UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 001-34487
LIGHTBRIDGE CORPORATION
(Exact name of registrant as specified in its charter)
Nevada
(State or other jurisdiction of
incorporation or organization)
91-1975651
(I.R.S. Employer
Identification No.)
11710 Plaza America Drive, Suite 2000 Reston, VA 20190
(Address of principal executive offices) (Zip Code)
(571) 730-1200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.001 par value
Name of each exchange on which registered
The Nasdaq Capital Market
____________________________________________________________
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth
company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
Non-Accelerated Filer
(Do not check if a smaller reporting company)
¨
¨
Accelerated Filer
Smaller reporting company
Emerging growth company
¨
x
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
At June 30, 2017, the aggregate market value of shares held by non-affiliates of the registrant (based upon the closing sale price of such shares on the
Nasdaq Capital Market on June 30, 2017) was $16,817,767
At March 8, 2018 there were 22,829,365 shares of the registrant’s common stock issued and outstanding.
LIGHTBRIDGE CORPORATION
FORM 10-K
For the Fiscal Year Ended December 31, 2017
TABLE OF CONTENTS
PART I
PART II
Business
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 5
Item 6.
Item 7.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Item 8.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 10.
Item 11.
Item 12.
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
PART III
Item 13.
Item 14.
Certain Relationships and Related Transactions
Principal Accountant Fees and Services
Item 15.
Item 16.
Exhibits and Financial Statement Schedules
Form 10-K Summary
PART IV
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FORWARD-LOOKING STATEMENTS
In addition to historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact are statements that
could be deemed forward-looking statements. We use words such as “believe”, “expect”, “anticipate”, “project”, “target”, “plan”, “optimistic”, “intend”,
“aim”, “will”, or similar expressions which are intended to identify forward-looking statements. Such statements include, among others, (1) those
concerning market and business segment growth, demand and acceptance of our nuclear energy consulting services and nuclear fuel technology business,
(2) any projections of sales, earnings, revenue, margins or other financial items, (3) any statements of the plans, strategies and objectives of management
for future operations and the timing of the development of our nuclear fuel technology, (4) any statements regarding future economic conditions or
performance, (5) uncertainties related to conducting business in foreign countries, (6) any statements about future financings and liquidity, (7) any
statement about the timing or success of entering into a potential joint venture as well as (8) all assumptions, expectations, predictions, intentions or
beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and
uncertainties, as well as assumptions that if they were to ever materialize or prove incorrect, could cause the results of the Company to differ materially
from those expressed or implied by such forward-looking statements. Such risks and uncertainties, among others, include:
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our ability to commercialize our nuclear fuel technology, including risks related to the design and testing of nuclear fuel incorporating our
technology,
the realization of expected benefits from Enfission, LLC, our joint venture with Framatome, Inc., and our future collaboration with
Framatome,
our ability to attract new customers,
our ability to employ and retain qualified employees and consultants that have experience in the nuclear industry,
competition and competitive factors in the markets in which we compete,
public perception of nuclear energy generally,
general economic and business conditions in the local economies in which we regularly conduct business, which can affect demand for the
Company’s services,
changes in laws, rules and regulations governing our business,
development and utilization of, and challenges to, our intellectual property,
potential and contingent liabilities, and
the risks identified in Item 1A. “Risk Factors” included herein and in our Form 10-K filing.
Most of these factors are beyond our ability to predict or control. Future events and actual results could differ materially from those set forth in,
contemplated by or underlying the forward-looking statements. Forward-looking statements speak only as of the date on which they are made. The
Company assumes no obligation and does not intend to update these forward-looking statements, except as required by law.
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ITEM 1. DESCRIPTION OF BUSINESS
PART I
When used in this Annual Report on Form 10-K, the terms “Lightbridge”, the “Company”, “we”, “our”, and “us” refer to Lightbridge Corporation
together with its wholly-owned subsidiaries Lightbridge International Holding LLC and Thorium Power Inc.
Company Overview
Lightbridge is a leading nuclear fuel technology company. Our primary focus is the development and commercialization of next generation nuclear fuel
that will significantly improve the economics and safety of existing and new reactors, with a meaningful impact on addressing climate change and air
pollution challenges. We believe our nuclear fuel technology has the potential to enhance reactor safety and the proliferation resistance of spent fuel and
increase the power output of commercial reactors, reducing the cost of generating electricity and the amount of nuclear waste per unit of electricity
generated.
We will conduct our business in 2018 principally through Enfission, LLC (“Enfission”), our 50/50 joint venture with Framatome, which was formed on
January 24, 2018, for the development, regulatory licensing, fabrication, and sale of nuclear fuel assemblies based on Lightbridge-designed metallic fuel
technology and other advanced nuclear fuel intellectual property. Enfission serves as our exclusive vehicle for the development of manufacturing
processes and fuel assembly designs for pressurized water reactors and boiling water reactors, which collectively constitute most of the power reactors in
the world, as well as water-cooled small modular reactors and water-cooled research reactors. In addition to our nuclear fuel technology segment, we also
opportunistically provide nuclear power consulting and strategic advisory services to commercial and governmental entities worldwide.
We were incorporated under the laws of the State of Nevada on February 2, 1999. Our principal executive offices are located at 11710 Plaza America
Drive, Suite 2000, Reston, Virginia 20190 USA.
Overview of Our Next Generation Nuclear Fuel
Since the founding of our company, we have been engaged in the design and development of proprietary, innovative nuclear fuels to improve the cost
competitiveness, safety, proliferation resistance and performance of nuclear power generation. Since 2010 we have focused on the development of all-
metal fuel (i.e., non-oxide fuel) for currently operating as well as new-build reactors. Our focus on metallic fuel is based on listening to the voices of
prospective customers, as nuclear utilities have expressed interest in the improved economics and enhanced safety that metallic fuel can provide.
The fuel in a nuclear reactor generates heat energy. That heat is then converted through steam into electricity that is sold. We have designed our
innovative, proprietary metallic fuels to be capable of significantly higher burnup and power density compared to conventional oxide fuels. Burnup is the
total amount of electricity generated per unit mass of nuclear fuel and is a function of the power density of a nuclear fuel and the amount of time the fuel
operates in the reactor. Power density is the amount of heat power generated per unit volume of nuclear fuel. Conventional oxide fuel used in existing
commercial reactors is approaching the limits of its burnup and power density capability. As a result, further optimization to increase power output from
the same core size and improve the economics and safety of nuclear power generation using conventional oxide fuel technologies is limited.
As the nuclear industry prepares to meet the increasing global demand for electricity production, longer operating cycles and higher reactor power outputs
have become a much sought-after solution for the current and future reactor fleet. We believe our proprietary nuclear fuel designs have the potential to
significantly enhance the nuclear power industry’s economics by:
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providing an increase in power output of potentially up to 10% while simultaneously extending the operating cycle length from 18 to 24
months in existing pressurized water reactors (PWRs), including in Westinghouse-type four-loop PWR plants which are currently constrained
to an 18-month operating cycle by oxide fuel, or increasing the power potentially up to 17% while retaining an 18-month operating cycle;
enabling increased reactor power output via a power uprate (potentially up to 30% increase) or a longer operating cycle (instead of a power
uprate) without changing the core size in new build PWRs; and
reducing the volume of spent fuel per kilowatt-hour as well as enhancing proliferation resistance of spent fuel.
We believe our fuel designs will allow current and new build nuclear reactors to safely increase power production and reduce operations and maintenance
costs on a per kilowatt-hour basis. New build nuclear reactors could also benefit from the reduced upfront capital investment per kilowatt of generating
capacity in case of implementing a power uprate. In addition to the projected electricity production cost savings, we believe that our technology can result
in utilities or countries needing to deploy fewer new reactors to generate the same amount of electricity (in case of a power uprate), resulting in significant
capital cost savings. For utilities or countries that already have operating reactors, our technology could be utilized to increase the power output of those
reactors as opposed to building new reactors. Further, we believe that the fuel fabrication or manufacturing process for this new fuel design is simpler,
which we expect could lower fuel fabrication costs.
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Due to the significantly lower fuel operating temperature, our metallic nuclear fuel rods are also expected to provide major improvements to safety
margins during off-normal events. US Nuclear Regulatory Commission licensing processes require engineering analysis of a large break loss-of-coolant
accident (LOCA), as well as many other scenarios. The LOCA scenario assumes failure of a large water pipe in the reactor coolant system. Under LOCA
conditions, the fuel and cladding temperatures rise due to reduced cooling capacity. Preliminary analytical modeling shows that under a design-basis
LOCA scenario, unlike conventional uranium dioxide fuel, the cladding of the Lightbridge-designed metallic fuel rods would stay at least 200 degrees
below the 850-900 degrees Celsius temperature at which steam begins to react with the zirconium cladding to generate hydrogen gas. Buildup of hydrogen
gas in a nuclear power plant can lead to the hydrogen exploding. Lightbridge fuel is designed to prevent hydrogen gas generation in design-basis LOCA
situations, which is a major safety benefit.
Enfission, LLC
In January 2018, we formed Enfission, LLC, a 50/50 joint venture with Framatome, Inc., to develop, license, manufacture, and sell nuclear fuel
assemblies based on Lightbridge-designed metallic fuel technology and other advanced nuclear fuel intellectual property. Enfission serves as our exclusive
vehicle for the development of manufacturing processes and fuel assembly designs for pressurized water reactors (PWRs), boiling water reactors (BWRs),
water-cooled small modular reactors, and water-cooled research reactors. PWRs and BWRs constitute the most widely used reactor types in the world. In
addition to distributions from Enfission based on our ownership interest in the joint venture, we anticipate receiving future licensing revenues in
connection with sales by Enfission of nuclear fuel incorporating our intellectual property.
Framatome Inc. is a wholly-owned US subsidiary of Framatome, which we refer to individually or collectively in this Annual Report on Form 10-K,
together with their affiliates, as Framatome. Framatome designs, manufactures and installs components and fuel for nuclear power plants and offers a full
range of reactor services.
Anticipated Schedule for Development and Sale of Nuclear Fuel Assemblies
Set forth below is our anticipated schedule for Enfission’s development and sale of nuclear fuel assemblies. Please see Item 1A, Risk Factors, for a
discussion of certain risks that may delay or impair the commercialization of nuclear fuel assemblies incorporating our nuclear fuel technology. Based on
our current expectations, we anticipate that, either directly or through Enfission, we will:
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develop a regulatory licensing plan for lead test assemblies and present it to the US Nuclear Regulatory Commission in 2018;
enter into a lead test assembly agreement with a host reactor from 2019-2020;
develop analytical models from 2018-2023 for our metallic fuel technology that can be used for reactor analysis and regulatory licensing;
perform in-reactor and out-of-reactor experiments from 2020-2023;
have semi-scale metallic fuel samples fabricated from 2019-2020 for irradiation testing in a test reactor environment under prototypic
commercial reactor conditions;
establish a pilot-scale fuel fabrication facility and demonstrate full-length fabrication of our metallic fuel rods from 2020-2023; and
begin lead test assembly (LTA) operation in a full-size commercial light water reactor as soon as 2023-2024, which involves testing a limited
number of full-scale fuel assemblies in the core of a commercial nuclear power plant over three 18-month cycles.
Accordingly, based on our current expected schedule, a purchase order for an initial reload batch placed by a utility is expected as soon as 2026-2027
(after two 18-month cycles of LTA operation), with final qualification (i.e., deployment of fuel in the first reload batch) in a commercial reactor expected
as soon as 2028-2029. We intend to seek development funding contributions or other financing arrangements with utilities several years in advance of
LTA demonstration.
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Ownership and Management of Enfission
Lightbridge owns 50 percent of Enfission’s Class A voting membership units and Framatome owns the other 50 percent. Any distributions will be made
based on the members’ pro rata ownership percentage. Lightbridge and Framatome each provided an initial capital contribution of $10,000, as well as
licensed certain intellectual property to Enfission. Certain additional capital contributions made by Lightbridge and Framatome will partly be in the form
of exclusive license rights to intellectual property developed pursuant to a research and development service agreement with Enfission.
Seth Grae, our Chief Executive Officer, also serves as Chief Executive Officer of Enfission. Enfission is managed by a board of directors composed of six
directors, half of whom are appointed by Lightbridge and the other half are appointed by Framatome. The chairperson of Enfission’s board of directors
alternates every year between directors appointed by Lightbridge and directors appointed by Framatome. The Enfission board acts by majority vote,
provided that at least one director appointed by each of Lightbridge and Framatome votes in favor of the action. Certain major decisions require the
approval of at least two-thirds of the directors, and certain fundamental decisions, including amending the Enfission operating agreement and issuing
additional membership units, require the approval of two-thirds of the Class A members.
Agreements with Enfission and Framatome
Enfission has entered into several agreements with Lightbridge and Framatome relating to intellectual property, the provision of personnel and
administrative support to Enfission, and research and development efforts.
Lightbridge and Framatome have also directly entered into binding agreements forming the foundation for Enfission, including the following agreements
in November 2017 which govern joint research and development activities and the treatment of all related existing and future intellectual property:
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R&D Services Agreement (“RDSA”) — The RDSA defines the terms and conditions for joint research and development activities between
Framatome and Lightbridge. Enfission is a party to the RDSA. Key terms and conditions of the RDSA include: (i) designating a 17x17 fuel
assembly as the first joint project of the parties and forming a steering committee for the project; (ii) establishing a framework for future work
release orders relating to research and development activities of the parties; and (iii) granting rights to the use of background and foreground
intellectual property needed to perform research and development activities.
Co-Ownership Agreement (“COA”) — The COA governs the co-ownership between Framatome and Lightbridge of the foreground
information developed by and between Framatome and Lightbridge, with one another and through Enfission. The COA will survive the life of
Enfission. The COA is limited to a domain consisting of the metallic fuel developed by Enfission for the following types of commercial light
water reactors and research reactors: (i) pressurized water reactors, excluding water-cooled water-moderated energetic reactor (VVER) types,
(ii) boiling water reactors, (iii) light water-cooled small and medium size reactors, and (iv) water-cooled research reactors. The domain
expressly excludes maritime, naval and military applications.
Intellectual Property Annex (“IP Annex”) — The IP Annex is a higher-level reference document attached to the Enfission operating
agreement and summarizes the parties’ understanding regarding intellectual property matters. The IP Annex will remain in force only during
the life of the Enfission.
In connection with the RDSA, we currently anticipate purchasing via Enfission a minimum amount of research and development services from Framatome
of approximately $3.3 million, for the period up through December 31, 2018. This amount is likely to increase over the course of the year.
Other Development of Our Nuclear Fuel Technology
We retain the right to commercialize our nuclear fuel technology outside of the domain encompassed by Enfission, most notably in VVERs and
Pressurized Heavy Water Reactors (PSWRs), including Canada Deuterium Uranium (CANDU) reactors. We anticipate all of our efforts for the
foreseeable future will be directed towards Enfission.
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Competition
To our knowledge, our nuclear fuel technology is the only technology that could be commercially viable to increase, in a safe and economically attractive
way, power output potentially by up to 17% in existing PWRs and up to 30% in new build PWRs. Due to long product development timelines, significant
nuclear regulatory requirements, and our intellectual property, we believe that the barriers to entry are very high for a competitor to our nuclear fuel
technology segment.
Competition with respect to the design of commercially viable nuclear fuel products is limited to conventional uranium oxide fuels, which are reaching the
limits in terms of their capability to provide increased power output or longer fuel cycles. We believe that the industry needs fuel products that can provide
these benefits. While we believe conventional uranium oxide fuel may be capable of achieving power uprates of up to 10% in existing PWRs, doing so
would require uranium-235 enrichment levels above 5% (as is also the case with our metallic fuel), higher reload batch sizes, or a combination thereof.
The alternative route of increasing reload batch sizes while keeping uranium enrichment levels below 5% for power uprates up to 10% using conventional
uranium oxide fuel raises the cost of each fuel reload, resulting in a significant fuel cycle cost penalty to the nuclear utility. The cost penalty could have a
dramatic adverse impact on the economics of existing plants whose original capital cost has already been written off, which includes most US nuclear
power plants.
Nuclear power faces competition from other sources of electricity, including natural gas, which is currently the cheapest option for power generation in the
US and has resulted in some utilities abandoning nuclear power. Other sources of electricity may also be viewed as safer than nuclear power, although we
believe that generating nuclear energy with Lightbridge fuel is the safest way to produce baseload electricity in suitable power reactors. To the extent
demand for electricity generated by nuclear power decreases, the potential market for our nuclear fuel technology will decline.
Raw Materials
We do not plan to utilize any raw materials directly in the conduct of our operations. The fuel fabricators which will ultimately fabricate fuel products
incorporating our nuclear fuel technology will require zirconium and uranium, and additional raw materials that are required for the production of nuclear
fuel assemblies that go into the reactor core. Uranium and zirconium are available from various suppliers at market prices. Our plan is that utilities will
contract with Enfission to order nuclear fuel assemblies, and Enfission will subcontract manufacturing of fuel assemblies to Framatome, which will
physically produce and then ship the completed nuclear fuel assemblies to the reactor sites on behalf of Enfission.
Government Approvals and Relationships with Critical Development Partners/Vendors
The sales and marketing of our services and technology internationally may be subject to US export control regulations and the export control laws of
other countries. Governmental authorizations may be required before we can export our services or technology or collaborate with foreign entities. If
authorizations are required and not granted, our international business plans could be materially affected. Furthermore, the export authorization process is
often time consuming. Violation of export control regulations could subject us to fines and other penalties, such as losing the ability to export for a period
of years, which would limit our revenue growth opportunities and significantly hinder our attempts to expand our business internationally.
In 2015-2016, we received our export controls authorization from the US Department of Energy for all of our planned work outside the United States,
specifically in France, Germany, Norway, Sweden, and Canada.
The testing, fabrication and use of nuclear fuels by Enfission and our future partners, licensees and nuclear power generators will be heavily regulated.
The test facilities and other locations where our fuel designs may be tested before commercial use require governmental approvals from the host country’s
nuclear regulatory authority. The responsibility for obtaining the necessary regulatory approvals will lie with our research and development contractors
that conduct such tests and experiments. Nuclear fuel fabricators, which will ultimately fabricate fuel using our technology under commercial licenses
from us, are similarly regulated. Utilities that operate nuclear power plants that may utilize the fuel produced by these fuel fabricators require specific
licenses relating to possession and use of nuclear materials as well as numerous other governmental approvals for the ownership and operation of nuclear
power plants.
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Certain Challenges
The ability to fabricate the LTAs and a nuclear utility that is willing to accept the LTAs, is required for LTA demonstration in a commercial reactor. In the
US, the fabricator and the utility will be primarily responsible for securing necessary regulatory licensing approvals for the LTA operation. To this end, in
2011, we established a Nuclear Utility Fuel Advisory Board (NUFAB) to further strengthen dialogue with global nuclear utilities. Separately, we formed
Enfission with the fabricator Framatome to complete the development, demonstration, regulatory licensing, and commercial deployment of our metallic
nuclear fuel in most types of reactors that are currently in operation, under construction, and planned around the world.
There is a lack of publicly available experimental data on our metallic fuel. We will need to conduct various irradiation experiments to confirm fuel
performance under normal and off-normal events. Loop irradiation in a test reactor environment prototypic of commercial reactor operating conditions
and other experiments on unirradiated and irradiated metallic fuel samples will be essential to demonstrate the performance and advantages of our metallic
fuel. We are currently planning loop irradiation testing of our metallic fuel samples in a research reactor as part of this effort.
Existing analytical models may be inadequate. New analytical models, capable of accurately predicting the behavior of our metallic fuel during normal
operation and off-normal events, may be required. Experimental data measured from our planned irradiation demonstrations will help to identify areas
where new analytical models or modifications to existing ones may be required.
Demonstration of a fabrication process both for semi-scale irradiation fuel samples and subsequently for full-length (12-14 feet) metallic fuel rods for
PWR LTAs is required. Past operating experience with differently shaped fuel rods with a similar metallic fuel composition involved fabrication of
metallic fuel rods up to 3 feet in length in Russia. We have identified two suitable locations (one in France and one in the United States) for fabrication of
test fuel samples up to 700mm in length for test reactor irradiation. Our current plan is for these fabricated test fuel samples to be irradiated to their target
burnup in a pressurized water loop of the Halden Research Reactor located in Halden, Norway. We have identified multiple suitable locations for post-
irradiation examination of the irradiated test fuel samples, including in Sweden, Canada or the United States. Once the test fuel samples have been
manufactured, we plan to demonstrate fabrication of full-length fuel rods (12-14ft. in length) initially using depleted or natural uranium and subsequently
utilize the same process to manufacture full-length fuel rods using high-assay low enriched uranium for lead test assemblies.
Overview of the Nuclear Power Industry
Presently, nuclear power provides approximately 7% of the world’s energy, including approximately 11% of the world’s electricity. According to the
World Nuclear Association, as of February 1, 2018 there were approximately 448 operable nuclear power plants worldwide, mostly light water reactors,
with the most common types being PWRs, boiling-water reactors (BWRs), and VVER reactors. Nuclear power provides a non-fossil fuel, low-carbon
energy solution that can meet baseload electricity needs.
Due to substantial project risks and the significant upfront capital commitment associated with building new reactors, many nuclear utilities in deregulated
markets choose to optimize their existing generating capacity through increasing their capacity utilization factor, power uprates and plant life extensions.
We expect this trend to continue, particularly in the mature nuclear markets with significant existing nuclear capacity. We expect most of the new build
activity to occur in emerging nuclear markets.
Of the world’s existing reactors currently in operation, PWRs (including Russian-designed VVERs) account for more than half of the net operating
capacity, with BWRs being the second most prevalent and accounting for another 15-20%.
Of the nuclear reactors currently under construction, we estimate over 80% are either PWRs or VVERs with a rated electric power output of 1,000
megawatts (“MWe”) or greater.
Utilities have embraced power uprates as a cost-effective way to increase their generation capacity. While the efforts thus far have occurred mostly in the
United States, we believe there is a large, untapped worldwide market for power uprates. The incentive to proceed with longer operating cycles and/or
power uprates of up to 10% level is significant since there are few changes required to implement the power uprate, and the changes that are required are
relatively inexpensive. The limiting factor at the moment is the fuel.
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In some instances, utilities will modify and/or replace components in order to accommodate a higher power level. Technical analyses must demonstrate
that the proposed plant configuration remains safe and that measures to protect the health and safety of the public continue to be effective. These analyses,
which span many technical disciplines, are reviewed and approved by the regulator before a power uprate can be performed.
The utility will conduct an economic analysis to evaluate the potential financial benefits of the proposed uprate. Typically, power uprates enable utilities
to increase their generating capacity at a cost significantly less than the cost of building a new plant. In many cases, power uprates can be completed in
months as opposed to the several years required for new build, thus the invested dollars begin producing revenue shortly after they are spent. Power
uprates, therefore, represent an efficient use of capital.
Most nuclear power plants originally had a licensed lifetime of 25 to 40 years, but engineering assessments have established that many can operate much
longer. In the US, approximately 60 reactors have been granted license extensions to continue operating for a total of 60 years. Most of the plants that have
not already requested a license extension are expected to apply in the near future. A license extension at about the 30-year mark requires additional capital
expenditure for the replacement of worn equipment and outdated control systems. Multiple utilities have stated plans to apply to the NRC for additional 20
years of licensed lifetime, up to a total of 80 years per reactor.
The technical and economic feasibility of replacing major reactor components, such as steam generators in PWRs, has been demonstrated. The increased
revenue generated from extending the lifetime of existing plants is attractive to utilities, especially in view of the difficulties in obtaining public
acceptance of constructing replacement nuclear capacity.
Almost all of the new build reactor designs are either Generation III or Generation III+ type reactors. The primary difference from second-generation
designs is that many incorporate passive or inherent safety features which require no active controls or operational intervention to avoid accidents in the
event of malfunction. Many of these passive systems rely on gravity, natural convection, or resistance to high temperatures.
Influence of the Accident at Fukushima, Japan and New International Nuclear Build
The nuclear accident at the Fukushima nuclear power plant in Japan following the strong earthquake and massive tsunami that occurred on March 11,
2011 increased public opposition to nuclear power, resulting in a slowdown in, or, in some cases, a complete halt to, new construction of nuclear power
plants and an early shut down of existing power plants in certain countries. As a result, some countries that were considering launching new domestic
nuclear power programs before the Fukushima accident have delayed or cancelled preparatory activities they were planning to undertake as part of such
programs. This has diminished the number of consulting opportunities that we could compete for globally, at least in the near-term. In addition, the
Fukushima accident appears to have shrunk the projected size of the global nuclear power market in 2025-2030 as reflected in the most recent reference
case projections published by the World Nuclear Association. At the same time, the event has brought a greater emphasis on safety to the forefront that
may be beneficial to us because our metallic fuel provides improved safety and fuel performance during normal operation and design-basis accidents.
