Tableof Contents

 

 

 

**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 September 30, 2008** |
|                                                       |
| **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.**

(ExactName of Issuer as Specified in Its Charter)

 

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

 

**405 State Highway 121 Bypass, Building A, Suite 110,Lewisville, Texas 75067**

(Addressof Principal Executive Offices)

 

**(972) 219-3330**

(Issuer’sTelephone Number, Including Area Code)

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. x  Yes    o  No

 

Indicate by check mark whether the registrant is a large acceleratedfiler, an accelerated filer, a non-accelerated filer, or a smaller reportingcompany. See the definitions of “large accelerated filer,” “accelerated filer”and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Checkone):

 

| Large  accelerated filer o                     |   | Accelerated  filer x         |
|------------------------------------------------|--------|-----------------------------------|
|                                           |   |                              |
| Non-accelerated  filer o                       |   | Smaller  reporting company o |
| (Do  not check if a smaller reporting company) |   |                              |

 

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 ofshares outstanding of each of the issuer’s classes of common stock, as of thelatest practicable date.

 

| **Title of Each Class of Common Stock** | ** ** | **Number of Shares Outstanding** |
|-----------------------------------------------------------------------|------------|-------------------------------------------------|
| Common  Stock, $0.001 par value                                       |       | 55,885,549  as of November 7, 2008         |

 

 

 

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**URANIUM RESOURCES, INC.**

 

**2008 THIRD QUARTERLY REPORT ON FORM 10-Q**

 

**TABLE OF CONTENTS**

 
| **PART I—FINANCIAL  INFORMATION** |       |                                                                                                                            |
|---------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------|
|                                        |       |                                                                                                                            |   |   |
| Item 1.                                     |       | Financial Statements                                                                                                            |   |   |
|                                        |       |                                                                                                                            |   |   |
|                                        |       | Condensed Consolidated Balance Sheets–September 30,  2008 (Unaudited) and December 31, 2007                      |   | 3 |
|                                        |       |                                                                                                                            |   |   |
|                                        |       | Condensed Consolidated Statements of Operations–three  and nine months ended September 30,  2008 and 2007 (Unaudited) |   | 4 |
|                                        |       |                                                                                                                            |   |   |
|                                        |       | Condensed Consolidated Statements of Cash Flows–nine  months ended September 30,  2008 and 2007 (Unaudited)           |   | 5 |
|                                        |       |                                                                                                                            |   |   |
|                                        |       | Notes to  Condensed Consolidated Financial Statements–September 30, 2008  (Unaudited)                                 |   | 6 |
|                                        |       |                                                                                                                            |   |   |
| Item  2.                                    |       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                     |   | 12 |
|                                        |       |                                                                                                                            |   |   |
| Item  3.                                    |       | Quantitative  and Qualitative Disclosures About Market Risk                                                                     |   | 18 |
|                                        |       |                                                                                                                            |   |   |
| Item  4.                                    |       | Controls and Procedures                                                                                                         |   | 19 |
|                                        |       |                                                                                                                            |   |   |
| **PART II—OTHER  INFORMATION**    |       | 19                                                                                                                              |
| ** **                                  | ** ** | ** **                                                                                                                      | ** ** | ** ** |
| Item 1.                                     |       | Legal Proceedings                                                                                                               |   | 19 |
|                                        |       |                                                                                                                            |   |   |
| Item 1A.                                    |       | Risk Factors                                                                                                                    |   | 19 |
|                                        |       |                                                                                                                            |   |   |
| Item  2.                                    |       | Unregistered  Sales of Equity Securities and Use of Proceeds                                                                    |   | 19 |
|                                        |       |                                                                                                                            |   |   |
| Item  3.                                    |       | Defaults  Upon Senior Securities                                                                                                |   | 20 |
|                                        |       |                                                                                                                            |   |   |
| Item  4.                                    |       | Submission  of Matters to a Vote of Security Holders                                                                            |   | 20 |
|                                        |       |                                                                                                                            |   |   |
| Item 5.                                     |       | Other Information                                                                                                               |   | 20 |
|                                        |       |                                                                                                                            |   |   |
| Item 6.                                     |       | Exhibits and Reports on Form 8–K                                                                                      |   | 20 |
|                                        |       |                                                                                                                            |   |   |
| **SIGNATURES**                              |       | 21                                                                                                                              |
| ** **                                  | ** ** | ** **                                                                                                                      | ** ** | ** ** |
| **Index to  Exhibits**                      |       | E-1                                                                                                                             |

 

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**URANIUM RESOURCES, INC.**

**CONDENSED CONSOLIDATED BALANCESHEETS**

**ASSETS**

**(Unaudited)**

 
| ** **                                               | ** ** | **September 30,  2008** | ** ** | **December 31,  2007** | ** ** |
|----------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **                                               | ** ** | ** **                   | ** ** | ** **                  | ** ** |
| Current  assets:                                         |       |                         |       |                        |       |
| Cash and  cash equivalents                               |       | $                            | 13,002,026 |                        | $          | 9,284,270 |   |
| Receivables,  net                                        |       | 1,976,979                    |       | 2,652,574                   |       |
| Uranium  inventory                                       |       | 1,928,640                    |       | 748,452                     |       |
| Prepaid and  other current assets                        |       | 301,531                      |       | 720,357                     |       |
| Total  current assets                                    |       | 17,209,176                   |       | 13,405,653                  |       |
|                                                     |       |                         |       |                        |       |
| Property,  plant and equipment, at cost:                 |       |                         |       |                        |       |
| Uranium  properties                                      |       | 83,228,817                   |       | 85,525,808                  |       |
| Other  property, plant and equipment                     |       | 966,317                      |       | 821,811                     |       |
| Less-accumulated  depreciation, depletion and impairment |       | (62,942,204                  | )          | (55,736,530                 | )          |
| Net  property, plant and equipment                       |       | 21,252,930                   |       | 30,611,089                  |       |
|                                                     |       |                         |       |                        |       |
| Other assets                                             |       | 4,275,543                    |       | 2,837,064                   |       |
| Long-term  investment:                                   |       |                         |       |                        |       |
| Certificates  of deposit, restricted                     |       | 6,591,323                    |       | 6,083,076                   |       |
|                                                     |       | $                            | 49,328,972 |                        | $          | 52,936,882 |   |

 

**LIABILITIES AND SHAREHOLDERS’ EQUITY**

**(Unaudited)**

 
| Current  liabilities:                                                                                                                                                                                   |   |         |       |        |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------|------------|-------------|--------|
| Accounts and  short term notes payable                                                                                                                                                                  |   | $            | 1,320,273  |        | $      | 2,157,475 |   |
| Current  portion of restoration reserve                                                                                                                                                                 |   | 1,438,187    |       | 1,124,504   |   |
| Royalties  and commissions payable                                                                                                                                                                      |   | 861,149      |       | 1,131,636   |   |
| Accrued  interest and other accrued liabilities                                                                                                                                                         |   | 647,274      |       | 709,400     |   |
| Current  portion of long-term debt                                                                                                                                                                      |   | 172,795      |       | 210,616     |   |
| Total  current liabilities                                                                                                                                                                              |   | 4,439,678    |       | 5,333,631   |   |
|                                                                                                                                                                                                    |   |         |       |        |   |
| Other  long-term liabilities and deferred credits                                                                                                                                                       |   | 5,236,294    |       | 4,097,327   |   |
|                                                                                                                                                                                                    |   |         |       |        |   |
| Long term  capital leases, less current portion                                                                                                                                                         |   | 355,288      |       | 178,665     |   |
| Long-term  debt, less current portion                                                                                                                                                                   |   | 450,000      |       | 450,000     |   |
| Commitments  and contingencies (Notes 1, 2, 5 and 13)                                                                                                                                                   |   |         |       |        |   |
| Shareholders’  equity:                                                                                                                                                                             |   |         |       |        |   |
| Common  stock, $.001 par value, shares authorized: 200,000,000; shares issued and  outstanding (net of treasury shares):  2008—55,885,549; 2007—52,305,129 |   | 55,924       |       | 52,343      |   |
| Paid-in  capital                                                                                                                                                                                        |   | 146,212,708  |       | 131,282,687 |   |
| Accumulated  deficit                                                                                                                                                                                    |   | (107,411,502 | )          | (88,448,353 | )      |
| Less:  Treasury stock (38,125 shares), at cost                                                                                                                                                          |   | (9,418       | )          | (9,418      | )      |
| Total  shareholders’ equity                                                                                                                                                                        |   | 38,847,712   |       | 42,877,259  |   |
|                                                                                                                                                                                                    |   | $            | 49,328,972 |        | $      | 52,936,882 |   |

 

Theaccompanying notes to financial statements are an integral part of thesecondensed consolidated statements.

