**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

**FORM 10-K/A**

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

 

**Forthe transition periodfrom             toCommission file number 0-17171**

**URANIUM RESOURCES, INC.**

(Exact name of Registrantas specified in its charter)

| **DELAWARE**                              |   | **75-2212772**                        |
|-------------------------------------------|--------|---------------------------------------|
| (State of  Incorporation)                 |   | (I.R.S. Employer  Identification No.) |
| **650 S. Edmonds Lane, Suite 108**   |   | ** **                            |
| **Lewisville,  Texas**                    |   | **75067**                             |
| (Address of  principal executive offices) |   | (Zip code)                            |

 

**(972) 219-3330**(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) ofthe Act:**  None**

Securities registered pursuant to Section 12(g) ofthe Act:

Common Stock, $.001 parvalue per share (Title of class)

Indicate by check mark ifthe Registrant is a well-known seasoned issuer as defined in Rule 405 ofthe Securities Act. Yes o  No x

Indicate by check mark ifthe Registrant is not required to file reports pursuant to Section 13 or Section 15(d) ofthe Act. Yes o  No x

Indicate by check mark whetherthe Registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the Registrant was required tofile such reports) and (2) has been subject to such filing requirementsfor the past 90 days. Yes x  No o

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K isnot contained herein, and will not be contained, to the best of Registrant’s knowledge,in definitive proxy or information statements incorporated by reference in Part IIIof this Form 10-K or any amendment to this Form 10-K. o

Indicateby check mark whether the Registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the ExchangeAct.

| Large accelerated filer  o | Accelerated filer  x | Non-accelerated filer  o |
|--------------------------------------|--------------------------------|------------------------------------|

 

Indicate by check markwhether the Registrant is a shell company (as defined in Rule 12b-2of the Exchange Act). Yes o No x

The aggregate market valueof the Common Stock held by non-affiliates of the Registrant at June 30,2006, was approximately $200,393,826.

Number of shares ofCommon Stock, $0.001 par value, outstanding as of March 9, 2007:51,797,339 shares.

 

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**URANIUMRESOURCES, INC.**

**ANNUAL REPORT ON FORM 10-KFOR THE FISCAL YEAR ENDED DECEMBER 31, 2006**

**TABLEOF CONTENTS**
| PART I                                                                                                                |   |   |
|----------------------------------------------------------------------------------------------------------------------------|--------|--------|
| Item 1. Business                                                                                                           |   | 1      |
| The Company and Current Plan of Operation                                                                                  |   | 1      |
| Uranium Reserves/Mineralized Material                                                                                      |   | 5      |
| Long-Term  Delivery Contracts                                                                                              |   | 5      |
| Joint Venture for Churchrock Property                                                                                      |   | 6      |
| Overview of the Uranium Industry                                                                                           |   | 7      |
| The In Situ Recovery Mining Process                                                                                        |   | 8      |
| Environmental Considerations and Permitting                                                                                |   | 8      |
| Reclamation and Restoration Costs and Bonding  Requirements                                                                |   | 9      |
| Water Rights                                                                                                               |   | 10     |
| Competition                                                                                                                |   | 11     |
| Item 1A. Risk Factors                                                                                                      |   | 11     |
| Item 1B. Unresolved Staff Comments                                                                                         |   | 14     |
| Item 2. Properties                                                                                                         |   | 14     |
| South Texas                                                                                                                |   | 14     |
| New Mexico Properties                                                                                                      |   | 15     |
| Insurance                                                                                                                  |   | 16     |
| Reclaimed Properties                                                                                                       |   | 16     |
| Item  3. Legal Proceedings                                                                                                 |   | 17     |
| New Mexico Radioactive Material License                                                                                    |   | 17     |
| New Mexico UIC Permit                                                                                                      |   | 17     |
| Texas Department of Health Bonding Issues                                                                                  |   | 17     |
| Kingsville Dome Production Area Authorization 3                                                                       |   | 18     |
| Other                                                                                                                      |   | 18     |
| Item 4. Submission of Matters to a Vote of Security  Holders                                                               |   | 18     |
| GLOSSARY OF CERTAIN URANIUM INDUSTRY TERMS                                                                                 |   | 19     |
| PART II                                                                                                               |   | 21     |
| Item 5. Market for Registrant’s Common Equity, Related  Stockholder Matters and Issuer Purchases of Equity Securities |   | 21     |
| Dividends                                                                                                                  |   | 21     |
| Securities Authorized for Issuance Under Equity  Compensation Plans                                                        |   | 21     |
| Performance Graph                                                                                                          |   | 22     |
| Recent Sales of Unregistered Securities                                                                                    |   | 22     |
| Item 6. Selected Financial Data                                                                                            |   | 23     |
| Item 7. Management’s Discussion and Analysis of  Financial Condition and Results of Operation                         |   | 24     |
| Forward  Looking Statements                                                                                                |   | 24     |
| Restatement of Financial Statements                                                                                        |   | 24     |
| Financial Condition and Results of Operations                                                                              |   | 24     |
| Liquidity—Cash Sources and Uses for 2007                                                                              |   | 27     |
| Derivative Financial Instruments                                                                                           |   | 28     |
| Contingent Liabilities—Off Balance Sheet Arrangements                                                                 |   | 28     |
| Critical  Accounting Policies                                                                                              |   | 29     |

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| Impact of Recent Accounting Pronouncements                                                                     |   | 29  |
|----------------------------------------------------------------------------------------------------------------|--------|-----|
| Item 7A. Quantitative and Qualitative Disclosures  About Market Risk                                           |   | 30  |
| Uranium Price Volatility                                                                                       |   | 30  |
| Derivative Financial Instruments                                                                               |   | 30  |
| Item 8. Financial Statements and Supplementary Data                                                            |   | 31  |
| Financial Statements                                                                                           |   | 31  |
| Supplemental Financial Data Tables                                                                             |   | 31  |
| Item 9. Changes in and Disagreements with Accountants  on Accounting and Financial  Disclosure                 |   | 31  |
| Item 9A. Controls and Procedures                                                                               |   | 31  |
| Management’s Report on Internal Control Over Financial  Reporting                                         |   | 32  |
| Changes  in Internal Control                                                                                   |   | 33  |
| Report of Independent Registered Public Accounting  Firm                                                       |   | 33  |
| Item  9B. Other Information                                                                                    |   | 34  |
| PART III                                                                                                  |   | 35  |
| Item 10. Directors, Executive Officers and Corporate  Governance                                               |   | 35  |
| Directors                                                                                                      |   | 35  |
| Other Executive Officers                                                                                       |   | 36  |
| Section 16(a) Beneficial Ownership Reporting  Compliance                                                       |   | 38  |
| Amended Code of Ethics for Senior Financial Officers                                                           |   | 38  |
| Audit Committee                                                                                                |   | 38  |
| Item 11. Executive Compensation                                                                                |   | 38  |
| Compensation Discussion and Analysis                                                                           |   | 38  |
| Summary  Compensation Table                                                                                    |   | 43  |
| Grant of Plan Based Awards                                                                                     |   | 44  |
| Employment Agreements                                                                                          |   | 44  |
| Outstanding Awards at Fiscal Year-End                                                                          |   | 45  |
| Option Exercises and Stock Vested                                                                              |   | 46  |
| Potential Payments Upon Termination or Change in  Control                                                      |   | 46  |
| Director Compensation                                                                                          |   | 46  |
| Item 12. Security Ownership of Certain Beneficial  Owners and Management and Related Stockholder Matters  |   | 47  |
| Securities Authorized for Issuance Under Equity  Compensation Plans                                            |   | 47  |
| Security Ownership of Certain Beneficial Owners and  Management                                                |   | 48  |
| Item 13. Certain Relationships and Related  Transactions and Director Independence                             |   | 50  |
| Item 14. Principal Accountant Fees and Services                                                                |   | 50  |
| Audit Fees                                                                                                     |   | 50  |
| Audit Related Fees                                                                                             |   | 50  |
| Tax Fees                                                                                                       |   | 50  |
| All Other Fees                                                                                                 |   | 50  |
| Audit Committee Pre-Approval Policies and Procedures                                                           |   | 50  |
| PART IV                                                                                                   |   | 51  |
| Item 15. Exhibits and Financial Statement Schedules                                                            |   | 51  |
| SIGNATURES                                                                                                     |   | 52  |
| Index to Consolidated Financial Statements                                                                     |   | F-1 |
| Exhibit Index                                                                                             |   | E-1 |

 

 

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**URANIUM RESOURCES,INC.**

**ANNUAL REPORT ON FORM 10-K/AFOR THE FISCAL YEAR ENDED DECEMBER 31, 2006**

**PART I**

*The “Company” or “Registrant” is used in this reportto refer to Uranium Resources, Inc. and its consolidated subsidiaries.This 10-K/A contains “forward-looking statements.”  These statements include, without limitation,statements relating to management’s expectations regarding the Company’sability to remain solvent, capital requirements, mineralized materials, timingof receipt of mining permits, production capacity of mining operations plannedfor properties in South Texas and New Mexico and planned dates for commencementof production at such properties, business strategies and other plans andobjectives of the Company’s management for future operations and activities andother such matters. The words “believes,” “plans,” “intends,” “strategy,” “projects,”“targets,” or “anticipates” and similar expressions identify forward-lookingstatements. The Company does not undertake to update, revise or correct any ofthe forward-looking information. Readers are cautioned that suchforward-looking statements should be read in conjunction with the Company’sdisclosures under the heading: “Risk Factors” beginning on page 11.*

*Certain terms usedin this Form 10-K/A are defined in the “Glossary of Certain Terms”appearing at the end of Part I hereto.*

**Item 1.**                        Business.

**The Company andCurrent Plan of Operation**

***OurHistory***

We were organized in 1977 to mine uranium in theUnited States by using an in situ recovery (ISR) mining method, a process bywhich groundwater is fortified with an oxidizing agent and pumped into the orebody causing the uranium contained to dissolve. The resulting solution is thenpumped to the surface where it is further processed into uranium concentratesthat are shipped to a conversion facility for sale to our customers. This ISRprocess is generally more cost effective and environmentally benign thanconventional mining techniques.

From 1988 through 1999 we produced approximately6.1 million pounds of uranium from two South Texas properties;3.5 million pounds from Kingsville Dome and 2.6 million pounds fromRosita. In 1999, we shut-down all production because of depressed uraniumprices. From the first quarter of 2000 until December 2004, we had nosource of revenue, and therefore, had to rely on equity infusions to remain inbusiness and maintain the critical employees and assets of the Company.

When prices began to improve in mid-2003, wetook the first steps to bring our Vasquez property into production. Vasquez wasour only fully licensed and permitted property at the time. We signed twolong-term contracts, calling for deliveries of 600,000 pounds of uranium eachyear from 2005 through 2008. The planned source of production for thosecontracts was the Vasquez property, which we had expected to produce at anannual volume and at a production cost that would meet the contracted deliveryrequirements. The property was brought online in the fourth quarter of 2004.

During 2005, the Vasquez property produced fewerpounds than expected due to chemical and permeability obstacles in the orebody. In addition, our cost of production exceeded the sales price under thecontracts, and we lost money on each pound sold. These contracts wererenegotiated in March 2006 (see **“Business—Long-TermDelivery Contracts”**).

In 2006, we brought Kingsville Dome back intoproduction and are in the process of restarting Rosita in 2007.

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In addition to our SouthTexas properties, we own 183,000 acres of mineral holdings in New Mexico thatwere acquired during the 1980s and 90s. We also acquired a vast database ofexploration logs and drill results for these properties that were developed byHomestake Mining, Mobil Oil, Kerr-McGee, Phillips Petroleum, United Nuclear,and Westinghouse Electric Corporation.

***2006 Events***

In March 2006, we renegotiated our supplycontracts with Itochu and UG. We committed to each of them one-half of whateverour production is in Texas at a price that is based on the market price at thetime of delivery less a discount. See “**Business—Long-TermDelivery Contracts**” for a discussion of the terms of the revisedcontracts, including certain conditions thereto.

In April 2006, we raised $50 million inequity by a sale of 10,200,307 shares of Common Stock at $4.90 per share in aprivate placement to selected accredited investors. The Company used theproceeds of the offering to pay UG the $12 million discussed under “**Business—Long-Term Delivery Contracts**” andthe remainder for capital costs for upgrades to the Rosita plant, permittingand development drilling for Rosita, delineation drilling for propertiescontiguous to the Rosita plant, land acquisition and exploration costs andworking capital.

In July 2006, the Company stated our Texasproduction was being adversely affected by a shortage of drill rigs, loggingtrucks, permitting delays, and weather related problems. This shortage of drillrigs and logging trucks was the result of intense industry-wide competition forexploration and development tools. These problems continued through August andinto September 2006. The loss of key personnel to competitors alsohindered production development plans.

In November 2006, we launched a pre-feasibilitystudy to evaluate the ability of the company to develop several of itsproperties in New Mexico by conventional mining and milling methods, includingmine sites at Crownpoint, Nose Rock, and Roca Honda. These mine sites weredesigned by previous owners to produce nearly 4 million pounds of uranium peryear. All three projects were deferred in the early 1980s after uraniumprices fell from $43 per pound U3O8 to below $10 per pound by the end of that decade.On these sites are six completed mine shafts that are estimated to have areplacement cost of $25 to $50 million. With these shafts already in place, webelieve the cost of development should be lower. In addition, once all requiredpermits are received, production on the sites with mine shafts already in placeshould begin considerably sooner than on comparable undeveloped sites.

The pre-feasibilitystudy will include the following:

·       An economic evaluation of the Nose Rock project that wasdeveloped by a division of Phillips Petroleum in the late 1970s. Thisproject was designed to produce approximately 2.5 million pounds of uranium peryear, but was shutdown in 1981 before mining began. There are two pluggedshafts that were sunk to the ore zone.

·       An economic evaluation of the Roca Honda project that wasdeveloped by Kerr-McGee in the late 1970s. There is a partially completedshaft that was being developed to produce 1 million pounds per year. Productionfrom this project was deferred in 1981 before mining began and the shaft wasplugged at the surface.

·       An economic evaluation of the West Largo project that wasdrilled out by Kerr-Mcgee in the 1970s. The property appears to beamenable to both ISR and conventional mining methods.

·       A thorough evaluation of the Company’s extensive database that includes over 16,000 logs, feasibility studies, mine developmentplans, and ore reserve analyses. This evaluation will focus on the Company’s43,000 acres located in the prolific Ambrosia Lake District where there existsthe greatest potential to discover new uranium resources.

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·       A complete examination of the Company’s 183,000 acresof mineral holdings in New Mexico to determine which properties are moreamenable to conventional development as opposed to in-situ recovery miningmethods.

·       Ananalysis to determine the feasibility of building a conventional mill toprocess company mined ore, as well as the potential for toll milling.

***2007 Production and Project Update***

Total production from Kingsville Dome and Vasquez in January andFebruary was 33,400 and 29,200 pounds U3O8, respectively. March production through the 15thof the month was 20,700 pounds U3O8. Production for the firstquarter of 2007 is estimated to be in the range of 98,000 to 108,000 pounds U3O8. For the quarter, Kingsville productionis estimated to be in the range of 60,000 to 65,000 pounds U3O8, while Vasquez is expected to produce between 38,000and 43,000 pounds.

Production from Wellfield13 at Kingsville Dome, which was brought online at the end of January, has beenmeeting company expectations and should produce between 44,000 to 49,000 poundsU3O8 for the quarter. Wellfield 14 is scheduled tocome online in April, while Wellfield 15 should startup early in the thirdquarter. Vasquez is currently producing at a rate around 350 pounds per day.

***Operational Plans***

Our Vasquez operation continued to operate below expectationsthroughout 2006. At the beginning of the project in 2004, our mining planindicated we could produce the Vasquez property at an annual rate of 700,000pounds. The geological and chemical problems we experienced in 2005 caused usto revise that estimate downward in July 2006 to an annual capacity of400,000 pounds. This estimate assumed steps we implemented would successfullyresolve production problems that we had never experienced at our other mines. Whilepartially successful, these steps have not lead to higher production levels. Atthe end of the third quarter 2006 and again in December 2006 we reducedour estimation of recoverable reserves at the Vasquez property to include onlythose pounds under developed and producing wellfields, from which we expectfuture production to be in the 90,000 to 100,000 pound range. This reduced ourestimated recoverable reserves at Vasquez by 1.987 million pounds. We intend tocontinue mining existing wellfields at Vasquez as long as they generatepositive results on an operating basis. We are not currently planning to addany new wellfields at Vasquez.

In October 2006, we began a $3.5 million programto drill 1,440 holes totaling over 575,000 feet by the end of the secondquarter 2007. This program will allow us to develop the reserves needed forproduction at Kingsville Dome and Rosita over the next few years, and shouldresult in lower production costs for our Texas operations.

As of the end of February 2007, we had 16 drillrigs under contract, up from 11 rigs in September 2006. In addition, theCompany acquired two prompt fission neutron (PFN) logging tools in late 2006.

In New Mexico, we received a decision from the USEnvironmental Protection Agency (EPA) in February 2007 determining thatsection 8 of our Churchrock Project was deemed by EPA to be Indian country, andtherefore, the underground injection permit should be issued by EPA and not bythe New Mexico Environmental Department. We have appealed this decision to theUnited States Court of Appeals for the Tenth Circuit.

Total production for all of 2006 was 259,112 poundsand production costs per pound were $47.46.

As of December 31, 2006, we had 121 employees,including eight geologists, ten engineers and two certified public accountants.We have field offices at Kingsville Dome, Vasquez, Rosita and Crownpoint, NewMexico.

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The Company’s annualreport on Form 10-K, quarterly reports on Form 10-Q,current reports on Form 8-K, and amendments to those reports filedor furnished pursuant to Section 13(a) or 15(d) of the ExchangeAct may be accessed free of charge through the Company’s web site. The Company’sweb site address is www.uraniumresources.com.

***Future Strategy***

Our strategy moving forward is to generate cash fromour Texas operations while developing the future production potential of ourNew Mexico properties. We plan to utilize the most efficient and economicmining methods available including in situ recovery and conventional mining andmilling. We are planning to proceed immediately with the development of all ourprojects, especially those in New Mexico that are not on Indian lands. We alsointend to increase our reserve position through acquisitions or joint venturesin order to exploit the strong market for uranium.

The Company has recently adopted a strategic plan withthe goal of URI becoming a 10 million pound producer of uranium by 2014 usingboth ISR and conventional mining and milling methods. As part of its strategy,we intend to build our uranium base to between 200 and 300 million pounds throughexploration of our own properties and by acquisition.

In Texas, we intend to maximize production fromexisting properties at Kingsville Dome and Rosita. We plan to add additionalproperties to feed these operations, with the ultimate goal being to achieve 1to 2 million pounds of production annually within the next several years. Toaccomplish this objective, the Company plans to complete its drill out programby the end of the second quarter of 2007, mine all identified uraniumexpeditiously and acquire or lease new properties as necessary.

In New Mexico, the Company is working to obtain thefinal permit for the joint venture Churchrock ISR project while also looking todevelop its conventional assets beginning with Roca Honda. The ongoingevaluation of the Company’s extensive database should be completed by the endof June, while an internal pre-feasibility study on conventional mining andmilling of Company properties should be finished by the end of March.

We believe 2006 was apivotal year. We renegotiated our supply contracts on far more favorable terms,raised $50 million in equity which will allows us to move forward with ourstrategic plans for Texas and New Mexico, entered into the joint venture withItochu and commenced a pre-feasibility study on conventional mining of our NewMexico uranium assets. The Company intends to execute on its strategic plan tomake the Company a leading uranium producer.

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**UraniumReserves/Mineralized Material**

Inaccordance with the SEC’s Guideline of Non-Reserve Mineralized Material, and asshown in the following table, the Company estimates 91.7 million pounds ofin-place mineralized uranium material on its New Mexico properties as of March 15,2007. This estimate reflects the Company’s ongoing reevaluation of its New Mexicoproperties, including its decision to consider development of certainproperties by conventional mining and milling methods in addition to ISRmethods. The estimate for each New Mexico property is based on studies andgeologic reports prepared by prior owners, along with studies and reportsprepared by geologists engaged by the Company. The estimates presented belowwere reviewed and affirmed by Behre Dolbear & Company (USA), anindependent private engineering firm.

| **New Mexico Properties** | ** ** | ** ** | ** ** | **In-Place Mineralized Material  As of March 15, 2007  (Amounts in millions of pounds U**3O8) | ** ** |
|-------------------------------------|------------|------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| Mancos                              |       |       | 4.2        |                                                                                                                                                 |       |
| Churchrock                          |       |       | 18.6       |                                                                                                                                                 |       |
| Nose Rock                           |       |       | 21.7       |                                                                                                                                                 |       |
| West Largo                          |       |       | 17.2       |                                                                                                                                                 |       |
| Roca Honda                          |       |       | 14.7       |                                                                                                                                                 |       |
| Crownpoint                          |       |       | 15.3       |                                                                                                                                                 |       |
| Total                               |       |       | 91.7       |                                                                                                                                                 |       |

 

The foregoing table doesnot include estimates for our Texas properties. In October 2006, we begana drilling program to evaluate and develop our properties at Kingsville Domeand Rosita. We expect to complete this evaluation by the end of the secondquarter 2007. We will not report estimates for the Texas properties until thedrilling program is complete and the results are analyzed.

**Long-Term DeliveryContracts**

Prior to March 2006 we had two contracts withItochu Corporation and two with UG USA, Inc. Under those contracts theCompany was obligated to deliver an aggregate of 600,000 pounds in each ofthe years 2005 through 2008, and the buyer had the right to increase ordecrease those deliveries by 15%. The average price for such deliveries was$17.95 in 2005 and was anticipated to have been $14.58 per pound in 2006. Thesecontracts were entered into at a time when the spot price for uranium was lessthan $15 per pound, substantially below the $40 per pound in effect as of March 25,2006. Two other contracts with these buyers called for aggregate deliveries of645,000 pounds by December 31, 2007 priced at the spot price at the timeof delivery less an average of $3.80 per pound.

In March 2006we entered into a new contract with Itochu and a new contract with UG thatsupersede the existing contracts. Each of the new contracts calls for deliveryof one-half of our actual production from our Vasquez property and otherproperties in Texas currently owned or hereafter acquired by the Company(excluding certain large potential exploration plays). The terms of suchcontracts are summarized below.

*The Itochu Contract.  *Underthe Itochu contract all production from the Vasquez property will be sold at aprice equal to the average spot price for the eight weeks prior to the date ofdelivery less $6.50 per pound, with a floor for the spot price of $37 and aceiling of $46.50. Other Texas production will be sold at a price equal to theaverage spot price for the eight weeks prior to the date of delivery less $7.50per pound, with a floor for the spot price of $37 and a ceiling of $43. Onnon-Vasquez production the price paid will be increased by 30% of thedifference between the actual spot price and the $43 ceiling up to andincluding $50 per pound. If the spot price is over $50 per pound the price on allTexas production will be increased by 50% of such excess. The floor and ceilingand sharing arrangement over the ceiling applies to 

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3.65 million poundsof deliveries, after which there is no floor or ceiling. Itochu has the rightto cancel any deliveries on six-month’s notice.

On December 5,2006, HRI-Churchrock, Inc., a wholly-owned subsidiary of the Company,entered into an agreement with a wholly-owned subsidiary of Itochu to developjointly the Company’s Churchrock property in New Mexico (the “Joint Venture”) (see “**Business—Joint Venture for Churchrock Property**”).A feasibility study was completed and delivered by the end of 2006. Under theterms of the Joint Venture, both parties had until the end of March 2007to make a preliminary investment decision (“Preliminary Investment Decision”)whether to move forward with the Joint Venture. Itochu has requested an extension,and the parties have agreed to extend that date until May 1, 2007. IfItochu should terminate the venture at that time, we would no longer receivethe additional price of 30% of the excess over $43 per pound outlined above. Ifwe should terminate the venture at that time, the original contract terms willbe reinstated from that time forward.

*The UG Contract*.   Under the UGcontract all production from the Vasquez property and other Texas productionwill be sold at a price equal to the month-end long-term contract price for thesecond month prior to the month of delivery less $6 per pound until (i) 600,000pounds have been sold in a particular delivery year and (ii) an aggregateof 3 million pounds of uranium has been sold. After the 600,000 pounds inany year and 3 million pounds total have been sold, UG will have a rightof first refusal to purchase other Texas production at a price equal to theaverage spot price for a period prior to the date of delivery less 4%. Inconsideration of UG’s agreement to restructure its previously existingcontract, we paid UG $12 million in cash with funds raised in our equityoffering completed in April 2006.

**Joint Venture forChurchrock Property**

On December 5, 2006, HRI-Churchrock, Inc., awholly-owned subsidiary of the Company, entered into a Joint Venture with awholly-owned subsidiary of Itochu to develop jointly our Churchrock property inNew Mexico.

A feasibility study was completed and delivered at theend of 2006. Under the terms of the Joint Venture, both parties had until April 2,2007 to make a Preliminary Investment Decision whether to move forward with theJoint Venture. The parties have agreed to extend that date until May 1,2007. If a positive decision is made,Itochu will reimburse us for 50% of our permitting costs from November 1,2005, through the completion of the feasibility study, up to a maximumcontribution of $180,000. The parties will split costs incurred aftercompletion of the feasibility study 50-50 until a final investmentdecision is made by the parties after receipt of necessary permits andresolution of the Indian country status of certain of the properties includedin the venture, which is currently pending with the US Environmental ProtectionAgency (“Final Investment Decision”).

If a positive Final Investment Decision is made, wewill convey to the Joint Venture certain permits and certain of our Churchrockproperties in New Mexico, and Itochu will contribute $8 million in cash andcause a $24 million debt facility to be made available to us. Cash flow fromthe first $30 per pound of uranium sold by us will be split 50-50 andcash flow from uranium sales in excess of $30 per pound will be split 70% to usand 30% to Itochu. We will manage the Joint Venture and receive a managementfee.

If Itochu makes a positive Preliminary InvestmentDecision or a Positive Final Investment Decision and we make a negativedecision at either time, the Joint Venture will terminate and the terms of theparties’ original delivery contracts applicable to South Texas production willbe reinstated prospectively. The average price of deliveries under the originalcontracts would have been about $15 per pound for 2006. If we make a negativeFinal Investment Decision and Itochu makes a positive Final InvestmentDecision, we will reimburse Itochu 30% of the permitting expenses paid byItochu, and we will be prohibited from developing the Churchrock property for18 months.

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If both parties make a negative decision at either thePreliminary or Final Investment Decision time, or if we make a positivedecision at either time and Itochu makes a negative decision, the Joint Venturewill terminate and there will be no reinstatement of the original deliverycontracts with Itochu for South Texas production. However, our sales price willbe reduced by $2.10 per pound on some of our South Texas production from thatdate forward.

The Company and Itochuhave each guaranteed the obligations of its subsidiary that is the member ofthe Joint Venture. Certain obligations are limited to the amount ofdistributions received from the venture.

**Overview of theUranium Industry**

The only significant commercial use for uranium is asa fuel for nuclear power plants for the generation of electricity. According tothe World Nuclear Association, there were 435 nuclear power plants operating inthe world at the end of 2006 with an annual consumption of more than170 million pounds of uranium. Based on reports by the Ux ConsultingCompany, LLC (“Ux”) worldwide production of uranium in 2005 (the most recentyear for which statistics are available) was approximately 108 millionpounds. Ux reported the gap between production and demand has been filled bysecondary supplies, such as inventories held by governments, utilities andothers in the fuel cycle, including the highly enriched uranium (HEU)inventories which are a result of the agreement between the US and Russia toblend down nuclear warheads. These secondary supplies are currently meetingnearly a third of worldwide demand.

Spot market prices have risen over the past threeyears in anticipation of sharply higher projected demand as a result of aresurgence in nuclear power, and by the fact that as secondary supplies aredepleted, future production will have to rise closer to demand. Spot marketprices, according to Ux, rose from $36.25/lb to $75/lb during 2006. The spotprice as of the end of February 2007 was $85/lb.

The following graph showsaverage spot prices per pound from 1983 to March 5, 2007, as reported byTrade Tech and Ux.

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All prices beginning in 1993 represent U3O8 deliveries available to U.S. utilities.

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**The In SituRecovery Mining Process**

The in situ recovery mining process is a form ofsolution mining. It differs dramatically from conventional mining techniques.The in situ recovery technique avoids the movement and milling of significantquantities of rock and ore as well as mill tailing waste associated with moretraditional mining methods. It is generally more cost-effective andenvironmentally benign than conventional mining. Historically, the majority ofUnited States uranium production resulted from either open pit surface mines orunderground shaft operations.

The in situ recovery process was first tested for theproduction of uranium in the mid-1960s and was first applied to acommercial-scale project in 1975 in South Texas. It was well establishedin South Texas by the late 1970’s, where it was employed in about twentycommercial projects, including two operated by us.

In the in situ recovery process, groundwater fortifiedwith oxygen and other solubilizing agents is pumped into a permeable ore bodycausing the uranium contained in the ore to dissolve. The resulting solution ispumped to the surface. The fluid-bearing uranium is then circulated to anion exchange column on the surface where uranium is extracted from the fluidonto resin beads. The fluid is then reinjected into the ore body. When the ionexchange column’s resin beads are loaded with uranium, they are removed andflushed with a salt-water solution, which strips the uranium from the beads.This leaves the uranium in slurry, which is then dried and packaged forshipment as uranium powder.

We have historically useda central plant for the ion exchange. In order to increase operating efficiencyand reduce future capital expenditures, we are now designing and developingwellfields using a wellfield-specific remote ion exchange methodology.Instead of piping the solutions over large distances through large diameterpipelines and mixing the waters of several wellfields together, each wellfieldwill be mined using a dedicated satellite ion exchange facility. This willallow ion exchange to take place at the wellfield instead of at the centralplant. A wellfield consists of a series of injection wells, production(extraction) wells and monitoring wells drilled in specified patterns.Wellfield pattern is crucial to minimizing costs and maximizing efficiencies ofproduction. The satellite facilities allow mining of each wellfield using itsown native groundwater.

**Environmental Considerations and Permitting**

Uraniummining is regulated by the federal government, states and, where conducted inIndian Country, by Indian tribes. Compliance with such regulation has amaterial effect on the economics of our operations and the timing of projectdevelopment. Our primary regulatory costs have been related to obtaininglicenses and permits from federal and state agencies before the commencement ofmining activities.

***Radioactive Material License.***   Before commencing operations in both Texas and New Mexico,we must obtain a radioactive material license. Under the federal Atomic EnergyAct, the United States Nuclear Regulatory Commission has primary jurisdictionover the issuance of a radioactive material license. However, the Atomic EnergyAct also allows for states with regulatory programs deemed satisfactory by theCommission to take primary responsibility for issuing the radioactive materiallicense. The Commission has ceded jurisdiction for such licenses to Texas, butnot to New Mexico. Such ceding of jurisdiction by the Commission is hereinafterreferred to as the “granting of primacy.”

The Texas Department ofHealth is the permitting agency for the radioactive material license. Foroperations in New Mexico, radioactive material licensing is handled directly bythe United States Nuclear Regulatory Commission.

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See **“Properties**” and “**Legal Proceedings**” for the status of ourradioactive material license for New Mexico and our Texas properties.

***Underground Injection Control Permits (“UIC”).  ***The federal Safe Drinking WaterAct creates a nationwide regulatory program protecting groundwater. This act isadministered by the United States Environmental Protection Agency (the “USEPA”).However, to avoid the burden of dual federal and state (or Indian tribal)regulation, the Safe Drinking Water Act allows for the UIC permits issued bystates (and Indian tribes determined eligible for treatment as states) tosatisfy the UIC permit required under the Safe Drinking Water Act under twoconditions. First the state’s program must have been granted primacy. Second,the USEPA must have granted, upon request by the state, an aquifer exemption.The USEPA may delay or decline to process the state’s application if the USEPAquestions the state’s jurisdiction over the mine site.

Texas has been grantedprimacy for its UIC programs, and the Texas Commission on Environmental Qualityadministers UIC permits. The Texas Commission on Environmental Quality alsoregulates air quality and surface deposition or discharge of treated wastewaterassociated with the in situ recovery mining process.

New Mexico has also beengranted primacy for its program. The Navajo Nation has been determined eligiblefor treatment as a state, but it has not requested the grant of primacy from theUSEPA. Until the Navajo Nation has been granted primacy, in situ recoveryuranium mining activities within Navajo Nation jurisdiction will require UICpermit from the USEPA. Despite some procedural differences, the substantiverequirements of the Texas, New Mexico and USEPA underground injection controlprograms are very similar.

