UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2006
[ ] 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 333-127185
URANIUM ENERGY CORP.
_________________________________________________________________
(Exact name of small business issuer as specified in its charter)
NEVADA 98-0399476
_______________________________ ___________________
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
9801 Anderson Mill Road
Suite 230
Austin, Texas 78750
________________________________________
(Address of Principal Executive Offices)
(512) 828-6980
___________________________
(Issuer's telephone number)
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
NONE
___________________ _________________________________________
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, Par Value $0.001
______________________________
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the issuer was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes [X ] No [ ]
Check if there is no disclosure of delinquent filers pin response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ X ]
Indicate by checkmark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes [ ] No [ X ]
State issuer's revenues for its most recent fiscal year (ending December
31, 2006): $-0-.
State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the
common equity was last sold, or the average bid and asked price of such common
equity, as of a specified date within the past 60 days: February 28, 2007:
$84,884,825.17.
(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS)
N/A
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 and 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes [ ] No [ ]
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
Class 35,412,338 Outstanding as of March 21, 2007
Common Stock, $0.001 par value
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly
describe them and identify the part of the Form 10-KSB (e.g., Part I, Part II,
etc.) into which the document is incorporation: (1) any annual report to
security holders; (2) any proxy or information statement; and (3) any prospectus
filed pursuant to Rule 424(b) or (c) of the Securities Act of 1933 ("Securities
Act"). The listed documents should be clearly described for identification
purposes (e.g., annual report to security holders for fiscal year ended December
24, 1990).
Not applicable
Transactional Small Business Disclosure Format (Check one): \
Yes [ ] No [ X ]
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INDEX
ITEM 1. DESCRIPTION OF BUSINESS 5
ITEM 2. DESCRIPTION OF PROPERTY 25
ITEM 3. LEGAL PROCEEDINGS 25
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 26
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS 26
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 31
ITEM 7. FINANCIAL STATEMENTS 39
CONSOLIDATED BALANCE SHEET F-2
CONSOLIDATED STATEMENT OF OPERATIONS F-3
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 40
ITEM 8A. CONTROLS AND PROCEDURES 40
ITEM 8B. OTHER INFORMATION 40
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL
PERSONS AND CORPORATE GOVERNANCE; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT 40
ITEM 10. EXECUTIVE COMPENSATION 44
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STGOCKHOLDER MATTERS 47
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
AND DIRECTOR INDEPENDENCE 49
ITEM 13. EXHIBITS 50
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES 51
SIGNATURES 51
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FORWARD LOOKING STATEMENTS
Statements made in this Form 10-KSB that are not historical or current
facts are "forward-looking statements" made pursuant to the safe harbor
provisions of Section 27A of the Securities Act of 1933 (the "Act") and Section
21E of the Securities Exchange Act of 1934. These statements often can be
identified by the use of terms such as "may," "will," "expect," "believe,"
"anticipate," "estimate," "approximate" or "continue," or the negative thereof.
We intend that such forward-looking statements be subject to the safe harbors
for such statements. We wish to caution readers not to place undue reliance on
any such forward-looking statements, which speak only as of the date made. Any
forward-looking statements represent management's best judgment as to what may
occur in the future. However, forward-looking statements are subject to risks,
uncertainties and important factors beyond our control that could cause actual
results and events to differ materially from historical results of operations
and events and those presently anticipated or projected. We disclaim any
obligation subsequently to revise any forward-looking statements to reflect
events or circumstances after the date of such statement or to reflect the
occurrence of anticipated or unanticipated events.
AVAILABLE INFORMATION
Uranium Energy Corp. files annual, quarterly, current reports, proxy
statements, and other information with the Securities and Exchange Commission
(the "Commission"). You may read and copy documents referred to in this Annual
Report on Form 10-KSB that have been filed with the Commission at the
Commission's Public Reference Room, 450 Fifth Street, N.W., Washington, D.C. You
may obtain information on the operation of the Public Reference Room by calling
the Commission at 1-800-SEC-0330. You can also obtain copies of our Commission
filings by going to the Commission's website at http://www.sec.gov
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
BUSINESS DEVELOPMENT
Uranium Energy Corp. was incorporated under the laws of the State of Nevada on
May 16, 2003 under the name "Carlin Gold Inc." During 2004, we changed our
business operations and focus from previous metals exploration in the State of
Nevada to the exploration for economic reserves of uranium throughout the United
States. On January 24, 2005, we filed an amendment to our articles of
incorporation changing our name to "Uranium Energy Corp."
After the effective date of our registration statement filed with the Securities
and Exchange Commission (December 5, 2005), we commenced trading on the
Over-the-Counter Bulletin Board under the symbol "URME:OB". Please note that
throughout this Annual Report, and unless otherwise noted, the words "we,"
"our," "us," the "Company," or "Uranium Energy," refers to Uranium Energy Corp.
FORWARD STOCK SPLIT
On February 14, 2006, our Board of Directors pursuant to minutes of written
consent in lieu of a special meeting authorized and approved a forward stock
split of 1.5-for-one of our total issued and outstanding shares of common stock
(the "Forward Stock Split").
The Forward Stock Split was effectuated based on market conditions and upon a
determination by our Board of Directors that the Forward Stock Split was in our
best interests and of the shareholders. In our judgment the Forward Stock Split
would result in an increase in our trading float of shares of common stock
available for sale resulting in facilitation of investor liquidity and trading
volume potential. The intent of the Forward Stock Split was to increase the
marketability of our common stock.
The Forward Stock Split was effectuated with a record date of February 28, 2006
upon filing the appropriate documentation with NASDAQ. The Forward Stock Split
increased our issued and outstanding shares of common stock from 14,968,222 to
approximately 22,452,338 shares of common stock. The common stock will continue
to be $0.001 par value.
AMENDMENT TO ARTICLES OF INCORPORATION
On February 6, 2006, we filed an amendment to our articles of incorporation with
the Nevada Secretary of State. The amendment revised Section 3 of the articles
of incorporation increasing the authorized capital stock from 75,000,000 shares
of common stock at $0.001 par value to 750,000,000 shares of common stock par
value $0.001. See "item 4. Submission of Matters to a Vote of Security Holders."
TRANSFER AGENT
Our transfer agent is Transfer OnLine, Inc., 317 S.W. Alder Street, Portland,
Oregon 97204.
CURRENT BUSINESS OPERATIONS
GENERAL
We are a natural resource exploration and development company engaged in the
exploration and development of properties that may contain uranium minerals in
the United States. Our strategy is to acquire properties that are thought to
contain economic quantities of uranium ore and have undergone some degree of
uranium exploration but have not yet been mined. To date, we have acquired
interests in 19,304.27 gross acres of leased or staked mineral properties,
consisting of claim blocks located in the States of Arizona, Colorado, Utah, New
Mexico, Wyoming and Texas that have been either leased or staked, which we
intend to explore for economic deposits of uranium. These leases are also
subject to 5.0% to 15.25% net royalty interests. Each of these properties has
been the subject of historical exploration by other mining companies. Their
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historical results indicate that further exploration for uranium is warranted.
Our view that our properties are prospective for mineral exploration is based on
either prior exploration conducted by other companies, or management information
and work product derived from various reports, maps, radioactive rock samples,
exploratory drill logs, state organization reports, consultants, geological
study, and other exploratory information.
We also have access to historical exploration data consisting chiefly of drill
hole assay results, drill hole logs, studies, publicly published works, our own
created work product, and maps, that help guide our property acquisition
strategy. We plan to use this exploration data as the basis for formulating the
exploration programs that we plan to undertake on our properties.
Our principal mineral property is the Weesatche project in Goliad County, Texas.
The acreage and location of our mineral properties is summarized as follows:
GROSS ACRES NET ACRES(*)
Arizona 2,231.28 2,231.28
Colorado 1,074.32 1,074.32
New Mexico 4,023.76 3,994.34
Texas 4,491.81 3,928.76
Utah 640.00 640.00
Wyoming 6,843.10 6,843.10
Total: 19,304.27 18,711.80
(*) Certain of our interests in our mineral properties in Texas and New Mexico
are less than 100%. Accordingly, we have presented the acreage of our
mineral properties on a net acre basis.
We plan to use our database of exploration data in order to target additional
exploration properties for acquisition. In 2007, we have plans to acquire
further acres of mineral properties consisting of claim blocks located in, but
not limited to the states of New Mexico, Texas and Wyoming. Our ability to
complete these acquisitions will be subject to our obtaining sufficient
financing and our being able to conclude agreements with the property owners on
terms that are acceptable to us. Other mineral property acquisitions are
contemplated in the states of interest that include Arizona, Colorado, and Utah.
These potential acquisition properties have not yet been specifically
identified.
Our properties do not have any reserves. We plan to conduct exploration programs
on these properties with the objective of ascertaining whether any of our
properties contain economic concentrations of uranium that are prospective for
mining. As such, we are considered an exploration or exploratory stage company.
Since we are an exploration stage company, there is no assurance that a
commercially viable mineral deposit exists on any of our properties, and a great
deal of further exploration will be required before a final evaluation as to the
economic and legal feasibility for our future exploration is determined. We have
no known reserves of uranium or any other type of mineral. Since inception, we
have not established any proven or probable reserves on our mineral property
interests.
MINERAL PROPERTIES
Our principal mineral property is the Weesatche project in Goliad County, Texas.
The following provides information relating to our principal mineral property:
WEESATCHE LEASES, GOLIAD COUNTY, TEXAS
The Weesatche project is located approximately 90 miles southeast of San
Antonio, Texas, and is reached from San Antonio via Interstate 10 East to
Highway 183 South. The Weesatche Project is 1 mile east-southeast of Weser,
Texas, off State Highway 183, 15 miles north of the city of Goliad, Goliad
County, Texas.
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We have currently leased eleven tracts for 1,717.20 gross acres (1,567.37 net
acres) in the Weesatche project area of Goliad County, Texas. The leases are for
a five year primary term with an option for five additional years. All leases
acquired to date have royalties payable to mineral owners at a fixed rate of
8.25% of actual sales price of yellowcake, minus certain costs. Delay rentals of
$3.50/acre are due on the first anniversary date of each lease and yearly
thereafter for the term of the lease. Leases allow for In-Situ mining of uranium
and related fissionable materials.
HISTORY OF PREVIOUS OPERATIONS
Wide spaced exploration drilling was carried out by Coastal States Uranium in
1980 across the northern half of Goliad County during which time several
significant shows were identified. Based on the shows, Coastal put together a
land package of approximately 55,000 acres, and named the prospect Weesatche.
Moore Energy Corporation ("Moore") picked up Weesatche in 1982 and initiated a
drilling program based on the Coastal data that extended over a period of
several years. Moore drilled approximately 500 exploration test holes for a
total footage of approximately 225,000 feet.
PRESENT CONDITION OF THE PROPERTY
The property under lease by us consists of open range land and is under
exploration. No physical structures or equipment have been installed on the
property.
[SOUTH TEXAS URANIUM TREND MAP APPEARS HERE]
GEOLOGY OF THE PROPERTY
Weesatche is located in the South Texas Uranium Trend along the depositional
strike of the Tertiary sedimentary trend. The Tertiary and younger beds outcrop
in concentric arcs paralleling the Gulf Coast. Striking north to northeast, the
beds dip to the Gulf at approximately 20 to 80 feet per mile. The oldest uranium
producing horizons in the district are in the Jackson Group of Eocene age.
Overlying are the Oligocene Frio and Catahoula, Miocene Fleming and Oakville
Formations, all overlain by the Goliad Formation of Pliocene age. The latter is
the host formation for the uranium at the Weesatche Project. The Goliad
Formation is comparatively coarse-grained, consisting of sand and some gravel
with interbedded clay and silty clays. The formation varies from 600 to 1,000
feet in thickness in some areas.
Uranium mineralization occurs along the flanks of paleo sand channels. Following
deposition, the oxygen-rich groundwater (whose movement is primarily influenced
by the regional southeast dip) transports the uranium in solution, until it
encounters areas of reducing conditions where the uranium is then precipitated
out of solution. At that point, uranium roll front deposits are formed. The
areas of reduced geochemistry were formed near the many down-to-the-coast normal
faults that intersected the paleo channels. These faults served as conduits for
the reductant gases such as hydrogen sulfide.
At Weesatche, four distinct fluvial sand facies or channels have been defined.
These basal units of the Goliad Formation have been named the A, B, C and D
sands, and the tops of the sand units occur at the following depths below ground
surface of 90 feet, 180 feet, 235 feet and 340 feet, respectively. Each sand
unit is bounded above and below by massive, impermeable clays averaging 60 feet
in thickness. Groundwater is under confined conditions with a static water level
of approximately fifty feet below ground surface. The water level varies with
seasonal changes. Uranium mineralization occurs in all four sands, with the bulk
currently being concentrated in the A and D sands. The reductant source is gas
derived from deeper hydrocarbon (oil and gas) deposits seeping upward along
fault planes which are located proximal or near to the ore deposits. The bulk of
the currently defined ore occurs in a graben or down-dropped fault block.
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The basic methods used by us in our reserve determinations are standard for the
industry. The primary cutoff used is a 0.30 grade thickness (GT), with no
mineralization grade less than 0.02% uranium. An average density factor of 18.0
cubic feet per ton was used. GT contour maps were used to make area
determinations using only those areas within the 0.30 GT contour. All of these
factors are standard for the industry.
Control for the ore bodies has been established by holes drilled on an
approximate 100 x 200 foot grid and the reserves have been adjusted for chemical
disequilibrium by running direct uranium measurement assay logs in the bore hole
(Princeton Gamma Tech) behind the conventional calibrated gamma ray logs.
PLAN OF EXPLORATION - 2006/2007/2008
Our current plan of operations projects that total mineral property expenditures
will reach an estimated $6,000,000 for the 2007 fiscal year, excluding the fair
value of any stock-based payments. The estimated total includes $2,000,000 for
acquisition costs, $2,500,000 for drilling and exploration expenditures, and
$1,500,000 in related costs including permitting and engineering. Acquisition,
drilling or exploration costs estimated below are included in the overall
totals. Any plan of operations is subject to significant uncertainty given the
nature of our business. Drilling and exploration results, new acquisition or
partnership opportunities, and a number of other factors could have a material
impact on the current plan of operations.
We completed the planned 32,000-foot drilling program during the fourth quarter
of 2006. Based on encouraging results, a two-fold, follow-on program was
designed to be performed during 2007 to support mine permitting, mine planning
and expansion of existing resources. All 2007 drilling at Weesatche will be
carried out under our recently renewed Texas Railroad Commission Exploration
Permit No. 123 dated February 9, 2007. Under the terms of the Permit, an
affidavit was filed with the Texas Railroad Commission attesting to the fact
that all exploration holes drilled during the term of the Permit have been
plugged pursuant to Permit guidelines. Also, the Permit has been extended for an
additional year until February 6, 2008.
The first phase of the new program will be to support ongoing environmental
permitting as well as continue to define the historic resource initially defined
by Moore Energy Corporation. An additional 216 holes will be drilled to offset
existing ore grade or near ore grade mineralization as defined by Moore, as well
as that defined during our 2006 drilling program. Total drilling footage for
this part of the program will be approximately 75,840 feet.
The first phase will also involve a total of 5 core holes averaging 300 feet in
depth. The cores will be collected and sent to an analytical laboratory to have
agitation leach analyses run to best determine the composition of the mine
lixiviant amenable to in-situ recovery methodology. The cores will also be
analyzed to confirm positive disequilibrium ranges of 1.4 to 1.7 determined by
Moore Energy's extensive PGT logging program.
Following the coring program, at total of 5 cased holes will be installed and
utilized as groundwater monitor wells. Groundwater will be sampled and analyzed
as part of the ongoing environmental mine permitting application process. These
six monitor wells will be drilled and cased to an average depth of 300 feet
below ground surface. The entire cost of this first phase program will be
approximately $595,000. It is anticipated that this first phase drilling program
will be competed during the second quarter of 2007.
The second phase of drilling planned at Weesatche will be designed to explore
additional acreage acquired during our company's 2006 - 2007 leasing program. It
is anticipated that at least 500 exploratory holes will be required to
adequately define the presence or absence of mineralization on the newly
acquired acreage. The 500 holes will account for an approximate total of 227,250
feet of drilling and cost $1,500,000. This drilling program should be initiated
during the second quarter of 2007 and extend into the first quarter of 2008.
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MINERAL EXPLORATION PROPERTIES
We are participating in our mineral properties in the States of Arizona, New
Mexico, Wyoming and Colorado by way of mining claims and mineral leases. The
properties were staked and claimed by us and registered with the United States
Bureau of Land Management ("BLM"). There are claim blocks acquired in this
manner in Arizona, and further claim blocks in Colorado and New Mexico. We have
surface access and complete mineral rights to an unlimited depth below surface.
The claims are in effect for an indefinite period provided the claims are kept
in good standing with the BLM and the counties. The claims were entered into
between November 4, 2004 and October 2006. Annual maintenance fees to be paid to
the BLM are relatively nominal. We will also be required to remediate the land
upon release of the claim - bringing the land back into the state it was
originally in prior to the commencement of our exploration activities. These
costs are determined by the BLM and bonded accordingly.
In the States of Utah, New Mexico and Texas, we are participating in our mineral
properties by way of property lease directly from the owners of the land/mineral
rights. As of the date of this Annual Report, we have executed one lease in
Utah, and further leases in New Mexico and Texas. These leases give us similar
access and privileges as described above, however with some important
differences. Although we will have access to the surface, the mineral rights
below surface are restricted to uranium and associated fissionable minerals
only, with any other minerals and hydro carbons, including, for example,
petroleum, retained by the lessor. The lease terms are for five years, and
include five-year renewal periods. After the expiration of the second five-year
term, the leases will be either held by production or the leases will be
terminated. Royalty payments must be made to the lessor in the event that we
extract uranium ore from the properties. Royalty payments vary from 6.25% to
15.25%, or based on a sliding scale tied to the price of uranium. All royalties
are based on the gross sales revenue less certain charges and fees.
We have the following gross and net acre mineral property interests in states
indicated below under mining claim or lease:
GROSS ACRES NET ACRES(*)
Arizona 2,231.28 2,231.28
Colorado 1,074.32 1,074.32
New Mexico 4,023.76 3,994.34
Texas 4,491.81 3,928.76
Utah 640.00 640.00
Wyoming 6,843.10 6,843.10
_________ _________
Total: 19,304.27 18,711.80
(*) Certain of our interests in our mineral properties in New Mexico and Texas
are less than 100%. Accordingly, we have presented the acreage of our
mineral properties on a net acre basis.
These properties do not have any indicated or inferred minerals or reserves. We
plan to conduct exploration programs on these properties with the intent to
prove or disprove the existence of economic concentrations of uranium. Since
inception, we have not established any proven or probable reserves on our
mineral property interests.
On October 11, 2005, we entered into a Mineral Asset Option Agreement (the
"Option") with Brad A. Moore giving us the option to acquire certain uranium
leases from Mr. Moore in the State of Texas. In consideration for the Option, to
date, we have paid Mr. Moore cash payments totaling $200,000 and issued
2,225,000 post-forward split shares of our restricted common stock. The Option
requires a final issuance of 750,000 post-forward split restricted common shares
on the eighteenth month following the effective date of the Option, specifically
April 11, 2007. Title to the properties to be acquired will transfer upon
payment of all remaining stock required under the Option, the timing of which
may be accelerated at our discretion. During the Option term, we have the right
as operator to conduct or otherwise direct all the exploration on the properties
to be acquired.
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ARIZONA
All of our Arizona claims were previously the subject of exploration drilling
for the incidence of uranium by companies such as Noranda, Inc., Uranerz Energy
Corp., Homestake Mining Co., and Oklahoma Public Services. We have acquired a
1979 Oklahoma Public Services ("OPS") geologic report contiguous to our claims
(Artillery Peak) that indicates the possible incidence of uranium. OPS drilling
continued on to our claims as evidenced by drill holes verified on the ground,
and such drill cuttings were found to be radioactive. Close spaced developmental
drilling is indicated on our claims located at Artillery Peak.
Other claims staked by us (Ester Basin, Crow Canyon and Dry Mountain) in Arizona
were staked on known uranium occurrences as shown on Arizona State publication,
"Occurrences of Uranium in Miscellaneous Sedimentary Formations, Diatremes and
Pipes and Veins". Additionally, these claims were previously drilled by
companies including Homestake Mining Co., Uranerz Energy Corp., and Noranda,
Inc. in the 1970's uranium boom. Our management has confirmed prior claim
ownership as verified with the United States Department of Interior - Bureau of
Land Management. In addition, ground surveys completed by us have located
various previous drill locations and radioactive anomalies as evidenced in
ground and drill cuttings. As of the date of this Annual Report, our Arizona
located claims contain no uranium reserves, and require extensive exploration by
us.
COLORADO
Claims acquired by us in Colorado have historical production tonnages and grades
published in the Colorado Geological Survey, Bulletin 40 - "Radioactive Mineral
Occurrences of Colorado". Additionally, a third party consulting miner/engineer
was utilized by us for his first hand knowledge of the Colorado properties
acquired. As of the date of this Annual Report, we confirm that our Colorado
located claims contain no uranium reserves and require extensive exploration by
us.
TEXAS
We currently own two leases located in a South Texas uranium trend that we
believe were subject to substantial historical exploration and, therefore,
constitute some of our most prospective exploration targets. The previous
historical exploration work conducted on and around the Uranium Energy Corp.
exploration targets located in South Texas (Zavala County) is in a certain
formation that was not the focus of uranium exploration in previous uranium
booms (the "New Formation") (formation is not provided for competitive reasons).
The New Formation represents a new "out of traditional trend" host rock for
possible uranium mineralization. We have acquired a number of drill hole gamma
logs, as well as one drill core whose chemical analysis supports the indication
of uranium, along with lease and drill hole location maps. Insufficient drilling
in past exploration programs did not quantify any reserves for Wold Nuclear.
However, a portion of rock within the New Formation has been identified with
grades to 0.11% chemical U308.
The expected mineralized area comprising the New Formation has been defined in
geological area by our own work product. The New Formation host rock is up to
250 feet thick and has the potential for uranium mineralization similar to
Wyoming's Powder River Basin. As of the date of this Annual Report, we have
acquired two leases (473.06 gross acres) in an area where previous drilling and
coring indicated ore grade uranium mineralization.
UTAH
Our Utah property (Crain Lease) was the subject of prior exploration drilling
conducted by Pioneer-Uravan, Inc. and Truchas Limited in the 1970's to search
for uranium indications. We have acquired gamma drill log interpretation
worksheets from work previously conducted by Pioneer-Uravan, Inc. In addition,
drill hole location maps have been obtained from work conducted for
Pioneer-Uravan, Inc. and Truchas Limited. Further assay reports on core samples
from exploration drilling previously conducted by Pioneer-Uravan, Inc. as
verified by that company's commissioned assay report have also been obtained, as
well as certain drill indicated uranium findings that provide the basis for
preliminary reserve information as previously conducted and defined in a Truchas
Limited summary and report (1979). As of the date of this Annual Report, our
Utah located claims contain no uranium reserves that we have independently
verified. Accordingly, this property requires extensive exploration by us.
-10-
A gamma drill log interpretation worksheet is work product created from a
listing of sensory information created at routine intervals that forms the
output or log of a uranium testing technique used when exploring depths of the
earth beneath the surface through exploratory drilling.
EXPLORATION WORK PROGRAMS
ARIZONA AND COLORADO
Our Chief Exploration Officer, Randall Reneau, a Certified Professional
Geologist, based on historical data previously outlined and our own work
product, has developed exploration programs unique to each state and claim block
with the intent of proving or disproving the existence of uranium on these
prospects. In order to carry out these exploration programs, $204,500 and
approximately twelve months will be required, according to the exploration
budget and schedule recommended by our Chief Exploration Officer. As of the date
of this Annual Report, we believe we currently have sufficient capital required
to complete Phase I exploration costs. Our ability to pay for Phase I
exploration costs is not expected to be impacted by possible further property
acquisitions. Additional capital for possible future uranium exploration
property related acquisitions will be funded through additional offerings of
debt and equity on an as required basis.
The total cost of expected Phase II exploration on all mineral properties
contemplated at this time is equal to $125,000 including contingency cost
allowance. Additional costs for Phase II exploration work and for further lease
and land acquisitions are expected to be funded by future financings from debt
and equity sources. See "Item 6. Management's Discussion and Analysis or Plan of
Operation."
PHASE I WORK PROGRAMS - ARIZONA AND COLORADO
The work program that has been recommended for the mineral properties is
dependent on the nature of the exploration conducted prior to our acquisition.
The intended Phase I work programs will be on the claims located in both Arizona
and Colorado.
During Phase I work programs on these particular mineral claims, we plan to
review and analyze all historical exploration data available to us in our
current possession, and to probe existing drill holes with gamma probes, with a
strategy that attempts to confirm historical drill results and plan for future
development. Costs have been estimated at $14,500 per claim block.
PHASE I WORK PROGRAMS - SOUTH TEXAS LEASES
We currently own two (2) leases located in a known and established South Texas
uranium trend that have been the subject of substantial historical exploration
by Wold Nuclear in the 1970's and 1980's, and constitute the Company's most
prospective exploration targets. We plan to review all historical exploration
data and to probe historical drill holes, at an estimated cost of $30,000.
Included in Phase I for these particular leases will also include 9,450 feet of
new drilling, at an estimated cost of $94,500. A further $5,000 cost has been
estimated for mobilization and demobilization, as well as $2,500 for surface
remediation. The total cost of Phase I exploration on all mineral properties
contemplated at this time is equal to $204,500.