Our Intellectual Property
Our nuclear fuel technologies are protected by multiple US and international patents. Set forth below are the patents which we consider material to our
business based on our current plans, all of which we have licensed to Enfission:
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Country
Application
Date
Registration
Date
Title
Case Status
FUEL ASSEMBLY
10/25/2017 FUEL ASSEMBLY
10/25/2017 FUEL ASSEMBLY
10/25/2017 FUEL ASSEMBLY
10/25/2017 FUEL ASSEMBLY
10/25/2017 FUEL ASSEMBLY
10/25/2017 FUEL ASSEMBLY
FUEL ASSEMBLY
FUEL ASSEMBLY
FUEL ASSEMBLY
Patent
2/20/2018
5/11/2011
5/11/2011
5/11/2011
5/11/2011
5/11/2011
5/11/2011
5/11/2011
5/11/2011
5/11/2011
Fabrication method using the casting route
United States of
America
Belgium
Bulgaria
Czech Republic
European
Office
Hungary
United Kingdom
China
Japan
Republic of Korea
Fabrication method using the powder metallurge route
United States of
America
United States of
America
Australia
Belgium
Bulgaria
Czech Republic
European
Office
Hungary
United Kingdom
Bulgaria
Czech Republic
5/11/2011
5/11/2011
5/11/2011
5/11/2011
5/11/2011
5/11/2011
5/11/2011
5/11/2011
5/11/2011
5/11/2011
2/20/2018
Patent
7/2/2015
FUEL ASSEMBLY
10/25/2017 FUEL ASSEMBLY
10/25/2017 FUEL ASSEMBLY
10/25/2017 FUEL ASSEMBLY
10/25/2017 FUEL ASSEMBLY
10/25/2017 FUEL ASSEMBLY
10/25/2017 FUEL ASSEMBLY
FUEL ASSEMBLY
4/6/2016
FUEL ASSEMBLY
4/6/2016
FUEL ASSEMBLY
FUEL ASSEMBLY
Patent
European
Office
Finland
France
Germany
Hungary
Sweden
Turkey
China
Japan
Republic of Korea
Australia
Canada
China
India
5/11/2011
4/6/2016
FUEL ASSEMBLY
5/11/2011
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5/11/2011
5/11/2011
5/11/2011
4/6/2016
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4/6/2016
4/6/2016
4/6/2016
5/18/2016
9/9/2016
8/30/2017
FUEL ASSEMBLY
FUEL ASSEMBLY
FUEL ASSEMBLY
FUEL ASSEMBLY
FUEL ASSEMBLY
FUEL ASSEMBLY
FUEL ASSEMBLY
FUEL ASSEMBLY
FUEL ASSEMBLY
FUEL ASSEMBLY
FUEL ASSEMBLY
FUEL ASSEMBLY
FUEL ASSEMBLY
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Patent
11/15/2013
FUEL ASSEMBLY
5/1/2014
5/1/2014
5/1/2014
5/1/2014
1/31/2018
1/31/2018
1/31/2018
1/31/2018
FUEL ASSEMBLY
FUEL ASSEMBLY
FUEL ASSEMBLY
FUEL ASSEMBLY
5/1/2014
5/1/2014
5/1/2014
5/1/2014
5/1/2014
5/1/2014
5/1/2014
5/1/2014
9/16/2015
5/1/2014
9/16/2015
9/16/2015
5/1/2014
FUEL ASSEMBLY
1/31/2018
FUEL ASSEMBLY
1/31/2018
FUEL ASSEMBLY
1/31/2018
FUEL ASSEMBLY
1/31/2018
FUEL ASSEMBLY
1/31/2018
FUEL ASSEMBLY
1/31/2018
1/31/2018
FUEL ASSEMBLY
11/24/2017 FUEL ASSEMBLY
All-metal fuel assembly design and a mixed grid pattern of metallic fuel rods
United States of
America
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Bulgaria
Czech Republic
European
Office
Finland
France
Germany
Hungary
Spain
Sweden
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China
Australia
Canada
Canada
China
Eurasian Patent
Organization
Eurasian Patent
Organization
European
Office
Japan
Japan
Republic of Korea
Republic of Korea
India
All-metal fuel assembly design (i.e., no oxide rods in the outer row)
United States of
America
United States of
America
Australia
Canada
5/1/2014
9/16/2015
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9/16/2015
5/1/2014
5/11/2011
12/26/2007
FUEL ASSEMBLY
FUEL ASSEMBLY
11/15/2013
9/16/2015
9/16/2015
5/11/2011
Patent
NUCLEAR FUEL ASSEMBLY
FUEL ASSEMBLY
NUCLEAR FUEL ASSEMBLY
NUCLEAR FUEL ASSEMBLY
FUEL ASSEMBLY
NUCLEAR FUEL ASSEMBLY
FUEL ASSEMBLY
NUCLEAR FUEL ASSEMBLY
FUEL ASSEMBLY
NUCLEAR FUEL ASSEMBLY
FUEL ASSEMBLY
NUCLEAR FUEL ASSEMBLY
India
12/26/2007
FUEL ASSEMBLY
7/2/2015
4/26/2016 NUCLEAR REACTOR (VARIANTS), FUEL ASSEMBLY CONSISTING OF
DRIVER-BREEDING MODULES FOR A NUCLEAR REACTOR (VARIANTS)
AND A FUEL CELL FOR A FUEL ASSEMBLY
NUCLEAR REACTOR (VARIANTS), FUEL ASSEMBLY CONSISTING OF
DRIVER-BREEDING MODULES FOR A NUCLEAR REACTOR (VARIANTS)
AND A FUEL CELL FOR A FUEL ASSEMBLY
Pending
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Multi-lobe metallic fuel rod design
12/25/2008
United States of
America
United States of
America
12/26/2007
5/31/2016 LIGHT-WATER REACTOR FUEL ASSEMBLY (ALTERNATIVES), A LIGHT-
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Pending
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United States of
America
United States of
America
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America
Australia
Australia
WATER REACTOR, AND A FUEL ELEMENT OF FUEL ASSEMBLY
2/18/2014 NUCLEAR REACTOR (ALTERNATIVES), FUEL ASSEMBLY OF SEED-
BLANKET SUBASSEMBLIES FOR NUCLEAR REACTOR (ALTERNATIVES),
AND FUEL ELEMENT FOR FUEL ASSEMBLY
FUEL ASSEMBLY
FUEL ASSEMBLY
FUEL ASSEMBLY
FUEL ASSEMBLY
5/11/2011
11/15/2013
9/16/2015
2/20/2018
5/11/2011
12/25/2008
7/2/2015
9/3/2015
FUEL ASSEMBLY
FUEL ASSEMBLY FOR A LIGHT-WATER NUCLEAR REACTOR
(EMBODIMENTS), LIGHT-WATER NUCLEAR REACTOR AND FUEL
ELEMENT OF THE FUEL ASSEMBLY
Australia
12/26/2007
Australia
12/26/2007
8/4/2016 NUCLEAR REACTOR (VARIANTS), FUEL ASSEMBLY CONSISTING OF
DRIVER-BREEDING MODULES FOR A NUCLEAR REACTOR (VARIANTS)
AND A FUEL CELL FOR A FUEL ASSEMBLY
5/24/2014 NUCLEAR REACTOR (VARIANTS), FUEL ASSEMBLY CONSISTING OF
DRIVER-BREEDING MODULES FOR A NUCLEAR REACTOR (VARIANTS)
AND A FUEL CELL FOR A FUEL ASSEMBLY
Belgium
Bulgaria
12/26/2007
5/18/2016 A FUEL ELEMENT, A FUEL ASSEMBLY AND A METHOD OF USING A
Registered
FUEL ASSEMBLY
12/26/2007
5/18/2016 A FUEL ELEMENT, A FUEL ASSEMBLY AND A METHOD OF USING A
Registered
FUEL ASSEMBLY
Czech Republic
12/26/2007
5/18/2016 A FUEL ELEMENT, A FUEL ASSEMBLY AND A METHOD OF USING A
Registered
European
Office
Finland
France
Germany
Hungary
Sweden
Turkey
Patent
12/26/2007
5/18/2016 A FUEL ELEMENT, A FUEL ASSEMBLY AND A METHOD OF USING A
Registered
FUEL ASSEMBLY
FUEL ASSEMBLY
12/26/2007
5/18/2016 A FUEL ELEMENT, A FUEL ASSEMBLY AND A METHOD OF USING A
Registered
FUEL ASSEMBLY
12/26/2007
5/18/2016 A FUEL ELEMENT, A FUEL ASSEMBLY AND A METHOD OF USING A
Registered
FUEL ASSEMBLY
12/26/2007
5/18/2016 A FUEL ELEMENT, A FUEL ASSEMBLY AND A METHOD OF USING A
Registered
FUEL ASSEMBLY
12/26/2007
5/18/2016 A FUEL ELEMENT, A FUEL ASSEMBLY AND A METHOD OF USING A
Registered
FUEL ASSEMBLY
12/26/2007
5/18/2016 A FUEL ELEMENT, A FUEL ASSEMBLY AND A METHOD OF USING A
Registered
FUEL ASSEMBLY
12/26/2007
5/18/2016 A FUEL ELEMENT, A FUEL ASSEMBLY AND A METHOD OF USING A
Registered
FUEL ASSEMBLY
United Kingdom
12/26/2007
5/18/2016 A FUEL ELEMENT, A FUEL ASSEMBLY AND A METHOD OF USING A
Registered
FUEL ASSEMBLY
Belgium
Bulgaria
12/23/2008
9/21/2016 A FUEL ELEMENT, A FUEL ASSEMBLY AND A METHOD OF USING A
Registered
FUEL ASSEMBLY
12/23/2008
9/21/2016 A FUEL ELEMENT, A FUEL ASSEMBLY AND A METHOD OF USING A
Registered
FUEL ASSEMBLY
Czech Republic
12/23/2008
9/21/2016 A FUEL ELEMENT, A FUEL ASSEMBLY AND A METHOD OF USING A
Registered
FUEL ASSEMBLY
European
Office
Finland
France
Germany
Hungary
Spain
Patent
12/23/2008
9/21/2016 A FUEL ELEMENT, A FUEL ASSEMBLY AND A METHOD OF USING A
Registered
FUEL ASSEMBLY
12/23/2008
9/21/2016 A FUEL ELEMENT, A FUEL ASSEMBLY AND A METHOD OF USING A
Registered
FUEL ASSEMBLY
12/23/2008
9/21/2016 A FUEL ELEMENT, A FUEL ASSEMBLY AND A METHOD OF USING A
Registered
FUEL ASSEMBLY
12/23/2008
9/21/2016 A FUEL ELEMENT, A FUEL ASSEMBLY AND A METHOD OF USING A
Registered
FUEL ASSEMBLY
12/23/2008
9/21/2016 A FUEL ELEMENT, A FUEL ASSEMBLY AND A METHOD OF USING A
Registered
FUEL ASSEMBLY
12/23/2008
9/21/2016 A FUEL ELEMENT, A FUEL ASSEMBLY AND A METHOD OF USING A
Registered
FUEL ASSEMBLY
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Sweden
Turkey
12/23/2008
9/21/2016 A FUEL ELEMENT, A FUEL ASSEMBLY AND A METHOD OF USING A
Registered
FUEL ASSEMBLY
12/23/2008
9/21/2016 A FUEL ELEMENT, A FUEL ASSEMBLY AND A METHOD OF USING A
Registered
FUEL ASSEMBLY
United Kingdom
12/23/2008
9/21/2016 A FUEL ELEMENT, A FUEL ASSEMBLY AND A METHOD OF USING A
Registered
Belgium
Bulgaria
Czech Republic
European
Office
Hungary
United Kingdom
Bulgaria
Czech Republic
European
Office
Patent
Patent
5/11/2011
5/11/2011
5/11/2011
5/11/2011
5/11/2011
5/11/2011
5/11/2011
5/11/2011
5/11/2011
FUEL ASSEMBLY
10/25/2017 FUEL ASSEMBLY
10/25/2017 FUEL ASSEMBLY
10/25/2017 FUEL ASSEMBLY
10/25/2017 FUEL ASSEMBLY
10/25/2017 FUEL ASSEMBLY
10/25/2017 FUEL ASSEMBLY
FUEL ASSEMBLY
4/6/2016
FUEL ASSEMBLY
4/6/2016
FUEL ASSEMBLY
4/6/2016
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Finland
France
Germany
Hungary
Sweden
Turkey
Bulgaria
5/11/2011
5/11/2011
5/11/2011
5/11/2011
5/11/2011
5/11/2011
12/25/2008
4/6/2016
4/6/2016
4/6/2016
4/6/2016
4/6/2016
4/6/2016
4/13/2016
Czech Republic
12/25/2008
4/13/2016
European
Office
Finland
Patent
12/25/2008
4/13/2016
12/25/2008
4/13/2016
France
12/25/2008
4/13/2016
Germany
12/25/2008
4/13/2016
Hungary
12/25/2008
4/13/2016
Sweden
12/25/2008
4/13/2016
Turkey
12/25/2008
4/13/2016
United Kingdom
12/25/2008
4/13/2016
FUEL ASSEMBLY
FUEL ASSEMBLY
FUEL ASSEMBLY
FUEL ASSEMBLY
FUEL ASSEMBLY
FUEL ASSEMBLY
FUEL ASSEMBLY FOR A LIGHT-WATER NUCLEAR REACTOR
(EMBODIMENTS), LIGHT-WATER NUCLEAR REACTOR AND FUEL
ELEMENT OF THE FUEL ASSEMBLY
FUEL ASSEMBLY FOR A LIGHT-WATER NUCLEAR REACTOR
(EMBODIMENTS), LIGHT-WATER NUCLEAR REACTOR AND FUEL
ELEMENT OF THE FUEL ASSEMBLY
FUEL ASSEMBLY FOR A LIGHT-WATER NUCLEAR REACTOR
(EMBODIMENTS), LIGHT-WATER NUCLEAR REACTOR AND FUEL
ELEMENT OF THE FUEL ASSEMBLY
FUEL ASSEMBLY FOR A LIGHT-WATER NUCLEAR REACTOR
(EMBODIMENTS), LIGHT-WATER NUCLEAR REACTOR AND FUEL
ELEMENT OF THE FUEL ASSEMBLY
FUEL ASSEMBLY FOR A LIGHT-WATER NUCLEAR REACTOR
(EMBODIMENTS), LIGHT-WATER NUCLEAR REACTOR AND FUEL
ELEMENT OF THE FUEL ASSEMBLY
FUEL ASSEMBLY FOR A LIGHT-WATER NUCLEAR REACTOR
(EMBODIMENTS), LIGHT-WATER NUCLEAR REACTOR AND FUEL
ELEMENT OF THE FUEL ASSEMBLY
FUEL ASSEMBLY FOR A LIGHT-WATER NUCLEAR REACTOR
(EMBODIMENTS), LIGHT-WATER NUCLEAR REACTOR AND FUEL
ELEMENT OF THE FUEL ASSEMBLY
FUEL ASSEMBLY FOR A LIGHT-WATER NUCLEAR REACTOR
(EMBODIMENTS), LIGHT-WATER NUCLEAR REACTOR AND FUEL
ELEMENT OF THE FUEL ASSEMBLY
FUEL ASSEMBLY FOR A LIGHT-WATER NUCLEAR REACTOR
(EMBODIMENTS), LIGHT-WATER NUCLEAR REACTOR AND FUEL
ELEMENT OF THE FUEL ASSEMBLY
FUEL ASSEMBLY FOR A LIGHT-WATER NUCLEAR REACTOR
(EMBODIMENTS), LIGHT-WATER NUCLEAR REACTOR AND FUEL
ELEMENT OF THE FUEL ASSEMBLY
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Canada
Canada
China
China
China
Japan
Japan
Japan
12/25/2008
12/26/2007
5/11/2011
12/25/2008
12/26/2007
5/11/2011
5/11/2011
12/25/2008
11/29/2016 A LIGHT-WATER REACTOR FUEL ASSEMBLY (ALTERNATIVES), A
LIGHT-WATER REACTOR, AND A FUEL ELEMENT OF FUEL ASSEMBLY
4/26/2016 NUCLEAR REACTOR (VARIANTS), FUEL ASSEMBLY CONSISTING OF
DRIVER-BREEDING MODULES FOR A NUCLEAR REACTOR (VARIANTS)
AND A FUEL CELL FOR A FUEL ASSEMBLY
FUEL ASSEMBLY
FUEL ASSEMBLY FOR A LIGHT-WATER NUCLEAR REACTOR
(EMBODIMENTS), LIGHT-WATER NUCLEAR REACTOR AND FUEL
ELEMENT OF THE FUEL ASSEMBLY
5/18/2016
6/29/2016
6/23/2017 NUCLEAR REACTOR (VARIANTS), FUEL ASSEMBLY CONSISTING OF
DRIVER-BREEDING MODULES FOR A NUCLEAR REACTOR (VARIANTS)
AND A FUEL CELL FOR A FUEL ASSEMBLY
FUEL ASSEMBLY
FUEL ASSEMBLY
FUEL ASSEMBLY FOR A LIGHT-WATER NUCLEAR REACTOR
(EMBODIMENTS), LIGHT-WATER NUCLEAR REACTOR AND FUEL
ELEMENT OF THE FUEL ASSEMBLY
9/9/2016
9/9/2016
6/5/2015
Japan
12/26/2007
Republic of Korea
Republic of Korea
5/11/2011
12/25/2008
Republic of Korea
12/26/2007
Republic of Korea
12/26/2007
Australia
Australia
Australia
Canada
5/1/2014
5/11/2011
9/16/2015
12/25/2008
4/22/2016 NUCLEAR REACTOR (VARIANTS), FUEL ASSEMBLY CONSISTING OF
DRIVER-BREEDING MODULES FOR A NUCLEAR REACTOR (VARIANTS)
AND A FUEL CELL FOR A FUEL ASSEMBLY
FUEL ASSEMBLY
FUEL ASSEMBLY FOR A LIGHT-WATER NUCLEAR REACTOR
(EMBODIMENTS), LIGHT-WATER REACTOR AND FUEL ELEMENT OF
THE FUEL ASSEMBLY
8/30/2017
8/18/2015
4/20/2015 NUCLEAR REACTOR(ALTERNATIVES), FUEL ASSEMBLY OF SEED-
BLANKET SUBASSEMBLIES FOR NUCLEAR REACTOR(ALTERNATIVES),
AND FUEL ELEMENT FOR FUEL ASSEMBLY
12/15/2014 NUCLEAR REATION (VARIANTS), FUEL ASSEMBLY CONSISTING OF
DRIVER-BREEDING MODULES FOR A NUCLEAR REACTOR (VARIANTS)
AND A FUEL CELL FOR A FUEL ASSEMBLY
FUEL ASSEMBLY
FUEL ASSEMBLY
NUCLEAR FUEL ASSEMBLY
A LIGHT-WATER REACTOR FUEL ASSEMBLY AND FUEL ELEMENT
THEREOF
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Pending
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Pending
Canada
Canada
Canada
China
Eurasian Patent
Organization
5/1/2014
5/11/2011
9/16/2015
9/16/2015
5/1/2014
FUEL ASSEMBLY
FUEL ASSEMBLY
NUCLEAR FUEL ASSEMBLY
NUCLEAR FUEL ASSEMBLY
FUEL ASSEMBLY
14
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Eurasian Patent
Organization
European
Office
9/16/2015
NUCLEAR FUEL ASSEMBLY
Patent
12/25/2008
FUEL ASSEMBLY FOR A LIGHT-WATER NUCLEAR REACTOR
(EMBODIMENTS), LIGHT-WATER NUCLEAR REACTOR AND FUEL
ELEMENT OF THE FUEL ASSEMBLY
Pending
Pending
Patent
European
Office
Japan
Japan
Japan
Republic of Korea
Republic of Korea
Republic of Korea
China
Japan
India
India
India
India
None of the above
United States of
America
9/16/2015
5/1/2014
5/11/2011
9/16/2015
5/11/2011
5/1/2014
9/16/2015
12/26/2007
12/26/2007
5/11/2011
5/1/2014
12/25/2008
12/26/2007
NUCLEAR FUEL ASSEMBLY
FUEL ASSEMBLY
FUEL ASSEMBLY
NUCLEAR FUEL ASSEMBLY
FUEL ASSEMBLY
FUEL ASSEMBLY
NUCLEAR FUEL ASSEMBLY
2/12/2014 NUCLEAR REACTOR (VARIANTS), FUEL ASSEMBLY CONSISTING OF
DRIVER-BREEDING MODULES FOR A NUCLEAR REACTOR (VARIANTS)
AND A FUEL CELL FOR A FUEL ASSEMBLY
8/1/2014 NUCLEAR REACTOR (VARIANTS), FUEL ASSEMBLY CONSISTING OF
DRIVER-BREEDING MODULES FOR A NUCLEAR REACTOR (VARIANTS)
AND A FUEL CELL FOR A FUEL ASSEMBLY
FUEL ASSEMBLY
FUEL ASSEMBLY
FUEL ASSEMBLY FOR A LIGHT-WATER, NUCLEAR REACTOR
(EMBODIMENTS), LIGHT-WATER NUCLEAR REACTOR AND FUEL
ELEMENT OF THE FUEL ASSEMBLY
NUCLEAR REACTOR (VARIANTS), FUEL ASSEMBLY CONSISTING OF
DRIVER-BREEDING MODULES FOR A NUCLEAR REACTOR (VARIANTS)
AND A FUEL CELL FOR A FUEL ASSEMBLY
Pending
Pending
Pending
Pending
Pending
Pending
Pending
Registered
Registered
Pending
Pending
Pending
Pending
12/22/2008
2/14/2012 NUCLEAR REACTOR (ALTERNATIVES), FUEL ASSEMBLY OF SEED-
BLANKET SUBASSEMBLIES FOR NUCLEAR REACTOR (ALTERNATIVES),
AND FUEL ELEMENT FOR FUEL ASSEMBLY
Registered
We also own a number of US and international patents associated with fuel assembly designs for all-uranium seed and blanket fuel for existing plants and
new build reactors and thorium-based seed and blanket fuel for both existing and new build reactors, which we do not consider material, individually or
collectively, based on our current business plan. In addition to our patent portfolio, we also own trademarks to Lightbridge and Thorium Power corporate
names and the Lightbridge logo.
We are continually executing a strategy aimed at further expanding our intellectual property portfolio. We spent approximately $2.3 million and $2.7
million for research and development during the years ended December 31, 2017 and 2016, respectively.
Our Consulting Business
In addition to our nuclear fuel technology business, we also opportunistically provide nuclear power consulting and strategic advisory services to
commercial and governmental entities worldwide. Our consulting segment is primarily engaged in the business of assisting commercial and governmental
entities globally with developing and expanding their nuclear industry capabilities and infrastructure. We can provide integrated strategic advice across a
range of expertise areas including, for example, regulatory development, nuclear reactor site selection, procurement and deployment, reactor and fuel
technology, international relations, program management and infrastructure development.
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We only engage with commercial entities and governments that are dedicated to non-proliferative and transparent nuclear programs.
Our consulting services are expert and relationship based, with particular emphasis on key decision makers in senior positions within governments or
companies, as well as focus on overall management of nuclear energy programs. To date, nearly all of our revenues have been derived from our
consulting and strategic advisory services business segment, which primarily provided nuclear consulting services to entities within the United Arab
Emirates, our first significant consulting and strategic advisory client. We have also provided nuclear safety consulting advice to US nuclear utilities and
others. We currently do not have any consulting contracts.
In general, the market for nuclear industry consulting services is competitive, fragmented and subject to rapid change. Some of our competitors are global
in scope and have greater personnel, financial, technical, and marketing resources than we do. Domestic and international political pressure and public
opposition to nuclear power may hinder our efforts to provide nuclear energy consulting services. We believe that our independence, experience,
expertise, reputation and segment focus enable us to compete effectively as a strategic advisor for governments wishing to develop a new civil nuclear
program.
Our major challenge in pursuing our business is that the decision-making process for nuclear power programs typically involves careful consideration by
many parties and therefore requires significant time. Many of the potential clients that could benefit from our services are in regions of the world where
tensions surrounding nuclear energy are high, or in countries where public opinion plays an important role.
Financial information about our nuclear fuel technology and consulting segments is incorporated by reference from Item 7, Management’s Discussion and
Analysis of Financial Condition and Results of Operations, and Note 11 of the notes to the consolidated financial statements appearing elsewhere in this
Annual Report on Form 10-K.
Employees
Our business model is to limit the number of our full-time employees and to rely on individual independent contractors, outside agencies and technical
facilities with specific skills to assist with various business functions including, but not limited to, corporate overhead, personnel, research and
development, and government relations. This model limits overhead costs and allows us to draw upon resources that are specifically tailored to our
internal and external (client) needs. As of December 31, 2017, we had six full-time employees and one part-time employee. We utilize a network of
independent contractors available for deployment for specialized consulting assignments. We believe that our relationship with our employees and
contractors is satisfactory.
Available Information
Our internet address is www.ltbridge.com. We make available free of charge on our website our Annual Reports on Form 10-K, Quarterly Reports on
Form 10-Q, Current Reports on Form 8-K, including exhibits, and amendments to those reports filed or furnished pursuant to Sections 13(a) and 15(d) of
the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the
Securities and Exchange Commission (SEC). Copies of these reports may also be obtained free of charge by sending written requests to Investor
Relations, Lightbridge Corporation, 11710 Plaza America Drive, Suite 2000, Reston, Virginia 20190 USA. You may read and copy any materials we file
with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. You can get information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an internet site that contains reports, proxy and information statements
and other information regarding issuers that file electronically with the SEC at www.sec.gov. The information posted on our website is not incorporated
into this Annual Report on Form 10-K, and any reference to our website is intended to be inactive textual references only.
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ITEM 1A. RISK FACTORS
Risks Related to the Company
We will need to raise significant additional capital in the future to expand our operations and continue our research and development and we may be
unable to raise such funds when needed and on acceptable terms.
As of December 31, 2017, we had $4.5 million in cash and equivalents, and as of March 14, 2018, we had approximately $27 million in cash and
equivalents. We will need to raise significant additional capital in order to continue our research and development activities and fund our operations
through commercialization of our nuclear fuel technology, including funding Enfission for 2019 and beyond. Our current plan is to seek external funding
from third party sources to support a large portion of the remaining development, testing and demonstration activities relating to our metallic nuclear fuel
technology. We entered into an At-the-Market Issuance Sales Agreement with B. Riley FBR, Inc. (the “New ATM”) on July 12, 2017 and raised in 2018
approximately $20 million in net proceeds under the New ATM as of the date of this 10-K filing. Even with such sales of our common stock under the
New ATM, we will still need additional capital to fully implement our business, operating and development plans over the coming years.
When we elect to raise additional funds or additional funds are required, we may raise such funds from time to time through public or private equity
offerings, debt financings or other financing alternatives. Additional equity or debt financing or other alternative sources of capital may not be available to
us on acceptable terms, if at all. In addition, if we are unable to demonstrate meaningful progress in our Enfission joint venture with Framatome to further
the development of our fuel products, it may be difficult for us to raise additional capital on terms acceptable to us or at all.
If we raise additional funds by issuing equity securities, our stockholders will experience dilution. Sales of substantial amounts of our common stock may
cause the trading price of our common stock to decline in the future. Debt financing, if available, would result in substantial fixed payment obligations
and may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making
capital expenditures or declaring dividends. Any debt financing or additional equity that we raise may contain terms, such as liquidation and other
preferences, which are not favorable to us or our stockholders. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to
us, we may not be able to fully develop our nuclear fuel designs, our future operations will be limited, and our ability to generate revenues and achieve or
sustain future profitability will be substantially harmed.
We are dependent upon a joint venture for substantially all of our anticipated future income.
In January 2018, we entered into the Enfission joint venture with Framatome. We anticipate that distributions from Enfission and licensing revenue from
nuclear fuel sold by Enfission will constitute substantially all of our income in the future. We are dependent upon the success or failure of Enfission, and if
Enfission is not successful or Enfission does not perform its research and development activities as expected, our future financial performance will be
negatively impacted.
Our Enfission joint venture could be adversely affected by our lack of sole decision-making authority, any disputes that may arise between us and our
joint venture partner and our exposure to potential losses from the joint venture.
Joint ventures involve risks not present in investments or operations in which a third party is not involved, including the possibility that a joint venture
partner may at any time have other business interests and investments other than the joint venture with us, may have economic or business goals different
from ours, and may be in a position to take actions contrary to our policies or objectives. A joint venture partner may also become bankrupt or fail to fund
its required capital contributions. Consequently, actions by or disputes with a joint venture partner might result in subjecting our business to additional
risk.
Under the Enfission operating arrangement, neither we nor Enfission are in a position to unilaterally control the joint venture, and deadlocks may occur.
Such deadlocks could adversely impact the operations and profitability of Enfission, including delaying the commercialization of nuclear fuel
incorporating our technology. Disputes between us and Framatome may result in litigation or arbitration that would increase our expenses and prevent our
officers and directors from focusing their time and effort on our business.
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In addition, the Enfission joint venture may result in other difficulties including, among other things, diversion of our management’s attention from other
business concerns and managing regulatory compliance and corporate governance matters.
Our interest in Enfission exposes us to risks related to the manufacturing of nuclear fuel.
Historically, we anticipated licensing our nuclear fuel technology to third parties that would undertake the manufacturing and sale of nuclear fuel
incorporating our technology. With our entry into the Enfission joint venture, we will be indirectly exposed to certain risks in connection with the
manufacturing of nuclear fuel, including regulatory, environmental and litigation risks. If such risks or other anticipated or unanticipated liabilities were to
materialize, any desired benefits of our entry into the joint venture may not be fully realized, if at all, and our future financial performance may be
negatively impacted.
There may be volatility in our stock price, which could negatively affect investments, and stockholders may not be able to resell their shares at or
above the value they originally purchased such shares.
The market price of our common stock may fluctuate significantly in response to a number of factors, some of which are beyond our control, including:
·
·
·
·
·
·
·
·
·
·
quarterly variations in operating results
changes in financial estimates by securities analysts
changes in market valuations of other similar companies;
limited liquidity in our common stock;
announcements by us or our competitors of new products or of significant technical innovations, contracts, receipt of (or failure to obtain)
government funding or support, acquisitions, strategic partnerships or joint ventures;
failure of the joint venture parties to work together effectively;
additions or departures of key personnel
any deviations in net sales or in losses from levels expected by securities analysts, or any reduction in political support from levels expected
by securities analysts;
future sales of common stock; and
nuclear accidents or other adverse nuclear industry events.
The stock market may experience extreme volatility that is often unrelated to the performance of particular companies. These market fluctuations may
cause our stock price to fall regardless of its performance.
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If the price of non-nuclear energy sources falls, there could be an adverse impact on new build nuclear reactor activities in certain markets, which
would have a material adverse effect on our operations.
In certain markets with a diversified energy base, decisions on new build power plants are largely affected by the economics of various energy sources. If
prices of non-nuclear energy sources fall, it could limit the deployment of new build nuclear power plants in such markets. This could reduce the size of
the potential markets for both our fuel technology and our consulting services.
We may be adversely affected by uncertainty in the global financial markets and worldwide economic downturn.
Our future results may be adversely affected by the worldwide economic downturn, continued volatility or further deterioration in the debt and equity
capital markets, inflation, deflation, or other adverse economic conditions that may negatively affect us. At present, it is likely that we will require
additional capital in the near future in order to fund our operations. Due to the above listed factors, we cannot be certain that additional funding will be
available on terms that are acceptable to us, or at all.
Our limited operating history with our joint venture with Framatome makes it difficult to judge our prospects.
Prior to 2008, we were a development stage company. We have commenced the provision of nuclear consulting services but currently have no consulting
clients as of the date of this filing. Similarly, our fuel design patents and technology have not been commercially used and we have not received any
royalty or sales revenue from this area of our business. We are subject to the risks, expenses and problems frequently encountered by companies in the
early stages of development.
We rely upon certain members of our senior management, including Seth Grae and Andrey Mushakov, and the loss of either Mr. Grae or Mr.
Mushakov or any of our senior management would have an adverse effect on the Company.
Our success depends upon certain members of our senior management, including Seth Grae, our Chief Executive Officer and Mr. Andrey Mushakov, our
Executive Vice President - International Nuclear Operations. Mr. Grae’s and Mr. Mushakov’s knowledge of the nuclear power industry, their network of
key contacts within that industry and in governments and, in particular, their expertise in the potential markets for our technologies, are critical to the
implementation of our business model. Mr. Grae and Mr. Mushakov are likely to be significant factors in our future growth and success. The loss of
services by either Mr. Grae or Mr. Mushakov would likely have a material adverse effect on us.
Competition for highly skilled professionals could have a material adverse effect on our success.
We rely heavily on our contractor staff and management team. Our success depends, in large part, on our ability to hire, retain, develop, and motivate
highly skilled professionals. Competition for these skilled professionals is intense and our inability to hire, retain and motivate adequate numbers of
consultants and managers could adversely affect our ability to meet client needs and to continue the development of our fuel designs. A loss of a
significant number of our employees could have a significant negative effect on us. Any significant volatility or sustained decline in the market price of
our common stock could impair our ability to use equity-based compensation to attract, retain, and motivate key employees and consultants.
Successful execution of our business model is dependent upon public support for nuclear power and overcoming public opposition to nuclear energy
as a result of the major nuclear accident at Fukushima.
Successful execution of our business model is dependent upon public support for nuclear power in the United States and other countries. Nuclear power
faces strong opposition from certain competitive energy sources, individuals, and organizations. The major nuclear accident that occurred at the
Fukushima nuclear power plant in Japan beginning on March 11, 2011 increased public opposition to nuclear power in some countries, resulting in a
slowdown in, or, in some cases, a complete halt to, new construction of nuclear power plants, an early shut down of existing power plants, or a dampening
of the favorable regulatory climate needed to introduce new nuclear technologies. In addition, the Fukushima accident appears to have shrunk the
projected size of the global nuclear power market in 2025-2030 as reflected in the most recent reference case projections published by the World Nuclear
Association. As a result of the Fukushima accident, some countries that were considering launching new domestic nuclear power programs have delayed
or cancelled preparatory activities they were planning to undertake as part of such programs. This has diminished the number of consulting opportunities
that we could compete on globally, at least in the near-term. Furthermore, nuclear fuel fabrication and the use of new nuclear fuels in reactors must be
licensed by the US Nuclear Regulatory Commission and equivalent governmental authorities around the world. In many countries, the licensing process
includes public hearings in which opponents of the use of nuclear power might be able to cause the issuance of required licenses to be delayed or denied.
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We may not be able to receive or retain authorizations that may be required for us to sell our services or license our technology internationally.
The sales and marketing of our services and technology internationally may be subject to US export control regulations and the export control laws of
other countries. Governmental authorizations may be required before we can export our services or technology. If authorizations are required and not
granted, our international business plans could be materially affected. The export authorization process is often time consuming. Violation of export
control regulations could subject us to fines and other penalties, such as losing the ability to export for a period of years, which would limit our revenue
growth opportunities and significantly hinder our attempts to expand our business internationally.
Risks Related to Our Fuel Technology Business
Our fuel designs have never been tested in an existing commercial reactor and actual fuel performance, as well as the willingness of commercial
reactor operators and fuel fabricators to adopt a new design, is uncertain.
Nuclear power research and development entails significant technological risk. New designs must undergo extensive development and testing necessary
for regulatory approval. Our fuel designs are still in the research and development stage and while certain testing on our fuel technologies has been
completed, further testing and experiments will be required in test facilities. For example, our proposed metallic fuel uses a helical cruciform form to
increase its surface area and shorten the distance for heat generated in the fuel rod to reach water and improve the coolability of the fuel. However, this
proposed shape may also result in non-uniform distribution of azimuthal heat flux that may have an adverse impact on the critical heat flux and limit
power uprate capabilities of our metallic fuel resulting from an increased surface area of the cruciform fuel rod compared to a conventional cylindrical fuel
rod. Additional testing and development may result in changes to the design of our proposed metallic fuel, which could decrease its realizable benefits and
impair the ability of nuclear utilities to utilize nuclear fuel incorporating our technology.
Furthermore, the fuel technology has yet to be demonstrated in operating conditions equivalent to those found in an existing commercial reactor. Until we
are able to successfully demonstrate operation of our fuel designs in commercial reactor conditions, we cannot confirm the ability of our fuel to perform as
expected, including its ability to enable a power uprate or a longer operating cycle. In addition, there is also a risk that suitable testing facilities may not be
available to us on a timely basis or at a reasonable cost, which could cause development program schedule delays.
If our fuel designs do not perform as anticipated in commercial reactor conditions, we will not realize revenues from licensing or other use of our fuel
designs.
Development of our nuclear fuel technology is dependent upon the availability of a test reactor.
Our fuel designs are still in the research and development stage and further testing and experiments will be required in test facilities. We currently intend
to conduct further testing of our fuel designs at the Halden research reactor located in Halden, Norway. However, the Halden research reactor, which
became operative in 1958, may close and may not be available for further testing of our fuel designs. If the Halden research reactor is not available to test
our fuel designs, we may not be able to locate another reactor in which to test our fuel designs, and commercialization of our nuclear fuel technology may
be delayed, perhaps indefinitely, which would adversely affect our business, financial condition and results of operations.
Potential competitors could limit opportunities to license our technology.
