**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON, D.C.  20549**

**FORM 10-Q**

| **x**                                              | **Quarterly report pursuant to Section 13 or 15(d)  of the Securities Exchange Act of 1934**  |
|----------------------------------------------------|-----------------------------------------------------------------------------------------------|
|                                               |
| **For the  quarterly period ended March 31, 2007** |
| ** **                                         |
| **or**                                             |
|                                               |
| **o**                                              | **Transition report pursuant to Section 13 or  15(d) of the Securities Exchange Act of 1934** |

 

**For the transition periodfrom                  to               **

**Commission file number 0-17171**

**URANIUMRESOURCES, INC.**

(Exact Name of Issuer as Specified in Its Charter)

| **DELAWARE**              |   | **75-2212772**                        |
|---------------------------|--------|---------------------------------------|
| (State of  Incorporation) |   | (I.R.S. Employer  Identification No.) |

 

**650S. Edmonds Lane, Suite 108, Lewisville, Texas 75067**

(Address of Principal Executive Offices)

**(972)219-3330**

(Issuer’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or 15(d)of the Securities Exchange Act of 1934 during the preceding 12 months (or forsuch shorter period that the registrant was required to file such reports), and(2) has been subject to such filing requirements for the past 90days. x  Yes    o  No

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, or a non-accelerated filer. Seedefinition of “accelerated filer” and “large accelerated filer” in Rule 12-b2of the Exchange Act.

| (Check  one): |   | 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 12-b2 of theExchange Act).

o  Yes    x  No

Indicate the number of shares outstanding of each of theissuer’s classes of common stock, as of the latest practicable date.

| **Title of Each Class of Common Stock** |   | **Number of Shares Outstanding** |
|-----------------------------------------------------------------------|--------|-------------------------------------------------|
| Common Stock,  $0.001 par value                                       |   | 52,718,212 as of  May 7, 2007                   |

 

 

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**URANIUM RESOURCES, INC.2007 FIRST QUARTERLY REPORT ON FORM 10-Q**

**TABLE OF CONTENTS**
| **PART I - FINANCIAL INFORMATION**    |       |                                                                                             |
|---------------------------------------|------------|--------------------------------------------------------------------------------------------------|
|                                  |
|                                  | Item 1.    | Financial Statements                                                                             |
|                                  |       |                                                                                             |
|                                  |       | Consolidated Balance  Sheets- March 31, 2007 (unaudited) and December 31, 2006                   |
|                                  |       |                                                                                             |
|                                  |       | Consolidated  Statements of Operations - three months ended March 31, 2007 and 2006  (Unaudited) |
|                                  |       |                                                                                             |
|                                  |       | Consolidated  Statements of Cash Flows - three months ended March 31, 2007 and 2006  (Unaudited) |
|                                  |       |                                                                                             |
|                                  |       | Notes to  Consolidated Financial Statements – March 31, 2007  (Unaudited)                   |
|                                  |       |                                                                                             |
|                                  | Item 2.    | Management’s  Discussion and Analysis of Financial Condition and Results of Operations      |
|                                  |       |                                                                                             |
|                                  | Item 3.    | Quantitative  and Qualitative Disclosures About Market Risk                                      |
|                                  |       |                                                                                             |
|                                  | Item 4.    | Controls and  Procedures                                                                         |
|                                  |
| **PART II — OTHER  INFORMATION** |       |                                                                                             |
| ** **                            |
|                                  | Item 1.    | Legal Proceedings                                                                                |
|                                  |       |                                                                                             |
|                                  | Item  1A.  | Risk  Factors                                                                                    |
|                                  |       |                                                                                             |
|                                  | Item 2.    | Unregistered  Sales of Equity Securities and Use of Proceeds                                     |
|                                  |       |                                                                                             |
|                                  | Item 3.    | Defaults Upon  Senior Securities                                                                 |
|                                  |       |                                                                                             |
|                                  | Item 4.    | Submission of  Matters to a Vote of Security Holders                                             |
|                                  |       |                                                                                             |
|                                  | Item 5.    | Other Information                                                                                |
|                                  |       |                                                                                             |
|                                  | Item  6.   | Exhibits  and Reports on Form 8-K                                                                |
|                                  |
| **SIGNATURES**                        |       |                                                                                             |
| ** **                            | ** ** | ** **                                                                                       |
| **Index  to Exhibits**                |       |                                                                                             |
|                                       |            |                                                                                                  |  |  |

 

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**URANIUM RESOURCES, INC.**

**CONSOLIDATEDBALANCE SHEETS**

**ASSETS**
| ** **                                               | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                               | ** ** | **2007**           | ** ** | **2006**              | ** ** |
| ** **                                               | ** ** | **(Unaudited)**    | ** ** | ** **            | ** ** |
| Current assets:                                          |       |               |       |                  |       |
| Cash and cash  equivalents                               |       | $                  | 16,560,467 |                  | $          | 20,176,771 |   |
|                                                     |       |               |       |                  |       |
| Receivables, net                                         |       | 1,119,337          |       | 713,529               |       |
| Uranium and materials/supplies  inventory                |       | 2,085,010          |       | 1,603,585             |       |
| Prepaid and  other current assets                        |       | 401,388            |       | 410,000               |       |
| Total current  assets                                    |       | 20,166,202         |       | 22,903,885            |       |
|                                                     |       |               |       |                  |       |
| Property, plant and  equipment, at cost:                 |       |               |       |                  |       |
| Uranium  properties                                      |       | 71,434,781         |       | 67,153,797            |       |
| Other property,  plant and equipment                     |       | 573,018            |       | 465,613               |       |
| Less-accumulated  depreciation, depletion and impairment |       | (51,634,112        | )          | (49,423,848           | )          |
| Net property,  plant and equipment                       |       | 20,373,687         |       | 18,195,562            |       |
|                                                     |       |               |       |                  |       |
| Other assets                                             |       | 2,256,497          |       | 2,369,434             |       |
| Long-term investment:                                    |       |               |       |                  |       |
| Certificate of  deposit, restricted                      |       | 2,519,006          |       | 2,467,491             |       |
|                                                     |       | $                  | 45,315,392 |                  | $          | 45,936,372 |   |

 