Properties located inIndian Country remain subject to the jurisdiction of the USEPA. Some of ourproperties are located in areas that are in dispute.

See **“Properties**”and “**Legal Proceedings**” for adescription of the status of our UIC permits in Texas and New Mexico.

***Other.  ***In addition to radioactivematerial licenses and underground injection control permit, we are alsorequired to obtain from governmental authorities a number of other permits orexemptions, such as for wastewater discharge, for land application of treatedwastewater, and for air emissions.

In order for a licensee toreceive final release from further radioactive material license obligationsafter all of its mining and post-mining clean up have been completed in Texas,approval must be issued by the Texas Department of Health along withconcurrence from the United States Nuclear Regulatory Commission and in NewMexico by the United States Nuclear Regulatory Commission.

In addition to the costsand responsibilities associated with obtaining and maintaining permits and theregulation of production activities, we are subject to environmental laws andregulations applicable to the ownership and operation of real property ingeneral, including, but not limited to, the potential responsibility for theactivities of prior owners and operators.

The current environmentalregulatory program for the in situ recovery industry is well established. Manyin situ recovery mines have gone full cycle without any significantenvironmental impact. However, the public anti-nuclear lobby can makeenvironmental permitting difficult and timing unpredictable.

**Reclamation and Restoration Costs and BondingRequirements**

At the conclusion of mining,a mine site is decommissioned and decontaminated, and each wellfield isrestored and reclaimed. Restoration involves returning the aquifer to itspre-mining use and removing evidence of surface disturbance. Restoration can beaccomplished by flushing the ore zone with native ground water or using reverseosmosis to remove ions, minerals and salts to provide clean water for 

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reinjectionto flush the ore zone. Decommissioning and decontamination entails dismantlingand removing the structures, equipment and materials used at the site duringthe mining and restoration activities.

The Company is required bythe State of Texas regulatory agencies to obtain financial surety relating tocertain of its future restoration and reclamation obligations. The Company hasa combination of bank Letters of Credit (the “L/C’s) and performance bondsissued for the benefit of the Company to satisfy such regulatory requirements.The L/C’s were issued by Bank of America and the performance bonds have beenissued by United States Fidelity and Guaranty Company (“USF&G”). The L/C’srelate primarily to our operations at our Vasquez project and amounted to$2,072,000 and $944,000, at December 31, 2006 and 2005, respectively. TheL/C’s are collateralized in their entirety by certificates of deposit.

The performance bonds were$2,835,000 on December 31, 2006 and 2005, respectively, and relatedprimarily to our operations at Kingsville Dome and Rosita. USF&G hasrequired that the Company deposit funds collateralizing a portion of the bonds,and we have deposited approximately $360,000 and $344,000 at December 31,2006 and 2005, respectively, as cash collateral for such bonds. We areobligated by agreement with the bonding company to increase the cash collateralto an amount equal to 50% of the amount of the bonds, plus an additional $0.50for each pound of uranium produced until the account accumulates an additional$1.0 million.

We estimate that ouractual reclamation liabilities for completed operations at Kingsville Dome andRosita and current operations at Vasquez at December 31, 2006, are about$5.0 million of which the present value of $4.1 million is recordedas a liability as of December 31, 2006. Under an agreement reached on March 1,2004 with the Texas regulatory agencies and our bonding company, we agreed tofund ongoing groundwater restoration at the Kingsville Dome and Rosita minesites at specified treatment rates, utilizing a portion of our cash flow fromsales of uranium from the Vasquez site as a substitute for additional bonding.

These financial suretyobligations are reviewed and revised periodically by the Texas regulators.

In New Mexico, suretybonding will be required before commencement of mining and will be subject toannual review and revision by the United States Nuclear Regulatory Commissionand the State of New Mexico or the USEPA.

**Water Rights**

Water is essential to thein situ recovery process. It is readily available in South Texas. In Texas,water is subject to capture, and we do not have to acquire water rights througha state administrative process. In New Mexico, water rights are administeredthrough the New Mexico State Engineer and can be subject to Indian tribaljurisdictional claims. New water rights or changes in purpose or place of useor points of diversion of existing water rights, such as those in the San Juanand Gallup Basins where our properties are located, must be obtained by permitfrom the State Engineer. Applications may be approved subject to conditionsthat govern exercise of the water rights.

Jurisdiction over waterrights becomes an issue in New Mexico when an Indian nation, such as the NavajoNation, objects to the State Engineer’s authority and claims tribaljurisdiction over Indian Country. This issue may result in litigation betweenthe Indian nation and the state, which may delay action on water rightapplications, and can require applications to the appropriate Indian nation andcontinuing jurisdiction by the Indian nation over use of the water. Theforegoing issues arise in connection with certain of our New Mexico properties.

In New Mexico, we holdapproved water rights to provide sufficient water to conduct mining at theChurchrock project and Section 24 for the Crownpoint project for theprojected life of these mines. We also hold two unprotested senior water rightsapplications that, when approved, would provide sufficient water for futureextensions of the Crownpoint project.

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**Competition**

We market uranium toutilities in direct competition with supplies available from various sourcesworldwide. The Company competes primarily based on price.

**Item1A.**                Risk Factors.

The factors identifiedbelow are important factors (but not necessarily all of the important factors)that could cause actual results to differ materially from those expressed inany forward-looking statement made by, or on behalf of, the Company.Where any such forward-looking statement includes a statement of theassumptions or bases underlying such forward-looking statement, wecaution that, while we believe such assumptions or bases to be reasonable andmake them in good faith, assumed facts or bases almost always vary from actualresults, and the differences between assumed facts or bases and actual resultscan be material, depending upon the circumstances. Where, in any forward-lookingstatement, the Company, or its management, expresses an expectation or beliefas to the future results, such expectation or belief is expressed in good faithand believed to have a reasonable basis, but there can be no assurance that thestatement of expectation or belief will result, or be achieved or accomplished.Taking into account the foregoing, the following are identified as importantrisk factors that could cause actual results to differ materially from thoseexpressed in any forward-looking statement made by, or on behalf of, theCompany.

**Ourability to function as an operating mining company is dependent on our abilityto mine our properties at a profit sufficient to finance further miningactivities and for the acquisition and development of additional properties.**

Our ability to operate ona positive cash flow basis is dependent on mining sufficient quantities ofuranium at a profit sufficient to finance our operations and for theacquisition and development of additional mining properties.

**The Navajo Nationban on uranium mining in Indian country encompasses some of our properties inNew Mexico and will adversely affect our ability to mine unless the ban isoverturned.**

In April 2005, theNavajo Nation Council passed the Diné Natural Resources Protection Act of 2005prohibiting uranium mining and processing on any sites within Indian Country. Someof our New Mexico properties have been determined to be Indian country and thestatus of others as Indian country is in dispute. We believe that the banis  beyond the jurisdiction of the NavajoNation. However, the ban may prevent us from developing and operating theproperties until the jurisdictional issues is resolved.

In February 2007 theUSEPA determined that Section 8 of our Churchrock property was Indiancountry and that the USEPA and not the state of New Mexico has the authority toissue the UIC permits for Section 8 that are a precondition to mining. Weare appealing that decision to the United States Court of Appeals for the TenthCircuit.

**As of December 31, 2006, we identified a materialweakness in internal control over financial reporting and concluded that ourdisclosure controls were not effective. If we fail to maintain an effectivesystem of internal and disclosure controls, we may not be able to accuratelyreport our financial results or prevent fraud. As a result, investors may bemisled and lose confidence in our financial reporting and disclosures and theprice of our common stock may be negatively affected.**

The Sarbanes-OxleyAct of 2002 requires that we report annually on the effectiveness of ourinternal control over financial reporting. Among other things, we must performsystems and process evaluation and testing. We must also conduct an assessmentof our internal controls to allow management to report on, and our independentregistered public accounting firm to attest to, our assessment of our internalcontrol over financial reporting as required by Section 404 of theSarbanes-Oxley Act.

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In connection withthe assessment of our internal control over financial reporting for this AnnualReport on Form 10-K/A, as further described in Item 9A, managementand our registered public accounting firm determined that as ofDecember 31, 2006 our disclosure controls and procedures were ineffectivebecause of the material weakness in our internal control over financialreporting.

**Although we have made and are continuing to makeimprovements in our internal controls, if we are unsuccessful in remediatingthe material weakness impacting our internal control over financial reportingand disclosure controls, or if we discover other deficiencies, it may adverselyimpact our ability to report accurately and in a timely manner our financialcondition and results of operations in the future, which may cause investors tolose confidence in our financial reporting and may negatively affect the priceof our Common Stock. Moreover, effective internal and disclosure controls arenecessary to produce accurate, reliable financial reports and to prevent fraud.If we continue to have deficiencies in our internal control over financialreporting and disclosure controls, they may negatively impact our business andoperations.**

**Ourinability to obtain financial surety would threaten our ability to continue inbusiness.**

Future bondingrequirements will increase significantly when future development and productionoccurs at our sites in Texas and New Mexico. The amount of the bonding for eachproducing property is subject to annual review and revision by regulators. Weexpect that the issuer of the bonds will require us to provide cash collateralequal to the face amount of the bond to secure the obligation.

**Becausewe have limited capital, inherent mining risks pose a significant threat to us.**

Because we are small withlimited capital, we are unable to withstand significant losses that can resultfrom inherent risks associated with mining, including environmental hazards,industrial accidents, flooding, interruptions due to weather conditions andother acts of nature. Such risks could result in damage to or destruction ofour wellfield infrastructure and production facilities, as well as to adjacentproperties, personal injury, environmental damage and processing and productiondelays, causing monetary losses and possible legal liability.

**Morestringent federal and state regulations could adversely affect our business.**

If we are unable to obtainor maintain permits or water rights for development of our properties orotherwise fail to manage adequately future environmental issues, our operationscould be materially and adversely affected. We have expended significantresources, both financial and managerial, to comply with environmentalprotection laws, regulations and permitting requirements and we anticipate thatwe will be required to continue to do so in the future. Although we believe ourproperties comply in all material respects with all relevant permits, licensesand regulations pertaining to worker health and safety as well as thosepertaining to the environment and radioactive materials, the historical trendtoward stricter environmental regulation may continue. The volatility ofuranium prices makes our business uncertain.

**Thevolatility of uranium prices makes long-range planning uncertain and raising capitaldifficult.**

The price of uranium isaffected by numerous factors beyond our control, including the demand fornuclear power, political and economic conditions, and legislation andproduction and costs of production of our competitors.

**Theonly market for uranium is nuclear power plants world wide, and there are onlya few customers.**

We are dependent on asmall number of electric utilities that buy uranium for nuclear power plants.Because of the limited market for uranium, a reduction in purchases of newly-produceduranium by electric utilities for any reason (such as plant closings) wouldadversely affect the viability of our business.

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**Theprice of alternative energy sources affects the demand for and price ofuranium.**

The attractiveness ofuranium as an alternative fuel to generate electricity is to some degreedependent on the prices of oil, gas, coal and hydro-electricity and thepossibility of developing other low cost sources for energy.

**Publicacceptance of nuclear energy is uncertain.**

Maintaining the demand foruranium at current levels and future growth in demand will depend uponacceptance of nuclear technology as a means of generating electricity. Lack ofpublic acceptance of nuclear technology would adversely affect the demand fornuclear power and increase the regulation of the nuclear power industry.

**Ourinability to obtain insurance would threaten our ability to continue inbusiness.**

We currently haveliability and property damage insurance that we believe is adequate. However,the insurance industry is undergoing change and premiums are being increased.If premiums should increase to a level we cannot afford, we could not continuein business.

**If wecannot add additional reserves to replace production in the future, we wouldnot be able to remain in business.**

Our future uraniumproduction, cash flow and income are dependent upon our ability to mine ourcurrent properties and acquire and develop additional reserves. There can be noassurance that our properties will be placed into production or that we will beable to continue to find and develop or acquire additional reserves.

**Competition frombetter-capitalized companies affects prices and our ability to acquireproperties and****personnel.**

There is globalcompetition for uranium properties, capital, customers and the employment andretention or qualified personnel. In the production and marketing of uraniumthere are about 15 major producing entities, some of which are governmentcontrolled and all of which are significantly larger and better capitalizedthan we are. We also compete with uranium recovered from the de-enrichment ofhighly enriched uranium obtained from the dismantlement of United States andRussian nuclear weapons and imports to the United States of uranium from theformer Soviet Union.

**Industry-widecompetition for exploration and development tools could delay production.**

Intense industry-widecompetition for exploration and development tools can create the shortage ofdrill rigs, logging trucks and other equipment. Such shortages could delay ourproduction.

**Competitionfrom numerous small companies affects our ability to acquire properties andpersonnel and retain existing personnel.**

There are numerousentities in the market that compete with us for properties and are attemptingto become licensed to operate ISR facilities. In addition, we are aware severalentities have expressed interest in hiring certain of our employees. To retainkey employees, we may face increased compensation costs, including potentialnew option grants.

**Over56% of our shares of Common Stock is controlled by Principal Stockholders andManagement.**

Over 56% of our CommonStock is controlled by six stockholders of record. In addition, our directorsand officers are the beneficial owners of about 6.8% of our Common Stock. Thisincludes with respect to both groups shares that may be purchased upon theexercise of outstanding options. Such ownership by the Company’s principal shareholders,executive officers and directors may have the effect of delaying, deferring,preventing or facilitating a sale of the Company or a business combination witha third party.

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**Theavailability for sale of a large amount of shares may depress the market pricefor our Common Stock.**

The Company has 51,797,339shares of Common Stock currently outstanding, all of which are transferableunder a Registration Statement on Form S-1, S-8 prospectusesor otherwise. The availability for sale of such a large amount of shares maydepress the market price for our Common Stock and impair our ability to raiseadditional capital through the public sale of Common Stock. The Company has noarrangement with any of the holders of the foregoing shares to address thepossible effect on the price of the Company’s Common Stock of the sale by themof their shares.

**Item 1B.**   UnresolvedStaff Comments.

None.

**Item 2.   Properties.**

**South Texas**

***Kingsville Dome***

*TheProperty.*   TheKingsville Dome property consists of mineral leases from private landowners onabout 2,354 gross and net acres located in central Kleberg County, Texas. Theleases provide for royalties based upon a percentage of uranium sales of 6.25%.The leases have expiration dates ranging from 2000 to 2007. We hold most ofthese leases by production; and with a few minor exceptions, all the leasescontain clauses that permit us to extend the leases not held by production bypayment of a per acre royalty ranging from $10 to $30. We have paid suchroyalties on all material acreage.

*Production History.  *Initialproduction commenced in May 1988. From then until July 1999, weproduced a total of 3.5 million pounds. Production was stopped in July 1999,because of depressed uranium prices. We spent about $10.4 million incapital expenditures at Kingsville Dome in 2006. We resumed production atKingsville Dome in April 2006 and produced 94,100 pounds of uranium in2006. We believe that there is a significant quantity of uranium remaining atKingsville Dome.

*Permitting Status.**  *A radioactive material license andunderground injection control permit have been issued. As new areas areproposed for production, additional authorizations under the area permit arerequired. Approval of our Production Area Authorization #3 was received in February 2006which allowed for the start-up of production at Kingsville Dome in April 2006.See “**Legal Proceedings**.”

*Restoration and Reclamation.  *During 2006, we conducted restoration activities asrequired by the permits and licenses on this project, spending approximately$321,000 on such activities. In 2005 and 2004, we spent about $358,000 and$256,000 in restoration costs.

***Rosita***

Based on the significantincrease in the market price of uranium, we are reevaluating the potential foruranium production at the Rosita project and believe the project could resumeoperations by either producing uranium from Rosita or in conjunction withprocessing uranium mined from other South Texas projects. In order to restartthe plant facility, we have spent about $2.8 million in 2006 for plantrefurbishment and wellfield development. We will need to spend additional fundsfor development and plant refurbishment to bring this project back on-line andare evaluating the range of such cash requirements, depending on the projectedscope of the operation. We are conducting restoration and reclamation, of which$676,000 was spent in 2006. In 2005 and 2004, we spent about $618,000 and$315,000 for restoration and reclamation activities.

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***Vasquez***

*The Property.  *We have a mineral lease on 872 gross and net acreslocated in southwestern Duval County, in South Texas. The primary term expiresin February 2008. The lease provides for royalties based upon 6.25% ofuranium sales below $25.00 per pound and royalty rate increases on a slidingscale up to 10.25% for uranium sales occurring at or above $40.00 per pound.

*Production History.  *We commenced production from this property in October 2004.We spent about $3.4 million in capital expenditures at Vasquez andproduced 165,000 pounds of uranium in 2006. We spent about $3.9 million incapital expenditures at Vasquez in 2005. We produced 310,000 pounds of uraniumin 2005 and sold 271,000 pounds. We spent about $2.7 million in capitalexpenditures at Vasquez in 2004. We produced 76,200 pounds of uranium in 2004and sold 72,350 pounds.

*Permitting Status.  *Allof the required permits for this property have been received.

**New MexicoProperties**

***General.  ***We have various interests inproperties located in New Mexico. We have patented and unpatented miningclaims, mineral leases and some surface leases. We have spent$11.2 million to date on permitting for New Mexico. Additionalexpenditures will be required and could be material. We are unable to estimatethe amount. We expect that whatever is spent will occur overmultiple years. See “Legal Proceedings” for a discussion of the current status of our license for New Mexico.

***Churchrock***

*The Property.  *The Churchrock project encompasses about 2,200 grossand net acres. The properties are located in McKinley County, New Mexico andconsist of three parcels, known as Section 8, Section 17 and Mancos.None of these parcels lies within the area generally recognized as constitutingthe Navajo Reservation. We own the mineral estate in fee for both Section 17and the Mancos properties. We own patented mining claims on Section 8.

The surface estateon Section 17 is owned by the United States Government and held in trustfor the Navajo Nation. We have royalty obligations ranging from 5% to 6 1¤4% and a 2% overriding royaltyobligation to the Navajo Nation for surface use agreements.

*Development Plan.  *We anticipate that Churchrock will be the first ofour New Mexico properties we will develop. We spent about $305,000 and $382,000in 2006 and 2005, respectively, for permitting activities and land holdingcosts and about $124,000 in 2004 for permitting activities and land holdingcosts. In December 2006, we entered into a joint venture with Itochu tojointly develop this property (see “**Business—Joint Venture forChurchrock Property**”).

*Water Rights.  *The State Engineer approved our water rightsapplication in October 1999 and granted us sufficient water rights for thelife of Churchrock.

*Permitting Status.  *We have the radioactive material license for Section 8.This license is subject to the continuing proceedings described under “**Legal Proceedings**.” With respect to the UICpermits, see “**Legal Proceedings.**”We do not plan to pursue permits for Mancos at this time.

***Crownpoint***

*The Property.  *The Crownpoint properties are located in the San JuanBasin, 22 miles northeast of our Churchrock deposits and 35 miles northeast ofGallup, New Mexico, adjacent to the town of Crownpoint. The Properties consistof 619 gross and 521.8 net acres. We are currently in negotiations for a leaseon a 60% mineral interest in certain of the acreage.

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*Development Plan.  *Wespent about $91,000 and $397,000 in 2006 and 2005, respectively, for permittingactivities and land holding costs and about $61,000 in 2004 for permittingactivities and land holding costs.

*Water Rights.  *Wehave three pending applications for appropriations of water, which give us thefirst three “positions in line” on the hearings list for the San Juan Basin.Certain of the water rights may involve a claim of jurisdiction by the NavajoNation.

*Permitting Status.  *See“**Legal Proceedings**” for adiscussion of the radioactive material license for Crownpoint. The surfaceestate on Section 19 and 29 is owned by the United States Government andheld in trust for the Navajo Nation and may be subject to the samejurisdictional dispute with respect to the UIC permit as for Section 8 and17 in Churchrock.

***Nose Rock***

The Nose Rock propertyconsists of approximately 6,400 acres and is located about 12 miles northeastof Crownpoint, New Mexico. The property was developed by Philips UraniumCorporation in the early 1980’s and includes two 3,300 foot shafts that havebeen completed on the property.

***West Largo and Roca Honda***

In March 1997, we acquired the fee interest in177,000 acres in northwestern New Mexico. Several significant occurrences ofuranium mineralization are known to be within this acreage, including the WestLargo property and the Roca Honda property. Uranium exploration was conductedby other companies on these properties in the past, and we own the result ofthese past drilling and exploration programs.

The West Largo property is about 21 miles north of thetown of Milan and about 1.5 miles west of State Highway 509 in McKinley County,New Mexico. The property lies about 3 miles to the northwest of the AmbrosiaLake District, a major producer of uranium by means of underground operationsfrom the late 1950s to the early 1980s.

The Roca Honda propertylies about 4 miles northwest of the town of San Mateo in McKinley County, NewMexico. We hold three sections of land in fee and also own 36 unpatented miningclaims encompassing approximately 640 acres that are adjacent to the fee land.

**Insurance**

Our property is covered byvarious types of insurance including property and casualty, liability andumbrella coverage. We have not experienced any material uninsured or underinsured losses related to our properties in the past and believe thatsufficient insurance coverage is in place. Future losses if sustained would notbe material.

**ReclaimedProperties**

We have completed production and groundwaterrestoration on our Benavides and Longoria projects in South Texas. We completedthe final stages of surface reclamation on these projects and received full andfinal release for these sites in 1999.

We acquired the Section 17leases in the New Mexico Churchrock district from United Nuclear Corporation.It had conducted underground mining for uranium on Section 17 and hadreclaimed these properties. In the acquisition, we assumed any liability ofUnited Nuclear Corporation for any remaining remediation work that might berequired. The New Mexico Energy Minerals and Natural Resources Department hasnot determined what, if any, additional remediation would be required under theNew Mexico Mining Act. If more remediation work is required, we believe itwould not involve material expenditures.

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**Item 3.**                        LegalProceedings.

**New MexicoRadioactive Material License**

In the State of New Mexico, uranium recovery by insitu recovery (“ISR”) technology requires a radioactive material license issuedby the United States Nuclear Regulatory Commission (the “NRC” or the “Commission”).We applied for one license covering the properties located in both theChurchrock and Crownpoint districts collectively known as the CrownpointUranium Project. The Commission issued an operating license for the CrownpointUranium Project in January 1998 that allowed ISR uranium recoveryoperations to begin in the Churchrock district. In mid-1998, theCommission determined that certain Churchrock and Crownpoint residents whorequested a hearing had standing to raise certain objections to the license. AnAdministrative Law Judge conducted a hearing during 1999. The AdministrativeLaw Judge upheld the Churchrock Section 8 license and granted our requestto defer any dispute on all but the Churchrock Section 8 property until wemake a decision whether to mine these other properties.

The ruling was appealed to the Commission. On January 31,2000, the Commission issued an order concurring with the technical, substantiveand legal findings of the Administrative Law Judge, but the Commission alsodetermined that we must proceed with the hearing process for the other NewMexico properties beyond Churchrock Section 8. Subsequently, the hearingprocess was held in abeyance until 2004 pursuant to NRC supervised settlementnegotiations between the parties.

In February 2004, the Administrative Law Judgeissued an order, which concluded that we must make three specific changes toour submitted restoration action plan for Churchrock Section 8 in order tocommence mining operations at Churchrock. The Commission accepted our petitionfor review on two of three issues and subsequently overruled the AdministrativeLaw Judge on these issues. The parties agreed to truncate the number and scopeof the issues remaining for consideration at the three sites, and the AdministrativeLaw Judge is proceeding with the hearing on four remaining issues at theremaining three sites.

All contested issues regarding the Crownpoint UraniumProject have been decided by the Administrative Law Judge in our favor, with afew minor amendments, and affirmed on appeal by the full Commission. Intervenorshave appealed the Commission’s final endorsement to the United States Court ofAppeals for the Tenth Circuit. The Company has intervened to defend thelicense.

**New Mexico UIC Permit**

The State of New Mexico,the USEPA and the Navajo Nation are engaged in a jurisdictional dispute as towhich entity has the authority to issue Underground Injection Control (“UIC”)program permits and, in the case of some of the Churchrock and Crownpointproperties, aquifer exemptions required to mine a portion of our Churchrock andCrownpoint properties. The dispute was taken to the United States Court ofAppeals for the Tenth Circuit, which in January 2000 remanded to the USEPAthe issue whether the Section 8 Churchrock property was Indian Country. InFebruary 2007, the USEPA issued a decision that found that Section 8was Indian country and that the USEPA was the proper authority to issue the UICpermit. We have appealed that decision to the United States Court of Appealsfor the Tenth Circuit. The decision can be accessed at the USEPA Region 9website athttp://www.epa.gov/region09/water/groundwater/permit-determination.html.

**Texas Department ofHealth Bonding Issues**

On March 1, 2004, the Company entered into aRestoration Performance Agreement with the Texas Department of Health (“TDH”),later renamed the Texas Department of State Health Services, (“DSHS”), theTexas Commission on Environmental Quality and United States Fidelity andGuaranty 

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Insurance Company underwhich the Company agreed to fund ongoing groundwater restoration at theKingsville Dome and Rosita mine sites at specified treatment rates, utilizing aportion of the Company’s cash flow from sales of uranium from the Vasquez siteas a substitute for additional bonding. Kleberg County and an ad hoc citizengroup brought suit challenging the Restoration Agreement. However, KlebergCounty has settled with the Company and withdrew its support and funding of thesuit.

Kleberg County, Texas, has advised the Company that ithas retained counsel to investigate the possibility of seeking an injunctionagainst new uranium mining at the Company’s Kingsville Dome operations. Thedispute relates to differing interpretations of the Restoration Performance Agreementregarding the degree of restoration of previously mined wellfields. In tryingthe resolve these issues amicably, the Company elected to defer the startup ofproduction at the new wellfield. When the negotiations failed, the Companynotified the County of its intent to begin new production. The Company believesit is in full compliance. We are engaged in a mediation of this dispute. TheCompany does not anticipate this dispute will interfere with its mining atKingsville Dome.

**Kingsville DomeProduction Area Authorization 3**

After a hearing held in August 2005,the Texas Commission on Environmental Quality (“TCEQ”) voted unanimously February 22,2006 to renew the Company’s disposal well permits, WDW-247 and WDW-248,and to issue Kingsville Dome Production Area Authorization 3 (“PAA 3”). Twopetitions for judicial review were filed. The Texas Attorney General hasanswered in defense of the TCEQ Order. The TCEQ is in the process of preparing theadministrative record for submission to the court. The TCEQ decision standsuntil and unless vacated by the court. The Company believes the TCEQ decisionis well-founded and will intervene with the Attorney General to defend itsinterests.

**Other**

The Company is subject toperiodic inspection by certain regulatory agencies for the purpose ofdetermining compliance by the Company with the conditions of its licenses. Inthe ordinary course of business, minor violations may occur; however, these arenot expected to cause material expenditures.

**Item 4.**                        Submissionof Matters to a Vote of Security Holders.

None.

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**GLOSSARYOF CERTAIN URANIUM INDUSTRY TERMS**
| claim                 |   | A claim is a  tract of land, the right to mine of which is held under the federal General  Mining Law of 1872 and applicable local laws.                                                                                                                                                                                                                                                                                  |
|-----------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| concentrates          |   | A product from a  uranium mining and milling facility, which is commonly referred to as uranium  concentrate or U3O8.                                                                                                                                                                                                                                                                                                     |
| conversion            |   | A process whereby  uranium concentrates are converted into forms suitable for use as fuel in  commercial nuclear reactors.                                                                                                                                                                                                                                                                                                |
| cut-off grade         |   | Cut-off grade is  determined by the following formula parameters: estimates over the relevant  period of mining costs, ore treatment costs, general and administrative  costs, refining costs, royalty expenses, process and refining recovery rates  and uranium prices.                                                                                                                                                 |
| gross acres           |   | Total acres under  which we have mineral rights and can mine for uranium.                                                                                                                                                                                                                                                                                                                                                 |
| Indian Country        |   | A term derived  from jurisdictional determinations in criminal law enforcement proceedings  under 18 U.S.C. § 1151 and understood to encompass territory situated  within Indian reservations, land owned by Indian allottees and land within a  dependent Indian community.                                                                                                                                    |
| mineralized material  |   | A mineralized  body which has been delineated by appropriately spaced drilling and/or  underground sampling to support a sufficient tonnage and average grade. Such  a deposit does not qualify as a reserve, until a comprehensive evaluation  based upon unit cost, grade, recoveries, and other material factors conclude  legal and economic feasibility.                                                             |
| net acres             |   | Actual acres under  lease which may differ from gross acres when fractional mineral interests are  not leased.                                                                                                                                                                                                                                                                                                            |
| ore                   |   | Naturally  occurring material from which a mineral or minerals of economic value can be  extracted at a reasonable profit.                                                                                                                                                                                                                                                                                                |
| over feeding          |   | Operating  enrichment plants in a manner that reduces plant operating costs but  increases the amount of uranium required to produce a given quantity of  enriched uranium.                                                                                                                                                                                                                                               |
| probable reserves     |   | Reserves for  which quantity and grade and/or quality are computed from information similar  to that used for proven (measured) reserves, but the sites for inspection,  sampling and measurement are farther apart or are otherwise less adequately  spaced. The degree of assurance, although lower than that for proven  (measured) reserves, is high enough to assume continuity between points of  observation.      |
| proven reserves       |   | Reserves for which  (a) quantity is computed from dimensions revealed in outcrops, trenches,  workings or drill holes; grade and/or quality are computed from the results  of detailed sampling and (b) the sites for inspection, sampling and  measurement are spaced so closely and the geologic character is so well  defined that size, shape, depth and mineral content of reserves are  well-established. |
| reclamation           |   | Reclamation involves the  returning of the surface area of the mining and wellfield operating areas to  a condition similar to pre-mining.                                                                                                                                                                                                                                                                                |
| recoverable  reserves |   | Reserves that are either  proven or probable, are physically minable and can be profitably recovered  under conditions specified at the time of the appraisal, based on a positive  feasibility study. The calculation of minable reserves is adjusted for  potential mining recovery and dilution.                                                                                                                       |

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| reserve                          |   | That part of a mineral  deposit which could be economically and legally extracted or produced at the  time of the reserve determination.                                                                                                                                                                                                                     |
|----------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| restoration                      |   | Restoration involves  returning an aquifer to a condition consistent with our pre-mining use and  removing evidences of surface disturbance. The restoration of wellfield can  be accomplished by flushing the ore zone with native ground water and/or  using reverse osmosis to remove ions to provide clean water for reinjection  to flush the ore zone. |
| resources                        |   | A resource is a  concentration of naturally occurring minerals in such a form that economic  extraction is potentially feasible.                                                                                                                                                                                                                             |
| roll front                       |   | The configuration of  sedimentary uranium ore bodies as they appear within the host sand. A term  that depicts an elongate uranium ore mass that is “C” shaped.                                                                                                                                                                                    |
| shut in                          |   | A term that refers to  ceasing production or the absence of production.                                                                                                                                                                                                                                                                                      |
| shut-in royalty                  |   | A lease clause  permitting the extension of a lease not held by production by payment of a  per acre royalty.                                                                                                                                                                                                                                                |
| slurry                           |   | Fine particles of  uranium concentrated and suspended in water.                                                                                                                                                                                                                                                                                              |
| spot price                       |   | The price at which  uranium may be purchased for delivery within one year.                                                                                                                                                                                                                                                                                   |
| surety  obligations              |   | A bond, letter of  credit, or financial guarantee posted by a party in favor of a beneficiary to  ensure the performance of its or another party’s obligations, e.g., reclamation  bonds, workers’ compensation bond, or guarantees of debt instruments.                                                                                           |
| tailings                         |   | Waste material from a  mineral processing mill after the metals and minerals of a commercial nature  have been extracted; or that portion of the ore which remains after the valuable  minerals have been extracted.                                                                                                                                         |
| uranium or  uranium concentrates |   | U3O8 or triuranium octoxide.                                                                                                                                                                                                                                                                                                                            |
| U3O8                             |   | Triuranium octoxide  equivalent contained in uranium concentrates, referred to as uranium  concentrate.                                                                                                                                                                                                                                                      |
| waste                            |   | Barren rock in a mine,  or uranium in a rock formation that is too low in grade to be mined and  milled at a profit.                                                                                                                                                                                                                                         |

 

 

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**PART II**

**Item 5.**                        Market forRegistrant’s Common Equity, Related Stockholder Matters and Issuer Purchases ofEquity Securities.