Other fuel fabricators may potentially develop new nuclear fuel designs that can be used in the same types of reactors as those that we target. Existing fuel
fabricators also have established commercial connections to nuclear power facilities that we do not have. If these types of companies were to compete
with our nuclear fuel design technology, opportunities to license our technology would be limited.
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Moreover, many of these other fuel fabricators have substantially greater financial, technological, managerial and research and development resources and
experience than we do. These larger companies may be better able to handle the corresponding long-term financial requirements.
We serve the nuclear power industry, which is highly regulated. Our fuel designs differ from fuels currently licensed and used by commercial nuclear
power plants. The regulatory licensing and approval process for nuclear power plants to use our fuels may be delayed and made more costly, and
industry acceptance of our fuels may be hampered.
The nuclear power industry is a highly regulated industry. All entities that operate nuclear facilities and transport nuclear materials are subject to the
jurisdiction of the US Nuclear Regulatory Commission, or its counterparts around the world.
Our fuel designs differ significantly in some aspects from the fuel used today by commercial nuclear power plants. These differences will likely result in
more prolonged and extensive review by the US Nuclear Regulatory Commission or its counterparts around the world that could cause development
program schedule delays. Entities within the nuclear industry may be hesitant to be the first to use our fuel, which has little or no history of successful
commercial use. Furthermore, our fuel development timeline relies on the relevant nuclear regulator to accept and approve technical information and
documentation about our fuel that is generated during the research and development program. There is a risk that regulators may require additional
information regarding the fuel’s behavior or performance that necessitates additional, unplanned analytical and/or experimental work which could cause
program schedule delays and require more research and development funding.
Existing commercial nuclear infrastructure in many countries is limited to uranium material enrichments up to 5%. Our metallic fuel is enriched to
higher levels which would require modifications to existing commercial nuclear infrastructure and could impede commercialization of our
technology.
Existing commercial nuclear infrastructure, including conversion facilities, enrichment facilities, fabrication facilities, fuel storage facilities, fuel handling
procedures, fuel operation at reactor sites, used fuel storage facilities and shipping containers, were designed and are currently licensed to handle uranium
enrichment up to 5%. Our fuel designs are expected to have enrichment levels up to 19.7% and would therefore require certain modifications to existing
commercial nuclear infrastructure to enable commercial nuclear facilities to handle our fuels. Those nuclear facilities will need to go through a regulatory
licensing process and obtain regulatory approvals to be able to handle uranium with enrichment levels up to 19.7% and operate commercial reactors using
our fuel. There is a risk that some relevant entities within the nuclear power industry may be slow in making any required facility infrastructure
modifications or obtaining required licenses or approvals to handle our fuel or operate commercial reactors using our fuel. There is also a risk associated
with possible negative perception of uranium enrichment greater than 5% that could potentially delay or hinder regulatory approval of our nuclear fuel
designs.
Our nuclear fuel designs rely on fabrication technologies that in certain material ways are different from the fabrication techniques presently utilized by
existing commercial fuel fabricators. In particular, our metallic fuel rods must be produced using a co-extrusion fabrication process. Presently, most
commercial nuclear fuel is produced using a pellet fabrication technology, whereby uranium oxide is packed into small pellets that are stacked and sealed
inside metallic tubes. Our co-extrusion fabrication technology involves extrusion of a single-piece solid fuel rod from a metallic matrix containing
uranium and zirconium alloy. Fabrication of full-length (approximately 3.5 to 4.5 meters) PWR metallic fuel rods has yet to be demonstrated. There is a
risk that the fuel fabrication process utilized to produce one meter long metallic fuel rods may not be adaptable to the fabrication of full-length metallic
fuel rods used in commercial reactors.
If the US Department of Energy (“DOE”) were to successfully assert that an invention claimed within our 2007 or 2008 Patent Cooperation Treaty, or
PCT, patent applications was first conceived or actually reduced to practice under a contract with the DOE, then our intellectual property rights in
that invention could become compromised and our business model could become significantly impeded.
Work on finite aspects and/or testing of some subject matter disclosed in our 2007 and 2008 Russian PCT patent applications was done under a
government contract with the DOE. If the DOE asserted that an invention claimed in the 2007 and/or 2008 Russian PCT applications was first conceived
or actually reduced to practice under such a contract, and a US court agreed, the DOE could gain an ownership interest in such an invention outside of the
Russian Federation and our intellectual property rights in that claimed invention could become compromised and our business model may then be
significantly impeded.
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If we are unable to obtain or maintain intellectual property rights relating to our technology, the commercial value of our technology may be
adversely affected, which could in turn adversely affect our business, financial condition and results of operations.
Our success and ability to compete depends in part upon our ability to obtain protection in the United States and other countries for our nuclear fuel
designs by establishing and maintaining intellectual property rights relating to or incorporated into our fuel technologies and products. We own a variety
of patents and patent applications in the United States, as well as corresponding patents and patent applications in several other jurisdictions. We have not
obtained patent protection in each market in which we plan to compete. We do not know how successful we would be should we choose to assert our
patents against suspected infringers. Our pending and future patent applications may not issue as patents or, if issued, may not issue in a form that will be
advantageous to us. Even if issued, patents may be challenged, narrowed, invalidated, or circumvented, which could limit our ability to stop competitors
from marketing similar products or limit the length of term of patent protection we may have for our products. Changes in either patent laws or in
interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property or narrow the scope of our patent
protection, which could in turn adversely affect our business, financial condition and results of operations.
If we infringe or are alleged to infringe intellectual property rights of third parties, our business, financial condition and results of operations could
be adversely affected.
Our nuclear fuel designs may infringe, or be claimed to infringe, patents or patent applications under which we do not hold licenses or other rights. Third
parties may own or control these patents and patent applications in the United States and elsewhere. Third parties could bring claims against us that would
cause us to incur substantial expenses and, if successfully asserted against us, could cause us to pay substantial damages. If a patent infringement suit were
brought against us, we could be forced to stop or delay commercialization of the fuel design or a component thereof that is the subject of the suit. As a
result of patent infringement claims, or in order to avoid potential claims, we may choose or be required to seek a license from the third party and be
required to pay license fees, royalties, or both. These licenses may not be available on acceptable terms, or at all. Even if we were able to obtain a license,
the rights may be nonexclusive, which could result in our competitors gaining access to the same intellectual property. Ultimately, we could be forced to
cease some aspect of our business operations if, as a result of actual or threatened patent infringement claims, we are unable to enter into licenses on
acceptable terms. This could significantly and adversely affect our business, financial condition, and results of operations. In addition to infringement
claims against us, we may become a party to other types of patent litigation and other proceedings, including interference proceedings declared by the
United States Patent and Trademark Office regarding intellectual property rights with respect to our nuclear fuel designs. The cost to us of any patent
litigation or other proceeding, even if resolved in our favor, could be substantial. Some of our competitors may be able to sustain the costs of such
litigation or proceedings more effectively than we can because of their greater financial resources. Uncertainties resulting from the initiation and
continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace. Patent litigation
and other proceedings may also absorb significant management time.
Our nuclear fuel process is dependent on outside suppliers of nuclear and other materials and any difficulty by a fuel fabricator in obtaining these
materials could be detrimental to our ability to eventually market our fuel through a fuel fabricator.
Production of fuel assemblies using our nuclear fuel designs is dependent on the ability of fuel fabricators to obtain supplies of nuclear material utilized in
our fuel assembly design. Fabricators will also need to obtain metal for components, particularly zirconium or its alloys. These materials are regulated and
can be difficult to obtain or may have unfavorable pricing terms. Any difficulties in obtaining these materials by fuel fabricators could have a material
adverse effect on their ability to market fuel based on our technology.
Applicable Russian intellectual property law may be inadequate to protect some of our intellectual property, which could have a material adverse
effect on our business.
Intellectual property rights are evolving in Russia, and are trending towards international norms, but are by no means fully developed. We have worked
closely with employees in Russia and other Russian contractors and entities to develop some of our material intellectual property. Some of our earlier
intellectual property rights originate from our patent filings in Russia. Our worldwide rights in some of this intellectual property, therefore, may be
affected by Russian intellectual property laws. If the application of Russian laws to some of our intellectual property rights proves inadequate, then we
may not be able to fully avail ourselves of all of our intellectual property, and our business model may be impeded.
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ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2. PROPERTIES
Starting December 22, 2015 our office space is located at 11710 Plaza America Drive, Suite 2000 Reston, VA 20190 USA. The term of the lease for our
new offices has been extended through December 31, 2018. We are obligated to pay approximately $6,500 per month for office rent and approximately
another $300 per month for other fees for this rented office space. This space is used by our executives, employees, and contractors for administrative
purposes, consulting work and research and development activities. Our joint venture company Enfission has a virtual office at the same address.
On January 1, 2015 we entered into a lease for our prior office space for a 38-month term, with a monthly rent payment of approximately $32,000 per
month plus additional charges with no rent charged for the initial 2 months of the lease term. On December 17, 2015 we entered into a sublease agreement
for this prior office space with a third party with a lease term starting January 1, 2016 to February 28, 2018. The Company does not have any lease
obligations for its prior office space after February 28, 2018. For a more detailed description of this sublease, see the information set forth under
“Operating Leases” in Note 7, “Commitments and Contingencies,” of the Notes to our consolidated financial statements in Part II, Item 8 of this Annual
Report on Form 10-K.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation
is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. For a
description of legal proceedings involving the Company, see the information set forth under “Litigation” in Note 7, “Commitments and Contingencies,”
of the Notes to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
Our common stock is quoted on the Nasdaq Capital Market under the symbol “LTBR”.
The following table sets forth the highest and lowest intraday sales prices of our common stock on the Nasdaq Capital Market during each quarter of the
two most recent years.
Fiscal Year
2017
2016
Quarter
Ending
December 31 $
September 30 $
June 30 $
March 31 $
December 31 $
September 30 $
June 30 $
March 31 $
High
Low
2.07 $
1.79 $
2.41 $
1.47 $
2.36 $
3.65 $
3.00 $
5.15 $
0.94
0.95
1.14
0.86
1.04
1.67
1.75
2.55
Effective July 20, 2016, we conducted a one-for-five reverse stock split of our issued and outstanding common stock. The high and low sale prices for our
common stock presented in the foregoing table give effect to the reverse stock split.
Holders
As of March 8, 2018, our common stock was held by approximately 88 stockholders of record, including Cede & Co., the nominee for the Depository
Trust & Clearing Corporation and consequently that number does not include beneficial owners of our common stock who hold their stock in “street
name” through their brokers.
Dividends
We have never paid dividends. While any future dividends will be determined by our directors after consideration of the earnings and financial condition
of the Company and other relevant factors, it is currently expected that available cash resources will be utilized in connection with our ongoing operations
for the foreseeable future.
Transfer Agent
Our transfer agent and registrar for our common stock is Computershare Trust Company, 8742 Lucent Blvd., Suite 225, Highlands Ranch, Colorado,
80129. Its telephone number is 800-962-4284 and facsimile is 303-262-0604.
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Recent Sales of Unregistered Securities
We did not sell any securities without registration under the Securities Act during the fiscal year ended December 31, 2017 other than as previously
disclosed in the Company’s quarterly reports on Form 10-Q and current reports on Form 8-K.
ITEM 6. SELECTED FINANCIAL INFORMATION.
Not applicable
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, is intended to help the reader
understand Lightbridge Corporation, our operations and our present business environment. MD&A is provided as a supplement to, and should be read in
conjunction with, our consolidated financial statements and the accompanying Notes thereto which are contained in “Item 8. Financial Statements and
Supplementary Data” of this report. This MD&A consists of the following sections:
·
·
·
·
Overview of Our Business and recent developments— a general overview of our two business segments and update;
Critical Accounting Policies and Estimates — a discussion of accounting policies that require critical judgments and estimates;
Operations Review — an analysis of our consolidated results of operations for the two years presented in our consolidated financial
statements. Except to the extent that differences among our operating segments are material to an understanding of our business as a whole,
we present the discussion in the MD&A on a consolidated basis; and
Liquidity, Capital Resources and Financial Position — an analysis of our cash flows; and an overview of our financial position.
As discussed in more detail at the beginning of this Annual Report, the following discussion contains forward-looking statements that involve risks,
uncertainties, and assumptions such as statements of our plans, objectives, expectations, and intentions. Our actual results may differ materially from
those discussed in these forward-looking statements because of the risks and uncertainties inherent in future events.
Overview of Our Business
Lightbridge is a leading nuclear fuel technology company. Our primary focus is the development and commercialization of next generation nuclear fuel
that will significantly improve the economics and safety of existing and new reactors, with a meaningful impact on preventing climate change. We believe
our nuclear fuel technology has the potential to enhance reactor safety and the proliferation resistance of spent fuel and increase the power output of
commercial reactors, reducing the cost of generating electricity and the amount of nuclear waste on a per-megawatt-hour basis.
We conduct our business principally through Enfission, our 50/50 joint venture with Framatome formed January 24, 2018 for the development, regulatory
licensing, fabrication, and sale of nuclear fuel assemblies based on Lightbridge-designed metallic fuel technology and other advanced nuclear fuel
intellectual property. Enfission serves as our exclusive vehicle for the development of manufacturing processes and fuel assembly designs for pressurized
water reactors, boiling water reactors, small modular reactors and research reactors, which constitute the most widely used reactor types in the world. In
addition to our nuclear fuel technology segment, we also opportunistically provide nuclear power consulting and strategic advisory services to commercial
and governmental entities worldwide.
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We were incorporated under the laws of the State of Nevada on February 2, 1999. Our principal executive offices are located at 11710 Plaza America
Drive, Suite 2000, Reston, Virginia 20190.
Refer to Part I, Item 1, Business, for additional information. Financial information about our business segments is included in Note 11 Business Segment
Results, of the Notes to the Consolidated Financial Statements, included in Part II Item 8, Financial Statements of this Annual Report on Form 10-K.
Operations Review
Business Segments and Periods Presented
Set forth below is a discussion of our results of operations on a consolidated basis and certain detailed segment information for each of our business
segments for the years ended December 31, 2017 and 2016. We have organized our operations into two principal segments: Consulting and Nuclear Fuel
Technology. We present our segment information along the same lines that our chief executives review our operating results in assessing performance
and allocating resources.
BUSINESS SEGMENT RESULTS - YEARS ENDED DECEMBER 31, 2017 AND 2016
Revenue
Segment Loss – Pre- Tax
Total Assets
Interest Expense
$
$
$
$
Technology Business
Technology Business
2016
2017
Consulting Business
2016
2016
2017
175,446 $
760,577
760,577 $
(78,513) $ (288,119) $ (2,282,938) $ (2,748,337) $ (4,743,446) $ (3,308,720) $ (7,104,897) $ (6,345,176)
388,434 $ 1,367,692 $ 1,160,465 $ 5,567,901 $ 5,253,476 $ 6,945,993 $ 6,802,375
10,400 $
29,386
- $
2017
175,446 $
29,386 $
16,095 $
16,095 $
Corporate
Total
- $
- $
- $
- $
- $
- $
- $
2017
2016
Over the next 12 to 15 months, we expect to incur approximately $10 million to $12 million in research and development expenses related to the
development of our proprietary nuclear fuel designs, including funding to the Enfission joint venture with Framatome. We spent approximately $2.3
million and $2.7 million for research and development during the years ended December 31, 2017 and 2016, respectively.
Over the next two to three years, our research and development activities through Enfission will increase and will be primarily focused on testing and
demonstration of our metallic fuel technology for Western-type water-cooled reactors. The main objective of this research and development phase is to
prepare for full-scale demonstration of our fuel technology in an operating commercial power reactor.
Consulting Services Business
All of our revenue for the years ended December 31, 2017 and 2016 is from our consulting services business segment. The fee type and structure that we
offer for each client engagement is dependent on a number of variables, including the complexity of the services, the level of the opportunity for us to
improve the client’s electricity generation capabilities using nuclear power plants, and other factors. We presently do not have any consulting clients as of
the date of this filing.
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Consolidated Results of Operations
The following table presents our historical operating results as a percentage of revenues for the years indicated:
Consulting Revenues
Cost of services provided
Consulting expenses
% of total revenues
Gross profit
% of total revenues
Operating Expenses
General and administrative
% of total revenues
Research and development expenses
% of total revenues
Total Costs and Expenses
% of total revenues
Total Operating Loss
% of total revenues
Other Income and (Expenses)
% of total revenues
Net loss - before income taxes
% of total revenues
Year Ended
December 31,
2017
2016
$
175,446
$
760,577
$
Changes
2017 vs 2016
$
(585,131)
%
(77)
(77)
(78)
(16)
(17)
(16)
(14)
107,091
$
61%
456,565
$
60%
(349,474)
68,355
$
39%
304,012
$
40%
(235,657)
4,383,066
$
2498%
5,190,549
$
682%
(807,483)
2,282,938
$
1301%
2,748,337
$
361%
(465,399)
6,666,004
$
3799%
7,938,886
$
1044%
(1,272,882)
(6,597,649)
$
(3761)%
(7,634,874)
$
(1004)%
(1,037,225)
(507,248)
$
(289)%
1,289,698
$
170%
(1,796,946)
(139)
(7,104,897)
$
(4,050)%
(6,345,176)
$
(834)%
(759,721)
12
$
$
$
$
$
$
$
$
27
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Revenue
The following table presents our revenues, by business segment, for the years presented (rounded in millions):
Consulting Segment Revenues:
ENEC and FANR (UAE)
Other (other countries)
Total
Year Ended
December 31,
Changes
2017 vs 2016
2017
2016
$
%
$
$
0.2 $
-
0.2 $
0.4 $
0.4
0.8 $
(0.2)
(0.4)
(0.6)
(50)
(100)
(75)
The decrease in our revenues from 2016 to 2017 of $0.6 million resulted from a decrease in the work performed for our FANR project of approximately
$0.4 million and a decrease in revenue of approximately $0.2 million from work performed for a consulting contract that terminated in 2016.
The market for nuclear industry consulting services is competitive, fragmented, and subject to rapid change. We believe that our independence,
experience, expertise, reputation and segment focus enable us to compete effectively in this marketplace. We presently do not have any consulting
contracts as of the date of this filing and therefore anticipate a reduction in consulting revenue for 2018.
See Note 1 and Note 3 of the Notes to our Consolidated Financial Statements included in Part II Item 8 of this Annual Report on Form 10-K for
additional information about our revenue.
Costs and Expenses
The following table presents our cost of services provided, by business segment, for the years presented (rounded in millions):
Consulting
Technology
Total
Year Ended
December 31,
Changes
2017 vs 2016
2017
2016
$
%
$
$
0.1 $
-
0.1 $
0.5 $
-
0.5 $
(0.4)
(0.4)
(80)
(80)
The decrease in our cost of services provided for the years ended December 31, 2017 and 2016 resulted from less revenue earned therefore resulting in
less allocated labor and stock-based compensation expenses in 2017. Cost of services provided is comprised of expenses related to the consulting,
professional, administrative, and other support costs and stock-based compensation allocated to our consulting projects labor, which were incurred to
perform and support the work done for our consulting projects. The billing rates to us from our consultants who provide services under our consulting
contracts predominantly remained the same in 2017 and 2016. If consulting revenues continue and increase in future periods, we expect cost of services
provided will increase in dollar amount and may increase as a percentage of revenues due to increased pricing competition for consulting contracts.
28
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Total reported gross profit margin for the years ended December 31, 2017 was 39% compared to 40% for the years ended December 31, 2016, Total
stock-based compensation included in costs of services provided was approximately $0.02 million and $0.1 million for the years ended December 31,
2017 and 2016, respectively, due to stock-based compensation from the issuance of stock options.
See Note 1 and Note 3 of the Notes to our Consolidated Financial Statements included in Part II Item 8 of this Annual Report on Form 10-K for
additional information about our cost of services provided.
Research and Development
The following table presents our research and development expenses, (rounded in millions):
December 31,
2017
2016
Changes
2017 vs 2016
$
%
Research and development expenses
$
2.3 $
2.7 $
(0.4)
(17)
Research and development expenses consist mostly of outside vendor work, compensation and related overhead costs for personnel responsible for the
research and development of our fuel and the negotiation and formation of our joint venture company Enfission. Total research and development
decreased due to the net decrease in outside vendor research and development work on our fuel of approximately $0.4 million, due to our focus of
negotiating our joint venture with Framatome; decrease in quality assurance consulting fees for our internal research and development documentation of
$0.1 million; decrease in professional fees of $0.1 million and decrease in total stock-based compensation included in research and development expenses
of $0.1 million. These decreases were offset by an increase in work performed by Framatome of approximately $0.3 million.
Total stock-based compensation included in research and development expenses was approximately $0.5 million and $0.6 million for the years ended
December 31, 2017 and 2016, respectively, due to stock-based compensation recorded from the issuance of stock options to employees and a consultant.
All of our reported research and development activities were conducted in the United States, France, Germany, Norway, and Russia. We expense all
research and development costs as they are incurred. Research and development expenses will increase in dollar amount and will increase as a percentage
of revenues in future periods because we expect to invest $10 million to $12 million in the development of our nuclear fuel products including our work
through Enfission over the next 12-15 months.
See Note 8 of the Notes to our Consolidated Financial Statements included in Part II Item 8 of this Annual Report Form on 10-K for additional
information about our research and development costs.
General and Administrative Expenses
The following table presents our general and administrative expenses, (rounded in millions):
Year Ended
December 31,
Changes
2017 vs 2016
2017
2016
$
%
General and administrative expenses
$
4.4 $
5.2 $
(0.8)
(16)
29
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General and administrative expenses consist mostly of compensation and related costs for general and administrative personnel and facilities, stock-based
compensation, finance, human resources, information technology, and fees for consulting and other professional services. Professional services are
principally comprised of outside legal, audit, strategic advisory services, investor and public relations and outsourcing services. Total general and
administrative expenses decreased primarily due to a decrease in insurance expense of $0.1 million, decrease in payroll and payroll related benefits of $0.3
million due to a reduction in full time employees; a decrease in total stock-based compensation allocated to our general and administrative expenses of
approximately $0.6 million due to prior year stock option grants in May 2014 that fully vested in May 2017 and prior year stock option grants in
November 2016 that immediately vested in November 2016. These decreases were offset by an increase in professional fees due to an increase in legal
fees spent on working on the Framatome agreements for the formation of Enfission LLC and an increase in corporation promotion expense due to the
engagement of a new consultant in 2017, both total approximately $0.2 million. Total stock-based compensation allocated to our general and
administrative expenses totaled approximately $0.7 million and $1.3 million for the years ended December 31, 2017 and 2016, respectively. Stock-based
compensation expense will increase in 2018 due the accelerated vesting of performance-based stock options that occurred in January 25, 2018 (see Note
13 of the Notes to our Consolidated Financial Statements included in this Annual Report).
See Note 10 of the Notes to our Consolidated Financial Statements included in this Annual Report on Form 10-K for more information regarding our
stock-based compensation.
Other Income (Expense)
The following table presents our other Income (expenses), (rounded in millions):
Warrant revaluation
Warrant modification expense
Financing costs
Total Other Income and (Expenses)
Year Ended
December 31,
Changes
2017 vs 2016
2017
2016
$
%
$
$
- $
-
(0.5)
(0.5) $
1.7 $
(0.2)
(0.2)
1.3 $
(1.7)
0.2
(0.3)
(1.8)
(100)
100
150
(138)
Other income and expenses for the year ended December 31, 2017, as compared to the year ended December 31, 2016, net other income (expense)
decreased by approximately $1.8 million. The non-cash warrant income decreased by approximately $1.7 million due to the classification of the derivative
warrant liability in 2016 to equity; the warrant modification expense decreased by approximately $0.2 million due to the settlement with our warrant
holders of our 2014 and 2013 warrant liabilities in 2016 and the increase in financing costs due to the amortization of deferred financing costs from our
option agreements with Aspire Capital was approximately $0.3 million. This option agreement with Aspire Capital was effectively terminated with the
terms and conditions set forth in the Series B Preferred Stock offering.
Provision for Income Taxes
The following table presents our provision for income taxes. Our effective tax rate for the periods presented is 38%.
Provision for income taxes
$
- $
- $
-
-
Year Ended
December 31,
Changes
2017 vs 2016
2017
2016
$
%
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We incurred a pre-tax net loss for both 2017 and 2016. We reviewed all sources of income for purposes of recognizing the deferred tax assets and
concluded a full valuation allowance for 2017 and 2016 was necessary. Therefore, we did not have a provision for taxes for both years ended December
31, 2017 and 2016.
See Note 9 of the Notes to our Consolidated Financial Statements included in this Annual Report on Form 10-K for information regarding our Income
Taxes.
Liquidity, Capital Resources and Financial Position
As of the date of this filing, equity sales in 2018 from our New ATM agreement and the sale of our Series B Preferred Stock has provided significant cash
flow to cover both our research and development expenses and corporate overhead expenses for the next 12 months. Our cash balance at December 31,
2017 totaled $4.5 million and our working capital totaled $3.9 million. As of March 14, 2018, our cash and cash equivalents balance was approximately
$27 million.
From January 24, 2018 to March 2, 2018, the Company filed prospectus supplements to register additional sales under the New ATM in the aggregate
amount of $22.6 million. We raised approximately $20 million under the New ATM from January 1, 2018 through the date of this 10-K filing.
On January 30, 2018, we closed on our offering of approximate $4 million of our Convertible Series B Preferred Stock.
The sales of Series B Preferred Stock and common stock under the New ATM have significantly improved our cash and working capital position to meet
our cash requirements for the next 12 months from the date of this filing. We anticipate that we will need to raise additional capital to meet our working
capital requirements and research and development goals in 2019.
The current primary future potential sources of cash available to us in 2018 are equity investments through our New ATM agreement, potential funding
from other equity investors and potential funding from the Department of Energy, in which we intend to apply for later this year. We anticipate that our
financing through the New ATM agreement in 2018 and other third parties will help us meet the U.S. Department of Energy’s (DOE) minimum cost-
sharing requirements that typically range from 20% to 50% of the total project cost (i.e., a 25% to 100% match in Company’s cost-sharing contributions is
required for each dollar of DOE funding) or even higher in some cases. This may enable us to apply for DOE funding that can be used toward
development and/or regulatory licensing of our nuclear fuel. We have no debt or debt credit lines and we have financed our operations to date through our
prior years’ consulting revenue and the sale of our common stock. Management believes that the funding amount from the New ATM agreement will be
available as needed by the Company and that adverse market conditions in the Company’s common stock price and trading volume will not substantially
impair the Company’s ability to raise capital through the New ATM if needed in the future.
Our current projected average monthly cash flow requirements for corporate overhead expenses, excluding our funding for research and development
expenses which includes funding to our joint venture company Enfission, is anticipated to average in the range of approximately $400,000 to $500,000
per month for the next 12 months from the date of the filing of this report. We will be spending additional amounts for our research and development
activities, including our work through Enfission, in the range of $10 million to $12 million (current funding commitment to Enfission at December 31,
2017 was approximately $3.3 million) for the next 12 months from the date of the filing of this report. We have the ability to delay incurring certain
corporate overhead and research and development expenses in the next 12 months, which could reduce our cash flow requirements, if needed.
Short-Term and Long-Term Liquidity Sources
In addition to the New ATM financing and other potential funding discussed above, we may seek new financing or additional sources of capital,
depending on the capital market conditions, over the next 12 months. There can be no assurance that some of these additional sources of capital will be
made available to us. The primary potential sources of cash available to us are as follows:
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1.
2.
Equity investment from investors; and
Strategic investment or cost-sharing contributions through funding from the Department of Energy, and/or other strategic parties, to support
the remaining research and development activities required to further enhance and complete the development of our fuel products to a
commercial stage.
In support of our long-term business plan with respect to our fuel technology business, we endeavor to create strategic alliances with other strategic parties
during the next three years, to support the remaining research and development activities through Enfission, that is required to further enhance and
complete the development of our fuel products to a commercial stage. We may be unable to form such strategic alliances on terms acceptable to us or at
all.
We anticipate that we will need to raise additional capital, which may involve offerings of equity or debt securities, securing financing through one or
more banks, entering into strategic alliances with other parties, and seeking potential funding from the Department of Energy, that we anticipate applying
for later this year.
See Note 10 of the Notes to our financial statements included in Part II Item 8 of this Annual Report on Form 10-K for information regarding our New
ATM financing.
The following table provides detailed information about our net cash flows for the years ended December 31, 2017 and 2016.
Cash Flow (in millions)
Net cash used in operating activities
Net cash used in investing activities
Net cash provided by financing activities
Net cash inflow
Operating Activities
Year Ended
December 31,
2017
2016
$
$
$
$
(5.0) $
(0.2) $
6.1 $
0.9 $
(6.0)
(0.2)
9.2
3.0
The decrease in our cash used in operating activities in 2017 of $1.0 million was primarily due to the decrease in our revenue and operating expenses and
the change in working capital items as explained below.
Cash used in operating activities in the year ended December 31, 2017, consisted of net loss adjusted for non-cash (income) expense items such as stock-
based compensation, amortization of deferred financing costs and others, as well as the effect of changes in working capital. Cash used in operating
activities in the year ended December 31, 2017 consisted of a net loss of $7.1 million and net adjustments to net loss for non-cash income items or a
negative cash flow offset (decrease to cash flow used in operating activities) totaling $1.7 million, consisting of non-cash adjustments for stock-based
compensation of $1.2 million and amortization of deferred financing cost of $0.5 million. Total cash used in operating working capital totaled $0.4
million. The cash used in operating working capital was due primarily to the decrease in deferred lease abandonment liability of $0.2 million; offset
primarily by the decrease in accounts receivable of $0.4 million and the increase in accounts payable and accrued expenses of $0.2 million and due to the
decrease in revenue.
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Cash used in operating activities in the year ended December 31, 2016, consisted of net loss adjusted for non-cash (income) expense items such as stock-
based compensation, depreciation and amortization and warrant revaluation, as well as the effect of changes in working capital. Cash used in operating
activities in the year ended December 31, 2016, consisted of a net loss of $6.3 million and net adjustments to net loss for non-cash income items or a
negative cash flow offset (decrease to cash flow used in operating activities) totaling $0.6 million, consisting of non-cash adjustments for stock-based
compensation of $2.0 million and amortization of deferred financing cost of $0.2 million and warrant modification expense of $0.2 million and a non-cash
adjustment (increase in cash flow used in operating activities) for the non-cash warrant revaluation income of $1.7 million. Total cash used in operating
working capital totaled $0.3 million. The cash used in operating working capital was due primarily to an increase in accounts receivable and prepaid and
other current assets of $0.1 million, due to an increase in the accounts receivable aging; decrease in deferred lease abandonment liability of $0.3 million
for the rent paid on the office space being sub-leased; offset primarily by the increase in accounts payable and accrued expenses of $0.1 million.
Investing Activities
Net cash used by our investing activities for the year ended December 31, 2017, as compared to net cash used by our investing activities in 2016 was
primarily the same due to our spending for patent application costs. These applications are filed for the new developments resulting from our research and
development activities in our technology business segment. We anticipate these patent costs to increase in the future periods due to the continuing
research and development work we plan to perform on our all-metal fuel design.
