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, 2018
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 Interactive Data File required to be submitted 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
¨
x
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, 2018, 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, 2018) was $28,411,145.
At March 1, 2019 there were 34,956,267 shares of the registrant’s common stock issued and outstanding.
Documents Incorporated by Reference
Portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission in connection with its 2019 Annual
Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K.
LIGHTBRIDGE CORPORATION
FORM 10-K
For the Fiscal Year Ended December 31, 2018
TABLE OF CONTENTS
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART I
PART II
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
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions
Principal Accountant Fees and Services
Item 15.
Item 16.
Signatures
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:
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those concerning market and business segment growth, demand, and acceptance of our nuclear fuel technology;
any projections of sales, earnings, revenue, margins, or other financial items;
any statements of the plans, strategies, and objectives of management for future operations and the timing of the development of our nuclear
fuel technology;
any statements regarding future economic conditions or performance;
uncertainties related to conducting business in foreign countries;
any statements about future financings and liquidity; and
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 our joint venture with Framatome Inc. (Enfission, LLC) 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;
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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 other risks identified in Item 1A, Risk Factors included herein.
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 goal is to produce the next generation of nuclear fuel that could significantly improve the
economics, safety, and proliferation resistance of existing and new reactors, with a meaningful impact on addressing climate change and air pollution. We
project that the world’s energy and climate needs can only be met if nuclear power’s share of the energy-generating mix grows substantially.
Our primary focus is the development and commercialization of metallic fuel rods that will replace the uranium oxide ceramic pellets that have
traditionally fueled nuclear reactors. We believe our metallic fuel offers significant economic and safety benefits over traditional fuel, primarily because
of the superior heat transfer properties of all-metal fuel and the resulting lower operating temperature of the reactor. We also believe that uprating a
reactor with Lightbridge fuel will add incremental electricity at a lower levelized cost than any other means of generating baseload electric power,
including any renewable, fossil, or hydroelectric energy source.
We have built a significant portfolio of patents reflecting years of research and development, and we anticipate substantial completion of our research
efforts and the testing of our fuel over the next few years. We expect the first purchase orders for our metallic fuel as soon as 2028, with final deployment
of our fuel in commercial reactors as soon as 2030.
From 2008 to 2018, we also had a nuclear consulting business segment, which provided early funding for our metallic nuclear fuel development efforts.
We discontinued our consulting business segment in 2018; however, we may opportunistically provide nuclear power consulting and strategic advisory
services to commercial and governmental entities worldwide.
Enfission, LLC
On January 24, 2018 we formed Enfission, LLC (“Enfission”), 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. 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 is a global leader in designing, manufacturing, and installing components and fuel for nuclear power plants, and
Framatome offers a full range of reactor services.
We currently conduct our fuel development activities principally through Enfission. Enfission serves as the exclusive vehicle through which the Company
and Framatome are researching, developing, obtaining regulatory approvals, manufacturing and will be using, marketing and selling nuclear fuel
assemblies based on the Lightbridge metallic fuel technology comprising uranium-zirconium (U-Zr) multi-lobe, helically twisted fuel rods and associated
manufacturing processes and other advanced nuclear fuel intellectual property contributed by both Lightbridge and Framatome within the operating
domain. The operating domain of Enfission includes pressurized water reactors (excluding water-cooled water-moderated energetic reactor (Russian
VVER) types) 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. While we expect our focus to be on Enfission for the foreseeable future, Lightbridge maintains the rights to
develop fuel for VVER reactors outside Enfission, and Lightbridge also maintains the right to develop fuel for pressurized heavy water reactors (including
CANDU reactors) outside Enfission.
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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.
Lightbridge and Enfission’s principal executive offices are located at 11710 Plaza America Drive, Suite 2000, Reston, Virginia 20190 USA.
Nuclear Power as Clean and Low Carbon Emissions Energy Source
Nuclear power provides clean, reliable baseload electricity generation source. According to the World Nuclear Association (WNA), nuclear power plants
produce no greenhouse gas emissions during operation, and over the course of its life-cycle, nuclear produces about the same amount of CO2 equivalent
emissions per unit of electricity as wind. The WNA further notes that almost all proposed pathways to achieving significant decarbonization suggest an
increased role for nuclear power, including those published by the International Energy Agency, Massachusetts Institute of Technology Energy Initiative,
US Energy Information Administration, and World Energy Council.
We believe that deep cuts to CO2 emissions are only possible with electrification of most of the transportation and industrial sectors globally and
powering them and the current electricity needs of the world with non-emitting or low-emitting power. We believe this can be done only with a large
increase in nuclear power, several times the amount that is generated globally today. We believe that our nuclear fuel technology will be an essential
element of reaching this goal.
Overview of Our Next Generation Nuclear Fuel
Nuclear Fuel Development
Since 2008, 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. In 2010, we announced the concept 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 we believe 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 nuclear 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 just about at the limit 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. A new
fuel is needed to bring enhanced performance to reactors; we are developing that new fuel.
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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
improve 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 a 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 unit of electricity generated 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.
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. Build-up of
hydrogen gas in a nuclear power plant can lead to the hydrogen exploding, which is what happened at the Fukushima Daiichi nuclear power plant in Japan
in 2011. Lightbridge fuel is designed to prevent hydrogen gas generation in design-basis LOCA situations, which is a major safety benefit.
Anticipated advantages of Lightbridge’s metallic fuel over the conventional uranium dioxide fuels used now
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Has better heat transfer (due to higher thermal conductivity and greater surface area of fuel rods) and therefore increases power output from
nuclear reactors
Operates at lower operating temperatures than current conventional nuclear fuel, contributing to lower stored energy
Can reach higher burnups and extend the cycle length
Has the ability to maneuver more quickly (load follow)
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Under design basis accidents when there is a loss of coolant in the reactor, does not generate hydrogen gas, which can explode
Buys more time to restore active cooling in the reactor during off-normal events
Improves non-proliferation benefits of spent nuclear fuel
Enhances structural integrity of the nuclear fuel
Lighter and stiffer fuel assembly with likely improved seismic performance
Lightbridge Spent Fuel – Proliferation Resistance
The April 2018 issue of Nuclear Engineering and Design, a technical journal affiliated with the European Nuclear Society, included an article stating that
after analyzing Lightbridge’s fuel, the authors concluded that any plutonium extracted from Lightbridge’s spent fuel would not be useable for weapon
purposes. We anticipate the following proliferation resistance advantages for our metallic fuel:
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½ of the amount of plutonium produced and remaining in the spent fuel as compared to conventional uranium oxide fuels
Lower Plutonium-239 fraction compared to uranium oxide fuel, therefore our spent fuel would be unsuitable as a source for weapon purposes
Nuclear Utility Fuel Advisory Board (“NUFAB”)
Our NUFAB, formed in 2011, comprises senior fuel managers from electric utilities that account for approximately 50% of installed US nuclear capacity.
NUFAB members represent the “voice of the customer” in Lightbridge’s nuclear fuel development and commercialization activities. These members
include the following:
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Exelon Generation;
Dominion Generation;
Duke Energy; and
Southern Company.
Research and Development Advancements in 2018
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1. Fabrication:
Identified a US-based pilot facility located at a Framatome-operated fuel fabrication site in Richland, WA to develop the fabrication process
and produce partial-length and full-length fuel rods.
Completed the following key fabrication process activities:
i.
ii.
Developed coextrusion models for process evaluation and optimization;
Developed equipment functional specifications; and
iii.
Initiated fabrication of samples to select the most optimal alloy forming process.
Identified supply chain for key equipment and began procurement process.
Researched material properties and prepared material data manual.
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2. Fuel Design:
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Prepared product requirements document and data sheet.
Completed initial phase of neutronics code modifications to model Lightbridge Fuel™ geometry.
Developed 3D model for Computational Fluid Dynamics (CFD) analysis.
Launched Critical Heat Flux (CHF) test program and completed the following key milestones:
i.
ii.
Developed fuel assembly CFD model to investigate CHF performance; and
Evaluated and selected the most suitable CHF heater rod design for CHF testing.
Devised and evaluated lead test rod (LTR) design options.
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Due to unforeseen early closure of the Halden research reactor, assessed alternative options for irradiation testing and identified suitable
pathway.
3. Regulatory Licensing:
Established interaction with the US Nuclear Regulatory Commission (NRC), with the first Enfission project kick-off meeting held with NRC
staff in August 2018.
Initiated development of fuel design limits in support of licensing activities.
Near-term fuel development milestones:
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2019: Demonstrate fabrication of full length co-extruded rods using surrogate materials.
2019: Enter into an agreement to manufacture material samples for test reactor irradiation.
2019-2020: Enter into a Lead Test Rod agreement with a US electric utility.
2019-2020: Place purchase orders for procurement of long lead time equipment items.
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 in this
Annual Report, 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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Enter into a Lead Test Assembly agreement with a host reactor in 2020-2022;
Start test reactor irradiation of material samples in 2020-2022;
Perform out-of-reactor corrosion experiments in 2020-2022;
Start Lead Test Rod operation in a United States commercial reactor in 2022-2024;
Establish a pilot-scale fuel fabrication facility for Lead Test Assemblies in 2022-2024; and
Begin Lead Test Assembly operation in a commercial nuclear power plant in 2024-2026.
Accordingly, based on our current expected schedule, a purchase order for an initial reload batch placed by a utility is expected as soon as 2028-2030,
with final qualification (i.e., deployment of fuel in the first reload batch) in a commercial reactor expected as soon as 2030-2032. We are seeking
development funding contributions or other financing arrangements with utilities and the US Department of Energy.
Our earlier plan was to begin irradiation of metallic fuel samples in the Halden research reactor in 2020-2021. The Halden research reactor was operated
by the Institute for Energy Technology (IFE) in Norway. In June 2018, IFE’s board of directors announced its decision not to seek renewal of the Halden
reactor operating license beyond 2020, and to permanently shut down the reactor immediately.
In lieu of the Halden Reactor in Norway, the Company now plans to conduct the initial testing and demonstration of its advanced metallic nuclear fuel in
the United States.
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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 first
allocated to cause the capital accounts of the initial members to be equal, then allocated on a 50/50 basis. Lightbridge and Framatome each provided
certain licensed 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 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; (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 Enfission.
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Other Commercial Applications for 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 Heavy
Water Reactors (HWRs), including Canada Deuterium Uranium (CANDU) reactors. We anticipate most of our efforts for the foreseeable future will be
directed towards Enfission.
Competition
To our knowledge, our nuclear fuel technology is the only technology that could be commercially viable in the foreseeable future 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.
Currently 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.
In addition to conventional uranium dioxide fuel, potential competition to our metallic fuel technology can come from so-called Accident Tolerant Fuels
(ATF). After the accident at the Fukushima Daiichi nuclear power plant in March 2011, the US Congress directed the US Department of Energy (DOE) to
investigate every aspect of nuclear plant operation including the existing uranium dioxide fuel pellets enveloped by zirconium‐based alloy tubes
(cladding). According to the February 2019 Nuclear Energy Institute technical report on ATF titled “Safety and Economic Benefits of Accident Tolerant
Fuel”, advanced fuel design concepts (such as ATF) were accelerated by combining recent operating experience with worldwide research and
development. Over the past several years, the ATF program has received significant DOE funding support and initial interest from utility customers in
ATF demonstration programs in their operating reactors. However, we believe that the ATF concepts may only offer incremental safety and operating
improvements over conventional uranium dioxide fuel that could not effectively compete with the safety and economic benefits of our metallic fuel. In
addition, some of the ATF concepts may be used in combination with our metallic fuel for additional safety and operating improvements.
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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 Support/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.
Certain Challenges
The ability to fabricate the lead test assemblies (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.
Establishment of required supply chain infrastructure to support high assay low enriched uranium (HALEU) metallic fuel. 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 in oxide form with
enrichment up to 5%. Our fuel designs are expected to use uranium metal with uranium enrichment levels up to 19.75% 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 process, handle, or ship uranium metal with enrichment
levels up to 19.75% and operate commercial reactors and spent fuel storage facilities using our metallic fuel.
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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. Fabrication of full-length (approximately 3.5 to 4.5 meters) PWR metallic fuel rods has yet to be
demonstrated. We plan to demonstrate fabrication of full-length rods using surrogate materials in 2019.
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 March 1, 2019 there were 450 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.
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.