 

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**URANIUM RESOURCES, INC.**

**CONDENSED CONSOLIDATED STATEMENTSOF OPERATIONS**

**(Unaudited)**

 
| ** **                                                                   | ** ** | **Three Months Ended  September 30,** | ** **  | **Nine Months Ended  September 30,** | ** ** |
|------------------------------------------------------------------------------|------------|------------------------------------------------------|-------------|-----------------------------------------------------|------------|
| ** **                                                                   | ** ** | **2008**                                             | ** **  | **2007**                                            | ** ** | **2008** | ** ** | **2007** | ** ** |
| Revenues:                                                                    |       |                                                 |        |                                                |       |   |   |   |   |
| Uranium  sales                                                               |       | $                                                    | 4,024,558   |                                                | $          | 10,387,408 |   | $ | 16,354,497 |   | $ | 22,924,284 |   |
| Total  revenue                                                               |       | 4,024,558                                            |        | 10,387,408                                          |       | 16,354,497 |   | 22,924,284 |   |
| Costs and  expenses:                                                         |       |                                                 |        |                                                |       |   |   |   |   |
| Cost of  uranium sales                                                       |       |                                                 |        |                                                |       |   |   |   |   |
| Royalties  and commissions                                                   |       | 368,880                                              |        | 1,296,644                                           |       | 1,505,637 |   | 2,717,586 |   |
| Operating  expenses                                                          |       | 1,751,642                                            |        | 1,998,220                                           |       | 5,689,674 |   | 5,341,294 |   |
| Accretion/amortization  of restoration reserve                               |       | 203,876                                              |        | 126,119                                             |       | 588,504 |   | 433,320 |   |
| Depreciation  and depletion                                                  |       | 1,874,281                                            |        | 1,428,387                                           |       | 6,119,106 |   | 4,726,400 |   |
| Impairment  of uranium properties                                            |       | 10,935,498                                           |        | —                                              |       | 11,231,615 |   | — |   |
| Exploration  expenses                                                        |       | 961,717                                              |        | —                                              |       | 1,220,056 |   | — |   |
| Total cost  of uranium sales                                                 |       | 16,095,894                                           |        | 4,849,370                                           |       | 26,354,592 |   | 13,218,600 |   |
| Earnings  (loss) from operations before corporate expenses                   |       | (12,071,336                                          | )           | 5,538,038                                           |       | (10,000,095 | ) | 9,705,684 |   |
|                                                                         |       |                                                 |        |                                                |       |   |   |   |   |
| Corporate  expenses—                                                    |       |                                                 |        |                                                |       |   |   |   |   |
| General and  administrative                                                  |       | 2,041,836                                            |        | 3,575,420                                           |       | 7,831,654 |   | 8,266,664 |   |
| Write-off of  target acquisition costs (Note 12)                             |       | —                                               |        | —                                              |       | 1,437,410 |   | — |   |
| Depreciation                                                                 |       | 39,204                                               |        | 23,506                                              |       | 110,251 |   | 69,690 |   |
| Total  corporate expenses                                                    |       | 2,081,040                                            |        | 3,598,926                                           |       | 9,379,315 |   | 8,336,354 |   |
| Earnings  (loss) from operations                                             |       | (14,152,376                                          | )           | 1,939,112                                           |       | (19,379,410 | ) | 1,369,330 |   |
|                                                                         |       |                                                 |        |                                                |       |   |   |   |   |
| Other income  (expense):                                                     |       |                                                 |        |                                                |       |   |   |   |   |
| Interest  expense                                                            |       | (13,663                                              | )           | (6,372                                              | )          | (31,480 | ) | (18,738 | ) |
| Interest and  other income, net                                              |       | 149,685                                              |        | 221,949                                             |       | 447,741 |   | 566,890 |   |
|                                                                         |       |                                                 |        |                                                |       |   |   |   |   |
| Net earnings  (loss)                                                         |       | $                                                    | (14,016,354 | )                                                   | $          | 2,154,689 |   | $ | (18,963,149 | ) | $ | 1,917,482 |   |
|                                                                         |       |                                                 |        |                                                |       |   |   |   |   |
| Net earnings  (loss) per common share:                                       |       |                                                 |        |                                                |       |   |   |   |   |
| Basic                                                                        |       | $                                                    | (0.25       | )                                                   | $          | 0.04 |   | $ | (0.35 | ) | $ | 0.04 |   |
| Diluted                                                                      |       | $                                                    | (0.25       | )                                                   | $          | 0.04 |   | $ | (0.35 | ) | $ | 0.03 |   |
|                                                                         |       |                                                 |        |                                                |       |   |   |   |   |
| Weighted  average common shares and common equivalent shares per share data: |       |                                                 |        |                                                |       |   |   |   |   |
| Basic                                                                        |       | 55,818,343                                           |        | 52,266,199                                          |       | 54,050,106 |   | 52,059,849 |   |
| Diluted                                                                      |       | 55,818,343                                           |        | 56,020,832                                          |       | 54,050,106 |   | 55,867,860 |   |

 

Theaccompanying notes to financial statements are an integral part of thesecondensed consolidated statements.

 

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**URANIUM RESOURCES, INC.**

**CONDENSED CONSOLIDATED STATEMENTSOF CASH FLOWS**

**(Unaudited)**

 
| ** **                                                                 | ** ** | **Nine Months Ended  September 30,** | ** **  |
|----------------------------------------------------------------------------|------------|-----------------------------------------------------|-------------|
| ** **                                                                 | ** ** | **2008**                                            | ** **  | **2007** | ** ** |
| Net earnings  (loss)                                                       |       | $                                                   | (18,963,149 | ) | $ | 1,917,482 |   |
| Reconciliation  of net loss to cash provided by operations—           |       |                                                |        |   |   |
| Accretion/amortization  of restoration reserve                             |       | 588,504                                             |        | 433,320 |   |
| Depreciation  and depletion                                                |       | 6,229,357                                           |        | 4,796,090 |   |
| Impairment  of uranium properties                                          |       | 11,231,615                                          |        | — |   |
| Decrease in  restoration and reclamation accrual                           |       | (497,554                                            | )           | (982,220 | ) |
| Stock  compensation expense                                                |       | 1,846,990                                           |        | 3,191,867 |   |
| Write-off of  target acquisition costs                                     |       | 1,437,410                                           |        | — |   |
| Other  non-cash items, net                                                 |       | 19,258                                              |        | 637,050 |   |
|                                                                       |       |                                                |        |   |   |
| Effect of  changes in operating working capital items—                |       |                                                |        |   |   |
| (Increase)  decrease in receivables                                        |       | 675,595                                             |        | (1,701,457 | ) |
| (Increase)  decrease in inventories                                        |       | (340,572                                            | )      | 177,357 |   |
| (Increase)  decrease in prepaid and other current assets                   |       | 168,373                                             |        | (681,566 | ) |
| Increase  (decrease) in payables, accrued liabilities and deferred credits |       | (1,130,440                                          | )           | 2,491,431 |   |
| Net cash  provided by operations                                           |       | 1,265,387                                           |        | 10,279,354 |   |
|                                                                       |       |                                                |        |   |   |
| Investing  activities:                                                     |       |                                                |        |   |   |
| Increase in  certificates of deposit, restricted                           |       | (508,247                                            | )           | (2,921,961 | ) |
| Additions to  property, plant and equipment—                          |       |                                                |        |   |   |
| Kingsville  Dome                                                           |       | (3,362,839                                          | )           | (5,658,840 | ) |
| Rosita                                                                     |       | (4,384,647                                          | )           | (3,943,074 | ) |
| Vasquez                                                                    |       | (225,696                                            | )           | (541,432 | ) |
| Rosita South                                                               |       | (424,521                                            | )           | (1,330,794 | ) |
| Churchrock                                                                 |       | (377,952                                            | )           | (463,953 | ) |
| Crownpoint                                                                 |       | (102,473                                            | )           | (127,726 | ) |
| Other  property and other assets                                           |       | (1,035,908                                          | )           | (2,246,267 | ) |
| Net cash  used in investing activities                                     |       | (10,422,283                                         | )           | (17,234,047 | ) |
|                                                                       |       |                                                |        |   |   |
| Financing  activities:                                                     |       |                                                |        |   |   |
| Payments on  borrowings                                                    |       | (211,960                                            | )           | (195,700 | ) |
| Issuance of  common stock, net                                             |       | 13,086,612                                          |        | 889,228 |   |
| Net cash  from financing activities                                        |       | 12,874,652                                          |        | 693,528 |   |
| Net increase  (decrease) in cash and cash equivalents                      |       | 3,717,756                                           |        | (6,261,165 | ) |
| Cash and  cash equivalents, beginning of period                            |       | 9,284,270                                           |        | 20,176,771 |   |
| Cash and  cash equivalents, end of period                                  |       | $                                                   | 13,002,026  |   | $ | 13,915,606 |   |

 

Theaccompanying notes to financial statements are an integral part of thesecondensed consolidated statements.

 

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**Uranium Resources, Inc.**

**Notes to Condensed ConsolidatedFinancial Statements September 30, 2008 (Unaudited)**

 

**1.****            ****BASIS OF PRESENTATION**

 

Theaccompanying unaudited condensed consolidated financial statements have beenprepared in accordance with accounting principles generally accepted in theUnited States of America for interim financial information and with theinstructions to Form 10-Q and Item 310(b) of Regulation S-K. Accordingly, they do not include all of the information and footnotes requiredby accounting principles generally accepted in the United States of America forcomplete financial statements.  The accompanying statements should be readin conjunction with the audited financial statements included in the Company’s2007 Annual Report on Form 10-K/A.  In the opinion of management, alladjustments (consisting of normal recurring accruals) considered necessary fora fair presentation have been included.  Operating results for the threeand nine months ended September 30, 2008 are not necessarily indicative ofthe results that may be expected for the full calendar year ending December 31,2008.

 

**2.****            ****DESCRIPTION OF BUSINESS**

 

URIwas organized in 1977 to mine uranium in the United States using the in siturecovery (“ISR”) mining process. From 1988 through 1999 we produced about6.1 million pounds of uranium from two South Texas properties,3.5 million pounds from Kingsville Dome and 2.6 million pounds fromRosita.  In 1999, we shut-in ourproduction because of depressed uranium prices.  When uranium pricesreached a level where it was prudent to commence operations, the Company beganproducing at its Vasquez property in South Texas in the fourth quarter of2004.  Production at Kingsville Dome began in the second quarter of2006.  Our production since the fourthquarter of 2004 has been 1,321,600 pounds of which 663,600 pounds were fromVasquez, 650,300 were produced from Kingsville Dome and 7,700 from Rosita.  We began injecting oxygen into our productionwells at Rosita at the end of June 2008 and had our first finishedproduction in August 2008.  Uraniumprices dramatically declined since early September and in October westopped production from three of our five operating well-fields, includingVasquez and Rosita.