Since April 12, 2007,our Common Stock has been listed on the NASDAQ Global Market under the symbol“URRE.” Between April 11, 2007 and October 15, 2004, our shares were quotedon the Over the Counter Bulletin Board and we were dually quoted on both theOTCBB and the Pink Sheets during those dates. From January 1, 2003 until June 24,2003, we were quoted on the OTCBB. From June 25, 2003, until October 15,2004, we were quoted only on the Pink Sheets.

Thefollowing table sets forth the high and low bid prices for the Common Stock asreported on the applicable markets for the periods indicated:

| ** **                          | ** ** | **Common  Stock** | ** ** |
|-------------------------------------|------------|-------------------|------------|
| **Fiscal Quarter Ending** | ** ** | ** **        | ** ** | **High** | ** ** | **Low** | ** ** |
| December 31,  2006             |       | $                 | 6.86       |   | $ | 2.51 |   |
| September 30,  2006            |       | 5.30              |       | 1.83 |   |
| June 30,  2006                 |       | 7.60              |       | 4.60 |   |
| March 31,  2006                |       | 7.68              |       | 3.12 |   |
| December 31,  2005             |       | 3.28              |       | 2.20 |   |
| September 30,  2005            |       | 3.40              |       | 1.68 |   |
| June 30,  2005                 |       | 2.84              |       | 1.60 |   |
| March 31, 2005                 |       | 3.88              |       | 2.60 |   |
|                                     |            |                   |            |  |  |  |  |  |  |

 

As of December 31, 2006, we had 51,791,339 sharesof Common Stock outstanding. On that date, there were 175 holders of record.

On March 29, 2006 the Board of Directors declareda 1 for 4 reverse stock split for stockholders of record on April 10,2006. All of the common stock share information, share price information andshare ownership information in this Annual Report on Form 10-K/A hasbeen revised to give effect to the reverse stock split. The split was approvedby the Company’s Stockholders at the 2005 Annual Meeting of Stockholders.

**Dividends**

We have never paid anycash or other dividends on our Common Stock, and we do not anticipate payingdividends for the foreseeable future.

**SecuritiesAuthorized for Issuance Under Equity Compensation Plans**

Thefollowing table sets forth information as of December 31, 2006 regardingequity compensation to the Company’s employees, officers and directors underequity compensation plans.

| **Plan category**                                      | ** ** | ** ** | ** ** | **Number of shares  issuable under  outstanding options  and rights** | ** ** | **Weighted average  exercise price** | ** ** | **Number of shares  available for  future issuance** | ** ** |
|-------------------------------------------------------------|------------|------------|------------|------------------------------------------------------------------------------------------------|------------|------------------------------------------------|------------|--------------------------------------------------------------------------|------------|
| Equity  compensation plans approved by security holders     |       |       | 4,524,246  |                                                                                           |       |                                           | $          | 2.36                                                                     |       |   |   | 500 |   |   |
| Equity compensation  plans not approved by security holders |       |       | 1,201,234  |                                                                                           |       |                                           | $          | 1.34                                                                     |       |   |   | 700,000 |   |   |
| Total                                                       |       |       | 5,725,480  |                                                                                           |       |                                           | $          | 2.14                                                                     |       |   |   | 700,500 |   |   |

 

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**Performance Graph**

The following chart compares the yearly changes intotal stockholder return on the Company’s common stock against four othermeasures of performance. The comparison is on a cumulative basis for theCompany’s last five fiscal years. The four other performance measures are theRussell 2000 index, the NASDAQ stock market index, the Dow Jones WilshireMicrocap index and a peer group consisting of Cameco Corp. and US Energy Corp.In each case, we assumed an initial investment of $100 on December 31,2001 and reinvestment of all dividends. Dates on the following chart representthe last trading day of the indicated fiscal year.

**Recent Sales ofUnregistered Securities.**

In January and February 2004we sold 875,000 and 812,500 shares of common stock at $0.40 per share (anaggregate of $675,000) in a transaction not involving a public offering under Section 4(2) ofthe Securities Act of 1933, as amended, and Regulation D thereunder, tocertain accredited investors.

In May 2005 we sold833,333 shares of common stock at $1.80 per share (an aggregate of$1.5 million) in a transaction not involving a public offering under Section 4(2) ofthe Securities Act of 1933, as amended, and Regulation D thereunder, tocertain accredited investors of which George R. Ireland, a director of theCompany, is an affiliate.

In August 2005 wesold 6 million shares of common stock at $2.00 per share (an aggregate of$12 million) in a transaction not involving a public offering under Section 4(2) ofthe Securities Act of 1933, as amended, and Regulation D thereunder, tocertain accredited investors. The Company paid a fee of $336,000 in cash and112,000 shares of Common stock to a placement agent in connection with theoffering. Two private investment partnerships managed by George R. Ireland, adirector of the Company, purchased 400,000 shares in the offering.

In April 2006 we sold10,200,307 shares of common stock at $4.90 per share (an aggregate of$50.0 million) in a transaction not involving a public offering under Section 4(2) ofthe Securities Act of 1933, as amended, and Regulation D thereunder, tocertain accredited investors. The Company paid a 6% fee (3% in cash and 3% incommon stock) to a placement agent in connection with the offering. Two privateinvestment partnerships managed by George R. Ireland, a director of theCompany, purchased 300,000 shares in the offering.

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**Item6.**                        SelectedFinancial Data.

Thefollowing tables provide selected financial and operating data for each of thefiscal years in the five-year period ended December 31, 2006. The selectedfinancial and operating data set forth below should be read in conjunctionwith, and are qualified in their entirety by reference to, thesection entitled “**Management’s Discussionand Analysis of Financial Condition and Results of Operation**” andthe Company’s financial statements and related notes included elsewhere in thisannual report. Historical results are not necessarily indicative of results tobe expected in any future period.

| ** **                                                                   | ** ** | **For the Year Ended December 31,**                                      | ** ** |
|------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------|------------|
| ** **                                                                   | ** ** | **2006**                                                                                          | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                                                   | ** ** | ** **                                                                                        | ** ** | ** ** | ** ** | **(Restated)** | ** ** | **(Restated)** | ** ** | ** ** | ** ** |
| ** **                                                                   | ** ** | **(In thousands except per share and per pound amounts)** | ** ** |
| Uranium sales                                                                |       | $                                                                                                 | 8,581      |   | $ | 4,865 |   |   | $ | 1,009 |   |   |   | $ | — |   |   | $ | — |   |
| Cost of  sales—operations                                               |       | 12,687                                                                                            |       | 6,299 |   |   | 1,768 |   |   |   | 797 |   |   | 1,159 |   |
| (Gain) loss on  derivatives                                                  |       | (34,821                                                                                           | )          | 30,975 |   |   | 13,112 |   |   |   | 2,734 |   |   | — |   |
| Writedown of  uranium properties and other uranium assets                    |       | 3,495                                                                                             |       | 0 |   |   | 46 |   |   |   | 341 |   |   | 515 |   |
| Total cost of  uranium sales                                                 |       | (18,639                                                                                           | )          | 37,274 |   |   | 14,926 |   |   |   | 3,872 |   |   | 1,674 |   |
| Gain (loss) from  operations before corporate expenses                       |       | 27,220                                                                                            |       | (32,409 | ) |   | (13,917 | ) |   |   | (3,872 | ) |   | (1,674 | ) |
| Corporate expenses                                                           |       | 6,791                                                                                             |       | 3,209 |   |   | 2,006 |   |   |   | 883 |   |   | 1,202 |   |
| Gain (loss) from  operations                                                 |       | 20,429                                                                                            |       | (35,618 | ) |   | (15,923 | ) |   |   | (4,755 | ) |   | (2,876 | ) |
| Interest and  other, net                                                     |       | 1,081                                                                                             |       | 531 |   |   | 58 |   |   |   | 244 |   |   | 18 |   |
| Gain (loss) before  accounting change                                        |       | 21,510                                                                                            |       | (35,087 | ) |   | (15,865 | ) |   |   | (4,511 | ) |   | (2,858 | ) |
| Cumulative effect  of accounting change                                      |       | —                                                                                            |       | — |   |   | — |   |   |   | 1,447 |   |   | — |   |
| Net earnings  (loss)                                                         |       | $                                                                                                 | 21,510     |   | $ | (35,087 | ) |   | $ | (15,865 | ) |   |   | $ | (3,064 | ) |   | $ | (2,858 | ) |
| Gain (loss) per  common share before cumulative effect of accounting change: |       |                                                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                        |       | $                                                                                                 | 0.44       |   | $ | (0.96 | ) |   | $ | (0.55 | ) |   |   | $ | (0.17 | ) |   | $ | (0.20 | ) |
| Diluted                                                                      |       | $                                                                                                 | 0.42       |   | $ | (0.96 | ) |   | $ | (0.55 | ) |   |   | $ | (0.17 | ) |   | $ | (0.20 | ) |
| Cumulative effect  of accounting change per common share:                    |       |                                                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                        |       | $                                                                                                 | —     |   | $ | — |   |   | $ | — |   |   |   | $ | 0.08 |   |   | $ | — |   |
| Diluted                                                                      |       | $                                                                                                 | —     |   | $ | — |   |   | $ | — |   |   |   | $ | 0.08 |   |   | $ | — |   |
| Net earnings  (loss) per common share:                                       |       |                                                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                        |       | $                                                                                                 | 0.44       |   | $ | (0.96 | ) |   | $ | (0.55 | ) |   |   | $ | (0.09 | ) |   | $ | (0.20 | ) |
| Diluted                                                                      |       | $                                                                                                 | 0.42       |   | $ | (0.96 | ) |   | $ | (0.55 | ) |   |   | $ | (0.09 | ) |   | $ | (0.20 | ) |
| Weighted average  common stock and equivalents outstanding:                  |       |                                                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                        |       | 48,338                                                                                            |       | 36,644 |   |   | 28,725 |   |   |   | 18,194 |   |   | 14,421 |   |
| Diluted                                                                      |       | 51,560                                                                                            |       | 36,644 |   |   | 28,725 |   |   |   | 18,194 |   |   | 14,421 |   |
| CONSOLIDATED  OPERATING AND OTHER DATA                                       |       |                                                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash used in operations                                                      |       | $                                                                                                 | (2,215     | ) | $ | (1,722 | ) |   | $ | (2,541 | ) |   |   | $ | (1,952 | ) |   | $ | (1,342 | ) |
| Capital  expenditures and investing activities                               |       | (31,906                                                                                           | )          | (6,364 | ) |   | (4,777 | ) |   |   | 655 |   |   | (534 | ) |
| Financing  activities                                                        |       | 48,445                                                                                            |       | 13,670 |   |   | 7,277 |   |   |   | 581 |   |   | 2,352 |   |
| Net increase  (decrease) in cash and equivalents                             |       | $                                                                                                 | 14,324     |   | $ | 5,584 |   |   | $ | (41 | ) |   |   | $ | (716 | ) |   | $ | 476 |   |
| Pounds of uranium  produced                                                  |       | 259                                                                                               |       | 310 |   |   | 76 |   |   |   | — |   |   | — |   |
| Pounds of uranium  delivered                                                 |       | 263                                                                                               |       | 271 |   |   | 72 |   |   |   | — |   |   | — |   |
| Average sales  price per pound                                               |       | $                                                                                                 | 32.63      |   | $ | 17.95 |   |   | $ | 13.95 |   |   |   | — |   |   | — |   |
| Average cost of  produced pounds sold                                        |       | $                                                                                                 | 43.36      |   | $ | 20.32 |   |   | $ | 11.76 |   |   |   | — |   |   | — |   |
| Royalties/commissions per  pound sold                                        |       | $                                                                                                 | 2.92       |   | $ | 1.31 |   |   | $ | 0.94 |   |   |   | — |   |   | — |   |

 

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**CONSOLIDATEDBALANCE SHEET DATA**

| ** **                                 | ** ** | **At December 31,** | ** ** |
|--------------------------------------------|------------|-------------------------------|------------|
| ** **                                 | ** ** | **2006**                      | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                 | ** ** | ** **                    | ** ** | ** ** | ** ** | **(Restated)** | ** ** | **(Restated)** | ** ** | ** ** | ** ** |
| ** **                                 | ** ** | **(In thousands)**       | ** ** |
| Cash and cash  equivalents                 |       | $                             | 20,177     |   | $ | 5,853 |   | $ | 269 |   |   | $ | 310 |   |   | $ | 1,025 |   |
| Working capital                            |       | 18,371                        |       | (16,370 | ) | (5,650 | ) |   | 115 |   |   | (166 | ) |
| Net property,  plant and equipment         |       | 18,196                        |       | 8,689 |   | 4,308 |   |   | 684 |   |   | 716 |   |
| Total assets                               |       | 45,936                        |       | 17,913 |   | 6,592 |   |   | 1,499 |   |   | 3,222 |   |
| Unrealized loss  on derivatives            |       | —                        |       | 46,821 |   | 15,846 |   |   | 2,734 |   |   | — |   |
| Total debt                                 |       | 838                           |       | 626 |   | 585 |   |   | 585 |   |   | 585 |   |
| Total liabilities                          |       | 9,167                         |       | 53,903 |   | 21,884 |   |   | 8,299 |   |   | 7,539 |   |
| Total shareholders’  equity (deficit) |       | $                             | 36,769     |   | $ | (35,990 | ) | $ | (15,293 | ) |   | $ | (6,800 | ) |   | $ | (4,317 | ) |

 

**Item 7.**                        Management’sDiscussion and Analysis of Financial Condition and Results of Operation.

**Forward LookingStatements**

This Item 7 contains “forwardlooking statements.” These statements include, without limitation, statementsrelating to liquidity, financing of operations, continued volatility of uraniumprices and other matters. The words “believes,” “expects,” “projects,” “targets,”“estimates” or similar expressions identify forward-looking statements. We donot undertake to update, revise or correct any of the forward-lookinginformation. Readers are cautioned that such forward-looking statements shouldbe read in conjunction with our disclosures under the heading: “Risk Factors”beginning on page 11.

**Restatement of FinancialStatements**

The financial statementsfor the year ended December 31, 2004 have been restated to give effect forfair value accounting of certain uranium sales contracts under FAS No. 133,Accounting for Derivative Instruments and Hedging Activities. The Companydetermined that at December 31, 2003, its long-term uranium salescontracts met the definition of derivative financial instruments for financialstatement reporting purposes, and the financial statements have been restatedas of such date, to record these contracts at fair value.

**Financial Conditionand Results of Operations**

***Comparison of Twelve Months Ended December 31,2006, 2005 and 2004***

*Productionand Sales.**  *In2006, we sold a total of 263,000 pounds of uranium produced from our KingsvilleDome and Vasquez projects, resulting in revenues of $8.581 million. In 2005, wesold 271,000 pounds of Vasquez production, resulting in revenues of$4.865 million (including $253,000 from the renegotiation of the contractprice of sales that were made in the fourth quarter of 2004). We sold 72,350pounds in 2004 (having commenced production in October of that year) andhad revenues of $1.009 million.

*Costof Goods Sold.**  *Our averagecost of pounds sold was $43.36 for 2006 compared to $20.32 for 2005. The costof pounds sold includes operating expenses and depreciation and depletion. Thesecosts for 2006 include a cumulative $1.5 million related to lower of cost ormarket inventory adjustments made quarterly. The adjustments resulted from thebook carrying value of our uranium inventory exceeding the expected marketvalue of the inventory. These adjustments had the effect of reducing thecarrying value of the uranium inventory and accelerating the timing ofrecording operating expenses and depreciation and depletion recorded in thestatement of operations for each quarter. The cost of goods sold for 2006exclude $761,000 ($17.77 per pound) from a lower of cost or market adjustmentmade in December 2005 for 42,900 

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pounds of Vasquezinventory at that date that were sold in the first quarter of 2006. In 2004, wesold 72,350 pounds of Vasquez production and incurred cost of sales of $852,000or $11.77 per pound related such sales.

*OperatingExpenses.**  *During2006, operating expenses and related royalties and commissions for Vasquez andKingsville Dome production sold was $6.279 million. In 2006 we incurred$64,000 of stand-by costs at the Rosita project, such costs were charged tooperations. During 2005, operating expenses and related royalties andcommissions for Vasquez production sold was $3.702 million. We incurred$73,000 of stand-by costs at the Rosita project that were charged tooperations. The operating expenses and related royalties and commissions forVasquez production sold in 2004 totaled $683,000; and we incurred $579,000 ofpre-production and stand-by costs at the Vasquez, Kingsville Dome and Rositaprojects that were charged to operations in 2004.

*Depreciationand Depletion.**  *During2006, we incurred depreciation and depletion expense attributable to ourVasquez and Kingsville Dome production of $5.827 million. During 2005, weincurred depreciation and depletion expense attributable to our Vasquezproduction of $1.399 million. We incurred $16,000 of stand-by depreciationcost for the Kingsville Dome and Rosita projects that was charged to operationsin December 2005. In 2004, we incurred depreciation related to Vasquezproduction and for stand-by activities of $236,000 and $27,000, respectively.

*Impairmentof Uranium Properties.**  *During 2006, we determined thecarrying value of the Vasquez project assets exceeded their fair value asprovided in SFAS 144 “Accounting for the Impairment or Disposal of Long-LivedAssets”. Such determination resulted primarily our reducing the estimatedrecoverable reserves projected to be produced from Vasquez in the future andresulted in an impairment provision related to the Vasquez project assets ofapproximately $3.260 million in 2006.

*Accretionand Amortization of Future Restoration Costs.**  *During 2006 and 2005, the accretion and amortizationof future restoration costs was $517,000 and $348,000, respectively. In 2004these expenses were $242,000.

*Generaland Administrative Charges.**  *We incurred general and administrative charges andcorporate depreciation of $6.8 million in 2006 compared to $3.2 in 2005 and$2.0 million in 2004.

Significantexpenditures for general and administrative expenses for year ended December 31,2006, 2005 and 2004 were:

| ** **                                  | ** ** | **(Amounts in 000’s)  Year Ended** | ** ** |
|---------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                  | ** ** | **2006**                                               | ** ** | **2005** | ** ** | **2004** | ** ** |
| Stock  compensation expense                 |       | $                                                      | 2,422      |   | $ | 582 |   | $ | — |   |
| Salaries and  payroll burden                |       | 1,570                                                  |       | 1,110 |   | 943 |   |
| Legal,  accounting, public company expenses |       | 1,279                                                  |       | 801 |   | 530 |   |
| Insurance and  bank fees                    |       | 406                                                    |       | 359 |   | 241 |   |
| Consulting and  professional services       |       | 563                                                    |       | 183 |   | 82 |   |
| Office expenses                             |       | 292                                                    |       | 136 |   | 90 |   |
| Travel expenses                             |       | 162                                                    |       | 80 |   | 55 |   |
| Other, project  allocations                 |       | 61                                                     |       | (60 | ) | 58 |   |
| Total                                       | ** ** | $                                                      | 6,755      |   | $ | 3,191 |   | $ | 1,999 | ** ** |

 

The non-cash compensation expense recorded for theyear ended December 31, 2006 resulted from the adoption of SFAS 123(R) inJanuary 2006, requiring the recognition of expense related to the Company’sstock option grants. The value of each option award is estimated on the date ofgrant using the Black-Scholes option-pricing model. The Black-Scholesoption-pricing model requires the input of 

25

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subjective assumptions,including the expected term of the option award and stock price volatility. Theexpected term of options granted was derived from historical data on ouremployee exercise and post-vesting employment termination experience. Theexpected volatility was based on the historical volatility of our stock. Thenon-cash stock compensation expense recorded in 2005 resulted from the grant ofstock options that were subject to approval of an amendment to the Company’sstock option plan which was received in June 2005.

Salary and payroll costs increases for the yearpresented resulted primarily from the additions to the engineering,professional and executive levels in South Texas and New Mexico made in late2005 and 2006, compensation increases for the Company’s key personnel in 2006and a discretionary match made to the Company’s 401(k) profit sharing planfor the plan year ended July 2006. Salary and payroll costs increased in2005 compared to 2004 from additions to the engineering, professional andexecutive levels in South Texas and New Mexico made in late 2004 and 2005.

The Company’s legal, accounting and public companyexpenses increased for the year from the increase in transactions andactivities occurring in 2006. Such transactions and activities included therenegotiation of the Company’s long-term sales contracts, the negotiation of ajoint venture in New Mexico with Itochu Corporation, increased costs to conductthe annual shareholder meeting, an increase in the number of Board of Directorsmeetings and preparation of the Company’s NASDAQ application listing. Legal,accounting and public company expenses increased in 2005 from 2004 because oflegal and accounting costs related to our SEC filings, our resale registrationstatements, negotiation of our New Mexico joint venture and increased Boardmeeting activity during the year.

Our insurance costs increased in the year from higherdirectors and officer’s insurance premiums and increased vehicle coverage premiumsresulting from additional vehicles in 2006. Bank fees increased as a result ofadditions to our financial surety requirements for our South Texas uraniumprojects. Insurance costs increased in 2005 compared to 2004 from highergeneral liability, property, directors and officers and auto insurance premiumswhen compared to 2004.

The costs for consulting and professional servicesincreased in year as a result of an increase in project related activities in2006. Such activities include the Company’s compliance work related to it’sSarbanes-Oxley requirements in 2006, the increase in activities in New Mexicorelated to the preparation of these projects towards their final licensing andpermitting phase, increases in environmental, health and safety training andconsulting work, computer networking and web site design work and activitiesperformed in the formulation of a corporate strategic plan. Increasedconsulting and professional services in 2005 from 2004 related to expansion ofour New Mexico and South Texas community awareness activities, uranium industryconsulting fees and costs related to the update of our uranium reserve report.

Increased office costs incurred in the year resultedprimarily from the opening of a corporate office location in Corpus Christi,Texas in June 2006 and increases in the South Texas Kingsville operationsoffice resulting from the personnel added in 2006. Office related costincreases in 2005 compared to 2004 were for additional telephone, officeequipment and miscellaneous office expenses from the increase in South Texasstaffing.

*NetIncome (Loss).**  *For thetwelve months ended December 31, 2006 we had net earnings of $21.5 millioncompared to a net loss of $35.1 million in 2005 and a net loss of $15.9 millionin 2004. On a diluted per share basis, earnings were $0.42 in 2006 compared toa loss of $(0.96) and $(0.55) for 2005 and 2004, respectively. Included in 2006results was a non-cash gain on derivatives of $34.8 million somewhat offset bya non-cash impairment provision for the Vasquez project of $3.3 million. Theloss in 2005 and 2004 included a non-cash loss on derivatives of $31.0 millionand $13.1 million, respectively.

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*Cash Flow.*   Asof December 31, 2006 we have a cash balance of approximately $20.2 millioncompared to $5.9 million and $269,000 at December 31, 2005 and 2004,respectively.

In 2006, we had a negativecash flow from operations of $2.2 million, resulting primarily from our lowproduction volumes coupled with high production costs incurred during the year.We also used $31.9 million in investing activities, the largest componentof which was the payment of $12.0 million to one of our customers in connectionwith the restructuring of our uranium sales contract. Other significantinvesting activities were for production start-up capital at Kingsville Dome of$10.4 million, additional wellfield development at Vasquez of $3.4 million,Rosita project expenditures of $2.8 million, other Texas property and otherassets of $1.7 million and other property additions in New Mexico of $396,000.

In 2006, we raised netproceeds of approximately $48.2 million through the sale of 10,200,307 sharesat $4.90 per share in April 2006 and $458,000 from the issuance of 229,000shares from the exercise of employee stock options.

Sincethe receipt of the proceeds raised in April 2006, the Company has receivedthe following funds and has made the following expenditures (amounts in millions):

| **Receipts**                                       | ** ** | ** ** | ** ** | ** ** | ** ** |
|----------------------------------------------------|------------|------------|------------|------------|------------|
| Net proceeds from  April 2006 equity offering |       | $          | 48.2       |       |
| Proceeds from  stock option exercise               |       | 0.5        |       |
| Proceeds from  uranium sales                       |       | 7.0        |       |
| Interest/other  income/feasibility study funding   |       | 1.0        |       |
| Total receipts                                     |       | $          | 56.7       |       |

 

| **Expenditures**                                     | ** ** | ** ** | ** ** | ** ** | ** ** |
|------------------------------------------------------|------------|------------|------------|------------|------------|
| Buyout of  long-term uranium sales contract          |       | $          | 12.0       |       |
| Working capital                                      |       | 4.3        |       |
| Kingsville Dome  capital expenditures                |       | 7.0        |       |
| Kingsville Dome  operations/restoration expenditures |       | 2.4        |       |
| Vasquez capital  expenditures                        |       | 2.6        |       |
| Vasquez  operations expenditures                     |       | 2.2        |       |
| Rosita project  capital expenditures                 |       | 2.4        |       |
| Rosita project  operations/restoration expenditures  |       | 0.6        |       |
| Other South Texas  capital expenditures              |       | 1.8        |       |
| New Mexico land  and permitting expenditures         |       | 0.3        |       |
| Financial surety  funding                            |       | 1.0        |       |
| Total Expenditures                                   |       | $          | 36.6       |       |

 

In 2005 we had a negativecash flow from operations of $1.7 and raised $13.7 million from financingactivities. In 2005 we spent $3.9 million at Vasquez for property, plant andequipment, $889,000 at Kingsville Dome and $1.5 for other property additions inTexas and New Mexico. Our net cash flow from operations in 2004 was a negative$2.5 and we raised $7.3 million from financing activities. In 2004 we spent$2.7 million at Vasquez for property, plant and equipment, $905,000 atKingsville Dome and $316,000 for other property additions in Texas and NewMexico.

**Liquidity—CashSources and Uses for 2007**

In April 2006 we raised net proceeds ofapproximately $48.2 million by a sale of 10,200,307 shares of Common Stockat $4.90 per share in a private placement to selected accredited investors. Inaddition to the foregoing proceeds, the Company had $5.9 million in cashon hand at December 31, 2005.

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From April to December 2006,our net cash outflows have averaged $1.7 to $1.8 million per month. Our cashbalance at December 31, 2006 was $20.2 million and based upon our currentplan of operations we anticipate that our operating and capital requirementsfor 2007 will be met through existing cash and cash generated from operations.

**DerivativeFinancial Instruments**

The Company determined that its original long-termuranium sales contracts met the definition of derivative financial instrumentsfor financial statement reporting purposes and are recorded on the balancesheet at fair value at December 31, 2005 and 2004. Changes in the fairvalue of such derivatives recorded on the balance sheet are recorded in theconsolidated statements of operations in current earnings as they occur. Suchchanges in the Company’s derivatives represent non-cash charges to earnings forthe present value of the loss the Company would incur in the event it would berequired to purchase uranium in the spot market to satisfy the deliveries underboth of its long-term uranium sales contracts. See Footnote 5 for discussion ofrenegotiated sales contracts.

The Company amended these contracts in March 2006.The amended contracts obligate the Company to deliver 50% of its uraniumproduction to each customer, and do not obligate the Company to deliver anyuranium in excess of its production. The Company has determined that the termsof the amended contracts substantially eliminate their qualification asderivatives.

We recorded a gain onderivatives in 2006 of $34.8 million compared to losses of $30.9 million and$13.1 million in 2005 and 2004, respectively. The gain in 2006 resulted fromchanges in the contract terms of long-term uranium sales contracts that werefinalized in March 2006. In March 2006 we entered into a new contractwith Itochu and a new contract with UG that supersede the prior contracts. Eachof the new contracts calls for delivery of one-half of our actual productionfrom our Vasquez property and other properties in Texas currently owned orhereafter acquired by the Company (excluding certain large potentialexploration plays). The terms of such contracts are summarized in “**Business—Long Term Delivery Contracts**”.

**ContingentLiabilities—Off Balance Sheet Arrangements**

In April 2006, the Company completed the sale of10,200,307 shares of its Common Stock at $4.90 per share to accreditedinvestors resulting in gross proceeds of approximately $50 million beforeexpenses of the offering. The Company has filed a registration statement underthe Securities Act of 1933, as amended, to register the resale of the shares.Such shares are subject to certain resale registration rights that includepenalties in the event the registration statement fails to remain effective.

The Company has obtained financial surety relating tocertain of its future restoration and reclamation obligations as required bythe State of Texas regulatory agencies. The Company has bank Letters of Credit(the “L/C’s) and performance bonds issued for the benefit of the Company tosatisfy such regulatory requirements. The L/C’s were issued by Bank of Americaand the performance bonds have been issued by United States Fidelity andGuaranty Company (“USF&G”). L/C’s for $2.0 million and$1.1 million were issued at December 31, 2006 and December 31,2005, respectively, such L/C’s are collateralized in their entirety by certificatesof deposit.

Performance bonds totaling$2.8 million were issued for the benefit of the Company at December 31,2006 and December 31, 2005. USF&G has required that the Companydeposit funds collateralizing a portion of the bonds. The amount of bondingissued by USF&G exceeded the amount of collateral by $2.5 million at December 31,2006 and December 31, 2005, respectively. In the event that USF&G isrequired to perform under its bonds or the bonds are called by the stateagencies, the Company would be obligated to pay any expenditure in excess ofthe collateral.

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**Critical AccountingPolicies**

Our significant accounting policies are described inNote 2 to the consolidated financial statements on page F-8 ofthis prospectus. We believe our most critical accounting policies involve thoserequiring the use of significant estimates and assumptions in determiningvalues or projecting future costs.

Specifically regarding our uranium properties,significant estimates were utilized in determining the carrying value of theseassets. These assets have been recorded at their estimated net realizable valuefor impairment purposes on a liquidation basis, which is less than our cost.The actual value realized from these assets may vary significantly from theseestimates based upon market conditions, financing availability and otherfactors.

Regarding our reserve for future restoration andreclamation costs, significant estimates were utilized in determining thefuture costs to complete the groundwater restoration and surface reclamation atour mine sites. The actual cost to conduct these activities may varysignificantly from these estimates.

Such estimates and assumptions affect the reportedamounts of assets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and the reported amounts ofexpenses during the reporting period.

The accounts of theCompany are maintained in United States dollars. All dollar amounts in thefinancial statements are stated in United States dollars except whereindicated.

**Impact of RecentAccounting Pronouncements**

In December 2004, the FASB issued SFAS No. 123(revised 2004) (SFAS No. 123R) “Share-Based Payments.” SFAS No. 123Rrequires that the cost from all share-based payment transactions, includingstock options, be recognized in the financial statements at fair value. SFAS No. 123Ris effective for the Company in the first interim period after December 15,2005. SFAS No. 123R requires measurement and recording to the financialstatements of the costs of employee services received in exchange for a grantof equity instruments based on the grant-date fair value of the award,recognized over the period during which an employee is required to provideservices in exchange for such award. The Company adopted the provisions of SFASNo. 123R on January 1, 2006. Compensation expense will be recognizedfor all newly granted options after January 1, 2006. The implementation ofSFAS No. 123R resulted in a non-cash charge against earnings in 2006 of$2.422 million.

In March 2005, the FASB ratified Emerging IssuesTask Force Issue No. 04-6, “Accounting for Stripping Costs Incurredduring Production in the Mining Industry,” (EITF 04-6) which addressesthe accounting for stripping costs incurred during the production phase of amine and refers to these costs as variable production costs that should beincluded as a component of inventory to be recognized in operating costs in thesame period as the revenue from the sale of inventory. The EITF 04-6applies specifically to conventional mining operations (open pit mining), andas a result the company does not believe it is applicable to the Company’s insitu recovery mining operations.

In June 2006, the FASB issued FASB InterpretationNo. 48, “Accounting for Uncertainty in Income Taxes, an interpretation ofFASB Statements No. 109” (“FIN 48”). FIN 48 clarifies the accounting foruncertainty in income taxes by prescribing a two-step method of firstevaluating whether a tax position has met a more likely than not recognitionthreshold and second, measuring that tax position to determine the amount ofbenefit to be recognized in the financial statements. FIN 48 provides guidanceon the presentation of such positions within a classified statement offinancial position as well as on derecognition, interest and penalties,accounting in interim periods, disclosure, and transition. FIN 48 is effectivefor fiscal years beginning after December 15, 2006. The adoption of thisstatement is not expected to have a material effect on the Company’s futurereported financial position or results of operations.

