

   

Nine Months Ended April 30,

 
   

2020

   

2019

   

2020

   

2019

 

Numerator

                               

Net Loss for the Period

  $ (3,273,644 )   $ (5,017,557 )   $ (10,204,882 )   $ (10,818,657 )
                                 

Denominator

                               

Basic Weighted Average Number of Shares

    183,896,944       179,648,614       182,637,673       174,213,254  

Dilutive Stock Options, Warrants, RSUs and PRSUs

    -       -       -       -  

Diluted Weighted Average Number of Shares

    183,896,944       179,648,614       182,637,673       174,213,254  
                                 

Net Loss per Share, Basic and Diluted

  $ (0.02 )   $ (0.03 )   $ (0.06 )   $ (0.06 )

 

For the three and nine months ended April 30, 2020 and 2019 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.

 

22

 

URANIUM ENERGY CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

April 30, 2020

 (Unaudited – Expressed in U.S. Dollars)

 


 

 

NOTE 15:        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 April 30, 2020, our long-term assets located in the United States totaled $57,816,137 or 68% of our total long-term assets of $84,536,282.

 

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

   

April 30, 2020

 
   

United States

                         
Balance Sheet Items  

Texas

   

Arizona

   

Wyoming

   

Other States

    Canada     Paraguay     Total  

Mineral Rights and Properties

  $ 12,423,036     $ 4,477,477     $ 31,527,870     $ 117,075     $ 546,938     $ 14,513,585     $ 63,605,981  

Property, Plant and Equipment

    6,319,048       -       331,358       -       34,086       364,564       7,049,056  

Restricted Cash

    1,750,146       15,000       73,973       -       -       -       1,839,119  

Equity-Accounted Investment

    -       -       -       -       11,199,978       -       11,199,978  

Other Long-Term Assets

    757,654       -       23,500       -       60,994       -       842,148  

Total Long-Term Assets

  $ 21,249,884     $ 4,492,477     $ 31,956,701     $ 117,075     $ 11,841,996     $ 14,878,149     $ 84,536,282  

 

   

July 31, 2019

 
   

United States

                         
Balance Sheet Items  

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  

 

The tables below provide a breakdown of our operating results by geographic segments for the three and nine months ended April 30, 2020 and 2019. All intercompany transactions have been eliminated.

       
   

Three Months ended April 30, 2020

 

 

 

United States

   

 

   

 

   

 

 
Statement of Operations  

Texas

   

Arizona

   

Wyoming

   

Other States

    Canada     Paraguay     Total  

Costs and Expenses:

                                                       

Mineral property expenditures

  $ 619,892     $ 27,686     $ 159,087     $ 16,462     $ -     $ 133,437     $ 956,564  

General and administrative

    1,513,764       3,389       22,358       345       587,015       1,016       2,127,887  

Depreciation, amortization and accretion

    65,809       -       3,720       249       2,497       1,785       74,060  
      2,199,465       31,075       185,165       17,056       589,512       136,238       3,158,511  

Loss from operations

    (2,199,465 )     (31,075 )     (185,165 )     (17,056 )     (589,512 )     (136,238 )     (3,158,511 )
                                                         

Other income (expenses)

    (826,432 )     (4,663 )     995       -       713,467       487       (116,146 )

Loss before income taxes

  $ (3,025,897 )   $ (35,738 )   $ (184,170 )   $ (17,056 )   $ 123,955     $ (135,751 )   $ (3,274,657 )

 

       
   

Three Months Ended April 30, 2019

 

 

 

United States

   

 

   

 

   

 

 
Statement of Operations  

Texas

   

Arizona

   

Wyoming

   

Other States

    Canada     Paraguay     Total  

Costs and Expenses:

                                                       

Mineral property expenditures

  $ 1,042,836     $ 22,769     $ 179,687     $ 15,345     $ 375     $ 192,346     $ 1,453,358  

General and administrative

    1,391,225       3,779       25,746       1,142       507,728       22,996       1,952,616  

Depreciation, amortization and accretion

    78,628       -       3,717       249       2,590       1,203       86,387  
      2,512,689       26,548       209,150       16,736       510,693       216,545       3,492,361  

Loss from operations

    (2,512,689 )     (26,548 )     (209,150 )     (16,736 )     (510,693 )     (216,545 )     (3,492,361 )
                                                         

Other income (expenses)

    (659,194 )     (4,611 )     681       -       (872,851 )     9,474       (1,526,501 )

Loss before income taxes

  $ (3,171,883 )   $ (31,159 )   $ (208,469 )   $ (16,736 )   $ (1,383,544 )   $ (207,071 )   $ (5,018,862 )

 

23

 

URANIUM ENERGY CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

April 30, 2020

 (Unaudited – Expressed in U.S. Dollars)

 


       
   

Nine Months Ended April 30, 2020

 

 

 

United States

   

 

   

 

   

 

 
Statement of Operations  

Texas

   

Arizona

   

Wyoming

   

Other States

    Canada     Paraguay     Total  

Costs and Expenses:

                                                       

Mineral property expenditures

  $ 2,665,242     $ 73,858     $ 451,312     $ 53,187     $ -     $ 559,739     $ 3,803,338  

General and administrative

    4,927,762       10,217       77,549       1,407       1,775,036       45,880       6,837,851  

Depreciation, amortization and accretion

    205,742       -       11,157       747       7,551       7,001       232,198  
      7,798,746       84,075       540,018       55,341       1,782,587       612,620       10,873,387  

Loss from operations

    (7,798,746 )     (84,075 )     (540,018 )     (55,341 )     (1,782,587 )     (612,620 )     (10,873,387 )
                                                         

Other income (expenses)

    (2,545,544 )     (14,198 )     1,695       -       3,218,765       3,164       663,882  

Loss before income taxes

  $ (10,344,290 )   $ (98,273 )   $ (538,323 )   $ (55,341 )   $ 1,436,178     $ (609,456 )   $ (10,209,505 )
       
   

Nine Months Ended April 30, 2019

 

 

 

United States

   

 

   

 

   

 

 
Statement of Operations  

Texas

   

Arizona

   

Wyoming

   

Other States

    Canada     Paraguay     Total  

Costs and Expenses:

                                                       

Mineral property expenditures

  $ 2,197,324     $ 75,756     $ 474,981     $ 54,565     $ 16,098     $ 400,094     $ 3,218,818  

General and administrative

    4,461,280       10,650       80,248       3,090       1,732,769       106,977       6,395,014  

Depreciation, amortization and accretion

    235,040       -       11,156       747       9,077       3,950       259,970  
      6,893,644       86,406       566,385       58,402       1,757,944       511,021       9,873,802  

Loss from operations

    (6,893,644 )     (86,406 )     (566,385 )     (58,402 )     (1,757,944 )     (511,021 )     (9,873,802 )
                                                         

Other income (expenses)

    (1,945,311 )     (14,146 )     1,081       1,578,864       (590,819 )     12,205       (958,126 )

Loss before income taxes

  $ (8,838,955 )   $ (100,552 )   $ (565,304 )   $ 1,520,462     $ (2,348,763 )   $ (498,816 )   $ (10,831,928 )

 

 

NOTE 16:       SUPPLEMENTAL CASH FLOW INFORMATION

 

During the nine months ended April 30, 2020 and 2019, we issued 342,368 and 165,404 shares with a fair value of $309,749 and $226,539, respectively, for various consulting services provided to our Company.