 

Thefinancial statements of the Company have been prepared on the basis ofaccounting principles applicable to a going concern, which contemplates therealization of assets and the satisfaction of liabilities in the normal courseof business.  Management believes thatthe cash balance of $13.0 million at September 30, 2008 and the cashexpected to be provided through operations over the next year will besufficient to maintain its liquidity for the next year.

 

**3.****            ****DISCLOSURE OF NON-CASHTRANSACTIONS**

 

Duringthe first nine months of 2007, the Company entered into capital leases toacquire property, plant and equipment items including logging trucks and officecomputers and equipment totaling $211,000. Additions to capital leases for modular office buildings at ourKingsville dome and Rosita projects and resin transport trailers of $301,000were made in the first nine months of 2008.  The outstanding balance ofthe capital leases was $528,000 at September 30, 2008.

 

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

 

**KingsvilleDome Project**

 

Productionfrom Kingsville Dome for the first nine months of 2008 and 2007 was 218,100 and278,300 pounds, respectively.  Totalcapital expenditures for Kingsville Dome for the first nine months of 2008 were$3.4 million for wellfield development, the construction of additionalsatellite plants and for wellfield evaluation and delineation of futurewellfields.  Two new wellfields werebrought on line in the first nine months of this year to replace wellfieldsbrought on line in 2007 that have since depleted.  As of October 2008, there are only tworemaining wellfields producing at Kingsville Dome.  As production from depleted wellfields atKingsville Dome ceases, restoration activities in those wellfields areconducted.  We are conducting ongoingrestoration activities at this project and incurred $248,000 in costs for thenine months ended September 30, 2008.

 

**Rosita**

 

Webegan injecting oxygen into our production wells at Rosita at the end of June 2008and had our first finished production in August 2008.  Our production from Rosita totaled 7,700pounds for August and September of 2008.  Due to poor economics driven by technicalchallenges and lower uranium prices, this wellfield was shut-in in October 2008.  Capital expenditures for our Rosita projecttotaled $4.4 million in the first nine months of 2008.  These expenditureswere made for wellfield delineation and development, upgrading the Rosita plantand elution circuit, the addition of another satellite plant and theconstruction of a drying facility at Rosita.  We are conducting ongoingrestoration activities at this project and incurred $256,000 in costs for thenine months ended September 30, 2008.

 

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**VasquezProject**

 

Inthe first nine months of 2008, Vasquez production was 33,800 pounds comparedwith 70,300 pounds produced from Vasquez in the first nine months of2007.  This wellfield was shutdown during October 2008 and the Vasquezproject has been depleted of economically recoverable reserves.  In the first nine months of 2008, we incurredwellfield development and other expenditures of $227,000, primarily fordevelopment of new wellfields to bring on new production at Vasquez.  Suchnew production commenced in March 2008. As production from depleted wellfields at Vasquez ceases, restorationactivities in those wellfields are conducted. We are conducting ongoing restoration activities at this project andincurred $45,000 in costs for the nine months ended September 30, 2008.

 

**Impairmentof Uranium Properties**

 

AtSeptember 30, 2008, we determined the carrying value of our project assetsat each of our South Texas production locations exceeded their fair value asprovided in SFAS 144 “Accounting for the Impairment or Disposal ofLong-Lived Assets”.  A decline in thecurrent and projected market price of uranium and an increase in the estimatedproduction costs for each of our South Texas projects resulted in a decrease inthe estimated future cash flow to be generated from each site.  Such determination resulted in an impairmentprovision of approximately $11.2 million for the first nine months of 2008, $10.9million of which was recorded in the third quarter.  The impairment provision recorded in thethird quarter was approximately $4.6 million for the Kingsville Dome projectand $6.3 million for the Rosita project. The impairment provision recorded for the Vasquez project wasapproximately $298,000 for the nine months ended September 30, 2008.  The net carrying value of the KingsvilleDome, Rosita and Vasquez projects are approximately $6.6 million, $5.5 millionand $891,000 at September 30, 2008.

 

**5.****            ****CONTRACT COMMITMENTS**

 

**Amendmentto Uranium Sales Contracts**

 

InMarch 2006, we entered into a new contract with Itochu Corporation (“Itochu”)and a new contract with UG U.S.A., Inc. (“UG”) that superseded thepreviously existing contracts.  Each of the new contracts provides fordelivery of one-half of our actual production from our Vasquez property andother properties in Texas currently owned or hereafter acquired by the Company(excluding certain large potential exploration plays). The terms of suchcontracts are summarized below.

 

*The Itochu Contract*. Under the Itochu contract, all productionfrom the Vasquez property will be sold at a price equal to the average spotprice for the eight weeks prior to the date of delivery less $6.50 per pound,with a floor for the spot price of $37 and a ceiling of $46.50. Other Texasproduction will be sold at a price equal to the average spot price for theeight weeks prior to the date of delivery less $7.50 per pound, with a floorfor the spot price of $37 and a ceiling of $43. On non-Vasquez production theprice paid will be increased by 30% of the difference between actual spot priceand the $43 ceiling up to and including $50 per pound. If the spot price isover $50 per pound the price on all Texas production will be increased by 50%of such excess. The floor and ceiling and sharing arrangement over the ceilingapplies to 3.65 million pounds of deliveries, after which there is no floor orceiling. Itochu has the right to cancel any deliveries on six-month’snotice.  As of September 30, 2008,we have delivered 443,000 pounds to Itochu since the effective date of thiscontract.

 

InDecember 2005, we entered into a joint venture with Itochu to develop ourChurchrock property in New Mexico.  Under the terms of the joint venture,both parties must make an investment decision after the completion of afeasibility study, which was completed at the end of 2006. The parties haveextended the preliminary investment decision until February 1, 2009.  If Itochu should terminate the venture atthat time, we would no longer receive the additional price of 30% of the excessbetween $43 and $50 per pound outlined above. If we should terminate theventure at that time, the original contract terms will be reinstated from thattime forward.

 

*The UG Contract*. Under the UG contract all production from the Vasquez property andother Texas production will be sold at a price equal to the month-end long-termcontract price for the second month prior to the month of delivery less $6 perpound until (i) 600,000 pounds have been sold in a particular deliveryyear and (ii) an aggregate of 3 million pounds of uranium has been sold.After the 600,000 pounds in any year and 3 million pounds total have been sold,UG will have a right of first refusal to purchase other Texas production at aprice equal to the average spot price for a period prior to the date ofdelivery less 4%. In consideration of UG’s agreement to restructure itspreviously existing contract, we paid UG $12 million in cash with fundsraised in our equity offering completed in April 2006.  As of September 30, 2008, we havedelivered 415,000 pounds to UG since the effective date of this contract.

 

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

 

Our stock basedcompensation programs consist of stock options granted to employees anddirectors and restricted stock grants made employees.

 

***Stock Compensation Expense - SFAS 123(R)***

 

Stockcompensation expense for the three months ended September 30, 2008 and2007 was $297,000 and $1,636,000, respectively. Stock compensation expense forthe nine months ended September 30, 2008 and 2007 was $1,847,000 and$3,192,000, respectively.  Stockcompensation expense is recorded as a component of general and administrativeexpenses for each period. The Company did not recognize a tax benefit from thestock compensation expense because the Company considers it is more likely thannot that the related deferred tax assets, which have been reduced by a fullvaluation allowance, will not be realized.

 

TheBlack-Scholes option pricing model was used to estimate the stock option fairvalues. The option pricing model requires a number of assumptions, of which themost significant are, expected stock price volatility, the expected pre-vestingforfeiture rate and the expected option term (the amount of time from the grantdate until the option or restricted shares are exercised, vest or expire).Expected volatility was calculated based upon actual historical stock pricemovements through the measurement date of the stock option grant. Expectedpre-vesting forfeitures were estimated based on actual historical pre-vestingforfeitures over the most recent periods ending September 30, 2008 for theexpected term. The expected term was estimated based on historical averagesover the most recent periods ending September 30, 2008.

 

Atthe June 2008 annual meeting of the stockholders, each of the non-employeedirectors of the Company was granted an option under the 2004 Directors’ Planto purchase 50,000 shares of the Company’s common stock at an exercise price of$4.10 per share.  The non-employeedirectors held options covering 581,250 shares under the 2004 Directors’ Planat September 30, 2008. At September 30, 2008, 531,250 shares wereavailable for future grants under the 2004 Directors’ Plan.

 

Atotal of 70,000 shares of restricted stock were granted in the first quarter of2008.  Restricted share grants for 60,000shares were made to a total of three non-executive employees on March 6,2008. 30,000 of these shares vest ratably over five years and 30,000 sharesvest ratably over four years.  Another10,000 restricted share grant was made to an executive of the Company on March 24,2008.  These shares vest ratably over 5years.  Restricted stock grants arevalued using the fair market value of the stock on the date of grant. TheCompany recognized stock compensation cost for the restricted share grants ofapproximately $31,000 and $69,000 during the three and nine months ended September 30,2008, respectively.  The total estimatedunrecognized compensation cost from the unvested restricted shares wasapproximately $477,000 at September 30, 2008.