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

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**LIABILITIES ANDSHAREHOLDERS’ EQUITY**
| ** **                                                                                                                                                          | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                          | ** ** | **2007**           | ** ** | **2006**              | ** ** |
| ** **                                                                                                                                                          | ** ** | **(Unaudited)**    | ** ** | ** **            | ** ** |
| Current liabilities:                                                                                                                                                |       |               |       |                  |       |
| Accounts payable                                                                                                                                                    |       | $                  | 2,021,701  |                  | $          | 1,994,184 |   |
| Current portion  of restoration reserve                                                                                                                             |       | 1,327,026          |       | 1,520,192             |       |
| Accrued interest  and other accrued liabilities                                                                                                                     |       | 1,005,811          |       | 816,877               |       |
| Current portion  of long-term debt                                                                                                                                  |       | 236,993            |       | 201,804               |       |
| Total current  liabilities                                                                                                                                          |       | 4,591,531          |       | 4,533,057             |       |
|                                                                                                                                                                |       |               |       |                  |       |
| Other long-term  liabilities and deferred credits                                                                                                                   |       | 3,924,077          |       | 3,998,229             |       |
|                                                                                                                                                                |       |               |       |                  |       |
| Long-term debt, less  current portion                                                                                                                               |       | 659,416            |       | 635,691               |       |
| Commitments and  contingencies (Notes 1, 2 and 3)                                                                                                                   |       |               |       |                  |       |
| Shareholders’ equity:                                                                                                                                          |       |               |       |                  |       |
| Common stock,  $.001 par value, shares authorized: 200,000,000; shares issued and  outstanding (net of treasury shares): 2007—51,797,339; 2006—51,791,339 |       | 51,835             |       | 51,829                |       |
| Paid-in capital                                                                                                                                                     |       | 127,044,297        |       | 126,252,871           |       |
| Accumulated  deficit                                                                                                                                                |       | (90,946,346        | )          | (89,525,887           | )          |
| Less: Treasury  stock (38,125 shares), at cost                                                                                                                      |       | (9,418             | )          | (9,418                | )          |
| Total  shareholders’ equity                                                                                                                                    |       | 36,140,368         |       | 36,769,395            |       |
|                                                                                                                                                                |       | $                  | 45,315,392 |                  | $          | 45,936,372 |   |

 

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

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**URANIUM RESOURCES, INC.**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

**(Unaudited)**
| ** **                                                                    | ** ** | **Three Months Ended  March 31,** | ** ** |
|-------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                    | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| Revenues:                                                                     |       |                                             |       |   |   |
| Uranium sales—                                                           |       | $                                                | 4,574,167  |   | $ | 1,068,589 |   |
| Total revenue                                                                 |       | 4,574,167                                        |       | 1,068,589 |   |
| Costs and  expenses:                                                          |       |                                             |       |   |   |
| Cost of uranium sales—                                                   |       |                                             |       |   |   |
| Royalties and commissions                                                     |       | 438,976                                          |       | 79,435 |   |
| Operating expenses                                                            |       | 1,787,063                                        |       | 1,523,592 |   |
| Accretion/amortization of restoration reserve                                 |       | 170,180                                          |       | 132,974 |   |
| Depreciation and depletion                                                    |       | 1,487,049                                        |       | 616,839 |   |
| Gain on derivatives                                                           |       | —                                           |       | (34,294,072 | ) |
| Total (gain on) cost of uranium sales                                         |       | 3,883,268                                        |       | (31,941,232 | ) |
| Earnings from operations before corporate expenses                            |       | 690,899                                          |       | 33,009,821 |   |
|                                                                          |       |                                             |       |   |   |
| Corporate expenses—                                                      |       |                                             |       |   |   |
| General and administrative                                                    |       | 2,212,092                                        |       | 1,056,752 |   |
| Depreciation                                                                  |       | 21,162                                           |       | 5,971 |   |
| Total corporate expenses                                                      |       | 2,233,254                                        |       | 1,062,723 |   |
| Earnings (loss)  from operations                                              |       | (1,542,355                                       | )          | 31,947,098 |   |
|                                                                          |       |                                             |       |   |   |
| Other income  (expense):                                                      |       |                                             |       |   |   |
| Interest expense                                                              |       | (7,866                                           | )          | (2,739 | ) |
| Interest and other income, net                                                |       | 129,762                                          |       | 213,787 |   |
|                                                                          |       |                                             |       |   |   |
| Net earnings (loss)                                                           |       | $                                                | (1,420,459 | ) | $ | 32,158,146 |   |
|                                                                          |       |                                             |       |   |   |
| Net earnings  (loss) per common share:*                                       |       |                                             |       |   |   |
| Basic                                                                         |       | $                                                | (0.03      | ) | $ | 0.79 |   |
| Diluted                                                                       |       | $                                                | (0.03      | ) | $ | 0.73 |   |
|                                                                          |       |                                             |       |   |   |
| Weighted average  common shares and common equivalent shares per share data:* |       |                                             |       |   |   |
| Basic                                                                         |       | 51,795,006                                       |       | 40,954,437 |   |
| Diluted                                                                       |       | 51,795,006                                       |       | 44,221,134 |   |

 

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*                            Netearnings (loss) per share and weighted average common shares informationreflects the effect of a reverse 1 for 4 stock split made effective April 11,2006.

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

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**URANIUM RESOURCES, INC.**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**(Unaudited)**
| ** **                                                                            | ** ** | **Three Months Ended  March 31,** | ** ** |
|---------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                            | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
|                                                                                  |       |                                             |       |   |   |
| Net earnings  (loss)                                                                  |       | $                                                | (1,420,459 | ) | $ | 32,158,146 |   |
| Reconciliation  of net earnings (loss) to cash provided by (used in) operations— |       |                                             |       |   |   |
| Gain on derivatives                                                                   |       | —                                           |       | (34,294,072 | ) |
| Accretion/amortization of restoration reserve                                         |       | 170,180                                          |       | 132,974 |   |
| Depreciation and depletion                                                            |       | 1,508,211                                        |       | 622,810 |   |
| Decrease in restoration and reclamation accrual                                       |       | (330,720                                         | )          | (247,817 | ) |
| Stock compensation expense                                                            |       | 773,672                                          |       | 396,899 |   |
| Other non-cash items, net                                                             |       | 152,738                                          |       | 108,727 |   |
|                                                                                  |       |                                             |       |   |   |
| Effect of  changes in operating working capital items—                           |       |                                             |       |   |   |
| Increase in receivables                                                               |       | (405,808                                         | )          | (372,937 | ) |
| (Increase) decrease in inventories                                                    |       | 198,886                                          |       | (31,791 | ) |
| Increase in prepaid and other current assets                                          |       | (132,793                                         | )          | (84,025 | ) |
| Increase in payables, accrued liabilities and deferred  credits                       |       | 216,451                                          |       | 1,320,623 |   |
| Net cash  provided by (used in) operations                                            |       | 730,358                                          |       | (290,463 | ) |
|                                                                                  |       |                                             |       |   |   |
| Investing  activities:                                                                |       |                                             |       |   |   |
| Increase in certificate of deposit, restricted                                        |       | (51,515                                          | )          | (158,631 | ) |
| Additions to property, plant and equipment—                                      |       |                                             |       |   |   |
| Kingsville Dome                                                                       |       | (1,763,946                                       | )          | (3,289,633 | ) |
| Vasquez                                                                               |       | (248,952                                         | )          | (923,407 | ) |
| Rosita                                                                                |       | (1,093,373                                       | )          | (70,493 | ) |
| Rosita South                                                                          |       | (539,537                                         | )          | — |   |
| Churchrock                                                                            |       | (211,389                                         | )          | (171,686 | ) |
| Crownpoint                                                                            |       | (29,871                                          | )          | (47,292 | ) |
| Other property                                                                        |       | (353,424                                         | )          | (434,855 | ) |
| Other assets                                                                          |       | (4,257                                           | )          | — |   |
| Net cash used in  investing activities                                                |       | (4,296,264                                       | )          | (5,095,997 | ) |
|                                                                                  |       |                                             |       |   |   |
| Financing  activities:                                                                |       |                                             |       |   |   |
| Payments on borrowings                                                                |       | (68,158                                          | )          | (782 | ) |
| Issuance of common stock, net                                                         |       | 17,760                                           |       | — |   |
| Net cash used in  financing activities                                                |       | (50,398                                          | )          | (782 | ) |
| Net decrease in  cash and cash equivalents                                            |       | (3,616,304                                       | )          | (5,387,242 | ) |
| Cash and cash  equivalents, beginning of period                                       |       | 20,176,771                                       |       | 5,852,716 |   |
| Cash and cash  equivalents, end of period                                             |       | $                                                | 16,560,467 |   | $ | 465,474 |   |