 

During the nine months ended April 30, 2020 and 2019, we issued 1,067,852 and 558,875 shares with a fair value of $892,456 and $785,117, respectively, as compensation to certain management, employees and consultants of the Company under our Stock Incentive Plan.

 

During the nine months ended April 30, 2020, we issued an aggregate of 1,743,462 shares with a fair value of $1,400,000 to our Lenders.

 

During the nine months ended April 30, 2020 and 2019, we paid $1,217,778 and $1,213,333, respectively, in cash to our Lenders for interest on the long-term debt.

 

 

NOTE 17:       COMMITMENTS AND CONTINGENCIES

 

We are committed to paying our key executives a total of $418,000 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.

 

24

 

URANIUM ENERGY CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

April 30, 2020

 (Unaudited – Expressed in U.S. Dollars)

 


 

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 certain proceedings 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.

 

25

 

 

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 nine months ended April 30, 2020, 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 April 30, 2020, and our results of operations for the three and nine months ended April 30, 2020, 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 April 30, 2020 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.

 

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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.

 

U.S. Nuclear Fuel Working Group Report and Strategy

 

On July 12, 2019, the U.S. White House published a memorandum on the “Effect of Uranium Imports on the National Security and Establishment of the United States Nuclear Fuel Working Group” (“NFWG”). The memorandum noted that there were “significant concerns regarding the impact of uranium imports on the national security with respect to domestic mining”. The purpose of the NFWG was to “develop recommendations for reviving and expanding domestic nuclear fuel production”.

 

On February 10, 2020, “A Budget for America’s Future” for fiscal year 2021 was released by the White House that included a 10-year, $150 million per year ($1.5 billion) program to purchase U.S. mined uranium for a strategic national Uranium Reserve (“UR”). In the budget the White House noted that “Establishing a UR provides assurance of availability of uranium in the event of a market disruption and supports strategic U.S. fuel cycle capabilities. This action addresses immediate challenges to the production of domestic uranium and reflects the Administration’s NFWG priorities”.

 

On April 23, 2020, the U.S. Secretary of Energy released a NFWG report titled “RESTORING AMERICA’S COMPETITIVE NUCLEAR ENERGY ADVANTAGE - A strategy to assure U.S. National Security”. The report, as released by the Department of Energy (“DOE”), outlines a broad strategy designed to “enhance the positive attributes of nuclear power, revive capabilities of the uranium mining, milling, and conversion industries, strengthen U.S. technology supremacy, and drive U.S. exports, while assuring consistency with U.S. non-proliferation objectives and supporting national security”. The first strategic step outlined in the report is that “the U.S. Government will take bold action to revive and strengthen the U.S. uranium mining industry”. The report outlined prospects for U.S. procurement of “mined and milled uranium estimated between 17 and 19 million pounds in the form of U3O8 beginning in 2020”. In a more recent announcement on May 29, 2020, a DOE official stated that the government is aiming to start buying U.S. mined uranium for the proposed UR “as soon as possible”.

 

Global Market Developments

 

Over the past few years global uranium market fundamentals have been improving as the market continues to work through a transition process from being an inventory driven to more of a production driven market. The uranium spot market bottomed in November of 2016 at about $17.75 per pound U3O8, however, it has been in a trading range of between $24.00 to $26.00 per pound during the past couple of years. With reductions in produced supply from several global producers, as well as an increase in overall uranium demand, the supply demand balance was heading toward a structural deficit in upcoming years. However, in March of this year the COVID-19 pandemic has resulted in a “black swan” event, impacting about 50% of the world’s uranium production and has accelerated the market rebalancing.

 

The timing for the return of global uranium production to pre-COVID-19 levels is highly uncertain as of the date of this Quarterly Report. To date about six million pounds per month of global production has been taken offline and 2020 production has been forecasted to fall to approximately 120 million pounds. This represents a gap of about 60 million pounds that will require filling from secondary market sources to meet the ~180 million pounds of expected 2020 utility demand. The lost production from producers that suspended operations will not be made up. 2020 will likely mark the beginning of a market deficit that should continue to exert upward pressure on global uranium prices. So far in 2020 uranium has been the world’s best performing market commodity with a price increase of over 30%. U.S. production, while influenced by global factors, is more likely to be more driven over the next several years by U.S. government purchases.

 

Response to COVID-19 Pandemic

 

In response to COVID-19 pandemic we have taken proactive steps to lower our operating expenses and to adjust our timing on capital expenditures. For the protection of our employees, we have arranged for our teams at the Vancouver, Corpus Christi and Paraguay offices to work remotely. In addition, previous plans to resume last year’s successful drilling program at our Burke Hollow Project will be postponed along with the associated capital outlays until market conditions normalize. In the meantime, we continued to operate our Palangana Mine at a reduced pace to capture residual uranium only, and continue to advance our ISR projects with engineering and geologic evaluations that support the Company’s extraction readiness strategy.

 

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Paycheck Protection Program

 

In response to the COVID-19 pandemic, the U.S. Congress enacted CARES on March 27, 2020. Among other provisions, it created the Paycheck Protection Program through the Small Business Administration. As an eligible borrower under the PPP Program, we applied for a PPP Loan in April 2020 to support our continuing operations and payroll obligations, and to avoid further reductions in force or employee furloughs. Our application was reviewed and approved and on May 5, 2020 we received a PPP Loan in the amount of $277,250.

 

Results of Operations

 

For the three months ended April 30, 2020 and 2019, we recorded net losses of $3,273,644 ($0.02 per share) and $5,017,557 ($0.03 per share), respectively. For the nine months ended April 30, 2020 and 2019, we recorded net losses of $10,204,882 ($0.06 per share) and $10,818,657 ($0.06 per share), respectively.

 

During the three months ended April 30, 2020, in response to the significant financial market uncertainty as a result of the COVID-19 pandemic, we implemented corporate-wide cost-cutting and cash saving measures including deferral of capital expenditures to reduce cash outlays. In the meantime, we continued with our strategic plan for 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 April 30, 2020. At April 30, 2020 the total value of inventories was $211,662 (July 31, 2019: $211,662).

 

Costs and Expenses

 

For the three months ended April 30, 2020 and 2019, costs and expenses totaled $3,158,511 and $3,492,361, respectively, which were comprised of mineral property expenditures of $956,564 and $1,453,358, general and administrative expenses of $2,127,887 and $1,952,616 and depreciation, amortization and accretion of $74,060 and $86,387, respectively.