 

***Stock Options for the Nine Months Ended September 30, 2008***

 

Thefollowing table summarizes stock options outstanding and changes during thenine month period ended September 30, 2008:

 
| ** **                                      | ** ** | **Outstanding Options** | ** ** |
|-------------------------------------------------|------------|------------------------------|------------|
| ** **                                      | ** ** | **Number of  Shares**   | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Weighted  Average  Remaining  Contractual  Term** | ** ** | **Aggregate  Intrinsic  Value** | ** ** |
| ** **                                      | ** ** | ** **                   | ** ** | ** ** | ** ** | **(in years)** | ** ** | ** ** | ** ** |
| Options  outstanding at January 1, 2008    |       | 4,452,844                    |       | $ | 2.88 |   |   |   |   |   |
| Granted                                         |       | 200,000                      |       | 4.10 |   |   |   |   |   |
| Exercised                                       |       | (144,250                     | )     | 1.12 |   |   |   |   |   |
| Canceled or  forfeited                          |       | (230,020                     | )          | 6.29 |   |   |   |   |   |
| Options  outstanding at September 30, 2008 |       | 4,278,574                    |       | $ | 2.81 |   | 6.68 |   | $ | 2,252,000 |   |
|                                            |       |                         |       |   |   |   |   |   |   |
| Options  exercisable at September 30, 2008 |       | 3,507,844                    |       | $ | 2.36 |   | 6.30 |   | $ | 1,067,000 |   |

 

Sharesavailable for grant under the Stock Option Plans as of September 30, 2008were 605,895.

 

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Stockoptions outstanding and currently exercisable at September 30, 2008 are asfollows:

 
| ** **                         | ** ** | **Options Outstanding**             | ** ** | **Options Exercisable**                                | ** ** |
|------------------------------------|------------|------------------------------------------|------------|-------------------------------------------------------------|------------|
| **Stock Option Plan**    | ** ** | **Number of  Options  Outstanding** | ** ** | **Weighted Average  Remaining  Contractual Life** | ** ** | **Weighted Average  Exercise price** | ** ** | **Number of  Options  Exercisable** | ** ** | **Weighted Average  Exercise Price** | ** ** |
| ** **                         | ** ** | **(in years)**                      | ** ** | ** **                                                  | ** ** | ** ** | ** ** |
| 1995 Stock  Incentive Plan         |       | 2,156,447                                |       | 5.64                                                        |       | $ | 1.38 |   | 2,106,134 |   | $ | 1.34 |   |
| 2004 Stock  Incentive Plan         |       | 1,540,814                                |       | 7.44                                                        |       | 3.37 |   | 1,164,147 |   | 3.29 |   |
| Directors’  Stock Option Plan |       | 63                                       |       | 4.75                                                        |       | 0.16 |   | 63 |   | 0.16 |   |
| 2004  Directors’ Plan         |       | 581,250                                  |       | 8.56                                                        |       | 6.62 |   | 237,500 |   | 6.93 |   |
|                               |       | 4,278,574                                |       | 6.68                                                        |       | $ | 2.81 |   | 3,507,844 |   | $ | 2.36 |   |

 

Totalestimated unrecognized compensation cost from unvested stock options at September 30,2008 was approximately $1.858 million, which is expected to be recognized overa weighted average period of approximately 2-4 years.

 

Totalestimated unrecognized compensation cost from unvested restricted stock grantsat September 30, 2008 was approximately $477,000, which is expected to berecognized over a weighted average period of approximately 4-5 years.

 

**7.****            ****ASSET RETIREMENT OBLIGATIONS**

 

Thefollowing table shows the change in the balance of the restoration andreclamation liability during the nine months ended September 30, 2008:

 
| Reserve for  future restoration and reclamation costs beginning of period |   | $         | 3,932,603 |   |
|---------------------------------------------------------------------------|--------|-----------|-----------|--------|
| Additions  and changes in cash flow estimates                             |   | 1,970,466 |      |
| Costs  incurred                                                           |   | (548,094  | )         |
| Accretion  expense                                                        |   | 122,478   |      |
| Reserve for  future restoration and reclamation costs at end of period    |   | $         | 5,477,453 |   |

 

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

 

***EquityInfusion — Private Placement***

 

InMay 2008, the Company completed the sale of 3,295,920 shares of commonstock to accredited investors at a price of $4.34 per share, which representeda 10 percent discount to the last sale price on May 13, 2008; and warrantsto purchase 988,771 additional shares of common stock, at a price of $5.78,which represented a 20 percent premium to the last sale price of the Company’scommon stock on May 13, 2008.  Thesewarrants expire 60 months after issuance and are exercisable immediately.  In addition, ratchet warrants to purchaseshares of common stock at $0.01 per share were issued as part of the privateplacement.  The ratchet warrants aretriggered and become immediately exercisable in the event that the Companyshould issue shares of Common Stock at a price below $4.34 per share.  The number of shares that may be purchasedupon the exercise of the ratchet warrants is determined by a formula thatresults in the effective price paid by the investors in this offering beingequal to the price paid in a subsequent below $4.34 per share offering. Theratchet warrants expire on the earlier of 12 months following issuance, or tendays after the consummation of the sale of shares of the Company’s common stockwhich raises in one or more transactions at least $80 million in grossproceeds.

 

Thesale raised proceeds of approximately $12.9 million net of expenses of theoffering.  The Company has filed a registration statement under theSecurities 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 the registration statement failed tobecome effective in a timely manner or if the registration statement fails toremain effective.  On July 18, 2008, such registration statement wasmade effective and as a result the Company met its initial obligation withregard to this registration requirement.  The placement agent inconnection with the offering received a cash fee equal to 5.5% of the grossproceeds.

 

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Thefollowing table details the changes in shareholders equity for the nine monthsended September 30, 2008:

 
| ** **                                     | ** ** | **Common Stock** | ** ** | **Paid-In** | ** ** | **Accumulated** | ** ** | ** **  | ** ** |
|------------------------------------------------|------------|-----------------------|------------|-------------|------------|-----------------|------------|-------------|------------|
| ** **                                     | ** ** | **Shares**            | ** ** | **Amount**  | ** ** | **Capital**     | ** ** | **Deficit** | ** ** | **Treasury Stock** | ** ** |
| Balances, December 31,  2007              |       | 52,305,129            |       | $           | 52,343     |            | $          | 131,282,687 |       | $ | (88,448,353 | ) | $ | (9,418 | ) |
| Net loss                                       |       | —                |       | —      |       | —          |       | (18,963,149 | )          | — |   |
| Common stock  issuance                         |       | 3,295,920             |       | 3,296       |       | 12,808,075      |       | —      |       | — |   |
| Common stock issued for stock  option exercise |       | 169,250               |       | 169         |       | 182,871         |       | —      |       | — |   |
| Common stock issued for deferred  compensation |       | 115,250               |       | 116         |       | 92,085          |       | —      |       | — |   |
| Stock  compensation expense                    |       | —                |       | —      |       | 1,846,990       |       | —      |       | — |   |
| Balances, September 30,  2008             |       | 55,885,549            |       | $           | 55,924     |            | $          | 146,212,708 |       | $ | (107,411,502 | ) | $ | (9,418 | ) |

 

**10.**          **IMPACT OF RECENT ACCOUNTINGPRONOUNCEMENTS**

 

**Impact ofRecent Accounting Pronouncements**

 

***Fair Value Measurements.***    In September 2006,the FASB issued SFAS No. 157, “Fair Value Measurements,” which provides acommon definition for the measurement of fair value for use in applyinggenerally accepted accounting principles in the United States of America and inpreparing financial statement disclosures. SFAS No. 157 is effective forfiscal years beginning after November 15, 2007. We adopted SFAS No. 157,on January 1, 2008, and did not have a material impact on our financialcondition, results of operations or cash flows. On February 8, 2008, theFASB issued Staff Position 157-2, “Effective Date of FASB 157” (FSP 157-2)which partially deferred the provisions of FAS 157 to annual periods beginningafter November 15, 2008 for non-financial assets and liabilities.  Non-financial assets include fair valuemeasurements associated with business acquisitions and impairment testing oftangible and intangible assets.  We donot believe the adoption of SFAS 157 will have a material effect on ournon-financial assets and liabilities in our consolidated financial statements.

 

***Fair Value Option for Financial Assets andLiabilities.***    InFebruary 2007, the FASB issued SFAS No. 159, “The Fair Value Optionfor Financial Assets and Financial Liabilities,” which permits entities tochoose to measure many financial instruments and certain other items at fairvalue. SFAS No. 159 is effective for fiscal years beginning after November 15,2007. We have adopted SFAS 159 and we do not plan to implement the fair valueoption provided in SFAS No. 159.

 

***Business Combinations.***    InDecember 2007, the FASB issued SFAS No. 141R, “Business Combinations,”which changes how business acquisitions are accounted for. SFAS No. 141Rrequires the acquiring entity in a business combination to recognize all (andonly) the assets acquired and liabilities assumed in the transaction andestablishes the acquisition-date fair value as the measurement objective forall assets acquired and liabilities assumed in a business combination. Certainprovisions of this standard will, among other things, impact the determinationof acquisition-date fair value of consideration paid in a business combination(including contingent consideration); exclude transaction costs fromacquisition accounting; and change accounting practices for acquiredcontingencies, acquisition-related restructuring costs, in-process research anddevelopment, indemnification assets, and tax benefits. SFAS No. 141R iseffective for business combinations and adjustments to an acquired entity’s deferredtax asset and liability balances occurring after December 31, 2008.

 

***Noncontrolling Interests in ConsolidatedFinancial Statements.***    In December 2007, the FASB issued SFAS No. 160,“Noncontrolling Interests in Consolidated Financial Statements, an amendment ofARB No. 51,” which establishes new standards governing the accounting forand reporting of noncontrolling interests (NCIs) in partially ownedconsolidated subsidiaries and the loss of control of subsidiaries. Certainprovisions of this standard indicate, among other things, that NCIs (previouslyreferred to as minority interests) be treated as a separate component ofequity, not as a liability; that increases and decrease in the parent’sownership interest that leave control intact be treated as equity transactions,rather than as step acquisitions or dilution gains or losses; and that lossesof a partially owned consolidated subsidiary be allocated to the NCI even whensuch allocation might result in a deficit balance. This standard also requireschanges to certain presentation and disclosure requirements. SFAS No. 160is effective beginning January 1, 2009. The provisions of the standard areto be applied to all NCIs prospectively, except for the presentation anddisclosure requirements, which are to be applied retrospectively to all periodspresented. The Company does not expect the future impacts and disclosures ofthis standard to have a material effect on its financial statements ordisclosures.