 

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

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**UraniumResources, Inc.**

**Notes toConsolidated Financial Statements March 31, 2007 (Unaudited)**

**1.****                                      BASISOF PRESENTATION**

The accompanying unaudited consolidated financialstatements have been prepared in accordance with accounting principlesgenerally accepted in the United States of America for interim financialinformation and with the instructions to Form 10-Q and Item 310(b) ofRegulation S-K.  Accordingly, they do not include all of the informationand footnotes required by accounting principles generally accepted in theUnited States of America for complete financial statements.  Theaccompanying statements should be read in conjunction with the auditedfinancial statements included in the Company’s 2006 Annual Report onForm 10-K/A.  In the opinion of management, all adjustments(consisting of normal recurring accruals) considered necessary for a fairpresentation have been included.  Operating results for the three monthsended March 31, 2007 are not necessarily indicative of the results that may beexpected for the full calendar year ending December 31, 2007.

**Reverse Stock Split**

On March 29, 2006 the Company’s Board of Directorsdeclared a 1 for 4 reverse stock split for stockholders of record on April 10,2006, effective April 11, 2006.  The split was approved by stockholders atthe 2005 Annual Meeting of Stockholders.  All common stock share amounts,earnings per share data and references to the common stock of the Company inthis report are stated on a post-split basis.

**2.****                                      DESCRIPTIONOF BUSINESS**

URI was organized in 1977 to mine uranium in theUnited States using the in situ recovery (“ISR”) mining process. This processis generally more cost effective and environmentally benign than conventionalmining techniques. From 1988 through 1999 we produced about 6.1 millionpounds of uranium from two South Texas properties, 3.5 million pounds fromKingsville Dome and 2.6 million pounds from Rosita.

In 1999 we shut-in our production because of depresseduranium prices, and from the first quarter of 2000 until December 2004, wehad no source of revenue and had to rely on equity infusions to remain inbusiness and maintain the critical employees and assets of the Company untilsuch time that uranium prices reached a level where it was prudent to commenceoperations. The company began producing at its Vasquez property in South Texasin the fourth quarter of 2004.  Production at Kingsville Dome began in thesecond quarter of 2006.

The financial statements of the Company have beenprepared on the basis of accounting principles applicable to a going concern,which contemplates the realization of assets and the satisfaction ofliabilities in the normal course of business.

**3.****                                      DISCLOSUREOF NON-CASH TRANSACTIONS**

The following non-cash transaction occurred in thefirst quarter of 2007 and 2006:

During the first quarter of 2007 and 2006, the Companyentered into capital leases to acquire property, plant and equipment itemsincluding logging trucks and office computers and equipment totaling $96,000and $50,000, respectively.  The outstanding balance of the capital leaseswas $446,000 at March 31, 2007.

In March 2006, 103,896 shares of the Company’s CommonStock were issued in connection with the conversion of the Convertible Notesdescribed in Footnote 8.

**4.****                                      URANIUM PROPERTIES**

**Vasquez Project**

The Vasquez project commenced production in the fourthquarter of 2004.  Since its start-up and through March 31, 2007, theproject has produced 595,400 pounds of uranium. In the first quarter of2007

7

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weproduced 44,100 pounds.  As production atVasquez declines we are beginning preparations for restoration activities atthis project and expect to commence with restoration in the third quarter of2007.

**KingsvilleDome Project**

We beganproduction from wellfield 13 at Kingsville Dome at the end of January 2007,which was the first new wellfield to be brought on in Production AreaAuthorization (“PAA”) #3.  Productionfrom wellfield 13 was 48,600 pounds in the first quarter of 2007.  Kingsville Dome produced a total of 64,900pounds for the quarter.

During the firstquarter wellfield delineation and development work has continued on PAA #3wellfields 14 and 15 at Kingsville Dome. Production from wellfield 14 is planned for the second quarter of 2007and wellfield 15 production is expected to begin by early summer 2007.

**Rosita/Rosita South**

Capital expenditures for our Rosita and Rosita Southprojects totaled $1.6 million in the first quarter of 2007.  These costs were made to upgrade the Rositaplant and elution circuit and construction of a drying facility at Rosita andfor wellfield development at Rosita and wellfield evaluation at Rosita South.  The timing of production from Rosita andRosita South will be dependent on the results of our drilling program which isexpected to be completed in the second quarter of 2007.

**5.****                                      CONTRACTCOMMITMENTS**

**Amendment to Uranium Sales Contracts**

InMarch 2006 we entered into a new contract with Itochu and a new contract withUG that supersede the previously existing contracts and provide for delivery ofone-half of our actual production from our Vasquez property and otherproperties in Texas currently owned or hereafter acquired by the Company (excludingcertain large potential exploration plays). The terms of such contracts aresummarized 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 actual spot price and the $43 ceiling up to and including$50 per pound. If the spot price is over $50 per pound the price on all Texasproduction will be increased by 50% of such excess. The floor and ceiling andsharing arrangement over the ceiling applies to 3.65 million pounds ofdeliveries, after which there is no floor or ceiling. Itochu has the right tocancel any deliveries on six-month’s notice.

InDecember 2005 we entered into a joint venture with Itochu to develop ourChurchrock property in New Mexico. See “**Joint Venture forChurchrock Property**.”  Underthe terms of the joint venture, both parties must make an investment decisionafter the completion of a feasibility study, which was completed at the end of2006. If Itochu should terminate the venture at that time, we would no longerreceive the additional price of 30% of the excess over $43 per pound outlinedabove. If we should terminate the venture at that time, the original contractterms will be reinstated from that time forward.  The parties have extended the preliminaryinvestment decision until August 1, 2007.