 

For the nine months ended April 30, 2020 and 2019, costs and expenses totaled $10,873,387 and $9,873,802, respectively, which were comprised of mineral property expenditures of $3,803,338 and $3,218,818, general and administrative expenses of $6,837,851 and $6,395,014 and depreciation, amortization and accretion of $232,198 and $259,970, 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 April 30, 2020 and 2019, mineral property expenditures totaled $956,564 and $1,453,358, respectively, of which $258,628 and $322,667 were directly related to maintaining operational readiness and permitting compliance for our Palangana Mine and Hobson Processing Facility, respectively. During the nine months ended April 30, 2020 and 2019, mineral property expenditures totaled $3,803,338 and $3,218,818, respectively, of which $908,878 and $924,886, respectively, were directly related to maintaining operational readiness and permitting compliance for the Palangana Mine and Hobson Processing Facility.

 

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

             
   

Three Months Ended April 30,

   

Nine Months Ended April 30,

 
   

2020

   

2019

   

2020

   

2019

 

Mineral Property Expenditures

                               

Palangana Mine

  $ 260,438     $ 248,687     $ 1,109,164     $ 775,311  

Goliad Project

    54,486       34,071       151,293       71,949  

Burke Hollow Project

    154,672       605,025       1,024,345       880,039  

Longhorn Project

    2,289       10,157       14,735       35,691  

Salvo Project

    7,843       6,702       21,813       20,211  

Anderson Project

    19,519       15,097       49,004       52,367  

Workman Creek Project

    8,168       7,673       24,533       23,037  

Slick Rock Project

    13,123       12,206       39,527       41,637  

Reno Creek Project

    159,088       178,722       451,312       474,015  

Yuty Project

    27,664       8,297       58,578       94,299  

Oviedo Project

    69,446       105,724       298,505       167,207  

Alto Paraná Titanium Project

    36,323       78,325       202,656       138,588  

Other Mineral Property Expenditures

    143,505       142,672       357,873       444,467  
    $ 956,564     $ 1,453,358     $ 3,803,338     $ 3,218,818  

 

During the nine months ended April 30, 2020, 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 have been completed.

 

General and Administrative

 

During the three and nine months ended April 30, 2020, general and administrative expenses totaled $2,127,887 and $6,837,851, respectively, which increased by $175,271 and $442,837, respectively, compared to $1,952,616 and $6,395,014 for the three and nine months ended April 30, 2019, primarily as a result of increased professional fees and stock-based compensation.

 

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 and nine months ended April 30, 2020, salaries, management and consulting fees totaled $410,095 and $1,291,306, respectively, which decreased by $58,095 and $103,349, respectively, compared to $468,190 and $1,394,655 for the three and nine months ended April 30, 2019, primarily as a result of corporate-wide reduction in salaries and fees and the issuance of shares in lieu of cash to the Company’s directors, officers and certain employees;

 

 

for the three and nine months ended April 30, 2020, office, insurance, filing and listing fees, investor relations, corporate development and travel expenses totaled $784,009 and $2,435,786, respectively, which were consistent with $804,920 and $2,378,515 for the three and nine months ended April 30, 2019, respectively;

 

 

for the three and nine months ended April 30, 2020, professional fees totaled $238,138 and $699,478, respectively, which increased by $113,364 and $221,232, respectively, compared to $124,774 and $478,246 for the three and nine months ended April 30, 2019. The increase in professional fees was primarily the result of legal fees for certain transactional activities and audit and associated accounting fees. 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 and nine months ended April 30, 2020, stock-based compensation totaled $695,645 and $2,411,281, respectively, which increased by $140,913 and $267,683, respectively, compared to $554,732 and $2,143,598, for the three and nine months ended April 30, 2019, respectively. During the three months ended April 30, 2020, in response to the significant financial market uncertainty as a result of the COVID-19 pandemic, we implemented corporate-wide cost-cutting and cash saving measures where we expanded the scope of equity-based payments to compensate certain directors, officers, employees and consultants as part of our strengthened efforts to reduce cash outlays. In addition, 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.

 

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Depreciation, Amortization and Accretion

 

During the three and nine months ended April 30, 2020, depreciation, amortization and accretion totaled $74,060 and $232,198, respectively, which decreased by $12,327 and $27,772, respectively, compared to $86,387 and $259,970 for the three and nine months ended April 30, 2019, respectively, as certain assets of the Company reached their useful lives and were full depreciated.

 

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 and nine months ended April 30, 2020, interest and finance costs totaled $835,683 and $2,579,971, respectively, which were consistent compared with $815,258 and $2,383,916 for the three and nine months ended April 30, 2019, respectively.

 

For the three months ended April 30, 2020 and 2019, interest and finance costs were primarily comprised of interest paid on long-term debt of $400,000 and $395,555, amortization of debt discount of $399,231 and $384,551 and amortization of annual surety bond premiums of $29,070 and $29,450, respectively.

 

For the nine months ended April 30, 2020 and 2019, interest and finance costs were primarily comprised of interest paid on long-term debt of $1,217,778 and $1,213,333, amortization of debt discount of $1,244,032 and $1,050,671 and amortization of annual surety bond premiums of $92,766 and $99,925, respectively.

 

Income or Loss from Equity-Accounted Investment

 

During the three months ended April 30, 2020, we recorded income of $684,443 as a result of income pick up from URC operations. During the three months ended April 30, 2019, we recorded a loss of $872,851 as a result of loss pick up from URC’s operations offset by a dilution gain of $31,595 due to change of our ownership interest in URC.

 

During the nine months ended April 30, 2020, we recorded income of $3,048,219 from our investment in URC, which is comprised of a loss pick up of $8,437 and a dilution gain of $3,056,656, as a result of change of our ownership interest in URC. In December 2019, URC completed its initial public offering which consisted of the issuance of 20,000,000 URC Units. URC is listed on the TSXV with the trading symbol URC.V. As a consequence of the initial public offering and other private placements URC completed during the nine months ended April 30, 2020, our ownership interest in URC decreased to 19.5% at April 30, 2020 from 32.6% at July 31, 2019, which resulted in a dilution gain of $3,056,656 being recorded for the nine months ended April 30, 2020. During the nine months ended April 30, 2019, we recorded a loss of $590,819 from our investment in URC, which is comprised of a $979,188 loss pick up from URC’s operations offset by a gain of $388,369 as a result of the change in our ownership interest in URC.

 

Gain on Disposition of Assets

 

During the three and nine months ended April 30, 2020, we recorded a gain of $216 and $2,016, respectively, on disposition of assets. During the three and nine months ended April 30, 2019 we recorded a gain on disposition of assets of $7,598 and $1,591,362, respectively, the latter was primarily from the Company’s sale of certain royalty interests to URC.