 

***Derivative Instruments and Hedging Activities.***    In March 2008,the FASB issued SFAS No. 161 “Disclosures about Derivative Instruments andHedging Activities an amendment of FASB Statement No. 133”. The newstandard requires additional disclosures regarding a company’s derivativeinstruments and hedging activities by requiring disclosure of the fair valuesof derivative instruments and their gains and losses in a tabular format. Thestandard is effective for our fiscal year and interim periods within such 

 

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year, beginning January 1, 2009, with earlyapplication encouraged. The impact from this standard is not expected to have amaterial impact on our current disclosures.

 

**11.****         ****EARNINGS PER SHARE**

 

Basicearnings per share include no dilution and are computed by dividing income orloss attributed to common stockholders by the weighted-average number of commonshares outstanding for the period. Diluted earnings per share reflect thepotential dilution that could occur if stock options were exercised orconverted into common stock.  Potentiallydilutive shares of 6,517,162 and 5,950,262 were excluded from the calculation ofearnings per share for the three and nine months ended September 30, 2008,respectively, because they were anti-dilutive due to our net loss position forthese periods.

 

**12.****         ****TERMINATION OF AGREEMENT TOPURCHASE RIO ALGOM MINING LLC**

 

InJune 2008, we decided along with Billiton Investment 15 B.V. to terminateour agreement to purchase Rio Algom Mining, LLC, which was entered into on October 12,2007.  In connection with the targetedacquisition, we incurred costs of $1.437 million dollars which were originallyrecorded as a pre-acquisition cost asset. Upon the termination of the agreement these pre-acquisition costs wereexpensed in the second quarter of 2008.

 

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**13.**          **COMMITMENTS AND CONTINGENCIES**

 

In June 2008, a suit for declaratory judgmenttitled, ***Saenz v. URI Inc.,*** was filedin the 105th Judicial District Court, Kleberg County, Texasby the owners of the mineral estate of property in Kleberg County, Texas leasedto the Company, seeking a declaratory judgment that a certain lease is limitedto one specific lot only and does not encompass other adjacent lands.  The Company has a lease on the adjacent landsfrom the same mineral owners and has produced over 340,000 pounds of uraniumfrom those lands in 2007 and 2008.  TheCompany entered a general denial of the claims. On September 24, 2008 the mineral owners amended their suit toinclude a declaration that the lease held by the Company on the adjacent landswas not valid.  The Company has entered ageneral denial to the amended complaint. On November 5, 2008, the Company engaged in mediation with theplaintiffs but was unable to resolve the matter.  The Company will defend the casevigorously.  While the Company believesthat the lease on the adjacent lands is valid, counsel to the Company is unableto predict the outcome of the litigation. A determination of invalidity of the lease on the adjacent lands onwhich the Company has previously produced uranium could have a material adverseaffect on the Company’s financial condition.

 

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

 

**ForwardLooking Statements**

 

Thefollowing summary is qualified in its entirety by, and should be read inconjunction with, the more detailed information and any financial dataincorporated herein by reference to the Company’s reports filed with theSecurities and Exchange Commission under the Securities Exchange Act of 1934.Except for historical information contained in this report, the mattersdiscussed herein contain forward-looking statements, made pursuant to the “safeharbor” provisions of the Private Securities Litigation Reform Act of 1995,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.

 

**Overview**

 

URI explores for and produces uranium in South Texas where it has threeoperations:  Kingsville Dome, Vasquez andRosita.  URI also has 101.2 millionpounds of in place mineralized uranium material on 180,000 acres in New Mexicoand a Nuclear Regulatory Commission license to mine uranium at our Churchrockproject in New Mexico.

 

Our strategy has been comprised of two fronts: advancing our New Mexicoassets towards production and rebuilding our reserve base in Texas in order tocontinue production that provides cash to fund operations.

 

Over the last year we have taken actions to execute our strategy andhave had to adjust appropriately as the market for uranium changed.  Our South Texas operations are heavilyinfluenced by the price of uranium both on the spot and long-term markets.  The spot price of uranium, which hasfluctuated in the last year from a high of $136.00 to a low of $44.00 in October 2008,has been the primary driver of the strategic decisions of the Company.  Similarly, published long-termcontract prices dropped from $82.50 at June 30, 2008 to $75.00 at September 30,2008 and $70.00 per pound at the end of October 2008.

 

While uranium prices have declined, the more recent wellfields that wehave brought on line this year have been of lower grade and had lower levels ofrecovery than previous wellfields resulting in lower production levels andhigher production costs in both dollars spent and on a per pound basis.  Falling prices and rising costs have led to adecline in margins to a level that we believe does not justify furtherwellfield development at any of our projects and, therefore, have deferred allactivities for delineating or developing wellfields until a stronger pricingenvironment is realized.

 

For the long term, we believe that the strong fundamentals of theuranium market will lead to a substantial recovery of prices over the nextseveral years.  Rising demand and theconsumption of inventories will lead to a measurable increase in the demand forprimary production in the next 20 years. To that end, we have adjusted our activities for the near term in orderto be in a strong position to achieve our strategic goals in the long term.

 

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*South Texas Production:*  At September 30, 2008, we had fiveoperating wellfields:  three atKingsville Dome, one at Vasquez and one at Rosita.  As of the end of October 2008, onewellfield at Kingsville Dome was shutdown after the depletion of reserves; aswas the last wellfield at Vasquez.  TheVasquez project has been depleted of economically recoverable reserves.

 

The Rosita wellfield, where oxygen injection started in June 2008,resulted in lowlevels of production using our standard in-situ recovery miningtechniques.  In late July, URI beganemploying a series of alternative operational strategies including the use ofvarious oxidants in an attempt to improve recovery levels.  In conjunction with this evaluation, aprogram of well reversals, where injection and extraction wells are alternated,was utilized.  While these tests didimprove production over previous levels, the higher cost of production combinedwith lower uranium prices did not allow the operation to continue on a positivecash basis and production was suspended in October 2008.  Although technically challenging, we believethe reserves from this wellfield can be produced economically at higher prices.

 

By the end of the first quarter of 2009 we expect all production willcease until there is a recovery in uranium prices.  For the period October 1, 2008 throughthe end of the first quarter of 2009, we anticipate production will beapproximately 45,000 to 60,000 pounds.

 

*Reserve development:*  A significant portion of thecash on hand at September 30, 2008 was generated from the $12.9 million innet proceeds received from the sale of common stock and warrants in a privateplacement in May 2008.  The equitywas raised to fund the acquisition, exploration, permitting and development ofnew and existing properties in South Texas to increase our resource base in aneffort to extend production at our Texas operations beyond 2009 and for generalcorporate purposes.  We conducteddrilling activities on several of our exploration targets during the last sixmonths, including 280 holes on the Marshall property, 100 holes at the SouthRosita property and 13 holes on the Cooke property.  Drilling on Marshall identified two areas ofinterest in four sands, and we are evaluating the potential uranium resource onthis project.  We also have completedsome initial drilling on the Mosser property. At Kingsville, we conductedexploration drilling on our potential extension to PAA2 (known as PAA2extension), but recently suspended drilling due to poor results.  A preliminary program to identify additionalores within PAA3 have had mixed results to-date and will be put on hold.  Due to higher costs combined with thegeologic and technical risk and unknown market risk, we have chosen to suspendour exploration activities until the economics justify further activity. We areseeking opportunities for the rights to potential uranium properties in SouthTexas in geographic areas that have historically held significant uraniumresources.  There is no assurance that wewill be successful in the acquisition of such properties, or if acquired, thatsuch properties will contain commercially viable uranium deposits.

 

*Liquidity -Cash Management:*  With the recognition that production andprices were declining during the second quarter of 2008, we began to reduce ourcost structure and reduced our employee base while implementing tighterspending controls and reducing public and government relations activities inNew Mexico and Texas.  As of mid October,we had reduced hourly and salary employment from 190 in May down to86.  Some of the effects of this activitywere realized in lower general and administrative costs in the third quarter of2008.  Since September, and the rapiddescent of uranium prices, we made the recent decisions to produce out theremaining operating wellfields and further reduce costs.  Our near term plans are to operate with acore group of key employees that will focus on reclamation, maintenance andregulatory requirements.  We will makeinternal operational changes to be able to move quickly to capitalize on ourassets as the uranium market improves. Our objective is to reduce our cash requirements to a level that allowsus to sustain our reclamation activities, continue our asset management andimplement structural changes as needed without requiring outside sources ofcapital over the next eighteen to twenty-four months.

 

**FinancialCondition and Results of Operations**

 

**Comparisonof Three and Nine Months Ended September 30, 2008 and 2007**

 

*Uranium Sales. *In the three months ended September 30,2008, we sold 66,300 pounds generating revenue of $4.025 million ($60.71 perpound), compared with sales of 127,800 pounds in the same period of 2007 forrevenue of $10.387 million ($81.25 per pound).  The decrease in salesrevenue was the result of both the decrease in pounds sold as well as thereduction in sales prices realized as a result of an overall decrease inuranium spot market prices in 2008 compared with 2007.  In the first nine months of 2008, we sold246,800 pounds generating revenue of $16.354 million ($66.28 per pound),compared with sales of 321,900 pounds in the same period of 2007 for revenue of$22.924 million ($71.22 per pound).  The decrease in sales revenueresulted from a decrease in the volume of pounds sold as well as a decrease inaverage sales price realized for our year to date 2008 sales.