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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
2/20/2018
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 Patent
Office
Hungary
United Kingdom
China
Japan
Republic of Korea
5/11/2011
5/11/2011
5/11/2011
5/11/2011
5/11/2011
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
03/27/2018 FUEL ASSEMBLY
4/13/2018 FUEL ASSEMBLY
FUEL ASSEMBLY
FUEL ASSEMBLY
7/31/2018 FUEL ASSEMBLY
of
Patent
States
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
5/11/2011
5/11/2011
Fabrication method using the powder metallurgy route
United
America
United States of
America
Australia
Belgium
Bulgaria
Czech Republic
European
Office
Hungary
United Kingdom
Bulgaria
Czech Republic
European
Office
Finland
France
Germany
Hungary
Sweden
Turkey
China
Japan
Republic of Korea
Australia
Canada
China
India
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
5/11/2011
5/11/2011
5/11/2011
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
4/6/2016
4/6/2016
4/6/2016
4/6/2016
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
3/27/2018 FUEL ASSEMBLY
FUEL ASSEMBLY
Pending
Registered
Registered
Registered
Registered
Registered
Registered
Registered
Registered
Pending
Registered
Pending
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1/1/2019
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
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
Belgium
Bulgaria
Czech Republic
European Patent
Office
Finland
France
Germany
Hungary
Spain
Sweden
Turkey
China
Australia
Canada
Canada
China
Eurasian Patent
Organization
Eurasian Patent
Organization
European Patent
Office
Japan
Japan
Republic of Korea
Republic of Korea
India
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
5/1/2014
9/16/2015
5/1/2014
9/16/2015
5/1/2014
7/13/2018 FUEL ASSEMBLY
9/16/2015
9/16/2015
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
NUCLEAR FUEL ASSEMBLY
5/11/2011
All-metal fuel assembly design (i.e., no oxide rods in the outer row)
United States of
America
United
America
Australia
Canada
5/11/2011
12/26/2007
11/15/2013
1/1/2019
States
7/31/2018 FUEL ASSEMBLY
FUEL ASSEMBLY
of
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
15
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Pending
Pending
Pending
Pending
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Registered
Registered
Registered
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
Registered
Registered
Registered
Registered
Pending
Registered
Registered
Registered
Registered
5/31/2016 LIGHT-WATER REACTOR FUEL ASSEMBLY (ALTERNATIVES), A LIGHT-
Registered
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
United States of
America
United States of
America
United States of
America
United States of
America
Australia
Australia
5/11/2011
7/31/2018 FUEL ASSEMBLY
11/15/2013
1/1/2019
FUEL ASSEMBLY
9/16/2015
1/29/2019 FUEL ASSEMBLY
2/20/2018
FUEL ASSEMBLY
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 Patent
Office
Finland
France
Germany
Hungary
Sweden
Turkey
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
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
European Patent
Office
Finland
France
Germany
Hungary
Spain
Sweden
Turkey
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
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
United Kingdom
12/23/2008
9/21/2016 A FUEL ELEMENT, A FUEL ASSEMBLY AND A METHOD OF USING A
Registered
FUEL ASSEMBLY
Belgium
Bulgaria
Czech Republic
European
Office
Hungary
United Kingdom
Bulgaria
Patent
5/11/2011
5/11/2011
5/11/2011
5/11/2011
5/11/2011
5/11/2011
5/11/2011
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
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Czech Republic
European Patent
Office
Finland
France
Germany
Hungary
5/11/2011
4/6/2016
FUEL ASSEMBLY
5/11/2011
4/6/2016
FUEL ASSEMBLY
5/11/2011
5/11/2011
5/11/2011
5/11/2011
4/6/2016
4/6/2016
4/6/2016
4/6/2016
FUEL ASSEMBLY
FUEL ASSEMBLY
FUEL ASSEMBLY
FUEL ASSEMBLY
Registered
Registered
Registered
Registered
Registered
Registered
Sweden
Turkey
Bulgaria
5/11/2011
5/11/2011
12/25/2008
4/6/2016
4/6/2016
4/13/2016
Czech Republic
12/25/2008
4/13/2016
European Patent
Office
12/25/2008
4/13/2016
Finland
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 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
Registered
Registered
Registered
Registered
Registered
Registered
Registered
Registered
Registered
Registered
Registered
Registered
Canada
Canada
China
China
China
Japan
Japan
12/25/2008
11/29/2016 A LIGHT-WATER REACTOR FUEL ASSEMBLY (ALTERNATIVES), A
Registered
12/26/2007
5/11/2011
12/25/2008
12/26/2007
5/11/2011
5/11/2011
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
9/9/2016
9/9/2016
Registered
Registered
Registered
Registered
Registered
Registered
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Japan
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
12/25/2008
6/5/2015
FUEL ASSEMBLY FOR A LIGHT-WATER NUCLEAR REACTOR
(EMBODIMENTS), LIGHT-WATER NUCLEAR REACTOR AND FUEL
ELEMENT OF THE FUEL ASSEMBLY
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
Australia
Australia
Australia
Canada
Canada
Canada
Canada
China
Eurasian Patent
Organization
Eurasian Patent
Organization
European Patent
Office
European Patent
Office
Japan
Japan
Japan
Republic of Korea
Republic of Korea
Republic of Korea
China
5/1/2014
5/11/2011
9/16/2015
10/11/2018 FUEL ASSEMBLY
FUEL ASSEMBLY
NUCLEAR FUEL ASSEMBLY
12/25/2008
5/1/2014
5/11/2011
9/16/2015
9/16/2015
5/1/2014
9/16/2015
12/25/2008
9/16/2015
5/1/2014
5/11/2011
9/16/2015
5/11/2011
5/1/2014
9/16/2015
12/26/2007
A LIGHT-WATER REACTOR FUEL ASSEMBLY AND FUEL ELEMENT
THEREOF
FUEL ASSEMBLY
FUEL ASSEMBLY
NUCLEAR FUEL ASSEMBLY
NUCLEAR FUEL ASSEMBLY
FUEL ASSEMBLY
NUCLEAR FUEL ASSEMBLY
FUEL ASSEMBLY FOR A LIGHT-WATER NUCLEAR REACTOR
(EMBODIMENTS), LIGHT-WATER NUCLEAR REACTOR AND FUEL
ELEMENT OF THE FUEL ASSEMBLY
NUCLEAR FUEL ASSEMBLY
7/13/2018 FUEL ASSEMBLY
4/13/2018 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
Registered
Registered
Pending
Registered
Registered
Registered
Registered
Pending
Pending
Pending
Pending
Pending
Pending
Pending
Pending
Pending
Pending
Pending
Registered
Registered
Pending
Pending
Pending
Pending
Registered
Japan
India
India
India
India
Australia
United States of
America
United States of
America
None of the above
United States of
America
12/26/2007
8/1/2014
5/11/2011
5/1/2014
12/25/2008
12/26/2007
5/1/2014
12/28/2018
1/7/2019
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
FUEL ASSEMBLY
FUEL ASSEMBLY
FUEL ASSEMBLY
Registered
Pending
Pending
Pending
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
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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.
Our Consulting Business
Although we discontinued our consulting business segment in 2018, we may opportunistically provide nuclear power consulting and strategic advisory
services to commercial and governmental entities worldwide. Our consulting business in the past was 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.
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. 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 consulting 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 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, 2018, we had eleven full-time employees. 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.
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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. 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.
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 or on acceptable terms, and any capital raises may cause significant dilution to our shareholders.
As of December 31, 2018, we had $24.6 million in cash and equivalents, and as of March 1, 2019, we had approximately $23 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 maximize external
funding from third party sources to support the remaining development, testing and demonstration activities relating to our metallic nuclear fuel
technology.
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. New investors may have rights superior to existing securityholders. 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. In particular, we may be
required to delay, reduce the scope of or terminate one or more of our research projects, sell rights to our nuclear fuel technology or license the rights to
such technologies on terms that are less favorable to us than might otherwise be available. If we raise additional funds by issuing equity or securities
convertible into equity, further dilution to stockholders may result and new investors could have rights superior to existing stockholders.
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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. Conflicts of interest may cause a joint venture partner to take
actions that could harm the joint venture or the Company, such as seeking undue benefit from the joint venture or its assets or operations, acting in bad
faith to undermine the joint venture or its operations, or causing unnecessary expense or delay. 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 agreement, neither we nor Framatome 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.
Neither Framatome nor Enfission is a publicly reporting entity in the United States, and as such they are not subject to the internal control requirements of
the Sarbanes-Oxley Act or other SEC rules and regulations applicable to the Company. If Framatome or Enfission does not comply with the information
and notice provisions set forth in the Enfission operating agreement and/or Research and Development Services Agreement, the Company may not be able
to satisfy its reporting obligations under the Exchange Act or maintain adequate internal control over financial reporting, and our business, the market
value of our securities and our access to capital markets could be materially adversely affected. Non-compliance by Framatome or Enfission could also
adversely impact the operations and profitability of Enfission, including delaying the commercialization of nuclear fuel incorporating our technology.
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.
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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 procurement, quality assurance, 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.
If the price of non-nuclear energy sources falls, whether as the result of government policy or otherwise, there could be an adverse impact on nuclear
energy, 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.
In addition, many states and the federal government have adopted a variety of government subsidies and utility incentives to allow renewable energy
sources, such as biofuels, wind and solar energy, to compete with conventional sources of energy that have historically been less expensive, such as fossil
fuels and nuclear power. We may face additional competition from providers of renewable energy sources, particularly in wind and solar energy, if
government subsidies and utility incentives for those sources of energy remain or increase or if such sources of energy are mandated. Additionally, the
availability of subsidies and other incentives from utilities or government agencies to install alternative renewable energy sources may negatively impact
our potential customers’ desire to purchase our products and services, or may be utilized by our existing or new competitors to develop a competing
business model or products or services that may be potentially more attractive to customers than ours, any of which could have a material adverse effect
on our results of operations or financial condition.
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.
The success of our research and development activities, like other competing research and development projects similar to ours, is uncertain. If such
efforts are not successful, we will be unable to generate revenues from our operations and we may have to cease doing business. 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.
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We rely upon certain members of our senior management, including Seth Grae, Andrey Mushakov, and Larry Goldman and the loss of any of Mr.
Grae, Mr. Mushakov, or Mr. Goldman or any of our management team 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, Mr. Andrey Mushakov, our
Executive Vice President - Nuclear Operations, and Larry Goldman, our Chief Financial Officer. 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, Mr. Mushakov, or Mr. Goldman are likely to be significant factors in
our future growth and success. The loss of services by either Mr. Grae, Mr. Mushakov, or Mr. Goldman could have a material adverse effect on our
business, results of operations or financial condition. Also, we rely heavily on other members of our management team 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.
Competition for highly qualified technical personnel is intense in our industry.
Our future success depends in part on our ability to contract with, hire, integrate and retain engineers and scientists, and other qualified personnel with a
focus in our nuclear fuel technology and products. Competition for these skilled professionals is intense. If we are unable to adequately anticipate our
needs for certain key competences and implement human resource solutions to recruit or improve these competences, our business, results of operations
and financial condition would suffer. In addition, a loss of the service of any of our existing skilled employees or contractors could have a significant
negative effect on our ability to operate.
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 and France 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.
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 or manufacturing
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.
The amount of time and funding needed to bring our nuclear fuel to market may greatly exceed our projections.
The development of our nuclear fuel will take a significant amount of time and funding, and any delay in procuring equipment or in achieving
development milestones, regulatory licensing timelines uncertainty could result in significant delays and cost overruns. We have come to the point where
certain manufacturing equipment and a manufacturing facility are necessary for the development of our fuel; however, we cannot at this stage accurately
predict the amount of funding or the time required to successfully manufacture and sell our fuel in the future. The actual cost and time required to
commercialize our fuel technology may vary significantly depending on, among other things, the results of our research and product development efforts;
the cost of developing or licensing our fuel; changes in the focus and direction of our research and product development programs; competitive and
technological advances; the cost of filing, prosecuting, defending and enforcing claims with respect to patents; the regulatory approval process; fuel
manufacturing process; and marketing and other costs associated with commercialization of these technologies. Because of this uncertainty, even if
financing is available to us, we may need significantly more capital than anticipated, which may not be available on terms acceptable to us or at all, and
the expected revenues and other benefits from our nuclear fuel technology may be delayed or never realized.
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Our current economic model for selling our fuel may prove to be inaccurate and our nuclear fuel technology products may not be cost effective.
Although our economic model concludes that our fuel technology can provide a significant payback to utilities, it is based upon a number of assumptions
that may not prove accurate. If such model is inaccurate, our nuclear fuel product may not provide nuclear utility customers with sufficient economic
incentive to switch from existing nuclear fuels, and we would lose or fail to develop customers.
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 intended 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, has closed and will not reopen, so it will not be available for further testing of our fuel designs. The Company has identified
alternative options to generate the irradiation data we need to support regulatory licensing of our lead test assembly operation in a commercial reactor but
pursuing such alternatives to the Halden research reactor may delay further testing of our fuel designs. We may not be able to contractually secure another
reactor in which to test our fuel designs. As a result, 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 companies may develop new nuclear fuel designs that can be used in the same types of reactors as those that we target. Some of these companies
have existing long-term commercial contracts with nuclear power utilities that we do not have. If another company were to successfully develop a new
nuclear fuel that competes with our nuclear fuel design technology, opportunities to commercialize our technology would be limited, and our business
would suffer.
Moreover, many of these other companies 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 to successfully develop
new nuclear fuel and bring it to market.
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.
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Existing commercial nuclear infrastructure in many countries is limited to uranium material in an oxide form with enrichments up to 5%. Our fuel is
in metallic form and 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
in oxide form with enrichment up to 5%. Our fuel designs are expected to use uranium metal with uranium enrichment levels up to 19.75% 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 process, handle, or ship uranium
metal with enrichment levels up to 19.75% and operate commercial reactors using our metallic 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 enable
enrichment to 19.75%, conversion to metallic uranium, fabrication of metallic fuel rods and assemblies, shipment of fresh and irradiated metallic fuel
assemblies, interim storage of fresh and irradiated fuel assemblies in spent fuel pools or dry cask storage facilities at reactor sites, and permanent disposal
of spent metallic fuel at a high-level repository. 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 and trade secrets 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.
We intend to apply for additional patents for our nuclear fuel technologies and fuel, as we deem appropriate. We may, however, fail to apply for patents on
important technologies or products in a timely fashion, if at all. Our existing patents and any future patents we obtain may not be sufficiently broad to
prevent others from practicing our technologies or from developing competing products and technologies. In addition, in general the patent positions of
energy technology companies are highly uncertain and involve complex legal and factual questions for which important legal principles remain
unresolved. As a result, the validity and enforceability of our patents cannot be predicted with certainty.
We also rely on trade secrets to protect some of our technology, especially where it is believed that patent protection is undesirable for the Company or
unobtainable. We generally require our employees, consultants, advisors and collaborators to execute appropriate agreements with us recently regarding
the safeguarding of confidential information. If any of these agreements are violated, or if any of our employees, consultants, advisors or collaborators
unintentionally or willfully disclose our proprietary information to competitors, we may not be able to fully perfect our rights to the technologies in
question, and in some instances, we may not have an appropriate remedy available for the damages that we may incur as a result of any such violation.
Enforcement of claims that a third party has illegally obtained and is using trade secrets is expensive, time consuming and uncertain. In addition, non-US
courts are sometimes less willing than US courts to protect trade secrets. If our competitors independently develop equivalent knowledge, methods and
know-how, we would not be able to assert our trade secrets against them and our business could be harmed.
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.
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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.
The laws of certain foreign jurisdictions do not protect intellectual property rights to the same extent as the laws of the United States, and many companies
have encountered significant challenges in protecting and defending such rights in such foreign jurisdictions. The legal systems of certain countries,
particularly developing countries, do not favor the enforcement of patents and other intellectual property protection, which could make it difficult for us to
stop the infringement of our patents. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial cost and divert our efforts
and attention from other aspects of our business.
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. Our proposed fuel products require high-assay low enriched uranium in the metallic form, enriched between 5% to 19.75%
(HALEU), with presently no commercial supply of HALEU available in the US. Currently HALEU can only be sourced in limited quantities from the
DOE.
Recently, major commercial enrichment companies, such as Urenco facilities have expressed interest in supplying HALEU. Several Urenco enrichment
facilities are already licensed to produce at enrichments above 5% U235, in line with today’s nuclear industry market requirements. Urenco is now
exploring the construction of a dedicated HALEU unit at the Urenco USA facility. Urenco is progressing the design engineering and related licensing
activities to support this project.
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.
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We are exposed to risks related to cybersecurity and protection of confidential information.