*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 aggregate of 3million pounds of Uranium has been sold. After the 600,000 pounds in any yearand 3 million pounds total have been sold, UG will have a right of firstrefusal to purchase other Texas production at a price equal to the average spotprice for a period prior to the date of delivery less 4%. In consideration ofUG’s agreement to restructure its previously existing contract, we paid UG $12 million in cash with fundsraised in our equity offering completed in April 2006.

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**Derivative Financial Instruments**

The Company determined that its long-term uraniumsales contracts in effect prior to March 2006 met the definition of derivativefinancial instruments for financial statement reporting purposes.  Changes in the Company’s derivativesrepresent non-cash charges to earnings for the present value of the loss theCompany would incur in the event it would be required to purchase uranium inthe spot market to satisfy the delivery obligations under the uranium salescontracts.  The Company has not enteredinto hedge transactions with respect to its uranium sales contracts.

**6.**                                      **STOCK BASED COMPENSATION**

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

Effective January 1, 2006, the Company adopted thefair value recognition provisions of Statement of Financial Accounting Standard123(R) “*Share-Based Payment”* (“SFAS123(R)”) using the modified prospective transition method. In addition, theSecurities and Exchange Commission issued Staff Accounting Bulletin No. 107 “*Share-Based Payment*” (“SAB 107”) in March,2005, which provides supplemental SFAS 123(R) application guidance based on theviews of the SEC. Under the modified prospective transition method,compensation cost recognized in the quarter ended March 31, 2006 and beyondincludes: (a) compensation cost for all share-based payments granted priorto, but not yet vested as of January 1, 2006, based on the grant date fairvalue estimated in accordance with the original provisions of SFASNo. 123, and (b) compensation cost for all share-based paymentsgranted beginning January 1, 2006, based on the grant date fair value estimatedin accordance with the provisions of SFAS 123(R). In accordance with themodified prospective transition method, results for prior periods have not beenrestated.

The adoption of SFAS 123(R) resulted in stockcompensation expense for the three months ended March 31, 2007 and 2006 of$774,000 and $397,000, respectively, to general and administrative expenses.The Company did not recognize a tax benefit from the stock compensation expensebecause the Company considers it is more likely than not that the relateddeferred tax assets, which have been reduced 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 March 31, 2007 forthe expected option term. The expected option term was estimated based onhistorical averages over the most recent periods ending March 31, 2007.

No new option grants were made during the three monthsended March 31, 2007 or 2006.

***Stock Options as of the Three Months EndedMarch 31, 2007 and 2006***

*Employee Stock Options*

TheCompany has two stock Incentive Plans for Employees, both of which wereapproved by the Company’s stockholders. Under the 1995 Stock Incentive Plan (the “1995 Plan”) 2,600,521 sharesmay be purchased upon the exercise of outstanding options with exercise pricesranging from $0.76 to $28.50 per share. No new options may be granted under the 1995 Plan.

Underthe Company’s 2004 Stock Incentive Plan (the “2004 Plan”) a total of 1,750,000shares may be issued upon exercise of options granted under the 2004 Plan. AtDecember 31, 2006 there were outstanding under the 2004 Plan options for the purchaseof 1,722,688 shares of Common Stock at exercise prices ranging from $2.97 to$5.19 per share. At December 31, 2006, 500 shares were available forfuture grants under the 2004 Plan.

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Employee stock options generally vest ratably over a 3or 4 year time frame and have a contractual term of 10 years.

*Directors Stock Options*

OnJune 19, 2001, the Company granted to certain outside directors options topurchase 75,000 shares of the Company’s Common Stock 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 exercised and 25,000 of these options werecancelled as of March 31, 2007.

OnJune 2, 2004 the Company adopted the 2004 Directors’ Stock Option Plan(the “2004 Directors’ Plan”). Under the 2004 Directors’ Plan, each non-employeedirector on the date the Plan was adopted was granted an option to purchase75,000 shares of Common Stock. Each non-employee Director elected or appointedto the Board of Directors for the first time will be granted an option topurchase 25,000 shares of Common Stock and, each Non-Employee Director shall begranted an option to purchase 25,000 shares either, (a) upon his or herreelection at an annual meeting of the Company’s stockholders or (b) inany calendar year in which an annual meeting of stockholders is not held, onJune 1 of such year. In June 2006, the Directors’ Stock Option Plan wasamended to increase the initial grants to non-employee Directors to 50,000shares of Common Stock.  The 2004Directors’ Plan replaces an earlier plan that expired in 2004. At March 31,2007, there were outstanding options for the purchase of 2,000 shares under theold plan.  Stock options under the 2004Directors’ Plan vest ratably over a 4 year time frame and have a contractualterm of 10 years.

At the June 2006 and 2005 annual meeting of the stockholders,each of the non-employee directors of the Company was granted an option underthe 2004 Directors Plan to purchase 25,000 shares of the Company’s common stockat an exercise price of $5.15 and $1.80 per share, respectively. In June andOctober 2006 options to purchase 50,000 shares of the Company’s Common Stockwere granted to two new non-employee directors of the Company at exerciseprices of $5.13 and $2.97, respectively. The non-employee directors hold options covering 350,000 shares underthe 2004 Directors’ Plan at March 31, 2007. At March 31, 2007,700,000 shares were available for future grants under the 2004 Directors’ Plan.

The following table summarizes stock optionsoutstanding and changes during the three months period ended March 31, 2007:
| ** **                                  | ** ** | **Outstanding Options** | ** ** |
|---------------------------------------------|------------|------------------------------|------------|
| ** **                                  | ** ** | **Number of  Shares**   | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Weighted  Average  Remaining  Contractual  Term  (in years)** | ** ** | **Aggregate  Intrinsic  Value** | ** ** |
| Options  outstanding at Jan. 1, 2007        |       | 4,675,209                    |       | $ | 2.44 |   |   |   |   |   |
| Granted                                     |       | —                       |       | — |   |   |   |   |   |
| Exercised                                   |       | (6,000                       | )          | $ | 2.96 |   |   |   |   |   |
| Canceled or  forfeited                      |       | (44,325                      | )          | $ | 12.72 |   |   |   |   |   |
| Options  outstanding at March 31, 2007 |       | 4,624,884                    |       | $ | 2.35 |   | 7.64 |   | $ | 26,845,000 |   |
|                                        |       |                         |       |   |   |   |   |   |   |
| Options exercisable at March 31,  2007 |       | 2,560,592                    |       | $ | 2.12 |   | 6.99 |   | $ | 15,452,055 |   |

 

Sharesavailable for grant under the Plans as of March 31, 2007 were 730,500.