Based on exploration databases acquired during 2006 we were able to establish
five separate lease positions with the South Texas uranium trend. Four of these
lease positions are within Goliad County and will complement our existing
Weesatche project. One of the positions was heavily drilled by Mobil Oil during
the 1970's and 1980's and is known to contain an historic resource. We plan to
document that resource through drilling. The three remaining Goliad County lease
positions are highly encouraging prospects that we plan to drill during 2007 to
prove or disprove the occurrence of uranium resources. The fifth lease position
is within Duval County and falls within the Catahoula Formation, an historic
uranium host formation of prolific proportions for South Texas. As previously
stated, these lease positions were developed by our geologist during 2006 from
historic databases. Land acquisition costs for these five prospects total
$432,000 and drilling costs are approximated to be $562,000.
-11-
PHASE II WORK PROGRAMS
The purpose of Phase I exploration work on the Artillery Peak, Ester Basin, and
Dry Mountain claims in Arizona is chiefly to determine which areas require new
drilling. Once the drill targets have been established, an estimated 7,500 feet
of drilling is planned for all three properties, at an estimated cost of
$75,000. The drill program will be allocated as follows: 3,000 feet at Artillery
Peak; 1,500 feet at Ester Basin; 3,000 feet at Dry Mountain. These drill cores
must then be logged at an estimated cost of $15,000. A further $2,500 per
property has been estimated for mobilization of drill equipment and again for
demobilization, as well as $2,500 per property for surface remediation.
The total cost of Phase II exploration on all mineral properties contemplated at
this time is equal to $125,000 including contingency cost allowance. Additional
costs for Phase II exploration work and for further lease and land acquisitions
are expected to be funded by future financings from debt and equity sources. We
expect minimal effect on our ability to proceed with Phase II exploration should
they be required in conjunction with further lease and land acquisitions as the
amounts projected for Phase II exploration costs are not substantial in relation
to budgeted total annual capital and operating expense expenditures. If however,
additional land and lease expenditures during the next twelve months create a
lack of capital for Phase II exploration costs beyond that anticipated in
relation to available capital, we may not be in a financial position to conduct
Phase II exploration if required.
In all cases, results from Phase I of exploration on our properties will
determine whether we proceed to Phase II of the exploration program, or
discontinue exploration on the property. Phase II costs, if any, will be
incurred in the subsequent 12-month period, and may require additional
financing.
We expect to purchase and build a PFN Logging Truck for a total aggregate cost
of approximately $157,000.
Our operational business plan calls for the acquisition of further uranium
exploration properties in Arizona, Colorado, New Mexico, Texas, Utah and
Wyoming. We have developed detailed exploration programs for each claim block
area of interest based on historical data derived from past uranium exploration
by other companies with a mandate to prove or disprove the existence of uranium
resources.
MATERIAL AGREEMENTS
ANTHONY EMPLOYMENT AGREEMENT
On February 15, 2006, our Board of Directors authorized and approved the
execution of the "Anthony Employment Agreement". On July 1, 2006 our Board of
Directors approved an amendment to the Anthony Employment Agreement extending
the initial term to July 1, 2008. Pursuant to the terms and provisions of the
Anthony Employment Agreement, as amended: (i) Mr. Anthony shall provide duties
to us commensurate with his executive position as our Chief Operating Officer
and he will also become a member of our Board of Directors; (ii) we shall pay to
Mr. Anthony a monthly fee of $10,000 to October 1, 2007 when the monthly fee
paid to Mr. Anthony will increase to $12,500; (iii) we granted an aggregate of
250,000 pre forward split stock options to Mr. Anthony to purchase shares of our
restricted common stock at $0.50 per share for a ten-year term; and (iv) the
Anthony Employment Agreement may be terminated without cause by either of us by
providing prior written notice of the intention to terminate at least 90 days
(in the case of our company after the initial term) or 30 days (in the case of
Mr. Anthony) prior to the effective date of such termination. See "Item 9.
Directors, Executive Officers, Promoters, Control Person and Corporate
Governance; Compliance with Section 16(a) of the Exchange Act", "Item 10.
Executive Compensation" and "Item 12 Certain Relationships and Related
Transactions and Director Independence."
-12-
RENEAU SERVICES AGREEMENT
From June 30, 2004, and as formalized in a letter agreement dated December 1,
2004 between us and Randall Reneau (the "Reneau Services Agreement"), Mr. Reneau
has performed geological consulting services for us in exchange for $350 per
diem plus expenses. During fiscal year ended December 31, 2004, Mr. Reneau
invoiced us, and has been compensated, in the amount of $12,506. During fiscal
year ended December 31, 2005, Mr. Reneau invoiced us, and has been compensated,
in the amount of $72,838. See "Item 9. Directors, Executive Officers, Promoters,
Control Person and Corporate Governance; Compliance with Section 16(a) of the
Exchange Act", "Item 10. Executive Compensation" and "Item 12 Certain
Relationships and Related Transactions and Director Independence."
CORPORATE RELATIONS CONSULTING SERVICES AGREEMENT
On March 1, 2006, we entered into a corporate relations consulting services
agreement (the "Corporate Relations Consulting Agreement") with Michael Baybak
and Company Inc., which is related to one of our shareholders ("Michael
Baybak"). In accordance with the terms and provisions of the Corporate Relations
Consulting Agreement: (i) the term is for an initial six-month period; (ii) we
agreed to pay up to $5,000 per month during the initial six-month period for
services rendered; and (iii) we issued an aggregate of 500,000 warrants
exercisable at $1.00 per share for a ten-year term. The shares of common stock
underlying the warrants have piggyback registration rights.
Subsequent to the initial six-month period, we have extended the Corporate
Relations Consulting Agreement on a month to month basis through the fiscal year
2006 and into the fiscal year 2007.
ADNANI EXECUTIVE SERVICES AGREEMENT
On July 1, 2006, our Board of Directors authorized and approved the execution of
the "Adnani Executive Services Agreement". Pursuant to the terms and provisions
of the Adnani Executive Services Agreement: (i) Mr. Adnani shall continue to
provide duties to us commensurate with his current executive positions as our
President and Chief Executive Officer; (ii) we shall pay to Mr. Adnani a monthly
fee of $10,000 for an initial term of two years expiring on July 1, 2008; (iii)
we confirmed the previous granting of his existing pre forward split stock
options; and (iv) the Adnani Executive Services Agreement may be terminated
without cause by either of us by providing prior written notice of the intention
to terminate at least 90 days (in the case of our company after the initial
term) or 30 days (in the case of Mr. Adnani) prior to the effective date of such
termination. See "Item 9. Directors, Executive Officers, Promoters, Control
Person and Corporate Governance; Compliance with Section 16(a) of the Exchange
Act", "Item 10. Executive Compensation" and "Item 12 Certain Relationships and
Related Transactions and Director Independence."
BRAD MOORE MINERAL ASSET OPTION AGREEMENT
On October 11, 2005, we entered into a Mineral Asset Option Agreement (the
"Option") with Brad A. Moore giving us the option to acquire certain uranium
leases from Mr. Moore in the State of Texas. In consideration for the Option, to
date, we have paid Mr. Moore cash payments totaling $200,000 and issued
2,225,000 post-forward split shares of our restricted common stock. The Option
requires a final issuance of 750,000 post-forward split restricted common shares
on the eighteenth month following the effective date of the Option, specifically
April 11, 2007. Title to the properties to be acquired will transfer upon
payment of all remaining stock required under the Option, the timing of which
may be accelerated at our discretion. During the Option term, we have the right
as operator to conduct or otherwise direct all the exploration on the properties
to be acquired.
HARRY A. MOORE TRUST AGREEMENT
On December 12, 2005, our Board of Directors authorized and approved the
execution of an agreement (the "Moore Trust Agreement") with Harry A. Moore
Trust (the "Moore Trust"). Pursuant to the terms and provisions of the Moore
Trust Agreement, we acquired an undivided 100% legal, beneficial and
registerable interest in and to certain assets consisting of certain drill and
assay data regarding prospective tracts located in Goliad, Waller, Duval and
McMullen Counties in the State of Texas. Pursuant to further terms and
provisions of the Moore Trust Agreement, we paid to the Moore Trust certain
payments aggregating $50,000 and issued an aggregate of 75,000 shares.
-13-
EUROTRADE MANAGEMENT GROUP LTD. AGREEMENT
On February 1, 2006, our Board of Directors, pursuant to unanimous written
consent, authorized and approved the execution of a corporate finance consulting
services agreement (the "Consulting Services Agreement") with Eurotrade
Management Group Ltd. ("Eurotrade"). Pursuant to the terms and provisions of the
Consulting Services Agreement, we agreed to: (i) retain Eurotrade as a
consultant for a one-year period effective February 1, 2006 (the "Effective
Date"); (ii) within ten calendar days from the Effective Date, issue to
Eurotrade an aggregate 515,000 pre-forward stock split shares of our restricted
common stock (772,500 post-forward stock split); and (iii) reimburse Eurotrade
for all pre-approved, direct and reasonable expenses actually and properly
incurred by Eurotrade for our benefit in connection with its performance of
consulting services.
Pursuant to further terms and provisions of the Consulting Services Agreement,
Eurotrade agrees to perform certain corporate finance consulting services to us
including, but not limited to, the following: (i) assist in the initiation,
coordination, implementation and management of all aspects of any program or
project in connection with the corporate finance development and maintenance of
our various business interests; (ii) assist in the organization and preparation
of any and all business plans, technical reports, news releases and special
shareholder or investment reports; (iii) assist in the liaison with and the
setting up of all corporate alliances and regulatory associations; (iv) assist
in the negotiation and structuring of any proposed transaction which will
maximize our interests in each subject transaction together with the
presentation of a written summary of said structure; and (v) assist in all other
matters and services in connection with the corporate finance development and
maintenance of our various business interests as may be determined by the Board
of Directors.
On February 1, 2006, our Board of Directors subsequently authorized and approved
the issuance to Eurotrade of an aggregate 515,000 pre-forward stock split shares
(772,500 post-forward stock split shares) of our restricted common stock at a
deemed price of $0.50 per share in accordance with the terms and provisions of
the Consulting Services Agreement. See "Item 5. Market for Common Equity and
Related Stockholder Matters."
DRILLING DATABASE INFORMATION AGREEMENT
On December 12, 2005, we entered into a drilling database information agreement
(the "Drilling Database Agreement") with Jim Knupke. In accordance with the
terms and provisions of the Drilling Database Agreement: (i) we are required to
make cash payments to Mr. Knupke of $2,000 per month payable quarterly; (ii)
issue an aggregate of 12,500 pre-forward stock split shares of our restricted
common stock (18,750 post-forward stock split); and (iii) issue a further 12,500
restricted common shares quarterly for the next three quarters following the
effective date of the Drilling Database Agreement. See "Item 5. Market for
Common Equity and Related Stockholder Matters."
URANIUM MINING LEASE
On June 13, 2006, we entered into a ten-year uranium mining lease (the "Lease")
with John G. Jebsen and John Triantis (collectively, the "Lessor"), pursuant to
which the Lessor granted and leased to us certain acreage consisting of 41
unpatented lode mining claims located in Carbon County, Wyoming. In accordance
with the terms and provisions of the Lease, we shall: (i) investigate, explore,
prospect, drill, solution mine, produce, extract, treat, process, and store
uranium, thorium and other fissionable associated substances (the "Leased
Substances"); (ii) pay to the Lessor an aggregate of $50,000 for the Lease; and
(iii) pay to the Lessor a production royalty as follows: (a) in the event the
sales price for the Leased Substances mined by us is less than $0.50 per pound,
five percent (5%) of the net proceeds received, and (b) in the event the sales
price for the Leased Substances mined by us exceeds $0.50 per pound, six percent
(6%) of the net proceeds received. In addition to the payments required to be
made by us under the terms of the Lease as discussed, we shall pay additional
minimum advance royalties as follows: (i) $30,000 on or before September 15,
2006; which sum has been paid; (ii) $30,000 on or before January 1, 2007; (iii)
$50,000 on or before June 1, 2007; (iv) $500,00 on or before December 1, 2007;
(v) $500,00 on or before December 1, 2008; (vi) $50,000 on or before December 1,
2009; and (vi) $50,000 on or before December 1st of every year subsequent to
December 1, 2009 and as long thereafter as Leased Substances are being produced
in commercial quantities from the property subject to the Lease.
-14-
In December 2006 the Company terminated the Lease due to results from its 2006
exploration program that were lower than historically indicated. Under the terms
of the lease agreement, the Company paid an initial lease payment of $50,000 in
June 2006, and an additional $30,000 in September 2006. There are no further
payments or commitments due or payable. The Company has applied for the release
of $136,458 in certificates of deposit to the Wyoming Department of
Environmental Quality, which were incurred prior to exploration activities
commencing on the leased property.
OPTION TO PURCHASE ASSETS AGREEMENT
On July 27, 2006, we entered into an option to purchase assets (the "Option")
with High Plains Uranium Inc. ("High Plains"), pursuant to which we agreed to
sell our unencumbered database consisting of 813 mobile drill logs (e-logs and
lithlogs), 242 Moore Energy logs and certain drill hole location maps, reserve
calculations, survey data and core analyses (collectively, the "Cadena
Database"). In accordance with the terms and provisions of the Option: (i) High
Plains shall within thirty calendar days (the "Option Period") pay us a
non-refundable cash payment in the aggregate amount of $150,000, with an initial
option payment of $25,000 which was received on the date of execution of the
Option and the final option payment of $125,000 on or before the end of the
Option Period, which $125,000 we have received as of the date of this Annual
Report; and (ii) High Plains shall issue to us 333,333 shares of their common
stock; and (iii) High Plains shall pay a 1.0% royalty to the Company of the
gross proceeds from the sale of uranium or substance derived from a specified
area within the Agreement.
The 333,333 shares of High Plains Uranium Inc. common stock were subsequently
received. As of January 19, 2007 High Plains Uranium Inc. ("HPU") completed a
business combination agreement with Energy Metals Corp. ("EMC"), a TSX listed
Canadian based public company. As a result, the 333,333 shares of HPU are being
exchanged for 53,763 shares of EMC. As of December 31, 2006 the 53,763 shares of
EMC have a fair market value of $543,006.
COMPETITION
We operate in a highly competitive industry, competing with other mining and
exploration companies, and institutional and individual investors, which are
actively seeking uranium minerals exploration properties throughout the world
together with the equipment, labour and materials required to exploit such
properties. Many of our competitors have financial resources, staff and
facilities substantially greater than ours. The principal area of competition is
encountered in the financial ability to cost effectively acquire prime minerals
exploration prospects and then exploit such prospects. Competition for the
acquisition of uranium minerals exploration properties is intense, with many
properties available in a competitive bidding process in which we may lack
technological information or expertise available to other bidders. Therefore, we
may not be successful in acquiring and developing profitable properties in the
face of this competition. No assurance can be given that a sufficient number of
suitable uranium minerals exploration properties will be available for
acquisition and development.
MINERALS EXPLORATION REGULATION
Our minerals exploration activities are, or will be, subject to extensive laws
and regulations governing prospecting, development, production, exports, taxes,
labour standards, occupational health, waste disposal, protection and
remediation of the environment, protection of endangered and protected species,
mine safety, toxic substances and other matters. Minerals exploration is also
subject to risks and liabilities associated with pollution of the environment
and disposal of waste products occurring as a result of mineral exploration and
production. Compliance with these laws and regulations may impose substantial
costs on us and will subject us to significant potential liabilities. Changes in
these regulations could require us to expend significant resources to comply
with new laws or regulations or changes to current requirements and could have a
material adverse effect on our business operations.
-15-
Exploration and production activities are subject to certain environmental
regulations which may prevent or delay the commencement or continuance of our
operations. In general, our exploration and production activities are subject to
certain federal, state and local laws and regulations relating to environmental
quality and pollution control. Such laws and regulations increase the costs of
these activities and may prevent or delay the commencement or continuance of a
given operation. Compliance with these laws and regulations has not had a
material effect on our operations or financial condition to date. Specifically,
we are subject to legislation regarding emissions into the environment, water
discharges and storage and disposition of hazardous wastes. In addition,
legislation has been enacted which requires well and facility sites to be
abandoned and reclaimed to the satisfaction of state authorities. However, such
laws and regulations are frequently changed and we are unable to predict the
ultimate cost of compliance. Generally, environmental requirements do not appear
to affect us any differently or to any greater or lesser extent than other
companies in the industry and our current operations have not expanded to a
point where either compliance or cost of compliance with environmental
regulation is a significant issue for us. Costs have been incurred to date with
respect to compliance with environmental laws, primarily relating to the posting
of a performance bond, and costs are only expected to increase with the
increasing scale and scope of exploration operations, especially with the advent
of Phase II exploration costs.
Minerals exploration operations are subject to comprehensive regulation which
may cause substantial delays or require capital outlays in excess of those
anticipated causing an adverse effect on our business operations. Minerals
exploration operations are subject to federal, state, and local laws relating to
the protection of the environment, including laws regulating removal of natural
resources from the ground and the discharge of materials into the environment.
Minerals exploration operations are also subject to federal, state, and local
laws and regulations which seek to maintain health and safety standards by
regulating the design and use of drilling methods and equipment. Various permits
from government bodies are required for drilling operations to be conducted; no
assurance can be given that such permits will be received. Environmental
standards imposed by federal, state, or local authorities may be changed and any
such changes may have material adverse effects on our activities. Moreover,
compliance with such laws may cause substantial delays or require capital
outlays in excess of those anticipated, thus causing an adverse effect on us.
Additionally, we may be subject to liability for pollution or other
environmental damages which we may elect not to insure against due to
prohibitive premium costs and other reasons. As of the date of this Annual
Report, other than with respect to the posting of a performance bond, we have
not been required to spend material amounts on compliance with environmental
regulations. However, we may be required to do so in future and this may affect
our ability to expand or maintain our operations. Environmental regulation is
discussed in further detail in the following section.
ENVIRONMENTAL REGULATION
Our activities will be subject to existing federal, state and local laws and
regulations governing environmental quality and pollution control. Our
operations will be subject to stringent environmental regulation by state and
federal authorities including the Environmental Protection Agency ("EPA"). Such
regulation can increase the cost of such activities. In most instances, the
regulatory requirements relate to water and air pollution control measures.
WASTE DISPOSAL
The Resource Conservation and Recovery Act ("RCRA"), and comparable state
statutes, affect minerals exploration and production activities by imposing
regulations on the generation, transportation, treatment, storage, disposal and
cleanup of "hazardous wastes" and on the disposal of non-hazardous wastes. Under
the auspices of the EPA, the individual states administer some or all of the
provisions of RCRA, sometimes in conjunction with their own, more stringent
requirements.
-16-
CERCLA
The federal Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") imposes joint and several liability for costs of investigation and
remediation and for natural resource damages, without regard to fault or the
legality of the original conduct, on certain classes of persons with respect to
the release into the environment of substances designated under CERCLA as
hazardous substances ("Hazardous Substances"). These classes of persons or
potentially responsible parties include the current and certain past owners and
operators of a facility or property where there is or has been a release or
threat of release of a Hazardous Substance and persons who disposed of or
arranged for the disposal of the Hazardous Substances found at such a facility.
CERCLA also authorizes the EPA and, in some cases, third parties to take actions
in response to threats to the public health or the environment and to seek to
recover the costs of such action. We may also in the future become an owner of
facilities on which Hazardous Substances have been released by previous owners
or operators. We may in the future be responsible under CERCLA for all or part
of the costs to clean up facilities or property at which such substances have
been released and for natural resource damages.
AIR EMISSIONS
Our operations are subject to local, state and federal regulations for the
control of emissions of air pollution. Major sources of air pollutants are
subject to more stringent, federally imposed permitting requirements.
Administrative enforcement actions for failure to comply strictly with air
pollution regulations or permits are generally resolved by payment of monetary
fines and correction of any identified deficiencies. Alternatively, regulatory
agencies could require us to forego construction, modification or operation of
certain air emission sources.
CLEAN WATER ACT
The Clean Water Act ("CWA") imposes restrictions and strict controls regarding
the discharge of wastes, including mineral processing wastes, into waters of the
United States, a term broadly defined. Permits must be obtained to discharge
pollutants into federal waters. The CWA provides for civil, criminal and
administrative penalties for unauthorized discharges of hazardous substances and
other pollutants. It imposes substantial potential liability for the costs of
removal or remediation associated with discharges of oil or hazardous
substances. State laws governing discharges to water also provide varying civil,
criminal and administrative penalties and impose liabilities in the case of a
discharge of petroleum or it derivatives, or other hazardous substances, into
state waters. In addition, the EPA has promulgated regulations that may require
us to obtain permits to discharge storm water runoff. In the event of an
unauthorized discharge of wastes, we may be liable for penalties and costs.
Management believes that we are in substantial compliance with current
applicable environmental laws and regulations.
RESEARCH AND DEVLOPMENT
No research and development expenditures have been incurred, either on our
account or sponsored by customers for the past three years.
EMPLOYEES
Amir Adnani is our President and Chief Executive Officer, Pat Obara is our Chief
Financial Officer, Randall Reneau is our Chief Exploration Officer, and Harry
Anthony is our Chief Operating Officer. These individuals are primarily
responsible for all our day-to-day operations. Other services are provided by
outsourcing and consultant and special purpose contracts. We currently employee
six persons on a full time basis and contract with approximately eight
individuals on a full time basis for ongoing services provided to us.
-17-
RISK FACTORS
An investment in our common stock involves a number of very significant risks.
You should carefully consider the following risks and uncertainties in addition
to other information in evaluating our company and its business before
purchasing shares of our common stock. Our business, operating results and
financial condition could be seriously harmed due to any of the following risks.
The risks described below are all of the material risks that we are currently
aware of that are facing our company. Additional risks not presently known to us
may also impair our business operations. You could lose all or part of your
investment due to any of these risks.
RISKS RELATED TO OUR BUSINESS
WE WILL NEED TO RAISE ADDITIONAL FINANCING TO COMPLETE FURTHER
EXPLORATION.
We will require significant additional financing in order to continue our
exploration activities and our assessment of the commercial viability of our
mineral properties. Furthermore, if the costs of our planned exploration
programs are greater than anticipated, we may have to seek additional funds
through public or private share offerings or arrangements with corporate
partners. There can be no assurance that we will be successful in our efforts to
raise these require funds, or on terms satisfactory to us. The continued
exploration of our mineral properties and the development of our business will
depend upon our ability to establish the commercial viability of our mineral
properties and to ultimately develop cash flow from operations and reach
profitable operations. We currently are in the exploration stage and we have no
revenue from operations and we are experiencing significant negative cash flow.
Accordingly, the only other sources of funds presently available to us are
through the sale of equity. We presently believe that debt financing will not be
an alternative to us as all of our properties are in the exploration stage.
Alternatively, we may finance our business by offering an interest in our
mineral properties to be earned by another party or parties carrying out further
exploration and development thereof or to obtain project or operating financing
from financial institutions, neither of which is presently intended. If we are
unable to obtain this additional financing, we will not be able to continue our
exploration activities and our assessment of the commercial viability of our
mineral properties. Further, if we are able to establish that development of our
mineral properties is commercially viable, our inability to raise additional
financing at this stage would result in our inability to place our mineral
properties into production and recover our investment.
As our mineral properties do not contain any reserves or any known body of
economic mineralization, we may not discover commercially exploitable quantities
of ore on our mineral properties that would enable us to enter into commercial
production, achieve revenues and recover the money we spends on exploration.
Our properties do not contain reserves in accordance with the definitions
adopted by the SEC and there is no assurance that any exploration programs that
we out will establish reserves. All of our mineral properties are in the
exploration stage as opposed to the development stage and has no known body of
economic mineralization. The known mineralization at these projects has not yet
been determined to be economic ore, and may never be determined to be economic.
We plan to conduct further exploration activities on our mineral properties,
which future exploration may include the completion of feasibility studies
necessary to evaluate whether a commercial mineable orebody exists on any of our
mineral properties. There is a substantial risk that these exploration
activities will not result in discoveries of commercially recoverable quantities
of ore. Any determination that our properties contain commercially recoverable
quantities of ore may not be reached until such time that final comprehensive
feasibility studies have been concluded that establish that a potential mine is
likely to be economic. There is a substantial risk that any preliminary or final
feasibility studies carried out by us will not result in a positive
determination that our mineral properties can be commercially developed.
-18-
OUR EXPLORATION ACTIVITIES ON OUR MINERAL PROPERTIES MAY NOT BE
COMMERCIALLY SUCCESSFUL, WHICH COULD LEAD US TO ABANDON OUR PLANS TO
DEVELOP THE PROPERTY AND ITS INVESTMENTS IN EXPLORATION.
Our long-term success depends on its ability to establish commercially
recoverable quantities of ore on our mineral properties that can then be
developed into commercially viable mining operations. Mineral exploration is
highly speculative in nature, involves many risks and is frequently
non-productive. These risks include unusual or unexpected geologic formations,
and the inability to obtain suitable or adequate machinery, equipment or labor.
The success of uranium exploration is determined in part by the following
factors:
[ ] identification of potential uranium mineralization based on superficial
analysis;
[ ] availability of government-granted exploration permits;
[ ] the quality of management and geological and technical expertise; and
[ ] the capital available for exploration.
Substantial expenditures are required to establish proven and probable reserves
through drilling and analysis, to develop metallurgical processes to extract
metal, and to develop the mining and processing facilities and infrastructure at
any site chosen for mining. Whether a mineral deposit will be commercially
viable depends on a number of factors, which include, without limitation, the
particular attributes of the deposit, such as size, grade and proximity to
infrastructure; metal prices, which fluctuate widely; and government
regulations, including, without limitation, regulations relating to prices,
taxes, royalties, land tenure, land use, importing and exporting of minerals and
environmental protection. We may invest significant capital and resources in
exploration activities and abandon such investments if it is unable to identify
commercially exploitable mineral reserves. The decision to abandon a project may
reduce the trading price of our common stock and impair our ability to raise
future financing. We cannot provide any assurance to investors that we will
discover or acquire any mineralized material in sufficient quantities on any of
our properties to justify commercial operations. Further, we will not be able to
recover the funds that we spend on exploration if we are not able to establish
commercially recoverable quantities of ore on our mineral properties.