 

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Summary of Quarterly Results

       
   

For the Quarters Ended

 
   

April 30, 2020

   

January 31, 2020

   

October 31, 2019

   

July 31, 2019

 

Net loss

  $ (3,273,644 )   $ (1,888,661 )   $ (5,042,577 )   $ (6,334,132 )

Total comprehensive loss

    (3,752,792 )     (1,928,309 )     (5,052,471 )     (6,199,949 )

Basic and diluted loss per share

    (0.02 )     (0.01 )     (0.03 )     (0.04 )

Total assets

    93,647,447       96,514,311       96,696,496       101,040,242  
       
   

For the Quarters Ended

 
   

April 30, 2019

   

January 31, 2019

   

October 31, 2018

   

July 31, 2018

 

Net loss

  $ (5,017,557 )   $ (2,349,674 )   $ (3,451,426 )   $ (4,770,335 )

Total comprehensive loss

    (5,177,511 )     (2,311,442 )     (3,451,426 )     (4,652,380 )

Basic and diluted loss per share

    (0.03 )     (0.01 )     (0.02 )     (0.03 )

Total assets

    105,055,912       106,958,178       108,046,108       89,611,309  

 

Liquidity and Capital Resources

             
   

April 30, 2020

   

July 31, 2019

 

Cash and cash equivalents

  $ 7,407,189     $ 6,058,186  

Term deposits

    -       11,831,671  

Current assets

    9,111,165       19,709,933  

Current liabilities

    1,955,966       3,071,368  

Working capital

    7,155,199       16,638,565  

 

At April 30, 2020, we had cash and cash equivalents of $7,407,189 and working capital of $7,155,199, which decreased by $9,483,366 from the working capital of $16,638,565 at July 31, 2019. In response to the significant financial market uncertainty as a result of the COVID-19 pandemic, we implemented corporate-wide cost-cutting and cash saving measures including the deferral of capital expenditures to reduce cash outlays. Subsequent to April 30, 2020, we received a PPP Loan of $277,250 under the PPP Program as part of CARES enacted by the U.S. Congress on March 27, 2020 in response to the COVID-19 pandemic. By further curtailing expenditures on discretionary and non-core activities, and by paying management, certain employees, consultants and service provider fees by the issuance of shares of the Company in lieu of cash, our existing cash resources and cash generated from the sale of the Company’s liquid assets 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.

 

Historically we have been reliant primarily on equity financings from the sale of our common stock and on debt financings 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.

 

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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;

 

 

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; and

 

 

the timing for the return of global uranium production to pre-COVID-19 levels is highly uncertain at this time.

 

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.

 

Equity Financings

 

On January 5, 2017, we filed a Form S-3 shelf registration statement under the United States Securities Act of 1933, as amended (the “Securities Act”), as amended on March 6, 2017, 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 April 30, 2020 no public offer or sale of the Company’s shares has been completed under the ATM.

 

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As at January 31, 2020, 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.

 

On February 21, 2020, we filed a Form S-3 shelf registration statement under the Securities Act which was declared effective by the SEC on March 3, 2020 (the “2020 Shelf”) providing for the public offer and sale of certain securities of the Company from time to time, at our discretion, up to an aggregate offering amount of $100 million. As a result of the 2020 Shelf our 2017 Shelf was then deemed terminated and, as consequence, our then ATM terminated unless renewed under the 2020 Shelf.

 

On March 19, 2020, we entered into an Amending Agreement to the Offering Agreement with 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 $30 million through the Managers under its ATM through the 2020 Shelf. At April 30, 2020 no public offer or sale of the Company’s shares has been completed 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 superseded, in their entirety, our Second Amended and Restated Credit Agreement dated and effective February 9, 2016, our Amended and Restated Credit Agreement dated and effective March 13, 2014 and our Credit Agreement dated and effective July 30, 2013 with our Lenders.

 

During the three months ended April 30, 2020, 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 nine months ended April 30, 2020 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 nine months ended April 30, 2020 and 2019 was $10,332,656 and $9,626,039, respectively. Significant operating expenditures included mineral property expenditures, general and administrative expenses and interest payments.

 

Financing Activities

 

During the nine months ended April 30, 2020, net cash provided by financing activities totaled $28,756 from a CEBA Loan for COVID-19. During the nine months ended April 30, 2019 net cash provided by financing activities totaled $23,843,995. On October 3, 2018, we completed our October 2018 offering of 12,613,049 units at a price of $1.60 per unit and received net proceeds of $18,969,211. In addition, we received net proceeds of $4,822,357 from the exercise of share purchase warrants and $72,363 from the exercise of stock options.

 

Investing Activities

 

During the nine months ended April 30, 2020, net cash provided by the investing activities totaled $11,670,630, primarily from cash received from the redemption of term deposits totaling $11,831,671, offset by cash used for the investment in mineral rights and properties of $80,000 and cash used for the purchase of property, plant and equipment of $83,841. During the nine months ended April 30, 2019, net cash used in investing activities totaled $15,028,437, primarily for the purchase of term deposits of $29,858,126, investment in mineral rights and properties of $105,000 and purchase of property, plant and equipment of $77,809, offset by cash received from the redemption of term deposits totaling $15,000,000. 

 

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Stock Options and Warrants

 

At April 30, 2020 we had stock options outstanding representing 10,393,500 shares at a weighted-average exercise price of $1.22 per share and share purchase warrants outstanding representing 7,721,981 shares at a weighted-average exercise price of $2.03 per share. At April 30, 2020 outstanding stock options and warrants represented a total 18,115,481 shares issuable for gross proceeds of approximately $28.4 million should these stock options and warrants be exercised in full on a cash basis. At April 30, 2020 outstanding in-the-money stock options represented a total of 2,694,008 shares exercisable for gross proceeds of approximately $2.6 million should these in-the-money stock options be exercised in full on a cash basis. The exercise of stock options and warrants is at the discretion of the respective holders and, accordingly, there is no assurance that any of the stock options or warrants will be exercised in the future.

 

Transactions with a Related Party

 

During the three and nine months ended April 30, 2020 and 2019, we incurred $36,849 and $39,365 (nine months ended April 30, 2020 and 2019: $105,339 and $117,086), 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 April 30, 2020 the amount owing to Blender was $16,175 (July 31, 2019: $68,680).

 

Material Commitments

 

Long-Term Debt Obligations

 

At April 30, 2020 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 Annual Report on Form 10-K 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 Annual Report on Form 10-K for Fiscal 2019.

 

Subsequent Event

 

On May 5, 2020, we received a PPP Loan of $277,250 as a part of CARES enacted by the U.S. Congress in response to the COVID-19 pandemic.

 

Item 3.     Quantitative and Qualitative Disclosures About Market Risk

 

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

 

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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”) and, 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. In particular, the design and documentation of controls around: (i) testing the Company’s code of conduct; (ii) the adoption of new accounting standards; and (iii) accounting for our equity-accounted investment were insufficient. 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 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 surrounding non-routine transactions. However, the Company’s management will not consider the material weakness surrounding non-routine transactions remediated until the remedial control procedures operate for a period of time and the control procedures are tested to ensure they are operating effectively.

 

During the quarter ended January 31, 2020, in response to the material weakness in our Risk Assessment and Control Activity components of the COSO Framework, a new control was designed and implemented for the review of the Company’s Code of Conduct. As a result, the control deficiency relating to the testing of the Company’s Code of Conduct has been remediated as of January 31, 2020. In addition, we have redesigned and implemented new control procedures for accounting for the equity-accounted investment. However, the Company’s management will not consider this remediated until the control procedures operate for a period of time and the control procedures are tested to ensure they are operating effectively.