We retain highly confidential information in our systems and databases on third party network providers. Although we maintain security features in our
systems designed to protect proprietary information and prevent data loss and other security breaches, such measures cannot provide absolute security and
our operations may be susceptible to breaches on our third party networks, including from circumvention of security systems, denial of service attacks or
other cyber-attacks, hacking, computer viruses or malware, technical malfunction, employee error, malfeasance, physical breaches, system disruptions or
other disruptions. We outsource certain functions, including IT functions, and these relationships allow for the storage and processing of our information,
as well as customer, counterparty and employee information. While we engage in actions to reduce our exposure resulting from outsourcing, ongoing
threats may result in unauthorized access, loss, exposure or destruction of data, or other cybersecurity incidents, with increased costs and other
consequences, including those described below.
Disruptions from cybersecurity events may jeopardize the security of information stored in and transmitted through our systems or the systems of
outsourcing parties. An increasing number of websites, including those owned by several other large Internet and offline companies, have disclosed
breaches of their security, some of which have involved sophisticated and highly targeted attacks on portions of their websites or infrastructure. The
techniques used to obtain unauthorized access, disable, or degrade service, or sabotage systems, change frequently, may be difficult to detect for a long
time, and often are not recognized until launched against a target. Certain efforts may be state sponsored and supported by significant financial and
technological resources and therefore may be even more difficult to detect. We may not anticipate these techniques or implement adequate preventive
measures. We currently expend, and may be required to expend significant additional capital and other resources to protect against such security breaches
or to alleviate problems caused by such breaches. Our insurance coverage may be inadequate to compensate us for any related losses we incur.
These issues are likely to become more difficult as we expand our operations. Any breach of our security measures, or even a perceived breach of our
security measures, could cause us to lose potential customers and governmental approvals; suffer material harm to our business, financial condition,
operating results and reputation; or be subject to regulatory actions, litigation, sanctions or other statutory penalties.
Technological changes could render our technology and products uncompetitive or obsolete, which could prevent us from achieving market share and
sales.
Our failure to refine or advance our fuel technologies could cause our nuclear fuel to become uncompetitive or obsolete, which could prevent us from
achieving market share and sales. We may need to invest significant financial resources in research and product development to keep pace with
technological advances in the industry and to compete in the future; we may be unable to secure such financing. We believe that a variety of competing
alternative technologies may be in development by other companies that could result in lower manufacturing costs and/or higher fuel performance than
those expected for our fuel products. Our development efforts may be rendered obsolete by the technological advances of others, and other technologies
may prove more advantageous for commercialization.
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Risks related to the ownership of our common stock
We have issued preferred stock with rights senior to our common stock.
Approximately 3.5 million shares of our Series A and Series B preferred stock were issued and outstanding at December 31, 2018. We can issue
additional shares of preferred stock in one or more series and can set the terms of the preferred stock without seeking any further approval from the
holders of our common stock. Any preferred stock that we issue may rank ahead of our common stock in terms of dividend priority or liquidation
premiums, may have greater voting rights than our common stock, and may have consent rights over certain fundamental transactions. The interests of the
holders of the preferred stock may as a consequence be different from the interests of the holders of our common stock, including in certain fundamental
transactions in which the preferred stockholders would receive distributions before any distributions may be made to our common stockholders. In
addition, such preferred stock may contain provisions allowing it to be converted into shares of common stock, which could dilute the value of our
common stock to then current stockholders and could adversely affect the market price of our common stock.
There may be volatility in our stock price, which could negatively affect investments, and our 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:
·
·
·
·
·
·
·
trading volume of our common stock;
quarterly variations in operating results;
actual or anticipated variations in our results of operations or those of our competitors;
failure to obtain or maintain analyst coverage of our common stock, changes in earnings estimates or recommendations by securities analysts,
or our failure to achieve analyst earnings estimates;
future sales of our common stock or other securities by us or our stockholders;
general market conditions and other factors unrelated to our operating performance or the operating performance of our competitors; and
the risks discussed elsewhere in this Annual Report on Form 10-K.
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.
Our inability to comply with the listing requirements of the Nasdaq Capital Market will result in our common stock being delisted, which could affect
its market price and liquidity and reduce our ability to raise capital.
We have received notice from the Nasdaq Stock Market (“Nasdaq”) that we are not in compliance with certain requirements for continued listing of our
common stock on the Nasdaq Capital Market. On November 5, 2018, we received a letter from the Nasdaq Listing Qualifications staff notifying us that
for the preceding 30 consecutive business days, our common stock did not maintain a minimum closing bid price of at least $1.00 per share as required by
Nasdaq Listing Rule 5550(a)(2). If we are not able to regain compliance with such requirements within the timeframe set by Nasdaq, or if we otherwise
fail to comply with continued listing requirements, our common stock may be delisted.
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In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we have a grace period of 180 calendar days, or until May 6, 2019, to regain compliance with the
minimum closing bid price requirement for continued listing. In order to regain compliance, the closing bid price of our common stock must be at least
$1.00 per share for a minimum of ten consecutive business days. In the event we do not regain compliance by May 6, 2019, we may be provided an
additional 180-day compliance period, if we demonstrate that we meet the applicable market value of publicly held shares requirement for continued
listing and all other applicable standards for initial listing on the Nasdaq Capital Market, with the exception of the bid price requirement, and provides
written notice of our intention to cure the minimum bid price deficiency during the second grace period, including by implementation of a reverse stock
split, if necessary.
If we fail to regain compliance with, or otherwise fail to comply with, all applicable continued requirements, Nasdaq may determine to delist our common
stock, which could substantially decrease trading in our common stock and adversely affect the market liquidity of our common stock and cause the
market price of our common stock to decline. In addition, our ability to raise additional capital, including through future at-the-market offerings and other
offerings utilizing short-form registration statements on Form S-3, would be substantially impaired.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2. PROPERTIES
Our office space is located at 11710 Plaza America Drive, Suite 2000 Reston, VA 20190 USA. The term of the lease extends through December 31, 2019.
We are obligated to pay approximately $15,000 per month for office rent. 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.
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 6, “Commitments and Contingencies,”
of the Notes to our consolidated financial statements in Part II, Item 8, Financial Statements and Supplementary Data, 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”.
Holders
As of March 1, 2019, our common stock was held by approximately 63 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.
Recent Sales of Unregistered Securities
We did not sell any securities without registration under the Securities Act during the fiscal year ended December 31, 2018 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 business and updates;
Critical Accounting Policies and Estimates — a discussion of accounting policies that require critical judgments and estimates;
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·
·
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 goal is to produce the next generation of nuclear fuel that could significantly improve the
economics, safety, and proliferation resistance of existing and new reactors, with a meaningful impact on addressing climate change and air pollution. We
project that the world’s energy and climate needs can only be met if nuclear power’s share of the energy-generating mix grows substantially.
Our primary focus is the development and commercialization of metallic fuel rods that will replace the uranium oxide ceramic pellets that have
traditionally fueled nuclear reactors. We believe our metallic fuel offers significant economic and safety benefits over traditional fuel, primarily because
of the superior heat transfer properties of all-metal fuel and the resulting lower operating temperature of the reactor. We also believe that uprating a
reactor with Lightbridge fuel will add incremental electricity at a lower levelized cost than any other means of generating baseload electric power,
including any renewable, fossil, or hydroelectric energy source.
We have built a significant portfolio of patents reflecting years of research and development, and we anticipate substantial completion of our research
efforts and the testing of our fuel over the next few years. We expect the first purchase orders for our metallic fuel as soon as 2028, with final deployment
of our fuel in commercial reactors as soon as 2030.
We conduct our business principally through Enfission, our 50/50 joint venture with Framatome formed on January 24, 2018. Enfission serves as the
exclusive vehicle through which the Company and Framatome are researching, developing, obtaining regulatory approvals, manufacturing and will be
using, marketing and selling nuclear fuel assemblies based on the Lightbridge metallic fuel technology comprising U-Zr multi-lobe, helically twisted fuel
rods and associated manufacturing processes and other advanced nuclear fuel intellectual property contributed by both Lightbridge and Framatome within
the operating domain. The operating domain of Enfission includes pressurized water reactors (excluding water-cooled water-moderated energetic reactor
(VVER) types) 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.
Within the operating domain of Enfission, 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 background intellectual property as well as
jointly owned foreground intellectual property co-owned on a 50-50 basis with Framatome SAS. Outside the domain of Enfission, such as future fuel sales
to utility customers operating CANDU or VVER reactors, we expect to enter into separate technology licensing or other types of commercial
arrangements to monetize our intellectual property.
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In addition to our nuclear fuel technology business, we may also opportunistically provide nuclear power consulting and strategic advisory services to
commercial and governmental entities worldwide. We are not currently seeking consulting engagements and have no dedicated resources for that purpose
and have discontinued this business segment, however we are open to opportunistically providing nuclear power consulting and strategic advisory services
through reassignment of resources from our core business and employment of outside resources from our industry contacts, to commercial and
governmental entities worldwide in the future.
We have included the audited financial results of the Enfission joint venture with Framatome as an exhibit to this Annual Report on Form 10-K, as we
believe Enfission’s financial results are significant to our operations and our financial results.
We were incorporated under the laws of the State of Nevada on February 2, 1999. Lightbridge and Enfission’s principal executive offices are located at
11710 Plaza America Drive, Suite 2000, Reston, Virginia 20190 USA.
Refer to Part I, Item 1, Business, for additional information. Financial information about our business is included in Part II, Item 8, Financial Statements
and Supplementary Data, of this Annual Report on Form 10-K.
Nuclear Power as Clean and Low Carbon Emissions Energy Source
Nuclear power provides clean, reliable baseload electricity generation source. According to the World Nuclear Association (WNA), nuclear power plants
produce no greenhouse gas emissions during operation, and over the course of its life-cycle, nuclear produces about the same amount of CO2 equivalent
emissions per unit of electricity as wind. The WNA further states that almost all proposed pathways to achieving significant decarbonization suggest an
increased role for nuclear power, including those published by the International Energy Agency, Massachusetts Institute of Technology Energy Initiative,
US Energy Information Administration, and World Energy Council.
We believe that deep cuts to CO2 emissions are only possible with electrification of most of the transportation and industrial sectors globally and
powering them and the current electricity needs of the world with non-emitting or low-emitting power. We believe this can be done only with a large
increase in nuclear power, several times the amount that is generated globally today. We believe that our nuclear fuel technology can be an essential
element of reaching this goal.
Operations Review
Financial information is included in Part II, Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.
We have provided a discussion of our results of operations on a consolidated basis and have also provided certain detailed segment information for each of
our business segments below for the year ended December 31, 2017. In 2017, we had organized our operations into two principal segments (1) the
technology business segment and (2) the consulting business segment. We presented our financial information along the same lines that our chief
executives reviewed our operating results in assessing performance and allocating resources. For the year ended December, 31, 2018, we focused our
efforts on our technology business segment and commercialization of metallic nuclear fuel, resulting in just one segment, and consequently segment
analysis is not applicable this year.
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Technology Business
Our goal 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 improved safety margins.
We are focusing our technology development efforts on the metallic fuel with a potential power uprate of up to 10% and an operating cycle extended from
18 to 24 months in existing Westinghouse-type four-loop pressurized water reactors. Those reactors represent the largest segment of our global target
market. The metallic fuel could also be adapted for use in other types of water-cooled commercial power reactors, such as boiling water reactors, Russian-
type VVER reactors, CANDU heavy water reactors, water-cooled small and modular reactors, as well as water-cooled research reactors.
We have obtained and will continue to 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.
We expect to invest a total of $15 million to $20 million in the development of our nuclear fuel products, including corporate research and development
expenditures, over the next 12 to 15 months.
Consulting Business
The Company’s business model expanded with consulting revenue in 2008, where we have provided consulting and strategic advisory services to
companies and governments planning to create or expand electricity generation capabilities using nuclear power plants. As of January 1, 2018, we no
longer had a consulting business segment and there was no consulting revenue for the year ended December 31, 2018 as we focused our efforts on our
technology business segment and commercialization of our metallic nuclear fuel. We presently do not have any consulting clients, or operations as of the
date of this filing. We may from time to time opportunistically provide nuclear power consulting and strategic advisory services through reassignment of
resources from our core business and employment of outside resources from our industry contacts, to commercial and governmental entities worldwide in
the future.
Consolidated Results of Operations
The following table presents our historical operating results as a percentage of revenues for the years indicated:
Year Ended
December 31,
Changes
Consulting Revenues
Cost of Services Provided
Consulting expenses
Gross Margin
Operating Expenses
General and administrative
Research and development expenses
Total Operating Expenses
Other Operating Income and (Loss)
Other income from joint venture
Equity in loss from joint venture
Total Other Operating and (Loss)
Operating Loss
Other Income and (Expenses)
Net Loss Before Income Taxes
2018
2017
- $
175,446 $
2018 vs 2017
$
(175,446)
%
- $
- $
107,091 $
68,355 $
(107,091)
(68,355)
6,715,378 $
3,458,377 $
10,173,755 $
4,383,066 $
2,282,938 $
6,666,004 $
2,332,312
1,175,439
3,507,751
1,056,551 $
(5,835,263) $
(4,778,712) $
- $
- $
- $
1,056,551
(5,835,263)
(4,778,712)
(100)%
(100)%
(100)%
53%
51%
53%
100%
(100)%
(100)%
$
$
$
$
$
$
$
$
$
$ (14,952,467) $
(6,597,649) $
(8,354,818)
(127)%
$
(723,641) $
$ (15,676,108) $
(507,248) $
(7,104,897) $
(216,393)
(8,571,211)
(43)%
(121)%
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Revenue
The market for nuclear industry consulting services is competitive, fragmented, and subject to rapid change. Our main business is developing our nuclear
fuel. We may pursue some consulting services opportunities in the future, but we have further increased the focus and resources of the Company to the
fuel division and away from consulting. There was no revenue for the year ended December 31, 2018 as compared to approximately $0.2 million for the
year ended December 31, 2017.
Cost of Services Provided
Because we have shifted the focus and resources of the Company to the fuel division and away from consulting, we have not incurred costs related to
consulting in 2018. Cost of services provided in 2017 was 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.
Total stock-based compensation included in cost of services provided was approximately $0.02 million for the year ended December 31, 2017.
Research and Development
Research and development expenses consist primarily of compensation and related fringe benefits including stock-based compensation and related
allocable overhead costs for the research and development of our fuel, including work performed and billed to our Enfission joint venture. Total research
and development expenses increased by approximately $1.2 million for the year ended December 31, 2018, as compared to the year ended December 31,
2017.