OUR BUSINESS IS DIFFICULT TO EVALUATE BECAUSE WE HAVE A LIMITED
OPERATING HISTORY.
In considering whether to invest in our common stock, you should consider that
our inception was May 16, 2003 and, as a result, there is only limited
historical financial and operating information available on which to base your
evaluation of our performance.
WE HAVE A HISTORY OF OPERATING LOSSES AND THERE CAN BE NO ASSURANCES WE
WILL BE PROFITABLE IN THE FUTURE.
We have a history of operating losses, expect to continue to incur losses, and
may never be profitable, and we must be considered to be in the exploration
stage. Further, we have been dependent on sales of our equity securities and
debt financing to meet our cash requirements. We have incurred losses totaling
approximately $16,969,779 from May 16, 2003 (inception) to December 31, 2006. As
of December 31, 2006, we had an accumulated deficit of $16,969,779 and had
incurred losses of approximately $14,818,318 during the fiscal year ended
December 31, 2006. Further, we do not expect positive cash flow from operations
in the near term. There is no assurance that actual cash requirements will not
exceed our estimates. In particular, additional capital may be required in the
event that: (i) the costs to acquire additional uranium exploration claims are
more than we currently anticipate; (ii) exploration and or future potential
mining costs for additional claims increase beyond our expectations; or (iii) we
encounter greater costs associated with general and administrative expenses or
offering costs.
-19-
OUR PARTICIPATION IN AN INCREASINGLY LARGER NUMBER OF URANIUM MINERALS
EXPLORATION PROSPECTS HAS REQUIRED AND WILL CONTINUE TO REQUIRE
SUBSTANTIAL CAPITAL EXPENDITURES.
The uncertainty and factors described throughout this section may impede our
ability to economically discover, acquire, develop and/or exploit uranium
prospects. As a result, we may not be able to achieve or sustain profitability
or positive cash flows from operating activities in the future.
The financial statements for fiscal year ended December 31, 2006 have been
prepared "assuming that the Company will continue as a going concern," which
contemplates that we will realize our assets and satisfy our liabilities and
commitments in the ordinary course of business. Our ability to continue as a
going concern is dependent on raising additional capital to fund our operations
and ultimately on generating future profitable operations. There can be no
assurance that we will be able to raise sufficient additional capital or
eventually have positive cash flow from operations to address all of our cash
flow needs. If we are not able to find alternative sources of cash or generate
positive cash flow from operations, our business and shareholders will be
materially and adversely affected. See "Item 6. Management's Discussion And
Analysis or Plan of Operation - Going Concern."
WE WILL REQUIRE ADDITIONAL FUNDING IN THE FUTURE.
Based upon our historical losses from operations, we will require additional
funding in the future. If we cannot obtain capital through financings or
otherwise, our ability to execute our exploration programs will be greatly
limited. Our current plans require us to make capital expenditures for the
exploration of our minerals exploration properties. Historically, we have funded
our operations through the issuance of equity and short-term debt financing
arrangements. We may not be able to obtain additional financing on favorable
terms, if at all. Our future cash flows and the availability of financing will
be subject to a number of variables, including potential production and the
market prices of uranium. Further, debt financing could lead to a diversion of
cash flow to satisfy debt-servicing obligations and create restrictions on
business operations. If we are unable to raise additional funds, it would have a
material adverse effect upon our operations.
AS PART OF OUR GROWTH STRATEGY, WE INTEND TO ACQUIRE ADDITIONAL
MINERALS EXPLORATION PROPERTIES.
Such acquisitions may pose substantial risks to our business, financial
condition, and results of operations. In pursuing acquisitions, we will compete
with other companies, many of which have greater financial and other resources
to acquire attractive properties. Even if we are successful in acquiring
additional properties, some of the properties may not produce positive results
of exploration, or we may not complete exploration of such prospects within
specified time periods may cause the forfeiture of the lease in that prospect.
There can be no assurance that we will be able to successfully integrate
acquired properties, which could result in substantial costs and delays or other
operational, technical, or financial problems. Further, acquisitions could
disrupt ongoing business operations. If any of these events occur, it would have
a material adverse effect upon our operations and results from operations.
WE ARE A NEW ENTRANT INTO THE URANIUM MINERALS EXPLORATION AND
DEVELOPMENT INDUSTRY WITHOUT PROFITABLE OPERATING HISTORY.
Since inception, our activities have been limited to organizational efforts,
obtaining working capital and acquiring and developing a very limited number of
properties. As a result, there is limited information regarding production or
revenue generation. As a result, our future revenues may be limited. The
business of minerals exploration and development is subject to many risks and if
uranium is found in economic production quantities, the potential profitability
of future possible uranium mining ventures depends upon factors beyond our
control. The potential profitability of mining uranium properties if economic
quantities of Uranium are found is dependent upon many factors and risks beyond
our control, including, but not limited to: (i) unanticipated ground and water
conditions and adverse claims to water rights; (ii) geological problems; (iii)
metallurgical and other processing problems; (iv) the occurrence of unusual
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weather or operating conditions and other force majeure events; (v) lower than
expected ore grades; (vi) accidents; (vii) delays in the receipt of or failure
to receive necessary government permits; (viii) delays in transportation; (ix)
labor disputes; (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.
THE RISKS ASSOCIATED WITH EXPLORATION AND DEVELOPMENT AND, IF
APPLICABLE, MINING COULD CAUSE PERSONAL INJURY OR DEATH, ENVIRONMENTAL
DAMAGE, DELAYS IN MINING, MONETARY LOSSES AND POSSIBLE LEGAL LIABILITY.
We are not currently engaged in mining operations because we are in the
exploration phase and have not yet any proved uranium reserves. We do not
presently carry property and liability insurance. Cost effective insurance
contains exclusions and limitations on coverage and may be unavailable in some
circumstances.
THE URANIUM EXPLORATION AND MINING INDUSTRY IS HIGHLY COMPETITIVE AND
THERE IS NO ASSURANCE THAT WE WILL BE SUCCESSFUL IN ACQUIRING THE
LEASES.
The uranium exploration and mining industry is intensely competitive, and we
compete with other companies that have greater resources. Many of these
companies not only explore for and produce uranium, but also market uranium and
other products on a regional, national or worldwide basis. These companies may
be able to pay more for productive uranium properties and exploratory prospects
or define, evaluate, bid for and purchase a greater number of properties and
prospects than our financial or human resources permit. In addition, these
companies may have a greater ability to continue exploration activities during
periods of low uranium market prices. Our larger competitors may be able to
absorb the burden of present and future federal, state, local and other laws and
regulations more easily than we can, which would adversely affect our
competitive position. Our ability to acquire additional properties and to
discover productive prospects in the future will be dependent upon our ability
to evaluate and select suitable properties and to consummate transactions in a
highly competitive environment. In addition, because we have fewer financial and
human resources than many companies in our industry, we may be at a disadvantage
in bidding for exploratory prospects and producing uranium properties.
THE MARKETABILITY OF NATURAL RESOURCES WILL BE AFFECT BY NUMEROUS
FACTORS BEYOND OUR CONTROL WHICH MAY RESULT IN US NOT RECEIVING AN
ADEQUATE RETURN ON INVESTED CAPITAL TO BE PROFITABLE OR VIABLE.
The marketability of natural resources which may be acquired or discovered by us
will be affected by numerous factors beyond our control. These factors include
macroeconomic factors, market fluctuations in commodity pricing and demand, the
proximity and capacity of natural resource markets and processing equipment,
governmental regulations, land tenure, land use, regulation concerning the
importing and exporting of uranium and environmental protection regulations. The
exact effect of these factors cannot be accurately predicted, but the
combination of these factors may result in us not receiving an adequate return
on invested capital to be profitable or viable.
URANIUM MINING OPERATIONS ARE SUBJECT TO COMPREHENSIVE REGULATION,
WHICH MAY CAUSE SUBSTANTIAL DELAYS OR REQUIRE CAPITAL OUTLAYS IN EXCESS
OF THOSE ANTICIPATED, CAUSING AN ADVERSE EFFECT ON OUR BUSINESS
OPERATIONS.
If economic quantities of uranium are found on any lease owned by us in
sufficient quantities to warrant uranium mining operations, such mining
operations are subject to federal, state, and local laws relating to the
protection of the environment, including laws regulating removal of natural
resources from the ground and the discharge of materials into the environment.
Uranium mining operations are also subject to federal, state, and local laws and
regulations which seek to maintain health and safety standards by regulating the
design and use of mining methods and equipment. Various permits from government
bodies are required for mining operations to be conducted; no assurance can be
given that such permits will be received. Environmental standards imposed by
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federal, provincial, or local authorities may be changed and any such changes
may have material adverse effects on our activities. Moreover, compliance with
such laws may cause substantial delays or require capital outlays in excess of
those anticipated, thus resulting in an adverse effect on us. Additionally, we
may be subject to liability for pollution or other environmental damages which
we may elect not to insure against due to prohibitive premium costs and other
reasons. To date we have not been required to spend material amounts on
compliance with environmental regulations. However, we may be required to do so
in future and this may affect our ability to expand or maintain our operations.
URANIUM MINERALS EXPLORATION AND DEVELOPMENT AND MINING ACTIVITIES ARE
SUBJECT TO CERTAIN ENVIRONMENTAL REGULATIONS, WHICH MAY PREVENT OR
DELAY THE COMMENCEMENT OR CONTINUANCE OF OUR OPERATIONS.
Uranium minerals exploration and development and future potential uranium mining
operations are or will be subject to stringent federal, state, provincial, and
local laws and regulations relating to improving or maintaining environmental
quality. Our global operations are also subject to many environmental protection
laws. Environmental laws often require parties to pay for remedial action or to
pay damages regardless of fault. Environmental laws also often impose liability
with respect to divested or terminated operations, even if the operations were
terminated or divested of many years ago.
Future potential uranium mining operations and current exploration activities
are or will be subject to extensive laws and regulations governing prospecting,
development, production, exports, taxes, labour standards, occupational health,
waste disposal, protection and remediation of the environment, protection of
endangered and protected species, mine safety, toxic substances and other
matters. Uranium mining is also subject to risks and liabilities associated with
pollution of the environment and disposal of waste products occurring as a
result of mineral exploration and production. Compliance with these laws and
regulations will impose substantial costs on us and will subject us to
significant potential liabilities.
COSTS ASSOCIATED WITH ENVIRONMENTAL LIABILITIES AND COMPLIANCE ARE
EXPECTED TO INCREASE WITH THE INCREASING SCALE AND SCOPE OF OPERATIONS
AND WE EXPECT THESE COSTS MAY INCREASE IN THE FUTURE.
We believe that our operations comply, in all material respects, with all
applicable environmental regulations. However, we are not fully insured at the
current date against possible environmental risks.
ANY CHANGE IN GOVERNMENT REGULATION/ADMINISTRATIVE PRACTICES MAY HAVE A
NEGATIVE IMPACT ON OUR ABILITY TO OPERATE AND OUR PROFITABILITY.
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 be changed, applied or interpreted in a
manner which will fundamentally alter our ability to carry on business. The
actions, policies or regulations, or changes thereto, of any government body or
regulatory agency, or other special interest groups, may have a detrimental
effect on us. Any or all of these situations may have a negative impact on our
ability to operate and/or our profitably.
WE MAY BE UNABLE TO RETAIN KEY EMPLOYEES OR CONSULTANTS OR RECRUIT
ADDITIONAL QUALIFIED PERSONNEL.
Our extremely limited personnel means that we would be required to spend
significant sums of money to locate and train new employees in the event any of
our employees resign or terminate their employment with us for any reason. Due
to our limited operating history and financial resources, we are entirely
dependent on the continued service of Amir Adnani, our President, Chief
Executive Officer, Principal Executive Officer and a director, D. Bruce Horton,
a director, Randall Reneau, our Chief Exploration Officer and a director, and
Harry Anthony, our Chief Operating Officer and a director. Further, we do not
have key man life insurance on any of these individuals. We may not have the
financial resources to hire a replacement if any of our officers were to die.
The loss of service of any of these employees could therefore significantly and
adversely affect our operations.
-22-
OUR OFFICERS AND DIRECTORS MAY BE SUBJECT TO CONFLICTS OF INTEREST.
Our officers and directors serve only part time and are subject to conflicts of
interest. Each of our executive officers and directors serves only on a part
time basis. Each devotes part of his working time to other business endeavors,
including consulting relationships with other corporate entities, and has
responsibilities to these other entities. Such conflicts include deciding how
much time to devote to our affairs, as well as what business opportunities
should be presented to us. Because of these relationships, our officers and
directors may be subject to conflicts of interest.
NEVADA LAW AND OUR ARTICLES OF INCORPORATION MAY PROTECT OUR DIRECTORS
FROM CERTAIN TYPES OF LAWSUITS.
Nevada law provides that our officers and directors will not be liable to us or
our stockholders for monetary damages for all but certain types of conduct as
officers and directors. Our Bylaws permit us broad indemnification powers to all
persons against all damages incurred in connection with our business to the
fullest extent provided or allowed by law. The exculpation provisions may have
the effect of preventing stockholders from recovering damages against our
officers and directors caused by their negligence, poor judgment or other
circumstances. The indemnification provisions may require us to use our limited
assets to defend our officers and directors against claims, including claims
arising out of their negligence, poor judgment, or other circumstances.
RISKS RELATED TO OUR COMMON STOCK
Sales of a substantial number of shares of our common stock into the public
market by certain stockholders may result in significant downward pressure on
the price of our common stock and could affect your ability to realize the
current trading price of our common stock.
SALES OF A SUBSTANTIAL NUMBER OF SHARES OF OUR COMMON STOCK IN THE
PUBLIC MARKET BY CERTAIN STOCKHOLDERS COULD CAUSE A REDUCTION IN THE
MARKET PRICE OF OUR COMMON STOCK.
As of the date of this Annual Report, we have 35,412,338 shares of common stock
issued and outstanding. Of the total number of issued and outstanding shares of
common stock, certain stockholders are able to resell up to 3,653,583 and
5,091,000 shares of our common stock pursuant to two separate SB-2 registration
statements declared effective on December 5, 2005 and October 20, 2006,
respectively. As a result of these registration statements, an aggregate of
8,744,583 shares of our common stock were issued and are available for immediate
resale which could have an adverse effect on the price of our common stock.
In addition, on February 14, 2007, we filed a Form SB-2 Registration Statement
under the Securities Act to register an aggregate of 8,100,000 shares of our
common stock as follows: (i) 5,400,000 shares of our common stock issued; and
(ii) 2,700,000 shares of common stock underlying certain common stock purchase
warrants issuable at an exercise price of $3.00. As of the date of this Annual
Report, the registration statement has not been declared effective. When
declared effective and the shares are registered, the 5,400,000 shares of common
stock issued would be available for immediate resale and if sold would have an
adverse effect on the price of our common stock. The 2,700,000 shares of common
stock underlying the common stock purchase warrants would be registered and
which, if exercised, would have an adverse effect on the price of our common
stock. To the extent stockholders exercised the warrants and resold the shares
of common stock issued to them upon such exercise (subject to applicable
securities law restrictions), the price of our common stock may decrease due to
the additional shares of common stock in the market. See "Item 5. Market for
Common Equity and Related Stockholder Matters."
As of the date of this Annual Report, there are 24,788,455 outstanding shares of
our common stock that are restricted securities as that term is defined in Rule
144 under the Securities Act. Although the Securities Act and Rule 144 place
certain prohibitions on the sale of restricted securities, restricted securities
may be sold into the public market under certain conditions. Further, as of the
date of this Annual Report, there are an aggregate of 4,287,500 stock options
outstanding and an aggregate of 4,792,250 share purchase warrants outstanding.
See "Item 5. Market for Common Equity and Related Stockholder Matters."
-23-
Any significant downward pressure on the price of our common stock as the
selling stockholders sell their shares of our common stock could encourage short
sales by the selling stockholders or others. Any such short sales could place
further downward pressure on the price of our common stock.
THE TRADING PRICE OF OUR COMMON STOCK ON THE OTC BULLETIN BOARD HAS
BEEN AND MAY CONTINUE TO FLUCTUATE SIGNIFICANTLY AND STOCKHOLDERS MAY
HAVE DIFFICULTY RESELLING THEIR SHARES.
Our common stock commenced trading on December 5, 2005 on the OTC Bulletin Board
and the trading price has fluctuated. In addition to volatility associated with
Bulletin Board securities in general, the value of your investment could decline
due to the impact of any of the following factors upon the market price of our
common stock: (i) disappointing results from our discovery or development
efforts; (ii) failure to meet our revenue or profit goals or operating budget;
(iii) decline in demand for our common stock; (iv) downward revisions in
securities analysts' estimates or changes in general market conditions; (v)
technological innovations by competitors or in competing technologies; (vi) lack
of funding generated for operations; (vii) investor perception of our industry
or our prospects; and (viii) general economic trends.
In addition, stock markets have experienced price and volume fluctuations and
the market prices of securities have been highly volatile. These fluctuations
are often unrelated to operating performance and may adversely affect the market
price of our common stock. As a result, investors may be unable to sell their
shares at a fair price and you may lose all or part of your investment.
ONE OF OUR SHAREHOLDERS MAY EXERCISE VOTING POWER OF MORE THAN 9.0% OF OUR
COMMON STOCK.
As of the date of this Annual Report, Golden West Investments Ltd. ("Golden
West") owns 3,250,000 shares of our common stock, or 9.2% of our outstanding
common stock and is one of our largest shareholders. Due to its stock ownership,
Golden West may be in a viable position to affect the election of the Board of
Directors and, therefore, to affect the control our business and affairs
including certain significant corporate actions such as acquisitions, the sale
or purchase of assets, and the issuance and sale of our securities. Further,
Golden West may be able to affect the prevention of or cause a change in
control. We also may be prevented from entering into transactions that could be
beneficial to us without Golden West's consent. The interest of one of our
largest shareholders may differ from the interests of other shareholders.
Golden West investments Ltd. is a corporation organized under the laws of
Belize. The sole director of Golden West is Trustell Ltd. See "Item 11.
Securities Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters."
ADDITIONAL ISSUANCES OF EQUITY SECURITIES MAY RESULT IN DILUTION TO OUR
EXISTING STOCKHOLDERS.
Our Articles of Incorporation authorize the issuance of 750,000,000 shares of
common stock. The Board of Directors has the authority to issue additional
shares of our capital stock to provide additional financing in the future and
the issuance of any such shares may result in a reduction of the book value or
market price of the outstanding shares of our common stock. If we do issue any
such additional shares, such issuance also will cause a reduction in the
proportionate ownership and voting power of all other stockholders. As a result
of such dilution, if you acquire shares of our common stock, your proportionate
ownership interest and voting power could be decreased. Further, any such
issuances could result in a change of control.
OUR COMMON STOCK IS CLASSIFIED AS A "PENNY STOCK" UNDER SEC RULES WHICH
LIMITS THE MARKET FOR OUR COMMON STOCK.
Because our stock is not traded on a stock exchange or on the NASDAQ National
Market or the NASDAQ Small Cap Market, and because the market price of the
common stock has fluctuated and may trade at times at less than $5 per share,
the common stock may be classified as a "penny stock." SEC Rule 15g-9 under the
-24-
Exchange Act imposes additional sales practice requirements on broker-dealers
that recommend the purchase or sale of penny stocks to persons other than those
who qualify as an "established customer" or an "accredited investor." This
includes the requirement that a broker-dealer must make a determination that
investments in penny stocks are suitable for the customer and must make special
disclosures to the customers concerning the risk of penny stocks. Many
broker-dealers decline to participate in penny stock transactions because of the
extra requirements imposed on penny stock transactions. Application of the penny
stock rules to our common stock reduces the market liquidity of our shares,
which in turn affects the ability of holders of our common stock to resell the
shares they purchase, and they may not be able to resell at prices at or above
the prices they paid.
A DECLINE IN THE PRICE OF OUR COMMON STOCK COULD AFFECT OUR ABILITY TO
RAISE FURTHER WORKING CAPITAL AND ADVERSELY IMPACT OUR OPERATIONS.
A decline in the price of our common stock could result in a reduction in the
liquidity of our common stock and a reduction in our ability to raise additional
capital for our operations. Because our operations to date have been principally
financed through the sale of equity securities, a decline in the price of our
common stock could have an adverse effect upon our liquidity and our continued
operations. A reduction in our ability to raise equity capital in the future
would have a material adverse effect upon our business plan and operations,
including our ability to continue our current operations. If our stock price
declines, we may not be able to raise additional capital or generate funds from
operations sufficient to meet our obligations.
A MAJORITY OF OUR DIRECTORS AND OFFICERS ARE OUTSIDE THE UNITED STATES,
WITH THE RESULT THAT IT MAY BE DIFFICULT FOR INVESTORS TO ENFORCE
WITHIN THE UNITED STATES ANY JUDGMENTS OBTAINED AGAINST US OR ANY OF
OUR DIRECTORS OR OFFICERS.
A majority 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 the United States. As a result, it may be
difficult for investors to effect service of process on our directors or
officers, or enforce within the United States or Canada any judgments obtained
against us or our officers or directors, including judgments predicated upon the
civil liability provisions of the securities laws of the United States or any
state thereof. Consequently, you may be effectively prevented from pursuing
remedies under U.S. federal securities laws against them. In addition, investors
may not be able to commence an action in a Canadian court predicated upon the
civil liability provisions of the securities laws of the United States.
ITEM 2. DESCRIPTION OF PROPERTY
We lease our principal office space located at 9801 Anderson Mill Road, Suite
230, Austin Texas, U.S.A., 78750, on a month to month basis. The office space
cost is $1,453.83 per month. We also have a one year lease ending on June 30,
2007 for an office located at Suite 210, 100 E. Kleberg Avenue, Kingsville,
Texas, U.S.A., 78363. The office space cost is $1,500 per month. We also have a
one year lease ending on May 31, 2007 for a field office located at Suite 230,
232 East Second Street, Casper, Wyoming, U.S.A., 82601. The office space costs
$886 per month. We have rent office space located at 1111 West Hastings Street,
Suite 320, Vancouver, BC, V6E 2J3 Canada. There are no lease commitments and
rent and expenses are paid on a month to month basis. The net rent expense is
approximately $2,100 per month.
LEGAL PROCEEDINGS
Management is not aware of any legal proceedings contemplated by any
governmental authority or any other party involving us or our properties. As of
the date of this Annual Report, no director, officer or affiliate is (i) a party
adverse to us in any legal proceeding, or (ii) has an adverse interest to us in
any legal proceedings. Management is not aware of any other legal proceedings
pending or that have been threatened against us or our properties.
-25-
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
INFORMATION STATEMENT UNDER SECTION 14(C) OF THE EXCHANGE ACT
During fiscal year 2006, certain matters were submitted to our shareholders for
approval as follows:
On December 19, 2005, our Board of Directors authorized and approved, subject to
shareholder approval, certain corporate action, which the Board of Directors
deemed to be in our best interests and those of our shareholders. The Board of
Directors further authorized the preparation and circulation of an Information
Statement to be filed under Section 14(c) of the Securities Exchange Act (the
"Information Statement"), which information statement was filed on January 9,
2006.
The Information Statement was circulated to our shareholders in connection with
the taking of corporate action without a meeting upon the written consent (the
"Written Consent") of the holders of a majority of the outstanding shares of our
Common Stock. The record date for determining shareholders entitled to vote or
give Written Consent was December 23, 2005.
The matters upon which action was taken effective as of February 1, 2006 were:
(i) the approval of an amendment to our Articles of Incorporation to increase
the authorized capital from 75,000,000 shares of Common stock to 750,000,000
shares of Common Stock; and (ii) to ratify the adoption of the 2005 Stock Option
Plan for our key personnel, which included the non-qualified stock option plan
(the "Stock Option Plan"), and to ratify the grant of stock options pursuant to
a stock option plan agreement and the grant of incentive stock options pursuant
to an incentive stock option plan agreement.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET FOR COMMON EQUITY
Shares of our common stock commenced trading on the OTC Bulletin Board under the
symbol "URME:OB" on December 5, 2005. The market for our common stock is
limited, and can be volatile. The following table sets forth the high and low
bid prices relating to our common stock on a quarterly basis for the periods
indicated as quoted by the NASDAQ stock market. These quotations reflect
inter-dealer prices without retail mark-up, mark-down, or commissions, and may
not reflect actual transactions.
MONTH ENDED HIGH BID LOW BID
December 31, 2006 $3.58 $2.67
September 30, 2006 $3.25 $1.72
June 30, 2006 $4.85 $2.00
March 31, 2006 $7.33 $0.83
December 31, 2005 Nil Nil
As of March 1, 2007, we had 88 shareholders of record.
DIVIDEND POLICY
No dividends have been declared or paid on our common stock. We have incurred
recurring losses and do not currently intend to pay any cash dividends in the
foreseeable future.
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SECURITIES AUTHORIZED FOR ISSUANCE UNDER COMPENSATION PLANS
We have one equity compensation plan, the Uranium Energy Corp. 2006 Stock
Incentive Plan (the "2006 Plan"). The table set forth below presents information
relating to our equity compensation plans as of the date of this Annual Report:
NUMBER OF SECURITIES TO BE NUMBER OF SECURITIES
ISSUED UPON EXERCISE OF WEIGHTED-AVERAGE EXERCISE REMAINING AVAILABLE FOR
OUTSTANDING OPTIONS, PRICE OF OUTSTANDING FUTURE ISSUANCE UNDER
WARRANTS AND RIGHTS OPTIONS, WARRANTS AND RIGHTS EQUITY COMPENSATION PLANS
PLAN CATEGORY (A) (B) (EXCLUDING COLUMN (A))
______________________________________________________________________________________________________________________
Equity Compensation Plans
Approved by Security Holders
(2006 Stock Incentive Plan) 4,287,500 $0.99 2,175,000
Equity Compensation Plans Not
Approved by Security
Holders(*) 4,792,250 $2.57 Nil
2006 STOCK INCENTIVE PLAN
On December 19, 2005, our Board of Directors authorized and approved the
adoption of the 2005 stock option plan effective December 19, 2005. On October
10, 2006, we adopted the 2006 Stock Incentive Plan in place of the 2005 Stock
Option Plan, under which an aggregate of 10,000,000 of our shares may be issued.