 

As these remedial actions have been implemented but have not operated for a sufficient period of time or instances, or have not 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 April 30, 2020, 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 certain proceedings in Paraguay to reverse the MOPC’s position in order to protect the Company’s continuing rights in those concessions.

 

Item 1A.     Risk Factors

 

In addition to the information contained in our Annual Report on Form 10-K for Fiscal 2019, and this Quarterly Report on Form 10-Q, 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 Annual Report on Form 10-K for Fiscal 2019.

 

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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 Annual Report on Form 10-K 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 $272.4 million at April 30, 2020. 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 nine months ended April 30, 2020, 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 April 30, 2020, we had a working capital of $7.2 million including cash and cash equivalents of $7.4 million. In response to the significant financial market uncertainty as a result of the COVID-19 pandemic, we implemented corporate-wide cost-cutting and cash saving measures including the deferral of capital expenditures to reduce cash outlays. Subsequent to April 30, 2020, we received a PPP Loan of $277,250 under the PPP Program as part of CARES enacted by the U.S. Congress in response to the COVID-19 pandemic. By further curtailing expenditures on discretionary and non-core activities, and by paying certain management, employees, consultant and service provider fees by way of the issuance of shares of the Company in lieu of cash, our existing cash resources and cash generated from the sale of the Company’s liquid assets 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 nine months ended April 30, 2020, Fiscal 2016 to Fiscal 2019, Fiscal 2014 or for any periods prior to Fiscal 2012.

 

During the three and nine months ended April 30, 2020 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.

 

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We have not established proven or probable reserves through the completion of a “final” or “bankable” feasibility study for any of our 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 ISR mining, such as the Palangana Mine. Since we commenced extraction of mineralized materials from the Palangana Mine without having established proven or probable reserves, it may result in our mining activities at the Palangana Mine, and at any future projects for which proven or probable reserves are not established, being inherently riskier than other mining activities for which proven or probable reserves have been established.

 

We have established the existence of mineralized materials for certain projects, including the Palangana Mine. We have not established proven or probable reserves, as defined by the SEC under Industry Guide 7, through the completion of a “final” or “bankable” feasibility study for any of our projects, including the Palangana Mine. Furthermore, we have no plans to establish proven or probable reserves for any of our projects for which we plan on utilizing ISR mining, such as 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. 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.

 

Since we are in the Exploration Stage, pre-production expenditures including those related to pre-extraction activities are expensed as incurred, the effects of which may result in our consolidated financial statements not being directly comparable to the financial statements of companies in the Production Stage.

 

Despite the fact that we commenced uranium extraction 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, which may never occur. We prepare our consolidated financial statements in accordance with U.S. GAAP under which acquisition costs of mineral rights are initially capitalized as incurred while pre-production expenditures are expensed as incurred until such time we exit the Exploration Stage.  Expenditures relating to exploration activities are expensed as incurred and expenditures relating to pre-extraction activities are expensed as incurred until such time proven or probable reserves are established for that uranium project, after which subsequent expenditures relating to mine development activities for that particular project are capitalized as incurred.

 

We have neither established nor have any plans to establish proven or probable reserves for our uranium projects for which we plan on utilizing ISR mining, such as the Palangana Mine. Companies in the Production Stage as defined by the SEC 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. As we are in the Exploration Stage it has resulted in us reporting larger losses than if we had been in the Production Stage due to the expensing, instead of capitalization, of expenditures relating to ongoing mill and mine pre-extraction activities. Additionally, there would be no corresponding amortization allocated to our future reporting periods 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 acquisition costs 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.

 

Estimated costs of future reclamation obligations may be significantly exceeded by actual costs incurred in the future. Furthermore, only a portion of the financial assurance required for the future reclamation obligations has been funded.

 

We are responsible for certain remediation and decommissioning activities in the future primarily for our Hobson Processing Facility, Palangana Mine, Reno Creek Project and Alto Paraná Project and have recorded a liability of $3.7 million on our balance sheet at April 30, 2020, to recognize the present value of the estimated costs of such reclamation obligations.  Should the actual costs to fulfill these future reclamation obligations materially exceed these estimated costs, it may have an adverse effect on our financial condition and operating results, including not having the financial resources required to fulfill such obligations when required to do so.

 

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During Fiscal 2015 we secured $5.6 million of surety bonds as an alternate source of financial assurance for the estimated costs of the reclamation obligations of our Hobson Processing Facility and Palangana Mine, of which we have $1.7 million funded and held as restricted cash for collateral purposes as required by the surety. We may be required at any time to fund the remaining $3.9 million or any portion thereof for a number of reasons including, but not limited to, the following: (i) the terms of the surety bonds are amended, such as an increase in collateral requirements; (ii) we are in default with the terms of the surety bonds; (iii) the surety bonds are no longer acceptable as an alternate source of financial assurance by the regulatory authorities; or (iv) the surety encounters financial difficulties. Should any one or more of these events occur in the future, we may not have the financial resources to fund the remaining amount or any portion thereof when required to do so.

 

We do not insure against all of the risks we face in our operations.

 

In general, where coverage is available and not prohibitively expensive relative to the perceived risk, we will maintain insurance against such risk, subject to exclusions and limitations. We currently maintain insurance against certain risks including securities and general commercial liability claims and certain physical assets used in our operations, subject to exclusions and limitations, however, we do not maintain insurance to cover all of the potential risks and hazards associated with our operations.  We may be subject to liability for environmental, pollution or other hazards associated with our exploration, pre-extraction and extraction activities, which we may not be insured against, which may exceed the limits of our insurance coverage or which we may elect not to insure against because of high premiums or other reasons. Furthermore, we cannot provide assurance that any insurance coverage we currently have will continue to be available at reasonable premiums or that such insurance will adequately cover any resulting liability.

 

Acquisitions that we may make from time to time could have an adverse impact on us.

 

From time to time we examine opportunities to acquire additional mining assets and businesses. Any acquisition that we may choose to complete may be of a significant size, may change the scale of our business and operations, and may expose us to new geographic, political, operating, financial and geological risks. Our success in our acquisition activities depends on our ability to identify suitable acquisition candidates, negotiate acceptable terms for any such acquisition, and integrate the acquired operations successfully with those of our Company. Any acquisitions would be accompanied by risks which could have a material adverse effect on our business. For example: (i) there may be a significant change in commodity prices after we have committed to complete the transaction and established the purchase price or exchange ratio; (ii) a material ore body may prove to be below expectations; (iii) we may have difficulty integrating and assimilating the operations and personnel of any acquired companies, realizing anticipated synergies and maximizing the financial and strategic position of the combined enterprise, and maintaining uniform standards, policies and controls across the organization; (iv) the integration of the acquired business or assets may disrupt our ongoing business and our relationships with employees, customers, suppliers and contractors; and (v) the acquired business or assets may have unknown liabilities which may be significant. In the event that we choose to raise debt capital to finance any such acquisition, our leverage will be increased. If we choose to use equity as consideration for such acquisition, existing shareholders may suffer dilution. Alternatively, we may choose to finance any such acquisition with our existing resources. There can be no assurance that we would be successful in overcoming these risks or any other problems encountered in connection with such acquisitions.