There was an increase in the number of employees, an increase in employee compensation and employee benefits in supporting research and development
activities for Enfission of approximately $0.7 million, which was offset by service income charged to Enfission for employee support services provided to
Enfission of $0.2 million. There was an increase in stock-based compensation of approximately $0.5 million due to the vesting of performance-based
stock options issued in 2017 and the issuance of performance-based stock options in August 2018, an increase in legal fees related to our Enfission joint
venture of approximately $0.4 million. These increases were offset by a decrease in outside research and development work performed by outside entities
in 2017 of approximately $0.2 million.
Total stock-based compensation included in research and development expenses was approximately $1.0 million and $0.5 million for the year ended
December 31, 2018 and 2017, respectively.
Primarily all of our above reported research and development activities were conducted in the United States and France. We expense research and
development costs as they are incurred. Research and development expenses may increase in dollar amount because we expect to invest $15 million to
$20 million in the development of our nuclear fuel products over the next 12 to 15 months. Due to the research and development nature of these
expenditures, cost and schedule estimates are inherently uncertain and can vary significantly as new information and the outcome of these research and
development activities become available.
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General and Administrative Expenses
General and administrative expenses consist mostly of compensation and related costs for 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, and outsourcing services.
Total general and administrative expenses increased by approximately $2.3 million for the year ended December 31, 2018, as compared to the year ended
December 31, 2017.
There was an increase in professional fees of approximately $0.8 million, which was due to the increased legal and professional work in negotiating and
forming the Enfission joint venture, an increase in accounting support regarding the implementation of our new project management and time and expense
software and other services, and an increase in other professional and consulting fees regarding engaging a consulting firm to assist in preparing the
application for a grant from the US Department of Energy (“DOE”). There was also an increase in employee wages and benefits of approximately $0.7
million due to an increase in the number of employees and an increase in employee compensation and employee benefits, offset by service income
charged to Enfission for employee support services to Enfission of $0.2 million, an increase in stock-based compensation of approximately $0.8 million,
due to the vesting of performance-based stock options issued in 2017 and the issuance of performance-based options in August 2018, and an increase in
corporate travel expenses of approximately $0.1 million.
Total stock-based compensation included in general and administrative expenses was approximately $1.4 million and $0.7 million for the year ended
December 31, 2018 and 2017, respectively.
See Note 9. Stockholders’ Equity and Stock-Based Compensation 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 Operating Income and (Loss) – Related Party
Reported in other operating income is other income for activities performed by our employees and consultants billed to the Enfission joint venture for
research and development work. Total other income from these activities was approximately $1.1 million for the year ended December 31, 2018. In 2018,
approximately 77% of the total Enfission cash inflow or capital contributions into Enfission were funded by Lightbridge and the remaining 23% was
funded as capital contributions into Enfission from Framatome. Equity in loss from joint venture consists of our share of the allocated loss in Enfission.
Other Income (Expenses)
There was a net increase in other income and (expenses) of approximately $(0.2) million. This change was due to an increase in amortization of deferred
financing costs of approximately $0.5 million due to the write-off of the deferred financing costs in the first quarter of 2018 for the expired equity line
option agreement, partially offset by an increase of $0.3 million in interest income generated from the interest earned from the purchase of treasury bills
and from our bank savings account for the year ended December 31, 2018 as compared to the year ended December 31, 2017.
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Provision for Income Taxes
We incurred a pre-tax net loss for both 2018 and 2017. We reviewed all sources of income for purposes of recognizing the deferred tax assets and
concluded a full valuation allowance for 2018 and 2017 was necessary. Therefore, we did not have a provision for taxes for both years ended December
31, 2018 and 2017.
See Note 8 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
At December 31, 2018, we had cash and cash equivalents of approximately $24.6 million, as compared to approximately $4.5 million at December 31,
2017. The $20.1 million increase in cash and cash equivalents resulted from net proceeds from the sale of approximately $29.5 million of common stock
and net proceeds from the issuance of approximately $3.9 million of preferred stock during the year ended December 31, 2018. This amount of cash
inflow was partially offset by net cash used in operating activities of approximately $7.4 million and our capital contributions for our capital investment in
Enfission of approximately $5.6 million. We used cash during the year ended December 31, 2018 primarily to fund our research and development
expenses and general and administrative expenses. We did not have any consulting revenue for the year ended December 31, 2018 and presently do not
expect to have consulting revenue for the next 12 months.
We currently project a cash flow shortfall averaging approximately $0.8 million per month for our general and administrative and corporate research and
development expenses for total expected expenditures of approximately $9.3 million for the next 12 months. We currently anticipate the amount of cash
outlays to Enfission and third parties for research and development expenditures and equipment purchases of approximately $10.7 million, for the next 12
months. Total cash budget for the next 12 months is approximately $20 million. 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.
We can provide no assurances about meeting our budgeted expenditures regarding our future research and development efforts to meet our desired fuel
development milestones for the next 12 months and beyond, as well as predicting future market trends in nuclear that can affect the future sale of our
nuclear fuel. Furthermore, any negative results from our research and development may require us to increase our research and development spending to
achieve our desired milestones in developing our nuclear fuel. Presently, we fund substantially all of the cash that is required for the research and
development activities to be conducted in Enfission. These additional capital needs relate to the development, manufacturing, and commercialization of
our nuclear fuel assemblies. We have the ability to delay incurring certain operating expenses in the next 12 to 15 months, which could reduce our cash
flow shortfall, if needed.
The current primary future potential sources of cash available to us in 2019 are potential funding from equity investments and potential grants that we are
actively seeking from DOE. We anticipate that current cash on hand and additional equity investments in 2019 will help us meet the 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. 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 preferred stock and common stock. Management believes that public or private equity
investments will be available as needed, however adverse market conditions in our common stock price and trading volume could substantially impair our
ability to raise capital in the future.
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Short-Term and Long-Term Liquidity Sources
As 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 that may be
available to us are as follows:
·
·
Equity investment from third party investors in Lightbridge or Enfission; 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 will need to raise additional capital to fund our overall corporate and research and development activities for future operations in 2020 and beyond,
which may involve offerings of equity or debt securities, securing financing through one or more banks or entering into strategic alliances with other
parties.
See Note 9. Stockholders’ Equity and Stock-Based Compensation of the Notes to our financial statements included in Part II Item 8, Financial Statements
and Supplementary Data, of this Annual Report on Form 10-K for information regarding our prior financings.
The following table provides detailed information about our net cash flows for the years ended December 31, 2018 and 2017.
Cash Flow (rounded 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,
2018
2017
$
$
$
$
(7.4) $
(5.8) $
33.3 $
20.1 $
(5.0)
(0.2)
6.1
0.9
The increase in our cash used in operating activities in 2018 of approximately $2.4 million was primarily due to an increase in our operating expenses and
net loss and the change in working capital items as explained below.
Cash used in operating activities in the year ended December 31, 2018 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, 2018 consisted of a net loss of approximately $15.7 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 approximately $9.2 million, consisting of non-cash
adjustments for stock-based compensation of approximately $2.4 million, write-off of deferred financing costs of approximately $1.0 million and equity in
loss from joint venture of approximately $5.8 million. Total cash used in operating working capital totaled approximately $0.9 million which was due to a
decrease in accounts payable and other accrued liabilities and an increase in other receivables from joint venture of $0.1 million.
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Table of Contents
Investing Activities
Net cash used by our investing activities for the year ended December 31, 2018, as compared to net cash used by our investing activities in 2017, was
increased by approximately $5.6 million. The increase was due primarily to the spending for investment in our Enfission joint venture for the amount of
approximately $5.6 million. The spending for patent application costs are primarily the same for the year ended December 31, 2018. 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, 2018, as compared to net cash provided by our financing activities for the
year ended December 31, 2017 was an increase by approximately $27.2 million.
The increase was primarily due to the increase in the proceeds from the issuance of our Series A Preferred Stock of approximately $3.9 million, an
increase in the net proceeds from the issuance of our common stock through our equity purchase agreements and our ATM agreements of approximately
$29.4 million in 2018 as compared to $6.0 million raised in 2017.
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 and related disclosures in conformity with US generally accepted accounting principles (“GAAP”) and the
Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make judgments, assumptions
and estimates that affect the amounts reported in its consolidated financial statements and accompanying notes. Note 1, “Summary of Significant
Accounting Policies,” of the Notes to Consolidated Financial Statements in Part II, Item 8 Financial Statements and Supplementary Data, of this Form
10-K describes the significant accounting policies and methods used in the preparation of the Company’s consolidated financial statements.
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.
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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 associated 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, including:
·
·
·
·
·
expected term;
volatility;
dividend yield;
risk-free interest rate; and
forfeiture rates.
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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.
Investment in Enfission – Equity Method
As of January 24, 2018, the Company owns a 50% interest in Enfission – accounted for using the equity method of accounting. Enfission is deemed to be
a variable interest entity (“VIE”) under the VIE model of consolidation because it currently does not have sufficient funds to finance its operations and
will require significant additional equity or subordinated debt financing. The Company has determined that it is not the primary beneficiary of the VIE
since it does not have the power to direct the activities that most significantly impact the VIE’s performance.
In determining whether the Company is the primary beneficiary and whether it has the right to receive benefits or the obligation to absorb losses that could
potentially be significant to the VIE, the Company evaluates all its economic interests in the entity, regardless of form. This evaluation considers all
relevant factors of the entity’s structure including the entity’s capital structure, contractual rights to earnings (losses) as well as other contractual
arrangements that have potential to be economically significant. Although the Company has the obligation to absorb the losses as of this reporting period,
it has concluded that it is not the primary beneficiary since the major decision making for all significant economic activities require the approval of both
the Company and Framatome. Changes in the operating agreement may affect the evaluation of who is a primary beneficiary of the VIE.
Intangibles
As presented on the accompanying balance sheet, we had patents with a net book value of approximately $1.6 million and $1.4 million as of December 31,
2018 and December 31, 2017, 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 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.
Research and development expenses
Research expenses are recognized as expenses when incurred. Costs incurred on development projects are recognized as intangible assets as of the date as
of which it can be established that it is probable that future economic benefits attributable to the asset will flow to us considering its commercial
feasibility. This is generally the case when regulatory approval for commercialization is achieved and costs can be measured reliably. Given the current
stage of the development of our products, no development expenditures have yet been capitalized.
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Table of Contents
Loss Contingency
Our loss contingency analysis contains uncertainties because it requires management to assess the degree of probability of an unfavorable outcome and to
make a reasonable estimate of the amount of potential loss.
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 AND SUPPLEMENTARY DATA
The full text of our audited consolidated financial statements as of and for the years ended December 31, 2018 and 2017 begins on page 50 of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
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, 2018 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, 2018. Based on this assessment, management,
with the participation of our Chief Executive Officer and Chief Financial Officer, determined that as of December 31, 2018, 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 2018 that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
Effective March 29, 2019, the Company and B. Riley FBR, Inc. terminated the At-the-Market Issuance Sales Agreement, dated March 30, 2018, pursuant
to which the Company could issue and sell shares of its common stock from time to time through B. Riley FBR, Inc. as the Company’s sales agent.
Further details regarding the agreement are included in the Company’s Current Report on Form 8-K filed with the SEC on March 30, 2018, which is
incorporated by reference herein.
44
Table of Contents
Item 10. Directors and Executive Officers of the Registrant
PART III
The information required by Item 10 of Part III will be included in our Proxy Statement relating to the 2019 Annual Meeting of Stockholders and is
incorporated herein by reference.
Item 11. Executive Compensation
The information required by Item 11 of Part III will be included in our Proxy Statement relating to the 2019 Annual Meeting of Stockholders and is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholders The information required by
Item 12 of Part III will be included in our Proxy Statement relating to the 2019 Annual Meeting of Stockholders and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information required by Item 13 of Part III will be included in our Proxy Statement relating to the 2019 Annual Meeting of Stockholders and is
incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
Information required by Item 14 of Part III will be included in our Proxy Statement relating to the 2019 Annual Meeting of Stockholders and is
incorporated herein by reference.
45
Table of Contents
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, 2018 and 2017
Consolidated Statements of Operations for the Years Ended December 31, 2018 and 2017
Consolidated Statements of Cash Flows for the Years Ended December 31, 2018 and 2017
Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2018 and 2017
Notes to Consolidated Financial Statements
Report of BDO USA, LLP dated March 29, 2019 on the Company’s financial statements filed as a part hereof for the fiscal years ended
December 31, 2018 and 2017. 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
10.1‡
10.2‡
10.3‡
At-the-Market Issuance Sales Agreement, dated March 30, 2018, between the Company and B. Riley FBR, Inc. (incorporated by
reference to Exhibit 1.1 to the Form 8-K filed by the Company on March 30, 2018).
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).
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).
Amendment Number One to the R&D Services Agreement, deemed effective January 25, 2018, among the Company, Framatome SAS,
and Enfission, LLC (incorporated by referenced to Exhibit 10.1 to the Form 10-Q filed by the Company on November 9, 2018).
Amendment Number Two to the R&D Services Agreement, deemed effective June 20, 2018, among the Company, Framatome SAS, and
Enfission, LLC (incorporated by referenced to Exhibit 10.2 to the Form 10-Q filed by the Company on November 9, 2018).
46
Table of Contents
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**
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).
Amendment Number One to the Operating Agreement of Enfission, LLC, deemed effective May 7, 2018, between the Company and
Framatome Inc. (incorporated by referenced to Exhibit 10.3 to the Form 10-Q filed by the Company on November 9, 2018).
Amendment Number Two to the Operating Agreement of Enfission, LLC, deemed effective January 25, 2018, between the Company and
Framatome Inc. (incorporated by referenced to Exhibit 10.4 to the Form 10-Q filed by the Company on November 9, 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 March 29, 2018, 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).
10.18**
10.19**
10.20**
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).
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Table of Contents
10.21**
10.22**
10.23**
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).
10.24**
10.25**
10.26**
10.27**
21.1
23.1*
23.2*
31.1*
31.2*
32*
99.1*
101*
Employment Agreement, dated August 8, 2018, between the Company and Seth Grae (incorporated by referenced to Exhibit 10.2 to the
Form 10-Q filed by the Company on August 9, 2018).
Employment Agreement, dated August 8, 2018, between the Company and Andrey Mushakov (incorporated by referenced to Exhibit 10.3
to the Form 10-Q filed by the Company on August 9, 2018).
Employment Agreement, dated August 8, 2018, between the Company and Larry Goldman (incorporated by referenced to Exhibit 10.4 to
the Form 10-Q filed by the Company on August 9, 2018).
Form of Indemnification Agreement (August 2018) (incorporated by referenced to Exhibit 10.5 to the Form 10-Q filed by the Company on
August 9, 2018).
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.
Consent of BDO USA, LLP, regarding report in Exhibit 99.1.
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.
Audited Financial Statements of Enfission, LLC for the Period from Inception (January 24, 2018) to December 31, 2018, with Report of
Independent Auditor.