All securities issued under the 2005 Stock Option Plan are covered by the 2006
Plan. We have registered the shares underlying the 2006 Plan pursuant to a
registration statement on Form S-8 with the SEC.
The purpose of the 2006 Plan is to enhance our long-term stockholder value by
offering opportunities to our directors, officers, employees and eligible
consultants to acquire and maintain stock ownership in order to give these
persons the opportunity to participate in our growth and success, and to
encourage them to remain in our service.
The 2006 Plan is to be administered by our Board of Directors or a committee
appointed by and consisting of two or more members of the Board of Directors,
which shall determine, among other things, (i) the persons to be granted awards
under the 2006 Plan; (ii) the number of shares or amount of other awards to be
granted; and (iii) the terms and conditions of the awards granted. We may issue
restricted shares, options, stock appreciation rights, deferred stock rights,
dividend equivalent rights, among others, under the 2006 Plan. An aggregate of
10,000,000 of our shares may be issued pursuant to the grant of awards under the
2006 Plan.
An award may not be exercised after the termination date of the award and may be
exercised following the termination of an eligible participant's continuous
service only to the extent provided by the administrator under the 2006 Plan. If
the administrator under the 2006 Plan permits a participant to exercise an award
following the termination of continuous service for a specified period, the
award terminates to the extent not exercised on the last day of the specified
period or the last day of the original term of the award, whichever occurs
first. In the event an eligible participant's service has been terminated for
"cause", he or she shall immediately forfeit all rights to any of the awards
outstanding. The 2006 Plan is subjective to approval by our shareholders within
twelve (12) months from the date of adoption of the 2006 Plan by our Board of
Directors.
During fiscal year ended December 31, 2006, we granted an aggregate of 2,485,000
stock options at varying exercise prices ranging from $0.33 per share to $2.46
per share. During fiscal year ended December 31, 2006, an aggregate of 3,137,500
stock options were exercised for at varying exercise prices resulting in receipt
of aggregate proceeds of $1,625,700. We granted a further aggregate 615,000
stock options subsequent to December 31, 2006 at $3.30 per share. Subsequent to
December 31, 2006, an aggregate 400,000 stock options were exercised at varying
exercise prices resulting in receipt of aggregate proceeds of $300,000. See " -
Recent Sales of Unregistered Securities" below.
As of the date of this Annual Report, there are an aggregate of 4,287,500 stock
options granted and outstanding.
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COMMON STOCK PURCHASE WARRANTS
As of the date of this Annual Report, there are an aggregate of 4,792,250 common
stock purchase warrants issued and outstanding. During fiscal year ended
December 31, 2006 and January 2007, we issued an aggregate 5,233,500 common
stock purchase warrants. The warrants to purchase shares of common stock and the
shares of common stock underlying the warrants were issued in private placements
by us during fiscal year 2006 and in January 2007 as follows: (i) on March 1,
2006 we issued 500,000 warrants to acquire up to 500,000 shares of our common
stock at an exercise price of $1.00 per share during the period commencing on
March 1, 2006 and ending on March 1 2016; (ii) on April 1, 2006, we issued
300,000 warrants to acquire up to 300,000 shares of our common stock at an
exercise price of $1.50 per share during the period commencing on April 1, 2006
and ending on the day which is earlier of (a) April 1, 2007, or (b) six months
commencing from the effective date of our registration statement (the "April
2006 Warrants"); (iii) during May/June 2006, we issued 1,262,500 warrants to
acquire up to 1,262,500 shares of our common stock at an exercise price of $2.50
per share during the period commencing on the effective date of the registration
statement and ending on the day which is the earlier of (a) twelve months from
the date of issuance, or (b) six months commencing from the effective date of
the Company's proposed registration statement (the "May 2006 Warrants"); (iv) in
May and June of 2006, we issued an aggregate of 471,000 non-transferable
Finder's Fee warrants to acquire 471,000 shares of our common stock as a
finder's fees in connection with the offering of the May 2006 Units, which
Finder's Fee warrants have the same terms and conditions as the May 2006
Warrants; (v) on December 13, 2006, we issued 1,400,000 warrants to acquire up
to 1,400,000 shares at an exercise price of $3.00 per share commencing on a date
that is at least 61 days after a shareholder delivers to us a written notice and
ending on a day which is the earlier of (a) 18 months from December 13, 2006, or
(b) nine months commencing from the effective date of the pending Registration
Statement (the "December 13, 2006 Warrants"); (vi) on December 22, 2006, we
issued 1,200,000 warrants to acquire up to 1,200,000 shares at an exercise price
of $3.00 per share until the earlier of (a) 18 months from the date of issuance,
or (b) nine months commencing from the effective date of the pending
Registration Statement (the "December 22, 2006 Warrants"); and (vii) on January
3, 2007, we issued 100,000 warrants to acquire up to 100,000 shares at an
exercise price of $3.00 per share until the earlier of (a) 18 months from the
date of issuance, or (b) nine months commencing from the effective date of the
pending Registration Statement (the "January 2007 Warrants"). See " -- Recent
Sales of Unregistered Securities."
Pursuant to the terms of a registration statement filed on Form SB-2, SEC File
No. 333-127185 (the "Registration Statement), under the Securities Act, an
aggregate of 2,700,000 shares of common stock underlying certain common stock
purchase warrants described above will be registered. As of the date of this
Annual Report, the Registration Statement has not become effective.
As of the date of this Annual Report, 441,250 share purchase warrants have been
exercised for aggregate proceeds of $1,053,125, and there are 4,792,250 share
purchase warrants granted and outstanding. See " - Recent Sales of Unregistered
Securities" below.
RECENT SALES OF UNREGISTERED SECURITIES
As of the date of this Annual Report and during fiscal year ended December 31,
2006, to provide capital, we sold stock in private placement offerings, issued
stock in exchange for our debts or pursuant to contractual agreements as set
forth below.
APRIL 2006 PRIVATE PLACEMENT OFFERING
On April 1, 2006, we closed a private placement offering (the "April 2006
Private Placement Offering") whereby we issued an aggregate of 300,000 units at
a subscription price of $1.00 per unit (the "April 2006 Units"). Each April 2006
Unit was comprised of one share of common stock and one non-transferable warrant
(the "April 2006 Warrant"), representing the issuance of an aggregate of 300,000
shares of our restricted common stock and 300,000 April 2006 Warrants with
piggyback registration rights for all securities underlying the April 2006 Units
issued. We agreed to file a registration statement with the SEC in accordance
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with the requirements of the Securities Act in order to register the resale by
the investors of the shares issued and the share issuable upon exercise of the
April 2006 Warrants. Each April 2006 Warrant is exercisable at $1.50 per share
during the period commencing on April 1, 2006 and ending on the day which is
earlier of: (i) April 1, 2007, or (ii) six months commencing from the effective
date of our registration statement.
The April 2006 Private Placement Offering was completed in reliance of Rule 506
of Regulation D of the Securities Act. Sales to United States investors pursuant
to Rule 506 of Regulation D were limited to investors who qualified as
"accredited investors" within the meaning of Rule 501(a) of Regulation D. The
per share price of the April 2006 Private Placement Offering was arbitrarily
determined by our Board of Directors based upon analysis of certain factors
including, but not limited to, stage of development, industry status, investment
climate, perceived investment risks, our assets and net estimated worth. We
issued the April 2006 Units to investors who are non-U.S. residents. The
investors executed subscription agreements and acknowledged that the securities
to be issued have not been registered under the Securities Act, that they
understood the economic risk of an investment in the securities, and that they
had the opportunity to ask questions of and receive answers from our management
concerning any and all matters related to acquisition of the securities
MAY/JUNE 2006 PRIVATE PLACEMENT OFFERING
In May and June of 2006, we closed a private placement offering (the "May 2006
Private Placement Offering") whereby we issued an aggregate of 2,525,000 units
at a subscription price of $2.00 per unit (the "May 2006 Units"). Each May 2006
Unit was comprised of one share of common stock and one-half of one
non-transferable warrant (the "May 2006 Warrant"), representing the issuance of
an aggregate of 2,525,000 shares of our restricted common stock and 1,262,500
May 2006 Warrants. We agreed to file a registration statement with the SEC in
accordance with the requirements of the Securities Act in order to register the
resale by the investors of the shares issued and the shares issuable upon
exercise of the May 2006 Warrants. Each whole May 2006 Warrant entitles the
holder to purchase one share of common stock at an exercise price of $2.50 per
share during the period commencing on the effective date of the registration
statement and ending on the day which is the earlier of: (i) twelve months from
the date of issuance, or (ii) six months commencing from the effective date of
the Company's proposed registration statement related to the May 2006 Private
Placement. The common stock registered represents the 1,262,500 shares of common
stock issuable upon exercise of the May 2006 Warrants.
In May and June of 2006, we issued an aggregate of 471,000 non-transferable
Finder's Fee warrants to acquire 471,000 shares of our common stock as finder's
fees in connection with the offering of the May 2006 Units. The Finder's Fee
warrants have the same terms and conditions as the May 2006 Warrants.
The May 2006 Private Placement Offering was completed in reliance of Rule 506 of
Regulation D of the Securities Act, with respect to investors in the United
States, and in reliance of Rule 903 of Regulation S of the Securities Act, with
respect to those investors who were not "U.S. Persons", within the meaning of
Regulation S, and who were otherwise outside of the United States. Sales to
United States investors pursuant to Rule 506 of Regulation D were limited to
investors who qualified as "accredited investors" within the meaning of Rule
501(a) of Regulation D. The per share price of these offerings was arbitrarily
determined by our Board of Directors based upon analysis of certain factors
including, but not limited to, stage of development, industry status, investment
climate, perceived investment risks, our assets and net estimated worth. We
issued Units to investors who are non-U.S. residents. The investors executed
subscription agreements and acknowledged that the securities to be issued have
not been registered under the Securities Act, that they understood the economic
risk of an investment in the securities, and that they had the opportunity to
ask questions of and receive answers from our management concerning any and all
matters related to acquisition of the securities. Finder's fees payable on the
transaction is 7% of the gross proceeds raised from the sale of the units
payable in cash plus 10% of the gross units issued payable in warrants identical
to those provided in the units.
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We filed a Registration Statement on Form SB-2 under the Securities Act, which
was declared effective on October 20, 2006, to register an aggregate of
5,091,000 shares of our common stock.
DECEMBER 2006 PRIVATE PLACEMENT OFFERING
On December 13, 2006, we closed a private placement offering (the "December 2006
Private Placement Offering"), whereby we issued an aggregate of 2,800,000 units
at a price of $2.50 per unit (the "December 13, 2006 Units"). Each December 13,
2006 Unit consists of one share of common stock and one-half of one warrant (the
"December 13, 2006 Warrant"). Each whole December 13, 2006 Warrant entitles the
holder to purchase one share of common stock at an exercise price of $3.00 per
share. The December 13, 2006 Warrants are exercisable commencing on a date that
is at least 61 days after the stockholder delivers a written notice to us and
ending on the day which is the earlier of: (i) 18 months from December 13, 2006,
or (ii) nine months commencing from the effective date of the registration
statement. The common stock registered represents the 2,800,000 shares of common
stock issued in connection with the issuance of the December 13, 2006 Units and
the 1,400,000 shares of common stock issuable upon exercise of the December 13,
2006 Warrants. We agreed to file a registration statement with the SEC in
accordance with the requirements of the Securities Act in order to register the
resale by the investors of the shares issued and the shares issuable upon
exercise of the December 13, 2006 Warrants.
On December 22, 2006, we issued a further aggregate of 2,400,000 December 22,
2006 units at a price of $2.50 per unit (the "December 22, 2006 Units"). Each
December 22, 2006 Unit consists of one share of common stock and one-half of one
December 22, 2006 Warrant. The common stock registered represents the 2,400,000
shares of common stock issued in connection with the issuance of the December
22, 2006 Units. We agreed to file a registration statement with the SEC in
accordance with the requirements of the Securities Act in order to register the
resale by the investors of the shares issued and the shares issuable upon
exercise of the December 22, 2006 Warrants in the December 22, 2006 Private
Placement. We agreed to have the registration statement declared effective
within four months from the date of the issuance of the December 22, 2006 Units
and, in the event that the registration statement is not declared effective by
that date, to issue additional warrants to acquire shares in our capital equal
to one one-hundredth of a warrant for each U.S. $1.00 in aggregate funds paid by
each subscriber for the December 22, 2006 Units for each 30 calendar day period
(or partial period thereof) during which the registration statement has not been
declared effective, after the expiry of the four month period. Each whole
December 22, 2006 Warrant entitles the holder to purchase one share of common
stock at an exercise price of $3.00 per share during the period commencing on
the date of issuance and ending on the day which is the earlier of: (i) 9 months
from the date of issuance, or (ii) nine months commencing from the effective
date of the registration statement. The common stock registered also represents
the 1,200,000 shares of common stock issuable upon exercise of the December 22,
2006 Warrants.
The December 2006 Private Placement Offering was completed in reliance of Rule
506 of Regulation D of the Securities Act, with respect to investors in the
United States, and in reliance of Rule 903 of Regulation S of the Securities
Act, with respect to those investors who were not "U.S. Persons", within the
meaning of Regulation S, and who were otherwise outside of the United States.
Sales to United States investors pursuant to Rule 506 of Regulation D were
limited to investors who qualified as "accredited investors" within the meaning
of Rule 501(a) of Regulation D. The per share price of these offerings was
arbitrarily determined by our Board of Directors based upon analysis of certain
factors including, but not limited to, stage of development, industry status,
investment climate, perceived investment risks, our assets and net estimated
worth. We issued Units to investors who are non-U.S. residents. The investors
executed subscription agreements and acknowledged that the securities to be
issued have not been registered under the Securities Act, that they understood
the economic risk of an investment in the securities, and that they had the
opportunity to ask questions of and receive answers from our management
concerning any and all matters related to acquisition of the securities.
Finder's fees payable on the transaction is 7% of the gross proceeds raised from
the sale of the units payable in cash plus 10% of the gross units issued payable
in warrants identical to those provided in the units.
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JANUARY 2007 PRIVATE PLACEMENT OFFERING
On January 3, 2007, we closed a private placement offering (the "January 2007
Private Placement Offering"), whereby we issued an aggregate of 200,000 units at
a price of $2.50 per unit (the "January 2007 Units"). Each January 2007 Unit
consists of one share of common stock and one-half of one warrant (the "January
2007 Warrant"). We agreed to file a registration statement with the SEC in
accordance with the requirements of the Securities Act in order to register the
resale by the investors of the shares issued and the shares issuable upon
exercise of the January 2007 Warrants. Each whole January 2007 Warrant entitles
the holder to purchase one share of common stock at an exercise price of $3.00
per share during the period commencing on the date of issuance and ending on the
day which is the earlier of: (i) 18 months from the date of issuance, or (ii)
nine months commencing from the effective date of the registration statement.
The January 2007 Private Placement Offering was completed in reliance of Rule
506 of Regulation D of the Securities Act, with respect to investors in the
United States, and in reliance of Rule 903 of Regulation S of the Securities
Act, with respect to those investors who were not "U.S. Persons", within the
meaning of Regulation S, and who were otherwise outside of the United States.
Sales to United States investors pursuant to Rule 506 of Regulation D were
limited to investors who qualified as "accredited investors" within the meaning
of Rule 501(a) of Regulation D.
The per share price of these offerings was arbitrarily determined by our Board
of Directors based upon analysis of certain factors including, but not limited
to, stage of development, industry status, investment climate, perceived
investment risks, our assets and net estimated worth. We issued Units to
investors who are non-U.S. residents. The investors executed subscription
agreements and acknowledged that the securities to be issued have not been
registered under the Securities Act, that they understood the economic risk of
an investment in the securities, and that they had the opportunity to ask
questions of and receive answers from our management concerning any and all
matters related to acquisition of the securities.
We have filed a Registration Statement on Form SB-2 under the Securities Act to
register an aggregate of 8,100,000 shares of our common stock, of which
2,700,000 are shares underlying the respective warrants. As of the date of this
Annual Report, the Registration Statement has not been declared effective by the
Securities and Exchange Commission.
EXERCISE OF STOCK OPTIONS
During fiscal year ended December 31, 2006, we issued an aggregate of 3,137,500
shares of our common stock pursuant to the exercise of 3,137,500 stock options
at varying per share exercise prices resulting in receipt of aggregate proceeds
of $1,625,700. Subsequent to December 31, 2006, we issued an additional 400,000
shares of our common stock pursuant to the exercise of 400,000 stock options at
varying per share exercise prices resulting in receipt of aggregate proceeds of
$300,000. Of these shares, 400,000 stock options were subject to previous S-8
registration statements.
EXERCISE OF WARRANTS
As of the date of this Annual Report, we issued an aggregate 441,250 shares of
our common stock pursuant to the exercise of 441,250 warrants at varying
exercise prices resulting in receipt of aggregate proceeds of $1,053,125. All
441,250 shares were subject to the Registration Statement.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with our audited
financial statements as at and for fiscal years ended December 31, 2006 and 2005
and the related notes. The following discussion contains forward-looking
statements that reflect our plans, estimates and beliefs. Our actual results
could differ materially from those discussed in the forward looking statements.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed above and elsewhere in this Annual Report,
particularly in the section entitled "Risk Factors". Our financial statements
are stated in United States Dollars and are prepared in accordance with United
States Generally Accepted Accounting Principles.
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We are an exploration stage company and have not generated any revenue to date.
The following table sets forth selected financial information relating to our
company for the periods indicated:
RESULTS OF OPERATIONS
FOR THE PERIOD FROM
FISCAL YEAR ENDED DECEMBER 31 MAY 16, 2003
(INCEPTION) TO
2006 AND 2005 DECEMBER 31, 2006
_____________________________________________________
Operating Expenses $14,924,525 $ 1,998,805 $ 17,075,986
Mineral property 4,716,223 975,514 5,749,903
expenditures, net of
recoveries
General and 2,496,900 136,739 2,647,172
administration
Management fees and 1,355,803 128,860 1,529,264
consulting fees
Management fees - 6,020,298 684,008 6,704,306
stock based, Wages
and benefits - stock
based, and consulting
fees - stock based
Professional fees 315,564 73,684 425,604
Depreciation 19,737 -0- 19,737
Loss before other items (14,924,525) (1,998,805) (17,075,986)
________________________________________________________________________________
We have incurred recurring losses to date. Our financial statements have been
prepared assuming that we will continue as a going concern and, accordingly, do
not include adjustments relating to the recoverability and realization of assets
and classification of liabilities that might be necessary should we be unable to
continue in operation.
We expect we will require additional capital to meet our long term operating
requirements. We expect to raise additional capital through, among other things,
the sale of equity or debt securities.
FISCAL YEAR ENDED DECEMBER 31, 2006 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
2005
Our net loss for fiscal year ended December 31, 2006 was approximately
($14,818,318) compared to a net loss of ($1,998,805) during fiscal year ended
December 31, 2005 (an increase of $12,819,513). During fiscal years ended
December 31, 2006 and 2005, we did not generate any revenue.
During fiscal year ended December 31, 2006, we incurred expenses of
approximately $14,924,525 compared to $1,998,805 incurred during fiscal year
ended December 31, 2005 (an increase of $12,925,720). These operating expenses
incurred during fiscal year ended December 31, 2006 consisted of: (i) mineral
property expenditures of $4,716,223 net of recoveries, (2005: $975,514); (ii)
general and administrative expenses of $2,496,900 (2005: $136,739); (iii)
management fees of $647,248 (2005: $128,860); (iv) professional fees of $315,564
(2005: $73,684); (v) management fees - stock-based relating to the valuation of
stock options granted to our officers and directors of $923,253 (2005: $-0-);
(vi) consulting fees of $708,555 (2005: $-0-); (vii) wages and benefits -
stock-based relating to the valuation of stock options granted to our employees
of $431,078 (2005: $-0-); (vii) consulting fees - stock based relating to the
valuation of stock options granted to our consultants of $4,665,967 (2205:
$684,008); and (viii) depreciation in the amount of $19,737 (2005 $-0-).
Operating expenses incurred during fiscal year ended December 31, 2006 increased
primarily due to the increase in exploration costs associated with the increased
acquisition and development of our uranium properties and related
infrastructure. General and administrative expenses incurred during fiscal year
ended December 31, 2006 primarily increased relating to corporate marketing and
increased business operations pertaining to the increased number of uranium
properties acquired. General and administrative expenses generally include
corporate overhead, financial and administrative contracted services, marketing,
and consulting costs. Stock based compensation relating to management fees,
consulting fees and wages and benefits incurred during fiscal year ended
December 31, 2006 substantially increased due to the recording of the non-cash
expense of $4,665,967, $923,253 and $431,078, respectively, in connection with
the grant of stock options to our officers/directors, employees and consultants.
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Of the $14,924,525 incurred as operating expenses during fiscal year ended
December 31, 2006, an aggregate of $216,680 was incurred payable to
International Market Trend ("IMT") for amounts due and owing for operational,
administrative and financial services rendered during fiscal year ended December
31, 2006. On December 1, 2005, we entered into a financial consulting agreement
with IMT (the "Consulting Agreement"). In accordance with the terms and
provisions of the Consulting Agreement: (i) we pay to IMT $10,000 monthly for
services rendered by IMT; and (ii) we granted to IMT and/or its designates
1,300,000 Stock options exercisable at $0.50 per share.
Of the $14,924,525 incurred as operating expenses during fiscal year ended
December 31, 2006, an aggregate of $647,248 was incurred payable to certain
officers and directors in management and consulting fees. Of the $647,248: (i)
we incurred to our President/Chief Executive Officer an aggregate of $130,000 in
connection with performance of managerial, administrative and business
development services and an additional $130,000 as bonus; (ii) we incurred to
our Chief Operating Officer an aggregate of $137,143 in connection with
performance of managerial and operational services; (iii we incurred to our
Chief Exploration Officer an aggregate of $182,000 in connection with
performance of exploration related services; and (iv) we incurred to our Chief
Financial Officer an aggregate of $37,019 in connection with performance of
administrative and financial services. As at December 31, 2006, there were no
amounts due and owing to our directors and officers with the exception of the
bonuses in the amounts of $225,581 due and owing to our President/Chief
Executive Officer, Chief Operating Officer, Chief Exploration Officer and Chief
Financial Officer. We also paid an aggregate $10,224 to a private company of
which Amir Adnani, our President/Chief Executive Officer, is a director for
marketing and media services rendered on our behalf. See "Item 10. Executive
Compensation" and "Item 12. Certain Relationships and Related Transactions and
Director Independence."
Operating expenses incurred during fiscal year ended December 31, 2006 were
offset by income aggregating $106,207 consisting of $76,494 in interest income
and $29,713 in other income from proceeds received for consulting services
provided, resulting in a net loss of ($14,818,318). Operating expenses incurred
during fiscal year ended December 31, 2005 were not offset by any income
resulting in a net loss of ($1,998,805).
Our net loss during fiscal year ended December 31, 2006 was ($14,818,318) or
($0.56) per share compared to a net loss of ($1,998,805) or ($0.12) per share
during fiscal year ended December 31, 2005. The weighted average number of
shares outstanding was 26,342,512 for fiscal year ended December 31, 2006
compared to 17,298,582 for fiscal year ended December 31, 2005.
LIQUIDITY AND CAPITAL RESOURCES
AS AT AS AT
DECEMBER 31, 2006 DECEMBER 31, 2005
Cash and cash equivalents $13,581,377 $107,160
Working capital (deficiency) 13,460,648 (215,828)
Total assets 14,197,695 107,460
Total liabilities (532,043) (323,288)
Stockholders' equity (deficiency) 13,665,652 (215,828)
FISCAL YEAR ENDED DECEMBER 31, 2006
As at fiscal year ended December 31, 2006, our current assets were $13,992,691
and our current liabilities were $532,043, which resulted in a working capital
surplus of $13,460,648. As at fiscal year ended December 31, 2006, current
assets were comprised of: (i) $13,581,377 in cash and cash equivalents; (ii)
$235,040 in an agreement receivable; (iii) $20,020 in accounts receivable; and
(iv) $19,796 in other current assets. As at fiscal year ended December 31, 2006,
current liabilities were comprised of: (i) $306,462 in accounts payable and
accrued liabilities; and (ii) $225,581 due to related parties.
As at fiscal year ended December 31, 2006, our total assets were $14,197,695
comprised of: (i) $13,992,691 in current assets; and (ii) $205,004 in property
and equipment. The increase in total assets during fiscal year ended December
31, 2006 from fiscal year ended December 31, 2005 was primarily due to the
increase in cash and cash equivalents resulting from receipt of proceeds from
the private placement offerings and exercise of stock options.
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As at fiscal year ended December 31, 2006, our total liabilities were $532,043
comprised entirely of current liabilities. The increase in liabilities during
fiscal year ended December 31, 2006 from fiscal year ended December 31, 2005 was
primarily due to the increase in amounts payable and accrued liabilities.
Stockholders' equity increased from ($215,828) for fiscal year ended December
31, 2005 to $13,665,652 for fiscal year ended December 31, 2006.
CASH FLOWS FROM OPERATING ACTIVITIES
We have not generated positive cash flows from operating activities. For fiscal
year ended December 31, 2006, net cash flows used in operating activities was
($6,060,585), consisting primarily of a net loss of ($14,818,318). Net cash
flows used in operating activities was adjusted by $6,020,298 to reconcile the
non-cash expense of stock options granted and by $2,783,500 to reconcile
non-cash mineral property expenditures.
For fiscal year ended December 31, 2005, net cash flow used in operating
activities was $(751,610), consisting primarily of a net loss of $(1,998,805).