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In September 2006,the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108,“Considering the Effects of Prior Year Misstatements when Quantifying Misstatementsin Current Year Financial Statements” (“SAB 108”), which provides interpretiveguidance on the consideration of the effects of prior year misstatements inquantifying current year misstatements for the purpose of a materialityassessment. The Company adopted SAB 108 in the fourth quarter of 2006. SAB 108allows a one-time transitional cumulative effect adjustment to beginningretained earnings as of January 1, 2006 for errors that were notpreviously deemed material, but are material under the guidance in SAB 108. Theadoption of this statement is not expected to have a material effect on theCompany’s future reported financial position or results of operations.

**Item 7A.**                Quantitativeand Qualitative Disclosures About Market Risk.

**Uranium PriceVolatility**

The Company is subject to market risk related to themarket price of uranium. The Company’s cash flow has historically beendependent on the price of uranium, which is determined primarily by globalsupply and demand, relative to the Company’s costs of production. Historically,uranium prices have been subject to fluctuation, and the price of uranium hasbeen and will continue to be affected by numerous factors beyond the Company’scontrol, including the demand for nuclear power, political and economic conditions,and governmental legislation in uranium producing and consuming countries andproduction levels and costs of production of other producing companies.

The spot market price foruranium has demonstrated a large range since January 2001. Prices haverisen from $7.10 per pound at January 2001 to a high of $113.00 per poundas of April 23, 2007.

**DerivativeFinancial Instruments**

The Company determinedthat its original long-term uranium sales contracts met the definition ofderivative financial instruments for financial statement reporting purposes andare recorded on the balance sheet at fair value at December 31, 2005 and2004. Changes in the fair value of such derivatives recorded on the balancesheet are recorded in the consolidated statements of operations in currentearnings as they occur. Such changes in the Company’s derivatives representnon-cash charges to earnings for the present value of the loss the Companywould incur in the event it would be required to purchase uranium in the spotmarket to satisfy the deliveries under both of its long-term uranium salescontracts. See Footnote 5 for discussion of renegotiated sales contracts.

The Company amended thesecontracts in March 2006. The amended contracts obligate the Company todeliver 50% of its uranium production to each customer, and do not obligate theCompany to deliver any uranium in excess of its production. The Company hasdetermined that the terms of the amended contracts substantially eliminatetheir qualification as derivatives.

Management appliessignificant judgment in estimating the fair value of instruments that arehighly sensitive to assumptions regarding uranium prices and marketvolatilities. Future factors, such as changes in uranium market price, changesin pricing and delivery terms and the physical delivery of produced uraniumunder the contracts, among others, may impact the amount of the liability.Variations in these factors could materially affect amounts credited or chargedto operations to reflect the changes in fair market value of derivatives.

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**Item8.**                        FinancialStatements and Supplementary Data.

**Financial Statements**

The financial statementinformation called for by this item appears on pages F-1 through F-27.

**Supplementary Financial Data Table**

**SUPPLEMENTARYFINANCIAL DATA(UNAUDITED)**

| ** **                                | ** ** | **For the Quarter Ended(1)** | ** ** |
|-------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                | ** ** | **12/31/2006**                              | ** ** | **9/30/2006** | ** ** | **6/30/2006** | ** ** | **3/31/2006** | ** ** | **12/31/2005** | ** ** | **9/30/2005** | ** ** | **6/30/2005** | ** ** | **3/31/2005  (Restated)** | ** ** |
| ** **                                | ** ** | **(Amounts in Thousands)**        | ** ** |
| Uranium sales                             |       |                                        | $          | 2,903 |   |   |   | $ | 2,765 |   |   |   | $ | 1,844 |   |   | $ | 1,069 |   | $ | 836 |   |   | $ | 1,263 |   |   | $ | 1,060 |   |   | $ | 1,706 |   |   |
| Earnings (loss)  from operations          |       |                                        | (2,999     | ) |   |   | (6,371 | ) |   |   | (2,148 | ) |   | 31,947 |   | (21,114 | ) |   | (2,051 | ) |   | (10,077 | ) |   | (2,376 | ) |   |
| Net earnings  (loss)                      |       |                                        | (2,543     | ) |   |   | (5,989 | ) |   |   | (2,116 | ) |   | 32,158 |   | (20,629 | ) |   | (2,018 | ) |   | (10,082 | ) |   | (2,358 | ) |   |
| Net earnings (loss) per  common share:(2) |       |                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                     |       |                                        | $          | (0.05 | ) |   |   | $ | (0.12 | ) |   |   | $ | (0.04 | ) |   | $ | 0.79 |   | $ | (0.50 | ) |   | $ | (0.05 | ) |   | $ | (0.30 | ) |   | $ | (0.07 | ) |   |
| Diluted                                   |       |                                        | $          | (0.05 | ) |   |   | $ | (0.12 | ) |   |   | $ | (0.04 | ) |   | $ | 0.73 |   | $ | (0.50 | ) |   | $ | (0.05 | ) |   | $ | (0.30 | ) |   | $ | (0.07 | ) |   |

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(1)          Unaudited quarterlyresults.

(2)          Netearnings (loss) per common share information reflects the effect of a reverse1 for 4 stock split made effective April 11, 2006.

**Item 9.**                        Changesin and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

**Item 9A.**                Controlsand Procedures.

During the fiscalperiod covered by this report, the Company’s management, with the participationof the Chief Executive Officer and Chief Financial Officer of the Company,carried out an evaluation of the effectiveness of the design and operation ofthe Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) of the Securities Exchange Act of 1934, as amended (the“Exchange Act”)).

Based on that evaluation, our Chief Executive Officerand Chief Financial Officer concluded that our disclosure controls andprocedures as of December 31, 2006 were not effective as a result of thematerial weakness in our internal controls over financial reporting discussedbelow.

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**Management’s Report on Internal Control Over FinancialReporting**

The management of the Company is responsible forestablishing and maintaining adequate internal control over financialreporting. The Securities and Exchange Act of 1934 defines internal controlover financial reporting in Rule 13a-15(f) and 15d-15(f) asa process designed by, or under the supervision of, the company’s principalexecutive and principal financial officers and effected by the company’s boardof directors, management and other personnel, to provide reasonable assuranceregarding the reliability of financial reporting and the preparation offinancial statements for external purposes in accordance with generallyaccepted accounting principles and includes those policies and procedures that:

·       Pertain to the maintenanceof records that in reasonable detail accurately and fairly reflect thetransactions and dispositions of the assets of the company;

·       Provide reasonableassurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with generally accepted accountingprinciples, and that receipts and expenditures of the company are being madeonly in accordance with authorizations of management and directors of thecompany; and

·       Provide reasonableassurance regarding prevention or timely detection of unauthorized acquisition,use or disposition of the company’s assets that could have a material effect onthe consolidated financial statements.

Because of itsinherent limitations, internal control over financial reporting may not preventor detect misstatements. Also, projections of any evaluation of effectivenessto future periods are subject to risk that controls may become inadequatebecause of changes in conditions, or that the degree of compliance with thepolicies or procedures may deteriorate.

The Company’smanagement assessed the effectiveness of the Company’s internal control overfinancial reporting as of December 31, 2006. In making this assessment,the Company’s management used the criteria set forth by the Committee ofSponsoring Organizations of the Treadway Commission (COSO) in *Internal Control—Integrated Framework*.

Under thesupervision and with the participation of our management, including our ChiefExecutive Officer and Chief Financial Officer, we conducted an evaluation ofthe effectiveness of our internal control over financial reporting inconnection with preparation of the annual report on Form 10-K forthe year ended December 31, 2006. As a result of these assessments, amaterial weakness was identified in March 2007, in connection with ouryear ended December 31, 2006 audit procedures, leading management toconclude that our internal controls over financial reporting were not effectiveas of December 31, 2006. A material weakness is a control deficiency, orcombination of control deficiencies, that results in more than a remotelikelihood that a material misstatement of the annual or interim financialstatements will not be prevented or detected.

The following material weakness forms the basis forour conclusion at December 31, 2006:

·       *Controlsover the Review of Financial Statements.*Our financial andaccounting organization consists of the Vice President—Finance and theCorporate Controller. Due to a lack of financial and accounting resources, thefinancial records preparation and review procedures performed by our personnelwith respect to our application of the fair value recognition provisions ofStatement of Financial Accounting Standard 123(R) “*Share-Based Payment”* (“SFAS 123(R)”) forthe fourth quarter of 2006 did not correctly record certain terms of stockoption grants made in the fourth quarter of 2006. This matter was identified byour auditors in March 2007 during the course of their audit procedures andresulted in an audit adjustment increasing stock compensation expense by$629,000 in our year end 2006 financial statements. Because of this lack ofresources, review 

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procedures were notconsistently performed on a timely basis to ensure that financial reporting andfraud risk controls were operating in the manner designed.

Hein & Associates LLP, the independentregistered public accounting firm that audited the consolidated financialstatements of the Company included in this Annual Report on Form 10-K,has issued an audit report on management’s assessment of the effectiveness ofthe Company’s internal control over financial reporting as of December 31,2006. The report, dated March 27, 2007, which expressed an unqualifiedopinion on management’s assessment of the effectiveness of the Company’sinternal control over financial reporting and an opinion that the Company hadnot maintained effective internal control over financial reporting as ofDecember 31, 2006 based on criteria established in *Internal Control—Integrated Framework*issuedby the Committee of Sponsoring Organizations of the Treadway Commission (COSO)is included below.

**Changes in Internal Controls**

There were no changes in our internal control overfinancial reporting during our last fiscal quarter that have materiallyaffected, or are reasonably likely to materially affect, our internal controlover financial reporting. Management is continuing to evaluate and implementprocedures necessary to fully remediate the material weakness described above.Management is in the process of making the following changes to its system ofinternal controls:

·       We are planning for a relocation andexpansion of our Corporate office in the second quarter of 2007, which willallow for the hiring of additional personnel, including both experiencedaccounting and support staff to allow for improved segregation of duties andallow for a more thorough review, by senior financial personnel, of thefinancial statements and underlying supporting documentation. In March andApril 2007, we contacted various search firms specializing in the accountingand financial services areas to identify and recruit qualified personnel. Weare in the process of reviewing potential candidates to expand our internalaccounting resources.

·       The addition of accountingand support staff will allow for the formal documentation our purchasing andprocurement policies and permit the implementation of review procedures at eachuranium project location and in the financial reporting area for compliancewith such policies.

**Report ofIndependent Registered Public Accounting Firm**

To the Board of DirectorsUranium Resources, Inc.Lewisville, TX  75067

We have audited management’s assessment, included inManagement’s Report on Internal Control over Financial Reporting appearingunder Item 9A, that Uranium Resources, Inc. maintained effective internalcontrol over financial reporting as of December 31, 2006, based on thecriteria established in Internal Control—Integrated Framework issued by theCommittee of Sponsoring Organizations of the Treadway Commission (COSO).Uranium Resources, Inc.’s management is responsible for maintainingeffective internal control over financial reporting and for its assessment ofthe effectiveness of internal control over financial reporting. Our responsibilityis to express an opinion on management’s assessment and an opinion on theeffectiveness of the company’s internal control over financial reporting basedon our audit.

We conducted our audit in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether effective internal control over financial reporting wasmaintained in all material respects. Our audit included obtaining anunderstanding of internal control over financial reporting, evaluatingmanagement’s assessment, testing and evaluating the design and operating 

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effectiveness of internal control, and performing suchother procedures as we considered necessary in the circumstances. We believethat our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reportingis a process designed to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles. Acompany’s internal control over financial reporting includes those policies andprocedures that (1) pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions anddispositions of the assets of the company; (2) provide reasonableassurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with generally accepted accountingprinciples, and that receipts and expenditures of the company are being madeonly in accordance with authorizations of management and directors of thecompany; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of thecompany’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal controlover financial reporting may not prevent or detect misstatements. Also,projections of any evaluation of effectiveness to future periods are subject tothe risk that controls may become inadequate because of changes in conditions,or that the degree of compliance with the policies or procedures maydeteriorate.

A material weakness is a control deficiency, orcombination of control deficiencies, that results in more than a remotelikelihood that a material misstatement of the annual or interim financialstatements will not be prevented or detected. The following material weaknesshas been identified and included in management’s assessment.

Due to a lack of an adequate amount of accountingresources, review procedures are not consistently performed on a timely basisto ensure that financial reporting and fraud risk controls are operating in themanner designed.

This material weakness was considered in determiningthe nature, timing, and extent of audit tests applied in our audit of the 2006financial statements, and this report does not affect our report datedMarch 27, 2007 on those financial statements.

In our opinion, management’s assessment that UraniumResources, Inc. did not maintain effective internal control over financialreporting as of December 31, 2006, is fairly stated, in all materialrespects, based on the criteria established in Internal Control—IntegratedFramework issued by the Committee of Sponsoring Organizations of the TreadwayCommission (COSO). Also, in our opinion, because of the effect of the materialweakness described above on the achievement of the objectives of the controlcriteria, Uranium Resources, Inc. has not maintained effective internalcontrol over financial reporting as of December 31, 2006, based on thecriteria established in Internal Control—Integrated Framework issued by theCommittee of Sponsoring Organizations of the Treadway Commission (COSO).

We have also audited, in accordance with the standardsof the Public Company Accounting Oversight Board (United States), theconsolidated balance sheet of Uranium Resources, Inc. as ofDecember 31, 2006 and 2005, and the related consolidated statements ofoperations, stockholders’ equity, and cash flows for each of the three years inthe period ended December 31, 2006 of Uranium Resources, Inc. and ourreport dated March 27, 2007 expressed an unqualified opinion thereon.

***HEIN**** &ASSOCIATES LLP*Dallas, TexasMarch 27, 2007

**Item9B.**               Other Information.

None.

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**PART III**

**Item 10.**                 Directors,Executive Officers and Corporate Governance.

**Directors**

The Board of Directors consists of five individualslisted below who hold office until the next annual meeting of stockholders anduntil their successors are elected and qualified. Directors are elected belowby plurality vote.

| **Name**          | ** ** | ** ** | ** ** | **Age** | ** ** | **Positions and Offices  with the Company** | ** ** |
|-------------------|------------|------------|------------|---------|------------|-----------------------------------------------------------------|------------|
| Paul K. Willmott  |       |       | 67         |    |       | Chairman,  Chief Executive Officer and Director                 |       |
| David N. Clark    |       |       | 52         |    |       | President,  Chief Operating Officer and Director                |       |
| Leland O. Erdahl  |       |       | 78         |    |       | Director                                                        |       |
| George R. Ireland |       |       | 50         |    |       | Director                                                        |       |
| Terence J. Cryan  |       |       | 44         |    |       | Director                                                        |       |

 

**Paul K. Willmott**has served as a director since August 1994, as President fromFebruary 1995 to October 2006, and as Chairman of the Board and ChiefExecutive Officer since July 31, 1995. Mr. Willmott served as our ChiefFinancial Officer from April 12, 1995 to September 25, 1995.Mr. Willmott retired from Union Carbide Corporation (“Union Carbide”)where he was involved for 25 years in the finance and operation of UnionCarbide’s world-wide mining and metals business. Most recently,Mr. Willmott was President of UMETCO Minerals Corporation, a wholly ownedsubsidiary of Union Carbide, from 1987 to 1991, where he was responsible forUnion Carbide’s uranium and vanadium businesses. From January 1993 untilFebruary 1995, Mr. Willmott was engaged by the Concord Mining Unit asa senior vice president where he was primarily involved in the acquisition ofUMETCO Minerals Corporation’s uranium and vanadium operating assets.Mr. Willmott graduated from Michigan Technological University with aBachelor of Science degree in Mining in 1964 and a Bachelor of Science Degreein Engineering Administration in 1967. He has been an active member of theAmerican Institute of Mining Engineers, the Canadian Institute of MiningEngineers and a number of state professional organizations.

**David N. Clark**has served as a director since June 2006 and as President sinceOctober 2006. Prior to April 2007, Mr. Clark was the principalowner of Ux Consulting Company LLC (“UxC”). UxC publishes the Ux Weekly and theUxC Market Outlook Reports, which cover the complete nuclear fuel cycleincluding uranium, conversion and enrichment. Mr. Clark co-founded UxC inMarch 1994 as an affiliate of The Uranium Exchange Company (“Ux”), auranium brokerage and consulting company he founded in 1987. Mr. Clark hasalso held marketing positions with other entities in the nuclear fuel business.He began his career as a Field Geologist and Market Analyst for the uraniumdivision of the Cleveland-Cliffs Iron Company. Mr. Clark holds a Bachelorof Science degree in Geology (1978) from the University of Akron.

**Leland O. Erdahl**has served as a director since July 11, 1994. From 1986 to 1991,Mr. Erdahl served as President and Chief Executive Officer forStolar, Inc., a high-tech company involved in the radio wave imaging ofgeologic media and underground radio transmission for voice and data. He wasPresident and CEO of Albuquerque Uranium Corporation, a uranium mining company,from 1987 to 1991 and served as Vice President of AMAX Gold in 1997 and 1998.From January 2001 to September 14, 2001 Mr. Erdahl served asPresident of Nord Pacific Limited, a mining company with gold and copperinterests in Australia and Papau, New Guinea. He is a Certified PublicAccountant and is a graduate from the College of Santa Fe. He is currently adirector of Canyon Resources Corporation (a mining company whose primarybusiness is the discovery and production of precious metals). Mr. Erdahlalso serves on the compensation committee of Canyon Resources Corporation andis Chairman of its Audit Committee.

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**George R. Ireland**has served as a director since 1995. Mr. Ireland is President and ChiefInvestment Officer of Geologic Resource Partners LLC, an investment managementcompany which manages Ring Partners L.P., a Colorado limited partnership, theGeologic Resource Fund Ltd., a Grand Cayman investment company, and GeologicResource Fund L.P., a Delaware Limited Partnership, which positions he has heldsince June 2000. Prior to such time, Mr. Ireland was an analyst atKnott Partners L.P., a Delaware limited partnership, where he worked sinceMay 1993. Mr. Ireland is also a director of Peru Copper Inc. since2004 and director of Geoinformatics Exploration Inc. since November 2005.Both companies are listed on the TSX Venture Exchange. Mr. Ireland servesas Chairman of the Investment Committee of the Society of Economic Geologists.He received a Bachelor of Science degree in Resource Economics and Geology fromthe University of Michigan in 1980 and is a citizen and resident of the UnitedStates.

**Terence J. Cryan** has servedas director since October 2006. Mr. Cryan has over twenty years ofexperience in international business as an investment banker in the US andEurope. In 2001, Mr. Cryan co-founded and serves as the Managing Directorof Concert Energy Partners, an investment banking and private equity firm basedin New York City. Prior to that, Mr. Cryan was a Senior Managing Directorin the Investment Banking Division at Bear Stearns. Earlier in his career, Mr. Cryanwas a Managing Director, Group Head and member of the Investment BankingOperating Committee at Paine Webber. Mr. Cryan joined Paine Webberfollowing its acquisition of Kidder, Peabody in 1994. Mr. Cryan is anadjunct professor at the Metropolitan College of New York Graduate School ofBusiness, has served as director of a number of international companies and isa frequent lecturer at finance and energy industry gatherings. Mr. Cryanholds a Master of Science degree in Economics from the London School ofEconomics and a B.A. from Tufts University.

**Arrangements Regarding Election of Directors**

There are no arrangements regarding the election ofdirectors.

**Other Executive Officers**

The executiveofficers serve at the discretion of the Board of Directors and are subject toannual appointment by the Board at its first meeting following the AnnualMeeting of the Stockholders. The officers hold office until their successorsare appointed by the Board of Directors. All officers are employed on afull-time basis. There is no family relationship between any director andexecutive officer.

The following table sets forth certain informationconcerning executive officers that are not also directors:

| **Name**                      | ** ** | ** ** | ** ** | **Age** | ** ** | **Positions and Offices**                                                                           | ** ** |
|-------------------------------|------------|------------|------------|---------|------------|---------------------------------------------------------------------------------------------------------------|------------|
| Richard A. Van Horn           |       |       | 59         |    |       | Senior  Vice President—Operations                                                                        |       |
| Thomas H. Ehrlich             |       |       | 47         |    |       | Vice  President, Chief Financial Officer, Secretary and Treasurer                                             |       |
| Mark S. Pelizza               |       |       | 53         |    |       | Vice  President—Health, Safety and Environmental Affairs                                                 |       |
| Craig S. Bartels              |       |       | 57         |    |       | Senior  Vice President—Technology and New Project Development and President, Hydro  Resources, Inc. |       |
| William M. McKnight, Jr. |       |       | 69         |    |       | Vice  President—Exploration                                                                              |       |

 

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The following sets forth certain informationconcerning the business experience of the foregoing executive officers duringthe past five years.

**Richard A. Van Horn**joined us in March 1997 and assumed the position of Senior Vice Presidentof Operations on April 1, 1997. Previously, he spent three years withEnergy Fuels Nuclear, Inc. as General Manager—Colorado Plateau Operationswith responsibility for the daily management of and planning for Energy FuelsNuclear, Inc. mining activities on the Colorado Plateau. Before his workat Energy Fuels Nuclear, Inc., Mr. Van Horn spent eighteen yearswith Union Carbide Corporation where he was involved with the finance andoperation of that company’s worldwide mining and metals business. From 1990 to1994, Mr. Van Horn was Director of Operations of UMETCO MineralsCorporation, a wholly owned subsidiary of Union Carbide Corporation,responsible for all operating aspects of UMETCO’s uranium and vanadium businesson the Colorado Plateau prior to its sale to Energy Fuels Nuclear, Inc.Mr. Van Horn graduated from the Colorado School of Mines with a Engineerof Mines degree in mining in 1973.

**Thomas H. Ehrlich,**a certified public accountant, rejoined us in September 1995 as VicePresident and Chief Financial Officer and was appointed Secretary and Treasurerin December 1995. Immediately before that, Mr. Ehrlich spentnine months as a Division Controller with Affiliated ComputerServices, Inc., an information technology services provider in Dallas,Texas. Mr. Ehrlich originally joined us in November 1987 asController—Public Reporting and was promoted to Controller and Chief AccountingOfficer in February 1990. In February 1993, Mr. Ehrlich assumedthe additional duties of Vice President and Secretary. Before joining us, hespent four years with Deloitte Haskins & Sells and workedprimarily with clients that were publicly held companies. Prior to his work atDeloitte Haskins & Sells, he spent three years in variousaccounting duties at Enserch Exploration, Inc., an oil and gas company inDallas, Texas. Mr. Ehrlich received his B.S. B.A. degree in Accountingfrom Bryant College in 1981.

**Mark S. Pelizza**has served as our Environmental Manager since 1980, and as such, he has beenresponsible for all environmental regulatory activities. In February 1996,he was appointed Vice President—Health, Safety and Environmental Affairs. InNovember 1999, he was appointed President and a Director of HydroResources, Inc., a wholly owned subsidiary. Before joining us, he wasemployed for two years by Union Carbide as an Environmental PlanningEngineer at Union Carbide’s Palangana solution mining plant in South Texas.Mr. Pelizza received a M.S. degree in Engineering Geology from ColoradoSchool of Mines in 1978 and a B.S. degree in Geology from Fort Lewis College in1974.

**Craig S. Bartels,**a Licensed Professional Engineer and a Licensed Professional Geoscientist,rejoined the Company as Senior Vice President—Technology and New ProjectDevelopment, and President of Hydro Resources, Inc., a wholly ownedsubsidiary of the Company in December 2004. He was previously an officerof HRI from July 1996 until September 1999, when he started aconsulting company specializing in ISR technology, hydrology and geochemistry.Among his projects as a consultant, he helped with design and startup of theBeverley ISR project in Australia, evaluated an Arizona copper ISR project fora Canadian firm, and began an upgrade of his commercial groundwater model. FromJanuary 1995 to July 1996, he was Manager of Wellfield Operations forCrow Butte Resources, Inc., a uranium ISR mining company. Mr. Bartelsoriginally joined the Company in early 1981 and held varied positions with theCompany as Reservoir Engineer, Plant Manager and Manager of WellfieldOperations through October 1994. Earlier, he was with Union Carbide,eventually becoming Technical and Plant Superintendent for their solutionmining operation. Mr. Bartels also spent six years with Natural GasPipeline Company of America, a major gas transmission company, as drilling andreservoir engineer for their gas storage operations. Mr. Bartels receiveda B.S. Degree in Petroleum Engineering from Montana School of Mines in 1972.

**William M. McKnight, Jr.,**rejoined the Company in September 2005 as Vice President—Exploration.Mr. McKnight is responsible for exploration and land acquisitionactivities of the Company. Mr. McKnight was one of the founders of theCompany and served as Sr. Vice President—Operations and Chief 

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Operating Officer from 1978 to 1997. He also served asa director of the Company until 1994. Before rejoining the Company he served asan independent consultant for several companies, evaluating uraniummineralization potential for projects located both domestically and in foreigncountries. Mr. McKnight also served as President of ACHEMCO, Inc.from 1999 to 2004, a privately held company, specializing in the treatment ofmunicipal waste.

**Section 16(a) Beneficial Ownership ReportingCompliance.**

Section 16(a) ofthe Securities Exchange Act of 1934, as amended, requires the Company’sofficers and directors, and persons who own more than 10% of a registered classof the Company’s equity securities, to file reports of ownership and changes inownership with the SEC and the National Association of SecuritiesDealers, Inc. Officers, directors, and greater than 10% stockholders arerequired by SEC regulation to furnish the Company with copies of allSection 16(a) filings.

Directors and officers of the Company have filed allrequired Form 4s and Form 5s.

**Amended Code ofEthics for Senior Financial Officers**

In December 2006, we adopted an Amended Code ofEthics for Senior Financial Officers including the Company’s chief executiveofficer, chief financial officer, controller, treasurer, and chief internalauditor, if any (“Amended Code of Ethics”). A copy of the Amended Code ofEthics can be found on the Company’s Web site or a copy will be furnishedwithout charge upon request to our Vice President and Chief Financial Officerat the Company’s principal executive offices.

**Audit Committee**

**The Company has a standing AuditCommittee that was established in accordance with section 3(a)(58)(A) ofthe Securities and Exchange Act of 1934, as amended, and operates under awritten charter adopted and approved by the Board of Directors. The currentmembers of the Audit Committee are Leland O. Erdahl, George R.Ireland and Terence J. Cryan. Mr. Erdahl, Mr. Ireland andMr. Cryan are independent directors under the requirements of the NASDAQGlobal Market as determined by our Board of Directors. The Company’s Board ofDirectors has reviewed the qualifications of those serving on our Audit Committee and has determined that we have at leastone audit committee financial expert serving on our Audit Committee.Mr. Leland O. Erdahl has been designated as our Audit Committeefinancial expert. Mr. Erdahl serves as chairman of the Audit Committee andis independent of the management of the Company. Mr. Erdahl is a certifiedpublic accountant and has served on audit committees of other public companies asa member and, in several cases, as chairman.**

**Item 11.**                 ExecutiveCompensation.

**Compensation Discussion and Analysis**

***Oversight ofExecutive Compensation Program***

The CompensationCommittee of the Board of Directors oversees the Company’s compensationprograms, which are designed specifically for the Company’s most seniorexecutives officers, including the Chief Executive Officer, Chief OperatingOfficer, Chief Financial Officer and the other executive officers named in theSummary Compensation Table (collectively, the “named executive officers”).Additionally, the Compensation Committee is charged with the review and approvalof all annual compensation decisions relating to named executive officers.

The CompensationCommittee is composed entirely of independent, non-management members of theBoard of Directors. No Compensation Committee member participates in any of theCompany’s employee compensation programs. Each year the Company reviews any andall relationships that each 

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director has with the Company and the Board ofDirectors subsequently reviews these findings. The Board of Directors hasdetermined that none of the Compensation Committee members have any materialbusiness relationships with the Company.

The responsibilities of the Compensation Committee, asstated in its charter, include the following:

·       Review and assess theadequacy of the Compensation Committee charter annually and submit any proposedchanges to the Board of Directors for approval;

·       Produce an annual report onexecutive compensation for inclusion in the Company’s proxy statement relatingto its annual meeting of stockholders;

·       Review and make suchrecommendations to the Board of Directors as the Compensation Committee deemsadvisable with regard to all incentive-based compensation plans andequity-based plans;

·       Review and approve thecorporate goals and objectives that may be relevant to the compensation of theCompany’s chief executive officer and chief operating officer;

·       Evaluate the chiefexecutive officer’s and chief operating officer’s performance in light of thegoals and objectives that were set and determine and approve the chief executiveofficer’s and chief operating officer’s compensation based on such evaluation;and

·       Reviewand approve the recommendations of the chief executive officer and/or chiefoperating officer with regard to the compensation of all officers of theCompany other than the chief executive officer and chief operating officer.

***Overview ofCompensation Program***

In order to recruitand retain the most qualified and competent individuals as senior executives,the Company strives to maintain a compensation program that is competitive inthe global labor market. The purpose of the Company’s compensation program isto reward exceptional organizational and individual performance.

The following compensation objectives are consideredin setting the compensation programs for our named executive officers:

·       Drive and rewardperformance which supports the Company’s core values;

·       Provide a percentage oftotal compensation that is “at-risk”, or variable, based on predeterminedperformance criteria;

·       Require significant stockholdings to align the interests of named executive officers with those ofstockholders;

·       Design competitive totalcompensation and rewards programs to enhance the Company’s ability to attractand retain knowledgeable and experienced senior executives; and

·       Setcompensation and incentive levels that reflect competitive market practices.

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***CompensationElements and Rationale***

To reward both short and long-term performance in thecompensation program and in furtherance of the Company’s compensationobjectives noted above, the Company’s compensation program is based on thefollowing objectives:

**(i)**            PerformanceGoals

The Compensation Committee believes that a significantportion of a Senior Executive’s compensation should be tied not only toindividual performance, but also to the Company’s performance as a wholemeasured against both financial and non-financial goals and objectives. Duringperiods when performance meets or exceeds these established objectives, namedexecutive officers should be paid at or more than expected levels. When theCompany’s performance does not meet key objectives, incentive award payments,if any, should be less than such levels.

**(ii)**        IncentiveCompensation

A large portion of compensation should be paid in theform of short-term and long-term incentives, which are calculated and paidbased primarily on financial measures of profitability and stockholder valuecreation. Named executive officers have the incentive of increasing Companyprofitability and stockholder return in order to earn a major portion of theircompensation package.

**(iii)**    CompetitiveCompensation Program

The Compensation Committee reviews the compensation ofexecutives at peer companies to ensure that the compensation program iscompetitive. The Company believes that a competitive compensation program willenhance its ability to attract and retain senior executives. The CompensationCommittee has recently retained GK Partners, an executive compensationconsultant, to advise the committee on developing appropriate financial metricsto be used in settling executive compensation.

***Review of SeniorExecutive Performance***

The CompensationCommittee reviews, on an annual basis, each compensation package for the namedexecutive officers. In each case, the Compensation Committee takes into accountthe scope of responsibilities and experience and balances these againstcompetitive salary levels. The Compensation Committee has the opportunity tomeet with the named executive officers at various times during the year, whichallows the Compensation Committee to form its own assessment of eachindividual’s performance.

In addition, each year, the Chief Executive Officerpresents to the Compensation Committee his evaluation of each other namedexecutive officer, which includes a review of contribution and performance overthe past year, strengths, weaknesses, development plans and successionpotential. Following this presentation, the Compensation Committee makes itsown assessments and approves compensation for each named executive officer.

***Components of theExecutive Compensation Program***

The Compensation Committee believes the totalcompensation and benefits program for named executive officers should consistof the following:

·       Base salary;

·       Stock incentive plan;

·       Retirement, health andwelfare benefits; and

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·       Perquisitesand perquisite allowance payments.

***Base Salaries***

The base salaries of the executive officers aredetermined in comparison with salaries payable at comparable uranium industrycompanies and adjusted as necessary by the Compensation Committee on an annualbasis.

***Stock IncentivePlans***

The Company has twostock Incentive Plans for Employees, both of which were approved by theCompany’s stockholders. Under the 1995 Stock Incentive Plan (the “1995 Plan”)2,600,521 shares may be purchased upon the exercise of outstanding options withexercise prices ranging from $0.76 to $28.50 per share. No new options may begranted under the 1995 Plan. Under the Company’s 2004 Stock Incentive Plan (the“2004 Plan”) a total of 1,750,000 shares may be purchased upon exercise ofoptions granted under the 2004 Plan. At December 31, 2006 there wereoutstanding under the 2004 Plan options for the purchase of 1,722,688 shares ofCommon Stock at exercise prices ranging from $2.97 to $5.19 per share. At December 31,2006, 500 shares were available for future grants under the 2004 Plan. Employeestock options generally vest ratably over a 3 or 4 year time frame and have acontractual term of 10 years.