 

The uranium industry is subject to numerous stringent laws, regulations and standards, including environmental protection laws and regulations. If any changes occur that would make these laws, regulations and standards more stringent, it may require capital outlays in excess of those anticipated or cause substantial delays, which would have a material adverse effect on our operations.

 

Uranium exploration and pre-extraction programs and mining activities are subject to numerous stringent laws, regulations and standards at the federal, state and local levels governing permitting, pre-extraction, extraction, exports, taxes, labor standards, occupational health, waste disposal, protection and reclamation of the environment, protection of endangered and protected species, mine safety, hazardous substances and other matters. Our compliance with these requirements requires significant financial and personnel resources.

 

The laws, regulations, policies or current administrative practices of any government body, organization or regulatory agency in the United States or any other applicable jurisdiction, may change or be applied or interpreted in a manner which may also have a material adverse effect on our operations. The actions, policies or regulations, or changes thereto, of any government body or regulatory agency or special interest group, may also have a material adverse effect on our operations.

 

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Uranium exploration and pre-extraction programs and mining activities are subject to stringent environmental protection laws and regulations at the federal, state, and local levels. These laws and regulations include permitting and reclamation requirements, regulate emissions, water storage and discharges and disposal of hazardous wastes. Uranium mining activities are also subject to laws and regulations which seek to maintain health and safety standards by regulating the design and use of mining methods. Various permits from governmental and regulatory bodies are required for mining to commence or continue, and no assurance can be provided that required permits will be received in a timely manner.

 

Our compliance costs including the posting of surety bonds associated with environmental protection laws and regulations and health and safety standards have been significant to date and are expected to increase in scale and scope as we expand our operations in the future. Furthermore, environmental protection laws and regulations may become more stringent in the future, and compliance with such changes may require capital outlays in excess of those anticipated or cause substantial delays, which would have a material adverse effect on our operations.

 

To the best of our knowledge, our operations are in compliance, in all material respects, with all applicable laws, regulations and standards. If we become subject to liability for any violations, we may not be able or may elect not to insure against such risk due to high insurance premiums or other reasons. Where coverage is available and not prohibitively expensive relative to the perceived risk, we will maintain insurance against such risk, subject to exclusions and limitations. However, we cannot provide any assurance that such insurance will continue to be available at reasonable premiums or that such insurance will be adequate to cover any resulting liability.

 

We may not be able to obtain, maintain or amend rights, authorizations, licenses, permits or consents required for our operations.

 

Our exploration and mining activities are dependent upon the grant of appropriate rights, authorizations, licences, permits and consents, as well as continuation and amendment of these rights, authorizations, licences, permits and consents already granted, which may be granted for a defined period of time, or may not be granted or may be withdrawn or made subject to limitations. There can be no assurance that all necessary rights, authorizations, licences, permits and consents will be granted to us, or that authorizations, licences, permits and consents already granted will not be withdrawn or made subject to limitations.

 

Major nuclear and global market incidents may have adverse effects on the nuclear and uranium industries.

 

The nuclear incident that occurred in Japan in March 2011 had significant and adverse effects on both the nuclear and uranium industries. If another nuclear incident were to occur, it may have further adverse effects for both industries. Public opinion of nuclear power as a source of electrical generation may be adversely affected, which may cause governments of certain countries to further increase regulation for the nuclear industry, reduce or abandon current reliance on nuclear power or reduce or abandon existing plans for nuclear power expansion. Any one of these occurrences has the potential to reduce current and/or future demand for nuclear power, resulting in lower demand for uranium and lower market prices for uranium, adversely affecting the operations and prospects of us. Furthermore, the growth of the nuclear and uranium industries is dependent on continuing and growing public support of nuclear power as a viable source of electrical generation.

 

In March 2020 the COVID-19 pandemic has resulted in a black swan event impacting about 50% of the world’s uranium production and has accelerated the market rebalancing. The timing for the return of global uranium production to pre-COVID-19 levels is highly uncertain as of the date of this Quarterly Report. Recent and significant production cuts were announced in response to the global COVID-19 pandemic, including uranium facilities in Canada, Kazakhstan, and Namibia. It is unknown at this time exactly how long the shutdowns will last or how much uranium production will ultimately be removed from the market as a result of these shutdowns. It is the Company’s belief that the recent shutdowns are only going to further tighten the market. The Company also believes that a large degree of uncertainty exists in the market, primarily due to the size of mobile uranium inventories, transportation issues, premature reactor shutdowns in the U.S. and the length of time of any uranium mine, conversion or enrichment shutdowns.

 

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The marketability of uranium concentrates will be affected by numerous factors beyond our control which may result in our inability to receive an adequate return on our invested capital.

 

The marketability of uranium concentrates extracted by us will be affected by numerous factors beyond our control. These factors include macroeconomic factors, fluctuations in the market price of uranium, governmental regulations, land tenure and use, regulations concerning the importing and exporting of uranium and environmental protection regulations. The future effects of these factors cannot be accurately predicted, but any one or a combination of these factors may result in our inability to receive an adequate return on our invested capital.

 

The titanium industry is affected by global economic factors, including risks associated with volatile economic conditions, and the market for many titanium products is cyclical and volatile, and we may experience depressed market conditions for such products.

 

Titanium is used in many "quality of life" products for which demand historically has been linked to global, regional and local GDP and discretionary spending, which can be negatively impacted by regional and world events or economic conditions. Such events are likely to cause a decrease in demand for products and, as a result, may have an adverse effect on our results of operations and financial condition. The timing and extent of any changes to currently prevailing market conditions is uncertain, and supply and demand may be unbalanced at any time. Uncertain economic conditions and market instability make it particularly difficult for us to forecast demand trends. As a consequence, we may not be able to accurately predict future economic conditions or the effect of such conditions on our financial condition or results of operations. We can give no assurances as to the timing, extent or duration of the current or future economic cycles impacting the industries in which we operate.

 

Historically, the market for large volume titanium applications, including coatings, paper and plastics, has experienced alternating periods of tight supply, causing prices and margins to increase, followed by periods of lower capacity utilization resulting in declining prices and margins. The volatility this market experiences occurs as a result of significant changes in the demand for products as a consequence of global economic activity and changes in customers’ requirements. The supply-demand balance is also impacted by capacity additions or reductions that result in changes of utilization rates. In addition, titanium margins are impacted by significant changes in major input costs such as energy and feedstock. Demand for titanium depends in part on the housing and construction industries. These industries are cyclical in nature and have historically been impacted by downturns in the economy. In addition, pricing may affect customer inventory levels as customers may from time to time accelerate purchases of titanium in advance of anticipated price increases or defer purchases of titanium in advance of anticipated price decreases. The cyclicality and volatility of the titanium industry results in significant fluctuations in profits and cash flow from period to period and over the business cycle.

 

The uranium and titanium industries are highly competitive and we may not be successful in acquiring additional projects.

 

The uranium industry is highly competitive, and our competition includes larger, more established companies with longer operating histories that not only explore for and produce uranium, but also market uranium and other products on a regional, national or worldwide basis. Due to their greater financial and technical resources, we may not be able to acquire additional uranium projects in a competitive bidding process involving such companies. Additionally, these larger companies have greater resources to continue with their operations during periods of depressed market conditions.