The change in net cash flows used in operating activities during fiscal year
ended December 31, 2006 from fiscal year ended December 31, 2005 related
primarily to the increase in the non-cash expense of stock options granted of
$6,020,298 (2005: $684,008) and non-cash mineral property expenditures of
$2,783,500 (2005: $275,000). In fiscal year ended December 31, 2006, an increase
in accounts payable provided cash of $192,006 compared to $85,601 in fiscal year
ended December 31, 2005.
CASH FLOWS FROM INVESTING ACTIVITIES
For fiscal year ended December 31, 2006, net cash flows used in investing
activities was ($361,198) consisting of the purchase of equipment of $224,740
(2005 $-0-) and restricted cash deposits of $136,458 (2005: $-0-).
There were no cash flows from investing activities in fiscal year ended December
31, 2005.
CASH FLOWS FROM FINANCING ACTIVITIES
We have financed our operations primarily from the issuance of equity and debt
instruments. For fiscal year ended December 31, 2006, net cash flows from
financing activities was $19,896,000 compared to $452,500 for fiscal year ended
December 31, 2005, pertaining primarily to proceeds received from the sale of
our common stock and offset by payment of financing charges of $329,700. We
completed private placement financings in December 2006 and January 2007 whereby
we sold an aggregate of 5,400,000 units at a price of $2.50 per unit for gross
proceeds of $13,500,000.
We expect that working capital requirements will continue to be funded through a
combination of our existing funds and further issuances of securities. Our
working capital requirements are expected to increase in line with the growth of
our business.
PLAN OF OPERATION AND FUNDING
Our existing working capital is expected to be adequate to fund our operations
over the next twelve months. We have no lines of credit or other bank financing
arrangements. Generally, we have financed operations to date through the
proceeds of the private placement of equity and debt instruments. In connection
with our business plan, management anticipates additional increases in operating
expenses and capital expenditures relating to: (i) uranium exploration operating
activities; (ii) possible future reserve definition; (iii) possible future
mining initiatives on current and future properties; and (iv) future possible
property acquisitions. We intend to finance these expenses with further
issuances of securities, and debt issuances. We expect we will need to raise
additional capital to meet long-term operating requirements. Additional
issuances of equity or convertible debt securities will result in dilution to
our current shareholders. Further, such securities might have rights,
preferences or privileges senior to our common stock. Additional financing may
not be available upon acceptable terms, or at all. If adequate funds are not
available or are not available on acceptable terms, we may not be able to take
advantage of prospective new business endeavors or opportunities, which could
significantly and materially restrict our business operations.
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During fiscal year ended December 31, 2006, we engaged in private placement
offerings under Regulation D and Regulation S of the Securities Act. Pursuant to
the terms of the private placements, we issued aggregate amounts of our
restricted common stock at subscription prices and under terms as follows:
o On April 1, 2006, we closed the April 2006 Private Placement Offering
whereby we issued an aggregate of 300,000 April 2006 Units at a
subscription price of $1.00 per April 2006 Unit for aggregate gross
proceeds of $300,000. The aggregate April 2006 Units comprised 300,000
shares of our restricted common stock and 300,000 April 2006 Warrants with
piggyback registration rights for all securities underlying the April 2006
Units issued. The April 2006 Warrants are exercisable at $1.50 per share
for a term from the date of issuance and ending on the earlier of: (1)
twelve months from the date of issuance, or (ii) six months from the
effective date of registration.
o During May and June 2006, we closed the May and June 2006 Private Placement
Offerings in the aggregate amount of 2,525,000 May and June 2006 Units at a
subscription price of $2.00 per May and June 2006 Unit for total aggregate
gross proceeds of $5,050,000. The aggregate May and June 2006 Units
comprised 2,525,000 shares of our restricted common stock and 1,262,500 May
and June 2006 Warrants with piggyback registration rights for all
securities underlying the May and June 2006 Units issued. The May and June
2006 Warrants are exercisable at $2.50 per share for a term commencing on
the date of issuance and ending on the earlier of: (i) twelve months from
the date of issuance, or (ii) six months from the effective date of
registration.
We filed a Form SB-2 Registration Statement under the Securities Act to register
an aggregate of 5,091,000 shares, including the 3,057,500 common shares issued
in the respective private placement offerings and the 2,033,500 common shares
underlying the respective warrants. The Registration Statement was declared
effective October 20, 2006.
o During December 2006, we closed the December 2006 Private Placement
Offerings in the aggregate amount of 5,200,000 December 2006 Units at a
subscription price of $2.50 per December 2006 Unit for aggregate gross
proceeds of $13,000,000. The aggregate December 2006 Units comprised
5,200,000 shares of our restricted common stock and 2,600,000 December 2006
Warrants with piggyback registration rights for all securities underlying
the December 2006 Units issued. The December 2006 Units are exercisable at
$3.00 per share for a term commencing on the date of issuance and ending on
the earlier of: (i) 18 months from the date of issuance, or (ii) nine
months commencing from the effective date of the proposed registration
statement.
o During January 2007, we closed the January 2007 Private Placement Offering
in the aggregate amount of 200,000 January 2007 Units at a subscription
price of $2.50 per January 2007 Unit for aggregate gross proceeds of
$500,000. The aggregate January 2007 Units comprised 200,000 shares of our
restricted common stock and 100,000 January 2007 Warrants with piggyback
registration rights for all securities underlying the January 2007 Units
issued. The January 2007 Units are exercisable at $3.00 per share for a
term commencing on the date of issuance and ending on the earlier of: (i)
18 months from the date of issuance, or (ii) nine months commencing from
the effective date of the proposed registration statement.
o There were no fees due or payable in connection with the December 2006 and
January 2007 Private Placement offerings.
We filed a Form SB-2 Registration Statement under the Securities Act to register
an aggregate of 8,100,000 shares, including the 5,400,000 common shares issued
in the respective private placement offerings and the 2,700,000 common shares
underlying the respective warrants. As of the date of this Annual Report, the
Registration Statement has not been declared effective.
As of the date of this Annual Report, we have also received an aggregate
$1,625,700 from the exercise of stock options at varying share exercise prices
and an aggregate $1,053,125 from the exercise of 400,000 warrants at varying
share exercise prices.
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GOING CONCERN
We commenced operations on May 16, 2003 and have not realized any significant
revenues since inception. As at December 31, 2006, we have working capital of
$13,460,648 and an accumulated deficit of $16,969,779 (December 31, 2005 -
$2,151,461). We are in the exploration stage of our mineral property development
and to date have not yet established any known mineral reserves on any of our
existing properties. Our continued operations and the recoverability of the
carrying value of our assets is ultimately dependent upon our ability to achieve
profitable operations. We intend to continue to fund our initial operations by
way of private placements as may be required. To date, we have completed private
placements and exercised stock options for total proceeds of $20,926,396 from
the issuance of shares of the our common stock.
MATERIAL COMMITMENTS
During March 2006, we committed to spend approximately $450,000 on company image
and market development. As a result we executed a consulting agreement between
the Company and EurXchange dated April 1, 2006 (the "Consulting Agreement")and
in accordance with the terms and provisions of the Consulting Agreement: (i) we
agreed to pay an aggregate of 290,000 EUR ($375,000 U.S. Dollars), with the
first installment paid as of April 1, 2006 and the second and third installments
of 80,000 EUR each paid on April 30, 2006 and May 30, 2006, respectively; (ii)
EurXchange agreed to render to us consulting services including, but not limited
to, translations of webpage, business plan and new releases into German,
establishment of communication during European business hours, chat line
coordination, web portal presence through Wallstreet Online, production and
distribution of a MIDAS research report and a penny stock report, presentation
of roadshows, production of certain mailers, and establishment of a Stock
Hotline telephone line; and (iii) we issued to EurXchange an aggregate of
400,000 shares of our restricted common stock.
As of the date of this Annual Report, we have paid to EurXchange an aggregate of
290,000 EUR pursuant to the terms and provisions of the Consulting Agreement.
All fees have been paid to EurXchange and there are no further ongoing
commitments due by the Company in connection with the Consulting Agreement.
We are also committed to pay our key executives a total of approximately
$480,000 per year. See "Item 10. Executive Compensation" and "Item. 13. Certain
Relationships and Related Transaction and Director Independence."
PURCHASE OF SIGNIFICANT EQUIPMENT
We intend to purchase and build a PFN logging truck for a total aggregate cost
of approximately $157,000. The truck has been purchased and a further deposit of
$50,000 has been paid towards the purchase and installation of the PFN
equipment. A further final payment of approximately $70,000 is due upon delivery
of the logging truck which is estimated to be completed by the end of March,
2007.
OFF-BALANCE SHEET ARRANGEMENTS
As of the date of this Annual Report, we do not have any off-balance sheet
arrangements that have or are reasonably likely to have a current or future
effect on our financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital
resources that are material to investors.
CRITICAL ACCOUNTING POLICIES
Our consolidated financial statements and accompanying notes have been prepared
in accordance with United States generally accepted accounting principles
applied on a consistent basis. The preparation of financial statements in
conformity with U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods.
-36-
We regularly evaluate the accounting policies and estimates that we use to
prepare our consolidated financial statements. In general, management's
estimates are based on historical experience, on information from third party
professionals, and on various other assumptions that are believed to be
reasonable under the facts and circumstances. Actual results could differ from
those estimates made by management.
MINERAL PROPERTY COSTS
We are primarily engaged in the acquisition, exploration and development of
mineral properties. Mineral property acquisition costs are capitalized in
accordance with EITF 04-2 when management has determined that probable future
benefits consisting of a contribution to future cash inflows have been
identified and adequate financial resources are available or are expected to be
available as required to meet the terms of property acquisition and budgeted
exploration and development expenditures. Mineral property acquisition costs are
expensed as incurred if the criteria for capitalization are not met. In the
event that mineral property acquisition costs are paid with shares of our common
stock, those shares are valued at market at the time the shares are due.
Mineral property exploration costs are expensed as incurred.
When mineral properties are acquired under option agreements with future
acquisition payments to be made at our sole discretion, those future payments,
whether in cash or shares, are recorded only when we have made or are obliged to
make the payment or issue the shares. Because option payments do not meet the
definition of tangible property under EITF 04-2, all option payments are
expensed as incurred.
When it has been determined that a mineral property can be economically
developed as a result of establishing proven and probable reserves and pre
feasibility, the costs incurred to develop such property are capitalized.
Estimated future removal and site restoration costs, when determinable are
provided over the life of proven reserves on a units-of-production basis. Costs,
which include production equipment removal and environmental remediation, are
estimated each period by management based on current regulations, actual
expenses incurred, and technology and industry standards. Any charge is included
in exploration expense or the provision for depletion and depreciation during
the period and the actual restoration expenditures are charged to the
accumulated provision amounts as incurred.
As of the date of these financial statements, we have incurred only acquisition
and exploration costs which have been expensed. To date we have not established
any proven or probable reserves on its mineral properties.
ASSET RETIREMENT OBLIGATIONS
We have adopted the provisions of SFAS No. 143 "Accounting for Asset Retirement
Obligations," which establishes standards for the initial measurement and
subsequent accounting for obligations associated with the sale, abandonment or
other disposal of long-lived tangible assets arising from the acquisition,
construction or development and for normal operations of such assets. The
adoption of this standard has had no effect on our financial position or results
of operations. To December 31, 2006, any potential costs relating to the
ultimate disposition of our mineral property interests have not yet been
determinable.
IMPAIRMENT OF LONG-LIVED ASSETS
We review property, plant, and equipment and certain identifiable intangibles,
excluding goodwill, for impairment in accordance with SFAS No. 144, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of. Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate the carrying amount of an asset may not be recoverable.
Recoverability of these assets is measured by comparison of its carrying amount
to future undiscounted cash flows the assets are expected to generate.
-37-
If property, plant, and equipment and certain identifiable intangibles are
considered to be impaired, the impairment to be recognized equals the amount by
which the carrying value of the assets exceeds its fair market value. For the
two fiscal years ended December 31, 2006 and 2005, we had no material impairment
of our long-lived assets.
STOCK-BASED COMPENSATION
On January 1, 2006, we adopted SFAS No. 123 (revised 2004) (SFAS No. 123R),
Share-Based Payment, which addresses the accounting for stock-based payment
transactions in which an enterprise receives employee services in exchange for
(a) equity instruments of the enterprise or (b) liabilities that are based on
the fair value of the enterprise's equity instruments or that may be settled by
the issuance of such equity instruments. In January 2005, the Securities and
Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 107, which
provides supplemental implementation guidance for SFAS No. 123R. SFAS No. 123R
eliminates the ability to account for stock-based compensation transactions
using the intrinsic value method under Accounting Principles Board (APB) Opinion
No. 25, Accounting for Stock Issued to Employees, and instead generally requires
that such transactions be accounted for using a fair-value-based method. We use
the Black-Scholes-Merton ("BSM") option-pricing model to determine the
fair-value of stock-based awards under SFAS No. 123R, consistent with that used
for pro forma disclosures under SFAS No. 123, Accounting for Stock-Based
Compensation. We have elected the modified prospective transition method as
permitted by SFAS No. 123R and accordingly prior periods have not been restated
to reflect the impact of SFAS No. 123R. The modified prospective transition
method requires that stock-based compensation expense be recorded for all new
and unvested stock options, restricted stock, restricted stock units, and
employee stock purchase plan shares that are ultimately expected to vest as the
requisite service is rendered beginning on January 1, 2006, the first day of our
fiscal year 2006. Stock-based compensation expense for awards granted prior to
January 1, 2006 is based on the grant date fair-value as determined under the
pro forma provisions of SFAS No. 123.
Prior to the adoption of SFAS No. 123R, we measured compensation expense for our
employee stock-based compensation plans using the intrinsic value method
prescribed by APB Opinion No. 25. We applied the disclosure provisions of SFAS
No. 123 as amended by SFAS No. 148, Accounting for Stock-Based Compensation -
Transition and Disclosure, as if the fair-value-based method had been applied in
measuring compensation expense. Under APB Opinion No. 25, when the exercise
price of the Company's employee stock options was equal to the market price of
the underlying stock on the date of the grant, no compensation expense was
recognized.
-38-
ITEM 7. FINANCIAL STATEMENTS
URANIUM ENERGY CORP.
(an exploration stage company)
FINANCIAL STATEMENTS
DECEMBER 31, 2006
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
BALANCE SHEETS
STATEMENTS OF OPERATIONS
STATEMENT OF STOCKHOLDERS' EQUITY
STATEMENTS OF CASH FLOWS
NOTES TO FINANCIAL STATEMENTS
-39-
DALE MATHESON
CARR-HILTON LABONTE LLP
__________________________
DMCL CHARTERED ACCOUNTANTS
Partnership of:
Vancouver Robert J. Burkart, Inc. Barry S. Hartley, Inc.
Alvin F. Dale Ltd. Rakesh I. Patel Inc.
Robert J. Matheson, Inc. Kenneth P. Chong Inc.
James F. Carr-Hilton Ltd. Reginald J. LaBonte Ltd.
South Surrey Michael K. Braun Inc. Peter J. Donalson, Inc.
Port Coquitlam Wilfred A. Jacobson Inc. Brian A. Shaw Inc.
Fraser G. Ross, Ltd.
________________________________________________________________________________
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
________________________________________________________________________________
To the Stockholders and Board of Uranium Energy Corp.:
We have audited the balance sheets of Uranium Energy Corp., an exploration stage
company, as at December 31, 2006 and 2005 and the statement of operations,
stockholders' equity and cash flows for the years ended December 31, 2006 and
2005 and for the period May 16, 2003 (inception) to December 31, 2006. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform an audit to obtain reasonable assurance whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 2006 and 2005
and the results of its operations and its cash flows and the changes in
stockholders' equity for the years then ended, and for the period May 16, 2003
(inception) to December 31, 2006, in conformity with accounting principles
generally accepted in the United States of America.
"DMCL"
DALE MATHESON CARR-HILTON LABONTE LLP
CHARTERED ACCOUNTANTS
February 26, 2007
Vancouver, Canada
Vancouver Suite 1500 - 1140 West Pender Street, Vancouver, B.C., Canada
V6E 4G1, Tel: 604 687 4747 * Fax: 604 689 2778 - Main Reception
South Surrey Suite 301 - 1656 Martin Drive, White Rock, B.C., Canada
V4A 6E7, Tel: 604 531 1154 * Fax: 604 538 2613
Port Coquitlam Suite 700 - 2755 Lougheed Highway, Port Coquitlam, B.C., Canada
V3B 5Y9, Tel: 604 941 8266 * Fax: 604 941 0971
F-1
URANIUM ENERGY, CORP.
(an exploration stage company)
BALANCE SHEETS
December 31, December 31,
2006 2005
____________________________________________________________________________________________________
CURRENT ASSETS
Cash and cash equivalents $ 13,581,377 $ 107,160
Restricted cash (Notes 3 and 5) 136,458 -
Accounts receivable 20,020 -
Agreement receivable (Note 3) 235,040 -
Other current assets 19,796 300
____________________________________________________________________________________________________
13,992,691 107,460
PROPERTY AND EQUIPMENT (Note 4) 205,004 -
____________________________________________________________________________________________________
$ 14,197,695 $ 107,460
====================================================================================================
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 306,462 $ 114,456
Due to related parties (Note 9) 225,581 208,832
____________________________________________________________________________________________________
532,043 323,288
____________________________________________________________________________________________________
CONTINGENCIES AND COMMITMENTS (Notes 3, 4 & 10)
STOCKHOLDERS' EQUITY (DEFICIENCY)
Capital Stock (Note 6)
Common stock $0.001 par value: 75,000,000 shares authorized
34,371,088 shares issued and outstanding
(2005 - 20,461,083) 34,371 20,461
Additional paid-in capital 29,604,624 2,565,172
Common stock purchase warrants 992,894 -
Share subscriptions received (Note 6) 250,000 -
Deferred compensation (Note 6) (246,458) (650,000)
Deficit accumulated during the exploration stage (16,969,779) (2,151,461)
____________________________________________________________________________________________________
13,665,652 (215,828)
____________________________________________________________________________________________________
$ 14,197,695 $ 107,460
====================================================================================================
The accompanying notes are an integral part of these financial statements.
F-2
URANIUM ENERGY, CORP.
(an exploration stage company)
STATEMENTS OF OPERATIONS
For the Year For the Year For the Period from
Ended Ended May 16, 2003 (inception)
December 31, 2006 December 31, 2005 to December 31, 2006
========================================================================================================================
EXPENSES
Mineral property expenditures, net of recoveries $ 4,716,223 $ 975,514 $ 5,749,903
Consulting fees - stock based 4,665,967 684,008 5,349,975
General and administrative 2,496,900 136,739 2,647,172
Management fees - stock based 923,253 - 923,253
Consulting fees 708,555 - 708,555
Management fees 647,248 128,860 820,709
Wages and benefits - stock based 431,078 - 431,078
Professional fees 315,564 73,684 425,604
Depreciation 19,737 - 19,737
__________________________________________________________________________________________________________________
14,924,525 1,998,805 17,075,986
LOSS BEFORE OTHER ITEMS (14,924,525) (1,998,805) (17,075,986)
__________________________________________________________________________________________________________________
INTEREST INCOME 76,494 - 76,494
OTHER INCOME 29,713 - 29,713
__________________________________________________________________________________________________________________
106,207 - 106,207
__________________________________________________________________________________________________________________
NET LOSS FOR THE YEAR $(14,818,318) $ (1,998,805) $(16,969,779)
==================================================================================================================
BASIC AND FULLY DILUTED NET LOSS
PER SHARE $ (0.56) $ (0.12)
==========================================================================================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING,
BASIC AND FULLY DILUTED 26,342,512 17,298,582
==========================================================================================
The accompanying notes are an integral part of these financial statements.
F-3
URANIUM ENERGY, CORP.
(an exploration stage company)
STATEMENT OF STOCKHOLDERS' EQUITY
FROM MAY 16, 2003 (INCEPTION) TO DECEMBER 31, 2006
Additional Stock Stock-
Common Stock Paid-in Purchase Subscriptions Deferred Accumulated holders'
Shares Amount Capital Warrants Received Compensation Deficit Equity
____________________________________________________________________________________________________________________________________
Balance, May 16, 2003 - $ - $ - $ - $ - $ - $ - $ -
Net loss for the period - - - - - - (24,486) (24,486)
____________________________________________________________________________________________________________________________________
Balance, December 31, 2003 - - - - - - (24,486) (24,486)
Issued for cash at
- $0.0013 per share 11,550,000 7,700 7,700 - - - - 15,400
- $0.20 per share 2,413,936 1,610 481,186 - - - - 482,796
Issued on conversion of
debenture at
- $0.0013 per share 2,250,000 1,500 1,500 - - - - 3,000
- $0.20 per share 35,000 23 6,977 - - - - 7,000
Issued on settlement of
debts 79,647 53 15,876 - - - - 15,929
Net loss for the year - - - - - - (128,170) (128,170)
____________________________________________________________________________________________________________________________________
Balance, December 31, 2004 16,328,583 10,886 513,239 - - - (152,656) 371,469
Issued for cash at
- $0.333 per share 1,357,500 905 451,595 - - - - 452,500
Issued pursuant to mineral
property acquisition 825,000 550 274,450 - - - - 275,000
Issued pursuant to service
agreement 1,950,000 1,300 648,700 - - (650,000) - -
Stock based compensation - - 684,008 - - - - 684,008
Reclassification for stock
split - 6,820 (6,820) - - - - -
Net loss for the year - - - - - - (1,998,805) (1,998,805)
____________________________________________________________________________________________________________________________________
Balance, December 31, 2005 20,461,083 $20,461 $2,565,172 $ - $ - $(650,000) $ (2,151,461) $ (215,828)
===================================================================================================================================
F-4
URANIUM ENERGY, CORP.
(an exploration stage company)
STATEMENT OF STOCKHOLDERS' EQUITY
FROM MAY 16, 2003 (INCEPTION) TO DECEMBER 31, 2006
Additional Stock Stock-
Common Stock Paid-in Purchase Subscriptions Deferred Accumulated holders'
Shares Amount Capital Warrants Received Compensation Deficit Equity
____________________________________________________________________________________________________________________________________
Balance, December 31, 2005 20,461,083 $20,461 $2,565,172 $ - $ - $(650,000) $ (2,151,461) $ (215,828)
Issued for cash at
- $1.00 per share 300,000 300 299,700 - - - - 300,000
- $2.00 per share 2,525,000 2,525 5,047,475 - - - - 5,050,000
- $2.50 per share 5,200,000 5,200 12,994,800 - 250,000 - - 13,250,000
Financing fees - cash - - (329,700) - - - - (329,700)
- warrants - - (992,894) 992,894 - - - -
Issued on the exercise of
options 3,137,505 3,137 1,622,563 - - - - 1,625,700
Issued pursuant to mineral
property acquisition 1,500,000 1,500 2,586,000 - - - - 2,587,500
Issued pursuant to drilling
database information
agreement (Note 6) 18,750 19 6,231 - - - - 6,250
Issued pursuant to service
agreements (Note 6)
- consulting services 1,172,500 1,173 1,156,327 - - (246,458) - 911,042
- property expenditures 56,250 56 138,694 - - - - 138,750
Stock based compensation
- options for consulting
services - - 2,130,149 - - - - 2,130,149
- options for management
fees and wages - - 704,331 - - - - 704,331
- vested options for
property expenditures - - 57,250 - - - - 57,250
- warrants for
consulting services - - 1,618,526 - - - - 1,618,526
Amortization of deferred
compensation - - - - - 650,000 - 650,000
Net loss for the year - - - - - - (14,818,318) (14,818,318)
____________________________________________________________________________________________________________________________________
Balance, December 31, 2006 34,371,088 $34,371 $29,604,624 $992,894 $ 250,000 $(246,458) $(16,969,779) $13,665,652
===================================================================================================================================
All share amounts have been restated to reflect the 2:1 reverse share
consolidation in January 2005 and the 1.5:1 forward share split as of the date
of record, February 28, 2006. (refer to Note 6)
The accompanying notes are an integral part of these financial statements.
F-5
URANIUM ENERGY, CORP.
(an exploration stage company)
STATEMENTS OF CASH FLOWS
For the Year For the Year For the Period from
Ended Ended May 16, 2003 (inception)
December 31, 2006 December 31, 2005 to December 31, 2006
========================================================================================================================
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the year $(14,818,318) $ (1,998,805) $(16,969,779)
Adjustments to reconcile net loss to net cash
from operating activities:
Stock based compensation 6,020,298 684,008 6,704,306
Non-cash mineral property expenditures 2,783,500 275,000 3,055,429
Depreciation 19,736 - 19,736
Changes in operating assets and liabilities:
Accounts receivable (20,020) - (20,020)
Agreement receivable (235,040) - (235,040)
Other current assets (19,496) 1,313 731
Accounts payable and accrued liabilities 192,006 85,601 294,935
Due to related parties 16,749 201,273 225,581
__________________________________________________________________________________________________________________
NET CASH FLOWS USED IN (6,060,585) (751,610) (6,924,121)
OPERATING ACTIVITIES
__________________________________________________________________________________________________________________
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of shares for cash 19,975,700 452,500 20,926,396
Share subscriptions 250,000 - 250,000
Convertible debenture proceeds - - 20,000
Financing charges (329,700) - (329,700)
__________________________________________________________________________________________________________________
NET CASH FLOWS FROM 19,896,000 452,500 20,866,696
FINANCING ACTIVITIES
__________________________________________________________________________________________________________________
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (224,740) - (224,740)
Restricted cash deposits (136,458) - (136,458)
__________________________________________________________________________________________________________________
NET CASH FLOWS USED IN (361,198) - (361,198)
INVESTING ACTIVITIES
__________________________________________________________________________________________________________________
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 13,474,217 (299,110) 13,581,377
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 107,160 406,270 -
__________________________________________________________________________________________________________________
CASH AND CASH EQUIVALENTS, END OF YEAR $ 13,581,377 $ 107,160 $ 13,581,377
==================================================================================================================
CASH AND CASH EQUIVALENTS CONSIST OF:
Cash in bank $ 579,535 $ 107,160 $ 579,535
Short term investments 13,001,842 - 13,001,842
__________________________________________________________________________________________________________________
$ 13,581,377 $ 107,160 $ 13,581,377
==================================================================================================================
SUPPLEMENTAL CASH FLOW INFORMATION AND
NONCASH INVESTING AND FINANCING ACTIVITIES (Note 11)
The accompanying notes are an integral part of these financial statements.