An importantobjective of the long-term incentive program is to strengthen the relationshipbetween the long-term value of our stock price and the potential financial gainfor employees. Stock options provide employees with the opportunity to purchaseour Common Stock at a price fixed on the grant date regardless of future marketprice. A stock option becomes valuable only if our Common Stock price increasesabove the option exercise price (at which point the option will be deemed“in-the-money”) and the holder of the option remains employed during the periodrequired for the option to “vest” thus, providing an incentive for an optionholder to remain employed by the Company. In addition, stock options link aportion of an employee’s compensation to stockholders’ interests by providingan incentive to increase the market price of our stock.

The exercise prices of thestock options granted to the named executive officers during fiscal year 2006are shown in the Grant of Plan-Based Awards Table on page 45. Additionalinformation on these grants, including the number of shares subject to eachgrant, also is shown in the Grants of Plan-Based Awards Table.

Options are grantedperiodically. The exercise price for each stock option is the market value onthe date of grant.

Upon a Change ofControl (as defined in the Plans) of the Company, all stock options grantedunder the 2004 Plan will become exercisable in full. Also, in the event thenumber of outstanding shares of Common Stock is increased or decreased orchanged into or exchanged for a different number or kind of shares of stock orother securities of the Company or of another Company, as a result of a stocksplit, stock dividend, combination or exchange of shares, merger or otherwise,each share subject to an unexercised option will be substituted for the number andkind of shares into which each share of outstanding Common Stock is to bechanged or for which each such share is to be exchanged and the option pricewill be increased or decreased proportionately.

Option holders generallyforfeit any unvested options if their employment with the Company terminates,except that upon, death or disability while employed with the Company thenoutstanding stock options may be exercised within the one year period ending onthe anniversary of such death or permanent and total disability to the sameextent that the option was exercisable on the date of death or disability.

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The Compensation Committee has recently retained GKPartners, a compensation consulting firm, to advise it on establishingappropriate criteria for considering stock option grants to named executiveofficers.

***Retirement, Healthand Welfare Benefits***

The Company offers a variety of health and welfare andretirement programs to all eligible employees. The named executive officersgenerally are eligible for the same benefit programs on the same basis as therest of the broad-based employees. The Company’s health and welfare programsinclude medical, dental and vision. In addition to the foregoing, the namedexecutive officers are eligible to participate in the following programs:

*Supplemental Health Care Plan*

The Company has adopted a health care plan (the“Supplemental Plan”) for the Company’s named executive officers and certain ofits other employees, which supplements the standard health care plan availableto all eligible employees (the “Standard Plan”). The Supplemental Plan paysdirectly to the participant 80% of all out-of-pocket medical and dentalexpenses not covered under the Standard Plan, including deductibles andco-insurance amounts. Additionally, the Supplemental Plan provides to eachparticipant $100,000 of accidental death and dismemberment insurance protectionand a worldwide medical assistance benefit. Each participant in theSupplemental Plan will receive a maximum annual benefit of $100,000. The Companypays an annual premium under the Supplemental Plan equal to $250 perparticipant plus 10% of claims paid. In addition to other officers andemployees, the named executive officers covered by the Supplemental Plan arePaul K. Willmott, Richard A. Van Horn, Mark S. Pelizza, Thomas H. Ehrlich andDavid N. Clark.

*401(k) Profit Sharing Plan*

The Company maintains a defined contribution profitsharing plan for employees (the “401(k)”) that is administered by a committeeof trustees appointed by the Company. All Company employees are eligible toparticipate upon the completion of six months of employment, subject tominimum age requirements. Each year the Company makes a contribution to the401(k) without regard to current or accumulated net profits of the Company.These contributions are allocated to participants in amounts equal to 25% (or ahigher percentage, determined at the Company’s discretion) of the participants’contributions, up to 4% of each participant’s gross pay. For the plan yearended July 31, 2006, the Company contributed amounts equal to 100% of theparticipant’s contributions, up to 4% of gross pay. Participants become 20%vested in their Company contribution account for each year of service untilfull vesting occurs upon the completion of five years of service.Distributions are made upon retirement, death or disability in a lump sum or ininstallments.

*Deferred Compensation Plans*

The Company hasfour separate deferred compensation plans covering the years 1999 through2004. Under these plans executive officers and directors of the Company and itssubsidiaries were permitted to defer up to 100% of their 1999, 2000, 2001,2002, 2003 and 2004 salary with payment thereof to be made on January 11,2011. On or before that date, the participant may elect to receive the deferredamount in shares of the Company’s Common Stock valued at a weighted average of$0.71 per share under the 1999 deferred compensation plan and $0.80 per shareunder the 2000-2004 plans. As of December 31, 2006, a total of $789,228has been deferred under such plans.

In 2006, noelections were made to convert deferred compensation into shares of CommonStock under the 1999 plan or under the plans for the years 2000 through2004.

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**SummaryCompensation Table**

Thefollowing table sets forth certain information with respect to compensation forservices in all capacities for the years ended December 31, 2006, 2005 and2004 paid to our Chief Executive Officer, Chief Financial Officer and the threeother most highly compensated executive officers who were serving as such as ofDecember 31, 2006.

| Name and Principal Position                                 | ** ** | ** ** | ** ** | **Year** | ** ** | **Salary  ($)** | ** ** | **Bonus  ($)** | ** ** | **Stock  Awards  ($)** | ** ** | **Option  Awards  ($)** | ** ** | **Non-Equity  Incentive Plan  Compensation  ($)** | ** ** | **Change in  Pension  Value and  Nonqualified  Deferred  Compensation  Earnings  ($)** | ** ** | **All Other  Compensation(1)  ($)** | ** ** | **Total  ($)** | ** ** |
|----------------------------------------------------------------------------|------------|------------|------------|----------|------------|-----------------|------------|----------------|------------|------------------------|------------|-------------------------|------------|--------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------|------------|------------------------------------------|------------|----------------|------------|
| Paul K Willmott(2)                                                         |       | 2006       |       | 238,021  |       |            | 0          |           |       |                   | —     |                    |       | —                                                 |       |                                                                                             | —     |                                     |       |           | —     |   |   |   | 14,608 |   |   | 252,629 |   |
| Chairman and Chief                                                         |       | 2005       |       | 207,676  |       |            | 0          |           |       |                   | —     |                    |       | —                                                 |       |                                                                                             | —     |                                     |       |           | —     |   |   |   | 6,140 |   |   | 213,816 |   |
| Executive Officer                                                          |       | 2004       |       | 202,725  |       |            | 0          |           |       |                   | —     |                    |       | 630,000                                                |       |                                                                                             | —     |                                     |       |           | —     |   |   |   | 3,126 |   |   | 835,851 |   |
| Richard A. Van  Horn(3)                                                    |       | 2006       |       | 191,173  |       |            | 0          |           |       |                   | —     |                    |       | —                                                 |       |                                                                                             | —     |                                     |       |           | —     |   |   |   | 248,982 |   |   | 440,155 |   |
| Senior Vice  President—                                               |       | 2005       |       | 139,792  |       |            | 0          |           |       |                   | —     |                    |       | —                                                 |       |                                                                                             | —     |                                     |       |           | —     |   |   |   | 2,452 |   |   | 142,244 |   |
| Operations                                                                 |       | 2004       |       | 137,950  |       |            | 0          |           |       |                   | —     |                    |       | 420,000                                                |       |                                                                                             | —     |                                     |       |           | —     |   |   |   | 2,372 |   |   | 560,322 |   |
| Mark S. Pelizza(4)                                                         |       | 2006       |       | 174,787  |       |            | 0          |           |       |                   | —     |                    |       | —                                                 |       |                                                                                             | —     |                                     |       |           | —     |   |   |   | 241,115 |   |   | 415,902 |   |
| Vice President—Health,                                                |       | 2005       |       | 109,908  |       |            | 0          |           |       |                   | —     |                    |       | —                                                 |       |                                                                                             | —     |                                     |       |           | —     |   |   |   | 9,143 |   |   | 119,051 |   |
| Safety and Environmental  Affairs/President—Hydro Resources Inc. |       | 2004       |       | 109,108  |       |            | 0          |           |       |                   | —     |                    |       | 420,000                                                |       |                                                                                             | —     |                                     |       |           | —     |   |   |   | 5,321 |   |   | 534,429 |   |
| Thomas H.  Ehrlich(5)                                                      |       | 2006       |       | 148,672  |       |            | 0          |           |       |                   | —     |                    |       | —                                                 |       |                                                                                             | —     |                                     |       |           | —     |   |   |   | 7,077 |   |   | 155,749 |   |
| Vice President and  Chief                                                  |       | 2005       |       | 109,908  |       |            | 0          |           |       |                   | —     |                    |       | —                                                 |       |                                                                                             | —     |                                     |       |           | —     |   |   |   | 2,162 |   |   | 112,070 |   |
| Financial Officer                                                          |       | 2004       |       | 106,780  |       |            | 0          |           |       |                   | —     |                    |       | 420,000                                                |       |                                                                                             | —     |                                     |       |           | —     |   |   |   | 1,923 |   |   | 528,703 |   |
| David N. Clark(6)                                                          |       | 2006       |       | 58,154   |       |            | 0          |           |       |                   | —     |                    |       | 2,579,500                                              |       |                                                                                             | —     |                                     |       |           | —     |   |   |   | 40,892 |   |   | 2,678,546 |   |
| President and Chief                                                        |       | 2005       |       | 0        |       |            | 0          |           |       |                   | —     |                    |       | —                                                 |       |                                                                                             | —     |                                     |       |           | —     |   |   |   | 0 |   |   | 0 |   |
| Operating Officer                                                          |       | 2004       |       | 0        |       |            | 0          |           |       |                   | —     |                    |       | —                                                 |       |                                                                                             | —     |                                     |       |           | —     |   |   |   | 0 |   |   | 0 |   |

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(1)             Includes amounts paid for out-of-pocket medical anddental expenses under the Company’s Supplemental Health Care Plan describedbelow, contributions made by the Company under the Company’s 401(k) ProfitSharing Plan described below,  lifeinsurance premiums paid by the Company on behalf of the named officer, thevalue realized from the exercise of stock options and directors’ fees.

(2)             Salary for 2004 includes $90,000 which was deferredunder the 2004 Deferred Compensation Plan.

(3)             Salary for 2004 includes $20,800 which was deferredunder the 2004 Deferred Compensation Plan. All Other Compensation includes$238,690 for income related to the exercise of stock options as described belowand $856 for gross ups to cover taxes related to annual lease value of companyvehicle.

(4)             All Other Compensation includes $217,150 for incomerelated to the exercise of stock options as described below.

(5)             Salary for 2004 includes $15,938 which was deferredunder the 2004 Deferred Compensation Plan.

(6)             All Other Compensation includes $40,892for directors’ fees. The value of the Stock Option awards  includes 800,000 options and 50,000 using afair market value of $2.91 and $5.03 per share, respectively. The fair marketvalue per share is calculated as described in Footnote 9 to the Form 10-Kfor the year ended December 31, 2006.

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**Grant of Plan Based Awards**

Thistable discloses the actual number of stock options and restricted stock awardsgranted in 2006 and the grant date fair value of these awards. It also capturespotential future payouts under the Company’s non-equity and equity incentiveplans.

|                | ** ** | ** ** | ** ** | **Estimated Future Payouts  Under Non-Equity  Incentive Plan Awards** | ** ** | **Estimated Future Payouts  Under Equity  Incentive Plan Awards** | ** ** | **All Other  Stock  Awards:  Number  of Shares  of Stock** | ** ** | **All Other  Option  Awards:  Number of  Securities  Underlying** | ** ** | **Exercise  or Base  Price of  Option** | ** ** | **Grant  Date Fair  Value of  Stock and** | ** ** |
|----------------|------------|------------|------------|-------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------|------------|---------------------------------------------------|------------|----------------------------------------------------------|------------|
| Name           | ** ** | ** ** | ** ** | **Grant  Date**                                                                           | ** ** | **Threshold  ($)**                                                                    | ** ** | **Target  ($)**                                                           | ** ** | **Maximum  ($)**                                                            | ** ** | **Threshold  (#)**                                | ** ** | **Target  (#)**                                          | ** ** | **Maximum  (#)** | ** ** | **or Units  (#)** | ** ** | **Options  (#)** | ** ** | **Awards  ($/Sh)** | ** ** | **Option  Awards** | ** ** |
| David N. Clark |       | 10/3/2006  |       |                                                                                      | —     |                                                                                  |       |                                                                      | —     |                                                                        |       |                                              | —     |                                                     |       |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 800,000 |   |   |   | 2.97 |   |   | 2,328,000 |   |
|                |       | 6/6/2006   |       |                                                                                      | —     |                                                                                  |       |                                                                      | —     |                                                                        |       |                                              | —     |                                                     |       |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 50,000 |   |   |   | 5.13 |   |   | 251,500 |   |
|                |            |            |            |                                                                                           |            |                                                                                       |            |                                                                           |            |                                                                             |            |                                                   |            |                                                          |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**EmploymentAgreements**

None.

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**Outstanding Awards at Fiscal Year-End**

Thefollowing table shows outstanding stock option awards classified as exercisableand unexercisable as of December 29, 2006 for the named executiveofficers. The table also shows unvested and unearned stock awards (bothtime-based awards and performance-contingent) assuming a market value of $5.80a share (the closing market price of the Company’s stock on December 29, 2006).

|                      | ** ** | **Option Awards** | ** ** | **Stock Awards**                                                              | ** ** |
|----------------------|------------|------------------------|------------|------------------------------------------------------------------------------------|------------|
| **Name**             | ** ** | ** **             | ** ** | **Number of  Securities  Underlying  Unexercised  Options  (#)  Exercisable** | ** ** | **Number of  Securities  Underlying  Unexercised  Options  (#)  Unexercisable** | ** ** | **Equity  Incentive  Plan  Awards:  Number of  Securities  Underlying  Unexercised  Unearned  Options  (#)** | ** ** | **Option  Exercise  Price  ($)** | ** ** | **Option  Expiration  Date** | ** ** | **Number  of Shares  or Units  of Stock  That  Have Not  Vested  (#)** | ** ** | **Market  Value of  Shares  or Units  of Stock  That  Have Not  Vested  ($)** | ** ** | **Equity  Incentive  Plan  Awards:  Number of  Unearned  Shares,  Units or  Other  Rights  That  Have Not  Vested  (#)** | ** ** | **Equity  Incentive  Plan  Awards:  Market or  Payout  Value of  Unearned  Shares,  Units or  Other  Rights  That  Have Not  Vested  ($)** | ** ** |
| Paul K. Willmott     |       |                   | 6,570      |                                                                               |       |   | 0 |   |   |   | — |   |   |   | 28.50 |   |   | 2/10/2007 |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
|                      |       |                   | 10,000     |                                                                               |       |   | 0 |   |   |   | — |   |   |   | 11.75 |   |   | 2/23/2008 |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
|                      |       |                   | 131,684    |                                                                               |       |   | 0 |   |   |   | — |   |   |   | 0.80 |   |   | 9/27/2010 |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
|                      |       |                   | 217,940    | (1)                                                                                |       |   | 164,060 |   |   |   | — |   |   |   | 1.16 |   |   | 6/2/2014 |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
|                      |       |                   | 135,375    | (2)                                                                                |       |   | 45,125 |   |   |   | — |   |   |   | 1.16 |   |   | 6/2/2014 |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Richard A. Van  Horn |       |                   | 13,750     |                                                                               |       |   | 0 |   |   |   | — |   |   |   | 22.00 |   |   | 4/10/2007 |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
|                 |       |                   | 6,250      |                                                                               |       |   | 0 |   |   |   | — |   |   |   | 11.75 |   |   | 2/23/2008 |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
|                 |       |                   | 75,000     |                                                                               |       |   | 0 |   |   |   | — |   |   |   | 0.80 |   |   | 9/27/2010 |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
|                 |       |                   | 16,000     |                                                                               |       |   | 0 |   |   |   | — |   |   |   | 0.76 |   |   | 2/28/2011 |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
|                 |       |                   | 219,828    | (1)                                                                                |       |   | 155,172 |   |   |   | — |   |   |   | 1.16 |   |   | 6/2/2014 |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Mark S. Pelizza      |       |                   | 1,925      |                                                                               |       |   | 0 |   |   |   | — |   |   |   | 28.50 |   |   | 2/10/2007 |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
|                      |       |                   | 2,250      |                                                                               |       |   | 0 |   |   |   | — |   |   |   | 11.75 |   |   | 2/23/2008 |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
|                      |       |                   | 75,000     |                                                                               |       |   | 0 |   |   |   | — |   |   |   | 0.80 |   |   | 9/27/2010 |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
|                      |       |                   | 8,100      |                                                                               |       |   | 0 |   |   |   | — |   |   |   | 0.76 |   |   | 2/28/2011 |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
|                      |       |                   | 219,828    | (1)                                                                                |       |   | 155,172 |   |   |   | — |   |   |   | 1.16 |   |   | 6/2/2014 |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Thomas H. Ehrlich    |       |                   | 3,500      |                                                                               |       |   | 0 |   |   |   | — |   |   |   | 28.50 |   |   | 2/10/2007 |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
|                 |       |                   | 3,000      |                                                                               |       |   | 0 |   |   |   | — |   |   |   | 11.75 |   |   | 2/23/2008 |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
|                 |       |                   | 125,000    |                                                                               |       |   | 0 |   |   |   | — |   |   |   | 0.80 |   |   | 9/27/2010 |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
|                 |       |                   | 13,050     |                                                                               |       |   | 0 |   |   |   | — |   |   |   | 0.76 |   |   | 2/28/2011 |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
|                 |       |                   | 219,828    | (1)                                                                                |       |   | 155,172 |   |   |   | — |   |   |   | 1.16 |   |   | 6/2/2014 |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| David N. Clark       |       |                   | 33,500     | (3)                                                                                |       |   | 24,000 |   |   |   | — |   |   |   | 2.97 |   |   | 10/3/2016 |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
|                      |       |                   | 233,166    | (3)                                                                                |       |   | 509,334 |   |   |   | — |   |   |   | 2.97 |   |   | 10/3/2016 |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
|                      |       |                   | 0          | (4)                                                                                |       |   | 50,000 |   |   |   | — |   |   |   | 5.13 |   |   | 6/6/2016 |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
|                      |            |                        |            |                                                                                    |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)             Remaining unexercisable options vest ratably at06/02/2007 and 06/02/2008.

(2)             Remaining unexercisable options vest at 06/02/2007.

(3)             Remaining unexercisable options vest ratably at10/03/2007 and 10/03/2008.

(4)             Remaining unexercisable options vestratably at 06/06/2007, 06/06/2008, 06/06/2009 and 06/06/2010.

45

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**Option Exercises and Stock Vested**

Thefollowing table sets forth certain information regarding options and stockawards exercised and vested, respectively, during 2006 for the named executiveofficers.

| ** **          | ** ** | **Option Awards** | ** ** | **Stock Awards**                                               | ** ** |
|---------------------|------------|------------------------|------------|---------------------------------------------------------------------|------------|
| **Name**            | ** ** | ** **             | ** ** | **Number of Shares  Acquired on Exercise  (#)** | ** ** | **Value Realized  on Exercise  ($)** | ** ** | **Number of Shares  Acquired on Vesting  (#)** | ** ** | **Value Realized  on Vesting  ($)** | ** ** |
| Richard A. Van Horn |       |                   | 50,000     |                                                                |       |   | 238,690 |   |   |   | — |   |   |   | — |   |   |
| Mark S. Pelizza     |       |                   | 50,000     |                                                                |       |   | 217,150 |   |   |   | — |   |   |   | — |   |   |
|                     |            |                        |            |                                                                     |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**Potential Payments Upon Termination or Change inControl**

In June 1997, the Company entered intoCompensation Agreements with each of Messrs. Willmott, Van Horn, Pelizza,Ehrlich and in February 2007, with Messrs. Clark and Bartels that providethat, in the event of a change in control, such officers will have certainrights and benefits for a period of thirty-six months for Mr. Willmott andtwenty-four months for the other officers, following such change incontrol.

For purposes of the Compensation Agreements, a “changein control” means (a) the consummation of any transaction pursuant towhich any “person” (as such term is used in Sections 3(a)(9) and 13(d)(3) ofthe Securities Exchange Act of 1934) is or becomes the beneficial owner, directlyor indirectly, of securities of the Company representing 51% or more of thecombined voting power of the then outstanding securities of the Company; or(b) a change in the composition of a majority of the Board of Directorswithin twelve months after any person is or becomes the beneficial owner,directly or indirectly, of securities of the Company representing 25% or moreof the combined voting power of the then outstanding securities of the Company.

Rights under the Compensation Agreement will be triggeredin the event that, following a change in control, the executive’s employment isterminated by (a) the Company without cause; or (ii) by the executiveif (i) the executive is assigned substantial duties or responsibilitiesthat are materially inconsistent with the executive’s position, duties,responsibilities or status during the twelve-month period immediately prior tothe Change in Control; (ii) the executive’s base compensation is reducedor the executive experiences in any year a reduction in the ratio of theexecutive’s incentive compensation payment to the executive’s base compensationin such year which is greater than the average reduction in the ratio ofincentive compensation payments to base compensation in such year experiencedby all of the Company’s other salaried officers; or (iii) the executive istransferred to a location (other than Albuquerque, New Mexico) which is anunreasonable distance from the executive’s current principal work location.

Assuming a change incontrol occurred on December 29, 2006, the total estimated compensationthat would be paid in the aggregate under the Compensation Agreements to thesesix executive officers is $2.781 million. The Compensation Agreements providethat the base salary payments shall be made on a monthly basis for the durationof the term and incentive payments shall be paid annually until the obligationto make such payments expires.

**Director Compensation**

On June 2, 2004 the Company adopted the 2004Amended and Restated Directors’ Stock Option Plan (the “2004 Directors’ Plan”).Under the 2004 Directors’ Plan, each non-employee Director elected or appointedto the Board of Directors for the first time will be granted an option topurchase twenty-five thousand (25,000) shares of the Company’s Common Stock andeach Non-Employee Director will be granted an option to purchase twenty-fivethousand (25,000) shares either (a) upon his or her re-election at anannual meeting of the Company’s stockholders, or (b) in any calendar yearin which an annual meeting of stockholders is not held, on June 1 of suchyear.

46

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Compensation for 2006 for the non-employee directorswas earned at the rate of $4,000 per quarter plus $1,200 per meeting attended.The Chairman of the Audit Committee earns compensation at the rate of $1,250per quarter and each non-employee director earns $600 for each meeting of theAudit Committee attended. The Chairman of the Strategic Planning Committeeearns compensation at the rate of $1,250 per quarter and each non-employeedirector earns $600 for each meeting attended. Non-employee members of theStrategic Planning Committee are also compensated at a rate of $2,000 per day,and a pro rata portion thereof for less that a full eight hour day fornon-meeting work performed by a Strategic Planning Committee member.Non-employee members of the Compensation and Nominating Committees earn $600for each such meeting attended.

Thefollowing table summarizes all compensation earned by the Company’s directorsin the year ended December 31, 2006.

| **Name**          | ** ** | ** ** | ** ** | **Fees Earned or  Paid in Cash  ($)** | ** ** | **Stock  Awards  ($)** | ** ** | **Option  Awards  ($)** | ** ** | **Non-Equity  Incentive Plan  Compensation  ($)** | ** ** | **Change in  Pension  Value and  Nonqualified  Deferred  Compensation  Earnings** | ** ** | **All Other  Compensation  ($)** | ** ** | **Total  ($)** | ** ** |
|-------------------|------------|------------|------------|-----------------------------------------------------------|------------|------------------------|------------|-------------------------|------------|--------------------------------------------------------|------------|---------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|----------------|------------|
| Leland O. Erdahl  |       |       | 42,000     |                                                      |       |                   | —     |                    |       | 126,250                                                |       |                                                                                        | —     |                                  |       |           | —     |   |   |   | — |   |   | 168,250 |   |
| George R. Ireland |       |       | 40,200     |                                                      |       |                   | —     |                    |       | 126,250                                                |       |                                                                                        | —     |                                  |       |           | —     |   |   |   | — |   |   | 166,450 |   |
| Terence J. Cryan  |       |       | 10,050     |                                                      |       |                   |       |                    |       | 146,000                                                |       |                                                                                        | —     |                                  |       |           | —     |   |   |   | — |   |   | 156,050 |   |

 

**Item12.**                 SecurityOwnership of Certain Beneficial Owners and Management and Related StockholderMatters.

**Securities Authorized for Issuance Under EquityCompensation Plans**

***Please refer to our response in Item 5 of this AnnualReport on Form 10-K/A for equity compensation plan information.***

47

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**Security Ownership of Certain Beneficial Owners andManagement**

The following tables set forth, as ofDecember 31, 2006, information regarding persons known by us to be thebeneficial owner of more than 5% of the outstanding shares of our Common Stock.Shown separately in the second table below is information regarding thebeneficial ownership of our Common Stock by (i) each director,(ii) each of the named executive officers, and (iii) all directorsand named executive officers as a group.

**Principal Stockholders**

| **Name and Address of Beneficial Owner**                                                      | ** ** | ** ** | ** ** | **Amount and  Nature of  Beneficial  Ownership(1)** | ** ** | **Percent of  Class(2) ** | ** ** |
|------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|---------------------------------------------------------------|------------|-------------------------------------|------------|
| Zesiger Capital Group, LLC  320 Park Avenue, 30th Floor  New York, NY 10022                                            |       |       | 8,604,807  | (3)                                                           |       |                                | 16.6       | % |   |
| Rudolf J. Mueller  c/o The Winchester Group, Inc.  153 East 53rd Street, Suite 5101  New York, NY 10022 |       |       | 2,736,680  | (4)                                                           |       |                                | 5.3        | % |   |
| Gilder, Gagnon, Howe & Co. LLC  1775 Broadway, 26th Floor  New York, NY 10019                            |       |       | 5,915,096  | (5)                                                           |       |                                | 11.4       | % |   |
| Dreman Value Management LLC  Harbourside Financial Center  Plaza 10, Suite 800  Jersey, City, NJ 07311            |       |       | 6,481,150  |                                                          |       |                                | 12.53      | % |   |
| Deutsche Asset  Management, Inc.  Taunusanlage 12  D-60325 Frankfurt am Main  Federal Republic of Germany         |       |       | 5,282,200  |                                                          |       |                                | 10.21      | % |   |

----

(1)          Eachperson has sole voting and investment power with respect to the shares listed,unless otherwise indicated. Beneficial ownership includes shares over which theindicated beneficial owner exercises voting and/or investment power.

(2)          Theshares owned by each person, and the shares included in the total number ofshares outstanding, have been adjusted, and the percentages owned have beencomputed, in accordance with Rule 13d-3(d)(1) under theSecurities Exchange Act of 1934. Shares subject to options or warrantscurrently exercisable or exercisable within 60 days are deemed outstandingfor computing the percentage ownership of the person holding such options orwarrants, but are not deemed outstanding for computing the percentage ownershipof any other person.

(3)          Includes8,604,807 shares as to which Zesiger Capital Group, LLC (“ZCG”) holdsdispositive power and 5,342,740 shares as to which they hold voting power forshares that are owned by their investment advisory clients. ZCG disclaimsbeneficial ownership of all of these shares.

(4)          Includes2,317,030 shares as to which Mr. Mueller holds sole dispositive and votingpower and 431,650 shares as to which Mr. Mueller holds shared dispositivepower and 9,000 shares as to which Mr. Mueller holds shared voting power.Includes (i) 14,000 shares owned by members of Mr. Mueller’s familyin which Mr. Mueller shares voting and dispositive power. Mr. Muellerdisclaims beneficial ownership of such shares.

(5)          Includes5,750,951 shares held in customer accounts over which partners and/or employeesof the Gilder Gagnon has discretionary authority to dispose of or direct thedisposition of the shares, 111,145 shares held in accounts owned by thepartners of the Reporting Person and their families, and 53,000 shares held inthe account of the profit-sharing plan of Gilder Gagnon.

48

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**Directors and NamedExecutive Officers**

| **Name of Beneficial Owner**                             | ** ** | ** ** | ** ** | **Amount and  Nature of  Beneficial  Ownership(1)** | ** ** | **Percent of  Class(2)** | ** ** |
|-------------------------------------------------------------------------|------------|------------|------------|---------------------------------------------------------------|------------|-------------------------------|------------|
| Paul K. Willmott                                                        |       |       | 1,293,145  | (3)                                                           |       |                          | 2.4        | % |   |
| Leland O. Erdahl                                                        |       |       | 206,643    | (4)                                                           |       |                          | 0.4        | % |   |
| George R. Ireland                                                       |       |       | 1,735,949  | (5)                                                           |       |                          | 3.3        | % |   |
| David N. Clark                                                          |       |       | 316,666    |                                                          |       |                          | 0.6        | % |   |
| Terence J. Cryan                                                        |       |       | 1,000      |                                                          |       |                          | —     |   |   |
| Richard A. Van Horn                                                     |       |       | 474,161    | (6)                                                           |       |                          | 0.90       |   |   |
| Mark S. Pelizza                                                         |       |       | 374,983    | (7)                                                           |       |                          | 0.7        | % |   |
| Thomas H. Ehrlich                                                       |       |       | 475,375    | (8)                                                           |       |                          | 0.9        | % |   |
| All named  executive officers and directors as a group (8 persons) |       |       | 4,877,922  |                                                          |       |                          | 9.2        | % |   |

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(1)          Eachperson has sole voting and investment power with respect to the shares listed,unless otherwise indicated. Beneficial ownership includes shares over which theindicated beneficial owner exercises voting and/or investment power.

(2)          Theshares owned by each person, and the shares included in the total number ofshares outstanding, have been adjusted, and the percentages owned have beencomputed, in accordance with Rule 13d-3(d)(1) under the SecuritiesExchange Act of 1934. Shares subject to options or warrants currentlyexercisable or exercisable within 60 days are deemed outstanding forcomputing the percentage ownership of the person holding such options orwarrants, but are not deemed outstanding for computing the percentage ownershipof any other person.

(3)          Includes1,153,688 shares that may be obtained by Mr. Willmott through the exerciseof stock options and deferred compensation plans that are currently exercisableor will become exercisable within 60 days. Does not include 290,185 sharesthat may be obtained by Mr. Willmott through the exercise of stock optionsexercisable more than 60 days from the date hereof.

(4)          Includes69,687 shares that may be obtained by Mr. Erdahl through the exercise ofstock options and deferred compensation plans that are currently exercisable orwill become exercisable within 60 days. Does not include 11,626 sharesthat may be obtained by Mr. Erdahl through the exercise of stock optionsexercisable more than 60 days from the date hereof.

(5)          Includes184,937 shares that may be obtained by Mr. Ireland through the exercise ofstock options and deferred compensation plans that are currently exercisable orwill become exercisable within 60 days. Does not include 11,626 sharesthat may be obtained by Mr. Ireland through the exercise of stock optionsexercisable more than 60 days from the date hereof.  Includes 1,218,466 and 314,866 shares ownedby Geologic Resource Fund Ltd. and Geologic Resource Fund LP, respectively.Mr. Ireland is the managing partner and has an economic interest in eachof these funds.

(6)          Includes460,828 shares that may be obtained by Mr. Van Horn through the exerciseof stock options and deferred compensation plans that are currently exercisableor will become exercisable within 60 days. Does not include 155,172 sharesthat may be obtained by Mr. Van Horn through the exercise of stock optionsexercisable more than 60 days from the date hereof.

(7)          Includes307,103 shares that may be obtained by Mr. Pelizza through the exercise ofstock options that are currently exercisable or will become exercisable within60 days. Does not include 155,172 shares that may be obtained byMr. Pelizza through the exercise of stock options exercisable more than 60 daysfrom the date hereof.

(8)          Includes467,275 shares that may be obtained by Mr. Ehrlich through the exercise ofstock options and deferred compensation plans that are currently exercisable orwill become exercisable within 60 days. Does not include 155,172 sharesthat may be obtained by Mr. Ehrlich through the exercise of stock optionsexercisable more than 60 days from the date hereof.

49

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**Item 13.**                 CertainRelationships and Related Transactions and Director Independence.

None

**Item 14.**                 PrincipalAccountant Fees and Services.

The Audit Committee approved the engagement ofHein & Associates, LLP as the Company’s independent auditors for theyear ended December 31, 2006.