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Stock options outstanding and currently exercisable atMarch 31, 2007 are as follows:
| ** **                      | ** ** | **Options Outstanding** | ** ** | **Options Exercisable** | ** ** |
|---------------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **                      | ** ** | ** **                   | ** ** | **Weighted Average**    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                      | ** ** | **Number of**           | ** ** | **Remaining**                | ** ** | ** ** | ** ** | **Number of** | ** ** | ** ** | ** ** |
| ** **                      | ** ** | **Options**                  | ** ** | **Contractual Life**    | ** ** | **Weighted Average** | ** ** | **Options** | ** ** | **Weighted Average** | ** ** |
| **Stock Option Plan** | ** ** | **Outstanding**              | ** ** | **(in years)**          | ** ** | **Exercise price** | ** ** | **Exercisable** | ** ** | **Exercise Price** | ** ** |
| 1995 Stock  Incentive Plan      |       | 2,586,196                    |       | 6.72                         |       | $ | 1.59 |   | 1,680,244 |   | $ | 1.58 |   |
| 2004 Employee  Incentive Plan   |       | 1,686,688                    |       | 8.91                         |       | 3.43 |   | 790,974 |   | 3.34 |   |
| Directors Stock  Option Plan    |       | 2,000                        |       | 2.48                         |       | 7.79 |   | 1,874 |   | 8.30 |   |
| 2004 Directors  Plan            |       | 350,000                      |       | 8.30                         |       | 2.65 |   | 87,500 |   | 1.25 |   |
|                            |       | 4,624,884                    |       | 7.64                         |       | $ | 2.35 |   | 2,560,592 |   | $ | 2.12 |   |

 

Total estimated unrecognized compensation cost fromunvested stock options as of March 31, 2007 was approximately $3.9 million,which is expected to be recognized over a weighted average period ofapproximately 2 years.

**7.****                                      ASSETRETIREMENT OBLIGATIONS**

The following table shows the change in the balance ofthe restoration and reclamation liability during the three months ended March31, 2007:
| Reserve for future  restoration and reclamation costs beginning of period |   | $        | 4,229,193 |   |
|---------------------------------------------------------------------------|--------|----------|-----------|--------|
| Additions and  changes in cash flow estimates                             |   | 48,660   |      |
| Costs incurred                                                            |   | (366,069 | )         |
| Accretion  expense                                                        |   | 50,091   |      |
| Reserve for future  restoration and reclamation costs at end of period    |   | $        | 3,961,875 |   |

 

**8.****                                      SHAREHOLDERS’EQUITY**

**Convertible Notes**

In March 2006, 103,896 shares of the Company’s CommonStock were issued in connection with the conversion of the Convertible Notesdescribed in Footnote 6.

**Common Stock Issued Upon Conversionof Options**

In February 2007, the Company raised $17,760 of equitythrough the issuance of 6,000 shares of Common Stock of the Company upon theexercise of outstanding stock options.

The following table details the changes inshareholders equity for the three months ended March 31, 2007:
| ** **                        | ** ** | **Common Stock** | ** ** | **Paid-In** | ** ** | **Accumulated** | ** ** | ** **  | ** ** |
|-----------------------------------|------------|-----------------------|------------|-------------|------------|-----------------|------------|-------------|------------|
| ** **                        | ** ** | **Shares**            | ** ** | **Amount**  | ** ** | **Capital**     | ** ** | **Deficit** | ** ** | **Treasury Stock** | ** ** |
| Balances,  December 31, 2006 |       | 51,791,339            |       | $           | 51,829     |            | $          | 126,252,871 |       | $ | (89,525,887 | ) | $ | (9,418 | ) |
| Net loss                          |       | —                |       | —      |       | —          |       | (1,420,459  | )          | — |   |
| Stock option exercise             |       | 6,000                 |       | 6           |       | 17,754          |       | —      |       | — |   |
| Stock compensation expense        |       | —                |       | —      |       | 773,672         |       | —      |       | — |   |
| Balances, March 31,  2007         |       | 51,797,339            |       | $           | 51,835     |            | $          | 127,044,297 |       | $ | (90,946,346 | ) | $ | (9,418 | ) |

 

**9.**                                      **ACCOUNTING****FOR UNCERTAINTYIN INCOME TAXES**

OnJanuary 1, 2007, we adopted FASB Interpretation No. 48, “Accounting forUncertainty in Income Taxes, an interpretation of FASB Statements No. 109” (“FIN48”). FIN 48 clarifies the accounting for uncertainty in income taxes byprescribing a two-step method of first evaluating whether a tax position

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has met a morelikely than not recognition threshold and second, measuring that tax positionto determine the amount of benefit to be recognized in the financialstatements. FIN 48 provides guidance on the presentation of such positionswithin a classified statement of financial position as well as onderecognition, interest and penalties, accounting in interim periods,disclosure, and transition.

As a result of the implementation of FIN 48, werecognized no change in our recorded assets or liabilities for unrecognizedincome tax benefits. Based on our analysis of all material tax positions taken,management believes the technical merits of these positions are justified andexpects that the full amount of the deductions taken and associated tax benefitswill be allowed.

FIN 48 requires the evaluation of a tax position as atwo-step process. We must determine whether it is more likely than not that atax position will be sustained upon examination, including the resolution ofany related appeals or litigation processes, based on the technical merits ofthe position. If the tax position meets the “more likely than not” recognitionthreshold, then the tax benefit is measured and recorded at the largest amountthat is greater than 50 percent likely of being realized upon ultimatesettlement. The re-assessment of our tax positions in accordance with FIN 48did not result in any material change to our financial condition, results ofoperations or cash flows.

Wehave also assessed the classification of interest and penalties, if any,related to income tax matters. Pursuant to the application of FIN 48, we havemade an accounting election to treat interest and penalties related to incometax matters, if any, as a component of income tax expense rather than otheroperating expenses.

**10.**                               **Impact of Recent AccountingPronouncements**

***Fair ValueMeasurements.*** In September 2006, the FASB issued SFASNo. 157, “Fair Value Measurements,” which provides a common definition forthe measurement of fair value for use in applying generally accepted accountingprinciples in the United States of America and in preparing financial statementdisclosures. SFAS No. 157 is effective for fiscal years beginning afterNovember 15, 2007. We are evaluating the effect of the adoption and implementationof SFAS No. 157, which is not expected to have a material impact on ourfinancial condition, results of operations or cash flows.

***Fair Value Optionfor Financial Assets and Liabilities.*** In February 2007,the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assetsand Financial Liabilities,” which permits entities to choose to measure manyfinancial instruments and certain other items at fair value. SFAS No. 159is effective for fiscal years beginning after November 15, 2007. We areevaluating the effect of the adoption and implementation of SFAS No. 159,which is not expected to have a material impact on our financial condition,results of operations or cash flows.