The following materials from Lightbridge Corporation’s Annual Report on Form 10-K for the year ended December 31, 2018, 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 US Securities and Exchange Commission pursuant to a request for confidential treatment.
Item 16. Form 10–K Summary
None.
48
LIGHTBRIDGE CORPORATION
DECEMBER 31, 2018 and 2017
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
49
Page
50
51
52
53
54
55
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”) as of December 31, 2018 and 2017, the
related consolidated statements of operations, stockholders’ equity, and cash flows for each of 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 at December 31, 2018 and 2017, 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 29, 2019
BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of
independent member firms.
BDO is the brand name for the BDO network and for each of the BDO Member Firms.
50
Table of Contents
Lightbridge Corporation
Consolidated Balance Sheets
ASSETS
Current Assets
Cash and cash equivalents
Accounts receivable - project revenue and reimbursable project expenses
Other receivable from joint venture
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
Investee losses in excess of investment
Total Current Liabilities
Commitments and contingencies - Note 6
Stockholders' Equity
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, December 31,
2018
2017
$
$
$
24,637,295 $
—
93,253
36,745
—
24,767,293
1,577,421
—
1,577,421
26,344,714 $
4,515,398
10,400
—
70,067
491,168
5,087,033
1,367,692
491,268
1,858,960
6,945,993
258,056 $
218,263
476,319
1,151,210
—
1,151,210
Preferred stock, $0.001 par value, 10,000,000 authorized shares:
Convertible Series A preferred shares, 813,624 shares and 1,020,000 shares issued and outstanding at December
31, 2018 and 2017, respectively (liquidation preference $2,640,862, and $3,088,764 at December 31, 2018 and
2017, respectively)
Convertible Series B preferred shares, 2,666,667 and 0 shares issued and outstanding at December 31, 2018 and
2017, respectively (liquidation preference $4,262,855 at December 31, 2018)
Common stock, $0.001 par value, 100,000,000 authorized, 32,862,090 shares and 12,737,703 shares issued and
outstanding as of December 31, 2018 and 2017, respectively
Additional paid-in capital
Accumulated deficit
Total Stockholders' Equity
Total Liabilities and Stockholders' Equity
813
1,020
2,667
—
32,863
129,329,674
(103,497,622)
25,868,395
26,344,714 $
$
12,738
93,602,539
(87,821,514)
5,794,783
6,945,993
The accompanying notes are an integral part of these consolidated financial statements.
51
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
Other Operating Income and (Loss)
Other income from joint venture
Equity in loss from joint venture
Total Operating Income and (Loss)
Operating Loss
Other Income and (Expenses)
Interest income
Financing costs
Interest expense
Total Other Income and (Expenses)
Net Loss Before Income Taxes
Income Taxes
Net Loss
Years Ended
December 31,
2018
2017
$
— $
175,446
—
—
107,091
68,355
6,715,378
3,458,377
10,173,755
4,383,066
2,282,938
6,666,004
1,056,551
(5,835,263)
(4,778,712)
(14,952,467)
—
—
—
(6,597,649)
258,795
(982,436)
—
(723,641)
(15,676,108)
65
(491,218)
(16,095)
(507,248)
(7,104,897)
—
—
$ (15,676,108) $
(7,104,897)
Accumulated Preferred Stock Dividend
Deemed additional dividend on preferred stock dividend due to the beneficial conversion feature
Deemed dividend on issuance on Series B convertible preferred stock due to the beneficial conversion feature
(461,187)
(187,892)
(2,624,836)
(276,578)
—
—
Net Loss Attributable to Common Shareholders
$ (18,950,023) $
(7,381,475)
Net Loss Per Common Share
Basic and Diluted
Weighted Average Number of Shares Outstanding
$
(0.71) $
(0.71)
26,636,250
10,424,481
The accompanying notes are an integral part of these consolidated financial statements.
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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
Implied interest expense on deferred lease abandonment liability
Write off of deferred financing costs
Equity in loss from joint venture
Changes in operating working capital items:
Accounts receivable - fees and reimbursable project costs
Other receivable from joint venture
Prepaid expenses and other assets
Accounts payable and accrued liabilities
Deferred lease abandonment liability
Net Cash Used in Operating Activities
Investing Activities:
Investment in joint venture
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
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:
Deemed dividend on issuance Series B convertible preferred stock due to beneficial conversion feature
Accumulated preferred stock dividend
Conversion of Series A convertible preferred stock to common stock and payment of paid-in-kind dividends to
Series A preferred stockholder
Decrease in accrued liabilities - stock-based compensation
Years Ended
December 31,
2018
2017
$ (15,676,108) $
(7,104,897)
2,379,905
—
—
—
982,436
5,835,263
10,400
(93,253)
33,322
(893,154)
1,193,306
491,218
37,780
16,095
—
—
378,034
—
10,866
159,953
(185,683)
(7,421,189)
(5,003,328)
(5,617,000)
(209,729)
(5,826,729)
—
(207,227)
(207,227)
29,469,814
3,900,001
—
33,369,815
6,027,064
—
114,012
6,141,076
20,121,897
930,521
4,515,398
3,584,877
$
24,637,295 $
4,515,398
$
$
$
$
$
$
— $
— $
2,624,836 $
649,079 $
206,376 $
— $
—
—
—
276,578
—
121,720
The accompanying notes are an integral part of these consolidated financial statements.
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Lightbridge Corporation
Consolidated Statement of Changes in Stockholders’ Equity For The Years Ended December 31, 2018 and 2017
Preferred Stock -
Class A
Preferred Stock -
Class B
Common Stock
Shares
Amount
Shares
Amount
Shares
Amount
Additional
Paid-in
Capital
Accumulated
Deficit
Total
Equity
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
Conversion of
Preferred Shares to
Common Shares
Shares issued
payment of Series A
PS dividend
Issuance of Preferred
stock
Cashless exercise of
stock warrants
Shares issued –
equity line
Shares issued -
registered ATM
offering - net of
offering costs
Stock-based
compensation
Net loss
Balance - December
31, 2018
1,020,000 $ 1,020
— $
— 7,112,143 $ 7,112
$ 86,266,075
$ (80,716,617
) $ 5,557,590
—
—
—
—
102,975
103
121,617
—
121,720
—
—
—
— 5,236,001
5,236
6,021,828
—
6,027,064
—
—
—
—
286,584
287
(287)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,193,306
—
—
(7,104,897)
1,193,306
(7,104,897)
1,020,000 $ 1,020
— $
— 12,737,703 $ 12,738 $ 93,602,539 $ (87,821,514) $ 5,794,783
(206,376)
(206)
—
—
235,413
236
(30)
—
—
(1)
—
—
729
1
—
—
—
—
— 2,666,667
2,667
3,897,334
—
3,900,001
—
—
—
—
496,644
496
(496)
—
—
—
—
—
—
579,961
580
711,648
—
712,228
—
—
—
— 18,811,640 18,812 28,738,774
— 28,757,586
—
—
—
—
—
—
—
—
—
—
—
—
2,379,905
—
2,379,905
(15,676,108) (15,676,108)
—
813,624 $
813 2,666,667 $ 2,667 32,862,090 $ 32,863 $ 129,329,674 $ (103,497,622) $ 25,868,395
The accompanying notes are an integral part of these consolidated financial statements.
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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., which was incorporated in the state of Nevada on February 2, 1999, merged
with Thorium Power, Inc., (“TPI”), which was incorporated in the state of Delaware on January 8, 1992 (subsequently and collectively referred to as “we”
or the “Company”). On September 29, 2009, the Company changed its name from Thorium Power, Ltd. to Lightbridge Corporation and began its focus
on developing and commercializing metallic nuclear fuels. We are a nuclear fuel technology company developing and commercializing next generation
nuclear fuel technology.
Basis of presentation
Liquidity
The Company has adopted Accounting Standards Codification, (“ASC”), 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.
At December 31, 2018, the Company had $24.6 million in cash and had a working capital surplus of approximately $24.3 million. 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.
The Company had expended substantial funds on its research and development activities to date and expects to increase this spending through its equity
contributions to its joint venture company Enfission, LLC. The Company’s net cash used in operating activities during the year ended December 31, 2018
was approximately $7.4 million, and current projections indicate that the Company will have continued negative cash flows until the commercialization of
its nuclear fuel. Net losses incurred for the years ended December 31, 2018 and 2017 amounted to approximately $(15.7) million, $(7.1) million,
respectively. As of December 31, 2018, the Company has an accumulated deficit of approximately $103.5 million, representative of recurring losses since
inception. The Company has incurred recurring losses since inception because it is a development stage nuclear fuel development company. The Company
expects to continue to incur losses due to the costs and expenses related to the Company’s research and development expenses and corporate general and
administrative expenses.
The amount of cash and cash equivalents on the balance sheet as of the date of this filing is approximately $23 million. 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 (e.g., potential Department of Energy funding); and (3) additional capital raises. 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 filed with the SEC on March 15, 2018 and declared effective on March 23,
2018. 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.
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Equity Method Investment – Enfission, LLC - Joint Venture with Framatome Inc.
In January 2018, Lightbridge and Framatome Inc., a subsidiary of Framatome SAS (formerly part of AREVA SAS), finalized and launched Enfission,
LLC (“Enfission”), 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 SAS and Framatome Inc. (collectively “Framatome”) is a global leader in
designing, building, servicing, and fueling reactor fleet and advancing nuclear energy and is majority owned by Électricité de France, the world’s largest
owner and operator of nuclear power plants. Lightbridge and Framatome began joint fuel development and regulatory licensing work under previously
signed agreements initiated in March 2016. The joint venture Enfission is a Delaware-based limited liability company that was formed on January 24,
2018.
Management has determined that its investment in Enfission should be accounted for under the equity method of accounting. Under the equity method of
accounting, an investee company’s accounts are not reflected within the Company’s consolidated balance sheets and consolidated statements of
operations; however, the Company’s share of the losses of the investee company is reported in the “Equity in loss from joint venture” line item in the
consolidated statements of operations, and the Company’s carrying value in an equity method investee company is reported in the “Investment in joint
venture” or “Investee losses in excess of investment” line item in the consolidated balance sheets.
The Company allocates income (loss) utilizing the hypothetical liquidation book value (“HLBV”) method, in which the Company allocates income or loss
based on the change in each JV member’s claim on the net assets of the JV’s operating agreement at period end after adjusting for any distributions or
contributions made during such period. The Company uses this method because of the difference between the distribution rights and priorities set forth in
the Enfission operating agreement and what is reflected by the underlying percentage ownership interests of the Joint Venture. The Company invested
approximately $5.6 million in Enfission as of December 31, 2018. During the year ended December 31, 2018, the Company recorded its share of the loss
in investment in Enfission, in accordance with the provisions in the joint venture operating agreement, of approximately $5.8 million. The Company’s
share of the joint venture losses for the year ended December 31, 2018 have exceeded its capital contributions by approximately $0.2 million and as a
result, in accordance with equity method accounting, its share of the equity losses in excess of the equity contributions made in 2018 have been recorded
as investee loss in excess of investment, under the current liability section of the accompanying balance sheets. The Company provides research and
development services to Enfission and these amounts have been recorded as other operating income in the accompanying statement of operations.
We evaluate on a quarterly basis, whether our investment accounted for under the equity method of accounting has an other than temporary impairment
(“OTTI”). An OTTI occurs when the estimated fair value of an investment is below the carrying value and the difference is determined to not be
recoverable. This evaluation requires significant judgment regarding, but not limited to, the severity and duration of the impairment; the ability and intent
to hold the security until recovery; financial condition, liquidity, and near-term prospects of the issuer; specific events; and other factors.
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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. All significant intercompany transactions and balances
have been eliminated in consolidation. Translation gains and losses for the years ended December 31, 2018 and 2017 were not significant.
As of January 24, 2018, the Company owns a 50% interest in Enfission – accounted for using the equity method of accounting (see Note 3. Investment in
Joint Venture / Investee Losses in Excess of Investment). Enfission is deemed to be a variable interest entity (“VIE”) under the VIE model of
consolidation because it currently does not have sufficient funds to finance its operations and will require significant additional equity or subordinated debt
financing. The Company has determined that it is not the primary beneficiary of the VIE since it does not have the power to direct the activities that most
significantly impact the VIE’s performance.
In determining whether the Company is the primary beneficiary and whether it has the right to receive benefits or the obligation to absorb losses that could
potentially be significant to the VIE, the Company evaluates all its economic interests in the entity, regardless of form. This evaluation considers all
relevant factors of the entity’s structure including the entity’s capital structure, contractual rights to earnings (losses) as well as other contractual
arrangements that have potential to be economically significant. Although the Company has the obligation to absorb the losses as of this reporting period,
it has concluded that it is not the primary beneficiary since the major decision making for all significant economic activities require the approval of both
the Company and Framatome. The significant economic activities identified were financing activities; research and development activities; licensing
activities; manufacturing of fuel assembly product activities; and marketing and sales activities. The evaluation of each of these factors in reaching a
conclusion about the potential significance of our economic interests and control is a matter that requires the exercise of professional judgment.
Business Segments
For the year ended December 31, 2017, the Company had two principal business segments (1) the technology business and (2) the consulting services
business. We discontinued our consulting business segment in 2018 and no longer report and disclose our financial results on a business segment basis at
December 31, 2018.
Technology Business
The Company’s business, based on future revenue potential, is to develop and commercialize innovative, proprietary nuclear fuel designs, which it expects
will significantly enhance the nuclear power industry’s economics due to higher power output and improved safety margins.
The Company is focusing its technology development efforts on the metallic fuel with a potential power uprate of up to 10% and an operating cycle
extended from 18 to 24 months in existing Westinghouse-type four-loop pressurized water reactors. Those reactors represent the largest segment of our
global target market. The metallic fuel could also be adapted for use in other types of water-cooled commercial power reactors, such as boiling water
reactors, Russian-type VVER reactors, CANDU heavy water reactors, water-cooled small and modular reactors, as well as water-cooled research reactors.
Lightbridge has obtained and will continue to 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.
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Consulting Business
The Company has provided consulting and strategic advisory services to companies and governments planning to create or expand electricity generation
capabilities using nuclear power plants. As of January 1, 2018, the Company no longer had a consulting business segment. The Company had no
consulting revenue for the year ended December 31, 2018 as the Company focused its efforts on its technology business and commercialization of its
metallic nuclear fuel. The Company does not presently have any consulting clients, or operations as of the date of this filing. The Company is open to
opportunistically provide nuclear power consulting and strategic advisory services through reassignment of resources from its core business and
employment of outside resources from its industry contacts, to commercial and governmental entities worldwide in the future.