Financing Activities
Net cash provided by our financing activities for the year ended December 31, 2017, as compared to net cash provided by our financing activities for the
year ended December 31, 2016 was a decrease of $3.1 million.
The decrease in our cash provided by our financing activities in 2017 of $3.1 million was primarily due to the decrease in the proceeds from the issuance
of our Series A Preferred Stock of $2.8 million, a decrease in the proceeds from the issuance of our common stock through our equity purchase
agreements with Aspire Capital and our ATM agreements of approximately $0.2 million and a decrease in the transfer of our restricted cash to our
operating cash account of approximately $0.1 million.
Critical Accounting Policies and Estimates
The SEC issued Financial Reporting Release No. 60, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies” suggesting that
companies provide additional disclosure and commentary on their most critical accounting policies. In Financial Reporting Release No. 60, the SEC has
defined the most critical accounting policies as the ones that are most important to the portrayal of a company’s financial condition and operating results
and require management to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently
uncertain. Based on this definition, we have identified the following significant policies as critical to the understanding of our financial statements.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make a variety of estimates
and assumptions that affect (i) the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the
financial statements and (ii) the reported amounts of revenues and expenses during the reporting periods covered by the financial statements.
33
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Our management expects to make judgments and estimates about the effect of matters that are inherently uncertain. As the number of variables and
assumptions affecting the future resolution of the uncertainties increase, these judgments become even more subjective and complex. Although we believe
that our estimates and assumptions are reasonable, actual results may differ significantly from these estimates. Changes in estimates and assumptions
based upon actual results may have a material impact on our results of operation and/or financial condition. We have identified certain accounting policies
that we believe are most important to the understanding of our current financial condition and results of operations.
Accounting for Stock Based Compensation, Stock Options and Stock Granted to Employees and Non-employees
We adopted the requirements for stock-based compensation, where all forms of share-based payments to employees or non-employees, including stock
options and stock purchase plans, are treated the same as any other form of compensation by recognizing the related cost in the statement of operations.
Under these requirements, stock-based compensation expense for employees is measured at the grant date based on the fair value of the award, and the
expense is recognized ratably over the award’s vesting period.
The stock-based compensation expense incurred by Lightbridge in connection with its employees is based on the employee model of ASC 718. Under
ASC 718 employee is defined as “An individual over whom the grantor of a share-based compensation award exercises or has the right to exercise
sufficient control to establish an employer-employee relationship based on common law as illustrated in case law and currently under US tax regulations.”
Our consultants do not meet the employer-employee relationship as defined by the IRS and therefore stock-based compensation to them is accounted for
under ASC 505-50. Under these requirements, stock-based compensation expense for non-employees is based on the fair value of the award on the
measurement date which is the earlier of the date at which a commitment for performance by the counterparty to earn the equity instruments is reached (a
performance commitment), or the date at which the counterparty’s performance is complete. For all service-based grants made, we recognize
compensation cost under the straight-line method.
We measure the fair value of service-based stock options on the measurement date using the Black-Scholes option-pricing model which requires the use
of several estimates, including:
•
•
•
•
the volatility of our stock price;
the expected life of the option;
risk free interest rates; and
expected dividend yield.
We use the historical volatility of our stock price over the number of years that matches the expected life of our stock option grants or we use the
historical volatility of our stock price since January 5, 2006, the date we announced that we were becoming a public company, to estimate the future
volatility of our stock. At this time, we do not believe that there is a better objective method to predict the future volatility of our stock. The expected life
of options is based on internal studies of historical experience and projected exercise behavior. We estimate expected forfeitures of stock-based awards at
the grant date and recognize compensation cost only for those awards expected to vest. The forfeiture assumption is ultimately adjusted to the actual
forfeiture rate. Estimated forfeitures are reassessed in subsequent periods and may change based on new facts and circumstances. We utilize a risk-free
interest rate, which is based on the yield of US treasury securities with a maturity equal to the expected life of the options. We have not and do not expect
to pay dividends on our common shares for the foreseeable future.
We use the Monte Carlo valuation model to determine the fair value of market-based and performance-based stock options at the date of grant, which
requires us to make assumptions for the expected term, volatility, dividend yield, risk-free interest rate and forfeiture rates. These assumptions are based on
historical information and judgment regarding market factors and trends. If actual results differ from our assumptions and judgments used in estimating
these factors, future adjustments to these estimates may be required.
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Intangibles
As presented on the accompanying balance sheet, we had patents with a net book value of approximately $1.4 million and $1.2 million as of December 31,
2017 and December 31, 2016, respectively. There are many assumptions and estimates that may directly impact the results of impairment testing,
including an estimate of future expected revenues, earnings and cash flows, and discount rates applied to such expected cash flows in order to estimate fair
value. We have the ability to influence the outcome and ultimate results based on the assumptions and estimates we choose for testing. To mitigate undue
influence, we set criteria that are reviewed and approved by various levels of management. The determination of whether or not intangible assets have
become impaired involves a significant level of judgment in the assumptions.
Changes in our strategy or market conditions could significantly impact these judgments and require adjustments to recorded amounts of intangible assets.
Warrant Financing Costs
On August 10, 2016 the Company entered into an option agreement with Aspire Capital whereby the Company had the right, at any time prior to
December 31, 2019, to require Aspire Capital to enter into with the Company, up to two common stock purchase agreements each with a three-year term,
with an aggregate amount under both purchase agreements combined not to exceed $20,000,000. The Company issued 500,000 warrants in connection
with this option agreement and incurred a financing cost of approximately $1.6 million upon issuance. This financing cost, was valued using the Black-
Scholes valuation method and was recorded as an asset, amortized over the three-year term.
The Company accounts for common stock warrants as either equity instruments or derivative liabilities depending on the specific terms of the warrant
agreement. Common stock warrants are accounted for as a derivative in accordance with Accounting Standards Codification 815, Derivatives and
Hedging (“ASC 815”) if the stock warrants contain terms that could potentially require “net cash settlement” and therefore, do not meet the scope
exception for treatment as a derivative. Warrant instruments that could potentially require “net cash settlement” in the absence of express language
precluding such settlement are initially classified as derivative liabilities at their estimated fair values, regardless of the likelihood that such instruments
will ever be settled in cash.
Recent Accounting Standards and Pronouncements
Refer to Note 1 of the Notes to our Consolidated Financial Statements for a discussion of recent accounting standards and pronouncements.
Off Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition,
changes in financial condition, revenues or expenses, results of operations, liquidity or capital expenditures or capital resources that is material to an
investor in our securities.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS
The full text of our audited consolidated financial statements as of and for the years ended December 31, 2017 and 2016 begins on page 61 of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no disagreements regarding accounting and financial disclosure matters with our independent certified public accountants.
ITEM 9A. CONTROLS AND PROCEDURES EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
As of the end of the period covered by this report, our management, under the supervision and with the participation of our principal executive officer and
principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in
Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2017 to ensure that information required to be
disclosed by the Company in the reports that it files or submits under the Exchange Act is (a) recorded, processed, summarized and reported, within the
time periods specified in the SEC’s rules and forms, and (b) accumulated and communicated to our management, including our principal executive officer
and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
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Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act
Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief
Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in the Internal
Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America. Our
internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures
of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material
effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2017. Based on this assessment, management,
with the participation of our Chief Executive Officer and Chief Financial Officer, determined that as of December 31, 2017, the Company’s internal
control over financial reporting was effective.
This Annual Report on Form 10-K does not include an attestation report of the Company’s independent public accounting firm regarding internal control
over financial reporting. Management’s report was not subject to attestation by the Company’s independent public accounting firm pursuant to rules of the
Securities and Exchange Commission that permit the Company to provide only management’s report in this Annual Report on Form 10-K.
Changes in Internal Controls
There were no changes in the Company’s internal control over financial reporting during the fourth quarter of 2017 that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
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ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors and Executive Officers
PART III
Set forth below are the names of our current directors, executive officers and significant employees, their ages, all positions and offices that they hold
with us, the period during which they have served as such, and their business experience during at least the last five years.
Name
Seth Grae
Thomas Graham, Jr.
Xingping Hou
Victor E. Alessi
Kathleen Kennedy Townsend
Daniel B. Magraw
Linda Zwobota
Andrey Mushakov
Age
55
84
57
78
66
71
67
41
Position with the
Lightbridge
President, CEO and Director
Chairman and Corporate Secretary
Co-Chairman
Director
Director
Director
Chief Financial Officer
Executive Vice President – International Nuclear
Operations
Director Since
April 2006
April 2006
August 2016
August 2006
October 2013
October 2006
-
-
Name
Seth Grae
Thomas Graham, Jr.
Position with the Company and Principal Occupations
Mr. Grae was named the Chief Executive Officer and President of the Company on March 17, 2006 and, effective April 2,
2006, became a director of the Company. Seth Grae has led the development and implementation of Lightbridge’s
business efforts to develop and deploy advanced nuclear fuel technologies and to provide comprehensive advisory services
based on safety, non-proliferation, and transparency for emerging commercial nuclear power programs.
Mr. Grae is a member of the Civil Nuclear Trade Advisory Committee to the U.S. Secretary of Commerce, the Nuclear
Energy Institute’s Suppliers Advisory Committee, and the Dean’s Advisory Council at the Washington College of Law at
American University. Mr. Grae has served as Vice Chair of the Governing Board of the Bulletin of the Atomic Scientists,
as Co-Chair of the American Bar Association’s Arms Control and Disarmament Committee, and as a member of the
Board of Directors of the Lawyers Alliance for World Security.
Ambassador Graham became a director of the Company on April 2, 2006, and chairman of the Board on April 4, 2006.
Ambassador Graham served as a member of the board of directors of Thorium Power, Inc., from 1997 until the merger
with the Company. He is one of the world’s leading experts on nuclear non-proliferation and has served as a senior U.S.
diplomat involved in the negotiation of every major international arms control and non-proliferation agreement involving
the United States during the period from 1970 to 1997, including the Strategic Arms Limitations Talks (the Interim
Agreement on Strategic Offensive Arms, the Anti- Ballistic Missile Treaty, and the Salt II Treaty), the Strategic Arms
Reduction Talks (the Start I Treaty and the Start II Treaty), the Intermediate Nuclear Forces Treaty, the Nuclear Non-
Proliferation Treaty Extension, the Conventional Armed Forces in Europe Treaty, and the Comprehensive Test Ban
Treaty. In 1993, Ambassador Graham served as the Acting Director of the U.S. Arms Control and Disarmament Agency
(ACDA), and for seven months in 1994 served as the Acting Deputy Director. From 1994 through 1997, he served as the
Special Representative of the President of the United States for Arms Control, Non-Proliferation and Disarmament with
the rank of Ambassador, and in this capacity successfully led U.S. government efforts to achieve the permanent extension
of the Nuclear Non-Proliferation Treaty in 1995. He also served for 15 years as the general counsel of ACDA.
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Xingping Hou
Victor E. Alessi
Ambassador Graham worked on the negotiation of the Chemical Weapons Convention and the Biological Weapons
Convention. He drafted the implementing legislation for the Biological Weapons Convention and managed the Senate
approval of the ratification of the Geneva Protocol banning the use in war of chemical and biological weapons. In 2009, Mr.
Graham was appointed as a member of the International Advisory Board for the nuclear program of the United Arab
Emirates. He is also Chairman of the Board of CanAlaska Uranium Ltd. of Vancouver, Canada (TSX: CVV), a uranium
exploration company. Ambassador Graham received an A.B. in 1955 from Princeton University and a J.D. in 1961 from
Harvard Law School. He is a member of the Kentucky, the District of Columbia and the New York Bar Associations and is
a member of the Council on Foreign Relations. He chaired the Committee on Arms Control and Disarmament of the
American Bar Association from 1986-1994. Ambassador Graham received the Trainor Award for Distinction in Diplomacy
from Georgetown University in 1995 and the World Order Under Law award from the International Law Section of the
American Bar Association in 2007. He has taught at a number of universities as an adjunct professor including the
University of Virginia Law School, Georgetown University Law Center, Georgetown University School of Foreign Service,
the University of Washington, the University of Tennessee, Stanford University, and Oregon State University. He has
published seven books, the most recent non-fiction book being Unending Crisis in 2012 as well as an historical
novel, Sapphire, A Tale of the Cold War, in 2014. Ambassador Graham plans to publish two books in the fall of 2017, “The
Alternate route: Nuclear Weapon Free Zones”, and “Seeing the light, the Case for Nuclear Power in the 21st Century”.
Mr. Xingping Hou joined the Company’s Board of Directors as co-Chairman on August 2, 2016. Mr. Hou is the founder
and has served as Chairman of the Board, Chief Executive Officer and President of General Agriculture Corporation, one of
China’s largest orange producers, since July 2012. Mr. Hou has also served as the Chairman of the Board for each of
General Red Industry Group Co., Ltd. and Shaanxi General Red Agricultural Development Co., Ltd. since May 2010 and
October 2010, respectively. Mr. Hou has also served as a director of Hua Mei Investments Limited and Han Glory
International Limited since April 2011. Mr. Hou brings international expertise and experience to the Board.
Dr. Alessi became a director of the Company on August 23, 2006. Dr. Alessi, who holds a Ph.D. in nuclear physics, is
President Emeritus of the United States Industry Coalition (“USIC”), an organization dedicated to facilitating the
commercialization of technologies of the New Independent States (“NIS”) of the former Soviet Union through cooperation
with its members. He has held such position since August 1, 2006. Prior to becoming President Emeritus, Dr. Alessi held
the positions of CEO and President of USIC since 1999. Previously, he was President of DynMeridian, a subsidiary of
DynCorp, specializing in arms control, non-proliferation, and international security affairs. Before joining DynMeridian in
early 1996, Dr. Alessi was the Executive Assistant to the Director, U.S. Arms Control and Disarmament Agency
(“ACDA”). At ACDA he resolved inter-bureau disputes and advised the director on all arms control and non-proliferation
issues. Dr. Alessi served as Director of the Office of Arms Control and Non-proliferation in the Department of Energy
(“DOE”) prior to his work at ACDA, overseeing all DOE arms control and non-proliferation activities. As a senior DOE
representative, Dr. Alessi participated in U.S. efforts that led to successful conclusion of the Intermediate Nuclear Forces
(INF), Conventional Forces in Europe, Threshold Test Ban, Peaceful Nuclear Explosions, Open Skies, Strategic Arms
Reductions Talks Treaties and the Chemical Weapons Convention. In this role, he was instrumental in implementing the
U.S. unilateral nuclear initiative in 1991 and was a member of the U.S. delegation discussing nuclear disarmament with
Russia and other states of the former Soviet Union. He was in charge of DOE’s support to the U.N. Special Commission on
Iraq, to the Nunn-Lugar Initiative, and represented DOE in discussions on the Comprehensive Test Ban (“CTB”) with the
other nuclear weapons states before the CTB negotiations began in Geneva in 1994. Dr. Alessi served as the U.S. board
member to the International Science and Technology Center in Moscow since its founding in 1992 until 2011. He is also
the former U.S. board member to the Science and Technology Center in Ukraine. Dr. Alessi is a 1963 graduate of Fordham
University, where he also earned a licentiate in Philosophy (Ph.L.) in 1964. He studied nuclear physics at Georgetown
University, receiving his M.S. in 1968 and Ph.D. in 1969.
Kathleen
Townsend
Kennedy
Ms. Townsend became a director of the Company in October 2013. Ms. Townsend has a long history of accomplishment in
the public arena, and for the last decade in the private sector. She has been a Managing Director at the Rock Creek Group,
an investment management company, since 2007. Ms. Townsend also serves on the board of directors for the Pension
Rights Center (a nonprofit consumer advocacy organization), NewTower Trust Company (a non-depository trust company
that provides fiduciary and trustee services to the Multi-Employer Property Trust (MEPT), an open-end commingled real
estate equity fund), and CanAlaska Uranium Ltd. (TSX: CVV) (a Canadian uranium exploration company).
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Daniel B. Magraw
As the State of Maryland’s first woman Lt. Governor, Ms. Townsend was in charge of a multimillion dollar budget and had
oversight of major cabinet departments, including Economic Development and Transportation, State Police, Public Safety
and Correction and Juvenile Justice. Prior to being elected Lt. Governor, Ms. Townsend served as Deputy Assistant
Attorney General of the United States. In that role, she led the planning to put 100,000 police officers into the community
and she ignited the Police Corps, a program to give college scholarships to young people who pledge to work as police
officers for four years after graduation.
Prior to serving at the Department of Justice, Ms. Townsend spent seven years as the founder and director of the Maryland
Student Service Alliance where she led the fight to make Maryland the first-and only-state to make service a graduation
requirement.
She has been appointed Special Advisor at the Department of State, and a Research Professor at the McCourt School of
Public Policy at Georgetown University, where she focuses on retirement security. She is a Woodrow Wilson Fellow. She
taught foreign policy at the University of Pennsylvania and the University of Maryland, Baltimore County and has been a
visiting Fellow at the Kennedy School of Government at Harvard. In the mid-1980s, she founded the Robert F. Kennedy
Human Rights Award.
She chairs the Center for Popular Democracy which builds the strength and capacity of democratic organizations. Ms.
Townsend is also a member of the Council of Foreign Relations and the Inter-American Dialogue. For the last eight years
she has been Vice-Chair of the Future of Science conference held in Venice Italy and for the last four years Vice-Chair of
Science for Peace held in Milan.
Ms. Townsend has chaired the Institute of Human Virology founded by Dr. Robert Gallo, which treats over 700,000
patients in Africa as part of the PEPFAR program, has chaired the Robert Kennedy Memorial and has been on the Board of
Directors of the John F Kennedy Library Foundation. Previously, she served on a number of boards including the Export-
Import Bank, Johns Hopkins School of Advanced International Studies (SAIS), the Wilderness Society, the Points of Light
Foundation, the National Catholic Reporter and the Institute for Women’s Policy Research, and the Baltimore Urban
League.
An honors graduate of Harvard University, Ms. Townsend received her law degree from the University of New Mexico
where she was a member of the law review. She has received fourteen honorary degrees. A member of the bar in Maryland,
Connecticut and Massachusetts, she is also a certified broker-dealer.
Ms. Townsend’s book, Failing America’s Faithful: How Today’s Churches Mixed God with Politics and Lost Their
Way was published by Warner Books in March 2007.
Mr. Magraw became a director of the Company on October 23, 2006. Mr. Magraw is a leading expert on international
environmental law and policy, as well as on international human rights. Mr. Magraw is a Senior Fellow and Professorial
Lecturer at the Foreign Policy Institute at Johns Hopkins School of Advanced International Studies (SAIS) and President
Emeritus of the Center for International Environmental Law (CIEL). Mr. Magraw was the President and CEO of CIEL
from 2002- 2010. From 1992-2001, he was Director of the International Environmental Law Office of the U.S.
Environmental Protection Agency, during which time he also served at the White House (2000-2001) and as Acting
Assistant Administrator of the EPA’s Office of International Activities. He was a member of the Trade and Environment
Policy Advisory Committee to the Office of the U.S. Trade Representative (TEPAC) from 2002-2010, chairs the American
Bar Association (ABA) Section of International Law’s Task Force on Carta de Foresta, serves as a consultant to the United
Nations, was a member of the U.S. Department of State Study Group on International Business Transactions, and was Chair
of the 15,000-member Section of International Law and Practice of the ABA. He practiced international law, constitutional
law, and bankruptcy law at Covington & Burling in Washington, DC from 1978-1983. Mr. Magraw is a widely-published
author in the field of international law and has received many awards. He graduated from Harvard University with High
Honors in Economics, where he was student body president, and from the University of California, Berkeley Law School,
where he was Editor-in-Chief of the Law Review. While working as an economist for the Peace Corps in India from 1968
to 1972, Mr. Magraw helped develop and managed the largest and most successful cooperative of its type (wholesale,
retail, furniture manufacturing and food processing) in India. In 1996, Mr. Magraw became a member of the board of
directors of Thorium Power, Inc., which is now a wholly-owned subsidiary of the Company.
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Linda Zwobota
Ms. Zwobota was appointed the Chief Financial Officer of the Company on March 25, 2015, after having served as interim
Chief Financial Officer since November 2014. Prior to that appointment, Ms. Zwobota served as the Company’s Controller,
a position she held since October 2009, when she joined the Company.
From May 2000 until October 2009, Ms. Zwobota held the position of Associate at Resources Global Professionals
(“RGP”), a consulting firm, where she provided RGP clients with a broad range of services, including accounting,
regulatory reporting, internal audit, and IT system support. Prior to joining RGP, from 1999 to May 2000, Ms. Zwobota
held the position of Senior Internal Auditor for BAA, USA, Inc., a subsidiary of BAA plc, a developer and manager of
retail, food and beverage concessions at airports. Ms. Zwobota performed high-level, risk-based audits of BAA plc’s
investments in North America, including World Duty Free Americas, World Duty Free Inflight, airport and retail
operations, and development activities. Prior to joining BAA, USA, Inc., from 1997 through 1999, Ms. Zwobota was the
Revenue Accounting Manager for World Duty Free, another BAA plc company with global operations, sales of $43 million
denominated in 54 different currencies worldwide, servicing 23 airline concessions, at 31 stations in 18 countries. From
1992-1997, Ms. Zwobota worked at a subsidiary of Wartsila, a global power solutions company, as a Senior Accountant
and as the Assistant Treasurer. Ms. Zwobota earned a Bachelor’s Degree from the University of Maryland, College Park.
She has been a certified public accountant since November 1991 and a Certified Internal Auditor (CIA®) since May 1999.
Andrey Mushakov
Dr. Mushakov oversees the nuclear fuel technology division of Lightbridge Corporation and is an expert in cost modeling
and the economics of the nuclear fuel cycle. He has been with Lightbridge since 2000, and in 2006 he was named executive
vice president for international nuclear operations.
In 2009, Dr. Mushakov led Lightbridge’s efforts to establish its Russian Branch Office in Moscow and oversaw its
successful operation from 2009 to 2014 when Lightbridge made a decision to move its critical path fuel development and
demonstration activities out of Russia due to increased political risk. In 2014-2015, Dr. Mushakov spearheaded an effort
within Lightbridge to establish cooperation agreements with Canadian Nuclear Laboratories in Canada, BWXT in the
United States, and the Institute for Energy Technology in Norway.
In 2016-2017, Dr. Mushakov led a successful negotiating team effort to establish Lightbridge’s first commercial
arrangement with a major nuclear fuel vendor via formation of a 50-50 US-based joint venture company, Enfission LLC,
between Lightbridge and Framatome, Inc.
Dr. Mushakov has been a featured speaker at international conferences and panels on nuclear fuel technology, including the
Wharton Energy Conference and the World Nuclear Fuel Cycle Conference.
He earned a Ph.D. in economics from St. Petersburg State University of Economics and Finance, an M.S. degree in
management from Hult International Business School, and a B.S. degree in banking and finance from the Financial
University under the Government of the Russian Federation.
There are no agreements or understandings for any of our executive officers or director to resign at the request of another person and no officer or director
is acting on behalf of nor will any of them act at the direction of any other person.
Directors are elected until their successors are duly elected and qualified.
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Family Relationships
There are no family relationships among our directors or officers.
Involvement in Certain Legal Proceedings
To the best of our knowledge, there is no involvement in legal proceedings during the past ten years that is required to be disclosed pursuant to Regulation
S-K 401(f).
Promoters and Certain Control Persons
We did not have any promoters at any time during the past five fiscal years.
Director Qualifications
Directors are responsible for overseeing the Company’s business consistent with their fiduciary duty to stockholders. This significant responsibility
requires highly-skilled individuals with various qualities, attributes and professional experience. The Board believes that there are general requirements
for service on the Board that are applicable to all directors and that there are other skills and experience that should be represented on the Board as a
whole but not necessarily by each director. The Board and the Governance and Nominating Committee of the Board consider the qualifications of
directors and director candidates individually and in the broader context of the Board's overall composition and the Company's current and future needs.
Qualifications for All Directors
In its assessment of each potential candidate, including those recommended by stockholders, the Governance and Nominating Committee considers the
nominee’s judgment, integrity, experience, independence, understanding of the Company’s business or other related industries and such other factors the
Governance and Nominating Committee determines are pertinent in light of the current needs of the Board. The Governance and Nominating Committee
also takes into account the ability of a director to devote the time and effort necessary to fulfill his or her responsibilities to the Company.
The Board and the Governance and Nominating Committee require that each director be a recognized person of high integrity with a proven record of
success in his or her field. Each director must demonstrate innovative thinking, familiarity with and respect for corporate governance requirements and
practices, an appreciation of multiple cultures and a commitment to sustainability and to dealing responsibly with social issues. In addition to the
qualifications required of all directors, the Board assesses intangible qualities including the individual’s ability to ask difficult questions and,
simultaneously, to work collegially.
The Board does not have a specific diversity policy, but considers diversity of race, ethnicity, gender, age, cultural background and professional
experiences in evaluating candidates for Board membership. Diversity is important because a variety of points of view contribute to a more effective
decision-making process.
Qualifications, Attributes, Skills and Experience to be Represented on the Board as a Whole
The Board has identified particular qualifications, attributes, skills and experience that are important to be represented on the Board as a whole, in light of
the Company’s current needs and business priorities. The Company’s services are performed in various countries around the world and significant areas of
future growth are located outside of the United States. The Company’s business is truly global and multicultural. Therefore, the Board believes that
international experience or specific knowledge of key geographic growth areas and diversity of professional experiences should be represented on the
Board. The Company’s business is multifaceted and involves complex financial transactions in various countries. Therefore, the Board believes that the
Board should include some directors with a high level of financial literacy and some directors who possess relevant business experience as a chief
executive officer or president. Our business involves complex technologies in a highly specialized industry. Therefore, the Board believes that extensive
knowledge of the Company’s business and the nuclear industry should be represented on the Board. The Company’s business also requires compliance
with a variety of regulatory requirements across a number of countries and relationships with various governmental entities. Therefore, the Board believes
that governmental, political or diplomatic expertise should be represented on the Board.
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Summary of Qualifications of Directors
Set forth below are the specific qualifications, attributes, skills and experiences of our directors.
Seth Grae
Mr. Grae’s service as the Company’s President and Chief Executive Officer and his extensive experience in the nuclear industry provide valuable insight
to the Board about the Company and the nuclear industry more generally.
Thomas Graham, Jr.
Mr. Graham’s service as the Company’s chairman of the board, his experience as chairman of the board of several other companies, his extensive
experience and knowledge related to nuclear non-proliferation, his knowledge of international law, and his experience as a senior US diplomat provide
valuable insight to the Board about the Company, and about nuclear policy and international law more generally.
Xingping Hou
Mr. Hou’s significant experience in complex international enterprises provides valuable insight to the Board about international operations and financial
and strategic planning.
Victor E. Alessi
Dr. Alessi’s service as a director of the Company since August 2006, his expertise in nuclear physics, his experience as the president of a large
organization, his technological experience, his work on nuclear non-proliferation and policy, his experience with government entities both within the US
and internationally, and his experience working as a senior DOE official provide valuable insight to the Board about the Company, and about nuclear
policy, organizational strategy and compliance more generally.
Kathleen Kennedy Townsend
Ms. Townsend brings a long history of accomplishments in the public and private sectors that demonstrate her high level of financial literacy, her
experience as a director, her risk oversight and management expertise, as well as her experience in the political arena which provide valuable insights to
the board related to financial performance, the understanding of financial statements, and compliance provide valuable insight to the Board about the
Company, and about financial performance and controls more generally.
Daniel B. Magraw
Mr. Magraw’s experience as a director of the Company since October 2006, his expertise on international environmental law and policy and international
business law, as well as his long history of leadership roles provide valuable insight to the Board about the Company, and about nuclear policy and
international law more generally.
CORPORATE GOVERNANCE
Our current corporate governance practices and policies are designed to promote stockholder value. We are committed to the highest standards of
corporate ethics and diligent compliance with financial accounting and reporting rules. Our Board provides independent leadership in the exercise of its
responsibilities. Our management oversees a system of internal controls and compliance with corporate policies and applicable laws and regulations, and
our employees operate in a climate of responsibility, candor and integrity.
Corporate Governance Guidelines
We and our Board are committed to high standards of corporate governance as an important component in building and maintaining stockholder value. To
this end, we regularly review our corporate governance policies and practices to ensure that they are consistent with the high standards of other companies.
We also closely monitor guidance issued or proposed by the SEC and the provisions of the Sarbanes-Oxley Act, as well as the emerging best practices of
other companies. The current corporate governance guidelines are available on the Company’s website www.ltbridge.com. Printed copies of our corporate
governance guidelines may be obtained, without charge, by contacting the Corporate Secretary, Lightbridge Corporation, 11710 Plaza America Drive,
Suite 2000, Reston, VA 20190 USA.
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The Board and Committees of the Board
The Company is governed by the Board that currently consists of six members: Seth Grae, Thomas Graham, Xingping Hou, Victor Alessi, Kathleen
Kennedy Townsend and Daniel Magraw. The Board has established four Committees: the Audit Committee, the Compensation Committee, the
Nominating and Governance Committee and the Executive Committee. Each of the Audit Committee, Compensation Committee and Nominating and
Governance Committee are comprised entirely of independent directors. From time to time, the Board may establish other committees. The Board met
five times in 2017. The Board has adopted a written charter for each of its committees which are available on the Company’s website www.ltbridge.com.
Printed copies of these charters may be obtained, without charge, by contacting the Corporate Secretary, Lightbridge Corporation, 11710 Plaza America
Drive, Suite 2000, Reston, VA 20190 USA. Each director attended at least 75% of all meetings of the Board of Directors and each committee on which he
or she served during 2017, other than Mr. Hou, who did not attend board meetings in 2017.
Governance Structure
The Company has chosen to separate the roles of the Chairman of the Board and the Chief Executive Officer, though our current Chairman, Thomas
Graham, Jr., is a member of the Company’s executive management. We have chosen to implement such a governance structure to allow our Chief
Executive Officer the ability to focus the majority of his time and efforts on the day-to-day operations of the Company. We believe that this governance
structure has served the Company’s stockholders well over the years. In addition, beginning in August 2016, the Board appointed Mr. Hou as co-
Chairman of the Board.
We encourage our stockholders to learn more about our Company’s governance practices at our website, www.ltbridge.com.
The Board’s Role in Risk Oversight
The Board oversees that the assets of the Company are properly safeguarded, that the appropriate financial and other controls are maintained, and that the
Company’s business is conducted wisely and in compliance with applicable laws and regulations and proper governance. Included in these responsibilities
is the Board’s oversight of the various risks facing the Company. In this regard, the Board seeks to understand and oversee critical business risks. The
Board does not view risk in isolation. Risks are considered in virtually every business decision and as part of the Company’s business strategy. The Board
recognizes that it is neither possible nor prudent to eliminate all risk. Indeed, purposeful and appropriate risk-taking is essential for the Company to be
competitive on a global basis and to achieve its objectives.
While the Board oversees risk management, Company management is charged with managing risk. The Company has robust internal processes and a
strong internal control environment to identify and manage risks and to communicate with the Board. The Board and the Audit Committee monitor and
evaluate the effectiveness of the internal controls and the risk management program at least annually. Management communicates routinely with the
Board, Board committees and individual directors on the significant risks identified and how they are being managed. Directors are free to, and indeed
often do, communicate directly with senior management.