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**ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS**

### **ForwardLooking Statements**

The following summary is qualified in its entirety by,and should be read in conjunction with, the more detailed information and anyfinancial data incorporated herein by reference to the Company’s reports filedwith the Securities and Exchange Commission under the Securities Exchange Actof 1934. Except for historical information contained in this report, thematters discussed herein contain forward-looking statements, made pursuant tothe “safe harbor” provisions of the Private Securities Litigation Reform Act of1995, including management’s expectations regarding the Company’s reserves andmineralized uranium materials, timing of receipt of mining permits, productioncapacity of mining operations planned for properties in South Texas and NewMexico and planned dates for commencement of production at such properties.Such forward-looking statements are inherently uncertain, and investors mustrecognize that actual results may differ from management’s expectations. Keyfactors impacting current and future operations of the Company include theprice of uranium, weather conditions, operating conditions at the Company’smining projects, government regulation of the mining industry and the nuclearpower industry, the world-wide supply and demand of uranium, availability ofcapital, timely receipt of mining and other permits from regulatory agenciesand other matters indicated in “Cautionary Statement,” found in the Company’sAnnual Report.

**Financial Condition and Results of Operations**

**Comparison of Three Months Ended March 31, 2007 and 2006**

*Production.*In thefirst three months of 2007 we produced 109,000 pounds.  The Vasquez project produced 44,100 poundsand Kingsville Dome produced 64,900 pounds. Production in the first three months of 2006 was 55,400, all of whichwas produced from the Vasquez project.

*Uranium  Sales.*In the first threemonths of 2007 we sold 79,700 pounds compared to sales of 65,600 pounds in thesame period of 2006.  In the first three months of 2007 we had revenues of$4.6 million ($57.41 per pound) compared to $1.1 million ($16.29 per pound) inthe first three months of 2006.  The increase in the sales revenue perpound in 2007 resulted from higher prices received under new contracts enteredinto with each of our two customers in March 2006 which superseded the previouscontracts.

*Cost of Uranium Sales. *Our cost of uranium sales from the sale of produced uranium in thefirst quarter of 2007 was $3.9 million ($48.74 per pound) compared to $2.4million in the first quarter of 2006 ($35.86 per pound), excluding the gain onderivatives of $34.3 million recorded in connection with the revised uraniumsales contracts  in March 2006.

 Operating expenses per pound decreased to$22.43 per pound in the first quarter of 2007 compared to $23.22 per pound inthe first quarter of 2006.  Royalties andcommissions in first quarter of 2007 increased to $5.51 per pound compared to$1.21 per pound in the first quarter of 2006 as a result of the increased salesprices we received in 2007 compared to 2006. Depreciation and depletion in the first quarter of 2007 increased to $18.66per pound compared to $9.40 per pound for the first quarter of 2006.  The first quarter of 2006 included onlyVasquez production, while 2007 included production from the first twowellfields at Kingsville Dome which was produced a higher capital cost thanexperienced in the first quarter of 2006 at Vasquez.  Accretionand amortization of future restoration costs was $170,000 in the first quarterof 2007 compared to $133,000 in the first quarter of 2006.

*General and Administrative Charges.* We incurred general and administrative charges and corporate depreciation of$2.2 million in the first three months of 2007 compared to $1.1 million for thesame period in 2006.

Significant expenditures for general andadministrative expenses for the three months ended March 31, 2007 and 2006were:

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|                                             | ** ** | **2007** | ** ** | **2006** | ** ** |
|---------------------------------------------|------------|----------|------------|----------|------------|
| Stock  compensation expense                 |       | $        | 774,000    |     | $          | 397,000 |   |
| Salaries and payroll  burden                |       | 551,000  |       | 300,000  |       |
| Legal,  accounting, public company expenses |       | 407,000  |       | 156,000  |       |
| Insurance and  bank fees                    |       | 111,000  |       | 85,000   |       |
| Consulting and  professional services       |       | 190,000  |       | 58,000   |       |
| Office expenses                             |       | 89,000   |       | 41,000   |       |
| Travel expenses                             |       | 57,000   |       | 24,000   |       |
| Other, project  allocations                 |       | 33,000   |       | (5,000   | )          |
|                                        |       |     |       |     |       |
| Total                                       |       | $        | 2,212,000  |     | $          | 1,056,000 |   |

 

The non-cash compensation expense recorded for thethree months ended March 31, 2007 and 2006 resulted from the adoption of SFAS123(R) in January 2006, requiring the recognition of expense related to theCompany’s stock option grants.

Salary and payroll costs increases for the threemonths presented resulted primarily from the additions to the engineering,professional and executive levels in South Texas and New Mexico made in 2007and 2006 and compensation increases for the Company’s key personnel in thesecond half of 2006.

The Company’s legal, accounting and public companyexpenses increased in 2007 from audit and consulting fees related toSarbanes-Oxley compliance, increased legal fees related to the finalization ofour NASDAQ listing and the increase in the Company’s Board of Directorsmembership in late 2006 and an increase in Board and Committee meetings in2007.

Our insurance costs increased in the three monthperiod from higher directors and officer’s insurance premiums, higher cost ofproperty and casualty coverage and increased vehicle coverage premiumsresulting from additional vehicles in 2007.

The costs for consulting and professional servicesincreased in the three month period as a result of an increase in projectrelated activities in 2007.  Such activities include increased inactivities in New Mexico related to work performed in the review and assessmentof our New Mexico property data bases to evaluate their potential as  conventional mining projects, New Mexicocosts related to the preparation of ISR projects towards their final licensingand permitting phase, increases in environmental, health and safety training,the engagement of an investor relations and media relations firm in late 2006and consulting work and computer networking and web site design work.

Increased office costs incurred in the three monthsresulted primarily from the opening of a corporate office location in CorpusChristi, Texas in June 2006, increases in the South Texas Kingsville operationsoffice resulting from the personnel added in 2006 and additions made to theCrownpoint office in New Mexico to support the additional activities in thefirst quarter of 2007.

*Net Earnings and Losses.*Forthe three months ended March 31, 2007 and 2006, we had a net loss of $1.4million and net earnings of $32.2 million, respectively.  The earnings in2006 included a non-cash gain on derivatives of $34.3 million.

*Cash Flow. *Asof March 31, 2007 we have a cash balance of approximately $16.6 millioncompared to $465,000 at the same date in 2006.

In the first three months of 2007, we had positivecash flow from operations of $730,000, resulting primarily from the increasedprice received under our uranium sales contracts that were amended in March2006.  We also used $4.3 million in investing activities for wellfielddevelopment and evaluation drilling capital at Kingsville Dome of $1.8 million,additional wellfield development at Vasquez of $249,000, Rosita and RositaSouth project expenditures of $1.1 million and $540,000, other Texas propertyand other assets of $358,000 and other property additions in New Mexico of $244,000.

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In the first quarter of 2006, we had a negative cashflow from operations of ($290,000) and used $5.1 million in investingactivities primarily for production start-up capital at Kingsville Dome of $3.3million additional wellfield development at Vasquez and other plant andequipment additions of $1.4 million.