Because of this, the Company will no longer show business segment results as it has in the past. The chief operating decision makers have determined that
the Company’s sole focus is on the developing and commercializing next generation nuclear fuel technology.
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, impairment evaluation of the equity method investment, 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
The Company is an early stage company and will likely need additional funding by way of strategic alliances, government grants, 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.
The Company participates 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 government regulations and support for nuclear power, changes
in accounting and taxation standards, inability to achieve overall long-term goals, future impairment charges, and global or regional catastrophic events.
The Company may be subject to various additional political, economic, and other uncertainties.
Cash and Cash Equivalents
The Company may at times invest its excess cash in savings accounts and US Treasury Bills. It classifies 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. The Company holds cash balances in excess of the federally insured limits of $250,000. It deems this credit risk not to be
significant as cash is held by three prominent financial institutions in 2018 and one prominent financial institution in 2017. The Company buys and holds
short-term US Treasury Bills from Treasury Direct to maturity. US Treasury Bills totaled approximately $10.0 million and $0 at December 31, 2018 and
2017, respectively. The remaining $14.6 million at December 31, 2018 are on deposit with three notable financial institutions with primarily all of the
$14.6 million with one financial institution. Total cash and cash equivalents held, as reported on the accompanying consolidated balance sheets, totaled
approximately $24.6 million and $4.5 million at December 31, 2018 and 2017, respectively.
Other Receivable – Joint Venture
The Company records its receivable from Enfission LLC at the invoiced amount. The Company determined that no bad debt reserve needed to be
recorded at December 31, 2018.
Foreign Currency
Foreign currency transaction gains/losses were not significant for the years ended December 31, 2018 and 2017.
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, 2018 and 2017.
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, 2018 and 2017.
Research, Development and Related Expenses
These costs are charged to operations in the period incurred and are shown on a separate line on the accompanying consolidated statements of operations.
Beneficial Conversion Feature of Convertible Preferred Stock
The Company accounts for the beneficial conversion feature on its convertible preferred stock in accordance with ASC 470-20, Debt with Conversion and
Other Options. The Beneficial Conversion Feature (“BCF”) of convertible preferred stock is normally characterized as the convertible portion or feature
that provides a rate of conversion that is below market value or in-the-money when issued. The Company records a BCF related to the issuance of
convertible preferred stock when issued. Beneficial conversion features that are contingent upon the occurrence of a future event are recorded when the
contingency is resolved.
To determine the effective conversion price, the Company first allocates the proceeds received to the convertible preferred stock and then uses those
allocated proceeds to determine the effective conversion price. If the convertible instrument is issued in a basket transaction (i.e., issued along with other
freestanding financial instruments), the proceeds should first be allocated to the various instruments in the basket. The intrinsic value of the conversion
option should be measured using the effective conversion price for the convertible preferred stock on the proceeds allocated to that instrument. The
effective conversion price represents proceeds allocable to the convertible preferred stock divided by the number of shares into which it is convertible. The
effective conversion price is then compared to the per share fair value of the underlying common shares on the commitment date. The accounting for a
BCF requires that the BCF be recognized by allocating the intrinsic value of the conversion option to additional paid-in capital, resulting in a discount on
the convertible preferred stock. This discount should be accreted from the date on which the BCF is first recognized through the earliest conversion date
for instruments that do not have a stated redemption date. The intrinsic value of the BCF is recognized as a deemed dividend on convertible preferred
stock over a period specified in the guidance. In the case of both the Series A and Series B preferred shares, the holders of the shares had the right to
convert beginning at the date of issuance with the result that the accretion of the related BCF was recognized immediately at issuance.
When the Company’s preferred stock has dividends that are paid-in-kind (“PIK”) (i.e., the holder is paid in additional shares or liquidation/dividend
rights), and either (1) neither the Company nor the holder has the option for the dividend to be paid in cash, or (2) the PIK amounts do not accrue to the
holder if the instrument is converted prior to the PIK amount otherwise being accrued or due, additional BCF is recognized as dividends accrue to the
extent that the per share fair value of the underlying common shares at the commitment date exceeds the conversion price.
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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 ASC 815, Derivatives and Hedging 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 ASC 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. On July 1, 2018, the Company adopted ASU 2018-07,
Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.
ASC 505-50-30-11 (previously EITF 96-18), which applied until the adoption of ASU 2018-07 on July 1, 2018, 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:
·
·
The date at which a commitment for performance by the counterparty to earn the equity instruments is reached (a performance commitment);
and
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.
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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, the Company will accelerate all remaining expense to be recognized.
Awards with both performance-based and market-based vesting conditions – if an award vesting or exercisability 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.
The Company has 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. The Company recognized stock-based
compensation for service-based stock options using the straight-line method over the requisite service period.
Segment Reporting
The Company used the “management approach” in determining reportable operating segments. The management approach considers the internal
organization and reporting used by the chief decision makers for making operating decisions and assessing performance, as the source for determining our
reportable segments. The Company has determined in 2018 that it no longer operates as two segments as defined by the FASB accounting
pronouncement, “Disclosures about Segments of an Enterprise and Related Information”. Rather, the Company operates as a technology business
developing and commercializing next generation nuclear fuel technology.
Recently Adopted Accounting Pronouncements
Compensation – Stock Compensation — In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718): Improvements
to Nonemployee Share-Based Payment Accounting. ASU 2018-07 allows companies to account for nonemployee awards in the same manner as employee
awards. The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those annual periods. The Company
elected the early adoption of this ASU on July 1, 2018. The adoption of ASU 2018-07 did not have a material impact on the Company’s financial
position, results of operations or cash flows.
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 pronouncement was adopted on January 1, 2018 and did not have a material effect on the Company’s financial position, results of
operations or cash flows.
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Financial Instruments — In January 2016, the FASB issued ASU 2016-01, Financial Instruments (Subtopic 825-10) — Overall: Recognition and
Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 provides guidance on how entities measure certain equity investments and
present changes in the fair value. This standard requires that entities measure certain equity investments that do not result in consolidation and are not
accounted for under the equity method at fair value and recognize any changes in fair value in net income. ASU 2016-01 is effective for fiscal years
beginning after December 31, 2017. This pronouncement was adopted on January 1, 2018 and did not have a material effect on the Company’s financial
position, results of operations or cash flows.
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 be included as components of total
cash and cash equivalents as presented on the statement of cash flows. These pronouncements went into effect for periods beginning after December 15,
2017. This pronouncement was adopted on January 1, 2018 and did not have a material effect on the Company’s financial position, results of operations or
cash flows.
Revenue Recognition — In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes 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 was effective for the interim and annual periods beginning on or after December 15, 2017, and this pronouncement was adopted on January 1,
2018. The guidance permits the use of either a retrospective or cumulative effect transition method. The Company has evaluated its prior various contracts
subject to these updates and completed its assessment. The Company has concluded that the adoption of this pronouncement did not have a material effect
on its consolidated financial statements and related disclosures since it did not enter into any consulting revenue contracts in 2018.
Equity Method Investments — In March 2016, the FASB issued ASU No. 2016-07, Simplifying the Transition to the Equity Method of Accounting. The
new standard eliminates the requirement for an investor to retroactively apply the equity method when an increase in ownership interest in an investee
triggers equity method accounting. It also simplifies, in certain areas, the accounting for equity method investments. The new standard is effective in the
current fiscal year ending December 31, 2018 and interim periods therein. The new provisions are applied on a prospective basis to transactions within its
scope. The adoption of this standard did not have a material impact on the Company’s financial position, results of operations or cash flows.
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Recent Accounting Pronouncements – To Be Adopted
Intangibles, Goodwill and Other — In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350) – Simplifying the
Test for Goodwill Impairment . To simplify the subsequent measurement of goodwill, ASU 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 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 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 2017-04 is effective for
fiscal years beginning after December 15, 2019. The Company will adopt ASU 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.
Leases — In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 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. The Company does not believe this standard will have a material impact on its
consolidated financial statements or the related footnote disclosures.
ASU 2018-09, Codification Improvements — This ASU represents changes in various Subtopics to clarify, correct errors, or make minor improvements.
The amendments are not expected to have a significant effect on current accounting practice. Subtopics impacted by this ASU that are relevant to the
Company
include Subtopic 220-10 Income Statement — Reporting Comprehensive Income-Overall, Subtopic 718-740 Compensation — Stock
Compensation-Income Taxes, Subtopic 805-740 Business Combinations — Income Taxes , and Subtopic 820-10 Fair Value Measurement-Overall. Many
of the amendments within this ASU do not require transition and are effective upon issuance. However, some are not effective until fiscal years beginning
after December 15, 2018. The amendments within this ASU are not expected to materially impact the Company's consolidated financial statements or the
related footnote disclosures.
ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement —
This ASU modifies the disclosure requirements on fair value measurements in Topic 820, including the removal, modification to, and addition of certain
disclosure requirements. This ASU will be effective for fiscal years beginning after December 15, 2019 with early adoption permitted. The majority of the
disclosure changes are to be applied on a prospective basis. Although this ASU has a significant impact to the Company’s fair value disclosures, no
additional impact is expected to the Company’s consolidated financial statements.
The Company does not believe that other standards, which have been issued but are not yet effective, will have a significant impact on its financial
statements.
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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, and warrants is not reflected in diluted earnings per share because we incurred net losses for the
years ended December 31, 2018 and 2017, and the effect of including these potential common shares in the net loss per share calculations would be anti-
dilutive, 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
2018
2017
$
$
(19.0) $
(7.4)
26,636,250
(0.71) $
10,424,481
(0.71)
Note 3. Investment in Joint Venture (Investee Losses in Excess of Investment)
Pursuant to the Enfission operating agreement, both partners agreed that 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 Enfission operating agreement provided that the Company and Framatome each hold 50% of the total issued Class A voting membership units of the
joint venture.
The Company's equity in losses in excess of its investment are accounted for under the equity method consisted of the following as of December 31, 2018
(rounded in millions):
Investment Name
Enfission, LLC
Total contributions
Less: Share of the loss in investment in Enfission
Equity losses in excess of investment
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Ownership
Interest
Carrying
Amount
50%
$
$
5.6
(5.8)
(0.2)
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The Company invested approximately $5.6 million in Enfission as of December 31, 2018. The cash balance in Enfission at December 31, 2018 was
approximately $0.7 million. During the year ended December 31, 2018, Enfission incurred a loss of approximately $7.7 million, and accordingly, the
Company recorded its share of the loss in investment in Enfission, in accordance with the provisions in the joint venture operating agreement, of
approximately $5.8 million in the accompanying consolidated statement of operations. The Company’s share of the joint venture losses for the period
ended December 31, 2018 have exceeded its capital contributions by approximately $0.2 million and as a result, in accordance with equity method
accounting, its share of the equity losses in excess of the equity contributions made in 2018 have been recorded as investee loss in excess of investment,
under the current liability section of the accompanying balance sheets.
We were committed to fund Enfission for our share of its liabilities at December 31, 2018. The Company will continue providing additional equity
contributions in 2019 and for the foreseeable future.
Summarized balance sheet information for the Company’s equity method investee Enfission as of December 31, 2018 is presented in the following table
(rounded in millions):
Current assets
Cash
Other current assets
Total assets
Current liabilities
Total liabilities
$
$
$
$
0.7
0.7
1.4
1.9
1.9
Summarized income statement information for the Company’s equity method investee Enfission is presented in the following table for the year ended
December 31, 2018 (rounded in millions):
Net sales and revenue
Research and development costs
Administrative expenses
Total operating loss
Loss from operations
Net loss
$
$
$
$
0.0
6.6
1.1
7.7
7.7
7.7
As of December 31, 2018, the total receivable due from Enfission was approximately $0.1 million, which represents consulting fees Lightbridge charged
to Enfission and reimbursable expenses paid by Lightbridge on Enfission’s behalf (see Note 11. Related Party Transactions). Based on an evaluation of
this equity method investment, we determined that no OTTI has occurred as of December 31, 2018.
Note 4. 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, 2018 and 2017, we capitalized approximately $0.2
million each year, for patent filing costs. The total investment in patents was approximately $1.6 million and $1.4 million as of December 31, 2018 and
2017, respectively.
No amortization expense of patents was recorded in either of the years ended December 31, 2018 and 2017. These patents were not placed in service for
the years ended December 31, 2018 and 2017, or in prior years.
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Note 5. Accounts Payable and Accrued Liabilities
Accounts payable and accrued expenses consisted of the following (rounded in millions):
Trade payables
Accrued expenses and other
Accrued bonuses
Total
Note 6. Commitments and Contingencies
Commitments
Operating Leases
December 31, December 31,
2018
2017
$
$
0.1 $
0.2
0.0
0.3 $
0.3
0.6
0.3
1.2
The Company leases office space for a 12-month term with a monthly rent payment of approximately $15,000 per month for office rent. The term of the
lease extends through December 31, 2019.
The future minimum lease payments required under the non-cancellable operating leases are as follows (rounded in millions):
2019
Total minimum payments required
Employment Agreements
Year ending December 31,
Amount
$
$
0.2
0.2
On August 8, 2018, the Company entered into employment agreements with the Chief Executive Officer, Executive Vice President of Fuel Operations,
and Chief Financial Officer. The employment agreements provide for an initial annual base salary and establish a discretionary target annual bonus of
50% of base salary for each executive with the final amount of any such bonus to be determined by the Compensation Committee of the Board, based on
the achievement of performance goals that are established by the Compensation Committee. Each employment agreement provides that if the executive’s
employment is terminated or not extended by the Company without “cause,” or terminated by the executive for “good reason” (each as defined in the
employment agreement), then, subject to the terms and conditions of the employment agreement, the executive will be entitled to certain severance
payments and benefits.
Contingency
Litigation
A former Chief Financial Officer of the Company filed a complaint against the Company with the US Occupational Safety and Health Administration on
March 9, 2015. This complaint was closed and dismissed by OSHA in January 2018 without any findings against the Company. On March 14, 2018 an
appeal was filed and the Company will vigorously defend this appeal and believes that this appeal hearing will not result in any findings against the
Company. As of December 31, 2018, legal fees of approximately $4,000 were incurred and are expected to be paid in full by the Company’s insurance
carriers.
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Note 7. Research and Development Costs
Lightbridge total corporate research and development costs, included in the caption research and development expenses in the accompanying consolidated
statement of operations amounted to approximately $3.5 million and $2.3 million for the years ended December 31, 2018 and 2017, respectively. See note
11 – Related Party Transactions regarding consulting fees charged to Enfission for research and development expenses incurred by Lightbridge on behalf
of Enfission.