 

*Production and production costs. *In the three months ended September 30,2008, we produced 62,700 pounds.  The Kingsville Dome project produced45,200 pounds, the Vasquez project produced 9,800 pounds and the Rosita projectproduced 7,700 pounds.  This compares with production in the secondquarter of 2008 which was 113,500 pounds. Production in the third quarter of 2007 totaled 103,800 pounds, of which98,000 pounds were from Kingsville Dome and 5,800 pounds were from Vasquez.

 

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Inthe first nine months of 2008, we produced 259,600 pounds.  The KingsvilleDome project produced 218,100 pounds, the Vasquez project produced 33,800pounds and the Rosita project produced 7,700 pounds.  This compares withproduction in the first nine months of 2007 which was 348,600 pounds of which278,300 pounds were from Kingsville Dome and 70,300 pounds were from Vasquez.

 

Thethird quarter 2008 production downturn was caused by lower levels of productionat Kingsville Dome and Vasquez from less prolific wellfields brought on in 2008to replace depleted wellfields from 2007 coupled with a lack of development of,and production from additional wellfields during the quarter at theseprojects.  These lower quality wellfieldsrequire are also more costly as they require a greater number of operatingwells in order to maintain the targeted flow rates for each wellfield.  Typically, production levels for projects aremaintained by commencing production from new wellfields at the stage whereproduction from older wellfields are declining as a result of these wellfieldsbeing in the latter stages of their production cycle.  The decision was made to defer thecommencement of production at new wellfields at Kingsville Dome because of theincreased cost of production seen from this project’s most recent wellfieldsconsidered with the current and near to mid-term market prices projections foruranium prices.  With our unit productioncosts increasing and sales prices declining, the decision was made to delayadditional capital development necessary to bring on new wellfields until uraniummarket prices rebound to more profitable levels.

 

Inaddition, we began injecting oxygen into the production wells at our Rositaproject in late June 2008 and based upon the results we determined thatthe standard ISR production techniques employed at Rosita producedunsatisfactory results.  In an attempt toincrease recoveries, we reworked a number of wells to increase the flow ratesin the wellfield and conducted a series of alternative operational strategiesto increase production efficiencies. While these techniques have demonstrated an increase in uraniumproduction concentrations, the overall wellfields have shown uranium recoveriesthat are below originally projected amounts and at increased costs.  As a result of the increase in Rositaproduction costs and the decreases seen in uranium market prices, the decisionhas been made to suspend production at Rosita until uranium prices increase andproduction is economically justified. The timing of additional production andprojected quantities from Rosita is currently uncertain.

 

Thefollowing table details our production and production cost breakdown for thethree and nine months ended September 30, 2008 and 2007.

 
| ** **                         | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                         | ** ** | **2008**                                             | ** ** | **2007**                                            | ** ** | **2008** | ** ** | **2007** | ** ** |
| **Kingsville  Dome production**    |       | 45,200                                               |       | 98,000                                              |       | 218,100 |   | 278,300 |   |
|                               |       |                                                 |       |                                                |       |   |   |   |   |
| **Vasquez  production**            |       | 9,800                                                |       | 5,800                                               |       | 33,800 |   | 70,300 |   |
|                               |       |                                                 |       |                                                |       |   |   |   |   |
| **Rosita  production**             |       | 7,700                                                |       | —                                              |       | 7,700 |   | — |   |
|                               |       |                                                 |       |                                                |       |   |   |   |   |
| **Total  production**              |       | 62,700                                               |       | 103,800                                             |       | 259,600 |   | 348,600 |   |
|                               |       |                                                 |       |                                                |       |   |   |   |   |
| Total operating  costs             |       | $                                                    | 2,181,000  |                                                | $          | 1,867,000 |   | $ | 6,030,000 |   | $ | 5,165,000 |   |
| Per pound  operating costs         |       | $                                                    | 34.78      |                                                | $          | 18.00 |   | $ | 23.23 |   | $ | 14.81 |   |
| Total  deprec. and depletion costs |       | $                                                    | 2,115,000  |                                                | $          | 1,081,000 |   | $ | 6,959,000 |   | $ | 5,312,000 |   |
| Per pound  DD&A cost           |       | $                                                    | 33.74      |                                                | $          | 10.42 |   | $ | 26.81 |   | $ | 15.24 |   |
| Total  production cost             |       | $                                                    | 4,296,000  |                                                | $          | 2,948,000 |   | $ | 12,989,000 |   | $ | 10,477,000 |   |
| Production  cost per pound         |       | $                                                    | 68.52      |                                                | $          | 28.41 |   | $ | 50.04 |   | $ | 30.05 |   |

 

Total operating costs, total depreciation and depletion costs and totalproduction costs incurred for the periods presented above differ from the costof uranium sales recorded in consolidated statements of operations because ofchanges in the amounts recorded to inventory for the same periods.  Thecost of uranium sales includes the sales of uranium inventory on hand at thebeginning of the period and does not include certain uranium produced duringthe period that was not sold at period end.

 

Reconciliationof production costs to cost of uranium sales:

 
| ** **                                              | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|---------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                              | ** ** | **2008**                                             | ** ** | **2007**                                            | ** ** | **2008** | ** ** | **2007** | ** ** |
| Operating  costs                                        |       | $                                                    | 2,181,000  |                                                | $          | 1,867,000 |   | $ | 6,030,000 |   | $ | 5,165,000 |   |
| Change in  uranium inventory                            |       | (429,000                                             | )          | 131,000                                             |       | (340,000 | )  | 176,000 |   |
| Operating  expense for uranium production sold          |       | $                                                    | 1,752,000  |                                                | $          | 1,998,000 |   | $ | 5,690,000 |   | $ | 5,341,000 |   |
| Depreciation  and depletion costs                       |       | $                                                    | 2,115,000  |                                                | $          | 1,081,000 |   | $ | 6,959,000 |   | $ | 5,312,000 |   |
| Change in  uranium inventory                            |       | (241,000                                             | )          | 347,000                                             |       | (840,000 | ) | (585,000 | ) |
| Depreciation  and depletion for uranium production sold |       | $                                                    | 1,874,000  |                                                | $          | 1,428,000 |   | $ | 6,119,000 |   | $ | 4,727,000 |   |
| Total  production costs                                 |       | $                                                    | 4,296,000  |                                                | $          | 2,948,000 |   | $ | 12,989,000 |   | $ | 10,477,000 |   |
| Change in  uranium inventory                            |       | (670,000                                             | )          | 479,000                                             |       | (1,180,000 | ) | (409,000 | ) |
| Direct cost  of uranium production sold                 |       | $                                                    | 3,626,000  |                                                | $          | 3,427,000 |   | $ | 11,809,000 |   | $ | 10,068,000 |   |

 

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* *

*Cost of Uranium Sales. *The total cost of uranium sales in the firstnine months of 2008 was $26.4 million compared with $13.2 million in the sameperiod of 2007.  Included in the totalcosts of uranium sales in the 2008 nine-month period was $11.2 million ofimpairment charges related to the reduction in value of uranium assets due tothe decline in uranium prices.  Totalcost of uranium sales includes royalties and commissions related to our uraniumsales, production costs, including operating expenses, depreciation and depletionexpenses, amortization of our restoration and reclamation cost estimates, costsrelated to evaluation of the realizability of our uranium properties andexploration costs.

 

Thefollowing table details the direct cost of uranium sold and royalties andcommissions for the three and nine months ended September 30, 2008 and2007:

 
| ** **                              | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|-----------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                              | ** ** | **2008**                                             | ** ** | **2007**                                            | ** ** | **2008** | ** ** | **2007** | ** ** |
| **Total  pounds sold**                  |       | 66,300                                               |       | 127,800                                             |       | 246,800 |   | 321,900 |   |
| Total  operating expenses               |       | $                                                    | 1,752,000  |                                                | $          | 1,998,000 |   | $ | 5,690,000 |   | $ | 5,341,000 |   |
| Per pound  operating expense            |       | $                                                    | 26.42      |                                                | $          | 15.63 |   | $ | 23.06 |   | $ | 16.60 |   |
| Depreciation  and depletion             |       | $                                                    | 1,874,000  |                                                | $          | 1,428,000 |   | $ | 6,119,000 |   | $ | 4,727,000 |   |
| Per pound  DD&A expense             |       | $                                                    | 28.27      |                                                | $          | 11.17 |   | $ | 24.80 |   | $ | 14.68 |   |
| Direct cost  of uranium production sold |       | $                                                    | 3,626,000  |                                                | $          | 3,427,000 |   | $ | 11,809,000 |   | $ | 10,068,000 |   |
| Direct cost  of sales per pound         |       | $                                                    | 54.69      |                                                | $          | 26.80 |   | $ | 47.86 |   | $ | 31.28 |   |
|                                    |       |                                                 |       |                                                |       |   |   |   |   |
| **Royalties  and commissions**          |       | $                                                    | 369,000    |                                                | $          | 1,297,000 |   | $ | 1,506,000 |   | $ | 2,718,000 |   |
| Royalties  and commissions per pound    |       | $                                                    | 5.56       |                                                | $          | 10.14 |   | $ | 6.10 |   | $ | 8.44 |   |

 

Wesaw an increase in our overall production costs and cost of sales in the thirdquarter of 2008 compared with the second quarter of 2008 and the third quarterof 2007.  The increased production coststhis quarter were caused by continued production at Kingsville Dome and Vasquezfrom our less prolific wellfields coupled with a lack of development of, andproduction from, new wellfields during the quarter at these projects.  This increase was seen in both the operatingcosts and in the depreciation and depletion costs for the quarter.  Additionally, production costs at our Rositaproject were very high in relation to the amount of uranium production receivedduring the quarter and was caused by the need to employ a series of alternativeoperational strategies in an attempt to increase recoveries and reduceproduction costs.  The implementation andtesting of these various techniques cost approximately $575,000 in operatingcosts in the third quarter of 2008, whereas Rosita production for the quarterwas only 7,700 pounds.  Depreciation anddepletion production costs at Rosita were higher than similar capital costs atKingsville Dome and Vasquez which contributed to the increase seen inproduction costs for the current quarter.