**Audit Fees.**

The Company was billed for audit fees and services byHein & Associates, LLP the Company’s principal independentaccountants, during the years ended December 31, 2006 and 2005 of $214,653and $52,588, respectively. Audit fees include fees for the audits of theCompany’s consolidated financial statements and fees in connection with internalcontrols testing and evaluation under Sarbanes-Oxley requirements.

**Audit Related Fees.**

The Company was billed audit related fees of $23,465in 2006 and $29,559 in 2005. Audit related fees include fees for the review ofregistration statements and issuance of consent letters in 2006.

**Tax Fees.**

The Company was billed $1,279 in tax fees in 2006. Nosuch tax fees were billed in 2005.

**All Other Fees.**

None.

**Audit Committee Pre-Approval Policies and Procedures.**

The Audit Committeeis required to pre-approve the audit and non-audit services performed by theindependent auditor to assure that the provision of such services do no impairthe auditor’s independence.

50

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**PART IV**

**Item 15.**                 Exhibitsand Financial Statement Schedules.

See Index to Exhibits on page E-1 for alisting of the exhibits filed as part of this Annual Report.

51

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**SIGNATURES**

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the Registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized.

| Date: April 30, 2007 |                          |                            |
|---------------------------|-------------------------------|---------------------------------|
|                      | URANIUM  RESOURCES, INC. |
|                      | By:                           | /s/ PAUL K. WILLMOTT            |
|                      |                          | Paul K. Willmott,  Chairman and |
|                      |                          | Chief Executive Officer         |

 

Pursuantto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed below by the following persons on behalf of the Registrant and inthe capacities and on the dates indicated.

|                                                         | **Signature** | ** **          | ** ** | ** ** | **Date** | ** ** |
|---------------------------------------------------------|---------------|---------------------|------------|------------|----------|------------|
| /s/ PAUL K. WILLMOTT                                    |          | April 30, 2007 |
| Paul K. Willmott,                                       |          |                |
| Director, Chairman and Chief Executive Officer          |          |                |
| /s/ DAVID N. CLARK                                      |          | April 30, 2007 |
| David N. Clark                                          |          |                |
| Director, President and Chief Operating Officer         |          |                |
| /s/ THOMAS H. EHRLICH                                   |          | April 30, 2007 |
| Thomas H. Ehrlich,                                      |          |                |
| Vice President—Finance and Chief Financial Officer |          |                |
| (Principal Financial and Accounting Officer)            |          |                |
| /s/ LELAND O. ERDAHL                                    |          | April 30, 2007 |
| Leland O. Erdahl, Director                              |          |                |
| /s/ GEORGE R. IRELAND                                   |          | April 30, 2007 |
| George R. Ireland, Director                             |          |                |
| /s/ TERENCE J. CRYAN                                    |          | April 30, 2007 |
| Terence J. Cryan,  Director                             |          |                |

 

52

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**URANIUMRESOURCES, INC. AND CONSOLIDATED SUBSIDIARIES**

**INDEXTO CONSOLIDATED FINANCIAL STATEMENTS**

**ConsolidatedFinancial Statements For The Years Ended December 31, 2006, 2005 and 2004**
| Report of Independent  Registered Public Accounting Firm      |   | F-2 |
|---------------------------------------------------------------|--------|-----|
| Consolidated  Balance Sheets                                  |   | F-3 |
| Consolidated Statements of Operations                         |   | F-5 |
| Consolidated Statements of Common Shareholders’  Deficit |   | F-6 |
| Consolidated Statements of Cash Flows                         |   | F-7 |
| Notes to Consolidated Financial Statements                    |   | F-8 |

 

The following consolidated financial statements arepresented reflecting the effects of the 1 for 4 reverse split effective April 10,2006.

F-1

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**Report ofIndependent Registered Public Accounting Firm**

To the Board of DirectorsUranium Resources, Inc.Lewisville, TX  75067

We have audited the consolidated balance sheets ofUranium Resources, Inc. as of December 31, 2006 and 2005, and therelated consolidated statements of operations, common shareholders’ deficit andcash flows for each of the three years in the period ended December 31,2006. These financial statements are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these financialstatements based on our audits.

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board ( United States ).Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements. An auditalso includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financialstatement presentation. We believe that our audits provided a reasonable basisfor our opinion.

In our opinion, the consolidated financial statementsreferred to above present fairly, in all material respects, the financialposition of Uranium Resources, Inc. as of December 31, 2006, 2005 and2004, and the results of their operations and their cash flows for each of thethree years in the period ended December 31, 2006, in conformity with U.S.generally accepted accounting principles.

As discussed in Note 13 to the consolidated financialstatements, the Company restated the financial statements for the year ended December 31,2004.

We also have audited, inaccordance with the standards of the Public Company Accounting Oversight Board(United States), the effectiveness of Uranium Resources, Inc.’s internalcontrol over financial reporting as of December 31, 2006, based oncriteria established in Internal Control—Integrated Framework issued by theCommittee of Sponsoring Organizations of the Treadway Commission (COSO) and ourreport dated March 27, 2007 expressed an unqualified opinion on management’sassessment of the effectiveness of Uranium Resources, Inc.’s internalcontrol over financial reporting and an opinion that the Company had notmaintained effective internal control over financial reporting as of December 31, 2006.

Hein & Associates, LLPDallas, TXMarch 27**,** 2007

F-2

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**URANIUM RESOURCES, INC.CONSOLIDATED BALANCE SHEETSASSETS**

| ** **                                                    | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                    | ** ** | **2006**              | ** ** | **2005** | ** ** |
| Current assets:                                               |       |                  |       |   |   |
| Cash and cash equivalents                                     |       | $                     | 20,176,771 |   | $ | 5,852,716 |   |
| Receivables, net                                              |       | 713,529               |       | 32,940 |   |
| Uranium and materials/supplies inventory                      |       | 1,603,585             |       | 707,949 |   |
| Prepaid and other current assets                              |       | 410,000               |       | 269,835 |   |
| Total current assets                                          |       | 22,903,885            |       | 6,863,440 |   |
| Property, plant and  equipment, at cost:                      |       |                  |       |   |   |
| Uranium properties                                            |       | 67,153,797            |       | 51,662,223 |   |
| Other property, plant and equipment                           |       | 465,613               |       | 302,164 |   |
| Less—accumulated depreciation, depletion and  impairment |       | (49,423,848           | )          | (43,275,660 | ) |
| Net property, plant and equipment                             |       | 18,195,562            |       | 8,688,727 |   |
| Other assets                                                  |       | 2,369,434             |       | 1,072,026 |   |
| Long-term investment:                                         |       |                  |       |   |   |
| Certificate of deposit, restricted                            |       | 2,467,491             |       | 1,288,411 |   |
|                                                          |       | $                     | 45,936,372 |   | $ | 17,912,604 |   |

 

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

F-3

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**URANIUMRESOURCES, INC.**

**CONSOLIDATEDBALANCE SHEETS**

**LIABILITIESAND SHAREHOLDERS’ DEFICIT**

| ** **                                                                                                                                                          | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                          | ** ** | **2006**              | ** ** | **2005** | ** ** |
| Current liabilities:                                                                                                                                                |       |                  |       |   |   |
| Accounts payable                                                                                                                                                    |       | $                     | 1,994,184  |   | $ | 1,139,005 |   |
| Current portion of restoration reserve                                                                                                                              |       | 1,520,192             |       | 1,061,491 |   |
| Accrued interest and other accrued liabilities                                                                                                                      |       | 816,877               |       | 432,683 |   |
| Unrealized loss on derivatives, current portion                                                                                                                     |       | —                |       | 20,424,291 |   |
| Current portion of long-term debt                                                                                                                                   |       | 201,804               |       | 175,833 |   |
| Total current liabilities                                                                                                                                           |       | 4,533,057             |       | 23,233,303 |   |
| Other long-term  liabilities and deferred credits                                                                                                                   |       | 3,998,229             |       | 3,823,015 |   |
| Unrealized loss  on derivatives, net of current portion                                                                                                             |       | —                |       | 26,396,656 |   |
| Long-term debt,  less current portion                                                                                                                               |       | 635,691               |       | 450,000 |   |
| Commitments and  contingencies (Notes 1, 2, 3, 4, 5, and 11)                                                                                                        |       |                  |       |   |   |
| Shareholders’ equity  (deficit):                                                                                                                               |       |                  |       |   |   |
| Common stock, $.001 par value, shares authorized: 200,000,000;  shares issued and outstanding (net of treasury shares): 2006—51,791,339;  2005—40,952,127 |       | 51,829                |       | 40,990 |   |
| Paid-in capital                                                                                                                                                     |       | 126,252,871           |       | 75,013,668 |   |
| Accumulated deficit                                                                                                                                                 |       | (89,525,887           | )          | (111,035,610 | ) |
| Less: Treasury stock (38,125 shares), at cost                                                                                                                       |       | (9,418                | )          | (9,418 | ) |
| Total shareholders’ deficit                                                                                                                                    |       | 36,769,395            |       | (35,990,370 | ) |
|                                                                                                                                                                |       | $                     | 45,936,372 |   | $ | 17,912,604 |   |

 

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

F-4

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**URANIUMRESOURCES, INC.**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

| ** **                                                 | ** ** | **Year Ended December 31,** | ** ** |
|------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                 | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                 | ** ** | ** **                                 | ** ** | ** ** | ** ** | **(Restated)** | ** ** |
| Revenues:                                                  |       |                                       |       |   |   |   |   |
| Uranium sales—                                        |       | $                                          | 8,580,799  |   | $ | 4,865,156 |   | $ | 1,009,283 |   |
| Total revenue                                              |       | 8,580,799                                  |       | 4,865,156 |   | 1,009,283 |   |
| Costs and expenses:                                        |       |                                       |       |   |   |   |   |
| Cost of uranium  sales—                               |       |                                       |       |   |   |   |   |
| Royalties and commissions                                  |       | 767,788                                    |       | 355,011 |   | 67,956 |   |
| Operating expenses                                         |       | 5,574,926                                  |       | 3,935,225 |   | 1,194,938 |   |
| Accretion/amortization of restoration reserve              |       | 516,956                                    |       | 348,415 |   | 241,810 |   |
| Depreciation and depletion                                 |       | 5,827,464                                  |       | 1,660,219 |   | 263,380 |   |
| (Gain) loss on derivatives                                 |       | (34,820,947                                | )          | 30,974,837 |   | 13,111,772 |   |
| Writedown of uranium properties and other uranium  assets  |       | 3,494,847                                  |       | —- |   | 46,188 |   |
| Total (gain on) cost of uranium sales                      |       | (18,638,966                                | )          | 37,273,707 |   | 14,926,044 |   |
| Earnings (loss)  from operations before corporate expenses |       | 27,219,765                                 |       | (32,408,551 | ) | (13,916,761 | ) |
| Corporate expenses—                                   |       |                                       |       |   |   |   |   |
| General and administrative                                 |       | 6,755,532                                  |       | 3,191,312 |   | 1,999,394 |   |
| Depreciation                                               |       | 35,542                                     |       | 18,027 |   | 7,033 |   |
| Total corporate expenses                                   |       | 6,791,074                                  |       | 3,209,339 |   | 2,006,427 |   |
| Earnings (loss)  from operations                           |       | 20,428,691                                 |       | (35,617,890 | ) | (15,923,188 | ) |
| Other income (expense):                                    |       |                                       |       |   |   |   |   |
| Interest expense                                           |       | (16,204                                    | )          | (93,418 | ) | (8,122 | ) |
| Interest and other income, net                             |       | 1,097,236                                  |       | 624,630 |   | 66,554 |   |
| Net earnings  (loss)                                       |       | $                                          | 21,509,723 |   | $ | (35,086,678 | ) | $ | (15,864,756 | ) |
| Net earnings (loss) per  common share:                     |       |                                       |       |   |   |   |   |
| Basic                                                      |       | $                                          | 0.44       |   | $ | (0.96 | ) | $ | (0.55 | ) |
| Diluted                                                    |       | $                                          | 0.42       |   | $ | (0.96 | ) | $ | (0.55 | ) |

 

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

F-5

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**URANIUM RESOURCES, INC.CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIT**

| ** **                                    | ** ** | **Common Stock** | ** ** | **Paid-In** | ** ** | **Accumulated** | ** ** | **Treasury** | ** ** |
|-----------------------------------------------|------------|-----------------------|------------|-------------|------------|-----------------|------------|--------------|------------|
| ** **                                    | ** ** | **Shares**            | ** ** | **Amount**  | ** ** | **Capital**     | ** ** | **Deficit**  | ** ** | **Stock** | ** ** |
| Balances,  December 31, 2003 (Restated)  |       | 20,492,047            |       | $           | 20,494     |            | $          | 53,272,970   |       | $ | (60,084,176 | ) | $ | (9,418 | ) |
| Net loss                                      |       | —                |       | —      |       | —          |       | (15,864,756  | )          | — |   |
| Common stock issuance                         |       | 13,015,643            |       | 13,052      |       | 7,263,838       |       | —       |       | — |   |
|                                          |       | 119,125               |       | 119         |       | 95,181          |       | —       |       | — |   |
| Balances,  December 31, 2004 (Restated)  |       | 33,626,815            |       | $           | 33,665     |            | $          | 60,631,989   |       | (75,948,932 | ) | $ | (9,418 | ) |
| Net loss                                      |       | —                |       | —      |       | —          |       | (35,086,678  | )          | — |   |
| Common stock issuance                         |       | 6,833,333             |       | 6,833       |       | 13,063,281      |       | —       |       | — |   |
| Common stock issued for services              |       | 112,000               |       | 112         |       | (112            | )          | —       |       | — |   |
| Common stock issued for debt conversion       |       | 314,166               |       | 314         |       | 628,019         |       | —       |       | — |   |
| Stock compensation expense                    |       | —                |       | —      |       | 581,960         |       | —       |       | — |   |
| Beneficial conversion on debt modification    |       | —                |       | —      |       | 55,947          |       | —       |       | — |   |
| Common stock issued for deferred compensation |       | 65,813                |       | 66          |       | 52,584          |       | —       |       | — |   |
| Balances,  December 31, 2005             |       | 40,952,127            |       | $           | 40,990     |            | $          | 75,013,668   |       | $ | (111,035,610 | ) | $ | (9,418 | ) |
| Net income                                    |       | —                |       | —      |       | —          |       | 21,509,723   |       | — |   |
| Common stock issuance                         |       | 10,200,307            |       | 10,200      |       | 49,675,960      |       | —       |       | — |   |
| Common stock issued for services              |       | 306,009               |       | 306         |       | (1,499,751      | )          | —       |       | — |   |
| Common stock issued for debt conversion       |       | 103,896               |       | 104         |       | 182,752         |       | —       |       | — |   |
| Stock compensation expense                    |       | —                |       | —      |       | 2,422,281       |       | —       |       | — |   |
| Common stock issued for stock option exercise |       | 229,000               |       | 229         |       | 457,961         |       | —       |       | — |   |
| Balances,  December 31, 2006             |       | 51,791,339            |       | $           | 51,829     |            | $          | 126,252,871  |       | $ | (89,525,887 | ) | $ | (9,418 | ) |

 

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

F-6

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**URANIUM RESOURCES, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS**

| ** **                                                   | ** ** | **Year Ended December 31,** | ** ** |
|--------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                   | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| Cash flows from  operations:                                 |       |                                       |       |   |   |   |   |
| Net income (loss)                                            |       | $                                          | 21,509,723 |   | $ | (35,086,678 | ) | $ | (15,864,756 | ) |
| Reconciliation of  net loss to cash used in operations— |       |                                       |       |   |   |   |   |
| (Gain) loss on derivatives                                   |       | (34,820,947                                | )          | 30,974,837 |   | 13,111,772 |   |
| Accretion/amortization of restoration reserve                |       | 516,956                                    |       | 348,415 |   | 241,810 |   |
| Depreciation and depletion                                   |       | 5,863,006                                  |       | 1,678,246 |   | 270,413 |   |
| Writedown of uranium properties and other assets             |       | 3,260,201                                  |       | — |   | 46,188 |   |
| Decrease in restoration and reclamation accrual              |       | (886,987                                   | )          | (974,161 | ) | (571,705 | ) |
| Stock compensation expense                                   |       | 2,422,281                                  |       | 581,960 |   | — |   |
| Deferred compensation                                        |       | —                                     |       | — |   | 181,888 |   |
| Other non-cash items, net                                    |       | 448,042                                    |       | 433,636 |   | 226,253 |   |
| Effect of changes in  operating working capital items—  |       |                                       |       |   |   |   |   |
| (Increase) decrease in receivables                           |       | (680,589                                   | )          | 336,554 |   | (344,244 | ) |
| Increase in inventories                                      |       | (705,132                                   | )          | (446,769 | ) | (19,644 | ) |
| Increase in prepaid and other current assets                 |       | (380,904                                   | )          | (507,563 | ) | (272,765 | ) |
| Increase in payables and accrued liabilities                 |       | 1,239,373                                  |       | 939,659 |   | 453,666 |   |
| Net cash used in  operations                                 |       | (2,214,977                                 | )          | (1,721,864 | ) | (2,541,124 | ) |
| Investing activities:                                        |       |                                       |       |   |   |   |   |
| Increase in certificate of deposit, restricted               |       | (1,179,080                                 | )          | (56,344 | ) | (830,947 | ) |
| Derivative settlement                                        |       | (12,000,000                                | )          | — |   | — |   |
| Additions to  property, plant and equipment—            |       |                                       |       |   |   |   |   |
| Kingsville Dome                                              |       | (10,414,835                                | )          | (889,479 | ) | (905,001 | ) |
| Rosita                                                       |       | (2,767,801                                 | )          | (279,975 | ) | (43,448 | ) |
| Vasquez                                                      |       | (3,405,581                                 | )          | (3,915,760 | ) | (2,724,312 | ) |
| Rosita South                                                 |       | (502,646                                   | )          | — |   | — |   |
| Churchrock                                                   |       | (304,632                                   | )          | (382,147 | ) | (124,037 | ) |
| Crownpoint                                                   |       | (91,392                                    | )          | (396,523 | ) | (61,157 | ) |
| Other property                                               |       | (819,901                                   | )          | (444,172 | ) | (87,573 | ) |
| Other assets/notes receivable                                |       | (420,034                                   | )          | — |   | — |   |
| Net cash used in  investing activities                       |       | (31,905,902                                | )          | (6,364,400 | ) | (4,776,475 | ) |
| Financing activities:                                        |       |                                       |       |   |   |   |   |
| Proceeds from (payments of) borrowings                       |       | (199,971                                   | )          | 600,000 |   | — |   |
| Issuance of common stock, net                                |       | 48,644,905                                 |       | 13,070,114 |   | 7,276,840 |   |
| Net cash provided  by financing activities                   |       | 48,444,934                                 |       | 13,670,114 |   | 7,276,840 |   |
| Net increase  (decrease) in cash and cash equivalents        |       | 14,324,055                                 |       | 5,583,850 |   | (40,759 | ) |
| Cash and cash  equivalents, beginning of year                |       | 5,852,716                                  |       | 268,866 |   | 309,625 |   |
| Cash and cash equivalents,  end of year                      |       | $                                          | 20,176,771 |   | $ | 5,852,716 |   | $ | 268,866 |   |

 

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

F-7

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**URANIUMRESOURCES, INC.**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

**DECEMBER 31,2006 AND 2005**

**1.   DESCRIPTION OFTHE COMPANY**

Uranium Resources, Inc.(“URI”) was formed in 1977 and domesticated in Delaware in 1987. TheCompany is primarily engaged in the business of acquiring, exploring,developing and mining uranium properties, using the *in situ* recovery (“ISR”) or solution mining process.Historically, the primary customers of the Company have been major utilitieswho utilize nuclear power to generate electricity. At present the Company ownsproducing and undeveloped uranium properties in South Texas and undevelopeduranium properties in New Mexico.

The Company resumeduranium production in the fourth quarter of 2004 at its Vasquez project inSouth Texas and began wellfield development in the fourth quarter of 2005 atits Kingsville Dome project, in South Texas, in anticipation of production fromthis project, which began in April 2006. Prior to resuming Vasquezproduction, the Company had been in production stand-by since the first quarterof 1999 at its Kingsville Dome and Rosita projects. Groundwater restorationactivities have been conducted and are currently ongoing at both the KingsvilleDome and Rosita projects.

**Reverse Stock Split**

On March 29, 2006 theCompany’s Board of Directors declared a 1 for 4 reverse stock split forstockholders of record on April 10, 2006, effective April 11, 2006. Thesplit was approved by stockholders at the 2005 Annual Meeting of Stockholders. Allcommon stock share amounts, earnings per share data and references to thecommon stock of the Company in this report are stated on a post-split basis.

**2.   SUMMARY OFSIGNIFICANT ACCOUNTING POLICIES**

**Principles ofConsolidation and Description of Company**

The consolidated financialstatements have been prepared in accordance with accounting principlesgenerally accepted in the United States of America and include the accounts ofURI and its wholly owned subsidiaries (collectively “the Company”). Allsignificant intercompany transactions have been eliminated in consolidation.

**Inventories**

Uranium and materials andsupplies inventory for each of the Company’s projects are valued at the lowerof average cost or market. Uranium inventories at December 31, 2006 and2005 reflect a lower of cost or market adjustment of $397,000 and $761,000,respectively.

**Uranium Properties**

Capitalization of Development Costs.   Allacquisition and development costs (including financing, salary and relatedoverhead costs) incurred in connection with the various uranium properties arecapitalized. Exploration and evaluation costs associated with uraniumproperties are expensed as incurred until such time that the existence of acommercially minable uranium deposit is confirmed. All properties withsignificant acquisition or incurred costs are evaluated for their realizabilityon a property-by-property basis. Any impairment of such costs is recognizedthrough a reduction in the net carrying value of the asset. (See Note 3—“UraniumProperties—Property Realizability”).

Depreciation andDepletion.   Depletion of uranium mineral interests, permits, licenses andrelated development costs are computed on a property-by-property basis usingthe units-of-production method 

F-8

----

based oneach projects pounds of recoverable uranium. Depreciation and depletion are providedon the investment costs, net of salvage value, of the various uraniumproperties’ production plants and related equipment using the estimatedproduction life of the uranium reserves. During the periods that our facilitiesare not in production, depletion on our mineral interests, permits, licensesand development properties are ceased. Depreciation and depletion of our plantfacilities, machinery and equipment continues, at significantly reducedamounts, in accordance with the level of stand-by activity being conducted ateach site. Other ancillary plant equipment and vehicles are depreciated using astraight line method based upon the estimated useful lives of the assets.

**Other Property,Plant and Equipment**

Other property, plant andequipment consists of corporate office equipment, furniture and fixtures andtransportation equipment. Depreciation on other property is computed based uponthe estimated useful lives of the assets. Repairs and maintenance costs areexpensed as incurred. Gain or loss on disposal of such assets is recorded asother income or expense as such assets are disposed.

**Capitalization ofInterest**

The Company capitalizesinterest cost with respect to properties undergoing exploration or developmentactivities that are not subject to depreciation or depletion. The averageinterest rate on outstanding borrowings during the period is used incalculating the amount of interest to be capitalized. No interest wascapitalized in the twelve months ended December 31, 2006, 2005 and2004. Total interest costs in these periods were $16,000, $93,000 and $8,000,respectively.

**Restoration andRemediation Costs (Asset Retirement Obligations)**

Various federal and state mining laws and regulationsrequire the Company to reclaim the surface areas and restore underground waterquality for its mine projects to the pre-existing mine area average qualityafter the completion of mining. In August 2001, the FASB issued Statementof Financial Accounting Standards (“SFAS”) No. 143, “Accounting for AssetRetirement Obligations,” which established a uniform methodology foraccounting for estimated reclamation and abandonment costs. The statement wasadopted January 1, 2003, when the Company recorded the estimated presentvalue of reclamation liabilities and increased the carrying amount of therelated asset, which resulted in a net expense for the cumulative effect of achange in accounting principle of $1,447,000. Reclamation costs are allocatedto expense over the life of the related assets and are periodically adjusted toreflect changes in the estimated present value resulting from the passage oftime and revisions to the estimates of either the timing or amount of thereclamation and remediation costs.

In March 2005, the FASB issued Interpretation 47(“FIN 47”), “Accounting for Conditional Asset Retirement Obligations”—aninterpretation of FASB No. 143. FIN 47 clarifies that the term “conditionalasset retirement obligation” as used in SFAS No. 143 refers to a legalobligation to perform an asset retirement activity in which the timingand/or method of settlement are conditional on a future event that may ormay not be within the control of the entity. The obligation toperform the asset retirement activity is unconditional even thoughuncertainty exists about the timing and/or method of settlement. FIN 47requires a liability to be recognized for the fair value of a conditional assetretirement obligation if the fair value of the liability can be reasonablyestimated. FIN 47 was effective for fiscal years ending after December 15,2005. The adoption of FIN 47 did not have a material impact on our consolidatedfinancial position, results of operations or cash flows.

Future reclamation andremediation costs are accrued based on management’s best estimate at the end ofeach period of the costs expected to be incurred at each project. Suchestimates are determined by the Company’s engineering studies calculating thecost of future of surface and groundwater activities. 

F-9

----

Duringthe years ended December 31, 2006, 2005 and 2004 the Companyincreased its cash flow estimate for restoration and reclamation costs by$543,707, $620,774 and $0.00, respectively.

**ContingentLiabilities—Off Balance Sheet Arrangements**

The Company has obtained financial surety relating tocertain of its future restoration and reclamation obligations as required bythe State of Texas regulatory agencies. The Company has bank Letters of Credit(the “L/C’s) and performance bonds issued for the benefit of the Company tosatisfy such regulatory requirements. The L/C’s were issued by Bank of Americaand the performance bonds have been issued by United States Fidelity andGuaranty Company (“USF&G”). L/C’s for $2,072,000, $944,000 and $897,000 at December 31,2006, 2005 and 2004, respectively such L/C’s are collateralized in theirentirety by certificates of deposit.

Performance bonds totaling$2,835,000 were issued for the benefit of the Company at December 31,2006, 2005 and 2004. USF&G has required that the Company deposit fundscollateralizing a portion of the bonds. The amount of bonding issued byUSF&G exceeded the amount of collateral by $2.5 million at December 31,2006, 2005 and 2004, respectively. In the event that USF&G is required toperform under its bonds or the bonds are called by the state agencies, theCompany would be obligated to pay any expenditures in excess of the collateral.

**Revenue Recognitionfor Uranium Sales**

The Company deliversuranium to its customers at third-party conversion facilities. The third-partyconverters warehouse our uranium and transfer title to our customers via booktransfer upon instructions supplied by the Company. The Company recognizesrevenue from the sale of uranium when title to the uranium transfers anddelivery is completed through such book transfer.

**Earnings Per Share**

Net earnings (loss) per common share—basic has beencalculated based on the weighted average shares outstanding during the year andnet earnings (loss) per common share—diluted has been calculated assuming theexercise or conversion of all dilutive securities. Due to net losses incurredfor 2005 and 2004 there were no dilutive securities included in each ofthese years.

The weighted averagenumber of shares used to calculate basic and diluted earnings (loss) per sharewas 48,338,172 and 51,559,867 respectively in 2006 and 36,644,468 and28,725,320 in 2005 and 2004, respectively. The difference in the number ofweighted average shares used to calculate basic and diluted earnings per sharein 2006 resulted from potential common stock issuances of shares related to theCompany’s stock option and deferred compensation plans. The potential CommonStock that was excluded from the calculation of diluted earnings per share was4,402,984 and 2,439,690 in 2005 and 2004, respectively.

**ConsolidatedStatements of Cash Flows**

The Company considers all highly liquid investmentswith a maturity of three months or less when purchased to be cashequivalents.

F-10

----

Additionaldisclosures of cash flow information follow:

| ** **                                                                                                                                 | ** ** | **Year Ended  December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                                                                                 | ** ** | **2006**                               | ** ** | **2005** | ** ** | **2004** | ** ** |
| Cash paid during the  period for:                                                                                                          |       |                                   |       |   |   |   |   |
| Interest                                                                                                                                   |       | $                                      | 13,603     |   | $ | 0 |   | $ | 0 |   |
| The following non-cash  transactions occurred in 2006, 2005 and 2004 and such transactions are  summarized as follows:                     |       |                                   |       |   |   |   |   |
| The Company  issued 65,812 and 119,125 shares of Common Stock in 2005 and 2004 in  satisfaction of the conversion of deferred compensation |       | $                                      | 0          |   | $ | 52,649 |   | $ | 95,300 |   |

 

In connection with a private placement in April 2006,the Company paid a fee of $1,449,445 in cash and 306,009 shares of Common Stockto a placement agent.

In March 2006, the Company issued 103,896 sharesof Common Stock in connection with the conversion of the Convertible Notesdescribed in Footnote 6.

During 2006, 2005 and 2004, the Company entered intocapital leases to acquire certain property plant and equipment totaling$225,000, $266,000 and $165,000. The balance of the capital leases at December 31,2006 was $387,000.

In the fourth quarter of 2005, the Company issued1,256,664 shares of Common Stock in satisfaction of the conversion of $600,000in principal and $28,333 in accrued interest for borrowings made pursuant to aNote Purchase Agreement dated March 24, 2005.

In September 2005, the Company recorded $138,000in stock compensation expense for stock options granted to a non-employee forservices provided to the Company.

In connection with a $12 million private placement in August 2005the Company paid a fee of $336,000 in cash and 448,000 shares of Common Stockto a placement agent.

In June 2005, theCompany recorded $443,960 in stock compensation expense related to stockoptions granted to employees and directors of the Company that were contingentupon shareholder approval of amendments to the stock option plans under whichthe grants were issued.

**Cash Balances inExcess of Federally Insured Limits**

The Company’s cash balanceat December 31, 2006 was $20.2 million and it maintains its cash accountsprimarily with Bank of America, N.A. The total cash balances are insured by theFederal Deposit Insurance Corporation up to $100,000 per account. The Companyhas cash balances with Bank of America, N.A. that exceeded the balance insuredby the FDIC that totaled approximately $20 million at December 31, 2006.

**Restricted Cash**

At December 31, 2006and 2005, the Company had pledged certificates of deposit and money marketaccounts of $2,467,000 and $1,288,000, respectively, in order to collateralizeletters of credit required for future restoration and reclamation obligationsrelated to the Company’s South Texas production and development properties.These funds are not readily available to the Company and are not included incash equivalents.

F-11

----

**Stock-BasedCompensation**

On January 1, 2006, the Company adopted the fairvalue recognition provisions of FASB Statement No. 123(R), “*Share-Based Paymen*t” (“FAS 123(R)”). TheCompany adopted FAS 123(R) using the modified prospective transitionmethod. Under this method, compensation cost recognized in 2006 includes: a)compensation cost for all share-based payments granted prior to, but not yetvested as of January 1, 2006, based on the grant-date fair value estimatedin accordance with the original provisions of FAS 123, and b) compensation costfor all share-based payments granted subsequent to January 1, 2006, basedon the grant-date fair value estimated in accordance with the provisions of FAS123(R).

As a result of adopting FAS 123(R), the Company’s *Earnings fromoperations* and *Net earnings*for 2006 is $2.422 million ($0.05 per share) lower, than if we had continued toaccount for share-based compensation under APB 25 as we did in the comparableprior year periods.

On June 2, 2004, 1,687,500 options were grantedto officers at an exercise price of $1.16 per share. Stock compensation expenseof $444,000 was recorded in June 2005 (the date an amendment to the stockoption plan was approved by the Company’s stockholders) and is reflected in theConsolidated Statements of Operations under general and administrative expensesfor the year ended December 31, 2005.

On September 28,2005, 50,000 options were granted to a non-employee of the Company for servicesprovided to the Company. Stock compensation expense of $138,000 is reflected inthe Consolidated Statements of Operations under general and administrativeexpenses for the year ended December 31, 2005.

**DerivativeFinancial Instruments**

The Company determined that its original long-termuranium sales contracts met the definition of derivative financial instrumentsfor financial statement reporting purposes and are recorded on the balancesheet at fair value at December 31, 2005 and 2004. Changes in the fairvalue of such derivatives recorded on the balance sheet are recorded in theconsolidated statements of operations in current earnings as they occur. Suchchanges in the Company’s derivatives represent non-cash charges to earnings forthe present value of the loss the Company would incur in the event it would berequired to purchase uranium in the spot market to satisfy the deliveries underboth of its long-term uranium sales contracts. See Footnote 5 for discussion ofrenegotiated sales contracts.