 

The titanium industry is concentrated and highly competitive, and we may not be able to compete effectively with our competitors that have greater financial resources or those that are vertically integrated, which could have a material adverse effect on our business, results of operations and financial condition.

 

The global titanium market is highly competitive, with the top six producers accounting for approximately 60% of the world's production capacity. Competition is based on a number of factors, such as price, product quality and service. Competition is based on a number of factors, such as price, product quality and service. Among our competitors are companies that are vertically-integrated (those that have their own raw material resources). Changes in the competitive landscape could make it difficult for us to retain our competitive position in various products and markets throughout the world. Our competitors with their own raw material resources may have a competitive advantage during periods of higher raw material prices. In addition, some of the companies with whom we compete may be able to produce products more economically than we can. Furthermore, some of our competitors have greater financial resources, which may enable them to invest significant capital into their businesses, including expenditures for research and development.

 

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We hold mineral rights in foreign jurisdictions which could be subject to additional risks due to political, taxation, economic and cultural factors.

 

We hold certain mineral rights located in the Republic of Paraguay through Piedra Rica Mining S.A., Transandes Paraguay S.A., Trier S.A. and Metalicos Y No Metalicos S.R.L., which are incorporated in Paraguay. Operations in foreign jurisdictions outside of the United States and Canada, especially in developing countries, may be subject to additional risks as they may have different political, regulatory, taxation, economic and cultural environments that may adversely affect the value or continued viability of our rights. These additional risks include, but are not limited to: (i) changes in governments or senior government officials; (ii) changes to existing laws or policies on foreign investments, environmental protection, mining and ownership of mineral interests; (iii) renegotiation, cancellation, expropriation and nationalization of existing permits or contracts; (iv) foreign currency controls and fluctuations; and (v) civil disturbances, terrorism and war.

 

In the event of a dispute arising at our foreign operations in Paraguay, we may be subject to the exclusive jurisdiction of foreign courts or may not be successful in subjecting foreign persons to the jurisdiction of the courts in the United States or Canada. We may also be hindered or prevented from enforcing our rights with respect to a government entity or instrumentality because of the doctrine of sovereign immunity. Any adverse or arbitrary decision of a foreign court may have a material and adverse impact on our business, prospects, financial condition and results of operations.

 

The title to our mineral property interests may be challenged.

 

Although we have taken reasonable measures to ensure proper title to our interests in mineral properties and other assets, there is no guarantee that the title to any of such interests will not be challenged. No assurance can be given that we will be able to secure the grant or the renewal of existing mineral rights and tenures on terms satisfactory to us, or that governments in the jurisdictions in which we operate will not revoke or significantly alter such rights or tenures or that such rights or tenures will not be challenged or impugned by third parties, including local governments, aboriginal peoples or other claimants. 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 certain proceedings in Paraguay to reverse the MOPC’s position in order to protect the Company’s continuing rights in those concessions. Our mineral properties may be subject to prior unregistered agreements, transfers or claims, and title may be affected by, among other things, undetected defects. A successful challenge to the precise area and location of our claims could result in us being unable to operate on our properties as permitted or being unable to enforce our rights with respect to our properties.

 

Due to the nature of our business, we may be subject to legal proceedings which may divert management’s time and attention from our business and result in substantial damage awards.

 

Due to the nature of our business, we may be subject to numerous regulatory investigations, securities claims, civil claims, lawsuits and other proceedings in the ordinary course of our business including those described under Item 1, Legal Proceedings. The outcome of these lawsuits is uncertain and subject to inherent uncertainties, and the actual costs to be incurred will depend upon many unknown factors. We may be forced to expend significant resources in the defense of these suits, and we may not prevail. Defending against these and other lawsuits in the future may not only require us to incur significant legal fees and expenses, but may become time-consuming for us and detract from our ability to fully focus our internal resources on our business activities. The results of any legal proceeding cannot be predicted with certainty due to the uncertainty inherent in litigation, the difficulty of predicting decisions of regulators, judges and juries and the possibility that decisions may be reversed on appeal. There can be no assurances that these matters will not have a material adverse effect on our business, financial position or operating results.

 

We depend on certain key personnel, and our success will depend on our continued ability to retain and attract such qualified personnel.

 

Our success is dependent on the efforts, abilities and continued service of certain senior officers and key employees and consultants. A number of our key employees and consultants have significant experience in the uranium industry. A loss of service from any one of these individuals may adversely affect our operations, and we may have difficulty or may not be able to locate and hire a suitable replacement.

 

44

 

Certain directors and officers may be subject to conflicts of interest.

 

The majority of our directors and officers are involved in other business ventures including similar capacities with other private or publicly-traded companies. Such individuals may have significant responsibilities to these other business ventures, including consulting relationships, which may require significant amounts of their available time. Conflicts of interest may include decisions on how much time to devote to our business affairs and what business opportunities should be presented to us. Our Code of Business Conduct for Directors, Officers and Employees provides for guidance on conflicts of interest.

 

The laws of the State of Nevada and our Articles of Incorporation may protect our directors and officers from certain types of lawsuits.

 

The laws of the State of Nevada provide that our directors and officers will not be liable to our Company or to our stockholders for monetary damages for all but certain types of conduct as directors and officers. Our Bylaws provide for broad indemnification powers to all persons against all damages incurred in connection with our business to the fullest extent provided or allowed by law. These indemnification provisions may require us to use our limited assets to defend our directors and officers against claims, and may have the effect of preventing stockholders from recovering damages against our directors and officers caused by their negligence, poor judgment or other circumstances.

 

Several of our directors and officers are residents outside of the United States, and it may be difficult for stockholders to enforce within the United States any judgments obtained against such directors or officers.

 

Several of our directors and officers are nationals and/or residents of countries other than the United States, and all or a substantial portion of such persons’ assets are located outside of the United States. As a result, it may be difficult for investors to effect service of process on such directors and officers, or enforce within the United States any judgments obtained against such directors and officers, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state thereof. Consequently, stockholders may be effectively prevented from pursuing remedies against such directors and officers under United States federal securities laws. In addition, stockholders may not be able to commence an action in a Canadian court predicated upon the civil liability provisions under United States federal securities laws. The foregoing risks also apply to those experts identified in this document that are not residents of the United States.

 

Disclosure controls and procedures and internal control over financial reporting, no matter how well designed and operated, are designed to obtain reasonable, and not absolute, assurance as to its reliability and effectiveness.

 

Management’s evaluation on the effectiveness of disclosure controls and procedures is designed to ensure that information required for disclosure in our public filings is recorded, processed, summarized and reported on a timely basis to our senior management, as appropriate, to allow timely decisions regarding required disclosure.