 

Ouraverage cost of pounds sold in the quarter ended September 30, 2008 was$54.70 per pound with Kingsville Dome production contributing approximately 76%of total pounds sold during the quarter and Vasquez and Rosita pounds totalingapproximately 19% and 5%, respectively. Included in the cost of goods sold for the quarter was a lower of costor market (“LCM”) adjustment to uranium inventories of $283,000 ($4.27 per pound).

 

Averagecost of pounds sold in the first nine months of 2008 was $47.86 per pound withKingsville Dome production contributing approximately 85% of total pounds soldduring the period and Vasquez and Rosita pounds totaling approximately 13% and2%, respectively.  The higher costs inthe quarter ended September 30, 2008 and the first nine months of 2008compared with the same periods in 2007 resulted from the same reasons we sawour increased production costs in the current year.  Included in the cost of goods sold for theperiod was a LCM adjustment to uranium inventories of $283,000 ($1.15 perpound).

 

*Royalties and Commissions.*    During the first ninemonths of 2008, royalties and commissions for Vasquez and Kingsville Domeproduction sold totaled $1.5 million, representing 9.2% of sales.  During the same period of 2007, royalties andcommissions for Vasquez and Kingsville Dome production sold were $2.7 million,or 11.9% of sales.  The decline wasdirectly the result of lower sales volumes and lower sales prices.

 

*Operating Expenses.*    During the first nine months of 2008, operatingexpenses for Kingsville Dome, Vasquez and Rosita  production sold were $5.7 million.  This includes approximately $536,000 ofpre-production costs related to our Vasquez and Rosita projects.  During the first nine months of 2007,operating expenses for Vasquez and Kingsville Dome production sold was 

 

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$5.3 million which includes pre-productioncosts at the Rosita project of $125,000. As a result of our efforts to reduce our costs, operating expenses inthe third quarter of 2008 were down $247,000 from the 2007 third quarter.

 

*Depreciation and Depletion.*    During the first ninemonths of 2008, we incurred depreciation and depletion expense attributable toour Vasquez and Kingsville Dome production of $6.1 million.  During the same period in 2007, we incurreddepreciation and depletion expense attributable to our Vasquez and KingsvilleDome production of $4.7 million. The increase in expense was directly the result of our higher capitalcosts for production year over year.

 

*Accretion and Amortization of Future Restoration Costs.*    Accretion andamortization of future restoration costs in the first nine months of 2008 and2007 was $589,000 and $433,000, respectively and resulted from increases in ourestimates for future asset retirement obligations (ARO’s) related to our futurerestorations and reclamation costs.

 

*Impairment of Uranium Properties.*    At September 30,2008, we determined the carrying value of our uranium properties exceeded theirfair value as provided in SFAS 144 “Accounting for the Impairment orDisposal of Long-Lived Assets”. Such determination resulted in an impairmentprovision of approximately $11.2 million for the first nine months of 2008,$10.9 million of which was recorded in the third quarter.  The impairment provision recorded in thethird quarter was approximately $4.6 million for the Kingsville Dome projectand $6.3 million for the Rosita project. The impairment provision recorded for the Vasquez project wasapproximately $298,000 for the nine months ended September 30, 2008.  (see Note 4. Uranium Properties – Impairment of Uranium Properties)

 

*General and Administrative Charges.*   We incurred general and administrative charges and corporatedepreciation of $2.1 million and $3.6 million, respectively in the three monthsended September 30, 2008 and 2007 and $7.9 million and $8.3 million,respectively in the nine months ended September 30, 2008 and 2007.

 

Significantexpenditures for general and administrative expenses for the three and ninemonths ended September 30, 2008 and 2007 were:

 
| ** **                                  | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|---------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                  | ** ** | **2008**                                             | ** ** | **2007**                                            | ** ** | **2008** | ** ** | **2007** | ** ** |
| Stock  compensation expense                 |       | $                                                    | 297,000    |                                                | $          | 1,636,000 |   | $ | 1,847,000 |   | $ | 3,192,000 |   |
| Salaries and  payroll burden                |       | 747,000                                              |       | 592,000                                             |       | 2,408,000 |   | 1,714,000 |   |
| Legal,  accounting, public company expenses |       | 249,000                                              |       | 396,000                                             |       | 1,016,000 |   | 1,233,000 |   |
| Insurance  and bank fees                    |       | 256,000                                              |       | 224,000                                             |       | 544,000 |   | 495,000 |   |
| Consulting  and professional services       |       | 261,000                                              |       | 485,000                                             |       | 1,201,000 |   | 1,010,000 |   |
| Office,  travel and other expenses          |       | 232,000                                              |       | 243,000                                             |       | 816,000 |   | 623,000 |   |
|                                        |       |                                                 |       |                                                |       |   |   |   |   |
| Total                                       |       | $                                                    | 2,042,000  |                                                | $          | 3,576,000 |   | $ | 7,832,000 |   | $ | 8,267,000 |   |

 

Thenon-cash stock compensation expense recorded for the quarter and nine monthsended September 30, 2008 and 2007 was from the recognition of expenserelated to the Company’s stock option and restricted stock grants.  The decline in this expense reflects thetiming and number of option grants made in 2007 and the lower price of theCompany’s stock relative to the historic periods.

 

Salaryand payroll costs increases for the nine months presented resulted primarilyfrom additional salaried positions in South Texas and New Mexico in the firstnine months of 2008 compared with the same period in 2007.

 

Thereduction in the Company’s legal, accounting and public company expenses in thefirst nine months of 2008 compared with 2007 resulted primarily from loweraudit and consulting fees related to Sarbanes-Oxley compliance for ongoingevaluation activities incurred in 2008 compared with certain early 2007 costsfor initial year compliance implementation.

 

Thecosts for consulting and professional services increased in nine months ended September 30,2008 compared with 2007 and resulted from work performed in the review andassessment of our New Mexico property data bases to evaluate their potentialas conventional mining projects and other costs related to communityoutreach and information campaigns designed to enhance public awareness of ourplanned New Mexico operations.  We alsoincurred increased costs for environmental, health and safety training,investor relations and media relations activities and for human resources andcomputer networking consultants. Consulting and professional services fees declined 46%, or $224,000, inthe third quarter of 2008 compared with the third quarter of 2009 as a resultof our concerted effort to reduce costs.

 

Increasedoffice, travel and other expenses incurred in the nine months ended September 30,2008 compared with 2007 resulted primarily from the opening of a corporateoffice location in Albuquerque, New Mexico in October 2007, the move ofthe 

 

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corporate headquarters to larger office space in September 2007and increases in the South Texas Kingsville Dome operations office resultingfrom personnel additions.

 

Beginningin June and July 2008, we began implementing an aggressive costreduction plan in order to lower our overhead cost structure.  Cost reductions included consolidation of ourSouth Texas operations into Kingsville Dome resulting in the closure of ourCorpus Christi office, reducing personnel, reducing legal fees and consultingand professional services and instituting tighter cost discipline throughoutthe organization.

 

*Write-off of Target Acquisition Costs. * In June 2008,we decided along with Billiton Investment 15 B.V. to terminate our agreement topurchase Rio Algom Mining, LLC, which was entered into on October 12,2007.  In connection with the targetedacquisition, we incurred costs of $1.437 million dollars which were originallyrecorded as a pre-acquisition cost asset. Upon the termination of the agreement these pre-acquisition costs wereexpensed in the second quarter of 2008.

 

*Net Losses.*For the three months ended September 30, 2008 we had a net loss of$14.0 million compared to net income in 2007 of $2.2 million.  For first nine months of 2008 and 2007 we hada net loss of $19.0 million and net income of $1.9 million, respectively.

 

*Cash Flow. *At of September 30, 2008 we had a cash balance of approximately$13.0 million compared with $13.9 million at the same date in 2007.

 

Inthe first nine months of 2008, we had net cash flow provided by operations of$1.3 million.  We used $10.4 million ininvesting activities during the first nine months of 2008.  We increasedthe collateral supporting our South Texas financial surety requirements by$508,000 and also made significant additions to our South Texas and New Mexicoproperty, plant and equipment of $9.9 million during the period.  Theseexpenditures were primarily for wellfield development, evaluation drilling andplant and dryer upgrades at Kingsville Dome of $3.4 million and wellfield development,evaluation drilling and plant and dryer upgrades at Rosita of $4.4 million,additional wellfield development at Vasquez of $226,000, New Mexico propertyadditions of $480,000 and other Texas property and other assets of $1,036,000.

 

Inthe first nine months of 2007, we had positive cash flow provided by operationsof $10.3 million, resulting primarily from the higher volume of uranium soldand the increase in sales prices received under our uranium sales contractsthat were amended in March 2006.  We used $17.2 million in investingactivities during the first nine months of 2007.  These expenditures wereprimarily for wellfield development, evaluation drilling capital and plant anddryer upgrades at Kingsville Dome of $5.7 million, plant and equipmentexpenditures for restoration start-up at Vasquez of $541,000, Rosita and RositaSouth project expenditures for wellfield development, evaluation drillingcapital and plant and dryer upgrades of $5.3 million, other Texas property andother assets of $2.3 million and property additions in New Mexico of $592,000primarily for license and permitting activities.  We also increased the collateral supportingour South Texas financial surety requirements by $2.9 million during the ninemonths ended September 30, 2008.