In March 2006 we entered into a new contract withItochu and a new contract with UG that supersede the prior contracts. Each ofthe new contracts calls for delivery of one-half of our actual production fromour Vasquez property and other properties in Texas currently owned or hereafteracquired by the Company (excluding certain large potential exploration plays).The terms of such contracts are discussed in Footnote 5. “Contract Commitments—SalesContracts”. The Company hasdetermined that the terms of the amended contracts substantially eliminatetheir qualification as derivatives.

We recorded a gain onderivatives in 2006 of $34.8 million compared to losses of $30.9 million and$13.1 million in 2005 and 2004, respectively. The gain in 2006 resulted fromchanges in the contract terms of long-term uranium sales contracts that werefinalized in March 2006.

**Use of Estimates**

The preparation of financial statements in conformitywith generally accepted accounting principles requires management to makecertain estimates and assumptions. Such estimates and assumptionsmay affect the reported amounts of assets and liabilities and disclosureof contingent assets and liabilities at the date of the financial statementsand the reported amounts of revenues and expenses during the reporting period.Actual results could differ from those estimates. Specifically regarding theCompany’s uranium properties, significant estimates were utilized indetermining the carrying value of these assets and 

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in the case of producingand development properties the pounds of uranium to be recovered. The actualvalues received from the disposition of these assets and the amount of uraniumrecovered from these projects may vary significantly from these estimatesbased upon market conditions, financing availability and other factors.

Regarding the Company’sreserve for future restoration and reclamation costs, significant estimateswere utilized in determining the future costs and timing to complete thegroundwater restoration and surface reclamation at the Company’s mine sites.The actual cost to conduct these activities may vary significantly fromthese estimates.

**Risks andUncertainties**

Historically, the market for uranium has experiencedsignificant price fluctuations. Prices are significantly impacted by globalsupply and demand, which is affected by the demand for nuclear power,political, and economic conditions, governmental legislation in uraniumproducing and consuming countries, and production levels and costs of productionof other producing companies. Increases or decreases in prices received couldhave a significant impact on the Company’s future results of operations.

The Company hasoutstanding surety bonds issued on its behalf by USF&G at December 31,2006, 2005 and 2004. The Company has deposited funds collateralizing a portionof these bonds. In the event that USF&G is required to perform underthe bonds or the bonds are called by the state agencies, the Company would beobligated to pay USF&G for its expenditures in excess of the collateral.See “Summary of Significant Accounting Policies—Restoration and ReclamationCosts” for further discussion.

**Impact of RecentAccounting Pronouncements**

In November 2004, the FASB issued SFAS No. 151,“Inventory Costs,” which amends the guidance in ARB No. 43, Chapter 4, “InventoryPricing.” SFAS No. 151 clarifies the accounting for abnormal amounts ofidle facility expense, freight, handling costs, and wasted material (“spoilage”)and requires such costs to be recognized as current-period charges.Additionally, SFAS No. 151 requires that allocation of fixed productionoverhead costs be based on normal capacity. The Statement is effectivefor years beginning after June 15, 2005, with early adoptionpermitted. Implementation of the Statement did not have a significant effect onthe Company’s financial statements.

In December 2004, the FASB issued SFAS No. 123(revised 2004) (SFAS No. 123R) “Share-Based Payments.” SFAS No. 123Rrequires that the cost from all share-based payment transactions, includingstock options, be recognized in the financial statements at fair value. SFAS No. 123Ris effective for the Company in the first interim period after December 15,2005. SFAS No. 123R requires measurement and recording to the financialstatements of the costs of employee services received in exchange for a grantof equity instruments based on the grant-date fair value of the award,recognized over the period during which an employee is required to provideservices in exchange for such award. The Company will adopt the provisions ofSFAS No. 123R on January 1, 2006. Compensation expense will berecognized for all newly granted options after January 1, 2006.Compensation expense for the unvested portion of awards that are outstanding asof January 1, 2006, based on the fair value at date of grant as calculatedfor our pro forma disclosure under SFAS No. 123R, will be recognizedratably over the remaining vesting period. The implementation of SFAS No. 123Rresulted in a non-cash charge against earnings in 2006 of approximately $2.422million.

In March 2005, the FASB ratified Emerging IssuesTask Force Issue No. 04-6, “Accounting for Stripping Costs Incurredduring Production in the Mining Industry,” (EITF 04-6) which addressesthe accounting for stripping costs incurred during the production phase of amine and refers to these costs as variable production costs that should beincluded as a component of inventory to be recognized in operating costs in thesame period as the revenue from the sale of inventory. The EITF 04-6applies 

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specifically toconventional mining operations (open pit mining) and as a result the Companydoes not believe it is applicable to the Company’s in situ recovery miningoperations.

In June 2006, the FASB issued FASB InterpretationNo. 48, “Accounting for Uncertainty in Income Taxes, an interpretation ofFASB Statements No. 109” (“FIN 48”). FIN 48 clarifies the accounting foruncertainty in income taxes by prescribing a two-step method of firstevaluating whether a tax position has met a more likely than not recognitionthreshold and second, measuring that tax position to determine the amount ofbenefit to be recognized in the financial statements. FIN 48 provides guidanceon the presentation of such positions within a classified statement offinancial position as well as on derecognition, interest and penalties,accounting in interim periods, disclosure, and transition. FIN 48 is effectivefor fiscal years beginning after December 15, 2006. The adoption of thisstatement is not expected to have a material effect on the Company’s futurereported financial position or results of operations.

In September 2006,the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108,“Considering the Effects of Prior Year Misstatements when QuantifyingMisstatements in Current Year Financial Statements” (“SAB 108”), which providesinterpretive guidance on the consideration of the effects of prior yearmisstatements in quantifying current year misstatements for the purpose of amateriality assessment. The Company adopted SAB 108 in the fourth quarter of2006. SAB 108 allows a one-time transitional cumulative effect adjustmentto beginning retained earnings as of January 1, 2006 for errors that werenot previously deemed material, but are material under the guidance in SAB 108.The adoption of this statement is not expected to have a material effect on theCompany’s future reported financial position or results of operations.

**3.   LIQUIDITY**

The Company’s net cash used in operations for theyears ended December 31, 2006, 2005, and 2004 was $2.2 million, $1.7 millionand $2.5 million, respectively, and from April to December 2006, our net cashoutflows have averaged $1.7 to $1.8 million per month.

Our cash balance atDecember 31, 2006 was $20.2 million and based upon our current plan ofoperations we anticipate that our operating and capital requirements for 2007will be met through existing cash and cash generated from operations.

**4.**   URANIUMPROPERTIES

**Property, Plant and Equipment**

| ** **                      | ** ** | **Property, Plant and  Equipment Balances (net)  At December 31,** | ** ** |
|---------------------------------|------------|--------------------------------------------------------------------------------------------------|------------|
| ** **                      | ** ** | **2006**                                                                                         | ** ** | **2005** | ** ** |
| Uranium plant                   |       | $                                                                                                | 7,052,000  |   | $ | 2,315,000 |   |
| Uranium wellfield  development  |       | 5,128,000                                                                                        |       | 3,592,000 |   |
| Permits and  licenses           |       | 1,970,000                                                                                        |       | 1,308,000 |   |
| Mineral rights                  |       | 1,081,000                                                                                        |       | 659,000 |   |
| Exploration                     |       | 423,000                                                                                          |       | 56,000 |   |
| Vehicles/depreciable  equipment |       | 1,402,000                                                                                        |       | 247,000 |   |
| Other                           |       | 1,140,000                                                                                        |       | 512,000 |   |
| Total                           |       | $                                                                                                | 18,196,000 |   | $ | 8,689,000 |   |

 

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**PropertyRealizability**

***Uranium Properties***

The Company reviews and evaluates its long-livedassets for impairment when events or changes in circumstances indicate that therelated carrying amounts may not be recoverable. An impairment isconsidered to exist if the total estimated future cash flows on an undiscountedbasis are less than the carrying amount of the assets. An impairment loss ismeasured and recorded based on discounted estimated future cash flows. Futurecash flows are estimated based on quantities of recoverable minerals, expecteduranium prices, production levels and operating costs of production andcapital, based upon the projected remaining future uranium production from eachproject. The Company’s estimates of future cash flows are based on numerousassumptions and it is possible that actual future cash flows will besignificantly different than the estimates, as actual future quantities ofrecoverable minerals, uranium prices, production levels and operating costs ofproduction and capital are each subject to significant risks and uncertainties.

The Company recorded animpairment and reduced the carrying value of its uranium properties by$3,260,000 and $46,000 in 2006 and 2004, respectively. No impairment wasrecorded in 2005.

**Vasquez Property**

The Company has a mineral lease on 872 gross and netacres located in southwestern Duval County, in South Texas. The term expires inFebruary 2008. The lease provides for royalties based upon 6.25% ofuranium sales below $25.00 per pound and royalty rate increases on a slidingscale up to 10.25% for uranium sales occurring at or above $40.00 per pound.

The net carrying value ofthe property was approximately $1,580,000 at December 31, 2006. Suchassets consisted of mineral rights ($51,000), permits/licenses ($15,000),wellfield development ($426,000), plant buildings/uranium processing/dryingfacilities ($784,000) and restoration and other equipment ($304,000). The netcarrying value of the property was approximately $4,611,000 at December 31,2005. Such assets consisted of mineral rights ($104,000), permits/licenses($60,000), wellfield development ($3,395,000), plant buildings/uraniumprocessing/drying facilities ($963,000) and restoration and other equipment($89,000).

**Kingsville DomeProperty**

The Kingsville Dome property consists of mineralleases from private landowners on about 2,354 gross and net acres located incentral Kleberg County, Texas. The leases provide for royalties based upon apercentage of uranium sales of 6.25%. The leases have expiration dates rangingfrom 2000 to 2007. With a few minor exceptions, all the leases contain clausesthat permit us to extend the leases not held by production by payment of a peracre royalty ranging from $10 to $30.

The net carrying value ofthe property was approximately $10,017,000 at December 31, 2006. Suchassets consisted of mineral rights ($386,000), permits/licenses ($556,000),plant buildings/uranium processing/drying facilities ($4,115,000), wellfielddevelopment ($4,169,000) and restoration and other equipment ($792,000). Thenet carrying value of the property was approximately $2,110,000 at December 31,2005. Such assets consisted of mineral rights ($239,000), permits/licenses($379,000), plant buildings/uranium processing/drying facilities ($1,179,000),wellfield development ($197,000) and restoration and other equipment($116,000).

**Rosita Property**

The Company holds several lease holdings in a uraniumprospect (“Rosita”) in Duval County, Texas. The Company has produced over 3million pounds of uranium from this property in the early to mid 1990’s 

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but the property wasplaced on stand-by in 1999 because of low uranium prices. With the significantincrease in uranium prices the company is re-evaluating this property foradditional future uranium production.

Cost of uranium sales in 2006, 2005 and 2004 in theConsolidated Statements of Operations includes $64,000, $83,000 and $105,000,respectively of costs incurred to maintain the facility while Rosita was onstandby and not in production.

The net carrying value ofthe property at December 31, 2006 and 2005 was approximately $3,089,000and $173,000, respectively. Such assets consisted of mineral rights ($63,000),permits/licenses ($67,000), plant buildings/uranium processing/dryingfacilities ($2,154,000) , wellfield development ($535,000) and other equipmentof ($270,000) in 2006. Rosita assets consisted of plant buildings ($173,000) in2005.

**South Rosita**

In the fourth quarter of2005, the Company entered into leases on approximately 1,300 acres in DuvalCounty near its Rosita property. Evaluation of the uranium mineralizationpotential of this property began in 2006 and continues in 2007. The netcarrying value of the property at December 31, 2006 was approximately$757,000. Such assets consisted of mineral rights ($247,000), permits/licenses($122,000) and evaluation costs ($388,000).

**ChurchrockProperties**

The Churchrock project encompasses about 2,200 grossand net acres. The properties are located in McKinley County, New Mexico andconsist of three parcels, known as Section 8, Section 17 and Mancos.None of these parcels lies within the area generally recognized as constitutingthe Navajo Reservation. We own the mineral estate in fee for both Section 17and the Mancos properties. We own patented mining claims on Section 8.

The surface estate on Section 17 is owned by theUnited States Government and held in trust for the Navajo Nation. We haveroyalty obligations ranging from 5% to 61¤4% and a 2%overriding royalty obligation to the Navajo Nation for surface use agreements.

Permitting activities arecurrently ongoing on both of these properties. The net carrying value of theseproperties was $810,000 and $506,000 at December 31, 2006 and 2005,respectively. The assets consisted of mineral rights and permitting/licensingat December 31, 2006 and 2005.

**Crownpoint Property**

The Crownpoint properties are located in the San JuanBasin, 22 miles northeast of our Churchrock deposits and 35 miles northeast ofGallup, New Mexico, adjacent to the town of Crownpoint. The Properties consistof 619 gross and 521.8 net acres.

The net carrying value ofthese properties was $610,000 and $518,000 at December 31, 2006 and 2005,respectively, and consisted primarily of mineral rights, permits/licenses andplant buildings and equipment.

**West Largo and RocaHonda**

In March 1997, we acquired the fee interest in177,000 acres in northwestern New Mexico. Several significant occurrences ofuranium mineralization are know to be within this acreage, including a uraniummineralized property called the West Largo and a uranium mineralized propertycalled the Roca Honda.

F-16

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The West Largo property is about 21 miles north of thetown of Milan and about 1.5 miles west of State Highway 509 in McKinley County,New Mexico. The property lies about 3 miles to the northwest of the AmbrosiaLake District, a major producer of uranium by means of underground operationsfrom the late 1950s to the early 1980s.

The Roca Honda property lies about 4 miles northwestof the town of San Mateo in McKinley County, New Mexico. We also own 36unpatented mining claims encompassing approximately 640 acres that are adjacentto the fee land.

Thenet carrying value of the property was $65,000 and $29,000 at December 31,2006 and 2005, respectively.

**5.   CONTRACTCOMMITMENTS**

**Sales Contracts**

In March 2006 we entered into a new contract withItochu and a new contract with UG that supersede the previously existingcontracts and provide for delivery of one-half of our actual production fromour Vasquez property and other properties in Texas currently owned or hereafteracquired by the Company (excluding certain large potential exploration plays).The terms of such contracts are summarized below.

*TheItochu Contract.*   Under the Itochu contract allproduction from the Vasquez property will be sold at a price equal to theaverage spot price for the eight weeks prior to the date of delivery less $6.50per pound, with a floor for the spot price of $37 and a ceiling of $46.50.Other Texas production will be sold at a price equal to the average spot pricefor the eight weeks prior to the date of delivery less $7.50 per pound, with afloor for the spot price of $37 and a ceiling of $43. On non-Vasquez productionthe price paid will be increased by 30% of the difference between actual spotprice and the $43 ceiling up to and including $50 per pound. If the spot priceis over $50 per pound the price on all Texas production will be increased by50% of such excess. The floor and ceiling and sharing arrangement over theceiling applies to 3.65 million pounds of deliveries, after which there is nofloor or ceiling. Itochu has the right to cancel any deliveries on six-month’snotice.

In December 2005 we entered into a joint venturewith Itochu to develop our Churchrock property in New Mexico. See “**Joint Venture for Churchrock Property**.”  Under the terms of the joint venture, bothparties must make an investment decision after the completion of a feasibilitystudy, which was completed at the end of 2006. If Itochu should terminate theventure at that time, we would no longer receive the additional price of 30% ofthe excess over $43 per pound outlined above. If we should terminate theventure at that time, the original contract terms will be reinstated from thattime forward. The parties expect to make the preliminary investment decisionthe first week of May 2007.

*The UG Contract.*   Underthe UG contract all production from the Vasquez property and other Texasproduction will be sold at a price equal to the month-end long-term contractprice for the second month prior to the month of delivery less $6 per pounduntil (i) 600,000 pounds have been sold in a particular delivery year and (ii) anaggregate of 3 million pounds of Uranium has been sold. After the 600,000pounds in any year and 3 million pounds total have been sold, UG will have aright of first refusal to purchase other Texas production at a price equal tothe average spot price for a period prior to the date of delivery less 4%. Inconsideration of UG’s agreement to restructure its previously existingcontract, we paid UG $12 million incash with funds raised in our equity offering completed in April 2006.

**DerivativeFinancial Instruments**

The Company has determinedthat its long-term uranium sales contracts in effect prior to March 2006meet the definition of derivative financial instruments for financial statementreporting purposes, and the financial statements have been restated as of January 1,2004, to record these contracts at fair value. 

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Changesin the Company’s derivatives represent non-cash charges to earnings for thepresent value of the loss the Company would incur in the event it would berequired to purchase uranium in the spot market to satisfy the deliveryobligations under the uranium sales contracts. The Company does not enter intohedge transactions with respect to its uranium sales contracts.

**Impact of AmendedSales Contracts on Derivatives**

Both of the amendedcontracts obligate the Company to deliver 50% of its uranium production to eachcustomer, and is does not obligate the Company to deliver any uranium in excessof it’s production. The Company has determined that at March 31, 2006 theterms of the amended contracts eliminated their qualification as derivativesand therefore, as of May 2006, are not required to be valued at fair value.The amendment to these contracts resulted in a gain on derivatives recorded tothe consolidated statements of operations of $34.3 million and $527,000 in thefirst and second quarters of 2006, respectively.

**6.   LONG-TERM DEBT**

**Convertible Notes**

In 2000, the Company issued a $135,000 ConvertibleNote due July 17, 2005 in settlement of certain outstanding claims.Interest of 6% per annum was due at maturity. The Company could prepay theNote at any time and the holder of the Note had the right to convertall principal and accrued interest into shares of the Company’s Common Stock ata conversion price of $3.00 per share. In the third quarter of 2005, thematurity was extended to July 17, 2006, and the accrued and unpaidinterest of $40,833 was added to the principal of the Convertible Note. Theconversion price was reduced to $1.76 per share. In connection with theseamended terms, the Company recorded interest expense of approximately $56,000in 2005 related to the beneficial conversion terms of the modified Note. In March 2006,all of the principal and accrued interest ($182,900) under the note wereconverted into 103,896 shares of the Company’s Common Stock.

On March 28, 2005 theCompany borrowed $600,000 from five (5) stockholders of the Company, eachof whom may be considered an affiliate. The Notes were unsecured, with amaturity date of March 24, 2006 and bore interest at the rate of 10% perannum. Each of the Notes carried conversion rights entitling the holder theright to convert the face value of the Note plus accrued interest into sharesof common stock of the Company at a price equal to the share price the Companyreceived under subsequent debt or equity offerings. In the fourth quarter of2005 each lender elected to convert their note and accrued interest into commonstock of the Company. A total of 314,166 shares were issued at a share price of$2.00 per share.

**Summary of Long-Term Debt**

| ** **                                  | ** ** | **At December 31,** | ** ** |
|---------------------------------------------|------------|-------------------------------|------------|
| ** **                                  | ** ** | **2006**                      | ** ** | **2005** | ** ** |
| Long-term debt of the  Company consists of: |       |                          |       |   |   |
| Crownpoint property (Note 3)           |       | $                             | 450,000    |   | $ | 450,000 |   |
| Capital leases                              |       | 387,495                       |       | — |   |
| Convertible Note                            |       | —                        |       | 175,833 |   |
|                                        |       | 837,495                       |       | 625,833 |   |
| Less—Current  portion                  |       | 201,804                       |       | 175,833 |   |
| Total long-term  debt                       |       | $                             | 635,691    |   | $ | 450,000 |   |

 

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Maturitiesof long-term debt are as follows:

| **For the Twelve Months Ended:** | ** ** | ** ** | ** ** | ** ** | ** ** |
|------------------------------------------------------|------------|------------|------------|------------|------------|
| December 31,  2007                              |       | $          | 201,804    |       |
| December 31,  2008                              |       | $          | 141,280    |       |
| December 31,  2009                              |       | $          | 39,327     |       |
| December 31,  2010                              |       | $          | 5,084      |       |
| December 31, 2011  and beyond                   |       | $          | 450,000    |       |

 

**7.   RELATED-PARTYTRANSACTIONS**

In the second quarter of 2006, the Company issued atotal of 162,500 shares of Common Stock (100,000 shares at $0.80 per share and62,500 shares at $2.80 per share) to executive officers of the Company upontheir election to exercise stock options under the terms of the Company’s stockoption plans.

In April 2006, August 2005 and May 2005the Company issued shares of its common stock in private placementtransactions. Two private investment partnerships managed by George R. Ireland,a director of the Company, purchased 300,000 out of 10,200,307 shares in the April 2006offering, 400,000 shares out of 6,000,000 shares in the August 2005offering and all of the 833,333 shares in the May 2005 offering. TheCompany has filed a registration statement under the Securities Act of 1933, asamended, to register the resale of the shares issued in these privateplacements.

In September 2005, the Company issued a total of9,562 shares of Common Stock at $0.80 per share to a director of the Companyupon his election to convert deferred compensation into shares under the termsof the deferred compensation plans.

On March 28, 2005 the Company borrowed $600,000pursuant to a Note Purchase Agreement dated March 24, 2005. Thelenders were five (5) stockholders of the Company, each of whommay be considered an affiliate. In the fourth quarter of 2005 each lenderelected to convert their note and accrued interest in common stock of theCompany. A total of 314,166 shares were issued at a share price of $2.00 pershare in connection with the conversion of the Notes.

In January 2005, the Company issued a total of56,250 shares of Common Stock at $0.80 per share to a former director andholder of in excess of 5% of outstanding common shares of the Company upon hiselection to convert deferred compensation.

In November 2004, the Company raised anadditional $100,000 of equity by the issuance of 128,641 shares of Common Stockat $0.80 and $0.76 per share to an executive officer and director of theCompany upon the exercise of outstanding stock options.

In June and December 2004,the Company issued a total of 119,125 shares of Common Stock at $0.80 per shareto a director of the Company upon his election to convert deferredcompensation.

**8.   SHAREHOLDERS’EQUITY (DEFICIT)**

**Reverse Stock Split**

On March 29, 2006 theCompany’s Board of Directors declared a 1 for 4 reverse stock split forstockholders of record on April 10, 2006. The split was approved bystockholders at the 2005 Annual Meeting of Stockholders.

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**Equity Infusions**

In2006 and 2005 the Company sold shares of common stock in the following privateplacements:

| **Date**           | ** ** | ** ** | ** ** | **Price per Share** | ** ** | **Amount** | ** ** | **Shares Issued** | ** ** |
|--------------------|------------|------------|------------|-------------------------------|------------|------------|------------|------------------------|------------|
| April 2006    |       |       | $          | 4.90                          |       |       | $          | 49,981,504             |       |   | 10,200,307 |   |   |
| August 2005   |       |       | $          | 2.00                          |       |       | $          | 12,000,000             |       |   | 6,000,000 |   |   |
| May 2005      |       |       | $          | 1.80                          |       |       | $          | 1,499,999              |       |   | 833,333 |   |   |
| May 2004      |       |       | $          | 0.60                          |       |       | $          | 5,897,550              |       |   | 9,829,251 |   |   |
| February 2004 |       |       | $          | 0.40                          |       |       | $          | 325,000                |       |   | 812,500 |   |   |
| January 2004  |       |       | $          | 0.40                          |       |       | $          | 350,000                |       |   | 875,000 |   |   |

 

In connection with the April 2006 placement theCompany paid a fee of $1,449,445 in cash and 306,009 shares of Common Stock toa placement agent. In connection with the August 2005 placement theCompany paid a fee of $336,000 in cash and 112,000 shares of Common Stock to aplacement agent.

Two private investmentpartnerships managed by George R. Ireland, a director of the Company, purchased300,000 out of 10,200,307 shares in the April 2006 offering, 400,000shares out of 6,000,000 shares in the August 2005 offering and all of the833,333 shares in the May 2005 offering. The Company has filed aregistration statement under the Securities Act of 1933, as amended, toregister the resale of the shares issued in these private placements.

**Common Stock IssuedUpon Conversion of Warrants/Options**

In 2006, the Company raised $458,000 of equity throughthe issuance of 229,000 shares of Common Stock of the Company upon the exerciseof outstanding stock options.

In September 2005, the Company issued 9,562shares of Common Stock of the Company at $0.80 per share to a  director of the Company upon his election toconvert deferred compensation. In January 2005, the Company issued 56,250shares of Common Stock of the Company at $0.80 per share to a former directorof the Company upon his election to convert deferred compensation.

In November 2004, the Company raised $100,000 ofequity by the issuance of 55,816 and 72,825 shares of Common Stock at $0.80 and$0.76 per share respectively, to an executive officer and director of theCompany upon the exercise of outstanding stock options.

In the fourth quarter of 2004, the Company raised$675,000 of equity by the issuance of 1,406,250 shares of Common Stock at $0.48upon the exercise of Warrants that were issued in August 2000.

In June and December 2004,the Company issued a total of 119,125 shares of Common Stock at $0.80 per shareto a director of the Company upon his election to convert deferredcompensation.

**Stock Options**

*Employee StockOptions*

The Company has two stock Incentive Plans forEmployees, both of which were approved by the Company’s stockholders. Under the1995 Stock Incentive Plan (the “1995 Plan”) 2,600,521 shares may be purchasedupon the exercise of outstanding options with exercise prices ranging from$0.76 to $28.50 per share. No new options may be granted under the 1995 Plan.

Under the Company’s 2004 Stock Incentive Plan (the “2004Plan”) a total of 1,750,000 shares may be issued upon exercise of optionsgranted under the 2004 Plan. At December 31, 2006 there were outstandingunder the 2004 Plan options for the purchase of 1,722,688 shares of CommonStock at exercise 

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prices ranging from $2.97to $5.19 per share. At December 31, 2006, 500 shares were available forfuture grants under the 2004 Plan.

Employee stock optionsgenerally vest ratably over a 3 or 4 year time frame and have acontractual term of 10 years.

*Directors StockOptions*

On June 19, 2001, the Company granted to certainoutside directors options to purchase 75,000 shares of the Company’s CommonStock at an exercise price of $0.88 per share. All such options wereimmediately exercisable and will expire June 19, 2011 or 30 daysafter the holder ceases to be a director of the Company or one year after suchholder’s death, whichever occurs first. These options have not been exercisedand 25,000 of these options were cancelled as of December 31, 2006.

On June 2, 2004 the Company adopted the 2004Directors’ Stock Option Plan (the “2004 Directors’ Plan”). Under the 2004Directors’ Plan, each non-employee director on the date the Plan was adoptedwas granted an option to purchase 75,000 shares of Common Stock. Eachnon-employee Director elected or appointed to the Board of Directors for thefirst time will be granted an option to purchase 25,000 shares of Common Stockand, each Non-Employee Director shall be granted an option to purchase 25,000shares either, (a) upon his or her reelection at an annual meeting of theCompany’s stockholders or (b) in any calendar year in which an annualmeeting of stockholders is not held, on June 1 of such year. In June 2006,the Directors’ Stock Option Plan was amended to increase the initial grants tonon-employee Directors to 50,000 shares of Common Stock. The 2004 Directors’Plan replaces an earlier plan that expired in 2004. At December 31, 2006,there were outstanding options for the exercise of 2,000 shares under the oldplan.

At the June 2006 and2005 annual meeting of the stockholders, each of the non-employee directors ofthe Company was granted an option under the 2004 Directors Plan to purchase25,000 shares of the Company’s common stock at an exercise price of $5.15 and$1.80 per share, respectively. In June and October 2006 options topurchase 50,000 shares of the Company’s Common Stock were granted to two newnon-employee directors of the Company at exercise prices of $5.13 and $2.97,respectively. The non-employee directors hold options covering 350,000 sharesunder the 2004 Directors’ Plan at December 31, 2006. At December 31,2006, 700,000 shares were available for future grants under the 2004 Directors’Plan.

**Options Issuablefor Deferred Compensation**

The Company has a 1999 Deferred Compensation Plan (the“1999 Plan”) and Deferred Compensation Plans for 2000-2001, 2002, 2003and 2004 (the “2000-2004 Plans”) whereby executive officers and directorswere permitted to defer up to 100% of their compensation for the years 1999-2004.

Under the 1999 Deferred Compensation Plan (the “1999Plan”), executive officers and directors of the Company and its subsidiarieswere permitted to defer until January 11, 2006 up to 100% of their 1999salary. At the time of the deferral election, a participant could elect toreceive payment of up to 100% of the deferred amount of salary in shares of ourCommon Stock. A total of approximately $242,000 was deferred under the 1999 Planof which $133,450 was paid by issuing 88,965 shares of Common Stock at $1.50per share. As of December 31, 2006, approximately $108,000 remainsoutstanding as deferred compensation under the 1999 Plan.

Under the 2000-2004 Plans, the executiveofficers and directors were permitted to defer up to 100% of their 2000, 2001,2002, 2003 and 2004 salary with payment thereof to be made on January 11,2006. On or before that date, the participant may elect to receive thedeferred amount in shares of our Common Stock valued at $0.80 per share. Atotal of $829,000 was deferred under the 2000-2004 Plans of which $95,300

F-21

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was paid in 2004 byissuing 119,125 shares of Common Stock at $0.80 per share. As of December 31,2006, approximately $681,000 remains outstanding as deferred compensation underthe 2000-2004 Plans.

In December 2005, the1999 Plan and the 2000-2004 Plans were amended, extending the election ofthe participants under the plans to receive their deferred compensation until January 11,2011. All of the participants with accrued deferred compensation at December 2005elected to defer their election to such date.

**9.   STOCK-BASEDCOMPENSATION PLANS**

***Adoption of SFAS 123(R)***

Effective January 1, 2006, the Company adoptedthe fair value recognition provisions of Statement of Financial AccountingStandard 123(R) “*Share-Based Payment”*(“SFAS 123(R)”) using the modified prospective transition method. In addition,the Securities and Exchange Commission issued Staff Accounting Bulletin No. 107“*Share-Based Payment*” (“SAB 107”)in March, 2005, which provides supplemental SFAS 123(R) applicationguidance based on the views of the SEC. Under the modified prospectivetransition method, compensation cost recognized in the quarter ended March 31,2006 and beyond includes: (a) compensation cost for all share-basedpayments granted prior to, but not yet vested as of January 1, 2006, basedon the grant date fair value estimated in accordance with the originalprovisions of SFAS No. 123, and (b) compensation cost for allshare-based payments granted beginning January 1, 2006, based on the grantdate fair value estimated in accordance with the provisions of SFAS 123(R). Inaccordance with the modified prospective transition method, results for priorperiods have not been restated.

The adoption of SFAS 123(R) resulted in stockcompensation expense for the year ended December 31, 2006 of $2,422,000 togeneral and administrative expenses. The Company did not recognize a taxbenefit from the stock compensation expense because the Company considers it ismore likely than not that the related deferred tax assets, which have beenreduced by a full valuation allowance, will not be realized.

The Black-Scholes option-pricing model was used toestimate the option fair values. The option-pricing model requires a number ofassumptions, of which the most significant are, expected stock pricevolatility, the expected pre-vesting forfeiture rate and the expected optionterm (the amount of time from the grant date until the options are exercised orexpire). Expected volatility was calculated based upon actual historical stockprice movements through the measurement date of the stock option grant.Expected pre-vesting forfeitures were estimated based on actual historicalpre-vesting forfeitures over the most recent periods ending December 31,2006 for the expected option term. The expected option term was estimated basedon historical averages over the most recent periods ending December 31,2006.

A total of 100,000 newoption grants were made to the non-employee directors of the Company in June 2006at grant prices of $5.15 and $5.13 per share. In October 2006 a total of800,000 new options were made to an executive officer of the Company and 50,000new option grants were made to a non-employee director of the Company at agrant price of $2.97 per share. In November 2006, a total of 295,000 newoption grants were made to employees of the Company at a grant price of $5.19per share.