Note 8. Income Taxes
On December 22, 2017, the US enacted the Tax Cuts and Jobs Act (the “Tax Act”), which significantly changed US tax law. The Act lowered the
Company’s US statutory federal income tax rate from 35% to 21% effective January 1, 2018, while also imposing a deemed repatriation tax on previously
deferred foreign income. The Act also created a new minimum tax on certain future foreign earnings. The Act will impact the Company’s income tax
expense (benefit) from continuing operations in future periods (approximate 26% effective combined federal and state corporate tax rate). The Company
has recorded a full valuation allowance on its net deferred tax assets, therefore any impact on the value of the company’s deferred tax assets will be offset
by a change in the valuation allowance.
The 2018 and 2017 annual effective tax rate is estimated to be a combined 26% for the combined US 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, 2018 and 2017, 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 26% effective tax
rate) as of December 31, 2018 and 2017, respectively, are as follows:
Deferred Tax Assets (rounded in millions)
Capitalized start-up costs
Stock-based compensation
Accruals
Net operating loss carry-forward
Research and Development tax credits
Less: valuation allowance
Total
2018
2017
$
$
0.5 $
2.9
0.0
19.7
0.2
(23.3)
— $
0.6
2.2
0.1
16.1
0.0
(19.0)
—
The Company has a net operating loss carry-forward for federal and state tax purposes of approximately $76.6 million at December 31, 2018, that is
potentially available to offset future taxable income. The Act changes the rules on NOL carryforwards. The 20-year limitation was eliminated for losses
incurred after January 1, 2018, 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% of taxable income.
For financial reporting purposes, no deferred tax asset was recognized because at December 31, 2018 and 2017, 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.
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The Company recognized, as a provisional estimate in 2017, a $9.6 million non-cash reduction of its deferred tax assets, with an offsetting reduction in
the valuation allowance, 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 and would not have had such an effect, even if not offset with the valuation allowance.
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. The Company has completed the accounting for the tax effects of
the 2017 Tax Act in 2018 which resulted in no further adjustments to its tax provision positions. The Company files a consolidated tax return with its
subsidiaries. The Company is no longer subject to US federal, state, or non-US income tax examinations by tax authorities for tax years before 2015,
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 US and State statutory tax rates of approximately 26% and the amount recorded in the
accompanying consolidated financial statements is as follows (rounded in millions):
Tax benefit at US federal statutory rates
Tax benefit at state statutory rates
Change in Federal statutory rate
Tax benefit from federal and state R&D tax credits
Other
Increase (decrease) in valuation allowance
Total provision for income tax benefit
Note 9. Stockholders’ Equity and Stock-Based Compensation
December 31, December 31,
2018
2017
$
$
(3.3) $
(0.7)
0.0
(0.2)
0.0
4.2
— $
(2.3)
(0.7)
9.6
0.0
0.4
(7.0)
—
At December 31, 2018, there were 32,862,090 common shares outstanding, and there were also outstanding warrants relating to 844,337 shares of
common stock, stock options relating to 5,604,154 shares of common stock, 813,624 shares of Series A convertible preferred stock convertible into
813,624 shares of common stock (plus accrued dividends of $407,382 relating to an additional 148,403 common shares), and 2,666,667 shares of Series B
convertible preferred stock convertible into 2,666,667 shares of common stock (plus accrued dividends of $262,856, relating to an additional 175,237
common shares), all totaling 43,114,512 shares of common stock and all common stock equivalents, including accrued preferred stock dividends,
outstanding at December 31, 2018.
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At December 31, 2017, there were 12,737,703 common shares outstanding, and there were also outstanding warrants relating to 1,210,905 shares of
common stock, stock options relating to 3,976,884 shares of common stock, and 1,020,000 shares of Series A convertible preferred stock convertible into
1,020,000 shares of common stock (plus accrued dividends of $276,578, relating to an additional 100,753 common shares), all totaling 19,046,245 shares
of common stock and common stock equivalents outstanding at December 31, 2017.
Common Stock Equity Offerings
ATM Offering - 2018
On March 30, 2018, the Company entered into an at-the-market issuance sales agreement (“New ATM”) with B. Riley FBR, Inc. (the “Distribution Agent”),
pursuant to which the Company could issue and sell shares of its common stock from time to time through the Distribution Agent as the Company’s sales
agent. Sales of the Company’s common stock through the Distribution Agent were made by any method that is deemed to be an “at-the-market” equity
offering as defined in Rule 415 promulgated under the Securities Act of 1933, as amended, pursuant to the Company’s effective shelf registration statement
on Form S-3 (File No. 333-223674), the base prospectus filed as part of such registration statement and the prospectus supplement dated March 30, 2018,
which registered the offer and sale of up to $50 million of common stock under the New ATM. Sales under the New ATM that were made during the year
ended December 31, 2018 were sales of 8.7 million shares that totaled gross proceeds of $9.2 million and the remaining balance as of December 31, 2018
were $40.8 million. We have raised an approximate $1.9 million net proceeds from the sale of approximately 3.2 million shares under this prospectus
supplement from January 1, 2019 to March 29, 2019. Effective March 29, 2019, the Company and the Distribution Agent terminated the New ATM
agreement. See Note 12. Subsequent Events — ATM sales and Termination of New ATM Agreement.
On January 24, 2018, January 26, 2018, February 7, 2018, and March 2, 2018, the Company filed prospectus supplements registering an aggregate
amount of approximately $22.6 million under the prior at-the-market (“ATM”) agreement with B. Riley FBR, Inc. The Company received approximately
$28.8 million of net proceeds from its ATM during the year ended December 31, 2018 under these above-mentioned prospectus supplements.
ATM Offering - 2017
On July 12, 2017, the Company entered into an ATM sales agreement with FBR Capital Markets & Co. and MLV & Co. LLC. The Company registered
the sale of approximately $1.6 million under the ATM sales agreement on July 12, 2017 and sold all of such amount in the year ended December 31,
2017, through the issuance of approximately 1.4 million shares.
Preferred Stock Equity Offerings
Series B Preferred Stock - Securities Purchase Agreement
On January 30, 2018, the Company issued 2,666,667 shares of 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 0.25 of a warrant. Dividends accrue on the Series B Preferred Stock
at the rate of 7% per year and will be paid in-kind through an increase in the liquidation preference per share. The liquidation preference, initially $1.50
per share of Series B Preferred Stock, is the base that is also used to determine the number of common shares into which the Series B Preferred Stock will
convert as well as the calculation of the 7% dividend. Each share of Series B Preferred Stock is convertible at the option of the holder into such number of
shares of the Company’s common stock equal to the liquidation preference divided by the conversion price of $1.50 per share subject to adjustments in the
case of stock splits and stock dividends.
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Holders of the Series B Preferred Stock are also entitled to participating dividends whenever dividends in cash securities (other than shares of the
Company’s common stock paid on shares of common stock) or property are paid on common shares or shares of Series A Preferred Stock. The amount of
the dividends will equal the amount to which the holder would be entitled if all shares of Series B Preferred Stock had been converted to common stock
immediately prior to the record date.
The warrants had a per share of common stock exercise price of $1.875. The warrants were exercisable upon issuance and expired six months after
issuance on July 30, 2018. Warrants were also issued to the investment bank who introduced these investors, which were subsequently transferred to the
principal of the investment bank, entitling the holder to purchase 133,432 common shares in the Company at an exercise price of $1.50 per share, up to
and including January 30, 2021. On February 6, 2017 the Company entered into an agreement with this investment bank. The agreement calls for monthly
retainer payments of $15,000, which are credited against any transaction introductory fee earned by the investment bank. This agreement calls for a 7%
transaction introductory fee and warrants equal to 5% of the total transaction amount, at a strike price equal to the offering price for a three-year term.
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.
The accumulated dividend (unpaid) at December 31, 2018 was approximately $0.3 million. The liquidation preference of the Series B Preferred Stock at
December 31, 2018 was approximately $4.3 million, which includes the accumulated dividend.
The Company has the option of forcing the conversion of all or part of the Series B Preferred Stock if at any time the average closing price of the
Company’s common stock for a thirty-trading day period is greater than $5.4902 prior to August 2, 2019 or greater than $8.2353 at any time. The
Company can only exercise this option if it also requires the conversion of the Series A Preferred Stock in the same proportion as it is requiring of the
Series B Preferred Stock.
Of the $4 million proceeds, approximately $0.3 million was allocated to the warrants with the remaining $3.7 million allocated to the Series B Preferred
Stock. The Series B Preferred Stock was initially convertible into 2,666,667 shares of common stock. The average of the high and low market prices of
the common stock on January 30, 2018, the date of the closing of the sale of the preferred stock, was approximately $2.34 per share. At $2.34 per share
the common stock into which the Series B Preferred Stock was initially convertible was valued at approximately $6.2 million. This amount was compared
to the $3.6 million of proceeds allocated to the Series B Preferred Stock to indicate that a BCF of approximately $2.6 million existed at the date of
issuance, which was immediately accreted as a deemed dividend because the conversion rights were immediately effective. This deemed dividend is
included on the statement of operations for the year ended December 31, 2018.
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Additionally, comparison of the $1.50 conversion price of the PIK dividends to the $2.34 commitment date fair value per share indicates that each PIK
dividend will accrete $0.84 of BCF as an additional deemed dividend for every $1.50 of PIK dividend accrued. Total cumulative deemed dividend for this
PIK dividend for the year- ended December 31, 2018 was approximately $0.1 million.
Pursuant to the Securities Purchase Agreement for the Series B Preferred Stock, the Company terminated our stock purchase agreement with Aspire
Capital and this termination resulted in a write-off of our deferred financing costs asset of approximately $1 million.
Series A Preferred Stock - Securities Purchase Agreement
On August 2, 2016, the Company issued 1,020,000 shares of newly created Non-Voting Series A Convertible Preferred Stock (the “Series A Preferred
Stock”) to General International Holdings, Inc. 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 through an increase in the liquidation preference per share. The liquidation preference, initially $2.7451 per
share of Series A Preferred Stock, is the base that is also used to determine the number of common shares into which the Series A Preferred Stock will
convert as well as the calculation of the 7% dividend. Each share of Series A Preferred Stock is convertible at the option of the holder into such number of
shares of the Company’s common stock equal to the liquidation preference divided by the conversion price of $2.7451 per share subject to adjustments in
the case of stock splits and stock dividends.
Holders of the Series A Preferred Stock are also entitled to participating dividends whenever dividends in cash securities (other than shares of the
Company’s common stock) or property are paid on common shares. The amount of the dividends is the amount to which the holder would be entitled if all
shares of Series A Preferred Stock had been converted to common stock immediately prior to the record date.
On September 30, 2018 the holders of the Series A Preferred Shares were issued 729 common shares in payment of the dividend for the month of April
2018. On the same date, the holders of the Series A Preferred Shares converted 95,116 preferred shares into 110,530 common shares. The accumulated
dividend (unpaid) at December 31, 2018 and 2017 was approximately $0.4 million and $0.3 million dollars, respectively. On April 30, 2018, the holders
of the Series A Preferred Shares converted 111,260 preferred shares into 124,882 common shares. The Series A Preferred Shares outstanding at
December 31, 2018 was 813,624 shares with a liquidation preference of approximately $2.6 million.
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.
The Series A Preferred Stock was initially convertible into 1,020,000 shares of common stock. The average of the high and low market prices of the
common stock on August 6, 2016, the date of the closing of the sale of the Series A Preferred Stock, was approximately $3.315 per share. At $3.315 per
share the common stock into which the Series A Preferred Stock was initially convertible was valued at approximately $3.4 million. This amount was
compared to the $2.8 million of proceeds of the Series A Preferred Stock to indicate that a BCF of approximately $0.6 million existed at the date of
issuance in 2016, which was immediately accreted as a deemed dividend because the conversion rights were immediately effective.
Additionally, comparison of the $2.7451 conversion price of the PIK dividends to the $3.315 commitment date fair value per share indicates that each PIK
dividend will accrete $0.5699 of BCF as an additional deemed dividend for every $2.7451 of PIK dividend accrued. The total deemed dividends for this
PIK dividend for the year ended December 31, 2018 was approximately $41,000.
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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, 2018 and 2017 was approximately $2.6 million and $3.1 million, respectively.
Warrants
Outstanding Warrants
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.
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.
Issued to an investment bank and subsequently transferred to a principal of the investment bank regarding the Series
B Preferred Stock investment on January 30, 2018, entitling the holder to purchase 133,432 common shares in the
Company at an exercise price of $1.50 per share, up to and including January 30, 2021.
Total
Stock-based Compensation – Stock Options
2015 Equity Incentive Plan
December 31, December 31,
2018
2017
163,986
163,986
546,919
546,919
—
500,000
133,432
—
844,337
1,210,905
On March 25, 2015, the Compensation Committee and Board of Directors approved the Lightbridge Corporation 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 initially
authorized a total of 600,000 shares to be available for grant under the Plan, of which the amount was increased to 1,400,000 shares in May 2016 and
2,900,000 shares in May 2017. The Company held its 2018 Annual Meeting of Stockholders on May 4, 2018. At that Annual Meeting, the Company’s
stockholders approved an amendment to the Plan to increase the number of shares authorized for issuance thereunder by 3,400,000 shares, resulting in
total shares now available under the Plan to 6,300,000 shares.
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Table of Contents
Total stock options outstanding at December 31, 2018 and 2017, under the 2006 Stock Plan and 2015 Equity Incentive Plan were 5,604,154 and
3,976,884 of which 3,935,138 and 2,434,148 of these options were vested at December 31, 2018 and 2017, respectively.
The components of stock-based compensation expense included in the Company’s consolidated statements of operations for the years ended December
31, 2018 and 2017 are as follows (rounded in thousands):
Research and development expenses
General and administrative expenses
Total stock-based compensation expense
Non-Qualified Stock Option Grants and Short-Term Incentive Stock Options
Year ended
December 31,
2018
965,617 $
1,414,288
2,379,905 $
2017
504,913
688,393
1,193,306
$
$
On August 30, 2017, the Compensation Committee of the Board of Directors granted 31,425 non-qualified stock options with a strike price of $1.08 per
share, 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 in equal
amounts over a three-year period.
On October 26, 2017, the Compensation Committee of the Board of Directors 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 per share, 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.
Long-Term Non-Qualified Option Grants
In August 2018 the Compensation Committee of the Board of Directors granted long-term non-qualified stock options relating to 1,752,791 shares to
employees, consultants, and directors of the Company. These stock options have a strike price of $0.90. Out of this total, approximately 1,540,263 stock
options were issued to employees and consultants. These non-qualified stock options contain service, performance and market conditions of which one
must be achieved in order for the options to vest. The service condition vests one-third annually over a 3-year period with accelerated vesting of these
options occurring upon applicable performance or market conditions being satisfied by certain milestone dates. Accelerated vesting of these option grants
to employees and consultants would occur upon achievement of either of the following performance and market-based milestones:
1.