**Liquidity—Cash Sources and Uses for 2007**

In the first three months of 2007 our net cashoutflows have averaged $1.2 million per month. Our cash balance at March 31,2007 was $16.6 million and based upon our current plan of operations weanticipate that our operating and capital requirements for 2007 will be metthrough existing cash and cash generated from operations.

**Contingent Liabilities—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 statementunder the Securities Act of 1933, as amended, to register the resale of the shares. Such shares are subject to certain resale registration rights that includepenalties (1% per month) in the event registration statement does not becomeeffective in a timely manner or if the registration statement fails to remaineffective.  On August 4, 2006, such registration statement was madeeffective and the Company met its initial obligation.  We have periodically updated the registrationstatement as necessary to ensure that the registration statement has continuedto 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 $2.1 million and $2.0 million wereissued at March 31, 2007 and December 31, 2006, respectively, such L/C’sare collateralized in their entirety by certificates of deposit.

Performance bonds totaling $2.8 million were issuedfor the benefit of the Company at March 31, 2007 and December 31, 2006. USF&Ghas required that the Company deposit funds collateralizing a portion of thebonds. The amount of bonding issued by USF&G exceeded the amount ofcollateral by $2.5 million at March 31, 2007 and December 31, 2006,respectively. In the event that USF&G is required to perform under itsbonds or the bonds are called by the state agencies, the Company would beobligated to pay any expenditure in excess of the collateral.

# **Critical Accounting Policies**

Our significant accounting policies are described inNote 2 to the consolidated financial statements included in the Company’s 2006Annual Report on Form 10-K/A.  We believe our most criticalaccounting policies involve those requiring the use of significant estimatesand assumptions in determining values 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.

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**ITEM 3.****                                                     QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

**Uranium Price Volatility**

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 cost of production. Historically, uranium prices have been subject to fluctuation, and the price ofuranium has been and will continue to be affected by numerous factors beyondthe Company’s control, including the demand for nuclear power, politicaland economic conditions, governmental legislation in uranium producing andconsuming countries and production levels and costs of production of otheruranium producing companies.

**Derivative Financial Instruments**

The Company determined that its long-term uraniumsales contracts in effect prior to March 2006 met the definition of derivativefinancial instruments for financial statement reporting purposes.  Changes in the Company’s derivativesrepresent non-cash charges to earnings for the present value of the loss theCompany would incur in the event it would be required to purchase uranium inthe spot market to satisfy the delivery obligations under the uranium salescontracts.  The Company has not enteredinto hedge transactions with respect to its uranium sales contracts.

The Company amended these contracts inMarch 2006.  The amended contracts obligate the Company to deliver50% of its uranium production to each customer, and do not obligate the Companyto deliver any uranium in excess of its production.  The Company hasdetermined that the terms of the amended contracts eliminates theirqualification as derivatives and therefore are not required to be valued atfair value.

**ITEM 4.****                                                     CONTROLSAND PROCEDURES**

During the the year ended December 31, 2006 and thequarter ended March 31, 2007, 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)and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “ExchangeAct”)).

Basedon that evaluation, our Chief Executive Officer and Chief Financial Officerconcluded that our disclosure controls and procedures as of December 31,2006 and March 31, 2007 were not effective as a result of the material weaknessin our internal controls over financial reporting discussed below.

**Management’sReport on Internal Control over Financial Reporting**

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) as a process designedby, or under the supervision of, the company’s principal executive andprincipal financial officers and effected by the company’s board of directors,management and other personnel, to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statementsfor external purposes in accordance with generally accepted accountingprinciples and includes those policies and procedures that:

·                  Pertain to themaintenance of records that in reasonable detail accurately and fairly reflectthe transactions and dispositions of the assets of the company; 

·                  Providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the company arebeing made only in accordance with authorizations of management and directorsof the company; and 

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·                  Providereasonable assurance regarding prevention or timely detection of unauthorizedacquisition, use or disposition of the company’s assets that could have amaterial effect on the consolidated 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 torisk that controls may become inadequate because of changes in conditions, orthat the degree of compliance with the policies or procedures may deteriorate.

The Company’s management assessed the effectiveness ofthe Company’s internal control over financial reporting as of December 31,2006 and March 31, 2007. In making this assessment, the Company’s managementused the criteria set forth by the Committee of Sponsoring Organizations of theTreadway Commission (COSO) in *InternalControl-Integrated Framework*.

Underthe supervision and with the participation of our management, including ourChief Executive Officer and Chief Financial Officer, we conducted an evaluationof the effectiveness of our internal control over financial reporting inconnection with preparation of the annual report on Form 10-K for the yearended December 31, 2006 and March 31, 2007. As a result of theseassessments, a material weakness was identified in March 2007, inconnection with our year ended December 31, 2006 audit procedures, leadingmanagement to conclude that our internal controls over financial reporting werenot effective as of December 31, 2006. A material weakness is a controldeficiency, or combination of control deficiencies, that results in more than aremote likelihood that a material misstatement of the annual or interimfinancial statements will not be prevented or detected.

The following material weakness forms the basis forour conclusion at December 31, 2006 and March 31, 2007:

·          *Controls over the Review of Financial Statements.*Our financial and accounting organization consists of the Vice President—Financeand the Corporate Controller. Due to a lack of financial and accountingresources, the financial records preparation and review procedures performed byour personnel with respect to our application of the fair value recognitionprovisions of Statement 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 procedures were not consistently performed on a timely basisto ensure that financial reporting and fraud risk controls were operating inthe manner designed.

**Changes in Internal Controls**

There were no changes inour internal control over financial reporting during our last fiscal quarterthat have materially affected, or are reasonably likely to materially affect,our internal control over financial reporting. Management is currently evaluating the implementation of procedures thatmay be 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 arelocation and expansion of our corporate office in the second quarter of 2007,which will allow for the hiring of additional personnel, including bothexperienced accounting and support staff to allow for improved segregation ofduties and allow for a more thorough review, by senior financial personnel, ofthe financial 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 internal accountingresources.

·          The addition of accounting andsupport staff will allow for the formal documentation of 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.

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## **PART II - OTHER INFORMATION**

**ITEM 1.****                             LEGALPROCEEDINGS**

No change from the prior annual filing on our Form10-K/A.

**ITEM 1A.****                    RISK FACTORS**

**Over 65.2% of our shares of CommonStock is controlled by Principal Stockholders and Management.**

Over 56.0% of our Common Stock is controlled by fivestockholders of record. In addition, our directors and officers are thebeneficial owners of about 9.2% of our Common Stock. This includes with respectto both groups shares that may be purchased upon the exercise of outstandingoptions. Such ownership by the Company’s principal shareholders, executiveofficers and directors may have the effect of delaying, deferring, preventingor facilitating a sale of the Company or a business combination with a thirdparty.

The availability for sale of a large amount of sharesmay depress the market price for our Common Stock.