F-6
URANIUM ENERGY CORP.
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
________________________________________________________________________________
NOTE 1: NATURE OF OPERATIONS
________________________________________________________________________________
Uranium Energy Corp. (the "Company") was incorporated on May 16, 2003 in the
State of Nevada as Carlin Gold, Inc. The Company is an exploration stage company
that was originally organized to explore and develop precious metals in the
United States.
During 2004, the Company changed its business direction from the exploration of
precious metals to the exclusive focus on the exploration and development of
uranium deposits in the United States and internationally. Due to the change in
the Company's core business direction, the Company disposed of its 18 mineral
property claims in the State of Nevada. In addition, the Company commenced
reorganization, including a reverse stock split by the issuance of 1 new share
for each 2 outstanding shares of the Company's common stock and the raising of
further capital for its new operating directives (refer to Notes 3 and 9). On
January 24, 2005, the Company approved a special resolution to change the name
of the Company from Carlin Gold, Inc. to Uranium Energy Corp. On February 28,
2006; the Company completed a forward stock split by the issuance of 1.5 new
shares for each 1 outstanding shares of the Company's common stock.
Since November 1, 2004, the Company has acquired mineral leases, directly and
under options, for the purposes of exploring for economic deposits of uranium in
the States of Arizona, Texas, New Mexico, Wyoming, Colorado, and Utah. To
December 31, 2006, interests in approximately 18,712 net acres of mineral
properties have been staked or leased by the Company. In May of 2006 the Company
began drilling operation on the Goliad Project in south Texas. The Phase I
program calls for 32,000 feet of drilling, consisting of 70 test holes.
These financial statements have been prepared in accordance with generally
accepted accounting principles in the United States of America with the on-going
assumption applicable to a going concern which contemplates the realization of
assets and the satisfaction of liabilities and commitments in the normal course
of business.
The Company commenced operations on May 16, 2003 and has not realized any
significant revenues since inception. As at December 31, 2006, the Company has
an accumulated deficit of $16,969,779. The Company is in the exploration stage
of its mineral property development and to date has not yet established any
known mineral reserves on any of its existing properties. The continued
operations of the Company and the recoverability of the carrying value of its
assets is ultimately dependent upon the ability of the Company to achieve
profitable operations. The Company intends to continue to fund its initial
operations by way of private placements as may be required. To date, the Company
has completed private placements and received funding through the exercise of
stock options for total proceeds of $20,926,396 from the issuance of shares of
the Company's common stock.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
________________________________________________________________________________
ORGANIZATION
The Company was incorporated on May 16, 2003 in the State of Nevada.
BASIS OF PRESENTATION
These financial statements are presented in United States dollars and have been
prepared in accordance with accounting principles generally accepted in the
United States of America.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid instruments with an original maturity of
three months or less at the time of issuance to be cash equivalents.
F-7
URANIUM ENERGY CORP.
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
________________________________________________________________________________
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
________________________________________________________________________________
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the period. Actual results
could differ from those estimates. Significant areas requiring management's
estimates and assumptions are determining the fair value of transactions
involving common stock, convertible debentures and financial instruments, Other
areas requiring estimates include deferred tax balances, valuation allowances,
allocations of expenditures to resource property interests and asset impairment
tests.
MINERAL PROPERTY COSTS
The Company is primarily engaged in the acquisition, exploration and development
of mineral properties.
Mineral property acquisition costs are capitalized in accordance with EITF 04-2
when management has determined that probable future benefits consisting of a
contribution to future cash inflows have been identified and adequate financial
resources are available or are expected to be available as required to meet the
terms of property acquisition and budgeted exploration and development
expenditures. Mineral property acquisition costs are expensed as incurred if the
criteria for capitalization are not met. In the event that mineral property
acquisition costs are paid with Company shares, those shares are valued at
market at the time the shares are due.
Mineral property exploration costs are expensed as incurred.
When mineral properties are acquired under option agreements with future
acquisition payments to be made at the sole discretion of the Company, those
future payments, whether in cash or shares, are recorded only when the Company
has made or is obliged to make the payment or issue the shares. Because option
payments do not meet the definition of tangible property under EITF 04-2, all
option payments are expensed as incurred.
When it has been determined that a mineral property can be economically
developed as a result of establishing proven and probable reserves and pre
feasibility, the costs incurred to develop such property are capitalized.
Estimated future removal and site restoration costs, when determinable are
provided over the life of proven reserves on a units-of-production basis. Costs,
which include production equipment removal and environmental remediation, are
estimated each period by management based on current regulations, actual
expenses incurred, and technology and industry standards. Any charge is included
in exploration expense or the provision for depletion and depreciation during
the period and the actual restoration expenditures are charged to the
accumulated provision amounts as incurred.
As of the date of these financial statements, the Company has incurred only
acquisition and exploration costs which have been expensed.
To date the Company has not established any proven or probable reserves on its
mineral properties.
ASSET RETIREMENT OBLIGATIONS
The Company has adopted the provisions of SFAS No. 143 "Accounting for Asset
Retirement Obligations," which establishes standards for the initial measurement
and subsequent accounting for obligations associated with the sale, abandonment
or other disposal of long-lived tangible assets arising from the acquisition,
construction or development and for normal operations of such assets. The
adoption of this standard has had no effect on the Company's financial position
or results of operations. To December 31, 2006 any potential costs relating to
the ultimate disposition of the Company's mineral property interests have not
yet been determinable.
F-8
URANIUM ENERGY CORP.
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
________________________________________________________________________________
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
________________________________________________________________________________
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews property, plant, and equipment and certain identifiable
intangibles, excluding goodwill, for impairment in accordance with SFAS No. 144,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of. Long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate the carrying amount of an asset may not be
recoverable. Recoverability of these assets is measured by comparison of its
carrying amount to future undiscounted cash flows the assets are expected to
generate. If property, plant, and equipment and certain identifiable intangibles
are considered to be impaired, the impairment to be recognized equals the amount
by which the carrying value of the assets exceeds its fair market value. For the
two fiscal years ended December 31, 2006, the Company had no material impairment
of its long-lived assets.
FINANCIAL INSTRUMENTS
The fair values of cash and cash equivalents, restricted cash, other current
monetary assets, accounts payable and accrued liabilities and amounts due to
related parties were estimated to approximate their carrying values due to the
immediate or short-term maturity of these financial instruments. The fair value
of the Company's net smelter royalty obligations (refer to Note 3) is not
determinable at the current stage of the Company's exploration program.
Accordingly, no value has been assigned by management. The Company's operations
and financing activities are conducted primarily in United States dollars, and
as a result the Company is not subject to significant exposure to market risks
from changes in foreign currency rates. Management has determined that the
Company is not exposed to significant credit risk.
LOSS PER COMMON SHARE
Basic loss per share includes no dilution and is computed by dividing loss
attributable to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted earnings per share reflects the
potential dilution of securities that could share in the earnings (loss) of the
Company. The common shares potentially issuable on conversion of outstanding
convertible debentures and exercise of stock options were not included in the
calculation of weighted average number of shares outstanding because the effect
would be anti-dilutive.
FOREIGN CURRENCY TRANSLATION
The financial statements are presented in United States dollars. In accordance
with SFAS No. 52, "Foreign Currency Translation", foreign denominated monetary
assets and liabilities are translated to their United States dollar equivalents
using foreign exchange rates which prevailed at the balance sheet date. Revenue
and expenses are translated at average rates of exchange during the year.
Related translation adjustments are reported as a separate component of
stockholders' equity, whereas gains or losses resulting from foreign currency
transactions are included in results of operations.
INCOME TAXES
The Company follows the liability method of accounting for income taxes. Under
this method, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
balances. Deferred tax assets and liabilities are measured using enacted or
substantially enacted tax rates expected to apply to the taxable income in the
years in which those differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the date of enactment or
substantive enactment. As at December 31, 2006, the Company had net operating
loss carry forwards; however, due to the uncertainty of realization, the Company
has provided a full valuation allowance for the potential deferred tax assets
resulting from these losses carry forwards.
STOCK-BASED COMPENSATION
On January 1, 2006, the Company adopted SFAS No. 123 (revised 2004) (SFAS No.
123R), Share-Based Payment, which addresses the accounting for stock-based
payment transactions in which an enterprise receives employee services in
exchange for (a) equity instruments of the enterprise or (b) liabilities that
are based on the fair value of the enterprise's equity instruments or that may
be settled by the issuance of such equity instruments. In January 2005, the
Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB)
No. 107, which provides supplemental implementation guidance for SFAS No. 123R.
SFAS No. 123R eliminates the ability to account for stock-based compensation
transactions using the intrinsic value method under Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock Issued to Employees, and instead
generally requires that such transactions be accounted for using a
fair-value-based method. The Company uses the Black-Scholes-Merton ("BSM")
option-pricing model to determine the fair-value of stock-based awards under
SFAS No. 123R, consistent with that used for pro forma disclosures under SFAS
No. 123, Accounting for Stock-Based
F-9
URANIUM ENERGY CORP.
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
________________________________________________________________________________
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
________________________________________________________________________________
STOCK-BASED COMPENSATION (CONTINUED)
Compensation. The Company has elected the modified prospective transition method
as permitted by SFAS No. 123R and accordingly prior periods have not been
restated to reflect the impact of SFAS No. 123R. The modified prospective
transition method requires that stock-based compensation expense be recorded for
all new and unvested stock options, restricted stock, restricted stock units,
and employee stock purchase plan shares that are ultimately expected to vest as
the requisite service is rendered beginning on January 1, 2006 the first day of
the Company's fiscal year 2006. Stock-based compensation expense for awards
granted prior to January 1, 2006 is based on the grant date fair-value as
determined under the pro forma provisions of SFAS No. 123.
Prior to the adoption of SFAS No. 123R, the Company measured compensation
expense for its employee stock-based compensation plans using the intrinsic
value method prescribed by APB Opinion No. 25. The Company applied the
disclosure provisions of SFAS No. 123 as amended by SFAS No. 148, Accounting for
Stock-Based Compensation - Transition and Disclosure, as if the fair-value-based
method had been applied in measuring compensation expense. Under APB Opinion No.
25, when the exercise price of the Company's employee stock options was equal to
the market price of the underlying stock on the date of the grant, no
compensation expense was recognized.
The following table illustrates the effect on net income after taxes and net
income per common share as if the Company had applied the fair value recognition
provisions of SFAS No. 123 to stock-based compensation during the year ended
December 31, 2005:
Year ended
December 31, 2005
__________________________________________________________________________
Net loss for the year As reported $(1,998,805)
SFAS 123 compensation expense Pro-forma (458,084)
__________________________________________________________________________
Net loss for the year Pro-forma $(2,456,889)
__________________________________________________________________________
Pro-forma basic net loss per share Pro-forma $ (0.14)
__________________________________________________________________________
Pro-forma diluted net loss per share Pro-forma $ (0.14)
__________________________________________________________________________
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and are amortized using the
straight-line method over their estimated useful lives at the following rates:
Computer Equipment 3 years
Furniture and Fixtures 5 years
Mining Equipment 5 years
Vehicles 5 years
RECENT ACCOUNTING PRONOUNCEMENTS
In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid
Financial Instruments-an amendment of FASB Statements No. 133 and 140", to
simplify and make more consistent the accounting for certain financial
instruments. SFAS No. 155 amends SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", to permit fair value re-measurement for any
hybrid financial instrument with an embedded derivative that otherwise would
require bifurcation, provided that the whole instrument is accounted for on a
fair value basis. SFAS No. 155 amends SFAS No. 140, "Accounting for the
Impairment or Disposal of Long-Lived Assets", to allow a qualifying
special-purpose entity to hold a derivative financial instrument that pertains
to a beneficial interest other than another derivative financial instrument.
SFAS No. 155 applies to all financial instruments acquired or issued after the
beginning of an entity's first fiscal year that begins after September 15, 2006,
with earlier application allowed. This standard is not expected to have a
significant effect on the Company's future reported financial position or
results of operations.
F-10
URANIUM ENERGY CORP.
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
________________________________________________________________________________
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
________________________________________________________________________________
RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of
Financial Assets, an amendment of FASB Statement No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities".
This statement requires all separately recognized servicing assets and servicing
liabilities be initially measured at fair value, if practicable, and permits for
subsequent measurement using either fair value measurement with changes in fair
value reflected in earnings or the amortization and impairment requirements of
Statement No. 140. The subsequent measurement of separately recognized servicing
assets and servicing liabilities at fair value eliminates the necessity for
entities that manage the risks inherent in servicing assets and servicing
liabilities with derivatives to qualify for hedge accounting treatment and
eliminates the characterization of declines in fair value as impairments or
direct write-downs. SFAS No. 156 is effective for an entity's first fiscal year
beginning after September 15, 2006. This adoption of this statement is not
expected to have a significant effect on the Company's future reported financial
position or results of operations.
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements". The
objective of SFAS 157 is to increase consistency and comparability in fair value
measurements and to expand disclosures about fair value measurements. SFAS 157
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about fair
value measurements. SFAS 157 applies under other accounting pronouncements that
require or permit fair value measurements and does not require any new fair
value measurements. The provisions of SFAS No. 157 are effective for fair value
measurements made in fiscal years beginning after November 15, 2007. The
adoption of this statement is not expected to have a material effect on the
Company's future reported financial position or results of operations.
In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB
Statements No. 87, 88, 106, and 132(R)". This statement requires employers to
recognize the overfunded or underfunded status of a defined benefit
postretirement plan (other than a multiemployer plan) as an asset or liability
in its statement of financial position and to recognize changes in that funded
status in the year in which the changes occur through comprehensive income of a
business entity or changes in unrestricted net assets of a not-for-profit
organization. This statement also requires an employer to measure the funded
status of a plan as of the date of its year-end statement of financial position,
with limited exceptions. The provisions of SFAS No. 158 are effective for
employers with publicly traded equity securities as of the end of the fiscal
year ending after December 15, 2006. The adoption of this statement is not
expected to have a material effect on the Company's future reported financial
position or results of operations.
In September 2006, the SEC issued Staff Accounting Bulletin ("SAB") No. 108,
"Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements." SAB No. 108 addresses how
the effects of prior year uncorrected misstatements should be considered when
quantifying misstatements in current year financial statements. SAB No. 108
requires companies to quantify misstatements using a balance sheet and income
statement approach and to evaluate whether either approach results in
quantifying an error that is material in light of relevant quantitative and
qualitative factors. SAB No. 108 is effective for periods ending after November
15, 2006. The Company is currently evaluating the impact of adopting SAB No. 108
but does not expect that it will have a material effect on its financial
position and results of operations.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities". This Statement permits entities to
choose to measure many financial assets and financial liabilities at fair value.
Unrealized gains and losses on items for which the fair value option has been
elected are reported in earnings. SFAS No. 159 is effective for fiscal years
beginning after November 15, 2007. The Company is currently assessing the impact
of SFAS No. 159 on its financial position and results of operations.
F-11
URANIUM ENERGY CORP.
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
________________________________________________________________________________
NOTE 3: MINERAL EXPLORATION PROPERTIES
________________________________________________________________________________
URANIUM EXPLORATION
Since November 1, 2004, the Company has been acquiring mineral leases for the
purpose of exploring for economic deposits of uranium in the states of Arizona,
Colorado, Utah, Wyoming, and Texas. During 2005, the Company acquired five year
lease interests in twenty-one further uranium exploration mineral properties
totaling 7,413 gross acres in the states of Arizona, Colorado, Texas, Wyoming,
and Utah, for the consideration of $181,113. The Company has an option to renew
these leases for five years on terms similar to the original lease.
During 2006 the Company acquired an additional 11,299 net acres in Wyoming,
Texas and New Mexico at a cost of $266,814. As of December 31, 2006, a total of
19,304 gross acres (18,712 net mineral acres) of mineral properties have been
staked or leased by the Company in the States of Arizona, Colorado, Wyoming,
Texas, New Mexico and Utah for the purposes of uranium exploration for a total
cost of $447,927. These leases are subject to 5.0% to 15.25% net royalty
interests. As of December 31, 2006, total annual lease payments of $76,617,
excluding any share issuance requirements on the Moore Option, are required to
maintain existing acquisitions. A regional breakdown of 2006 mineral property
expenditures is provided below and where applicable, costs are allocated to
individual projects.
During 2006, the Company incurred exploration and drilling costs on two
projects, the i) Weesatche project, Goliad country, South Texas, and ii) AB
Claim Group project, North Shirley Basin, Wyoming.
WEESATCHE PROPERTY
On October 11, 2005, the Company entered into a Mineral Asset Option Agreement
(the "Moore Option") granting the Company the option to acquire certain mineral
property leases in the State of Texas for total consideration of $200,000 and
3,000,000 post-split restricted common shares at a fair value of $0.33 per
share. In consideration for the Option and its partial exercise over the option
term, the Company has to date made cash payments totaling $200,000 and issued
2,225,000 post-split shares of restricted common stock. The Option,requires a
further issuance of 750,000 post-split shares of restricted common stock on or
before April 11, 2007. Upon completion of the terms of the Option title to the
leases will be transferred to the Company. During the Option term, the Company
has the right as operator to conduct or otherwise direct all exploration on the
properties to be acquired under the Option.
AB CLAIM GROUP PROPERTY
In December 2006 the Company terminated a ten year mining lease agreement in
North Shirley Basin, Wyoming due to results from its 2006 exploration program
that were lower than historically indicated. Under the terms of the lease
agreement, the Company paid an initial lease payment of $50,000 in June 2006,
and an additional $30,000 in September 2006. Gross and net mineral acres
associated with the terminated lease have not been included in the totals above.
The Company has applied for the release of $136,458 in certificates of deposit
which were incurred prior to exploration activities commencing on the leased
property (refer to Note 5).
HISTORICAL MINING DATABASES
On July 27, 2006 the Company entered into an option agreement to sell its Cadena
historical mining database, which was originally a part of the total database
contents included in the Moore Asset Option Agreement, to High Plains Uranium,
Inc., for $150,000 cash (received), 333,333 shares of common stock in the
Canadian based public company, valued at approximately $235,040, and a 1%
royalty on any mined substance produced on any mineral interest or claim covered
by the data base. A total of $385,040 has been recorded as a recovery of mineral
property expenditures and the estimated value of the shares of $235,040, has
been recorded as an agreement receivable. The shares were subsequently received.
As of January 19, 2006 High Plains Uranium Inc. ("HPU") completed a business
combination agreement with Energy Metals Corp. ("EMC"), a TSX listed Canadian
based public company. As a result, the 333,333 shares of HPU are being exchanged
for 53,763 shares of EMC. As of December 31, 2006 the 53,763 shares of EMC have
a fair market value of $543,006.
On November 28, 2006 the Company entered into an option agreement to purchase a
database covering prospects primarily in Wyoming and New Mexico. The agreement
calls for a $25,000 payment at the date of execution (paid) and an additional
$25,000 prior to the end of the six month option period. Additionally, the
Company issued 50,000 stock options with an estimated fair value of $114,500, of
which 25,000 options vested upon execution and the remaining 25,000 options vest
at the end of the six month term. The agreement also calls for a 1% royalty on
any mined substance produced on any mineral interest or claim covered by the
database.
F-12
URANIUM ENERGY CORP.
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
________________________________________________________________________________
NOTE 3: MINERAL EXPLORATION PROPERTIES (CONTINUED)
________________________________________________________________________________
HISTORICAL MINING DATABASES (CONTINUED)
On December 12, 2005, we entered into an agreement with Harry A. Moore Trust
(the "Moore Trust"). Pursuant to the terms and provisions of the Moore Trust
Agreement, we acquired an undivided 100% legal, beneficial and registerable
interest in and to certain assets consisting of certain drill and assay data
regarding prospective tracts located in Goliad, Waller, Duval and McMullen
Counties in the State of Texas. Pursuant to further terms and provisions of the
Moore Trust Agreement, we paid to the Moore Trust certain payments aggregating
$50,000 and issued an aggregate of 75,000 shares.
Total mineral property expenditures for the 2006 fiscal year include the
following:
Year ended
December 31, 2006
____________________________________________________________________________
ARIZONA
Acquisition costs $ 14,256
____________________________________________________________________________
COLORADO
Acquisition costs 6,850
____________________________________________________________________________
NEW MEXICO
Acquisition costs 117,056
Property exploration 48,834
____________________________________________________________________________
165,890
____________________________________________________________________________
TEXAS
Weesatche property
Acquisition costs, net of recoveries 2,507,938
Drilling 1,122,757
Exploration 195,733
____________________________________________________________________________
3,826,428
Other acquisition costs 211,830
Other property exploration 110,737
____________________________________________________________________________
4,148,995
____________________________________________________________________________
WYOMING
AB Claim Group Property
Acquisition costs 105,420
Drilling 149,928
Exploration 63,376
____________________________________________________________________________
318,724
Other acquisition costs 4,200
Other property exploration 57,308
____________________________________________________________________________
380,232
____________________________________________________________________________
TOTAL MINERAL PROPERTY EXPENDITURES $4,716,223
============================================================================
F-13
URANIUM ENERGY CORP.
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
________________________________________________________________________________
NOTE 4: PROPERTY AND EQUIPMENT
________________________________________________________________________________
December 31, 2006 December 31, 2005
___________________________________________________________________________
Computer Equipment $ 35,963 $ -
Furniture and Fixtures 14,373 -
Mining Equipment 110,690 -
Vehicles 63,714 -
___________________________________________________________________________
224,740 -
Less: accumulated depreciation (19,736) -
___________________________________________________________________________
$ 205,004 $ -
===========================================================================
Effective August 24, 2006, the Company committed to spend approximately $140,000
on a logging truck which is currently under construction. As of December 31,
2006, $50,000 has been paid towards this commitment and has been included with
mining equipment.
NOTE 5: RESTRICTED CASH
________________________________________________________________________________
Restricted cash consists of amounts restricted for more than 12 months and
accordingly is included in non-current assets. Restricted cash includes
certificates of deposit issued to the Wyoming Department of Environmental
Quality, Land Quality Division, in lieu of a surety bond. The certificates of
deposit accrue interest at 3.5% per annum, are automatically renewable and are
protected by federal insurance up to $100,000. In December 2006 the Company
ceased exploration on the applicable property and has applied for the release of
the certificates of deposit (refer to Note 3).
NOTE 6: CAPITAL STOCK
________________________________________________________________________________
SHARE CAPITAL
The Company's capitalization at December 31, 2006 was 750,000,000 authorized
common shares with a par value of $0.001 per share. On January 9, 2006, a
majority of shareholders voted to amend the Company's Articles of Incorporation
to increase the authorized capital from 75,000,000 shares of common stock to
750,000,000 shares of common stock. The increase in authorized capital was
effective on February 1, 2006.
On January 24, 2005, a majority of shareholders and the directors of the Company
approved a special resolution to undertake a reverse stock split of the common
stock of the Company on a 1 new share for 2 old shares basis. The par value and
the number of authorized but un-issued shares of the Company's common stock was
not changed as a result of the reverse stock split. On February 14, 2006, the
directors of the Company approved a special resolution to undertake a forward
stock split of the common stock of the Company on a 1.5 new shares for 1 old
share basis whereby 7,484,116 common shares were issued pro-rata to shareholders
of the Company as of the record date on February 28, 2006.
All references in these financial statements to the number of common shares,
price per share and weighted average number of common shares outstanding prior
to the 1:2 reverse stock split and the 1.5:1 forward stock split have been
adjusted to reflect these stock splits on a retroactive basis, unless otherwise
noted.
2006 SHARE TRANSACTIONS
Pursuant to the Moore Option (refer to Note 3) the Company issued:
(i) 500,000 post-split restricted common shares on April 9, 2006 at a
value of $2.30 per share for a total value of $1,150,000; and
(ii) an additional 250,000 post-split restricted common shares on
September 28, 2006 at a value of $1.85 per share, to adjust the
share consideration paid to date for the forward 1.5 forward
split of the Company's common stock, for an additional value of
$462,500; and
F-14
URANIUM ENERGY CORP.
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
________________________________________________________________________________
NOTE 6: CAPITAL STOCK (CONTINUED)
________________________________________________________________________________
2006 SHARE TRANSACTIONS (CONTINUED)
(iii) an additional 750,000 post-split restricted common shares on
October 10, 2006 at a value of $1.30 per share, for an additional
value of $975,000. As at December 31, 2006, the total value of
the shares issued under the terms of the Moore Option is
$2,837,500 which has been recorded as mineral property
expenditures (refer to Note 3).
On January 15 and February 28, 2006 the Company issued an aggregate amount of
18,750 restricted common shares at a price of $0.3333 per share for a value of
$6,250 in connection with a drilling database information agreement. The
agreement requires cash payments of $2,000 per month payable quarterly and
quarterly issuances of 18,750 restricted common shares for three further
quarters following the effective date of the agreement. In accordance with the
terms of the Agreement the Company issued 12,500 restricted common shares at
$2.40 per share for a value of $30,000 on May 11, 2006, 25,000 restricted common
shares at $1.95 per share for a value of $48,750 on September 21, 2006, and
18,750 restricted common shares at $3.20 per share for a value of $60,000 on
December 26, 2006. A total of $145,000 has been recorded as mineral property
expenditures in the year.
On March 10, 2006, the Company received a subscription for 250,000 units at
$1.00 per share purchase unit from a shareholder and consultant to the Company
for net proceeds to the Company of $250,000. These shares were issued in April,
2006. The 250,000 units are comprised of 250,000 restricted common shares and
250,000 common share purchase warrants in the capital of the Company with
piggyback registration rights for all securities underlying the units issued.