The Board implements its risk oversight function both as a whole and through committees. Much of the work is delegated to various committees, which
meet regularly and report back to the full Board. All committees play significant roles in carrying out the risk oversight function. In particular:
·
·
The Audit Committee oversees risks related to the Company’s financial statements, the financial reporting process, accounting and legal
matters. The Audit Committee oversees the internal audit function and the Company’s ethics programs, including the Code of Business
Conduct and Ethics. The Audit Committee members meet separately with representatives of the independent auditing firm.
The Compensation Committee evaluates the risks and rewards associated with the Company’s compensation philosophy and programs. The
Compensation Committee reviews and approves compensation programs with features that mitigate risk without diminishing the incentive
nature of the compensation. Management discusses with the Compensation Committee the procedures that have been put in place to identify
and mitigate potential risks in compensation.
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Audit Committee
Our Audit Committee consists of Mr. Alessi, Mr. Magraw and Ms. Townsend, each of whom is “independent” as that term is defined under the Nasdaq
listing standards. The Audit Committee oversees our accounting and financial reporting processes and the audits of the financial statements of the
Company. Ms. Townsend is chair of the Audit Committee and a financial expert as that term is defined by the applicable SEC rules. The Audit Committee
is responsible for, among other things:
·
·
·
·
·
·
·
·
·
selecting our independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by our independent
auditors;
reviewing with our independent auditors any audit problems or difficulties and management’s response;
reviewing and approving all proposed related-party transactions, as defined in Item 404 of Regulation S- K under the Securities Act of 1933,
as amended;
discussing the annual audited financial statements with management and our independent auditors;
reviewing major issues as to the adequacy of our internal controls and any special audit steps adopted in light of significant internal control
deficiencies;
annually reviewing and reassessing the adequacy of our Audit Committee charter;
meeting separately and periodically with management and our internal and independent auditors;
reporting regularly to the full Board; and
such other matters that are specifically delegated to our Audit Committee by our Board from time to time.
The Audit Committee met five times during 2017.
Compensation Committee
Our Compensation Committee consists of Mr. Alessi, Mr. Magraw and Ms. Townsend, each of whom is “independent” as that term is defined under the
Nasdaq listing standards. Our Compensation Committee assists the Board in reviewing and approving the compensation structure of our directors and
executive officers, including all forms of compensation to be provided to our directors and executive officers. Our Chief Executive Officer and Chief
Financial Officer may not be present at any committee meeting during which his or her compensation is deliberated. The Compensation Committee is
responsible for, among other things:
·
·
·
·
approving and overseeing the compensation package for our executive officers;
reviewing and making recommendations to the Board with respect to the compensation of our directors;
reviewing and approving corporate goals and objectives relevant to the compensation of our Chief Executive Officer, evaluating the
performance of our Chief Executive Officer in light of those goals and objectives, and setting the compensation level of our Chief Executive
Officer based on this evaluation; and
reviewing periodically and making recommendations to the Board regarding any long-term incentive compensation or equity plans, programs
or similar arrangements, annual bonuses, employee pension and welfare benefit plans.
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Under its charter, the Compensation Committee has sole authority to retain and terminate outside counsel, compensation consultants retained to assist the
Compensation Committee in determining the compensation of the Chief Executive Officer or senior executive officers, or other experts or consultants, as
it deems appropriate, including sole authority to approve the firms’ fees and other retention terms. The Compensation Committee may also form and
delegate authority to subcommittees and may delegate authority to one or more designated members of the Compensation Committee. The Compensation
Committee may from time to time seek recommendations from the executive officers of the Company regarding matters under the purview of the
Compensation Committee, though the authority to act on such recommendations rests solely with the Compensation Committee.
The Compensation Committee met four times during 2017.
Governance and Nominating Committee
Our Governance and Nominating Committee consists of Mr. Alessi, Mr. Magraw and Ms. Townsend, each of whom is “independent” as that term is
defined under the Nasdaq listing standards. The Governance and Nominating Committee assists the Board of Directors in identifying individuals qualified
to become our directors and in determining the composition of the Board and its committees. The Governance and Nominating Committee is responsible
for, among other things:
·
·
·
·
identifying and recommending to the Board nominees for election or re-election to the Board, or for appointment to fill any vacancy;
reviewing annually with the Board the current composition of the Board in light of the characteristics of independence, age, skills, experience
and availability of service to us;
identifying and recommending to the Board the directors to serve as members of the Board’s committees; and
monitoring compliance with our Code of Business Conduct and Ethics.
Our Governance and Nominating Committee does not have a specific policy with regard to the consideration of candidates recommended by stockholders,
however any nominees proposed by our stockholders will be considered on the same basis as nominees proposed by the Board. If you or another
stockholder want to submit a candidate for consideration to the Board, you may submit your proposal to our Corporate Secretary:
by sending a written request by mail to:
Lightbridge Corporation
11710 Plaza America Drive, Suite 2000
Reston, VA 20190
Attention: Corporate Secretary
by calling our Corporate Secretary, at 571-730-1200.
The Governance and Nominating Committee met two times during 2017.
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Executive Committee
Our Executive Committee consists of Messrs. Alessi, Grae and Graham. The Executive Committee of the Company exercises the power of the Board
between regular meetings of the Board and when timing is critical. The Executive Committee also assists the Board in fulfilling its oversight responsibility
with respect to management-level staff, outside service providers and third-party vendors.
Code of Ethics
The Board has adopted a Code of Business Conduct and Ethics that applies to the Company’s directors, officers and employees. A copy of this policy is
available via our website at http://ir.ltbridge.com/corporate-governance.cfm. Printed copies of our Code of Business Conduct and Ethics may be obtained,
without charge, by contacting the Corporate Secretary, Lightbridge Corporation, 11710 Plaza America Drive, Suite 2000, Reston, VA 20190 USA.
During the fiscal year ended December 31, 2016, there were no waivers of our Code of Business Conduct and Ethics.
Stockholder Communication with the Board of Directors
Stockholders may communicate with the Board, including non-management directors, by sending a letter to our Board, c/o Corporate Secretary,
Lightbridge Corporation, 11710 Plaza America Drive, Suite 2000, Reston, VA 20190 USA for submission to the Board or committee or to any specific
director to whom the correspondence is directed. Stockholders communicating through this means should include with the correspondence evidence, such
as documentation from a brokerage firm, that the sender is a current record or beneficial stockholder of the Company. All communications received as set
forth above will be opened by the Corporate Secretary or his designee for the sole purpose of determining whether the contents contain a message to one
or more of our directors. Any contents that are not advertising materials, promotions of a product or service, patently offensive materials or matters
deemed, using reasonable judgment, inappropriate for the Board will be forwarded promptly to the chairman of the Board, the appropriate committee or
the specific director, as applicable.
Section 16(a) Beneficial Ownership Reporting Compliance
Under U.S. securities laws, directors, executive officers and persons beneficially owning more than 10% of our common stock must report their initial
ownership of our common stock, and any changes in that ownership, to the SEC. The SEC has designated specific due dates for these reports. Based
solely on our review of copies of such reports filed with the SEC and written representations of our directors and executive officers, we believe that all
persons subject to such reporting requirements filed all required reports on a timely basis in 2017, except for Form 4 filings for Messrs. Mushakov, Grae,
Alessi, Magraw and Graham and Mses. Zwobota and Townsend, which was each due on October 30, 2017 but was each filed on November 2, 2017.
ITEM 11. EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
In this section, we discuss our compensation philosophy and describe the compensation program for our senior executives. We also explain how the
Compensation Committee determines compensation for our senior executives and its rationale for specific 2017 decisions. In addition, we discuss
numerous changes the Committee has made to our program over the past several years to advance its fundamental objective: aligning our executive
compensation with the long-term interests of our stockholders.
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The Compensation Discussion and Analysis describes the compensation of the following named executive officers (“NEOs”):
Name
Seth Grae
Andrey Mushakov
Linda Zwobota
Executive Summary
Title
Chief Executive Officer, President and Director
Executive Vice President for International Nuclear Operations
Chief Financial Officer
Our executive compensation program is designed to attract and retain qualified management personnel, to align our management’s interests with that of
our stockholders, and to reward exceptional organizational and individual performance. Performance of our executives is evaluated based on financial and
non-financial goals that balance achievement of short-terms goals related to the continued development of the Company’s fuel technology and business
and long-term goals that seek to maximize stockholder value.
2017 Compensation Highlights
Following our 2017 say-on-pay vote:
·
·
·
·
We have expanded disclosure concerning our executive compensation decisions, including by including this Compensation Discussion and
Analysis in the proxy statement. While the Company is not required to include this disclosure so long as it qualifies as a “smaller reporting
company” under SEC rules, we believe expanding our disclosure is important for our stockholders to better understand the basis for our
compensation decisions.
In keeping with the decision of the Compensation Committee in October 2017, approximately 65% of our grants to employees and
consultants only vested upon the meeting of specified performance goals.
To preserve cash, the Compensation Committee approved the payment of approximately 55% of 2017 short-term incentive bonuses in the
form of stock options, rather than cash. This reflects the Compensation Committee’s continued belief that equity awards should form a
significant portion of executive compensation, particularly in light of many of the existing option grants held by management having exercise
prices significantly above the Company’s stock price.
Most employees received a modest 3% increase to base salary in 2017, with our CFO, Linda Zwobota, receiving a 6% increase to bring her
salary within a competitive range of peer companies as determined by an independent compensation consultant retained by the Compensation
Committee.
2017 Accomplishments
The Company achieved significant strategic goals during 2017 including, without limitation:
·
·
Framatome Joint Venture. In January 2018, Lightbridge Corporation and Framatome Inc. (formerly AREVA) finalized and launched
Enfission LLC, a 50-50 joint venture company to develop, license and sell nuclear fuel assemblies based on Lightbridge-designed metallic
fuel technology and other advanced nuclear fuel intellectual property. The joint venture Enfission LLC is a Delaware-based limited liability
company that was formed on January 24, 2018. The Company has a 50% interest in Enfission LLC and it will be accounted for using the
equity method of accounting due to both joint venture partners having shared power to direct the activities of this variable interest entity that
most significantly impact the entity’s economic performance.
Capital Raises. The Company raised approximately $6 million over the course of 2017 and approximately $25 million of funding in 2018 as
of the date of this 10-K filing, funding the Company’s continued research into its nuclear fuel technology and providing capital into 2018 and
beyond.
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Philosophy and Objectives of Our Compensation Program
Our compensation program is centered around a philosophy that focuses on management retention, alignment of interests between management and the
stockholders and pay-for-performance compensation. We believe this philosophy allows us to compensate our NEOs competitively, while simultaneously
ensuring continued development and achievement of key business strategy goals. The Compensation Committee firmly believes that our pay-for-
performance philosophy should recognize both short- and long-term performance and should include both cash and equity compensation arrangements
that are supported by strong corporate governance, including active and effective oversight by the Compensation Committee.
To that end, we have implemented the following policies and practices:
·
·
·
·
·
Significant “At-Risk” Compensation. A significant portion of NEO compensation is based on each NEO’s individual performance and the
performance of the Company. Approximately 40% of NEO compensation in 2016 was performance-based, as well as approximately 45% of
2017 compensation.
Short-Term Incentive Compensation. The short-term incentive compensation component of our compensation program includes an annual
bonus, payable in cash and/or equity awards, upon the achievement of specific planned performance goals. Such bonus serves as a vehicle for
retention and allows us to deliver competitive compensation tied to performance.
Long-Term Incentive Compensation. The long-term incentive compensation component of our compensation program consists of stock
options tied to continued service that vest over multiple years.
Fixed Compensation. The fixed compensation elements of our compensation program include a base salary and retirement, health and welfare
benefits.
No Perquisites. We do not provide any perquisites, whether cash or otherwise, to our NEOs.
Philosophy and Objectives of Our Compensation Plan
The Compensation Committee has outlined the following objectives for compensation of our NEOs and considers such objectives in making
compensation decisions:
Objective
Attraction and Retention
Description
We provide competitive compensation to our NEOs and tie a significant portion of compensation to time-based vesting
requirements, helping to ensure that we can continue to attract key management personnel and retain such personnel.
Pay for Performance
A significant portion of each NEO’s compensation is “at-risk” or variable, based on our performance and stock price.
Pay Mix
We use a variety of fixed-pay and incentive compensation forms, including cash, stock and options.
Competitive Packages
We evaluate our compensation program in an effort to provide a competitive compensation package to each NEO that
takes into account their responsibilities, performance and organization.
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How Executive Compensation is Determined
Role of the Compensation Committee
The Compensation Committee of the Board oversees the Company’s executive compensation programs. Additionally, the Compensation Committee is
charged with the review and approval of all annual compensation decisions relating to the NEOs and the Company’s other officers.
The Compensation Committee is composed entirely of independent, non-management members of the Board. Each member of the Compensation
Committee is both a “non-employee director” within the meaning of Rule 16b-3 of the Exchange Act, and an “outside director” within the meaning of
Section 162(m) of the Internal Revenue Code. No Compensation Committee member participates in any of the Company’s employee compensation
programs. Each year the Company reviews any and all relationships that each director has with the Company, and the Board of Directors subsequently
reviews these findings. The responsibilities of the Compensation Committee, as stated in its charter, include the following:
·
·
·
·
review and make such recommendations to the Board of Directors as the Compensation Committee deems advisable with regard to all
incentive-based compensation plans and equity-based plans;
review and approve the corporate goals and objectives that may be relevant to the compensation of the Company’s NEOs;
evaluate the performance of the NEOs in light of the goals and objectives that were set and determine and approve the compensation of the
NEOs based on such evaluation; and
review and approve the recommendations of the CEO with regard to the compensation of all officers of the Company other than the CEO.
Role of Compensation Consultant
Pursuant to its charter, the Compensation Committee is authorized to engage, retain and terminate any consultant, as well as approve the consultant’s fees,
scope of work and other terms of retention. For both 2016 and 2017, the Committee retained Pay Governance LLC as its independent advisor. Pay
Governance advises and consults with the Committee on compensation issues and the composition of the Company’s peer group, and keeps the
Committee apprised of competitive practices related to executive compensation. Pay Governance assisted the Committee in the design, structure and
implementation of the current annual executive compensation program, and, at the direction of the Committee, compensation levels, trends and practices.
Pay Governance does not determine the exact amount or form of executive compensation for any executive officers. Pay Governance reports directly to
the Committee, and a representative of Pay Governance, when requested, attends meetings of the Committee, is available to participate in executive
sessions and communicates directly with the Committee Chair or its members outside of meetings. Pay Governance does no other work for the Company.
Role of Management
The Compensation Committee considers input from the CEO when making executive compensation decisions for the other officers and employees of the
Company. The CEO’s input is useful because the CEO reviews and observes the performance of the officers and employees at the Company. The
Compensation Committee and Board of Directors determine the compensation of the CEO without any management input.
Performance Goals
The Compensation Committee believes that a significant portion of each NEO’s compensation should be tied to the Company’s performance. The
Company measures performance based on certain operational and financial objectives. Performance goals have changed from time to time and will
continue to change as the condition of the Company and its fuel technology evolve.
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Peer Group Analysis
The Company has historically evaluated its compensation program against the programs at other companies in order to ensure its compensation program
is competitive. With the assistance of Pay Governance, the peer companies were selected based on (i) revenue scope within a reasonable range, (ii) market
capitalization within a reasonable range of the Company’s market capitalization, and (iii) companies focused on technologies and services with potential
environmental applications. In 2016, the peer group consisted of:
Arrowhead Research
Maxwell Technologies
Research Frontiers
Spherix Inc.
US Ecology
PharmAthene
Superconductor Technologies
Ecology and Environment
Perma-Fix Environmental Services
Sooner Holdings
TRC Companies
Gevo
GSE Systems, Inc.
The Company traditionally targeted all elements of its compensation programs to provide a competitive compensation opportunity at the median range of
companies whose compensation is used in our peer group.
Executive Compensation Elements
Overview and Compensation Mix
The following table illustrates the principal elements of the Company’s executive compensation program, each of which is evaluated and update on an
annual basis by the Compensation Committee:
Pay Element
Base Salary
Characteristics
Primary Objective
Annual fixed cash compensation
Attract and retain qualified and high performing executives
Short-Term Incentive Compensation
Annual performance-based bonus payable in cash or
equity awards
Incentivize our NEOs to achieve short-term goals
Long-Term Incentive Compensation Stock options
Retain our NEOs and align their interests with the interests
of our stockholders
In addition to the above-mentioned elements, the Company also provides a retirement, health and welfare benefit component to the executive
compensation program.
The 2016 and 2017 compensation mix for the Company’s NEOs demonstrates the Company’s philosophy regarding significant long-term and
performance-based compensation. The following is a summary of the components of the compensation policy for the Company’s NEOs.
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Fixed Compensation
Base Salary. The Compensation Committee establishes base salaries for our executives based on the scope of their responsibilities and takes into account
competitive market compensation paid by comparable companies. The Company believes that a competitive compensation program will enhance its
ability to attract and retain senior executives. In each case, the Compensation Committee takes into account each officer’s (i) current and prior
compensation, (ii) scope of responsibilities, (iii) experience, (iv) comparable market salaries and (v) the Company’s achievement of performance goals
(both financial and non-financial). The Compensation Committee also (i) has the opportunity to meet with the officers at various times during the year,
which allows the Compensation Committee to form its own assessment of each individual’s performance and (ii) reviews reports of the CEO presented to
the Compensation Committee, evaluating each of the other officers, including a review of their contributions and performance over the past year,
strengths, weaknesses, development plans and succession potential.
In November 2017, after taking into account the above-mentioned factors, historical base salaries, the performance of the NEOs and the Company’s need
to preserve capital, the Compensation Committee approved a 3% increase in the base salaries of Mr. Grae and Mr. Mushakov and a 6% increase in the
base salary of Ms. Zwobota, as follows:
Name
Seth Grae
Linda Zwobota
Andrey Mushakov
Title
Chief Executive Officer, President and Director
Chief Financial Officer
Executive Vice President – International Nuclear Operations
2017
Base Salary
$
$
$
445,891 $
197,006 $
278,100 $
2018
Base Salary
459,268
208,826
286,443
For more information about the 2017 base salaries for each of our NEOs, please see the 2017 Summary Compensation Table below.
Retirement, Health and Welfare Benefits
The Company offers a variety of health and welfare and retirement programs to all eligible employees. The NEOs generally are eligible for the same
benefit programs on the same basis as the rest of the Company’s employees. The Company’s health and welfare programs include medical, dental and
vision. In addition to the foregoing, the NEOs are eligible to participate in a defined contribution profit sharing plan (the “401(k)”) that is administered by
a committee of trustees appointed by the Company. Substantially all employees are eligible to participate in the 401(k) plan. The Company did not make
matching contributions in 2016 or 2017.
Perquisites
We do not provide any perquisites, whether cash or otherwise, to our NEOs. We feel that our executive compensation program, particularly given the
Company’s capital needs, provides our NEOs with competitive compensation such that we do not need to provide any perquisites to achieve the goals of
our executive compensation program.
Short-Term Incentive Compensation
The Compensation Committee has established a short-term incentive (STI) program pursuant to which each of the NEOs could earn a cash or stock-based
bonus on the achievement of individualized or Company-wide performance expectations. The target value of the award was established at 50% of base
salary in the case of Mr. Grae, 40% of base salary in the case of Ms. Zwobota and 50% of base salary in the case of Mr. Mushakov.
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“Say-on-Pay” Stockholder Vote
In 2017, as in prior years, we sought an advisory vote from our stockholders regarding our executive compensation program and received approximately
79% support.
Target Total Direct Compensation for Fiscal 2018
No substantial changes to the Company’s compensation programs are currently envisioned for 2018. The target compensation packages for our NEOs will
continue to be comprised of base salary and, subject to Compensation Committee approval, a performance-based annual incentive plan pursuant to the STI
program and stock options under the LTI program. Base salaries have been positioned to reflect job content and competitive pay practices, as discussed
above.
Employment Agreements and Other Arrangements
Seth Grae. On February 14, 2006, the Company entered into an employment agreement with Seth Grae. Mr. Grae received a base salary under the
agreement, which is currently set at $459,268 annually. Mr. Grae is also eligible to receive raises and discretionary bonuses, as well as stock based
compensation over the term of the agreement. Upon termination by the Company other than for cause, Mr. Grae will receive severance payments equal to
his base salary at the time of termination for twelve months, payable in installments in accordance with the Company’s normal payroll practices.
Linda Zwobota. On November 26, 2014, Ms. Zwobota agreed to assume the role of interim Chief Financial Officer of the Company. Prior to that
appointment, Ms. Zwobota served as the Company’s Controller, a position she held since October 2009, when she joined the Company. In 2015, the
Board appointed Ms. Zwobota as Chief Financial Officer of the Company. Ms. Zwobota does not have an employment agreement with the Company and
is employed at-will. She currently receives annual base compensation of $208,826.
Andrey Mushakov. On July 27, 2006, the Company entered into an employment agreement with Mr. Mushakov. Mr. Mushakov received a base salary
under the agreement, which is current set at $286,443 annually. Mr. Mushakov is also eligible to receive raises and discretionary bonuses, as well as
stock based compensation over the term of the agreement. Upon termination by the Company, Mr. Mushakov will receive severance payments equal to
his base salary at the time of termination for six months, payable in installments in accordance with the Company’s normal payroll practices.
Report of the Compensation Committee
The Compensation Committee has reviewed and discussed the foregoing Compensation Discussion and Analysis with management, and based on review
and discussions, the Compensation Committee recommended to the Board the Compensation Discussion and Analysis be included in this proxy statement.
Members of the Compensation Committee:
Victor E. Alessi
Daniel B. Magraw
Kathleen Kennedy Townsend
2017 Summary Compensation Table
The following table sets forth information concerning all cash and non-cash compensation awarded to, earned by or paid to our NEOs for services
rendered in all capacities during the noted periods.
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Name and Principal Position
Seth Grae
CEO, President and Director
Linda Zwobota
CFO
Andrey Mushakov
Executive Vice President for International Nuclear Operations
_________
(1) Bonuses were paid in January 2018.
Salary
($)
Bonus
($)(1)
Option
Awards
($)(2)
449,235
435,069
111,473
189,396
372,932
227,275
199,961
189,188
39,401
56,287
156,025
67,545
280,186
271,350
69,525
118,125
232,596
141,750
Total
($)
933,640
851,740
395,387
313,020
582,307
531,225
Year
2017
2016
2017
2016
2017
2016
(2) 64% and 70% of the fair market value of options granted to Linda Zwobota, and to Seth Grae and Andrey Mushakov, respectively, were granted
subject to performance conditions that were achieved in 2018. 54% of the fair market value of these performance-based options is subject to
stockholder approval of an increase in the number of underlying shares in the 2015 Equity Incentive Plan.
Outstanding Equity Awards at Fiscal Year End
The following table sets forth all outstanding equity awards to our named executive officers as of December 31, 2017.
Name
Seth Grae
Linda Zwobota
Andrey Mushakov
Option Awards
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
Option
Exercise
Price ($)
Option
Expiration
Date
7/14/2019
3/11/2020
3/19/2021
5/5/2019
4/8/2025(1)
28.50
43.25
27.65
12.75
6.30
6.30
8/12/2025
4.60 11/20/2025
1.54
11/9/2026
1.05 10/26/2027(2)
5/5/2019
4/9/2025(3)
12.75
6.30
6.30
8/12/2025
4.60 11/20/2025
1.54
11/9/2026
1.05 10/26/2027(2)
—
—
—
—
9,847
935
43,440
—
300,147
4,487
729
15,061
136,475
—
—
—
—
28.50
43.25
27.10
12.75
7/13/2019
3/11/2010
4/11/2021
5/5/2019
22,574
13,328
8,521
31,062
65,780
8,317
165,702
218,377
182,629
3,872
19,172
3,904
42,936
64,900
64,552
2,703
1,710
1,847
12,125
_________
(1)
These stock options will vest on April 8, 2018.
(2)
These stock options are contingent upon stockholder approval of an increase in the number of underlying shares in the 2015 Equity Incentive Plan
or vested in January 2018.
32,329
7,056
93,701
136,200
113,905
4,487
729
27,093
—
187,200
4/8/2015(1)
6.30
6.30
8/12/2025
4.60 11/20/2025
1.54
11/9/2026
1.05 10/26/2027(2)
(3)
These stock options will vest on April 9, 2018.
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Potential Payments upon Termination or Change in Control
Employment Agreements
As noted above under “-Employment Agreements and Other Arrangements,” Mr. Grae and Mr. Mushakov each has entered into an employment
agreement with the Company. Upon Mr. Grae’s death or disability, or upon his termination by the Company without cause (as defined in the employment
agreement) or by Mr. Grae for good reason (as defined in the employment agreement), Mr. Grae will receive severance payments equal to his base salary at
the time of termination for twelve months, payable in installments in accordance with the Company’s normal payroll practices. Mr. Grae will also be
entitled to continued benefits under group health, dental and life insurance plans for a period of twelve months following his termination. Upon Mr.
Mushakov’s death or disability, or upon his termination by the Company without cause (as defined in the employment agreement) or by Mr. Mushakov for
good reason (as defined in the employment agreement), Mr. Mushakov will receive severance payments equal to his base salary at the time of termination
for six months, payable in installments in accordance with the Company’s normal payroll practices. Mr. Mushakov will also be entitled to continued
benefits under group health, dental and life insurance plans for a period of six months following his termination.
Ms. Zwobota does not have an employment agreement with the Company.
Equity Incentive Plans
Under the Company’s 2006 Stock Plan and 2015 Equity Incentive Plan, each as amended, the Board or the Compensation Committee may accelerate the
vesting of awards outstanding thereunder upon a change in control of the Company. The Board or the Compensation Committee may also provide for the
payment of the cash value of the awards in connection with a change in control under circumstances specified in the Plans. In addition, certain awards
under the 2006 Stock Plan, including stock options granted to Mr. Grae, vest immediately upon a change in control (as defined in Mr. Grae’s employment
agreement) of the Company.
Director Compensation
The following table sets forth certain information concerning the compensation paid to our directors for services rendered to us during the fiscal 2017.
None of Messrs. Grae, Graham or Hou was compensated for his service as a director in 2017. Beginning October 26, 2017, Ms. Townsend is paid $35,646
annually, up from $34,608 annually; Mr. Alessi and Mr. Magraw are each paid $33,864 annually, up from $32,878 annually.
Name
Victor Alessi
Xingping Hou
Daniel Magraw
Kathleen Kennedy Townsend
Fees Earned
or
Paid in Cash
($)
Option
Awards
($)
$
$
$
33,124 $
-
33,124 $
34,868 $
32,888
32,888
34,618
Total
($)
66,012
-
66,012
69,486
Except for Mr. Alessi, Mr. Hou, Mr. Magraw and Ms. Townsend, all of our current directors are also our officers and are compensated for the services
that they provide to us in their capacity as officers. Other than Mr. Alessi, Mr. Magraw and Ms. Townsend, our current directors do not receive any
additional compensation for the services they provide to us as directors. Directors are reimbursed for out of pocket expenses incurred as a result of their
participation on our Board.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS.
The following tables set forth information known to us with respect to the beneficial ownership of our common stock as of March 1, 2018 for: (i) each
person known by us to beneficially own more than 5% of our voting securities, (ii) each named executive officer, (iii) each of our directors and nominees,
and (iv) all of our current executive officers and directors as a group. The address of each executive officer, director and nominee is care of Lightbridge
Corporation, 11710 Plaza America Drive, Suite 2000, Reston, VA 20190 USA. Except as explained in the footnotes to the following table, each person
listed, and the members of the group, had sole voting power and sole investment power with respect to the shares shown.
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Name and Address of Beneficial Owner (1)
Title
Seth Grae
Thomas Graham, Jr.
Xingping Hou
Linda Zwobota
Andrey Mushakov
Dan Magraw
Victor Alessi
Kathleen Kennedy Townsend
Directors and Officers as a Group (eight people)
Officers and Directors
President, CEO and Director
Chairman and Corporate Secretary
Co-Chairman
Chief Financial Officer
Executive VP – International Nuclear Operations
Director
Director
Director
* Denotes less than 1% of the outstanding shares of Common Stock.
Amount and
Nature of
Beneficial
Ownership (1)
(2)
Percent of
Common
Stock (3)
977,575
52,397
1,120,753
273,130
523,424
39,761
32,890
34,178
3,054,109
4.62%
*
5.07%
1.24%
2.37%
*
*
*
13.82%
(1)
(2)
(3)
The number of shares beneficially owned is determined under SEC rules, and the information is not necessarily indicative of beneficial ownership
for any other purpose. Under those rules, beneficial ownership includes any shares as to which the individual has sole or shared voting power or
investment power, and also any shares which the individual has the right to acquire within 60 days of March 1, 2018, through the exercise or
conversion of any stock option, convertible security, warrant or other right (a “Presently Exercisable” security). Including those shares in the table
does not, however, constitute an admission that the named shareholder is a direct or indirect beneficial owner of those shares.
Unless otherwise indicated, each person or entity named in the table has sole voting power and investment power (or shares that power with that
person’s spouse) with respect to all shares of common stock listed as owned by that person or entity.
A total of 22,101,443 shares of the Company’s common stock were considered to be outstanding pursuant to Rule 13d-3(d)(1) under the Securities
Exchange Act of 1934 as of March 1, 2018. For each beneficial owner above, any options exercisable within 60 days have been included in the
denominator.
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Equity Incentive Plans
Under the Company’s 2006 Stock Plan and 2015 Equity Incentive Plan, each as amended, the Board or the Compensation Committee may accelerate the
vesting of awards outstanding thereunder upon a change in control of the Company. The Board or the Compensation Committee may also provide for the
payment of the cash value of the awards in connection with a change in control under circumstances specified in the Plans. In addition, certain awards
under the 2006 Stock Plan, including stock options granted to Mr. Grae, vest immediately upon a change in control (as defined in Mr. Grae’s employment
agreement) of the Company.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table sets forth certain information about the securities authorized for issuance under our 2006 Second Amended and Restated Stock Plan
as of December 31, 2017. Options exercisable for all of the securities shown in column (a) below were granted under our Stock Option Plan.
Number of
securities
remaining
available for
future
issuance under
equity
compensation
plans
(excluding
securities
reflected
in column (a))
(c)
Number of
securities
to be issued
upon
exercise of
outstanding
options,
warrants and
rights
(a)
3,318,167 $
Weighted-
average
exercise price
of
outstanding
options,
warrants
and rights
(b)
658,717
3,976,884 $
4.08
1.05
3.58
—
—
—
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
(1) Includes shares forfeited from the preceding 2006 Thorium Ltd. Plan and becoming eligible for issuance under the 2015 Equity Incentive Plan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Transactions with Related Persons
None of our directors, director nominees, executive officers, 5% stockholders, or immediate family members of such persons has been involved in any
transactions with us which are required to be disclosed pursuant to Item 404 of Regulation S-K.