F-22

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***Stock Options as of December 31, 2006***

TheCompany has four stock option plans as summarized under Footnote 8 “StockOptions.”  The following table summarizesstock options outstanding and changes during the year ended December 31,2006:

| ** **                                     | ** ** | **Outstanding Options** | ** ** |
|------------------------------------------------|------------|------------------------------|------------|
| ** **                                     | ** ** | **Number of  Shares**   | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Weighted  Average  Remaining  Contractual  Term  (in years)** | ** ** | **Aggregate  Intrinsic  Value** | ** ** |
| Options  outstanding at Jan. 1, 2006      |       | 3,743,064                    |       |   | $ | 2.17 |   |   |   |   |   |   |   |   |
| Granted                                        |       | 1,245,000                    |       |   | $ | 3.67 |   |   |   |   |   |   |   |   |
| Exercised                                      |       | (229,000                     | )          |   | $ | 2.00 |   |   |   |   |   |   |   |   |
| Canceled or forfeited                          |       | (83,855                      | )          |   | $ | 9.71 |   |   |   |   |   |   |   |   |
| Options  outstanding at December 31, 2006 |       | 4,675,209                    |       |   | $ | 2.44 |   |   |   | 7.88 |   |   | $ | 15,686,685 |   |
| Options exercisable at  December 31, 2006 |       | 2,550,743                    |       |   | $ | 2.29 |   |   |   | 7.21 |   |   | $ | 8,956,122 |   |

 

The total intrinsic value of options exercised duringthe years ended December 31, 2006, 2005 and 2004 was $793,000, $0 and$312,000, respectively.

Shares available for grant under the Plans as of December 31,2006 were 700,500.

Stockoptions outstanding and currently exercisable at December 31, 2006 are asfollows:

| ** **                      | ** ** | **Options Outstanding** | ** ** | **Options Exercisable**             | ** ** |
|---------------------------------|------------|------------------------------|------------|------------------------------------------|------------|
| **Stock Option Plan** | ** ** | ** **                   | ** ** | **Number of  Options  Outstanding** | ** ** | **Weighted Average  Remaining  Contractual Life  (in years)** | ** ** | **Weighted Average  Exercise price** | ** ** | **Number of  Options  Exercisable** | ** ** | **Weighted Average  Exercise Price** | ** ** |
| 1995 Stock  Incentive Plan      |       |                         | 2,600,521  |                                     |       |   | 6.94 |   |   |   | $ | 1.74 |   |   | 1,694,569 |   |   | $ | 1.80 |   |   |
| 2004 Employee  Incentive Plan   |       |                         | 1,722,688  |                                     |       |   | 9.17 |   |   |   | 3.46 |   |   | 804,474 |   |   | 3.35 |   |   |
| Directors Stock  Option Plan    |       |                         | 2,000      |                                     |       |   | 2.73 |   |   |   | 7.79 |   |   | 1,700 |   |   | 9.14 |   |   |
| 2004 Directors  Plan            |       |                         | 350,000    |                                     |       |   | 8.55 |   |   |   | 2.65 |   |   | 50,000 |   |   | 1.32 |   |   |
|                            |       |                         | 4,675,209  |                                     |       |   | 7.88 |   |   |   | $ | 2.44 |   |   | 2,550,743 |   |   | $ | 2.29 |   |   |
|                                 |            |                              |            |                                          |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Total estimated unrecognized compensation cost fromunvested stock options as of December 31, 2006 was approximately $4.7million, which is expected to be recognized over a weighted average period ofapproximately 2 years.

F-23

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***Pro-Forma Stock Compensation Expense for the YearEnded December 31, 2005***

Priorto 2006, the Company applied the intrinsic value method of accounting for stockoptions as prescribed by APB 25. Since all options granted prior to the yearended December 31, 2005 had an exercise price equal to the closing marketprice of the underlying common stock on the grant date, no compensation expensewas recognized. If compensation expense had been recognized based on theestimated fair value of each option granted in accordance with the provisionsof SFAS 123 as amended by Statement of Financial Accounting Standard 148, ournet loss and net loss per share would have been reduced to the followingpro-forma amounts:

| ** **                                                                        | ** ** | **Year Ended  December 31, 2005** | ** ** | **Year Ended  December 31, 2004** | ** ** |
|-----------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| Net Loss:  As reported                                                       |       |                                             | $          | (35,086,678                                      | )          |   |   | $ | (15,864,756 | ) |   |
| Pro forma stock  based compensation costs under the fair value method, net of tax |       |                                             | (430,255   | )                                                |       |   | (27,458 | ) |   |
| Pro forma                                                                    |       |                                             | $          | (35,516,933                                      | )          |   |   | $ | (15,892,214 | ) |   |
| As reported                                                                  |       |                                             | $          | (0.96                                            | )          |   |   | $ | (0.55 | ) |   |
| Basic EPS:  Pro forma                                                        |       |                                             | $          | (0.96                                            | )          |   |   | $ | (0.55 | ) |   |
| As reported                                                                  |       |                                             | $          | (0.96                                            | )          |   |   | $ | (0.55 | ) |   |
| Diluted EPS:  Pro forma                                                      |       |                                             | $          | (0.96                                            | )          |   |   | $ | (0.55 | ) |   |

 

The fair value of each option is estimated on the dateof grant using the Black-Scholes option-pricing model.

Using the Black-Scholes option pricing model, theweighted average assumptions for grants in 2006: fair market value: $5.05,$5.03, $2.91, $2.92 and $5.09 expected volatility of 155.0%, 155.0%, 154.6%,148.1% and 155.0% and risk-free interest rates of 5.18%, 5.08%, 4.13%, 5.13%and 4.66%. An expected life of 8.58, 8.58, 8.58, 9.53 and 8.58 years was usedfor the options granted. The weighted average fair value of the options grantedin 2006 was $3.60.

The following are the weighted average ranges forassumptions used for grants in 2005: Expected volatility of 150% and risk-free interest rates of 4.0%-4.5%.An expected life of 9.2 years was used for options granted to theemployees and directors. The weighted average fair value of options granted in2005 ranged from $1.80 to $3.12 per share.

The following are the weighted average ranges forassumptions used for grants in 2004: Expected volatility of 149%-179% and risk-free interest rates of4.2%-5.0%. The range of the expected life of 5.7-9.4 years wasused for options granted to the employees and directors. The weighted averagefair value of options granted in 2004 ranged from $1.16 to $3.36 per share.

On June 2, 2004, 1,687,500 options were grantedto officers at an exercise price of $1.16 per share. Stock compensation expenseof $444,000 was recorded in June 2005 (the date an amendment to the stockoption plan was approved by the Company’s stockholders) and is reflected in theConsolidated Statements of Operations under general and administrative expensesfor the year ended December 31, 2005. On September 28, 2005, 50,000were granted to a non-employee of the Company for services provided to theCompany. Stock compensation expense of $138,000 is reflected in theConsolidated Statements of Operations under general and administrative expensesfor the year ended December 31, 2005.

F-24

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Additionaldetails about the options granted under the stock option plans are as follows:

| **Date of Grant**     | ** ** | ** ** | ** ** | **Exercise  Price** | ** ** | **Options  Granted** | ** ** | **Options  Available for  Exercise** | ** ** | **Options  Exercised** | ** ** | **Options  Canceled** | ** ** | **Options  Outstanding** | ** ** |
|---------------------------------|------------|------------|------------|---------------------|------------|----------------------|------------|-------------------------------------------|------------|------------------------|------------|-----------------------|------------|--------------------------|------------|
| Balances at Dec. 31, 2003  |       |       |       |                |       | 1,198,118            |       |                                      | 498,159    |                   |       |                  | 311,799    |                     |       | 387,860 |   |   | 498,459 |   |   |
| June 2, 2004               |       |       | $          | 1.16                |       |                 | 150,000    |                                      |       | 37,500                 |       |                  |       | —                   |       |   | — |   |   | 150,000 |   |   |
| June 2, 2004               |       |       | $          | 1.16                |       |                 | 1,687,500  |                                      |       | 1,012,799              |       |                  |       | —                   |       |   | — |   |   | 1,687,500 |   |   |
| November 12,  2004         |       |       | $          | 2.96                |       |                 | 247,000    |                                      |       | 89,059                 |       |                  |       | 26,812                   |       |   | 92,500 |   |   | 127,688 |   |   |
| December 7,  2004          |       |       | $          | 3.36                |       |                 | 500,000    |                                      |       | 374,999                |       |                  |       | —                   |       |   | — |   |   | 500,000 |   |   |
| Balances at Dec. 31, 2004  |       |       |       |                |       | 3,782,618            |       |                                      | 2,012,516  |                   |       |                  | 338,611    |                     |       | 480,360 |   |   | 2,963,647 |   |   |
| June 1, 2005               |       |       | $          | 1.80                |       |                 | 50,000     |                                      |       | 12,500                 |       |                  |       | —                   |       |   | — |   |   | 50,000 |   |   |
| September 28,  2005        |       |       | $          | 2.80                |       |                 | 300,000    |                                      |       | 112,499                |       |                  |       | 62,500                   |       |   | — |   |   | 237,500 |   |   |
| October 6,  2005           |       |       | $          | 3.12                |       |                 | 262,500    |                                      |       | 72,812                 |       |                  |       | 39,688                   |       |   | 43,750 |   |   | 179,062 |   |   |
| Balances at Dec. 31, 2005  |       |       |       |                |       | 4,395,118            |       |                                      | 2,210,327  |                   |       |                  | 440,799    |                     |       | 524,110 |   |   | 3,430,209 |   |   |
| June 1, 2006               |       |       | $          | 5.15                |       |                 | 50,000     |                                      |       | —                 |       |                  |       | —                   |       |   | — |   |   | 50,000 |   |   |
| June 6, 2006               |       |       | $          | 5.13                |       |                 | 50,000     |                                      |       | —                 |       |                  |       | —                   |       |   | — |   |   | 50,000 |   |   |
| October 3,  2006           |       |       | $          | 2.97                |       |                 | 850,000    |                                      |       | 266,666                |       |                  |       | —                   |       |   | — |   |   | 850,000 |   |   |
| November 8,  2006          |       |       | $          | 5.19                |       |                 | 295,000    |                                      |       | 73,750                 |       |                  |       | —                   |       |   | — |   |   | 295,000 |   |   |
| Balances at  Dec. 31, 2006 |       |       |       |                |       | 5,640,118            |       |                                      | 2,550,743  |                   |       |                  | 440,799    |                     |       | 524,110 |   |   | 4,675,209 |   |   |

 

The exercise price for theoptions granted under the plans is the fair market value of the Common Stock onthe date granted. The terms of the options are determined by the Board ofDirectors upon grant; however, no options may be exercised after a period often years. The weighted average fair value of options granted in 2006, 2005 and2004 was $3.67, $3.08 and $1.76, respectively.

**10.   FEDERAL INCOMETAXES**

Thedeferred federal income tax asset (liability) consists of the following:

| ** **                                                 | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                 | ** ** | **2006**              | ** ** | **2005** | ** ** | **2004** | ** ** |
| Property  development costs—net of amortization       |       | $                     | 8,883,000  |   | $ | 7,552,000 |   | $ | 7,860,000 |   |
| Accelerated  depreciation                                  |       | 28,000                |       | 62,000 |   | 75,000 |   |
| Restoration  reserves                                      |       | 1,106,000             |       | 1,087,000 |   | 812,000 |   |
| Derivative  valuation allowance                            |       | —                |       | 15,919,000 |   | 5,388,000 |   |
| Net operating  loss and percentage depletion carryforwards |       | 59,711,000            |       | 51,343,000 |   | 47,593,000 |   |
| Valuation  allowance and other—net                    |       | (69,728,000           | )          | (75,963,000 | ) | (61,728,000 | ) |
| Total deferred income  tax asset (liability)               |       | $                     | 0          |   | $ | 0 |   | $ | 0 |   |

 

F-25

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Majoritems causing the Company’s tax provision to differ from the federal statutoryrate of 34% were:

| ** **                                      | ** ** | **For the Twelve Months Ended December 31,** | ** ** |
|-------------------------------------------------|------------|----------------------------------------------------------------------------|------------|
| ** **                                      | ** ** | **2006**                                                                   | ** ** | **2005** | ** ** | **2004 (Restated)** | ** ** |
| ** **                                      | ** ** | **Amount**                                                                 | ** ** | **% of Pretax  Income** | ** ** | **Amount** | ** ** | **% of Pretax  Income** | ** ** | **Amount** | ** ** | **% of Pretax  Income** | ** ** |
| Pretax income  (loss)                           |       | $                                                                          | 21,509,723 |   |   | — |   |   | $ | (35,086,678 | ) |   | — |   |   | $ | (15,864,756) |   |   | — |   |   |
| Pretax income  (loss) times statutory tax rate  |       | 7,313,000                                                                  |       |   | (34 | )% |   | (11,929,000 | ) |   | (34 | )% |   | (5,394,000 | ) |   | (34 | )% |   |
| Increases (decreases) in  taxes resulting from: |       |                                                                       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Change in  valuation allowance                  |       | (7,313,000                                                                 | )          |   | 34 | % |   | 11,929,000 |   |   | 34 | % |   | 5,394,000 |   |   | 34 | % |   |
| Income tax benefit                              |       | $                                                                          | 0          |   |   | 0 | % |   | $ | 0 |   |   | 0 | % |   | $ | 0 |   |   | 0 | % |   |

 

The Company’s net operating loss carryforwardsgenerated in 2006 and in prior years have generally been valued, net ofvaluation allowance, at Alternative Minimum Tax (“AMT”) rates imposed by theTax Reform Act of 1986. It is assumed that these deferred tax assets willbe realized at such rates.

At December 31, 2006, approximately $57,225,000of percentage depletion (available for regular tax purposes) had not beenutilized to offset book income and is available to carry forward to futureaccounting periods.

The Company also hasavailable for regular federal income tax purposes at December 31, 2006estimated net operating loss (“NOL”) carryforwards of approximately $57,234,000which expire primarily in 2007 through 2026, if not previously utilized.Following the issuance of the Company’s Common Stock in 2001, use of theCompany’s NOL will be severely limited on an annual and aggregate basis. Forthis reason, the NOL is not included as a deferred tax asset in the tableabove.

**11.   OTHER LONG-TERMLIABILITIES AND DEFERRED CREDITS**

Otherlong-term liabilities and deferred credits on the balance sheet consisted of:

| ** **                                                                                                                                                                  | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                  | ** ** | **2006**              | ** ** | **2005** | ** ** |
| Reserve for  future restoration and reclamation costs (Asset Retirement Obligations), net  of current portion of $1,520,491 and $1,061,491 in 2006 and 2005.  (Note 1) |       | $                     | 2,709,001  |   | $ | 2,533,787 |   |
| Royalties payable                                                                                                                                                           |       | 500,000               |       | 500,000 |   |
| Deferred  compensation                                                                                                                                                      |       | 789,228               |       | 789,228 |   |
|                                                                                                                                                                        |       | $                     | 3,998,229  |   | $ | 3,823,015 |   |

 

F-26

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Thefollowing table shows the change in the balance of the restoration andreclamation liability (Asset Retirement Obligation) during the years ended December 31,2006, 2005 and 2004:

| ** **                                                               | ** ** | **Year Ended December 31** | ** ** |
|--------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                               | ** ** | **2006**                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
| Reserve for  future restoration and reclamation costs at January 1, |       | $                                         | 3,595,278  |   | $ | 3,410,293 |   | $ | 3,480,656 |   |
| Additions                                                                |       | 886,978                                   |       | 339,771 |   | 317,675 |   |
| Changes in cash  flow estimates                                          |       | 543,707                                   |       | 620,774 |   | — |   |
| Costs incurred                                                           |       | (997,134                                  | )          | (975,924 | ) | (571,705 | ) |
| Accretion expense                                                        |       | 200,364                                   |       | 200,364 |   | 183,667 |   |
| Reserve for future  restoration and reclamation costs at Dec. 31,   |       | $                                         | 4,229,193  |   | $ | 3,595,278 |   | $ | 3,410,293 |   |

 

**12.   COMMITMENTS ANDCONTINGENCIES**

The Company’s mining operations are subject to federaland state regulations for the protection of the environment, including waterquality. These laws are constantly changing and generally becoming morerestrictive. The ongoing costs of complying with such regulations have not beensignificant to the Company’s annual operating costs. Future mine closure andreclamation costs are provided for as each pound of uranium is produced on aunit-of-production basis. The Company reviews its reclamation obligations eachyear and determines the appropriate unit charge. The Company also evaluates thestatus of current environmental laws and their potential impact on theiraccrual for costs. The Company believes its operations are in compliance withcurrent environmental regulations.

The Company is from time to time involved in variouslegal proceedings of a character normally incident to its business. Managementdoes not believe that adverse decisions in any pending or threatened proceedingswill have a material adverse effect on the Company’s financial condition orresults of operations.

In April 2006, theCompany completed the sale of 10,200,307 shares of its Common Stock at $4.90per share to accredited investors resulting in gross proceeds of approximately$50 million before expenses of the offering. The Company has filed aregistration statement under the Securities Act of 1933, as amended, toregister the resale of the shares. Such shares are subject to certain resaleregistration rights that include penalties in the event the registrationstatement fails to remain effective.

**Compensation Agreements**

The Company has enteredinto Compensation Agreements with Executive Officers of the Company thatprovide that, in the event of a change in control, such officers will havecertain rights and benefits for a period of thirty-six months for the Chairmanand CEO of the Company and twenty-four months for the other officers, followingsuch change in control. The Compensation Agreements provide that theexecutive’s base salary payments shall be made on a monthly basis for theduration of the term and any incentive payments shall be paid annually untilthe obligation to make such payments expires.

**13.   RESTATEMENT OFFINANCIAL STATEMENTS**

The financial statements for the year ended December 31,2004 have been restated in our Form 10-KSB/A filed in July 2005to give effect for fair value accounting of certain uranium sales contractsunder FAS No. 133, Accounting for Derivative Instruments and HedgingActivities. The Company determined that its long-term uranium sales contractsmeet the definition of derivative financial instruments for financial statementand reporting purposes, and the financial statements have been restated as December 31,2004, to record these contracts at fair value.

F-27

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Theimpact of such restatement to the financial statements at December 31,2004 are:

| ** **                                                   | ** ** | **As Originally  Presented** | ** **  | **As Restated** | ** ** |
|--------------------------------------------------------------|------------|-----------------------------------|-------------|----------------------|------------|
| **Consolidated  Balance Sheet**                              | ** ** | ** **                        | ** **  | ** **           | ** ** |
| Liabilities and  Shareholders Equity (Deficit)               |       |                              |        |                 |       |
| Unrealized loss  on derivatives, current portion             |       | $                                 | —      |                 | $          | 4,406,134 |   |
| Total current  liabilities                                   |       | $                                 | 2,036,522   |                 | $          | 6,442,656 |   |
| Unrealized loss  on derivatives, net of current portion      |       | $                                 | —      |                 | $          | 11,439,976 |   |
| Accumulated deficit                                          |       | $                                 | (60,102,822 | )                    | $          | (75,948,932 | ) |
| Total  shareholders equity (deficit)                         |       | $                                 | 553,414     |                 | $          | (15,292,696 | ) |
| **Consolidated  Statement of Operations**                    | ** ** | ** **                        | ** **  | ** **           | ** ** |
| Unrealized loss on derivatives                               |       | $                                 | —      |                 | $          | 13,111,772 |   |
| Total cost of  uranium sales                                 |       | $                                 | 1,814,272   |                 | $          | 14,926,044 |   |
| Loss from  operations before corporate expenses              |       | $                                 | (804,989    | )                    | $          | (13,916,761 | ) |
| Loss from  operations                                        |       | $                                 | (2,811,416  | )                    | $          | (15,923,188 | ) |
| Loss before  accounting change                               |       | $                                 | (2,752,984  | )                    | $          | (15,864,756 | ) |
| Net loss                                                     |       | $                                 | (2,752,984  | )                    | $          | (15,864,756 | ) |
| Loss before accounting  change per common share:             |       |                              |        |                 |       |
| Basic and Fully  Diluted                                     |       | $                                 | (0.08       | )                    | $          | (0.55 | ) |
| Net loss per common  share:                                  |       |                              |        |                 |       |
| Basic and Fully  Diluted                                     |       | $                                 | (0.08       | )                    | $          | (0.55 | ) |
| **Consolidated  Statement of Shareholders Equity (Deficit)** | ** ** | ** **                        | ** **  | ** **           | ** ** |
| Net loss                                                     |       | $                                 | (2,752,984  | )                    | $          | (15,864,756 | ) |
| Accumulated  deficit                                         |       | $                                 | (60,102,822 | )                    | $          | (75,948,932 | ) |
| **Consolidated  Statement of Cash Flows**                    | ** ** | ** **                        | ** **  | ** **           | ** ** |
| Net loss                                                     |       | $                                 | (2,752,984  | )                    | $          | (15,864,756 | ) |
| Unrealized loss on  derivatives                              |       | $                                 | —      |                 | $          | 13,111,772 |   |

 

**14.   JOINT VENTUREFOR CHURCHROCK PROPERTY**

In December 2006, HRI-Churchrock, Inc., awholly owned subsidiary of the Company, entered into a Joint Venture with awholly owned subsidiary of Itochu to develop jointly our Churchrock property inNew Mexico, under which Itochu will fund all development costs, primarilythrough a debt facility that it will provide. Itochu and the Company will splitthe profits 50-50 and the Company will be the Managing Partner andreceive a management fee. For revenues in excess of $30 per pound, the Companywill receive additional payments under the joint venture. The Company estimatesthat the Churchrock property will yield about 12 million pounds of uranium. A feasibility study was completed and delivered atthe end of 2006. Under the terms of the Joint Venture, both parties has until April 2,2007 to make a Preliminary Investment Decision whether to move forward with theJoint Venture. The parties have agreed to extend that date until May 1,2007. If a positive decision ismade, Itochu will reimburse us for 50% of our permitting costs from November 1,2005, through the completion of the feasibility study, up to a maximumcontribution of $180,000. The parties will split costs incurred aftercompletion of the feasibility study 50-50 until a final investmentdecision is made by the parties after receipt of necessary permits.

F-28

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**EXHIBIT INDEX**

| Exhibit  Number | ** ** | **Description** | ** ** |
|-----------------|------------|-----------------|------------|
|            | 3.1        | *               |       | Restated  Certificate of Incorporation of the Company, dated February 15, 2004  (filed with the Company’s Registration Statement on Form SB-2  dated July 26, 2004, SEC File Number 333-117653). |   |
|            | 3.1        | .1*             |       | Certificate of  Amendment of Restated Certificate of Incorporation of the Company (filed with  the Company’s Form 8-K dated April 11, 2006, SEC File Number  000-17171). |   |
|            | 3.2        | *               |       | Restated Bylaws  of the Company (filed with the Company’s Form 8-K on  April 14, 2005). |   |
|            | 4.1        | *               |       | Common Stock  Purchase Agreement dated February 28, 2001 between the Company and  Purchasers of the Common Stock of the Company (filed with the Company’s  Annual Report on Form 10-KA dated July 26, 2001, SEC File  Number 000-17171). |   |
|            | 10.1       | *               |       | Amended and  Restated Directors Stock Option Plan (filed with the Company’s Form S-8  Registration No. 333- 00349 on January 22, 1996). |   |
|            | 10.2       | *               |       | Amended and  Restated Employee’s Stock Option Plan (filed with the Company’s Form S-8  Registration No. 333-00403 on January 24, 1996). |   |
|            | 10.3       | *               |       | Amended and  restated 1995 Stock Incentive Plan (filed with the Company’s Form SB-2  Registration No. 333-117653 on July 26, 2005). |   |
|            | 10.4       | *               |       | Non-Qualified  Stock Option Agreement dated June 19, 2001 between the Company and  Leland O. Erdahl (filed with the Company’s 10-QSB dated August 13,  2001, SEC File Number 000-17171). |   |
|            | 10.5       | *               |       | Non-Qualified  Stock Option Agreement dated June 19, 2001 between the Company and  George R. Ireland (filed with the Company’s 10-QSB dated  August 13, 2001, SEC File Number 000-17171). |   |
|            | 10.7       | *               |       | Summary of  Supplemental Health Care Plan (filed with Amendment No. 1 to the  Company’s Form S-1 Registration Statement (File No. 33-32754)  as filed with the Securities and Exchange Commission on February 20,  1990). |   |
|            | 10.9       | *               |       | License to  Explore and Option to Purchase dated March 25, 1997 between Santa Fe  Pacific Gold Corporation and Uranco, Inc. (filed with the Company’s  Annual Report on Form 10-K dated June 30, 1997, SEC File  Number 000-17171). |   |
|            | 10.1       | 2*              |       | Compensation  Agreement dated June 2, 1997 between the Company and Paul K. Willmott  (filed with the Company’s Annual Report on Form 10-K dated  June 30, 1998, SEC File Number 000-17171). |   |
|            | 10.1       | 3*              |       | Compensation  Agreement dated June 2, 1997 between the Company and Richard A. Van Horn  (filed with the Company’s Annual Report on Form 10-K dated  June 30, 1998, SEC File Number 000-17171). |   |
|            | 10.1       | 4*              |       | Compensation  Agreement dated June 2, 1997 between the Company and Thomas H. Ehrlich  (filed with the Company’s Annual Report on Form 10-K dated  June 30, 1998, SEC File Number 000-17171). |   |
|            | 10.1       | 5*              |       | Compensation  Agreement dated June 2, 1997 between the Company and Mark S. Pelizza  (filed with the Company’s Annual Report on Form 10-K dated  June 30, 1998, SEC File Number 000-17171). |   |
|            | 10.1       | 6*              |       | Uranium  Resources, Inc. 1999 Deferred Compensation Plan (filed with the  Company’s Annual Report on Form 10-K dated June 30, 1999, SEC  File Number 000-17171). |   |

E-1

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| Exhibit  Number | ** ** | **Description** | ** ** |
|-----------------|------------|-----------------|------------|
|            | 10.1       | 6.1*            |       | Amendment  No. 1 to the Uranium Resources, Inc. 1999 Deferred Compensation  Plan (filed with the Company’s Annual Report on Form 10KSB dated  March 31, 2006, SEC File Number 000-17171). |   |
|            | 10.1       | 7*              |       | 2000-2001  Deferred Compensation Plan (filed with the Company’s Annual Report on  Form 10-K dated December 31, 2004, SEC File Number 000-17171). |   |
|            | 10.1       | 7.1*            |       | Amendment  No. 2 to the Uranium Resources, Inc. Deferred Compensation Plan for  2000-2001 (filed with the Company’s Annual Report on Form 10KSB  dated March 31, 2006, SEC File Number 000-17171). |   |
|            | 10.2       | 2*              |       | Uranium  Resources, Inc. Deferred Compensation Plan for 2002 (filed with the  Company’s Quarterly Report on Form 10-QSB dated November 13,  2002, SEC File Number 000-17171). |   |
|            | 10.2       | 3*              |       | Uranium  Resources, Inc. Deferred Compensation Plan for 2003 (filed with the  Company’s Quarterly Report on Form 10-QSB dated November 13,  2002, SEC File Number 000-17171). |   |
|            | 10.2       | 4*              |       | Uranium  Resources, Inc. Deferred Compensation Plan for 2004 (filed with the  Company’s Quarterly Report on Form 10-QSB dated May 14, 2004,  SEC File Number 000-17171). |   |
|            | 10.2       | 4.1*            |       | Amendment  No. 2 to the Uranium Resources, Inc. Deferred Compensation Plan for  2002, Deferred Compensation Plan for 2003, and Deferred Compensation Plan for  2004 (filed with the Company’s Annual Report on Form 10-KSB dated  March 31, 2006, SEC File Number 000-17171). |   |
|            | 10.2       | 6*              |       | 2004 Directors  Stock Option Plan dated June 2, 2004 (filed with the Company’s  Registration Statement on Form SB-2 dated July 26, 2004, SEC  File Number 333-117653). |   |
|            | 10.2       | 7*              |       | Contract with UG  U.S.A., Inc for the Purchase of Natural Uranium Concentrates (U3O8) dated August 12, 2003  (filed with the Company’s Pre-Effective Amendment No. 2 to Registration  Statement on form SB-2 dated September 20, 2005, SEC File Number 333-125106). |   |
|            | 10.2       | 7.1*            |       | Amendment  No. 1 with UG U.S.A., Inc. dated August 30, 2004 to  Exhibit 10.27 (filed with the Company’s Pre-Effective Amendment  No. 2 to Registration Statement on form SB-2 dated  September 20, 2005, SEC File Number 333-125106). |   |
|            | 10.2       | 7.2*            |       | Amendment  No. 2 with UG U.S.A., Inc. dated April 29, 2005 to  Exhibit 10.27 (filed with the Company’s Pre-Effective Amendment  No. 2 to Registration Statement on form SB-2 dated  September 20, 2005, SEC File Number 333-125106). |   |
|            | 10.2       | 8*              |       | Amended and  Restated Uranium Supply Contract with Itochu Corporation dated June 7,  2005 (filed with the Company’s Pre-Effective Amendment No. 2 to  Registration Statement on form SB-2 dated September 20, 2005, SEC  File Number 333-125106). |   |
|            | 10.3       | 1*              |       | Note Purchase Agreement  dated March 24, 2005 and promissory notes issued thereunder (filed with  the Company’s Annual Report on Form 10-K for the year ended  December 31, 2004, SEC File Number 000-17171). |   |
|            | 10.3       | 2*              |       | Uranium Supply  Contract with UG U.S.A., Inc. dated April 29, 2005 (filed with the  Company’s Pre-Effective Amendment No. 2 to Registration Statement on  Form SB-2 dated September 20, 2005, SEC File Number 333-125106). |   |

 

E-2

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| Exhibit  Number | ** ** | **Description** | ** ** |
|-----------------|------------|-----------------|------------|
|            | 10.3       | 3*              |       | Uranium Supply  Contract with Itochu Corporation dated June 15, 2005 (filed with the  Company’s Pre-Effective Amendment No. 2 to Registration Statement on  Form SB-2 dated September 20, 2005, SEC File Number 333-125106). |   |
|            | 10.3       | 4*              |       | Stock Purchase  Agreement by and between Uranium Resources, Inc. and accredited  investors (filed with the Company’s Form 8-K dated August 12,  2005, SEC File No. 000-17171). |   |
|            | 10.3       | 5*              |       | Uranium  Resources, Inc. 2004 Stock Incentive Plan (filed with the Company’s  Quarterly Report on Form 10QSB/A dated November 18, 2005, SEC File  No. 000-17171). |   |
|            | 10.3       | 6*              |       | Feasibility Study  Funding Agreement between Itochu Corporation, Uranium Resources, Inc.  and Hydro Resources, Inc. effective March 29, 2006 (filed with the  Company’s Form 10KSB dated March 31, 2006, SEC file Number 000-17171). |   |
|            | 10.3       | 7*              |       | Amended and  Restated Uranium Supply Contract between Itochu Corporation and Uranium  Resources, Inc. effective March 1, 2006 (filed with the Company’s  Form 10KSB dated March 31, 2006, SEC file Number 000-17171). |   |
|            | 10.3       | 8*              |       | Agreement for the  Sale of Uranium Concentrates between UG U.S.A., Inc. and Uranium  Resources, Inc. dated March 31, 2006 (filed with the Company’s  Form 10KSB dated March 31, 2006, SEC file Number 000-17171). |   |
|            | 10.3       | 9*              |       | Stock Purchase  Agreement dated as of April 19, 2006, by and between Uranium  Resources, Inc. and accredited investors (filed with the Company’s  Current Report on Form 8-K dated April 19, 2006, SEC File  No. 000-17171). |   |
|            | 10.4       | 0*              |       | Limited Liability  Company Agreement of Churchrock Venture LLC (filed with the Company’s Current  Report on Form 8-K dated December 5, 2006, SEC File  No. 000-17171). |   |
|            | 10.4       | 1*              |       | Compensation  Agreement dated March 12, 2007 between the Company and Craig S. Bartels  (filed with the Company’s Form 8-K dated March 13, 2007, SEC  File No. 000-17171). |   |
|            | 10.4       | 2*              |       | Compensation  Agreement dated March 12, 2007 between the Company and David N. Clark  (filed with the Company’s Form 8-K dated March 13, 2007, SEC  File No. 000-17171). |   |
|            | 14         | *               |       | Uranium  Resources, Inc. Amended Code of Ethics for Senior Executives. (filed  with the Company’s Form 10-K dated March 30, 2007, SEC File  No. 000-17171). |   |
|            | 31.1       |            |       | Certification of  Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley  Act of 2002. |   |
|            | 31.2       |            |       | Certification of  Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley  Act of 2002. |   |
|            | 32.1       |            |       | Certification of  Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002. |   |
|            | 32.2       |            |       | Certification of Chief Financial Officer pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002. |   |

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*                    Not filedherewith. Incorporated by reference pursuant to Rule 12b-32 underthe Securities Exchange Act of 1934.

E-3

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