**As of December 31, 2006 andMarch 31, 2007, we identified a material weakness in internal control overfinancial reporting and concluded that our disclosure controls were noteffective. If we fail to maintain an effective system of internal anddisclosure controls, we may not be able to accurately report our financialresults or prevent fraud. As a result, investors may be misled and loseconfidence in our financial reporting and disclosures and the price of ourcommon stock may be negatively affected.**

TheSarbanes-Oxley Act of 2002 requires that we report annually on theeffectiveness of our internal control over financial reporting. Among otherthings, we must perform systems and process evaluation and testing. We mustalso conduct an assessment of our internal controls to allow management toreport on, and our independent registered public accounting firm to attest to,our assessment of our internal control over financial reporting as required bySection 404 of the Sarbanes-Oxley Act.

In connection with the assessment of our internalcontrol over financial reporting for our Annual Report on Form 10-K/A, asfurther described in Item 9A of such Form 10K/A, management and our registeredpublic accounting firm determined that as of December 31, 2006 and March31, 2007 our disclosure controls and procedures were ineffective because of thematerial weakness in our internal control over financial reporting.

Althoughwe have made and are continuing to make improvements in our internal controls,if we are unsuccessful in remediating the material weakness impacting ourinternal control over financial reporting and disclosure controls, or if wediscover other deficiencies, it may adversely impact our ability to reportaccurately and in a timely manner our financial condition and results ofoperations in the future, which may cause investors to lose confidence in ourfinancial reporting and may negatively affect the price of our Common Stock.Moreover, effective internal and disclosure controls are necessary to produceaccurate, reliable financial reports and to prevent fraud. If we continue tohave deficiencies in our internal control over financial reporting anddisclosure controls, they may negatively impact our business and operations.

**ITEM 2.****                             UNREGISTEREDSALES OF EQUITY SECURITIES AND USE OF PROCEEDS**

None

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**ITEM 3.****                             DEFAULTSUPON SENIOR SECURITIES.**

None

**ITEM 4.****                             SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS.**

None

**ITEM 5.****                             OTHERINFORMATION.**

None

**ITEM 6.****                             EXHIBITS**

See the Index to Exhibits on Page E-1 for a listing ofthe exhibits that are filed as part of this Quarterly Report.

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**SIGNATURES**

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the Registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.
|                      | ** ** | **URANIUM RESOURCES, INC.** |                                          |
|----------------------|------------|-----------------------------|-----------------------------------------------|
|                 |       |                        |                                          |
| Dated: May 10,  2007 |       | By:                         | */s/* Paul K.  Willmott                       | * * |
|                 |       |                        | Paul K. Willmott                              |   |
|                 |       |                        | Director and                                  |   |
|                 |       |                        | Chief Executive Officer                       |   |
|                 |       |                        |                                          |   |
| Dated: May 10,  2007 |       | By:                         | */s/* Thomas H.  Ehrlich                      | * * |
|                 |       |                        | Thomas H. Ehrlich                             |   |
|                 |       |                        | Vice President - Finance and                  |   |
|                 |       |                        | Chief Financial Officer                       |   |
|                 |       |                        | (Principal Financial  and Accounting Officer) |   |

 

20

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**EXHIBITINDEX**
| 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). |
|            |       |                                                                                                                                                                                                                                                        |
| 10.12*          |       | 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).                                             |
|            |       |                                                                                                                                                                                                                                                        |
| 10.13*          |       | 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).                                          |
|            |       |                                                                                                                                                                                                                                                        |
| 10.14*          |       | 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).                                            |
|            |       |                                                                                                                                                                                                                                                        |
| 10.15*          |       | 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).                                              |

 

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| 10.16*   |   | 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).                                                                                                              |
|----------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|     |   |                                                                                                                                                                                                                                                                                        |
| 10.16.1* |   | 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).                                                                                          |
|     |   |                                                                                                                                                                                                                                                                                        |
| 10.17*   |   | 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).                                                                                                                                  |
|     |   |                                                                                                                                                                                                                                                                                        |
| 10.17.1* |   | 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).                                                                                      |
|     |   |                                                                                                                                                                                                                                                                                        |
| 10.22*   |   | 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).                                                                                            |
|     |   |                                                                                                                                                                                                                                                                                        |
| 10.23*   |   | 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).                                                                                            |
|     |   |                                                                                                                                                                                                                                                                                        |
| 10.24*   |   | 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).                                                                                                      |
|     |   |                                                                                                                                                                                                                                                                                        |
| 10.24.1* |   | 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). |
|     |   |                                                                                                                                                                                                                                                                                        |
| 10.27*   |   | 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).               |
|     |   |                                                                                                                                                                                                                                                                                        |
| 10.27.1* |   | 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).                                                   |
|     |   |                                                                                                                                                                                                                                                                                        |
| 10.27.2* |   | 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).                                                    |
|     |   |                                                                                                                                                                                                                                                                                        |
| 10.28*   |   | 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).                                       |
|     |   |                                                                                                                                                                                                                                                                                        |
| 10.31*   |   | 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).                                                                |
|     |   |                                                                                                                                                                                                                                                                                        |
| 10.32*   |   | 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).                                                             |

 

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| 10.33* |   | 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).                                |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                             |
| 10.34* |   | 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).                                                                               |
|   |   |                                                                                                                                                                                                                                                             |
| 10.35* |   | 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).                                                                                            |
|   |   |                                                                                                                                                                                                                                                             |
| 10.36* |   | 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).                       |
|   |   |                                                                                                                                                                                                                                                             |
| 10.37* |   | 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).                                      |
|   |   |                                                                                                                                                                                                                                                             |
| 10.38* |   | 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).                                          |
|   |   |                                                                                                                                                                                                                                                             |
| 10.39* |   | 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).                                 |
|   |   |                                                                                                                                                                                                                                                             |
| 10.40* |   | 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).                                                                                       |
|   |   |                                                                                                                                                                                                                                                             |
| 10.41* |   | 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).                                                                                    |
|   |   |                                                                                                                                                                                                                                                             |
| 10.42* |   | 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).                                                                                      |
|   |   |                                                                                                                                                                                                                                                             |
| 10.43* |   | Amended and Restated 2004 Directors’ Stock Option  Plan dated April 10, 2007 (filed with the Company’s Post-Effective  Amendment No. 1 to Registration Statement on Form S-3 dated  April 11, 2007, SEC File No. 333-133960). |
|   |   |                                                                                                                                                                                                                                                             |
| 10.44  |   | Uranium Resources, Inc. 2007 Restricted Stock Plan.                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                             |
| 14*    |   | Uranium Resources, Inc. Code of Ethics for Senior  Executives. Filed with the Company’s Annual Report on Form 10-KSB dated  March 30, 2004, SEC File Number 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 filed herewith. Incorporated by reference  pursuant to Rule 12b-32 under the Securities Exchange Act of 1934. |
|---|------------------------------------------------------------------------------------------------------------------------|

 

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