Independent Directors
In considering and making decisions as to the independence of each of the directors of the Company, the Board considered transactions and relationships
between the Company (and its subsidiaries) and each director (and each member of such director’s immediate family and any entity with which the
director or family member has an affiliation such that the director or family member may have a material indirect interest in a transaction or relationship
with such entity). The Board has determined that Mr. Alessi, Mr. Hou, Mr. Magraw and Ms. Townsend are independent as defined in applicable SEC and
Nasdaq rules and regulations, and that each constitutes an “Independent Director” as defined in Nasdaq Listing Rule 5605. Such members constitute a
majority of the entire Board.
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ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The following table sets forth the fees billed to us by BDO during the fiscal years ended December 31, 2017 and 2016.
Audit Fees
Audit Related Fees
Tax Fees
All Other Fees
Total
2017
2016
$
$
158,876 $
-
-
-
158,876 $
181,228
-
-
-
181,228
Audit Fees consist of the aggregate fees billed for professional services rendered for the audit of our annual financial statements and the reviews of the
financial statements included in our Forms 10-Q and for any other services that were normally provided by BDO in connection with our statutory and
regulatory filings or engagements.
Audit Related Fees consist of the aggregate fees billed for professional services rendered for assurance and related services that were reasonably related to
the performance of the audit or review of our financial statements and were not otherwise included in Audit Fees.
Tax Fees consist of the aggregate fees billed for professional services rendered for tax compliance, tax advice and tax planning. Included in such Tax Fees
were fees for preparation of our tax returns and consultancy and advice on other tax planning matters.
All Other Fees consist of the aggregate fees billed for products and services provided by BDO and not otherwise included in Audit Fees, Audit Related
Fees or Tax Fees. Included in such Other Fees were fees for services rendered by BDO in connection with our private and public offerings conducted
during such periods.
Our Audit Committee has considered whether the provision of the non-audit services described above is compatible with maintaining auditor
independence and determined that such services are appropriate. Before auditors are engaged to provide us audit or non-audit services, such engagement
is (without exception, required to be) approved by the Audit Committee of our Board.
Pre-Approval Policies and Procedures
Under the Sarbanes-Oxley Act of 2002, all audit and non-audit services performed by our auditors must be approved in advance by our Board to assure
that such services do not impair the auditors’ independence from us. In accordance with its policies and procedures, our Board pre-approved the service
performed by the Company’s independent registered public account firm, BDO, for our consolidated financial statements as of and for the year ended
December 31, 2017.
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ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Documents filed as part of this report.
PART IV
(1) The following financial statements of Lightbridge Corporation, supplemental information and report of independent registered public
accounting firm are included in this Form 10-K:
·
·
·
·
·
·
Consolidated Balance Sheets at December 31, 2017 and 2016
Consolidated Statements of Operations for the Years Ended December 31, 2017 and 2016
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017 and 2016
Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2017 and 2016
Notes to Consolidated Financial Statements
Report of BDO USA, LLP dated March 14, 2018 on the Company’s financial statements filed as a part hereof for the fiscal years ended
December 31, 2017 and 2016. The independent registered public accounting firm’s consent with respect to this report appears in Exhibit 23 of
this Annual Report on Form 10-K.
(2) All schedules have been omitted because they are not required, not applicable or the information is otherwise included.
(3) Exhibits.
Exhibit
Number
Description
1.1
3.1
3.2
3.3
3.4
3.5
3.6
4.1
4.2
At-the-Market Issuance Sales Agreement, dated July 12, 2017, between the Company and B. Riley FBR, Inc. (as successor to FBR
Capital Markets & Co. and MLV & Co. LLC.) (incorporated by reference to Exhibit 1.1 to the Form 8-K filed by the Company on
July 13, 2017).
Articles of Incorporation of the Company, as amended (incorporated by reference to Exhibit 3.1 to the Form 10-K filed by the
Company on March 15, 2016).
Certificate of Change filed with the Nevada Secretary of State on July 14, 2016 (incorporated by reference to Exhibit 3.1 to the Form
8-K filed by the Company on July 20, 2016).
Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.1 to the Form 8-K filed by the Company on
August 29, 2016).
Certificate of Designation of Non-Voting Series A Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to the Form
8-K filed by the Company on August 3, 2016).
Certificate of Amendment to the Certificate of Designation of Non-Voting Series A Convertible Preferred Stock (incorporated by
reference to Exhibit 3.2 to the Form 8-K filed by the Company on January 30, 2018).
Certificate of Designation of Non-Voting Series B Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to the Form
8-K filed by the Company on January 30, 2018).
Form of Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.1 to the Form 8-K filed by the Company on
October 22, 2013).
Form of Common Stock Purchase Warrant, as amended (incorporated by reference to Exhibit 4.1 to the Form 8-K filed by the
Company on July 7, 2016).
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Table of Contents
10.1‡
10.2‡
10.3
10.4‡
10.5
10.6
10.7
10.8**
10.9**
10.10**
10.11**
10.12**
10.13**
10.14**
10.15**
10.16**
10.17**
10.18**
10.19**
10.20**
10.21**
R&D Services Agreement between the Company and Framatome Inc. (as successor to AREVA NP SAS), dated November 14, 2017
(incorporated by reference to Exhibit 10.1 to the Form 8-K/A filed by the Company on March 5, 2018).
Co-ownership Agreement between the Company and Framatome Inc. (as successor to AREVA NP SAS), dated November 14, 2017
(incorporated by reference to Exhibit 10.2 to the Form 8-K/A filed by the Company on March 5, 2018).
Intellectual Property Annex between the Company and Framatome Inc. (as successor to AREVA NP SAS), dated November 14, 2017
(incorporated by reference to Exhibit 10.3 to the Form 8-K/A filed by the Company on March 5, 2018).
Operating Agreement of Enfission, LLC, dated January 25, 2018 (incorporated by reference to Exhibit 10.1 to the Form 8-K/A filed by
the Company on March 5, 2018).
Investors Rights Agreement, dated August 2, 2016, between the Company and General International Holdings, Inc. (incorporated by
reference to Exhibit 10.1 to the Form 8-K filed by the Company on August 3, 2016).
Investors Rights Agreement, dated January 30, 2018, between the Company and investors identified therein (incorporated by reference
to Exhibit 10.1 to the Form 8-K filed by the Company on January 30, 2018).
Securities Purchase Agreement, dated as of January 18, 2018, between the Company and purchasers identified therein (incorporated by
reference to Exhibit 10.1 to the Form 8-K filed by the Company on January 18, 2018).
Lightbridge Corporation 2006 Stock Plan (incorporated by reference to Exhibit 10.1 to the Form 8-K filed by the Company on February
21, 2006).
Lightbridge Corporation 2015 Equity Incentive Plan, as amended (incorporated by reference to Appendix A to the definitive proxy
statement filed on April 17, 2017, File No. 001-34487).
Form of Incentive Stock Option Agreement for Employees under the 2015 Equity Incentive Plan (incorporated by reference to Exhibit
99.2 to the Company’s Registration Statement on Form S-8, File No. 333-218796, filed on June 16, 2017).
Form of Non-Qualified Stock Option Agreement for Employees under the 2015 Equity Incentive Plan (incorporated by reference to
Exhibit 99.3 to the Company’s Registration Statement on Form S-8, File No. 333-218796, filed on June 16, 2017).
Form of Non-Qualified Stock Option Agreement for Non-Employee Directors under the 2015 Equity Incentive Plan (incorporated by
reference to Exhibit 99.4 to the Company’s Registration Statement on Form S-8, File No. 333-218796, filed on June 16, 2017).
Form of Performance Share Unit Agreement under the 2015 Equity Incentive Plan (incorporated by reference to Exhibit 99.5 to the
Company’s Registration Statement on Form S-8, File No. 333-218796, filed on June 16, 2017).
Form of Restricted Stock Award Agreement for Employees under the 2015 Equity Incentive Plan (incorporated by reference to
Exhibit 99.6 to the Company’s Registration Statement on Form S-8, File No. 333-218796, filed on June 16, 2017).
Form of Restricted Stock Award Agreement for Non-Employee Directors under the 2015 Equity Incentive Plan (incorporated by
reference to Exhibit 99.7 to the Company’s Registration Statement on Form S-8, File No. 333-218796, filed on June 16, 2017).
Stock Option Agreement, dated July 14, 2009, between the Company and Seth Grae (incorporated by reference to Exhibit 10.1 to the
Form 8-K filed by the Company on July 20, 2009).
Independent Director Contract, dated August 21, 2006, between the Company and Victor Alessi (incorporated by reference to Exhibit
10.1 to the Form 8-K filed by the Company on August 25, 2006).
Independent Director Contract, dated October 10, 2013, between the Company and Kathleen Kennedy Townsend (incorporated by
referenced to Exhibit 10.5 to the Form 10-K filed by the Company on March 27, 2014).
Independent Director Contract, dated October 23, 2006, between the Company and Daniel B. Magraw (incorporated by reference to
Exhibit 10.2 to the Form 8-K filed by the Company on October 23, 2006).
Employment Agreement, dated as of February 14, 2006, between the Company and Seth Grae (incorporated by reference to Exhibit
10.2 of the current report on Form 8-K filed by the Company on February 21, 2006).
Employment Agreement, dated July 27, 2006, between the Company and Andrey Mushakov (incorporated by reference to Exhibit 10.1
of the current report on Form 8-K filed by the Company on August 4, 2006).
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Table of Contents
21.1
23.1*
31.1*
31.2*
32*
101*
Subsidiaries of the Company (incorporated by reference to Exhibit 21.1 to the Form 10-K filed by the Company on March 15, 2016).
Consent of BDO USA, LLP.
Rule 13a-14(a)/15d-14(a) Certification — Principal Executive Officer.
Rule 13a-14(a)/15d-14(a) Certification — Principal Financial Officer and Principal Accounting Officer.
Section 1350 Certifications.
The following materials from Lightbridge Corporation’s Annual Report on Form 10-K for the year ended December 31, 2017,
formatted in eXtensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets; (ii) Consolidated Statement of
Operations; (iii) Consolidated Statement of Cash Flows; (iv) Consolidated Statement of Changes in Stockholders’ Equity; and (v)
Notes to Consolidated Financial Statements.
________________
* Filed or furnished herewith
** Indicates management contract or compensatory plan or arrangement.
‡ Certain portions of this exhibit have been omitted be redacting a portion of text (indicated by asterisks in the text). This exhibit has been filed separately
with the U.S. Securities and Exchange Commission pursuant to a request for confidential treatment.
ITEM 16. FORM 10-K SUMMARY
Not Applicable
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LIGHTBRIDGE CORPORATION
DECEMBER 31, 2017 and 2016
TABLE OF CONTENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Cash Flows
Consolidated Statement of Changes in Stockholders’ Equity
Notes to Consolidated Financial Statements
61
Page
62
63
64
65
66
67
Table of Contents
Report of Independent Registered Public Accounting Firm
Shareholders and Board of Directors
Lightbridge Corporation
Reston, Virginia
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Lightbridge Corporation (the “Company”) and subsidiaries as of December 31, 2017
and 2016, the related consolidated statements of operations, stockholders’ equity, and cash flows for the years then ended and the related notes
(collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material
respects, the financial position of the Company and subsidiaries at December 31, 2017 and 2016, and the results of their operations and their cash flows
for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the
Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not
required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain
an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis
for our opinion.
/s/ BDO USA, LLP
We have served as the Company's auditor since 2015.
Philadelphia, Pennsylvania
March 14, 2018
62
Table of Contents
Lightbridge Corporation
Consolidated Balance Sheets
ASSETS
December 31,
2017
December 31,
2016
Current Assets
Cash and cash equivalents
Restricted cash
Accounts receivable - project revenue and reimbursable project
Prepaid expenses and other current assets
Deferred financing costs, net
Total Current Assets
Other Assets
Patent costs
Deferred financing costs, net
Total Other Assets
Total Assets
Current Liabilities
Accounts payable and accrued liabilities
Total Current Liabilities
Long-Term Liabilities
Deferred lease abandonment liability
Total Liabilities
Commitments and contingencies - Note 7
LIABILITIES AND STOCKHOLDERS' EQUITY
$
$
$
4,515,398 $
-
10,400
70,067
491,168
5,087,033
1,367,692
491,268
1,858,960
6,945,993 $
3,584,877
114,012
388,434
80,933
491,168
4,659,424
1,160,465
982,486
2,142,951
6,802,375
1,151,210 $
1,151,210
1,216,321
1,216,321
-
1,151,210
28,464
1,244,785
Stockholders' Equity
Convertible Preferred stock, $0.001 par value, 10,000,000 authorized shares, convertible Series A preferred shares,
1,020,000 shares issued and outstanding at December 31, 2017 and December 31, 2016
Common stock, $0.001 par value, 100,000,000 authorized shares, 12,737,703 shares and 7,112,143 shares issued and
outstanding as of December 31, 2017 and 2016, respectively
Additional paid-in capital
Accumulated Deficit
Total Stockholders' Equity
Total Liabilities and Stockholders' Equity
1,020
1,020
12,738
93,602,539
(87,821,514)
5,794,783
6,945,993 $
7,112
86,266,075
(80,716,617)
5,557,590
6,802,375
$
The accompanying notes are an integral part of these consolidated financial statements.
63
Table of Contents
Lightbridge Corporation
Consolidated Statements of Operations
Revenue:
Consulting Revenue
Cost of Consulting Services Provided
Gross Margin
Operating Expenses
General and administrative
Research and development expenses
Total Operating Expenses
Operating Loss
Other Income and (Expenses)
Warrant revaluation
Warrant modification expense
Interest income
Financing costs
Interest expense
Total Other Income and (Expenses)
Net loss before income taxes
Income taxes
Net loss
Accumulated preferred stock dividend
Deemed dividend on convertible preferred stock dividend conversion due to beneficial feature
Years Ended
December 31,
2017
2016
$
175,446 $
760,577
107,091
456,565
68,355
304,012
4,383,066
2,282,938
6,666,004
5,190,549
2,748,337
7,938,886
(6,597,649)
(7,634,874)
-
-
65
(491,218)
(16,095)
(507,248)
1,672,573
(162,398)
316
(191,345)
(29,448)
1,289,698
(7,104,897)
(6,345,176)
-
-
(7,104,897) $
(6,345,176)
(276,578)
(80,578)
-
(581,300)
Net loss attributable to common shareholders
$
(7,381,475) $
(7,007,054)
Net Loss Per Common Share,
Basic and Diluted
Weighted Average Number of Shares Outstanding
$
(0.71) $
(1.48)
10,424,481
4,728,943
The accompanying notes are an integral part of these consolidated financial statements.
64
Table of Contents
Lightbridge Corporation
Consolidated Statements of Cash Flows
Operating Activities:
Net Loss
Adjustments to reconcile net loss from operations to net cash used in operating activities:
Stock-based compensation
Amortization of deferred financing costs
Abandonment loss
Warrant revaluation
Warrant modification expense
Implied interest expense on deferred lease abandonment liability
Changes in operating working capital items:
Accounts receivable - fees and reimbursable project costs
Prepaid expenses and other assets
Accounts payable and accrued liabilities
Deferred lease abandonment liability
Net Cash Used In Operating Activities
Investing Activities:
Patent costs
Net Cash Used In Investing Activities
Financing Activities:
Net proceeds from the issuance of common stock
Net proceeds from the issuance of preferred stock
Proceeds from the issuance of note payable
Repayment of note payable
Restricted cash
Net Cash Provided by Financing Activities
Net Increase In Cash and Cash Equivalents
Cash and Cash Equivalents, Beginning of Year
Cash and Cash Equivalents, End of Year
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year:
Interest
Income taxes
Non-Cash Financing Activities:
Deferred financing costs
Warrant liability – reclassification to equity
Deemed dividend on convertible preferred stock due to beneficial conversion feature
Accumulated preferred stock dividend
Decrease in accrued liabilities - stock-based compensation
Years Ended
December 31,
2017
2016
$
(7,104,897) $
(6,345,176)
1,193,306
491,218
37,780
-
-
16,095
378,034
10,866
159,953
(185,683)
(5,003,328)
1,984,011
191,345
-
(1,672,573)
162,398
26,953
(248,637)
87,096
101,960
(263,437)
(5,976,060)
(207,227)
(207,227)
(209,871)
(209,871)
6,027,064
-
-
-
114,012
6,141,076
6,135,804
2,800,000
135,000
(135,000)
211,820
9,147,624
930,521
2,961,693
3,584,877
623,184
$
4,515,398 $
3,584,877
$
$
$
$
$
$
$
- $
- $
2,433
-
- $
- $
- $
276,578 $
121,720 $
1,664,999
817,020
581,300
80,578
-
The accompanying notes are an integral part of these consolidated financial statements.
65
Table of Contents
Lightbridge Corporation
Consolidated Statement of Changes in Stockholders’ Equity (Deficiency)
For The Years Ended December 31, 2017 and 2016
Balance - December 31, 2015
Issuance of Preferred stock
Shares issued - registered offerings – net of
offering costs
Stock-based compensation
Warrant modifications
Issuance of warrants
Net loss
Balance - December 31, 2016
Consulting fees paid in stock - non-cash
payment of accrued expenses
Shares issued - registered offerings – net of
offering costs
Cashless exercise of stock warrants
Stock-based compensation
Net loss
Balance - December 31, 2017
Preferred Stock
Common Stock
Shares
Amount
Shares
Amount
Additional
Paid-in
Capital
Accumulated
Deficit
Total
Equity
(Deficiency)
$
-
-
-
3,725,819 $
3,726 $ 72,868,647 $ (74,371,441) $ (1,499,068)
1,020,000 $
1,020
-
$
-
$ 2,798,980 $
-
$
2,800,000
-
-
-
-
1,020,000 $
-
-
-
-
1,020,000 $
-
-
-
-
1,020
-
-
-
-
1,020
3,363,395
-
22,929
-
-
7,112,143 $
3,363
-
23
-
-
6,132,441
1,984,011
816,997
1,664,999
-
7,112 $ 86,266,075 $ (80,716,617) $
-
-
-
-
(6,345,176)
6,135,804
1,984,011
817,020
1,664,999
(6,345,176)
5,557,590
102,975 $
103 $
121,617 $
5,236,001
286,584
-
-
5,236
287
-
-
6,021,828
(287)
1,193,306
-
-
-
-
(7,104,897)
12,737,703 $ 12,738 $ 93,602,539 $ (87,821,514) $
$
121,720
6,027,064
-
1,193,306
(7,104,897)
5,794,783
The accompanying notes are an integral part of these consolidated financial statements.
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Table of Contents
Note 1. Basis of Presentation, Summary of Significant Accounting Policies, and Nature of Operations
LIGHTBRIDGE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company was formed on October 6, 2006, when Thorium Power, Ltd. merged with Thorium Power, Inc., (“TPI”), which had been formed in the
State of Delaware on January 8, 1992. On September 29, 2009, we changed our name from Thorium Power, Ltd. to Lightbridge Corporation
(subsequently referred to as “we” or the “Company”). We are engaged in two operating business segments: our Technology Business Segment and our
Consulting Business Segment (see Note 11-Business Segment Results).
Liquidity
The Company has adopted Accounting Standards Codification 205-40. This guidance amended the existing requirements for disclosing information about
an entity’s ability to continue as a going concern and explicitly requires management to assess an entity’s ability to continue as a going concern and to
provide related disclosure in certain circumstances. This guidance was effective for annual reporting periods ending after December 15, 2016, and for
annual and interim reporting periods thereafter. The following information reflects the results of management’s assessment, plans and conclusion of the
Company’s ability to continue as a going concern.
As of December 31, 2017, the Company has an accumulated deficit of approximately $87.8 million, representative of recurring losses since inception.
The Company has incurred recurring losses since inception due to the fact that it is a development stage nuclear fuel development company. The
Company expects to continue to incur losses as a result of costs and expenses related to the Company’s research and development expenses and corporate
general and administrative expenses.
At December 31, 2017, the Company had $4.5 million in cash and had a working capital surplus of approximately $3.9 million. The Company had
expended substantial funds on its research and development activities and expects to increase this spending. The Company’s net cash used in operating
activities during the year ended December 31, 2017 was approximately $5 million, and current projections indicate that the Company will have continued
negative cash flows for the foreseeable future. Net losses incurred for the years ended December 31, 2017 and 2016 amounted to approximately $(7.1)
million, $(6.3) million respectively.
The amount of cash and cash equivalents on the balance sheet as of the date of the filing is approximately $27 million. The Company has raised substantial
additional funds after December 31, 2017 through its equity financings (Note 13 - Subsequent Events – ATM Transactions and Series B Preferred Stock
Transaction). The Company also may consider other plans to fund operations including: (1) raising additional capital through debt financings or from
other sources; (2) additional funding through new relationships to help fund future research and development costs (i.e. Department of Energy Funding);
(3) reducing spending on certain research and development programs; and/or (4) restructuring operations to change its overhead structure. The Company
may issue securities, including common stock, preferred stock and stock purchase contracts through private placement transactions or registered public
offerings, pursuant to its registration statement on Form S-3 initially filed with the Securities and Exchange Commission (“SEC”) on June 11, 2015. There
can be no assurance as to the availability or terms upon which financing and capital might be available. The Company’s future liquidity needs, and ability
to address those needs, will largely be determined by the success of the development of its nuclear fuel and key nuclear development and regulatory events
and its business decisions in the future.
The Company believes that its current financial resources, as of the date of the issuance of these financial statements, are sufficient to fund its current 12
month operating budget, alleviating the substantial doubt raised by our historical operating results and satisfying our estimated liquidity needs 12 months
from the issuance of these financial statements.
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Reverse Stock Split
Effective July 20, 2016, we conducted a one for five reverse stock-split of our issued and outstanding common stock and have retroactively adjusted our
common shares outstanding, options and warrants amounts outstanding. We have presented our share data for and as of all periods presented on this basis.
Our authorized capital of 500,000,000 shares of common stock and 50,000,000 shares of preferred stock, each with a par value of $0.001, was changed to
100,000,000 shares of common stock authorized and 10,000,000 shares of preferred stock authorized with a par value of $0.001. The par value was not
adjusted as a result of the one for five reverse stock split.
Enfission LLC - Joint Venture with Framatome Inc.
In January 2018, Lightbridge Corporation and Framatome Inc. a subsidiary of Framatome (formerly AREVA) finalized and launched Enfission LLC, a
50-50 joint venture company to develop, license and sell nuclear fuel assemblies based on Lightbridge-designed metallic fuel technology and other
advanced nuclear fuel intellectual property. Framatome and Framatome Inc. (collectively “Framatome”) is a leader in designing, building, servicing, and
fueling today’s reactor fleet and advancing nuclear energy. The two companies already began joint fuel development and regulatory licensing work under
previously signed agreements initiated in March 2016. The joint venture Enfission LLC is a Delaware-based limited liability company that was formed on
January 24, 2018.
Technology Business Segment
Our primary business segment, based on future revenue potential, is to develop and commercialize innovative, proprietary nuclear fuel designs which we
expect will significantly enhance the nuclear power industry’s economics due to higher power output and improve safety margins.
We are currently focusing our development efforts primarily on the metallic fuel with a power uprate of potentially up to 10% and a 24-month operating
cycle in existing Westinghouse-type four-loop pressurized water reactors. Those reactors represent the largest segment of our global target market. Our
metallic fuel could also be adapted for use in other types of water-cooled commercial power reactors, such as boiling water reactors, CANDU heavy water
reactors, as well as water-cooled small and modular reactors.
Lightbridge will seek patent validation in key countries that either currently operate or are expected to build and operate a large number of suitable nuclear
power reactors.
Consulting Business Segment
Our business model expanded with the establishment of a consulting business segment in 2007, through which we provide consulting and strategic
advisory services to companies and governments planning to create or expand electricity generation capabilities using nuclear power plants.
Accounting Policies and Pronouncements
Basis of Consolidation
These consolidated financial statements include the accounts of Lightbridge, a Nevada corporation, and our wholly-owned subsidiaries, TPI, a Delaware
corporation and Lightbridge International Holding LLC, a Delaware limited liability company.
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All significant intercompany transactions and balances have been eliminated in consolidation. We registered a branch office in the United Kingdom in
2008 called Lightbridge Advisors Limited (inactive) and we also established a branch office in Moscow, Russia, in July 2009, which were wholly owned
by Lightbridge International Holding LLC. The Moscow branch was closed in 2016 and the United Kingdom branch was closed in 2017. Translation
gains and losses for the years ended December 31, 2017 and 2016 were not significant.
Use of Estimates and Assumptions
The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America, requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from
those estimates.
Significant Estimates
These accompanying consolidated financial statements include some amounts that are based on management’s best estimates and judgments. The most
significant estimates relate to valuation of stock grants and stock options, the valuation allowance on deferred tax assets, and various contingent
liabilities. It is reasonably possible that these above-mentioned estimates and others may be adjusted as more current information becomes available, and
any adjustment could be significant in future reporting periods. It is also reasonably possible that the actual grant date value of the stock options vested
might have been materially different than the estimated value.
Fair Value of Financial Instruments
The Company’s financial instruments consist principally of cash and cash equivalents, accounts receivable and accounts payable. The fair value of a
financial instrument is the amount that would be received in an asset sale or paid to transfer a liability in an orderly transaction between unaffiliated
market participants. Assets and liabilities measured at fair value are categorized based on whether the inputs are observable in the market and the degree
that the inputs are observable. The categorization of financial instruments within the valuation hierarchy is based on the lowest level of input that is
significant to the fair value measurement.
Certain Risks, Uncertainties and Concentrations
We are an early stage company and will likely need additional funding by way of strategic alliances, further offerings of equity securities, an offering of
debt securities, or a financing through a bank in order to support the remaining research and development activities required to further enhance and
complete the development of our fuel products to a commercial stage. Currently, we are working on consulting revenue opportunities with the overall goal
of increasing our profitability and cash flow.
We participate in a government-regulated industry. Our operating results are affected by a wide variety of factors including decreases in the use or public
favor of nuclear power, the ability of our technology to safeguard the production of nuclear power and our ability to safeguard our patents and intellectual
property from competitors. Due to these factors, we may experience substantial period-to-period fluctuations in our future operating results. Potentially, a
loss of a key officer, key management and other personnel could impair our ability to successfully execute our business strategy, particularly when these
individuals have acquired specialized knowledge and skills with respect to nuclear power and our operations.
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Our future operations and earnings may depend on the results of the Company’s operations outside the United States, including some of its research and
development activities. There can be no assurance that the Company will be able to successfully continue to conduct such operations, and a failure to do
so would have a material adverse effect on the Company’s research and development activities, financial position, results of operations, and cash flows.
Also, the success of the Company’s operations will be subject to other numerous contingencies, some of which are beyond management’s control. These
contingencies include general and regional economic conditions, competition, changes in regulations, changes in accounting and taxation standards,
inability to achieve overall long-term goals, future impairment charges and global or regional catastrophic events. Because the Company is dependent on
its international operations for almost all its revenue, the Company may be subject to various additional political, economic, and other uncertainties.
Accounts receivable are typically unsecured and are primarily derived from revenues earned from prime contractors and customers located in the Middle
East and the United States. We perform ongoing evaluations to determine customer credit and we limit the amount of credit we extend, but generally we
do not require collateral from our customers. We maintain reserves for estimated credit losses if necessary, however, no reserve has been set up at
December 31, 2017 and 2016, as we expect to collect all of our outstanding receivables. Accounts receivable from one customer constituted
approximately 100% of the total accounts receivable at December 31, 2017 and accounts receivable from two customers each constituted approximately
80% and 20% of the total accounts receivable at December 31, 2016, respectively.
Approximately 15% and 49% of the total revenues reported for the years ended December 31, 2017 and 2016, respectively, were from the ENEC and
FANR contracts. Contracts with one other utility customer in the United States constituted approximately 22% of total revenues reported for the year
ended December 31, 2016, and contracts with one other customer constituted 85% and 29% for the years ended December 31, 2017 and 2016,
respectively.
Revenue Recognition
Consulting Business Segment
At the present time, we derive all of our revenue from our consulting business segment on a time and expense basis as provided, by offering consulting
services to utilities as well as to governments outside the United States planning to create or expand electricity generation capabilities using nuclear power
plants. Our fee structure for each client engagement is dependent on a number of variables, including the size of the client, the complexity, the level of the
opportunity for us to improve the client’s electrical generation capabilities using nuclear power plants, and other factors. The accounting policy we use to
recognize revenue depends on the terms and conditions of the specific contract.
Revenues are billed on a time and expense basis.
We recognize revenue in accordance with ASC 605-10-S99, “Revenue Recognition.” We recognize revenue when all of the following conditions are met:
(1)
(2)
(3)
(4)
There is persuasive evidence of an arrangement;
The service has been provided to the customer;
The collection of the fees is reasonably assured; and
The amount of fees to be paid by the customer is fixed or determinable.
Certain customer arrangements require evaluation of the criteria outlined in the accounting standards for reporting revenue “Gross as a Principal Versus
Net as an Agent” in determining whether it is appropriate to record the gross amount of revenue and related costs, or the net amount earned as agent fees.
Generally, when we are primarily obligated in a transaction, revenue is recorded on a gross basis.
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Other factors that we consider in determining whether to recognize revenue on a gross versus net basis include our assumption of credit risk, latitude in
establishing prices, our determination of service specifications, and our involvement in the provision of services. We have determined, based on the credit
risk that we bear for collecting consulting fees, travel costs, and other reimbursable costs from our customers, that in 2017 and 2016 we acted as a
principal, and therefore we are recognizing as revenue all travel costs and other reimbursable costs billed to our customers.
Cost of consulting services includes labor, travel expenses, stock-based compensation and other related consulting costs.
Cash and Cash Equivalents and Restricted Cash
We may at times invest our excess cash in money market mutual funds. We classify all highly liquid investments with stated maturities of three months or
less from date of purchase as cash equivalents and all highly liquid investments with stated maturities of greater than three months as marketable
securities. We hold cash balances in excess of the federally insured limits of $250,000 with one prominent financial institution. We deem this credit risk
not to be significant as our cash is held by a major prominent financial institution. Total cash and cash equivalents held in checking accounts, as reported
on the accompanying consolidated balance sheets, totaled approximately $4.5 million and $3.6 million at December 31, 2017 and 2016, respectively.
Restricted cash represents cash being held by the same prominent financial institution that is being used as collateral for our corporate credit cards and
letters of credit to secure contingent obligations under the sub-lease and our ACH transactions. The total balance of our restricted cash at December 31,
2016 was approximately $114,000.
Trade Accounts Receivable
We record accounts receivable at the invoiced amount and we do not charge interest. We review the accounts receivable by amounts due from customers
which are past due, to identify specific customers with known disputes or collectability issues. In determining the amount of the reserve, we make
judgments about the creditworthiness of significant customers based on ongoing credit evaluations. We will also maintain a sales allowance to reserve for
potential credits issued to customers. We will determine the amount of the reserve based on historical credits issued.
There was no provision for doubtful accounts or a sales allowance recorded at December 31, 2017 and 2016, as we have not experienced any bad debts
from any of our customers or issued significant credits to customers.