The warrants are exercisable at $1.50 per share for a term which is the earlier
of (i) 12 months from the date of issuance or (ii) six months from the effective
date of registration.
On April 24, 2006, the Company received a subscription for 50,000 units at $1.00
per share purchase unit from a shareholder and consultant to the Company for net
proceeds to the Company of $50,000. These shares were issued in July of 2006.
The 50,000 units are comprised of 50,000 restricted common shares and 50,000
common share purchase warrants in the capital of the Company with piggyback
registration rights for all securities underlying the units issued. The warrants
are exercisable at $1.50 per share for a term which is the earlier of (i) 12
months from the date of issuance or (ii) six months from the effective date of
registration.
On May 25, 2006 the Company completed a private placement of 2,500,000 Units at
a subscription price of $2.00 per Unit for gross proceeds to the Company of
$5,000,000. Each Unit is comprised of one common share and one-half warrant of
one non-transferable share purchase warrant of the Company. Each whole warrant
entitles the share purchaser to an additional common share of the Company until
the earlier of 12 months from the date of issuance of the units or six months
from the effective date of the Company's proposed registration statement and
exercisable at $2.50 per share. The Company has paid a finders' fees in
conjunction with the completion of the private placement in the amount of
$329,700 in cash and 471,000 non-transferable common share purchase warrants
having the same terms and conditions of the private placement warrants. The fair
value of these warrants at the date of grant of $992,894 was estimated using the
Black-Scholes option pricing model with an expected life of 1 year, a risk free
interest rate of 5.09%, a dividend yield of 0%, and an expected volatility of
374.15%. All finders' fees have been recorded against the proceeds of the
private placement and the warrants have been recorded as a separate component of
stockholders' equity.
On June 13, 2006 the Company completed an additional non-brokered private
placement of 25,000 Units which were subscribed to under the same terms and
conditions as the May 25, 2006 private placement, for gross proceeds to the
Company of $50,000.
F-15
URANIUM ENERGY CORP.
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
________________________________________________________________________________
NOTE 6: CAPITAL STOCK (CONTINUED)
________________________________________________________________________________
2006 SHARE TRANSACTIONS (CONTINUED)
On December 13, 2006 and December 22, 2006 the Company completed private
placements in a total aggregate amount of 5,200,000 Units at a subscription
price of $2.50 for gross proceeds to the Company of $13,000,000. Each Unit is
comprised of one common share and one-half warrant of one non-transferable share
purchase warrant of the company. Each whole warrant entitles the holder to
purchase an additional common share of the Company until the earlier of 18
months from the date of issuance of the Units or nine months from the effective
date of the Company's proposed registration statement and are exercisable at
$3.00 per share during this period. The Company also received subscriptions of
$250,000 towards an additional private placement under the same terms and
conditions which completed subsequent to the year end (refer to Note 12 (g)).
SHARE PURCHASE WARRANTS
A summary of the Company's stock purchase warrants as of December 31, 2006 and
changes during the year is presented below:
Weighted average
Number of Weighted average remaining life
warrants exercise price (years)
________________________________________________________________________________
Balance, December 31, 2005 - $ - -
Issued 5,133,500 2.55 1.76
Exercised - - -
________________________________________________________________________________
Balance, December 31, 2006 5,133,500 $ 2.55 1.76
________________________________________________________________________________
DEFERRED COMPENSATION
On December 16, 2005 the Company issued 1,950,000 shares of restricted common
stock at a price of $0.333 per share for a value of $650,000 to three members of
management as per management agreements with the Company which are for a one
year term commencing January 1, 2006. Accordingly, a $650,000 charge was
recorded as deferred compensation and has been expensed over the year.
On February 1, 2006, the Company issued 772,500 restricted common shares at a
price of $0.3333 per share for a value of $257,500 to a consultant in connection
with a one year corporate finance consulting services agreement of the same
date. The consultant will provide among other things, assistance in the
initiation, coordination, implementation and management of all aspects of any
program or project in connection with the corporate finance development and
maintenance of the Company's various business interests. The $257,500 charge was
recorded as deferred compensation and is being expensed over a one year term.
Accordingly, $236,042 has been expensed as consulting fees during the year.
On March 1, 2006, the Company entered into a six month corporate relations
consulting services agreement with a shareholder of the Company. Under the terms
of the agreement the Company was required to (a) pay $5,000 per month during the
initial term (paid); and (b) issue 500,000 warrants exercisable at $1.00 per
share for a ten year term. The shares underlying the warrants have piggy back
registration rights. The fair value of these warrants at the date of grant of
$1,618,526 was estimated using the Black-Scholes option pricing model with an
expected life of 10 years, a risk free interest rate of 5.09%, a dividend yield
of 0%, and an expected volatility of 79%. Accordingly, the $1,618,526 charge has
been expensed as consulting fees during the year. The Company has continued the
consulting arrangement on a month to month basis and accordingly has incurred a
total $50,000 in consulting fees during the year ended December 31, 2006 with
respect to this consultant.
On April 1, 2006 the Company entered into a twelve month Consulting Agreement
with EurXchange Consulting Ltd., to provide consulting services including
financial and investor public relations and related matters in the Federal
Republic of Germany. The Company paid approximately $370,000 (290,000 EUR) in
cash for current contract expenditures and issued 400,000 restricted common
shares of the Company at a price of $2.25 per share for a value of $900,000. The
$900,000 charge has been recorded as deferred compensation and is being expensed
over a one year period. Accordingly, $675,000 has been expensed as consulting
fees during the year.
F-16
URANIUM ENERGY CORP.
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
________________________________________________________________________________
NOTE 7: STOCK OPTION PLAN
________________________________________________________________________________
On December 19, 2005 the Board of Directors of the Company ratified, approved
and adopted a Stock Option Plan for the Company in the amount of 5,250,000
shares at $0.333 per share. A majority of shareholders of the Company ratified
and approved the Stock Option Plan effective February 1, 2006. On April 10, 2006
the Company amended its 2005 Stock Option Plan whereby, subject to adjustment
from time to time as provided in Article 11.1, whereby the number of common
shares available for issuance under the Plan was increased from 3,500,000 shares
to 7,500,000 shares.
On February 1, 2006, the Company granted 285,000 stock options as follows:
172,500 to an officer and 112,500 to an employee, at $0.333 per share. The term
of these options is ten years. The fair value of these options at the date of
grant of $124,331 was estimated using the Black-Scholes option pricing model
with an expected life of 3 years, a risk free interest rate of 5.09%, a dividend
yield of 0%, and expected volatility of 130% and has been recorded as a stock
based compensation expense in the period.
On February 9, 2006, the Company filed a Form S-8 to register 2,000,000 stock
options.
On February 14, 2006, 1,200,000 stock options were exercised at $0.333 per share
by consultants to the Company for net proceeds of $400,000.
On March 2, 2006, 300,000 stock options were exercised at $0.333 per share by
consultants to the Company for net proceeds of $100,000.
On April 10, 2006, 1,500,000 stock options were granted to consultants at $1.00
per share. The term of these options is ten years. The fair value of these
options at the date of grant of $1,956,149 was estimated using the Black-Scholes
option pricing model with an expected life of one month due to market price at
the time of grant, a risk free interest rate of 5.09%, a dividend yield of 0%,
and an expected volatility of 374.15% and has been recorded as stock based
compensation expense in the period. On April 21, 2006 the Company filed a Form
S-8 to register these 1,500,000 stock options.
On April 21, 2006, the Company issued 610,000 S-8 registered common shares in
connection with the exercise of stock options by consultants to the Company for
$450,000 net proceeds to the Company.
On April 24, 2006, the Company issued 500,000 S-8 registered common shares in
connection with the exercise of stock options by consultants to the Company for
$500,000 net proceeds to the Company.
On May 3, 2006, the Company issued 300,000 S-8 registered common shares in
connection with the exercise of stock options by consultants to the Company for
$100,000 net proceeds to the Company.
On June 3, 2006, the Company issued 112,500 S-8 registered common shares in
connection with the exercise of stock options by a consultant to the Company for
$37,500 net proceeds to the Company.
On August 30, 2006, 40,000 share options were exercised at $0.333 per share by a
consultant to the Company for net proceeds of $13,200.
On October 10, 2006, a total of 650,000 stock options were granted to employees,
consultants, directors and officers at an exercise price of $1.30 per share. The
term of these options is ten years. The fair value of these options at the date
of grant of $754,000 was estimated using the Black-Scholes option pricing model
with an expected life of 1 year, a risk free interest rate of 4.09%, a dividend
yield of 0%, and an expected volatility of 264.00% and has been recorded as
stock based compensation expense in the period.
On October 26, 2006, 75,000 share options were exercised at $0.333 per share by
a director of the Company for net proceeds of $25,000.
F-17
URANIUM ENERGY CORP.
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
________________________________________________________________________________
NOTE 7: STOCK OPTION PLAN (CONTINUED)
________________________________________________________________________________
On November 28, 2006, under the terms of an option to purchase assets 50,000
stock options were granted to the Optionor at an exercise price of $2.46 per
share. Under terms of the agreement 25,000 option shares will vest upon the next
day following the effective date of the agreement and the balance of 25,000
option shares will vest six months from the effective date of the agreement
should the Company exercise its option to purchase the assets. The term of these
options is ten years. The fair value of these options at the date of grant of
$114,500 was estimated using the Black-Scholes option pricing model with an
expected life of 1 year, a risk free interest rate of 3.94%, a dividend yield of
0%, and an expected volatility of 264.00%. The vested portion of the value of
these options, being $57,250 been recorded as mineral property expenditures in
the year.
A summary of the Company's stock options as of December 31, 2006 and changes
during the year is presented below:
Weighted average
Number of Weighted average remaining life
options exercise price (years)
________________________________________________________________________________
Balance, December 31, 2005 4,725,000 $0.333 9.23
Issued 2,485,000 0.717 10.00
Exercised (3,137,505) - -
________________________________________________________________________________
Balance, December 31, 2006 4,072,495 $0.610 9.17
________________________________________________________________________________
NOTE 8: INCOME TAXES
________________________________________________________________________________
The Company has adopted FASB No. 109 for reporting purposes. As of December 31,
2006, the Company had net operating loss carry forwards of approximately
$11,775,000 that may be available to reduce future years' taxable income. These
carry forwards will begin to expire, if not utilized, commencing in 2023. Future
tax benefits which may arise as a result of these losses have not been
recognized in these financial statements, as their realization is determined not
likely to occur and accordingly, the Company has recorded a valuation allowance
for the deferred tax asset relating to these tax loss carry forwards.
The Company reviews its valuation allowance requirements on an annual basis
based on projected future operations. When circumstances change and this causes
a change in management's judgment about the recoverability of future tax assets,
the impact of the change on the valuation allowance is generally reflected in
current income.
A reconciliation of income tax computed at the federal and state statutory tax
rates and the Company's effective tax rate is as follows:
Year ended Year ended
December 31, 2006 December 31, 2005
________________________________________________________________________________
Federal income tax provision at
statutory rate (35.0)% (35.0)%
States income tax provision at
statutory rates, net of federal
income tax effect (7.0)% (7.0)%
________________________________________________________________________________
Total income tax provision (42.0)% (42.0)%
________________________________________________________________________________
F-18
URANIUM ENERGY CORP.
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
________________________________________________________________________________
NOTE 8: INCOME TAXES (CONTINUED)
________________________________________________________________________________
The actual income tax provisions differ from the expected amounts calculated by
applying the combined federal and state corporate income tax rates to the
Company's loss before income taxes. The components of these differences are as
follows:
2006 2005
________________________________________________________________________________
Loss before income taxes $(14,818,318) $ (1,998,805)
Corporate tax rate 42.00% 42.00%
________________________________________________________________________________
Expected tax expense (recovery) (6,223,694) (839,498)
Increase (decrease) resulting from:
Non-deductible stock option expenses 1,894,308 287,283
Valuation allowance 4,329,386 552,215
________________________________________________________________________________
Future income tax provision (recovery) $ - $ -
________________________________________________________________________________
The Company's deferred tax asset is as follows:
2006 2005
________________________________________________________________________________
Long-term deferred tax asset
Loss carry forwards 4,945,000 616,330
Valuation allowance (4,945,000) (616,330)
________________________________________________________________________________
- -
________________________________________________________________________________
As the criteria for recognizing future income tax assets have not been met due
to the uncertainty of realization, a valuation allowance of 100% has been
recorded for the current and prior year.
NOTE 9: DUE TO RELATED PARTIES AND RELATED PARTY TRANSACTIONS
________________________________________________________________________________
The Company executed an employment agreement with its Chief Operating Officer
and committed to pay him a monthly fee of $10,000 and grant him a total of
375,000 stock options exercisable over a ten year term at $0.333 per share. The
options were granted as follows: 202,500 on December 20, 2005 and 172,500 on
February 1, 2006 (refer to Note 10).
During the year ended December 31, 2006, the Company had transactions with
certain officers and directors of the Company as follows:
(a) incurred $647,248 in management and consulting fees and recorded
an additional $923,253 in stock based compensation expense (refer
to Notes 6 & 7); and
(b) paid $10,224 for marketing and media services to a private
company of which our president is a director.
During the year, the Company authorized a $130,000 bonus due to its Chief
Executive Officer, which has been accrued as an amount due to related parties
and is included in management fees. Of this accrued amount, $65,000 was paid
subsequent to year end and the balance of $65,000 is payable on or before March
31, 2007. Additionally during the year the Company accrued bonuses due to its
Chief Operating Officer, Chief Exploration Officer and Chief Financial Officer
in the amounts of $25,000, $62,000 and $8,581, respectively and these amounts
are included in management fees and due to related parties.
All related party transactions involving provision of services or tangible
assets were recorded at the exchange amount, which is the value established and
agreed to by the related parties reflecting arms length consideration payable
for similar services or transfers. Other related party transactions are
disclosed in notes 3, 6 and 7.
F-19
URANIUM ENERGY CORP.
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
________________________________________________________________________________
NOTE 10 - COMMITMENTS
________________________________________________________________________________
On December 1, 2005 the Company entered into a Financial Consulting Services
Agreement with International Market Trend, AG ("IMT"). The term of the Agreement
is for twelve months, effective February 1, 2006. In consideration for IMT
entering into this Agreement, the Company granted to IMT or its nominees
1,300,000 stock options of the Company's common stock exercisable at a price of
$0.50 per share on December 20, 2005. In addition, IMT will receive $10,000 per
month. (Refer to Note 12(g).)
The Company is also committed to pay its key executives a total of approximately
$480,000 per year for management services.
The Company is currently leasing premises in Texas and Wyoming with total
monthly payments of $3,840. All agreements have a maximum term of one year and
will expire no later than June 30, 2007.
NOTE 11 - SUPPLEMENTAL CASH FLOW INFORMATION AND
NONCASH INVESTING AND FINANCING ACTIVITIES
________________________________________________________________________________
Year Ended December 31,
2006 2005
________________________________________________________________________________
Interest paid $ - $ -
Income taxes paid $ - $ -
________________________________________________________________________________
NOTE 12: SUBSEQUENT EVENTS
________________________________________________________________________________
a) On January 2, 2007 the Company granted 615,000 stock options to its
employees, consultants, officers and directors. The options have an
exercise price of $3.30 and a ten year term.
b) On January 2, 2007 the Company entered into an agreement to purchase a
database consisting of drilling, mapping and logging reports covering
uranium and associated metals prospects located primarily in New Mexico.
Consideration for the asset purchase was a one time cash payment of $20,000
(paid) and 50,000 stock options vesting as to 25,000 option shares upon the
effective date of the Agreement and the final 25,000 option shares vesting
six months from the effective date of the Agreement. The stock options are
exercisable for a period of two years from the date of grant. Should the
Company or any party related to the Company acquire any mineral property
interest within the prospects covered by the database, the Company will be
obligated to pay an overriding royalty of 1% or 2% on lands with and
without an underlying royalty interest respectively.
c) On January 3, 2007 the Company completed a private placement for 200,000
units at a subscription price of $2.50 per Unit for gross proceeds of
$500,000, of which $250,000 was received prior to the fiscal year end. Each
unit is comprised of one common share and one-half warrant of one
non-transferable share purchase warrant of the Company. Each whole warrant
entitles the holder to purchase an additional common share of the Company
until the earlier of 18 months from the date of issuance of the Units or
nine months from the effective date of the Company's proposed registration
statement and are exercisable at $3.00 per share during this period.
d) In January and February 2007, a total amount of 441,250 warrants were
exercised at $1.50 and $2.50 per share as to 50,000 and 391,250 warrants
respectively for total proceeds of $1,053,125.
e) On February 1, 2007 the Company entered into a Financial Consulting
Agreement for a 12 month term. The Consultant will: i) disseminate the
Company's news releases, investor packages, research reports and corporate
and industry sector materials; ii) promote investor awareness and manage
financial public relations to the investment community; and iii) arrange
meetings with industry sector analysts, stock brokers and portfolio
managers. The Company will pay the Consultant $6,500 and 2,500 restricted
common shares per month.
f) In February 2007, 150,000 stock options were exercised at $0.3333 per
share, and 250,000 stock options were exercised at $1.00 per share by
consultants to the Company for total aggregate proceeds of $300,000.
F-20
URANIUM ENERGY CORP.
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
________________________________________________________________________________
NOTE 12: SUBSEQUENT EVENTS (CONTINUED)
________________________________________________________________________________
g) In February 2007, the Company elected to extend the Financial Consulting
Services Agreement with International Market Trend for one month through
February 28, 2007, under the same terms. On February 26, 2007 the Company
provided 30 days prior written notice concluding its agreement with
International Market Trend AG.
h) In February 2007 the Company filed a Form SB-2 Registration Statement under
the Securities Act to register an aggregate of 8,100,000 shares, including
the 5,400,000 common shares issued in the respective private placement
offerings and the 2,700,000 common shares underlying the respective
warrants. As of the date of these financial statements, the Registration
Statement has not been declared effective.
F-21
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Our principal independent accountant is Dale Matheson Carr-Hilton Labonte LLP,
Chartered Accountants, 1500-1140 West Pender Street, Vancouver, British Columbia
V6E 4G1.
ITEM 8A. CONTROLS AND PROCEDURES
FINANCIAL DISCLOSURE CONTROLS AND PROCEDURES
An evaluation was conducted under the supervision and with the participation of
our management, including Amir Adnani, our President/Chief Executive Officer
("CEO") and Pat Obara, our Chief Financial Officer ("CFO"), of the effectiveness
of the design and operation of our disclosure controls and procedures as of
December 31, 2006. Based on that evaluation, Messrs. Adnani and Obara concluded
that our disclosure controls and procedures were effective as of such date to
ensure that information required to be disclosed in the reports that we file or
submit under the Exchange Act, is recorded, processed, summarized and reported
within the time periods specified in SEC rules and forms. Such officers also
confirm that there was no change in our internal control over financial
reporting during the year ended December 31, 2006 that has materially affected,
or is reasonably likely to materially affect, our internal control over
financial reporting.
AUDIT COMMITTEE REPORT
Our Board of Directors has established an audit committee. The members of the
audit committee are Mr. Alan Lindsay, Mr. Bruce Horton and Mr. Erik Essiger. All
of the members of the audit committee are "independent" within the meaning of
Rule 10A-3 under the Exchange Act and are financial experts. The audit committee
operates under a written charter adopted by the Board of Directors.
The audit committee has reviewed and discussed with management our audited
financial statements as of and for fiscal year ended December 31, 2006. The
audit committee has also discussed with Dale Matheson Carr-Hilton LaBonte LLP
the matters required to be discussed by Statement on Auditing Standards No. 61,
Communication with Audit Committees, as amended, by the Auditing Standards Board
of the American Institute of Certified Public Accountants. The audit committee
has received and reviewed the written disclosures and the letter from Dale
Matheson Carr-Hilton LaBonte LLP required by Independence Standards Board
Standard No. 1, Independence Discussions with Audit Committees, as amended, and
has discussed with Dale Matheson Carr-Hilton LaBonte LLP their independence.
Based on the reviews and discussions referred to above, the audit committee has
recommended to the Board of Directors that the audited financial statements
referred to above be included in our Annual Report on Form 10-KSB for fiscal
year ended December 31, 2006 filed with the Securities and Exchange Commission.
ITEM 8B. OTHER INFORMATION
Not applicable.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE
GOVERNANCE; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS
All of our directors hold office until the next annual general meeting of the
shareholders or until their successors are elected and qualified. Our officers
are appointed by our board of directors and hold office until their earlier
-40-
death, retirement, resignation or removal. Our directors and executive officers
and their respective ages as of the date of this Annual Report are as follows:
NAME AGE POSITION WITH THE COMPANY
Amir Adnani 29 President, Chief Executive Officer, Principal
Executive Officer and a director
Alan P. Lindsay 56 Chairman and a director
Harry Anthony 59 Chief Operating Officer and a director
Randall Reneau 58 Chief Exploration Officer and a director
D. Bruce Horton 62 Director
Erik Essiger 41 Director
Pat Obara 50 Secretary, Treasurer, Chief Financial Officer
and Principal Accounting Officer
BIOGRPAHIES
The following describes the business experience of each of our directors and
executive officers, including other directorships held in reporting companies:
ALAN P. LINDSAY. Mr. Alan P. Lindsay is a founder of the Company and has been
our Chairman and a director since May 16, 2003. Mr. Lindsay has extensive
experience and expertise in the mining and biomedical fields. From 2000 to the
present, he has been the chairman, president and chief executive officer of MIV
Therapeutics Inc., a publicly-listed biomedical company focused on biocompatible
coating technology for stents and medical devices. Mr. Lindsay was the founder
of AZCO Mining Inc. and served as Chairman, President and CEO of AZCO from 1992
to 2000. During his term, AZCO obtained listings on both the Toronto and
American Stock Exchanges. AZCO developed the Sanchez copper deposit and Piedras
Verdes copper deposits with a combined SX-EW oxide copper resource of 3.25
billion pounds of copper. Mr. Lindsay negotiated a business transaction with
Phelps Dodge Corporation that led to the sale of the Sanchez deposit for $55
million and a joint venture on the Piedras Verdes deposit.
AMIR ADNANI. Mr. Amir Adnani is a founder of the Company and has been our
President, Chief Executive Officer, Principal Executive Officer and a director
since January 24, 2005. Mr. Adnani is an entrepreneur with an extensive
background in business development and marketing. He founded and is currently a
director of and had been, for the last five years, president of Blender Media
Inc., a Vancouver based company that provides strategic marketing and financial
communications services to public companies and investors in the mineral
exploration, mining, and energy sectors. Mr. Adnani holds a Bachelor of Science
degree from the University of British Columbia. Mr. Adnani is not a director or
officer of any other U.S. reporting company.
HARRY L. ANTHONY. Mr. Harry L. Anthony has been our Chief Operating Officer and
a director since February 2005. Mr. Anthony has over thirty years of experience
in the uranium mining industry. From approximately 1997 to present, Mr. Anthony
has been a consultant through Anthony Engineering Services for several major
uranium companies and international agencies, which duties generally include
project evaluation, operations "trouble shooter" and technical and financial
expert. From approximately 1990 through 1997, Mr. Anthony was a senior vice
president of Uranium Resources, Inc., where he managed all facets of operations
and technical support to achieve production goals, drilling, ion exchange,
reverse osmosis, software development and equipment design. His duties also
included oversight of construction, technical aspects, and daily operations of
plants and wellfields, budget planning and forecasting, property evaluations and
reserve estimations. Mr. Anthony also previously served as the vice-president of
engineering/engineering manager of Uranium Resources, Inc., and a project
superintendent and project engineer for Union Carbide Corp. Mr. Anthony was on
the board of directors of Uranium Resources, Inc. from 1984 through 1994. He is
the author of several publications and the recipient of the awards
"Distinguished Member of the South Texas Mineral Section of AIME -1987" and
"1999 Outstanding Citizen of the Year - Kingsville Chamber of Commerce". Mr.
Anthony received an M.S. in Engineering Mechanics in 1973 and a B.S. in
Engineering Mechanics in 1969 from Pennsylvania State University. Mr. Anthony is
not a director or officer of any other U.S. reporting company.
-41-
RANDALL RENEAU. Mr. Randall Reneau has been our Chief Exploration Officer and a
director since January 24, 2005. Mr. Reneau is registered as a Certified
Professional Geologist with over 30 years of experience in mineral exploration
and project management in the United States, Mexico, Brazil and West Africa. Mr.
Reneau has significant experience exploring for uranium in the United States,
specifically in Texas, Arizona, New Mexico and Wyoming, the states known to hold
the largest uranium reserves. He extensively explored these states while
employed in a senior position for Conoco Uranium, a subsidiary of Conoco Ltd.,
and Wold Nuclear, a privately-held company. For the past 10 years, he has been
an independent contractor, performing geology services for mining and
exploration companies internationally. He obtained his M.S. in Environmental
Engineering from Kennedy-Western University, Boise, Idaho, and a B.A. in Geology
from Central Washington University. Mr. Reneau is not a director or officer of
any other U.S. reporting company.
D. BRUCE HORTON. Mr. D. Bruce Horton has been a director of our company and a
member of our Audit Committee since January 24, 2005 and, until recently, was
our Secretary, Treasurer, Chief Financial Officer and Principal Accounting
Officer. During the past five years, Mr. Horton has been active in the financial
arena in both the private and public sectors as an accountant and financial
management consultant with an emphasis on corporate financial reporting,
financing and tax planning. Mr. Horton has specialized in corporate management,
re-organization, merger and acquisition, international tax structuring, and
public and private financing for over thirty years. From 1972 through 1986, Mr.
Horton was a partner in a public accounting firm. In 1986, Mr. Horton co-founded
the Clearly Canadian Beverage Corporation, of which he was a director and Chief
Financial Officer until 1997.