 

Management’s report on internal control over financial reporting is designed to provide reasonable assurance that transactions are properly authorized, assets are safeguarded against unauthorized or improper use and transactions are properly recorded and reported. However, any system of controls, no matter how well designed and operated, is based in part upon certain assumptions designed to obtain reasonable, and not absolute, assurance as to its reliability and effectiveness. Any failure to maintain effective disclosure controls and procedures in the future may result in our inability to continue meeting our reporting obligations in a timely manner, qualified audit opinions or restatements of our financial reports, any one of which may affect the market price for our common stock and our ability to access the capital markets.

 

Risks Related to Our Common Stock

 

Historically, the market price of our common stock has been and may continue to fluctuate significantly.

 

On September 28, 2007 our common stock commenced trading on the NYSE American (formerly known as the American Stock Exchange, the NYSE Amex Equities Exchange and the NYSE MKT) and prior to that, traded on the OTC Bulletin Board.

 

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The global markets have experienced significant and increased volatility in the past and have been impacted by the effects of mass sub-prime mortgage defaults and liquidity problems of the asset-backed commercial paper market, resulting in a number of large financial institutions requiring government bailouts or filing for bankruptcy. The effects of these past events and any similar events in the future may continue to or further affect the global markets, which may directly affect the market price of our common stock and our accessibility for additional financing. Although this volatility may be unrelated to specific company performance, it can have an adverse effect on the market price of our shares which, historically, has fluctuated significantly and may continue to do so in the future.

 

In addition to the volatility associated with general economic trends and market conditions, the market price of our common stock could decline significantly due to the impact of any one or more events, including, but not limited to, the following: (i) volatility in the uranium market; (ii) occurrence of a major nuclear incident such as the events in Fukushima in March 2011; (iii) changes in the outlook for the nuclear power and uranium industries; (iv) failure to meet market expectations on our exploration, pre-extraction or extraction activities, including abandonment of key uranium projects; (v) sales of a large number of our shares held by certain stockholders including institutions and insiders; (vi) downward revisions to previous estimates on us by analysts; (vii) removal from market indices; (viii) legal claims brought forth against us; and (ix) introduction of technological innovations by competitors or in competing technologies.

 

A prolonged decline in the market price of our common stock could affect our ability to obtain additional financing which would adversely affect our operations.

 

Historically we have relied on equity financing and, more recently, on debt financing, as primary sources of financing. A prolonged decline in the market price of our common stock or a reduction in our accessibility to the global markets may result in our inability to secure additional financing which would have an adverse effect on our operations.

 

Additional issuances of our common stock may result in significant dilution to our existing shareholders and reduce the market value of their investment.

 

We are authorized to issue 750,000,000 shares of common stock of which 184,050,113 shares were issued and outstanding as of April 30, 2020. Future issuances for financings, mergers and acquisitions, exercise of stock options and share purchase warrants and for other reasons may result in significant dilution to and be issued at prices substantially below the price paid for our shares held by our existing stockholders. Significant dilution would reduce the proportionate ownership and voting power held by our existing stockholders and may result in a decrease in the market price of our shares.

 

We filed our 2017 Shelf, which was declared effective on March 10, 2017, providing for the public offer and sale of certain securities of our Company from time to time, at our discretion, 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 from time to time, at our discretion, under the 2017 Shelf, of up to an aggregate offering amount of an additional $6.3 million; then bringing the balance remaining under the 2017 Shelf to $37.9 million to be sold under the ATM.

 

As at January 31, 2020, 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.

 

On February 21, 2020, we filed the 2020 Shelf which was declared effective by the SEC on March 3, 2020 and, as a result, our 2017 Shelf was then deemed terminated and, as consequence, our then ATM terminated unless renewed under the 2020 Shelf. The 2020 Shelf provides for the public offer and sale of certain securities of the Company from time to time, at our discretion, up to an aggregate offering amount of $100 million.

 

On March 19, 2020, we entered into an Amending Agreement to the Offering Agreement with 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 $30 million through the Managers under its ATM through the 2020 Shelf. At April 30, 2020 no public offer or sale of the Company’s shares has been completed under the ATM.

 

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We are subject to the Continued Listing Criteria of the NYSE American and our failure to satisfy these criteria may result in delisting of our common stock.

 

Our common stock is currently listed on the NYSE American.  In order to maintain this listing, we must maintain certain share prices, financial and share distribution targets, including maintaining a minimum amount of shareholders’ equity and a minimum number of public shareholders.  In addition to these objective standards, the NYSE American may delist the securities of any issuer: (i) if, in its opinion, the issuer’s financial condition and/or operating results appear unsatisfactory; (ii) if it appears that the extent of public distribution or the aggregate market value of the security has become so reduced as to make continued listing on the NYSE American inadvisable; (iii) if the issuer sells or disposes of principal operating assets or ceases to be an operating company; (iv) if an issuer fails to comply with the NYSE American’s listing requirements; (v) if an issuer’s common stock sells at what the NYSE American considers a “low selling price” and the issuer fails to correct this via a reverse split of shares after notification by the NYSE American; or (vi) if any other event occurs or any condition exists which makes continued listing on the NYSE American, in its opinion, inadvisable.

 

If the NYSE American delists our common stock, investors may face material adverse consequences, including, but not limited to, a lack of trading market for our securities, reduced liquidity, decreased analyst coverage of our securities and an inability for us to obtain additional financing to fund our operations.

 

Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds

 

During our fiscal quarter ended April 30, 2020, there were no securities issued that were not registered under the Securities Act.

 

Item 3.     Defaults Upon Senior Securities

 

None.

 

Item 4.     Mine Safety Disclosures

 

Pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 issuers that are operators, or that have a subsidiary that is an operator, of a coal or other mine in the United States, and that is subject to regulation by the Federal Mine Safety and Health Administration under the Mine Safety and Health Act of 1977 (“Mine Safety Act”), are required to disclose in their periodic reports filed with the SEC information regarding specified health and safety violations, orders and citations, related assessments and legal actions, and mining-related fatalities. During the quarter ended April 30, 2020 the Company’s Palangana Mine was not subject to regulation by the Mine Safety Act.

 

Item 5.     Other Information

 

None.

 

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Item 6.     Exhibits

 

The following exhibits are included with this Quarterly Report:

 

Exhibit

Description of Exhibit

   

31.1

Certification of Chief Executive Officer pursuant to the Securities Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a).

   

31.2

Certification of Chief Financial Officer pursuant to the Securities Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a).

   

32.1

Certifications pursuant to the Securities Exchange Act of 1934 Rule 13a-14(b) or 15d-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

   

101.1NS

 

101.SCH

 

101.CAL

 

101.DEF

 

101.LAB

 

101.PRE

XBRL Instance Document

 

XBRL Taxonomy Extension Schema Document

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

XBRL Taxonomy Extension Definitions Linkbase Document

 

XBRL Taxonomy Extension Label Linkbase Document

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

URANIUM ENERGY CORP.

 

 

 

 

 

 

 

 

 

 

By:

/s/ Amir Adnani

 

 

 

Amir Adnani

 

 

 

President, Chief Executive Officer (Principal Executive Officer) and Director
Date: June 8, 2020

 

       
  By: /s/ Pat Obara  
    Pat Obara  
    Chief Financial Officer (Principal Financial Officer)
Date: June 8, 2020
 

 

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