Foreign Currency
Foreign currency transaction gains/losses were not significant for the years ended December 31, 2017 and 2016.
Patents and Legal Costs
Patents are stated on the accompanying consolidated balance sheets at cost. Patent costs consist primarily of legal fees and application costs for filing and
pursuing patent applications. The costs of the patents, once placed in service, will be amortized on a straight-line basis over their estimated useful lives or
the remaining legal lives of the patents, whichever is shorter. The amortization periods for our patents can range between 17 and 20 years if placed into
service at the beginning of their legal lives. Our patents have not been placed in service for the years ended December 31, 2017 and 2016.
Legal costs are expensed as incurred except for legal costs to file for patent protection, which are capitalized and reported as patents on the accompanying
consolidated balance sheets.
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Impairment of long-lived assets
Long-lived assets of the Company are reviewed for impairment whenever events or circumstances indicate that the carrying amount of assets may not be
recoverable. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of
the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. The Company did not
consider it necessary to record any impairment charges for the years ended December 31, 2017 and 2016.
Research, Development and Related Expenses
These costs from our technology business segment are charged to operations in the period incurred and are shown on a separate line on the accompanying
consolidated statements of operations.
Common Stock Warrants
The Company accounts for common stock warrants as either equity instruments or derivative liabilities depending on the specific terms of the warrant
agreement. Common stock warrants are accounted for as a derivative in accordance with Accounting Standards Codification 815, Derivatives and
Hedging (“ASC 815”) if the stock warrants contain terms that could potentially require “net cash settlement” and therefore, do not meet the scope
exception for treatment as a derivative. Warrant instruments that could potentially require “net cash settlement” in the absence of express language
precluding such settlement are initially classified as derivative liabilities at their estimated fair values, regardless of the likelihood that such instruments
will ever be settled in cash.
Commitments and Contingencies
The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may
exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company but which will only be resolved when one
or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of
judgment.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then
the estimated liability would be accrued in the Company’s consolidated financial statements. If the assessment indicates that a potentially material loss
contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate
of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. The
Company’s legal costs associated with contingent liabilities are recorded to expense as incurred.
Stock-Based Compensation
The stock-based compensation expense incurred by Lightbridge for employees and directors in connection with its equity incentive plan is based on the
employee model of ASC 718, and the fair value of the options is measured at the grant date. Under ASC 718 employee is defined as, “An individual over
whom the grantor of a share-based compensation award exercises or has the right to exercise sufficient control to establish an employer-employee
relationship based on common law as illustrated in case law and currently under U.S. Tax Regulations.” Our consultants do not meet the employer-
employee relationship as defined by the IRS and therefore are accounted for under ASC 505-50.
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ASC 505-50-30-11 (previously EITF 96-18) further provides that an issuer shall measure the fair value of the equity instruments in these transactions
using the stock price and other measurement assumptions as of the earlier of the following dates, referred to as the measurement date:
i.
The date at which a commitment for performance by the counterparty to earn the equity instruments is reached (a performance commitment);
and
ii.
The date at which the counterparty’s performance is complete.
Awards with service-based vesting conditions only – Expense recognized on a straight-line basis over the requisite service period of the award.
Awards with performance-based vesting conditions – Expense is not recognized until it is determined that it is probable the performance-based conditions
will be met. When achievement of a performance-based condition is probable, a catch-up of expense will be recorded as if the award had been vesting on
a straight-line basis from the award date. The award will continue to be expensed on a straight-line basis until a higher performance-based condition is
met, if applicable.
Awards with market-based vesting conditions – Expense recognized on a straight-line basis over the requisite service period, which is the lesser of the
derived service period or the explicit service period if one is present. However, if the market condition is satisfied prior to the end of the requisite service
period, we will accelerate all remaining expense to be recognized.
Awards with both performance-based and market-based vesting conditions - if an awards vesting or exerciseability is conditional upon the achievement of
either a market condition or performance or service conditions, the requisite service period is generally the shortest of the explicit, implicit, and derived
service period.
We have elected to use the Black-Scholes pricing model to determine the fair value of stock options on the measurement date of the grant for service-
based vesting conditions and the Monte-Carlo valuation method for performance-based or market-based vesting conditions. Restricted stock units are
measured based on the fair values of the underlying stock on the measurement date of the grant. Shares that are issued to officers on the exercise dates of
their stock options may be issued net of the minimum statutory withholding requirements to be paid by us on behalf of our employees. As a result, the
actual number of shares issued will be fewer than the actual number of shares exercised under the stock option. We recognize stock-based compensation
for service-based stock options using the straight-line method over the requisite service period.
Segment Reporting
We use the “management approach” in determining reportable operating segments. The management approach considers the internal organization and
reporting used by our chief decision makers for making operating decisions and assessing performance, as the source for determining our reportable
segments. We have determined that we have two operating segments as defined by the FASB accounting pronouncement, “ Disclosures about Segments of
an Enterprise and Related Information”. As discussed above, our two reporting business segments are our technology business and our consulting
services business (see Note 11 - Business Segment Results).
Recently Adopted Accounting Pronouncements
Stock Compensation - In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee
Share-Based Payment Accounting, which will simplify the income tax consequences, accounting for forfeitures and classification on the Statement of
Consolidated Cash Flows. This standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016,
with early adoption permitted. This new pronouncement has been adopted on January 1, 2017 and did not have a material effect on the Company’s
financial position, results of operations or cash flows.
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Recent Accounting Pronouncements
Intangibles, Goodwill and Other —In January 2017, the FASB issued ASU No. 2017-04, “Intangibles – Goodwill and Other (Topic 350) – Simplifying
the Test for Goodwill Impairment” (“ASU No. 2017-04”). To simplify the subsequent measurement of goodwill, ASU No. 2017-04 eliminates Step 2
from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair
value at the impairment testing date of its assets and liabilities following the procedure that would be required in determining the fair value of assets
acquired and liabilities assumed in a business combination. Instead, ASU No. 2017-04 requires an entity to perform its annual, or interim, goodwill
impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount
by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill
allocated to that reporting unit. ASU No. 2017-04 also eliminates the requirements for any reporting unit with a zero or negative carrying amount to
perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. Therefore, the same impairment
assessment applies to all reporting units. An entity is required to disclose the amount of goodwill allocated to each reporting unit with a zero or negative
carrying amount of net assets. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative
impairment test is necessary. ASU No. 2017-04 is effective for fiscal years beginning after December 15, 2019. The Company will adopt ASU No. 2017-
04 commencing in the first quarter of fiscal 2020. The Company does not believe this standard will have a material impact on its consolidated financial
statements or the related footnote disclosures.
Statement of Cash Flows - In 2016 the FASB issued ASU 2016-15, “Statement of Cash Flows: Classification of Certain Cash Receipts and Cash
Payments” and ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash”. ASU 2016-15 addresses the presentation and classification of
certain cash receipts and payments in the statement of cash flows. ASU 2016-18 is intended to reduce diversity in the presentation of restricted cash and
restricted cash equivalents in the cash flows statement. The statement requires that restricted cash and restricted cash equivalents to be included as
components of total cash and cash equivalents as presented on the statement of cash flows. These pronouncements go into effect for periods beginning
after December 15, 2017. The Company does not believe the adoption of these pronouncements will have a material effect on the Company’s
consolidated financial statements.
Leases – In February 2016, the FASB issued ASU 2016-02 which amends existing lease accounting guidance and requires recognition of most lease
arrangements on the balance sheet. The adoption of this standard will result in the Company recognizing a right-of-use asset representing its rights to use
the underlying asset for the lease term with an offsetting lease liability. ASU 2016-02 will be effective for fiscal years beginning after December 15, 2018,
with early adoption permitted. The Company is currently evaluating the potential impact of the adoption of this accounting pronouncement to its
consolidated financial statements. This new pronouncement is not expected to have a material effect on the Company’s consolidated financial position,
results of operations or cash flows.
Revenue Recognition — In May 2014, the FASB issued guidance on revenue from contracts with customers that will supersede most current revenue
recognition guidance, including industry-specific guidance. The underlying principle is that an entity will recognize revenue to depict the transfer of goods
or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. The guidance provides a five-step
analysis of transactions to determine when and how revenue is recognized. Other major provisions include capitalization of certain contract costs,
consideration of time value of money in the transaction price and allowing estimates of variable consideration to be recognized before contingencies are
resolved in certain circumstances. The guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and
cash flows arising from an entity’s contracts with customers. In March 2016, the FASB issued ASU 2016-08, “ Revenue from Contracts with Customers:
Principal versus Agent Considerations”. ASU 2016-08 clarifies implementation guidance on principal versus agent considerations in ASU 2014-09. ASU
2016-10 was issued to clarify ASC Topic 606 related to (i) identifying performance obligations; and (ii) the licensing implementation guidance. In May
2016, the FASB issued ASU 2016-12, “ Revenue from Contracts with Customers - Narrow-Scope Improvements and Practical Expedients”, to clarify
certain narrow aspects of Topic 606 such as assessing the collectability criterion, presentation of sales taxes and other similar taxes collected from
customers, noncash consideration, contract modifications at transition, completed contracts at transition, and technical correction. The guidance is
effective for the interim and annual periods beginning on or after December 15, 2017 (early adoption is permitted but not sooner than the annual reporting
periods beginning after December 15, 2016). The guidance permits the use of either a retrospective or cumulative effect transition method. The Company
has evaluated its various contracts subject to these updates and completed its assessment. The Company has concluded that the adoption of this
pronouncement will not have a material effect on its consolidated financial statements and related disclosures since we do not expect revenue to be
significant in 2018.
Compensation-Stock Compensation — In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718): Scope of
Modification Accounting. ASU 2017-09 provides clarity and reduces both (1) diversity in practice and (2) cost and complexity when applying the
guidance in Topic 718, to a change to the terms or conditions of a share-based payment award. The amendments in ASU 2017-09 should be applied
prospectively to an award modified on or after the adoption date. This ASU is effective for fiscal years, and interim periods within those years, beginning
after December 15, 2017. This new pronouncement is not expected to have a material effect on the Company’s consolidated financial position, results of
operations or cash flows.
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Note 2. Net Loss Per Share
Basic net loss per share is computed using the weighted-average number of common shares outstanding during the period except that it does not include
unvested common shares subject to repurchase or cancellation. Diluted net income per share is computed using the weighted-average number of common
shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the incremental common shares
issuable upon the exercise of stock options, warrants, restricted shares, and unvested common shares subject to repurchase or cancellation. The dilutive
effect of outstanding stock options, restricted shares, restricted stock units, and warrants is not reflected in diluted earnings per share because we incurred
net losses for the years ended December 31, 2017 and 2016, and the effect of including these potential common shares in the net loss per share
calculations would be anti-dilutive and are therefore not included in the calculations.
The following table sets forth the computation of the basic and diluted loss per share (rounded in millions except shares outstanding and per share
amounts):
Numerator:
Net loss attributable to common stockholders
Denominator:
Weighted-average common shares outstanding
Basic and diluted net loss per share
Note 3. Accounts Receivable – Project Revenue and Reimbursable Project Costs
Consulting Projects
2017
2016
$
$
(7.4) $
(7.0)
10,424,481
(0.71) $
4,728,943
(1.48)
The total accounts receivable from the Federal Authority for Nuclear Regulation (“FANR”) and Emirates Nuclear Energy Corporation (“ENEC”)
contracts was approximately $10,000 and $310,000 at December 31, 2016. These amounts due from ENEC represent approximately 100% and 80% of
the accounts receivable reported at December 31, 2017 and 2016, respectively.
Travel costs and other reimbursable costs under these contracts are reported in the accompanying statement of operations as both revenue and cost of
consulting services provided and were not significant for the years ended December 31, 2017 and 2016. The total travel and other reimbursable expenses
that have not been reimbursed to us and are included in total accounts receivable reported above from our consulting contracts was not significant at
December 31, 2017 and 2016.
Note 4. Prepaid Expenses and Other Current Assets
Prepaid expenses consist primarily of prepayments made for research and development work, various professional services, insurance policies, travel,
rent, and other miscellaneous prepayments. Total prepaid expenses and other current assets reported on the accompanying consolidated balance sheets at
December 31, 2017 and 2016, were both approximately $0.1 million.
One month of rent or approximately $33,000 represents the one-month advance rent placed on the prior McLean, Virginia corporate offices (see Note 7).
A security deposit of approximately $15,000 was placed for the new corporate offices in Reston, Virginia (see Note 7). The security deposits at December
31, 2017 and 2016, are reported under the balance sheet caption prepaid expenses and other current assets.
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Note 5. Patents
Patents represent legal fees and filing costs that are capitalized and will be amortized over their estimated useful lives of 17 to 20 years or their remaining
legal lives, whichever is shorter, after they are placed in service. For the years ended December 31, 2017 and 2016, we capitalized approximately $0.2
million each year, for patent filing costs. The total investment in patents was approximately $1.4 million and $1.2 million as of December 31, 2017 and
2016, respectively.
No amortization expense of patents was recorded in either of the years ended December 31, 2017 and 2016. These patents were not placed in service for
the years ended December 31, 2017 and 2017, or in prior years.
Note 6. Accounts Payable and Accrued Liabilities
Accounts payable and accrued expenses (rounded in millions) consisted of the following:
Trade payables
Accrued expenses and other
Accrued bonuses
Total
Note 7. Commitments and Contingencies
Commitments
Operating Leases
December 31, December 31,
2017
2016
$
$
0.3 $
0.6
0.3
1.2 $
0.3
0.4
0.5
1.2
On December 22, 2015 we entered into a lease for new office space for a 12-month term, with a monthly rent payment of approximately $6,500 per month
plus additional charges. This lease was renewed for an additional one-year term in December 2017.
On December 17, 2015 we entered into a sublease agreement for our former office space with a third party with a lease term starting January 1, 2016 to
February 28, 2018. The average monthly rent to be received under this sub-lease is approximately $15,000 per month, over the sub-lease term.
At December 31, 2017 and 2016, the long-term portion of deferred lease abandonment liability was approximately $0 and $28,000, respectively, and the
short-term portion of deferred lease abandonment liability of approximately $65,000 and $169,000 was included in accounts payable and accrued
liabilities at December 31, 2017 and 2016, respectively.
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We have a standard indemnification arrangement under this sublease agreement that require us to indemnify the sublessee against liabilities and claims
incurred in connection with the premises covered by the Company’s lease. The term of this indemnification agreement is from the time of execution of the
agreement to its expiration. The maximum potential amount of future payments the Company could be required to make under these indemnification
agreements is $75,000, which is covered by a letter of credit that is outstanding as of December 31, 2016. As of December 31, 2017, the Company had
not accrued a liability for this indemnification because the likelihood of incurring a payment obligation in connection with this indemnification is remote.
The future minimum lease payments required under the non-cancelable operating leases are as follows (rounded in millions):
Year ending December 31,
2018
Total minimum payments required
Sublease
Amount
$
$
0.1
0.1
In September 2017, we were notified by the sublease tenant that as of October 2017, due to their weak financial condition, they would no longer be able
to make the required monthly sublease payments over the remaining term of the sublease. Accordingly, we recognized an abandonment loss of
approximately $38,000, included in general and administrative expenses in the consolidated statements of operations for the year ended December 31,
2017.
Contingency
Litigation
A former Chief Financial Officer of the Company filed a complaint against the Company with the U.S. Occupational Safety and Health Administration
(the “OSHA Complaint”) on March 9, 2015. This compliant was closed and dismissed by OSHA in January 2018 without any findings against the
Company. The former Chief Financial Officer has 45 days from the receipt of the letter from OSHA, or approximately up to March 29, 2018 to appeal
this OSHA decision.
Note 8. Research and Development Costs
Research and development costs, included in the accompanying consolidated statement of operations amounted to approximately $2.3 million and $2.7
million for each of the years ended December 31, 2017 and 2016, respectively.
On November 14, 2017, we entered three binding agreements with Framatome: The Research and Development Services Agreement (“RDSA”), the Co-
Ownership Agreement (“COA”), and the Intellectual Property Annex (“IP Annex”). These agreements govern the joint research and development
activities relating to the Lightbridge-designed metallic nuclear fuel and treatment of all related existing and future intellectual property, and these
agreements form the foundation for, and are an integral part of, the joint venture arrangement (the “JV”) between the Company and Framatome. The JV
was formed on January 24, 2018 (Note 13 - Subsequent Events) and is called Enfission LLC. The JV is party to the RDSA and the COA.
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Pursuant to the RDSA, a steering committee consisting of an equal number of members appointed by Lightbridge and by Framatome (not fewer than three
each) will guide the first joint project between Framatome and Lightbridge: a 17x17 fuel assembly. Lightbridge will first appoint the project manager, who
will be replaced by the project member appointed by JV. Each party grants the other party the rights to use its “background” and “foreground”
information (each as defined in the RSDA), which includes intellectual property rights, needed to perform the research and development activities. The
term of the RDSA is (i) five years and an automatic renewal for an additional five-year term or (ii) February 28, 2018, if the JV has not been formed prior
to such date.
In connection with the RDSA, the Company is committed, at December 31, 2017, to purchase minimum amounts of R&D services from Framatome of
approximately $3.3 million for the period up through December 31, 2018.
Pursuant to the COA, Lightbridge and Framatome will co-own (on a 50-50 basis) the foreground information generated by the parties within the
“domain”, acting through the parties or third-party contractors. The “domain” consists of the technology, manufacturing processes and IP relating to the
new fuel developed by the JV for the following types of commercial light water reactors and research reactors: (i) pressurized water reactors, excluding
water-water energetic reactor (VVER) reactors types, (ii) boiling water reactors, (iii) light water-cooled small and medium size reactors, and (iv) research
reactors. The Domain expressly excludes maritime, naval and military applications. The joint owners have granted the JV an exclusive license to the
jointly owned foreground information and a non-exclusive license to their respective background information for commercial use of nuclear fuel
assemblies or fuel components specifically designed for and exclusively applicable to Lightbridge-designed fuel rod based on background information
contributed by both joint owners. Such exclusive and non-exclusive licenses to the JV will be granted under royalty-bearing conditions and other
conditions to be agreed in separate license agreements. An advisory IP committee to the joint owners comprised of an equal number of representatives
from Lightbridge and ANP will make recommendations regarding all matters relating to the co-ownership management of such foreground information.
The term of the COA is for thirty years and will be automatically renewed for additional five-year terms.
Lightbridge and Framatome are also a party to the IP Annex, which summarizes the parties’ understanding regarding IP matters based on detailed terms
and conditions contained in the RDSA and COA. The IP Annex is a standalone document and will remain in force only during the life of the JV.
We have consulting agreements with several outside consultants working on various projects for us, which total approximately $20,000 per month.
Note 9. Income Taxes
In December 2017, the federal government enacted numerous amendments to the Internal Revenue Code of 1986 pursuant to an act known by the Tax
Cuts and Jobs Act (the “TCJA”). The TCJA will impact the Company’s income tax expense (benefit) from continuing operations in future periods
(approximate 25% effective combined Federal and State corporate tax rate). The Company has recorded a full valuation allowance on its net deferred tax
assets and therefore any impact on the value of the company’s deferred tax assets will be offset by a change in the valuation allowance.
Our tax provision is determined using an estimate of our annual effective tax rate adjusted for discrete items, if any, that are taken into account in the
relevant period. The 2017 and 2016 annual effective tax rate is estimated to be a combined 38% for the U.S. federal and state statutory tax rates. We
review tax uncertainties in light of changing facts and circumstances and adjust them accordingly. As of December 31, 2017 and 2016, there were no tax
contingencies or unrecognized tax positions recorded.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities recognized for financial
reporting, and the amounts recognized for income tax purposes. The significant components of deferred tax assets (at an approximate 25% effective tax
rate) as of December 31, 2017 and 2016, respectively, are as follows:
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Deferred Tax Assets ($ in millions)
Capitalized start-up costs
Abandonment loss
Stock-based compensation - net
Accruals
Net operating loss carry-forward
Less: valuation allowance
Total
Total
2017
Total
2016
Deferred Tax Asset
2017
2016
$
$
2.5 $
0.0
8.8
0.3
62.5
(74.1)
- $
3.0 $
0.2
8.9
0.5
56.0
(68.6)
- $
0.6 $
0.0
2.2
0.1
16.1
(19.0)
- $
1.1
0.1
3.4
0.2
21.3
(26.1)
-
We have a net operating loss carry-forward for federal and state tax purposes of approximately $62.5 million at December 31, 2017, that is potentially
available to offset future taxable income. The TCJA changes the rules on NOL carryforwards. The 20-year limitation was eliminated, giving the taxpayer
the ability to carry forward losses indefinitely. However, NOL carry forward arising after January 1, 2018, will now be limited to 80 percent of taxable
income.
For financial reporting purposes, no deferred tax asset was recognized because at December 31, 2017 and 2016, management estimates that it is more
likely than not that substantially all of the net operating losses will expire unused. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary differences are deductible. The timing and manner in which we can
utilize our net operating loss carryforward and future income tax deductions in any year may be limited by provisions of the Internal Revenue Code
regarding the change in ownership of corporations. Such limitation may have an impact on the ultimate realization of our carryforwards and future tax
deductions. Section 382 of the Internal Revenue Code (“Section 382”) imposes limitations on a corporation’s ability to utilize net operating losses if it
experiences an “ownership change.” In general terms, an ownership change may result from transactions increasing the ownership of certain stockholders
in the stock of a corporation by more than 50 percentage points over a three-year period. Any unused annual limitation may be carried over to later years,
and the amount of the limitation may under certain circumstances be increased by the built-in gains in assets held by us at the time of the change that are
recognized in the five-year period after the change. Upon review of the ownership shifts, there has not been an ownership change as defined under Section
382.
We recognized, as a provisional estimate, a $9.6 million non-cash tax expense through loss from operations for the re-measurement of deferred tax assets
and liabilities due to changes in tax laws included in the 2017 Tax Act. This re-measurement of deferred taxes had no impact on cash flows.
On December 22, 2017, the SEC issued Staff Accounting Bulletin No. 118 (SAB 118) which addresses income tax accounting implications of the 2017
Tax Act. The purpose of SAB 118 was to address any uncertainty or diversity of view in applying ASC Topic 740, Income Taxes in the reporting period
in which the 2017 Tax Act was enacted. SAB 118 addresses situations where the accounting is incomplete for certain income tax effects of the 2017 Tax
Act upon issuance of a company’s financial statements for the reporting period which include the enactment date. SAB 118 allows for a provisional
amount to be recorded if it is a reasonable estimate of the impact of the 2017 Tax Act. Additionally, SAB 118 allows for a measurement period to finalize
the impacts of the 2017 Tax Act, not to extend beyond one year from the date of enactment.
Due to the timing of the enactment and the complexity involved in applying the provisions of the 2017 Tax Act, we have made reasonable estimates for
certain effects of the 2017 Tax Act and recorded provisional amounts in our financial statements as of December 31, 2017. As we collect and prepare
necessary data,and interpret the 2017 Tax Act and any additional guidance issued by the U.S. Treasury Department, the IRS, and other standard-setting
bodies, we may make adjustments to the provisional amounts. Those adjustments may materially impact our provision for income taxes tax rate in the
period in which the adjustments are made. We expect to complete our accounting for the tax effects of the 2017 Tax Act in 2018.
As a result, the amount of the deferred tax assets considered realizable was reduced 100% by a valuation allowance. The change in the valuation
allowance was approximately $(6.8) million and $(0.3) million for the years ended December 31, 2017 and 2016, respectively. Many of the Company’s
operating expenses in its 2007 and 2006 tax years were classified under the Internal Revenue Code as capitalized “Startup Costs”, which did not begin to
be deductible for tax purposes until 2008. The Company files a consolidated tax return with its subsidiaries. The Company is no longer subject to U.S.
federal, state, or non-U.S. income tax examinations by tax authorities for tax years before 2013, except that earlier years can be examined for the sole
purpose of challenging the net operating loss carry-forwards arising in those years.
The reconciliation between income taxes (benefit) at the U.S. and State statutory tax rates of 38% and the amount recorded in the accompanying
consolidated financial statements is as follows:
($ in millions)
Tax benefit at U.S. federal and state statutory rates
Warrant revaluation (income)/expense
Stock-based compensation and other
Change in Federal statutory rate
Increase in valuation allowance
Total provision for income tax benefit
December 31, December 31,
2017
2016
$
$
(3.0) $
0.0
0.2
9.6
(6.8)
- $
(2.0)
(0.5)
2.8
-
(0.3)
-
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Note 10. Stockholders’ Equity and Stock-Based Compensation
At December 31, 2017, there were 12,737,703 common shares, 1,210,905 common stock warrants, 3,976,884 stock options outstanding and 1,020,000
shares of convertible preferred stock outstanding plus accrued dividends of $276,578, totaling 1,120,753 equivalent common shares, all totaling
19,046,245 of total common stock and common stock equivalents outstanding at December 31, 2017. At December 31, 2016, there were 7,112,143
common shares, 1,713,172 common stock warrants, 2,172,581 stock options outstanding and 1,020,000 shares of convertible preferred stock outstanding
plus accrued dividends of $ 80,578 totaling 1,049,354 equivalent common shares, all totaling 12,047,250 of total stock and stock equivalents outstanding
at December 31, 2016.
Common Stock Equity Offerings
ATM Offering - 2017
On June 11, 2015, the Company entered into an ATM sales agreement with MLV & Co. LLC (“MLV”), pursuant to which the Company may issue and
sell shares of its common stock from time to time through MLV as the Company’s sales agent. The issuance and sale of shares by the Company under the
MLV ATM sales agreement are registered shares under the Company’s shelf registration statement on Form S-3, as filed with the Securities and Exchange
Commission on June 11, 2015 and declared effective by the Securities and Exchange Commission.
On July 12, 2017, the Company filed a prospectus supplement to register an additional approximate $1.6 million under a new at-the-market issuance sales
agreement with FBR Capital Markets & Co. and MLV (now succeeded by B. Riley FBR, Inc.), signed on July 12, 2017 and has raised an approximate
$1.6 million under this prospectus supplement as of December 31, 2017. There have been approximately 1.4 million shares sold through December 31,
2017.
ATM Offering – 2016
The Company registered the sale of up to $5.8 million of common stock under the ATM sales agreement. There have been approximately 1.9 million
shares sold for total gross proceeds of approximately $2.6 million through the ATM for the twelve-month period ended December 2016.
Due to limitations under the rules of Form S-3, the Company may issue up to one-third of the aggregate market value of the common equity held by non-
affiliates in primary offerings under its effective shelf registration statement on Form S-3, including any sales made pursuant to the MLV ATM or the New
ATM offerings, during any twelve calendar month period, unless and until it is no longer subject to such limitations. The Company was subject to this
limitation in 2017 and 2016.
Equity Purchase Agreement – Equity Line
On September 4, 2015, we entered into a common stock purchase agreement with Aspire Capital, which provides that Aspire Capital is committed to
purchase up to an aggregate of $10.0 million of shares of our common stock over a two-year term, subject to our election to sell any such shares, and
subject to the Nasdaq Listing Rule 5635(d) limitation. Nasdaq Listing Rule 5635(d) (“the Nasdaq 20% Rule”), requires shareholder approval of a
transaction other than a public offering involving the sale, issuance, or potential issuance by a company of common stock (or securities convertible into or
exercisable for common stock) equal to 20% or more of the company’s outstanding shares of common stock, or 20% or more of the voting power
outstanding before the issuance for less than the greater of book or market value of the stock. The Company held its Annual Meeting on May 12, 2016. At
the 2016 Annual Meeting, the Company’s stockholders voted on the approval, pursuant to Nasdaq Listing Rule 5635(d), of the issuance of up to 3.0
million additional shares of common stock to Aspire Capital. The Company would seek stockholder approval before issuing more than such 3.0 million
shares.
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Under the agreement, we have the right to sell shares, subject to certain volume limitations and a minimum floor price, to Aspire Capital as of January 8,
2016, the date all conditions to the commencement of sales under the common stock purchase agreement were satisfied, including the effectiveness of the
Form S-1 registration statement registering the resale of the Company’s common stock by Aspire Capital. On any trading day selected by the Company,
the Company will have the right, in its sole discretion, to present Aspire Capital with a purchase notice directing Aspire Capital (as principal) to purchase
up to 20,000 shares of the Company’s common stock per business day (in a purchase amount up to $250,000 on each such business day) at a price equal to
the lesser of:
1.
2.
The lowest sale price of the Company’s common stock on the purchase date; or
The arithmetic average of the three (3) lowest closing sale prices for the Company’s common stock during the twelve (12) consecutive
trading days ending on the trading day immediately preceding the purchase date.
In addition, on any date on which we submit a purchase notice to Aspire Capital in an amount equal to 20,000 shares, the Company also has the right, in
its sole discretion, to present Aspire Capital with a volume-weighted average price purchase notice (each, a “VWAP Purchase Notice”) directing Aspire
Capital to purchase an amount of stock equal to up to 30% of the aggregate shares of the Company’s common stock traded on its principal market on the
next trading day (the “VWAP Purchase Date”), subject to a maximum number of shares as the Company may determine. The purchase price per share
pursuant to such VWAP Purchase Notice is generally 95% of the volume-weighted average price for the Company’s common stock traded on its principal
market on the VWAP Purchase Date.
As part of the agreement, Aspire Capital received 60,000 additional shares as compensation for its commitment, valued approximately $276,000 or $4.60
per common share, recorded to additional paid-in capital.
We have a Form S-1 registration statement on file with the Securities and Exchange Commission, effective August 23, 2017 registering 1,853,960 shares
of our common stock to sell under this equity purchase agreement. For the year ended December 31, 2017 we sold approximately 1.2 million common
shares for total gross proceeds of approximately $1.5 million through the equity line financing arrangement with Aspire Capital that we have in place. For
the year ended December 31, 2016 we sold approximately 1.1 million common shares for total gross proceeds of approximately $2.7 million through the
equity line financing arrangement with Aspire Capital that we have in place.
In 2018, the equity purchase agreement with Aspire Capital was terminated. See Note 13 – Subsequent Events.
On June 28, 2016, we entered into a Securities Purchase Agreement with Aspire Capital Fund, pursuant to which the Company has agreed to sell up to
$5.0 million of shares of the Company’s common stock to Aspire Capital, without an underwriter or placement agent. Pursuant to the Securities Purchase
Agreement, the Company sold 371,400 shares of common stock and 295,267 in the form of pre-funded warrants with an exercise price of $0.05 per share
to Aspire Capital on June 28, 2016 for $1.0 million (the “First Purchase”).
The allocation of the proceeds from the offering, based on the relative fair value of the common stock and the warrants, resulted in the allocation of
approximately $0.6 million of the net proceeds to the common stock sold and approximately $0.4 million of the net proceeds to the warrants, which was
recorded to additional paid-in capital-stock.
The value of the warrants issued was calculated by using the Black Scholes Valuation Model using the following assumptions: volatility 91%; risk-free
interest rate of 1%; dividend yield of 0% and expected term of 5 years. The volatility of the Company’s common stock was estimated by management
based on the historical volatility of the trading history of the Company’s common stock. The risk-free interest rate was based on the Treasury Constant
Maturity Rates published by the U.S. Federal Reserve for periods applicable to the expected life of the warrants. The expected dividend yield was based on
the Company’s current and expected dividend policy and the expected term is equal to the contractual life of the warrants.