ERIC ESSIGER. Mr. Essiger became one of our directors and a member of our Audit
Committee on August 23, 2006. During the past five years Mr. Essiger has been:
the Managing Director and the founder of Precisetech GmbH, a corporate finance
advisory company focused on international M&A transactions (from October 2004 to
present); a member of the Supervisory Board of Corix Capital AG (from December
2003 to present); the Senior Manager, Transaction Services Strategy Group, with
PricewaterhouseCoopers AG, heading up the commercial and due diligence practice
of that group in Germany which provided services mainly to private equity
clients of the firm (from April 2003 to September 2004); and a member of the
Executive Board (Vorstand) of MultiMedia Technologies AG, a producer of
set-top-boxes and a company operating in the fields of interactive digital
television and the streaming media market (from July 2000 to July 2002) Mr.
Essiger also has extensive international experience in corporate restructuring;
especially in Germany, Russia, Hong Kong and Switzerland; and he was a member of
the German-Russian co-operation council. Mr. Essiger is not a director or
officer of any other U.S. reporting company.
PAT OBARA. Mr. Obara became our Secretary, Treasurer, Chief Financial Officer
and Principal Accounting Officer on August 23, 2006. During the past five years
Mr. Obara has worked as a consultant to several private and publicly listed
companies providing various consulting services in the areas of corporate
finance and administration. From March of 2003 to present Mr. Obara has provided
various administrative consulting services to private companies involved in
business activities in Asia and North America. Prior to April of 2004 Mr. Obara
served as the Chief Financial Officer and a director of two public companies
listed on the TSX Venture Exchange. Mr. Obara was involved in the restructuring,
organizing and management of these development stage companies which were
involved in the resource and technology sectors. Mr. Obara is not a director or
officer of any other U.S. reporting company.
FAMILY RELATIONSHIPS
There are no family relationships among our directors or officers.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
None of our directors, executive officers or control persons have been involved
in any of the following events during the past five years: (i) any bankruptcy
petition filed by or against any business of which such person was a general
partner or executive officer either at the time of the bankruptcy or within two
years prior to that time; (ii) any conviction in a criminal proceeding or being
-42-
subject to a pending criminal proceeding (excluding traffic violations and other
minor offenses); (iii) being subject to any order, judgment, or decree, not
subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining, barring, suspending or
otherwise limiting his involvement in any type of business, securities or
banking activities; or (iv) being found by a court of competent jurisdiction (in
a civil action), the Commission or the Commodity Futures Trading Commission to
have violated a federal or state securities or commodities law, and the judgment
has not been reversed, suspended, or vacated.
COMMITTEES OF THE BOARD OF DIRECTORS
AUDIT COMMITTEE
As of the date of this Annual Report, Messrs. Lindsay, Horton and Essiger have
been appointed as members to our audit committee. All of the three members are
"independent" within the meaning of Rule 10A-3 under the Exchange Act and are
financial experts. The audit committee operates under a written charter adopted
by the Board of Directors.
The audit committee's primary function is to provide advice with respect to our
financial matters and to assist the Board of Directors in fulfilling its
oversight responsibilities regarding finance, accounting, and legal compliance.
The audit committee's primary duties and responsibilities will be to: (i) serve
as an independent and objective party to monitor our financial reporting process
and internal control system; (ii) review and appraise the audit efforts of our
independent accountants; (iii) evaluate our quarterly financial performance as
well as our compliance with laws and regulations; (iv) oversee management's
establishment and enforcement of financial policies and business practices; and
(v) provide an open avenue of communication among the independent accountants,
management and the Board of Directors.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires our directors and officers, and the
persons who beneficially own more than ten percent of our common stock, to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission. Copies of all filed reports are required to be furnished to us
pursuant to Rule 16a-3 promulgated under the Exchange Act. Based solely on the
reports received by us and on the representations of the reporting persons, we
believe that these persons have complied with all applicable filing requirements
during the fiscal year ended December 31, 2006.
-43-
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to our Chief Executive
Officer and those executive officers that earned in excess of $100,000 during
fiscal year ended December 31, 2006 (collectively, the "Named Executive
Officers"):
SUMMARY COMPENSATION TABLE
____________________________________________________________________________________________________________________________________
NON-EQUITY NON-QUALIFIED ALL OTHER
INCENTIVE PLAN DEFERRED COMPENSATION
COMPENSATION COMPENSATION
NAME AND STOCK EARNINGS
PRINCIPAL SALARY BONUS AWARDS OPTION TOTAL
POSITION YEAR ($) ($) ($) AWARDS ($) ($) ($) ($) ($)
____________________________________________________________________________________________________________________________________
Amir Adnani, 2006 130,000(1) 130,000(2) 250,000(3) --- 510,000
President and
CEO --- --- ---
____________________________________________________________________________________________________________________________________
Randall Reneau,
Chief
Exploration
Officer 2006 120,000(1) 62,000 250,000(3) --- --- --- --- 432,000
____________________________________________________________________________________________________________________________________
Pat Obara,
Secretary,
Treasurer and
CFO 2006 28,438(1) 8,581 --- 232,000(4) --- --- --- 269,019
____________________________________________________________________________________________________________________________________
Harry Anthony, 2006 112,143(1) 25,000 --- 75,253(4) 212,396
COO --- --- ---
____________________________________________________________________________________________________________________________________
(1) These amounts represent fees paid by us to the Named Executive Officers
during the past year pursuant to various employment and consulting services
agreements, as between us and the Named Executive Officers, which are more
particularly described in this Annual Report. See "Item 10. Executive
Compensation - Employment and Consulting Agreements.
(2) This amount represents a discretionary bonus which was accrued by us and
authorized to be paid to Amir Adnani during fiscal year ended December 31,
2006 by our Compensation Committee (which discretionary bonus was paid in
January of 2007) under the terms of Mr. Adnani's existing Executive
Services Agreement with us. See "Item 10. Executive Compensation -
Employment and Consulting Agreements.
(3) These amounts represent the deemed value at the date of issuance of 750,000
bonus shares, which were issued by us to each of the Named Executive
Officers during the 2005 fiscal year and the expense of which was deferred
by us and amortized over the 2006 fiscal year.
(4) These amounts represent the fair value of these options at the date of
grant which was estimated using the Black-Scholes option pricing model.
-44-
STOCK OPTIONS/SAW GRANTS IN FISCAL YEAR ENDED DECEMBER 31, 2006
The following table sets forth information as at December 31, 2006 relating to
options that have been granted to the Named Executive Officers:
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
____________________________________________________________________________________________________________________________________
OPTION AWARDS STOCK AWARDS
____________________________________________________________________________________________________________________________________
Equity
Incentive Equity
Plan Incentive
Awards: Plan Awards:
Number Market Number of Market or
Equity of Value of Unearned Payout Value
Number of Number of Incentive Plan Shares Shares Shares, of Unearned
Securities Securities Awards: Number or Units or Units Units or Shares,
Underlying Underlying of Securities of Stock of Stock Other Units or
Unexercised Unexercised Underlying Option That That Rights That Other Rights
Options Options Unexercised Exercise Option Have Not Have Not Have Not That Have
Exercisable Unexercisable Unearned Options Price Expiration Vested Vested Vested Not Vested
Name (#) (#) (#) ($) Date (#) ($) (#) (#)
____________________________________________________________________________________________________________________________________
Harry Anthony COO 202,500 -0- -0- 0.33 12/20/15 -0- -0- -0- -0-
172,500 -0- -0- 0.33 02/01/16 -0- -0- -0- -0-
____________________________________________________________________________________________________________________________________
Amir Adnani, 202,500 -0- -0- 0.33 12/20/15 -0- -0- -0- -0-
President/CEO
____________________________________________________________________________________________________________________________________
Randall Reneau,
Chief 202,500 -0- -0- 0.33 12/20/15 -0- -0- -0- -0-
Exploration Officer
____________________________________________________________________________________________________________________________________
Pat Obara, CFO 200,000 -0- -0- 1.30 10/10/16 -0- -0- -0- -0-
____________________________________________________________________________________________________________________________________
The following table sets forth information relating to compensation paid to our
directors in 2006:
DIRECTOR COMPENSATION TABLE
Change in
Pension
Value and
Fees Non-Equity Nonqualified
Earned or Incentive Deferred All
Paid in Stock Option Plan Compensation Other
Cash Awards Awards Compensation Earnings Compensation Total
Name ($) ($) ($) ($) ($) ($) ($)
_________________________________________________________________________________________________________________________
Alan Lindsay, (1) -0- -0- -0- -0- -0- $21,000
Chairman $21,000
_________________________________________________________________________________________________________________________
Amir Adnani -0- -0- -0- -0- -0- -0- -0-
_________________________________________________________________________________________________________________________
Harry Anthony -0- -0- -0- -0- -0- -0- -0-
_________________________________________________________________________________________________________________________
Randall Reneau -0- -0- -0- -0- -0- -0- -0-
_________________________________________________________________________________________________________________________
D. Bruce Horton -0- -0- -0- -0- -0- -0- -0-
_________________________________________________________________________________________________________________________
Erik Essiger (2) -0- (3) -0- -0- -0- 126,087
10,087 116,000
_________________________________________________________________________________________________________________________
(1) Alan Lindsay receives $3,000 per month for the provision of various
management consulting services provided by Mr. Lindsay to us on a monthly
basis and from time to time.
(2) Erik Essiger received a one-time payment of $10,087 as a fee and for the
reimbursement to him of certain expenses incurred by him as a consequence
of attendance at certain of our Board of Directors' meetings during the
past year.
(3) This amount represents the fair value of these options at the date of grant
which was estimated using the Black-Scholes option pricing model.
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EMPLOYMENT AND CONSULTING AGREEMENTS
RENEAU SERVICES AGREEMENT
From June 30, 2004, and as formalized in a letter agreement dated December 1,
2004 between us and Randall Reneau (the "Reneau Services Agreement"), Mr. Reneau
has performed geological consulting services for us in exchange for $350 per
diem plus expenses. During fiscal year ended December 31, 2006, an aggregate of
$120,000 was incurred by us to Mr. Reneau under the terms and provisions of the
Reneau Services Agreement. During fiscal year ended December 31, 2006, we
incurred an aggregate of $182,000 to Mr. Reneau including a $62,000 bonus. As of
the date of this Annual Report, an aggregate of $-0- remains due and owing to
Mr. Reneau as compensation under the Reneau Services Agreement.
ANTHONY EMPLOYMENT AGREEMENT
On February 15, 2006, our Board of Directors authorized and approved the
execution of an employment agreement between us and Harry Anthony (the "Anthony
Employment Agreement"). On July 1, 2006 our Board of Directors approved an
amendment to the Anthony Employment Agreement extending the initial term
thereunder to July 1, 2008. Pursuant to the terms and provisions of the Anthony
Employment Agreement, as amended: (i) Mr. Anthony shall provide duties to us
commensurate with his executive position as our Chief Operating Officer and he
will also become a member of our Board of Directors; (ii) we shall pay to Mr.
Anthony a monthly fee of $10,000 to October 1, 2007 when the monthly fee paid to
Mr. Anthony will increase to $12,500; (iii) we granted an aggregate of 250,000
pre forward split stock options to Mr. Anthony to purchase shares of our
restricted common stock at $0.50 per share for a ten-year term; and (iv) the
Anthony Employment Agreement may be terminated without cause by either of us by
providing prior written notice of the intention to terminate at least 90 days
(in the case of our company after the initial term) or 30 days (in the case of
Mr. Anthony) prior to the effective date of such termination.
During fiscal year ended December 31, 2006, an aggregate of $112,143 was
incurred by us to Mr. Anthony under the terms and provisions of the Anthony
Employment Agreement. During fiscal year ended December 31, 2006, we incurred an
aggregate of $137,143 to Mr. Anthony including a $25,000 bonus. As of the date
of this Annual Report, an aggregate of $-0- remains due and owing to Mr. Anthony
as compensation under the Anthony Employment Agreement.
ADNANI EXECUTIVE SERVICES AGREEMENT
On July 1, 2006, our Board of Directors authorized and approved the execution of
the execution of an executive services agreement between us and Amir Adnani (the
"Adnani Executive Services Agreement"). Pursuant to the terms and provisions of
the Adnani Executive Services Agreement: (i) Mr. Adnani shall continue to
provide duties to us commensurate with his current executive positions as our
President and Chief Executive Officer; (ii) we shall pay to Mr. Adnani a monthly
fee of $10,000.00 for an initial term of two years expiring on July 1, 2008;
(iii) we confirmed the previous granting of his existing pre forward split stock
options; and (iv) the Adnani Executive Services Agreement may be terminated
without cause by either of us by providing prior written notice of the intention
to terminate at least 90 days (in the case of our company after the initial
term) or 30 days (in the case of Mr. Adnani) prior to the effective date of such
termination.
During fiscal year ended December 31, 2006, an aggregate of $130,000 was
incurred by us to Mr. Adnani under the terms and provisions of the Adnani
Executive Services Agreement. During fiscal year ended December 31, 2006, we
incurred an aggregate of $260,000 to Mr. Adnani, including a bonus of $130,000.
As of the date of this Annual Report, an aggregate of $65,000 remains due and
owing to Mr. Adnani for the remaining one-half of the $130,000 bonus.
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ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
As of the date of this Annual Report, the following table sets forth certain
information with respect to the beneficial ownership of our common stock by each
stockholder known by us to be the beneficial owner of more than 5% of our common
stock and by each of our current directors and executive officers. Each person
has sole voting and investment power with respect to the shares of common stock,
except as otherwise indicated. Beneficial ownership consists of a direct
interest in the shares of common stock, except as otherwise indicated. As of the
date of this Annual Report, there are 35,412,338 shares of common stock issued
and outstanding.
AMOUNT AND NATURE OF PERCENTAGE OF BENEFICIAL
NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP(1) OWNERSHIP
DIRECTORS AND OFFICERS:
Amir Adnani 2,149,001(2) 6.1%
2303 - 930 Cambie Street
Vancouver, British Columbia, Canada V6B 5X6
Alan P. Lindsay 2,069,787(3) 5.8%
2701 - 1500 Hornby Street
Vancouver, British Columbia, Canada, V6Z 2R1
Harry Anthony 1,353,500(4) 3.8%
P.O. Box 1328
Kingsville, Texas, U.S.A., 78364
Randall Reneau 1,702,500(5) 4.8%
9302 Mystic Oak Trail
Austin, Texas, U.S.A., 78750
D. Bruce Horton 125,000(6) *
2443 Alder Street
Vancouver, British Columbia, Canada, V6H 4A4
Erik Essiger 100,000(7) *
P.O. Box 37491, Dubai, UAE
Pat Obara 225,000(8) *
2791 West 35th Avenue, Vancouver,
British Columbia, Canada, V6N 2M1
All executive officers and directors
as a group (7 persons) 7,724,788(9) 21.8%
MAJOR SHAREHOLDERS:
Isaiah Capital Trust 2,711,667(10) 7.7%
28 - 30 The Parade
St. Heller, Jersey, Channel Islands, JE4 8XY
Golden West Investments 3,250,000(11) 9.2%
P.O. Box 97, Leeward Highway
Provenciales, Turks & Caicos Islands, BWI
Morgan Stanley & Co. fbo Passport Global Master Fund 2,113,000(12) 5.9%
SPC Ltd. for and on behalf of Portfolio A - Global
Strategy
402 Jackson Street, San Francisco, USA 94111(14) (15)
Morgan Stanley & Co. fbo Passport Materials Master 2,113,000(13) 5.9%
Fund, LP
402 Jackson Street, San Francisco, USA 94111(14) (15)
Sprott Asset Management Inc. 2,250,000(14) 6.3%
* Less than one percent.
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(1) Under Rule 13d-3, a beneficial owner of a security includes any person who,
directly or indirectly, through any contract, arrangement, understanding,
relationship, or otherwise has or shares: (i) voting power, which includes
the power to vote, or to direct the voting of shares; and (ii) investment
power, which includes the power to dispose or direct the disposition of
shares. Certain shares may be deemed to be beneficially owned by more than
one person (if, for example, persons share the power to vote or the power
to dispose of the shares). In addition, shares are deemed to be
beneficially owned by a person if the person has the right to acquire the
shares (for example, upon exercise of an option) within 60 days of the date
as of which the information is provided. In computing the percentage
ownership of any person, the amount of shares outstanding is deemed to
include the amount of shares beneficially owned by such person (and only
such person) by reason of these acquisition rights. As a result, the
percentage of outstanding shares of any person as shown in this table does
not necessarily reflect the person's actual ownership or voting power with
respect to the number of shares of common stock actually outstanding as of
the date of this Annual Report. As of the date of this Annual Report, there
are 35,412,338 shares issued and outstanding. Beneficial ownership amounts
reflect the forward stock split effective February 28, 2006.
(2) This figure includes (i) 1,721,501 shares of common stock and (ii) stock
options to purchase 202,500 shares of our common stock at an exercise price
of $0.33 per share expiring on December 20, 2015 and (iii) stock options to
purchase 225,000 shares of our common stock at $3.30 per share expiring on
January 2, 2017.
(3) This figure includes (i) 1,306,287 shares of common stock, (ii) 163,500
shares of common stock held of record by Alan P. Lindsay's wife and (iii)
stock options to purchase 600,000 shares of our common stock at an exercise
price of $0.33 per share expiring on December 20, 2015.
(4) This figure includes (i) 753,500 shares of common stock and (ii) stock
options to purchase 375,000 shares of our common stock at an exercise price
of $0.33 per share expiring on February 14, 2016 and (iii) and stock
options to purchase 225,000 shares of our common stock at $3.30 per share
expiring on January 2, 2017.
(5) This figure includes (i) 1,500,000 shares of common stock and (ii) stock
options to purchase 202,500 shares of our common stock at an exercise price
of $0.33 per share expiring on December 20, 2015.
(6) This figure includes (i) 50,000 shares of common stock and (ii) stock
options to purchase 75,000 shares of our common stock at an exercise price
of $0.33 per share that were exercised in October, 2006.
(7) This figure includes stock options to purchase 100,000 shares of our common
stock at $1.30 per share expiring on October 10, 2016.
(8) This figure includes (i) stock options to purchase 200,000 shares of our
common stock at $1.30 per share expiring on October 10, 2016; and (ii)
stock options to purchase 25,000 shares of our common stock at $3.30 per
share expiring on January 2, 2017.
(9) This figure includes (i) 6,667,788 shares of common stock and (ii) stock
options to purchase 1,680,000 shares of our common stock at an exercise
price of $0.33 per share.
(10) Isaiah Capital Trust is a trust organized under the laws of Jersey, Channel
Islands. The trustee of Isaiah Capital Trust is Equity Trust (Jersey)
Limited.
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(11) Golden West Investments Ltd. is a corporation organized under the laws of
Belize. The sole director of Golden West Investments Ltd. is Trustell Ltd.
(12) This figures includes (i) 1,400,000 shares of common stock and (ii)
warrants to purchase 700,000 shares of our common stock at a price of $3.00
per share held by this Selling Shareholder. However, the warrants are not
exercisable within 60 days, and therefore the stockholder named above
disclaims beneficial ownership of the shares underlying the warrants for
purposes of Rule 13d-3 under the Securities Act.
(13) This figure includes (i) 1,400,000 shares of common stock and (ii) warrants
to purchase 700,000 shares of our common stock at a price of $3.00 per
share held by this Selling Shareholder. However, the warrants are not
exercisable within 60 days, and therefore the stockholder named above
disclaims beneficial ownership of the shares underlying the warrants for
purposes of Rule 13d-3 under the Securities Act.
(14) This figure includes (i) 1,500,000 shares of common stock and (ii) warrants
to purchase 750,000 shares of our common stock at a price of $2.50 per
share. We are not aware who presently exercises dispositive and voting
power with respect to the shares of common stock owned by Sprott Asset
Management Inc.; and this shareholder has no known relationship with us. We
are also informed that Sprott Asset Management Inc. acquired our securities
as a portfolio manager in the ordinary course of business for their own
account without any view or intention to distribute their securities and
that, at the time of purchase, they had no agreements or understandings,
directly or indirectly, with us or with any other party to distribute the
securities.
CHANGES IN CONTROL
We are unaware of any contract, or other arrangement or provision, the operation
of which may at a subsequent date result in a change of control of our company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
Except for the transactions described below, none of our directors, officers or
principal stockholders, nor any associate or affiliate of the foregoing, have
any interest, direct or indirect, in any transaction or in any proposed
transactions, which has materially affected or will materially affect us during
fiscal years ended December 31, 2006 and 2005.
EMPLOYMENT AND CONSULTING AGREEMENTS
During fiscal year ended December 31, 2006, we had transactions with certain of
our officers and directors as follows: (i) we incurred an aggregate of $647,248
in management and/or consulting fees to Amir Adnani, Alan Lindsay, Randall
Reneau, Harry Anthony and Pat Obara in the amounts of $260,000, $21,000,
$182,000, $137,143 and $37,019, respectively; and (ii) we recorded an additional
aggregate $923,253 in stock based compensation expense. Also, during fiscal year
ended December 31, 2006, $150,000 of advances to us from a shareholder and
consultant were settled pursuant to the exercise of 450,000 stock options at
$0.333 per share.
During fiscal year ended December 31, 2006, we paid $10,224 for marketing and
media services to Blender Media, a private company of which Mr. Adnani, our
President, is a director.
We executed the Anthony Employment Agreement pursuant to which we committed to
pay him a monthly fee of $10,000 and grant an aggregate of 375,000 post-split
stock options in 2005 and 2006 exercisable over ten year terms at $0.333 per
share for a value of $121,890. Of the aggregate 375,000 stock options granted,
202,500 stock options were granted on December 20, 2005 and 172,500 on February
1, 2006.
Amounts owing to related parties are unsecured, non-interest bearing and without
specific terms of repayment.
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ITEM 13. EXHIBITS
The following exhibits are filed with this Annual Report on Form 10-KSB:
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
3.1 Articles of Incorporation, as amended(1)
3.1.1 Certificate of Amendment to Articles of Incorporation(2)
3.2 Bylaws(1)
3.3 Audit Committee Charter(1)
3.4 Ethics Charter(1)
4.1 Consulting Agreement between Uranium Energy Corp. and
Randall Reneau(3)
4.2 Mineral Asset Option Agreement(3)
4.3 Agreement and Addendum between Harry A. Moore Trust and
Uranium Energy Corp.(4)
4.4 Financial Consulting Services Agreement between Uranium
Energy Corp. and International Market Trend AG(5)
4.5 Harry A. Moore Trust Agreement(5)
4.6 Amending Agreement to Employment Agreement between Uranium
Energy Corp. and Harry Anthony(6)
4.7 Consulting Services and Right of First Refusal Agreement
between Uranium Energy Corp. and Jim Knupke(5)
4.8 Corporate Relations Consulting Services Agreement between
Uranium Energy Corp. and Michael Baybak and Corp. Inc.(5)
4.9 Corporate Finance Consulting Services Agreement between
Uranium Energy Corp. and Eurotrade Management Group
Ltd.(5)
4.10 Executive Services Agreement between Uranium Energy Corp.
and Amir Adnani(6)
4.11 Reneau Services Agreement between Uranium Energy Corp. and
Randall Reneau(6)
4.12 Uranium Mining Lease among Uranium Energy Corp., John G.
Jebsen and John Triantis(7)
10.1 2005 Stock Option Plan of Uranium Energy Corp.(8)
10.2 Amended 2005 Stock Option Plan (9).
10.3 2006 Stock Incentive Plan of Uranium Energy Corp.(10)
31.1 Certification Pursuant To Rule 13a-14(a)/15d-14(a) - CEO
31.2 Certification Pursuant To Rule 13a-14(a)/15d-14(a) - CFO
32.1 Section 1350 Certification - CEO
32.2 Section 1350 Certification - CFO
(1) Incorporated by reference to our Registration Statement on Form SB-2 filed
with the SEC on August 4, 2005.
(2) Incorporated by reference to our Current Report on Form 8-K filed with the
SEC on February 9, 2006.
(3) Incorporated by reference to the amendment to our Registration Statement on
Form SB-2 filed with the SEC on November 9, 2005.
(4) Incorporated by reference to our Current Report on Form 8-K as filed with
the SEC on December 21, 2005.
(5) Incorporated by reference to our Annual Report on Form 10-KSB for the year
ended December 31, 2005 filed with the SEC on April 13, 2006.
(6) Incorporated by reference to our Registration Statement on Form SB-2 filed
with the SEC on October 4, 2006.
(7) Incorporated by reference to our Quarterly Report on Form 10-QSB filed with
the SEC on August 21, 2006.
(8) Incorporated by reference to our Current Report on Form 8-K filed with the
SEC on December 21, 2005.
(9) Incorporated by reference to our Quarterly Report on Form 10-QSB filed with
the SEC on May 15, 2006.
(10) Incorporated by reference to our Quarterly Report on Form 10-QSB filed with
the SEC on November 20, 2006.
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ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES
During fiscal year ended December 31, 2006, we incurred approximately $70,000 in
fees to our principal independent accountant for professional services rendered
in connection with the audit of our financial statements for fiscal year ended
December 31, 2006 and for the review of our financial statements for the
quarters ended March 31, 2006, June 30, 2006 and September 30, 2006.
During fiscal year ended December 31, 2005, we incurred approximately $45,725 in
fees to our principal independent accountant for professional services rendered
in connection with the audit of our financial statements for fiscal year ended
December 31, 2005 and for the review of our financial statements for the
quarters ended March 31, 2005, June 30, 2005 and September 30, 2005.
During fiscal year ended December 31, 2006, we did not incur any other fees for
professional services rendered by our principal independent accountant for all
other non-audit services which may include, but is not limited to, tax-related
services, actuarial services or valuation services.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
URANIUM ENERGY CORP.
Dated: March 21, 2007 By: /s/ AMIR ADNANI
__________________________________
Amir Adnani, President/Chief
Executive Officer
Dated: March 21, 2007 By: /s/ PAT OBARA
__________________________________
Pat Obara, Treasurer/Chief
Financial Officer
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