 

**Liquidity—CashSources and Uses for 2008**

 

Asof September 30, 2008, the Company had $13.0 million in cash. Asignificant portion of the cash we had at September 30, 2008 was from theprivate placement in May 2008 which raised approximately $12.9 million innet proceeds.  As a result of the Company’saggressive cost reduction activities, changes in wellfield development plansand reduced capital spending, management believes that the cash balance of$13.0 million at September 30, 2008 and the cash expected to be providedthrough operations in 2008 and early 2009 will be sufficient to maintain itsliquidity for the next eighteen to twenty-four months. 

 

**ContingentLiabilities—Off Balance Sheet Arrangements**

 

TheCompany has obtained financial surety relating to certain of its futurerestoration and reclamation obligations as required by the State of Texasregulatory agencies. The Company has bank Letters of Credit (the “L/C’s) andperformance bonds issued for the benefit of the Company to satisfy such regulatoryrequirements. The L/C’s were issued by Bank of America and the performancebonds have been issued by United States Fidelity and Guaranty Company (“USF&G”).L/C’s for $5.6 million and $5.4 million were issued at September 30, 2008and December 31, 2007, respectively, such L/C’s are collateralized intheir entirety by certificates of deposit.

 

Performancebonds totaling $2.8 million were issued for the benefit of the Company at September 30,2008 and December 31, 2007. USF&G has required that the Companydeposit funds collateralizing a portion of the bonds. The amount of bondingissued by USF&G exceeded the amount of collateral by $2.5 million at September 30,2008 and December 31, 2007, respectively. In the event that USF&G isrequired to perform under its bonds or the bonds are called by the stateagencies, the Company would be obligated to pay any expenditure in excess ofthe collateral.

 

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**CriticalAccounting Policies**

 

Oursignificant accounting policies are described in Note 2 to the consolidatedfinancial statements included in the Company’s 2007 Annual Report on Form 10-K/A. We believe our most critical accounting policies involve those requiring theuse of significant estimates and assumptions in determining values orprojecting future costs.

 

Specificallyregarding our uranium properties, significant estimates were utilized indetermining the carrying value of these assets. These assets have been recordedat their estimated net realizable value for impairment purposes on aliquidation basis, which is less than our cost. The actual value realized fromthese assets may vary significantly from these estimates based upon marketconditions, financing availability and other factors.

 

Regardingour reserve for future restoration and reclamation costs, significant estimateswere utilized in determining the future costs to complete the groundwaterrestoration and surface reclamation at our mine sites.  The actual cost toconduct these activities may vary significantly from these estimates.

 

Suchestimates and assumptions affect the reported amounts of assets and liabilitiesand disclosure of contingent assets and liabilities at the date of thefinancial statements and the reported amounts of expenses during the reportingperiod.

 

**ITEM 3.****                 ****QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK**

 

**UraniumPrice Volatility**

 

TheCompany is subject to market risk related to the market price of uranium. TheCompany’s cash flow has historically been dependent on the price of uranium,which is determined primarily by global supply and demand, relative to theCompany’s costs of production. Historically, uranium prices have been subjectto fluctuation, and the price of uranium has been and will continue to beaffected by numerous factors beyond the Company’s control, including the demandfor nuclear power, political and economic conditions, and governmentallegislation in uranium producing and consuming countries and production levelsand costs of production of other producing companies.

 

Thespot market price for uranium has demonstrated a large range since January 2001.Prices have risen from $7.10 per pound at January 2001 to a high of$138.00 per pound in June 2007 and were $46.00 per pound as of November 4,2008.

 

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**ITEM 4.****                                                    ****CONTROLS AND PROCEDURES**

 

Duringthe year ended December 31, 2007 and the nine months ended September 30,2008, the Company’s management, with the participation of the Chief ExecutiveOfficer and Chief Financial Officer of the Company, carried out an evaluationof the effectiveness of the design and operation of the Company’s disclosurecontrols and procedures (as defined in Rules 13a-15(e) and 15d-15(e) ofthe Securities Exchange Act of 1934, as amended (the “Exchange Act”)).

 

Basedon that evaluation, our Chief Executive Officer and Chief Financial Officerconcluded that our disclosure controls and procedures as of December 31,2007 and September 30, 2008 were effective.

 

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

 

TheCompany’s management assessed the effectiveness of the Company’s internalcontrol over financial reporting as of December 31, 2007.  In making this assessment, the Company’smanagement used the criteria set forth by the Committee of SponsoringOrganizations of the Treadway Commission (COSO) in *Internal Control-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/A for theyear ended December 31, 2007. As a result of these assessments managementconcluded that our internal controls over financial reporting were effective asof December 31, 2007.

 

**Changes inInternal Controls**

 

Duringthe first nine months of 2008 no material changes have been made in ourinternal control over financial reporting that may have materially affected, orare reasonably likely to materially affect, our internal control over financialreporting.

 

**PART II - OTHER INFORMATION**

 

**ITEM 1.****                            ****LEGAL PROCEEDINGS**

 

In June, 2008 a suit for declaratory judgment titled, ***Saenz v. URI Inc.,*** was filed in the105th JudicialDistrict Court, Kleberg County, Texas by the owners of the mineral estate ofproperty in Kleberg County, Texas leased to the Company, seeking a declaratoryjudgment that a certain lease is limited to one specific lot only and does notencompass other adjacent lands.  TheCompany has a lease on the adjacent lands from the same mineral owners and hasproduced over 340,000 pounds of uranium from those lands in 2007 and 2008.  The Company entered a general denial of theclaims.  On September 24, 2008 themineral owners amended their suit to include a declaration that the lease heldby the Company on the adjacent lands was not valid.  The Company has entered a general denial tothe amended complaint.  On November 5,2008, the Company engaged in mediation with the plaintiffs but was unable toresolve the matter.  The Company willdefend the case vigorously.  While theCompany believes that the lease on the adjacent lands is valid, counsel to theCompany is unable to predict the outcome of the litigation.  A determination of invalidity of the lease onthe adjacent lands on which the Company has previously produced uranium couldhave a material adverse affect on the Company’s financial condition

 

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

 

**Over 51.7%of our shares of Common Stock are controlled by Principal Stockholders andManagement.**

 

Approximately40.9% of our Common Stock is controlled by four stockholders of record. Inaddition, our directors and officers are the beneficial owners of about 10.8%of our Common Stock. This includes with respect to both groups shares that maybe purchased upon the exercise of outstanding options. Such ownership by theCompany’s principal shareholders, executive officers and directors may have theeffect of delaying, deferring, preventing or facilitating a sale of the Companyor a business combination with a third party.

 

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

 

**ITEM 2.****                            ****UNREGISTERED SALES OF EQUITYSECURITIES AND USE OF PROCEEDS**

 

Previouslyreported on Form 8-K dated May 19, 2008.

 

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**ITEM 3.****                            ****DEFAULTS UPON SENIORSECURITIES.**

 

None

 

**ITEM 4.****                            ****SUBMISSION OF MATTERS TO AVOTE OF SECURITY HOLDERS.**

 

None

 

**ITEM 5.****                            ****OTHER INFORMATION.**

 

None

 

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

 

Seethe Index to Exhibits on Page E-1 for a listing of the exhibits that arefiled as part of this Quarterly Report.

 

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**SIGNATURES**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 
| ** **                          | **URANIUM  RESOURCES, INC.** |
|-------------------------------------|------------------------------|
|                                |                         |   |
| Dated: November 10,  2008      | By:                          | /s/ David N. Clark |
|                                |                         | David N. Clark |
|                                |                         | Director and |
|                                |                         | Chief Executive Officer |
|                                |                         |   |
| Dated: November 10,  2008 | By:                          | /s/ Thomas H. Ehrlich |
|                                |                         | Thomas H. Ehrlich |
|                                |                         | Vice President - Finance  and |
|                                |                         | Chief Financial Officer |
|                                |                         | (Principal Financial  and Accounting Officer) |

 

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**EXHIBIT INDEX**

 
| **Exhibit  Number** | ** ** | **Description**                                                                                                                                                                                                                                   |
|---------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1*                |       | Restated Certificate of  Incorporation of the Company, dated February 15, 2004 (filed with the  Company’s Registration Statement on Form SB-2 dated July 26, 2004,  SEC File Number 333-117653).                              |
|                |       |                                                                                                                                                                                                                                              |
| 3.1.1*              |       | Certificate of Amendment  of Restated Certificate of Incorporation of the Company (filed with the  Company’s Form 8-K dated April 11, 2006, SEC File Number  000-17171).                                                           |
|                |       |                                                                                                                                                                                                                                              |
| 3.2*                |       | Restated Bylaws of the  Company (filed with the Company’s Form 8-K on April 14, 2005).                                                                                                                                             |
|                |       |                                                                                                                                                                                                                                              |
| 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).                                                                                 |
|                |       |                                                                                                                                                                                                                                              |
| 10.3*               |       | Amended and restated 1995  Stock Incentive Plan (filed with the Company’s Form SB-2 Registration No. 333-117653  on July 26, 2005).                                                                                           |
|                |       |                                                                                                                                                                                                                                              |
| 10.5*               |       | 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). |
|                |       |                                                                                                                                                                                                                                              |
| 10.12*              |       | 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).                                    |
|                |       |                                                                                                                                                                                                                                              |
| 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).                                                      |

 

E-1

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Table of Contents

 
| 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). |
|----------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|     |   |                                                                                                                                                                                                                                                                                                   |
| 10.28*   |   | 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).                                   |
|     |   |                                                                                                                                                                                                                                                                                                   |
| 10.33*   |   | 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 (filed with the Company’s Form 10-Q dated May 10,  2007, SEC File No. 000-17171).                                                                                                                                         |
|     |   |                                                                                                                                                                                                                                                                                                   |
| 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. |
|---|-------------------------------------------------------------------------------------------------------------------------|

 

E-2

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