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Aspire Option Agreement
On August 10, 2016 the Company entered into an option agreement with Aspire Capital whereby the Company has the right, at any time prior to
December 31, 2019, to require Aspire Capital to enter into with the Company, up to two common stock purchase agreements each with a three-year term,
with an aggregate amount under both purchase agreements combined not to exceed $20,000,000. A notice to Aspire exercising the option may be revoked
by the Company at any time prior to the parties entering into a purchase agreement without effecting or limiting the Company’s future rights to give a
subsequent option notice to Aspire Capital, under the terms and conditions of the option agreement. See Note 13 - Subsequent Events below regarding
termination of this Aspire Option agreement.
The Company issued 500,000 common stock purchase warrants with a strike price of $0.01 per share to Aspire Capital as the commitment fee for entering
into this option agreement. The commitment fee of approximately $1.7 million was recorded as deferred financing costs and additional paid-in capital and
this asset will be amortized over the life of the option agreement. The amortized amount of $0.4 million and $0.2 million was expensed to financing costs
during the years ended December 31, 2017 and 2016, respectively. The total short-term and long-term unamortized portion is carried on the balance sheet
as deferred financing cost and was approximately $0.5 million and $0.5 million respectively, at December 31, 2017.
The assumptions used in the Black Scholes option-pricing model for these warrants on August 10, 2016, were as follows:
Closing price per share of common stock
Average risk-free interest rate
Average expected life- years
Expected volatility
Expected dividends
$
3.34
.83%
3.3
92.61%
0%
See Note 13 - Subsequent Event for Series B Preferred Stock Offering affecting future amortization of deferred financing costs as a result of the
termination of the Aspire Option Agreement in 2018.
Preferred Stock Offerings
Series A Preferred Stock - Securities Purchase Agreement
On August 2, 2016, we issued 1,020,000 shares of the Company’s newly created Non-Voting Series A Convertible Preferred Stock (the “Series A
Preferred Stock”) to General International Holdings, Inc. (“GIH”) for $2.8 million or approximately $2.75 per share. Dividends accrue on the Series A
Preferred Stock at the rate of 7% per year and will be paid in-kind. The accumulated dividend (unpaid) at December 31, 2017 was approximately $0.3
million dollars. At closing, Mr. Xingping Hou, the president of GIH, joined the Board as co-chairman.
The initial value attributed to the Series A Preferred Stock of $2,800,000 represents a discount of approximately $581,300 from its initial conversion
value of $3,381,300, or approximately $0.57 per share. The average of the high and low market prices of the common stock on August 2, 2016, the date of
the closing of the sale of the preferred stock, was $3.315 per share. The intrinsic value of the Series A Preferred Stock is $3.315 multiplied by the
1,020,000 common shares into which the Series A Preferred Stock is convertible or $3,381,300. Subtracting the $2,800,000 of proceeds from the intrinsic
value of Series A Preferred Stock, resulted in an intrinsic value for the beneficial conversion feature totaling $581,300. The Company recorded this
beneficial conversion feature as a deemed dividend on convertible preferred stock upon issuance, for the year ended December 31, 2016. At the closing,
Mr. Xingping Hou, the president of GIH, joined the Board of the Company as co-Chairman.
The Series A Preferred Stock is non-voting and is convertible at the option of the holder into shares of the Company’s common stock initially on a one-
for-one basis. Dividends accrue on the Series A Preferred Stock at the rate of 7% per year and will be paid in-kind. The accumulated dividend (unpaid) at
December 31, 2017 and 2016 was approximately $0.3 and $0.1 million dollars, respectively.
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The Company has the option of forcing the conversion of the Series A Preferred Stock if the trading price for the Company’s common stock is more than
two times the applicable conversion price (approximately $2.75 per share) before the third anniversary of the issuance of the Series A Preferred Stock, or
if the trading price is more than three times the applicable conversion price following the third anniversary of issuance. The Company may also redeem
the Series A Preferred Stock following the third anniversary of the issuance.
In anticipation of the closing of the GIH Offering discussed above, the Company filed a Certificate of Designation of Preferences, Rights and Limitations
of Non-Voting Series A Convertible Preferred Stock (the “Certificate of Designation”) with the Secretary of State of the State of Nevada. Pursuant to the
Certificate of Designation, the Company’s Board of Directors designated a new series of the Company’s preferred stock, the Non-Voting Series A
Convertible Preferred Stock, par value $0.001 per share (the “Series A Preferred Stock”). The Certificate of Designation authorized the Company to issue
1,020,000 shares of Series A Preferred Stock. Each share of Series A Preferred Stock has a liquidation preference of $2.75 per share. The holders of the
Series A Preferred Stock have no voting rights. In addition, as long as 255,000 shares of Series A Preferred Stock are outstanding, the Company may not
take certain actions without first having obtained the affirmative vote or waiver of the holders of a majority of the outstanding shares of Series A
Preferred Stock. The Company has the option at any time after August 2, 2019 to redeem some or all of the outstanding Series A Preferred Stock for an
amount in cash equal to the liquidation preference plus the amount of any accrued but unpaid dividends of the Series A Preferred Stock being redeemed.
The holders of the Series A Preferred Stock do not have the ability to require the Company to redeem the Series A Preferred Stock. The liquidation
preference of the Series A Preferred Stock at December 31, 2017 is $2,805,000.
Warrants
Outstanding Warrants
December 31, December 31,
2017
2016
Issued to Investors on July 28, 2010, entitling the holders to purchase 207,000 common shares in the Company at an
exercise price of $45.00 per common share up to and including July 27, 2017.
-
207,000
Issued to Investors on October 25, 2013, entitling the holders to purchase 250,000 common shares in the Company at
an exercise price of $11.50 per common share up to and including April 24, 2021. In 2016, 59,450 of these warrants
were exchanged for common stock, and all remaining warrant holders agreed to new warrant terms which excluded
any potential net cash settlement provisions in exchange for a reduced exercise price of $6.25 per share.
Issued to Investors on November 17, 2014, entitling the holders to purchase 546,919 common shares in the Company
at an exercise price of $11.55 per common share up to and including May 16, 2022. On June 30, 2016, the warrant
holders agreed to new warrant terms which excluded any potential net cash settlement provisions in order to classify
them as equity in exchange for a reduced exercise price of $6.25 per share.
163,986
163,986
546,919
546,919
Issued to an Investor on June 28, 2016, entitling the holders to purchase 295,267 common shares in the Company at
an exercise price of $0.05 per common share (pre-funded) up to and including June 27, 2021. These warrants were
exercised on July 12, 2017.
-
295,267
Issued to an investor on August 10, 2016, entitling the holders to purchase 500,000 common shares in the Company
at an exercise price of price of $0.01 per share, up to and including December 31, 2019. These warrants were
exercised in January 2018 (Note 13 - Subsequent Events).
500,000
500,000
1,210,905
1,713,172
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Stock-based Compensation – Stock Options
2015 Stock Plan
The Company held its Annual Meeting on May 12, 2016 and the stockholders voted on the approval of an amendment to the 2015 Equity Incentive Plan
to increase the number of shares authorized for issuance thereunder by 800,000 shares to 1,400,000 shares.
On March 25, 2015, the Compensation Committee and Board of Directors approved the 2015 Equity Incentive Plan (the “Plan”) to authorize grants of (a)
Incentive Stock Options, (b) Non-qualified Stock Options, (c) Stock Appreciation Rights, (d) Restricted Awards, (e) Performance Share Awards, and (f)
Performance Compensation Awards to the employees, consultants, and directors of the Company. The Plan authorizes a total of 1,400,000 shares to be
available for grant under the Plan. The Plan became effective upon ratification by the shareholders of the Company at the shareholders’ annual meeting on
July 14, 2015. Other provisions are as follows:
(i)
(ii)
Any shares of common stock granted in connection with Options and Stock Appreciation Rights shall be counted against this limit as one share for
every one Stock Option or Stock Appreciation Right awarded. Any shares of common stock granted in connection with Awards other than Options
and Stock Appreciation Rights shall be counted against this limit as two shares of common stock for every one share of common stock granted in
connection with such Award;
Subject to adjustment in accordance with the Plan as amended, no Participant shall be granted, during any one-year period, Stock Options to
purchase Common Stock and Stock Appreciation Rights with respect to more than three hundred thousand (300,000) shares of Common Stock in
the aggregate. The Plan also separately limits other Equity Awards with respect to more than three hundred thousand (300,000) shares of Common
Stock in the aggregate. If an Award is to be settled in cash, the number of shares of Common Stock on which the Award is based shall count
toward the individual share limit; and
(iii) A ten percent shareholder shall not be granted an Incentive Stock Option unless the Option exercise price is at least 110% of the fair market value
of the common stock at the grant date and the option is not exercisable after the expiration of five years from the grant date.
Total stock options outstanding at December 31, 2017 and 2016, under the 2006 Stock Plan and 2015 Equity Incentive Plan were 3,976,884 and
2,172,581 of which 2,434,148 and 1,722,105 of these options were vested at December 31, 2017 and 2016, respectively. Total stock-based compensation
was approximately $1.2 million and $2.0 million for the years ended December 31, 2017 and 2016, respectively.
Short-Term Incentive Stock Options and Non-Qualified Stock Option Grants
On August 30, 2017 the Compensation Committee and Board granted 31,425 non-qualified stock options with a strike price of $1.08 which was the
closing price of the Company’s stock on the grant date to a consultant of the company, under the 2015 Equity Incentive Plan. These options have a 10-
year contractual term, with a grant date fair market value of approximately $0.80 per option. These options vest annually straight line over a three-year
period.
On October 26, 2017, the Compensation Committee of the Board granted 523,319 short-term incentive stock options and non-qualified stock options
under the 2015 Equity Incentive Plan to employees and consultants of the Company. All of these stock options vested immediately, with a strike price of
$1.05, which was the closing price of the Company’s stock on October 26, 2017. These options have a 10-year contractual term, with a fair market value
of approximately $0.73 per option with an expected term of 5 years.
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Long-Term Non-Qualified Option Grants
On October 26, 2017 the Compensation Committee of the Board granted 1,299,533 long-term non-qualified stock options to employees, consultants and
directors of the Company. Out of this total, approximately 1,120,322 stock options were issued to employees and consultants containing both
performance-based and market-based vesting provisions. These performance-based and market-based stock options vest only upon the applicable
performance conditions or market conditions being satisfied by certain milestone dates, based on either a graded vesting schedule for each performance-
based milestone or an accelerated 100% vesting for one performance-based milestone and one market-based milestone, see below. The graded vesting
schedule is based on the achievement of performance-based milestones related to the formation of the joint venture with Framatome and the development
milestones for the fuel. Accelerated vesting of all these option grants would occur upon achievement of one or both of the following performance-based
and market-based milestones:
1.
2.
The Company’s closing stock price is above $3 per share by December 31, 2018
The Company secures at least a $2 million investment from a commercial nuclear industry entity other than Framatome by December 31,
2019
The remaining approximate 179,211 stock options were issued to the directors of the Company and vest over a one-year period on the anniversary date of
the grant. These stock options have a strike price of $1.05, which was the closing price of the Company’s stock on October 26, 2017. All options granted
have a 10-year contractual term.
All such long-term non-qualified stock options issued in excess of the 2.9 million shares authorized under the 2015 Equity Stock Plan (which total
approximately 0.7 million out of the total approximate 1.3 million options granted) were issued contingent upon shareholder approval of an increase in
the number of shares available under the 2015 Equity Stock Plan (with such number of contingent options to be granted is granted pro-rata among the
grantees).
2016 Short-Term Non-Qualified Option Grants
On November 9, 2016, the Board granted short-term non-qualified stock options relating to approximately 670,000 shares under the 2015 Equity
Incentive Plan to employees and consultants of the Company. These stock options were granted by the Board upon recommendation by the Compensation
Committee and vested immediately, with a strike price of $1.54, which was the closing price of the Company’s stock on November 9, 2016. These options
have a 10-year contractual term, with a fair market value of $1.05 per option and an expected term of 5 years.
Stock option transactions to the employees, directors and consultants are summarized as follows for the year ended December 31, 2017:
Beginning of the year
Granted
Exercised
Forfeited
Expired
End of the year
Options exercisable
Options
Outstanding
2,172,581 $
1,854,277
-
-
(49,974)
3,976,884
Weighted
Average
Exercise
Price
Weighted
Average
Grant Date
Fair Value
6.70 $
1.05
-
-
45.53
3.58
4.83
0.77
-
-
38.70
2.49
2,434,148
4.84
3.36
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Stock option transactions to the employees, directors and consultants are summarized as follows for the year ended December 31, 2016:
Beginning of the year
Granted
Exercised
Forfeited
Expired
End of the year
Options exercisable
Weighted
Average
Exercise
Price
Weighted
Average
Grant Date
Fair Value
Options
Outstanding
1,047,450 $
1,210,467
-
-
(85,336)
2,172,581 $
18.50 $
3.02
-
-
99.37
6.70 $
1,722,105 $
7.03 $
20.30
1.71
-
-
97.81
4.83
5.15
A summary of the status of the Company’s non-vested options as of December 31, 2016 and 2017, and changes during the years ended December 31,
2017 and 2016, is presented below:
Non-vested Option Shares
Non-vested - December 31, 2015
Granted
Vested
Forfeited
Non-vested – December 31, 2016
Granted
Vested
Forfeited
Non-vested – December 31, 2017
Weighted-
Average Fair
Value
Grant Date
Weighted
Average
Exercise Price
Shares
359,001 $
4.55 $
1,210,467 $
(1,118,992)
-
450,476 $
1,854,277 $
(762,017 )
-
1,542,736 $
1.71 $
1.81
-
3.60 $
0.77 $
1.67
-
1.10 $
6.70
3.02
3.19
-
5.40
1.05
2.54
-
1.58
As of December 31, 2017, there was approximately $1.7 million of total unrecognized compensation cost related to non-vested share-based compensation
arrangements granted under the plans. That cost is expected to be recognized over a weighted-average period of 0.99 years. For stock options outstanding
at December 31, 2017, the intrinsic value was approximately $0.3 million. There was substantially no intrinsic value for the stock options outstanding at
December 31, 2016.
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The above tables include options issued and outstanding as of December 31, 2017 and 2016, as follows:
i)
ii)
A total of 74,890 non-qualified 10-year options have been issued, and are outstanding, to advisory board members at exercise prices of $1.08 to
$50.25 per share.
A total of 3,213,029 non-qualified 5-10-year options have been issued, and are outstanding, to our directors, officers, and employees at exercise
prices of $1.05 to $43.25 per share. From this total, 1,070,659 options are outstanding to the Chief Executive Officer who is also a director, with
remaining contractual lives of 1.5 years to 9.8 years. All other options issued to directors, officers, and employees have a remaining contractual life
ranging from 0.4 years to 9.8 years.
iii)
A total of 688,965 non-qualified 3-10-year options have been issued, and are outstanding, to our consultants at exercise prices of $1.05 to $43.25
per share.
The following table provides certain information with respect to the above-referenced stock options that are outstanding and exercisable at December 31,
2017:
Stock Options Outstanding
Stock Options Vested
Weighted
Average
Remaining
Contractual
Life
-Years
Number
of
Awards
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life
-Years
Number
of
Awards
Weighted
Average
Exercise
Price
9.56
7.86
5.12
1.66
0.18
8.40
2,528,666 $
821,174 $
505,694 $
118,016 $
3,334 $
3,976,884 $
1.18
4.59
7.47
29.85
50.25
3.58
9.28
7.86
4.93
1.66
0.18
7.70
1,197,708 $
651,429 $
463,661 $
118,016 $
3,334 $
2,434,148 $
1.33
4.58
7.58
29.85
50.25
4.84
Exercise Prices
$1.05-$2.00
$2.01-$6.00
$6.01-$20.00
$20.01-$45.00
$45.01-$72.00
Total
The following table provides certain information with respect to the above-referenced stock options that are outstanding and exercisable at December 31,
2016:
Stock Options Outstanding
Stock Options Vested
Weighted
Average
Remaining
Contractual
Life
Number
of
Weighted
Average
Exercise
Weighted
Average
Remaining
Contractual
Life
Number
of
Weighted
Average
Exercise
Exercise Prices
$1.14-$4.00
$4.01-$6.00
$6.01-$20.00
$20.01-$45.00
$45.01-$72.00
Total
-Years
Awards
Price
-Years
Awards
Price
9.85
8.86
6.12
2.24
0.94
7.99
678,769 $
816,794 $
505,694 $
144,683 $
26,641 $
2,172,581 $
87
1.55
4.60
7.47
31.47
53.03
6.70
9.85
8.83
5.91
2.24
0.94
7.89
678,769 $
477,302 $
394,710 $
144,683 $
26,641 $
1,722,105 $
1.55
4.60
7.36
31.47
53.03
7.03
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We use the historical volatility of our stock price over the number of years that matches the expected life of our stock option grants or we use the
historical volatility of our stock price since January 5, 2006, the date we announced that we were becoming a public company, to estimate the future
volatility of our stock. At this time, we do not believe that there is a better objective method to predict the future volatility of our stock for options with an
expected term that is greater than our stock trading history. Prior to January 1, 2015, we estimated the life of our option awards based on the full
contractual term of the option grant. To date we have had very few exercises of our option grants, and those stock option exercises had occurred just
before the contractual expiration dates of the option awards. Since the strike price of most of our outstanding awards is greater than the price of our stock,
generally awards have expired at the end of the contractual term. For options granted after January 1, 2015, we have applied the simplified method to
estimate the expected term of our option grants as it is more likely that these options may be exercised prior to the end of the term. We estimate the effect
of future forfeitures of our option grants based on an analysis of historical forfeitures of unvested grants, as we have no better objective basis for that
estimate. The expense that we have recognized related to our grants includes the estimate for future pre-vest forfeitures. We will adjust the actual expense
recognized due to future pre-vest forfeitures as they occur.
Weighted average assumptions used in the Black Scholes option-pricing model for the service-based stock options issued for the years ended December
31, 2017 and 2016, were as follows:
Average risk-free interest rate
Average expected life- years
Expected volatility
Expected dividends
Year ended
December 31,
2017
Year ended
December 31,
2016
2.15%
5.67
87.24%
$
0.0
1.57%
5.05
87.74%
0.0
$
In accordance with ASC 718, the market-based and performance-based long-term non-qualified option grants awards issued in 2017 were assigned a fair
value of $0.80 per option share (total value of $0.9 million) on the date of grant using a Monte Carlo simulation. The following assumptions were used in
the Monte-Carlo simulation model:
Expected volatility
Risk free interest rate
Dividend yield rate
Weighted average remaining expected life
Closing price per share – common stock
87.5% to 91%
2.24% to 2.42%
0%
4.2 years
$1.05
Stock-based compensation expense includes the expense related to (1) grants of stock options, (2) grants of restricted stock, (3) stock issued as
consideration for some of the services provided by our directors and strategic advisory council members, and (4) stock issued in lieu of cash to pay
bonuses to our employees and contractors. Grants of stock options and restricted stock are awarded to our employees, directors, consultants, and board
members and we recognize the fair value of these awards ratably as they are earned. The expense related to payments in stock for services is recognized as
the services are provided.
Stock-based compensation expense is recorded under the financial statement captions cost of services provided, general and administrative expenses and
research and development expenses in the accompanying consolidated statements of operations. Related income tax benefits were not recognized, as we
incurred a tax loss for both periods.
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Note 11. Business Segment Results
We have two principal business segments, which are (1) our technology business and (2) our consulting services business. These business segments were
determined based on the nature of the operations and the services offered. Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the chief decision-makers, in deciding how to allocate resources and in assessing
performance. Our Chief Executive Officer and Chief Financial Officer have been identified as the chief operating decision makers. Our chief operating
decision makers direct the allocation of resources to operating segments based on the profitability, the cash flows, and the business plans of each
respective segment.
BUSINESS SEGMENT RESULTS - YEARS ENDED DECEMBER 31, 2017 AND 2016
Revenue
Segment Loss – Pre- Tax
Total Assets
Interest Expense
Consulting Business
2016
2017
Technology Business
2016
2017
2016
$ 175,446 $ 760,577 $
760,577
$
$ (78,513) $ (288,119 ) $ (2,282,938) $ (2,748,337) $ (4,743,446) $ (3,308,720) $ (7,104,897) $ (6,345,176)
10,400 $ 388,434 $ 1,367,692 $ 1,160,465 $ 5,567,901 $ 5,253,476 $ 6,945,993 $ 6,802,375
$
29,386
$
2017
175,446 $
16,095 $
29,386 $
16,095 $
2017
2016
$
$
$
$
$
$
$
-
-
-
-
-
-
-
Corporate
Total
Note 12. Fair Value Measurements
We adopted the accounting guidance on fair value measurements for financial assets and liabilities measured on a recurring basis. The guidance requires
fair value measurements be classified and disclosed in one of the following three categories:
Level 1
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2
Level 3
Quoted prices in markets that are not active or inputs which are observable, either directly or indirectly, for substantially the full term of the
asset or liability;
Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by
little or no market activity).
Annually, the Board assesses and approves the fair value measurement policies and procedures. At least annually, the finance department determines if the
current valuation techniques used in the fair value measurements are still appropriate and evaluates and adjusts the unobservable inputs used in the fair
value measurements based on current market conditions and third-party information. There were no warrant liabilities on the accompanying consolidated
balance sheet at December 31, 2017 and 2016. The reconciliation of warrant liability measured at fair value on a recurring basis using unobservable
inputs (Level 3) is as follows:
($ rounded to nearest thousand)
Balance at December 31, 2015
Reclassification to equity
Warrant modification expense
Change in fair value of warrant liability
Balance at December 31, 2016
Reclassification to equity
Warrant modification expense
Change in fair value of warrant liability
Balance at December 31, 2017
Warrant
Liability
$
$
$
2,327,000
(817,000)
162,000
(1,672,000)
-
-
-
-
-
The fair value of the warrant liability was based on Level 3 inputs. For this liability, the Company developed its own assumptions that do not have
observable inputs or available market data to support the fair value. Significant increases (decreases) in any of those Level 3 inputs in isolation would
result in a significantly lower (higher) fair value measurement.
We believe that the fair values of our current assets and current liabilities approximate their reported carrying amounts. There were no transfers between
Level 1, 2 and 3 at December 31, 2017 and 2016.
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Note 13. Subsequent Events
Joint Venture Operating Agreement – Framatome
On January 24, 2018, we formed a joint venture with Framatome, named Enfission, LLC, a Delaware limited liability company (“Enfission”). On January
25, 2018, we entered into an Operating Agreement for Enfission. Enfission will serve as an exclusive vehicle to develop, license and sell nuclear fuel
assemblies based on Company-designed metallic fuel technology and other advanced nuclear fuel intellectual property licensed to Enfission by the
Company and Framatome or their affiliates. The joint venture builds on the joint fuel development and regulatory licensing work under previously signed
agreements initiated in March 2016. The Company owns 50% of Enfission’s Class A voting membership units and Framatome owns the other 50%.
Equity Transactions
ATM Prospectus Supplement Filings and Transactions
On January 24, 2018, the Company filed an additional prospectus supplement to register an additional approximate $5.9 million under the New ATM
agreement with B. Riley FBR, Inc. We have raised an approximate $5.9 million under this $5.9 million prospectus supplement in 2018.
On January 26, 2018, the Company filed an additional prospectus supplement to register an additional approximate $6.6 million under the New ATM
agreement. We have raised an approximate $6.6 million under this prospectus supplement in 2018.
On February 7, 2018, the Company filed an additional prospectus supplement to register an additional approximate $5.9 million under the New ATM
agreement. We have raised an approximate $5.9 million under this prospectus supplement in 2018.
On March 2, 2018 the Company filed an additional prospectus supplement to register an additional approximate $4.2 million under the New ATM
agreement. As of the date of this 10-K, we have raised an approximate $2 million under this prospectus supplement in 2018.
Convertible Preferred Stock – Series B Offering
On January 30, 2018, we closed on our offering of approximate $4 million of our Convertible Series B Preferred Stock. We issued 2,666,667 shares of the
Company’s newly created Non-Voting Series B Convertible Preferred Stock (the “Series B Preferred Stock”) and associated warrants to purchase up to
666,664 shares of the Company’s common stock to the several purchasers for approximately $4.0 million or approximately $1.50 per share of Series B
Preferred Stock and associated warrant. Dividends accrue on the Series B Preferred Stock at the rate of 7% per year and will be paid in-kind. The
Warrants have a per share of common stock exercise price of $1.875, which is subject to adjustment in the event of certain stock dividends and
distributions, stock splits, recapitalizations, stock combinations, reclassifications or similar events affecting the Company’s common stock. The Warrants
are exercisable upon issuance and will expire six months after issuance. On February 6, 2017 the Company entered into a consulting agreement with the
consulting firm who introduced the Company to these investors. The consulting agreement calls for monthly retainer payments of $15,000, which are
credited against any transaction introductory fee earned by the consultant. This agreement calls for a seven percent transaction introductory fee and
warrants equal to 5 percent of the total transaction amount, at a strike price equal to the offering price for a three-year term.
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The Company filed a Certificate of Designation of Preferences, Rights and Limitations of Non-Voting Series B Convertible Preferred Stock (the “Series B
Certificate of Designation”) with the Secretary of State of the State of Nevada. Pursuant to the Series B Certificate of Designation, the Company’s Board
of Directors designated a new series of the Company’s preferred stock, the Non-Voting Series B Convertible Preferred Stock, par value $0.001 per share
(the “Series B Preferred Stock”). The Series B Certificate of Designation authorized the Company to issue 2,666,667 shares of Series B Preferred Stock.
Each share of Series B Preferred Stock has a liquidation preference of $1.50 per share. The holders of the Series B Preferred Stock have no voting rights.
In addition, as long as the shares of Series A Preferred Stock are outstanding, the Company may not take certain actions without first having obtained the
affirmative vote or waiver of the holders of a majority of the outstanding shares of Series B Preferred Stock. The Company has the option at any time
after August 2, 2019 to redeem some or all of the outstanding Series B Preferred Stock for an amount in cash equal to the liquidation preference plus the
amount of any accrued but unpaid dividends of the Series B Preferred Stock being redeemed. The holders of the Series B Preferred Stock do not have the
ability to require the Company to redeem the Series B Preferred Stock.
Expiration of Equity Line Agreement and Equity Line Option Agreement
From January 1, 2018 to January 8, 2018, the Company received additional gross proceeds of approximately $0.7 million under the Aspire Equity line
agreement from the sale of approximately 0.6 million shares of its common stock.
On January 8, 2018, our common stock purchase agreement for the Equity Line with Aspire Capital terminated. Under the terms and conditions of Series
B Convertible Preferred Stock Offering, mentioned above, the Company can no longer execute on the Aspire Option agreement and therefore it cannot
enter into any new Equity Line agreements under this option agreement in the future (Note 10). The deferred financing cost asset balance of approximately
$1.0 million at December 31, 2017 was expensed to financing costs in January 2018. The 500,000 warrants issued to Aspire Capital to obtain this Aspire
Option Agreement were exercised in January 2018.
Long-Term Non-Qualified Performance-Based and Market-Based Option Grants vest on January 25, 2018
On October 26, 2017 the Compensation Committee of the Board granted performance-based and market-based long-term non-qualified stock options
relating to approximately 1.3 million shares to employees, consultants and directors of the Company. These performance-based and market-based stock
options vest only upon the applicable performance conditions being satisfied by certain milestone dates, based on either a graded vesting schedule for
each milestone or an accelerated vesting schedule. Accelerated vesting occurred on January 25, 2018 when the Company’s stock price closed above $3
per share and therefore met the market-based milestone for 100% vesting of these option grants, as set forth in these stock option agreements (see Note 10
- Long-Term Non-Qualified Option Grants).
Filing of New $75 Million Shelf Registration Statement
On March 15, 2018, the Company expects to file a new shelf registration statement on Form S-3, registering the sale of up to $75 million of the
Company’s securities. Due to limitations under the rules of Form S-3, the Company was limited in 2017 and 2016 in selling up to one-third of the
aggregate market value of the common equity held by non-affiliates in primary offerings under its prior effective shelf registration statement on Form S-3,
including any sales made pursuant to the MLV ATM or the New ATM offering.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: March 14, 2018
LIGHTBRIDGE CORPORATION
By:
/s/ Seth Grae
Seth Grae
Chief Executive Officer,
President and Director
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Seth Grae and Linda
Zwobota, jointly and severally, his or her attorney-in-fact, with the power of substitution, for him or her in any and all capacities, to sign any amendments
to this Annual Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his or her substitute or substitutes, may do or cause to be
done by virtue hereof.
In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the
capacities on March 14, 2018.
Signature
/s/ Seth Grae
Seth Grae
/s/ Linda Zwobota
Linda Zwobota
/s/ Thomas Graham, Jr.
Thomas Graham, Jr.
/s/ Victor Alessi
Victor Alessi
/s/ Kathleen Kennedy Townsend
Kathleen Kennedy Townsend
/s/ Daniel Magraw
Daniel B. Magraw
/s/ Xingping Hou
Xingping Hou
Title
Chief Executive Officer, President and Director
(Principal Executive Officer)
Chief Financial Officer, and Treasurer
(Principal Financial and Accounting Officer)
Director
Director
Director
Director
Director
92
Consent of Independent Registered Public Accounting Firm
EXHIBIT 23.1
Lightbridge Corporation
Reston, Virginia
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-187659 and No. 333-204889) and Form S-8
(No. 333-218796 and No. 333-135842) of Lightbridge Corporation of our report dated March 14, 2018, relating to the consolidated financial statements,
which appears in this Form 10-K.
/s/ BDO USA, LLP
Philadelphia, Pennsylvania
March 14, 2018
EXHIBIT 31.1
I, Seth Grae, certify that:
Certification of Principal Executive Officer
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Lightbridge Corporation;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
a.
b.
c.
d.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a.
b.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal
control over financial reporting.
Date: March 14, 2018
By: /s/ Seth Grae
Seth Grae
Principal Executive Officer
EXHIBIT 31.2
I, Linda Zwobota, certify that:
Certification of Principal Financial Officer
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Lightbridge Corporation;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
a.
b.
c.
d.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a.
b.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal
control over financial reporting.
Date: March 14, 2018
By: /s/ Linda Zwobota
Linda Zwobota
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
STATEMENT FURNISHED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Section 1350 Certifications
The undersigned, the Chief Executive Officer and Chief Financial Officer of Lightbridge Corporation, each hereby certifies, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his or her knowledge on the date hereof:
1.
2.
the Annual Report on Form 10-K of Lightbridge Corporation for the year ended December 31, 2017, filed on the date hereof with the
Securities and Exchange Commission (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Lightbridge
Corporation.
EXHIBIT 32
Date: March 14, 2018
/s/ Seth Grae
By:
Name: Seth Grae
Title: President, Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Linda Zwobota
By:
Name: Linda Zwobota
Title: Chief Financial Officer
(Principal Financial and Accounting Officer)