2.
The Company’s closing stock price is above $3 per share for 10 consecutive trading days by December 31, 2019.
The Company secures at least $5 million of funding from the Department of Energy by June 30, 2019.
The remaining approximately 212,528 stock options were service based options issued to the directors of the Company that vest over a one-year period on
the anniversary date of the grant. All options granted have a 10-year contractual term.
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In accordance with ASC 718, awards with service, market and performance conditions for the employees and consultants were assigned a fair value of
$0.69 per share and the awards with service conditions for the directors of the Company were assigned a fair value of $0.70 per share (total value of $1.2
million). The value was determined 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 years
Closing price per share – common stock
90%
2.84%
0%
9.8 months
0.88
$
The weighted average years remaining of expected life was itself calculated based on a Monte Carlo simulation under which it was assumed that the
options would be exercised, if vested, when the stock reached a price of $4.50, otherwise they would be exercised at expiration, if in the money. The
Company determined that it was not probable that the outcome of the above performance-based milestone (i.e., DOE funding) would be met prior to the
annual vesting dates. In accordance with ASC 718-10-55-104 the Company then based the amortization period for the compensation expense on the
shorter of the explicit service periods or the “derived service period” based solely on the market condition.
On October 26, 2017 the Compensation Committee of the Board of Directors 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, as discussed 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; or
The Company secures at least a $2 million investment from a commercial nuclear industry entity other than Framatome by December 31,
2019.
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.
The remaining 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 per share, which was the closing price of the Company’s stock on October 26, 2017. All options granted
have a 10-year contractual term.
In May 2018, shareholder approval was received on contingent grants and approximately 0.7 million of such long-term non-qualified stock options were
issued under the 2015 Equity Stock Plan.
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Table of Contents
Stock option transactions of the employees, directors, and consultants are summarized as follows for the year ended December 31, 2018:
Beginning of the year
Granted
Exercised
Forfeited
Expired
End of the year
Options exercisable
Options
Outstanding
3,976,884 $
1,784,455
(143,980)
(13,205)
5,604,154 $
3,935,138 $
Weighted
Average
Exercise
Price
Weighted
Average
Grant Date
Fair Value
3.58 $
0.90
1.10
30.60
2.72 $
3.50 $
2.49
0.70
0.83
21.13
1.96
2.49
Stock option transactions of 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 $
2,434,148 $
Weighted
Average
Exercise
Price
Weighted
Average
Grant Date
Fair Value
6.70 $
1.05
—
—
45.53
3.58 $
4.84 $
4.83
0.77
—
—
38.70
2.49
3.36
A summary of the status of the Company’s non-vested options as of December 31, 2018 and 2017, and changes during the years ended December 31,
2018 and 2017, is presented below:
Non-vested – December 31, 2016
Granted
Vested
Forfeited
Non-vested – December 31, 2017
Granted
Vested
Forfeited
Non-vested – December 31, 2018
450,476 $
1,854,277
(762,017)
—
1,542,736 $
1,784,455
(1,514,195) $
(143,980)
1,669,016 $
Weighted-
Average Fair
Value
Grant Date
Shares
Weighted
Average
Exercise Price
5.40
1.05
2.54
—
1.58
3.60 $
0.77
1.67
—
1.10 $
0.70
1.27 $
0.83
0.54 $
0.90
1.58
1.10
0.91
i)
ii)
A total of 101,351 non-qualified 10-year options have been issued, and are outstanding, to advisory board members at exercise prices of $1.05 to
$28.05 per share.
A total of 5,016,846 incentive stock options and non-qualified 5-10-year options have been issued, and are outstanding, to the directors, officers, and
employees at exercise prices of $0.9 to $43.25 per share. From this total, 1,409,248 options are outstanding to the Chief Executive Officer, who is
also a director, with remaining contractual lives of 0.3 years to 9.6 years. All other options issued to directors, officers, and employees have a
remaining contractual life ranging from 0.3 years to 9.6 years.
iii) A total of 485,957 non-qualified 3-10-year options have been issued, and are outstanding, to consultants at exercise prices of $0.9 to $43.25 per
share.
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Table of Contents
As of December 31, 2018, there was approximately $0.8 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 approximately 0.54 years. For stock
options outstanding at December 31, 2018, the intrinsic value was approximately $0. For stock options outstanding at December 31, 2017, the intrinsic
value was approximately $0.3 million.
The following table provides certain information with respect to the above-referenced stock options that were outstanding and exercisable at December
31, 2018:
Stock Options Outstanding
Stock Options Vested
Weighted
Weighted
Exercise Prices
$
$
$
$
$
0.90-$1.04
1.05-$2.00
2.01-$6.00
6.01-$20.00
20.01-$43.25
Total
Average
Remaining
Contractual
Life
-Years
Average
Number
of
Awards
Weighted
Average
Exercise
Price
Remaining
Contractual
Life
-Years
Number
of
Awards
Weighted
Average
Exercise
Price
9.60
8.57
6.86
4.16
0.72
8.07
1,616,402 $
2,560,330 $
813,583 $
501,334 $
112,505 $
5,604,154 $
0.90
1.18
4.59
7.48
29.46
2.72
—
8.56
6.86
4.16
0.72
7.42
0 $
2,507,716 $
813,583 $
501,334 $
112,505 $
3,935,138 $
—
1.18
4.59
7.48
29.46
3.50
The following table provides certain information with respect to the above-referenced stock options that were outstanding and exercisable at December
31, 2017:
Stock Options Outstanding
Stock Options Vested
Exercise Prices
$
$
$
$
$
1.05-$2.00
2.01-$6.00
6.01-$20.00
20.01-$45.00
45.01-$72.00
Total
Weighted
Average
Remaining
Contractual
Life
-Years
9.56
7.86
5.12
1.66
0.18
8.40
Number
of
Awards
Weighted
Average
Exercise
Price
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
Weighted
Average
Remaining
Contractual
Life
-Years
9.28
7.86
4.93
1.66
0.18
7.70
Number
of
Awards
Weighted
Average
Exercise
Price
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
Weighted average assumptions used in the Black Scholes option-pricing model for the years ended December 31, 2018 and 2017, were as follows:
Average risk-free interest rate
Average expected life- years
Expected volatility
Expected dividends
77
Year ended
December
31,
2018
Year ended
December
31,
2017
2.79%
6.0
90.11%
0.0%
2.15%
5.67
87.24%
0.0%
Table of Contents
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
Note 10. Business Segment Results
87.5% to 91%
2.24% to
2.42
0%
4.2 years
1.05
$
In the year ended December 31, 2017, the Company had two principal business segments, (1) the technology business and (2) the 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 of the
Company, in deciding how to allocate resources and in assessing performance. The Chief Executive Officer and Chief Financial Officer have been
identified as the chief operating decision makers. The 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. Corporate expenses pertain to certain costs that are not allocated to the
reportable segments, primarily consisting of unallocated corporate overhead costs, including administrative functions.
As of January 1, 2018, the Company no longer had a consulting business segment and there was no consulting income for the year ended December 31,
2018 as the Company focused its efforts on the technology business segment and commercialization of the metallic nuclear fuel. Because of this for the
year ended December 31, 2018, the Company had only one business segment, the technology business, and therefore is not required to report its financial
results on a business segment basis.
The business segment results for the year ended December 31, 2017 was as follows:
Revenue
Segment profit (loss) - pre-tax
Total assets
Interest expense
78
Consulting Technology
$
$
$
$
175,446 $
(78,513) $
10,400 $
— $
— $
(2,282,938) $
1,367,692 $
— $
Corporate
and
Eliminations
Total
— $
(4,743,446) $
5,567,901 $
16,095 $
175,446
(7,104,897)
6,945,993
16,095
Table of Contents
Note 11. Related Party Transactions
The Company invested approximately $5.6 million in Enfission from Enfission’s date of inception on January 24, 2018 to December 31, 2018. The
Company entered into a management and administrative services agreement with Enfission on January 25, 2018 whereby the Company provides four of
its personnel to Enfission, at a rate of $100,000 per person per year, for a total charge to Enfission of $400,000 in 2018. This $400,000 amount charged to
Enfission was recorded as a $200,000 reduction of general and administrative expenses and a $200,000 reduction of research and development expenses.
The Company also provided research and development consulting services and management services to Enfission. The total consulting services was $1.1
million for the year ended December 31, 2018, recorded under the caption “Other income from joint venture” in the accompanying consolidated
statement of operations. As of December 31, 2018, the total receivable due from Enfission was approximately $0.1 million, which represents consulting
fees Lightbridge charged to Enfission and reimbursable expenses paid by Lightbridge on Enfission’s behalf.
Note 12. Subsequent Events
Investment in Enfission
In January 2019, the Company invested $1.4 million in Enfission as an additional equity contribution.
ATM sales and Termination of New ATM agreement
Sales under the ATM that were made from January 1, 2019 to March 29, 2019 were approximately 3.2 million shares that totaled net proceeds of
approximately $1.9 million. Effective March 29, 2019, the Company and the Distribution Agent terminated the New ATM agreement.
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Table of Contents
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 29, 2019
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 Larry
Goldman, 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 29, 2019.
Signature
/s/ Seth Grae
Seth Grae
Title
Chief Executive Officer, President and Director
(Principal Executive Officer)
/s/ Larry Goldman
Larry Goldman
/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
Chief Financial Officer, and Treasurer
(Principal Financial and Accounting Officer)
Director
Director
Director
Director
80
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. 333-223674 and No. 333-187659) and Form S-8
(No. 333-229138, No. 333-218796 and No. 333-135842) of Lightbridge Corporation of our report dated March 29, 2019, relating to the consolidated
financial statements, which appears in this Form 10-K.
/s/ BDO USA, LLP
Philadelphia, Pennsylvania
March 29, 2019
Consent of Independent Registered Public Accounting Firm
EXHIBIT 23.2
Lightbridge Corporation
Reston, Virginia
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-223674 and No. 333-187659) and Form S-8
(No. 333-229138, No. 333-218796 and No. 333-135842) of Lightbridge Corporation of our report dated March 29, 2019, relating to the financial
statements of Enfission, LLC, which is included in this Form 10-K. Our report contains an explanatory paragraph regarding the Company’s ability to
continue as a going concern.
/s/ BDO USA, LLP
Philadelphia, Pennsylvania
March 29, 2019
I, Seth Grae, certify that:
Certification of Principal Executive Officer
EXHIBIT 31.1
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 29, 2019
By: /s/ Seth Grae
Seth Grae
Principal Executive Officer
I, Larry Goldman, certify that:
Certification of Principal Financial Officer
EXHIBIT 31.2
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 29, 2019
By: /s/ Larry Goldman
Larry Goldman
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 knowledge on the date hereof:
1.
2.
the Annual Report on Form 10-K of Lightbridge Corporation for the year ended December 31, 2018, 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 29, 2019
/s/ Seth Grae
By:
Name: Seth Grae
Title: President, Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Larry Goldman
By:
Name: Larry Goldman
Title: Chief Financial Officer
(Principal Financial and Accounting Officer)
EXHIBIT 99.1
ENFISSION, LLC
FINANCIAL STATEMENTS
As of December 31, 2018 and for the Period from
Inception (January 24, 2018) to December 31, 2018
And Report of Independent Auditor
ENFISSION, LLC
TABLE OF CONTENTS
REPORT OF INDEPENDENT AUDITOR
FINANCIAL STATEMENTS
Balance Sheet
Statement of Operations
Statement of Changes in Members’ Equity
Statement of Cash Flows
1
2
3
4
5
Notes to the Financial Statements
6-9
Report of Independent Registered Public Accounting Firm
Members and Board of Directors
Enfission, LLC
Reston, Virginia
Opinion on the Financial Statements
We have audited the accompanying balance sheet of Enfission, LLC (the “Company”) as of December 31, 2018, the related statements of operations,
changes in members’ deficit, and cash flows for the period from January 24, 2018 (date of inception) to December 31, 2018, and the related notes
(collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position
of the Company at December 31, 2018, and the results of its operations and cash flows for the period from January 24, 2018 (date of inception) to
December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.
Going Concern Uncertainty
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has incurred losses and negative cash flows from operations since inception and has a net capital deficiency that raise
substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The
financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audit. 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 audit 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 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 audit 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 audit included performing procedures to assess the risks of material misstatement of the 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 financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ BDO USA, LLP
We have served as the Company's auditor since 2018.
Philadelphia, Pennsylvania
March 29, 2019
BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of
independent member firms.
BDO is the brand name for the BDO network and for each of the BDO Member Firms.
1
Table of Contents
ENFISSION, LLC
BALANCE SHEET
DECEMBER 31, 2018
ASSETS
Current Assets:
Cash
Capital contributions due from member
Total Assets
LIABILITIES AND MEMBERS' DEFICIT
Current Liabilities:
Accrued expenses
Amounts due to related parties
Total Current Liabilities
Total Liabilities
Commitments and contingencies
Members' Deficit
Total Liabilities and Members' Deficit
The accompanying notes to the financial statements are an integral part of this statement.
$
$
$
674,496
770,700
1,445,196
8,914
1,872,809
1,881,723
1,881,723
(436,527)
$
1,445,196
2
Table of Contents
ENFISSION, LLC
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JANUARY 24, 2018 (DATE OF INCEPTION) TO DECEMBER 31, 2018
Revenues
Operating Expenses:
Research and development - related parties
Management and administrative fees - related parties
Professional fees
Marketing and advertising
Travel
Miscellaneous
Total Operating Expenses
Net loss
The accompanying notes to the financial statements are an integral part of this statement.
$
-
6,607,500
800,000
146,740
83,293
40,265
13,429
7,691,227
$
(7,691,227)
3
Table of Contents
ENFISSION, LLC
STATEMENT OF CHANGES IN MEMBERS' DEFICIT
FOR THE PERIOD FROM JANUARY 24, 2018 (DATE OF INCEPTION) TO DECEMBER 31, 2018
Units issued at inception
Member capital contributions
Net loss
December 31, 2018
Class A Member Units
Additional
Total
Units
Amount
Paid-in
Capital
Accumulated Members'
Deficit
Deficit
2,000 $
-
-
20,000 $
-
-
- $
7,234,700
-
- $
-
(7,691,227)
20,000
7,234,700
(7,691,227)
2,000 $
20,000 $
7,234,700 $
(7,691,227) $
(436,527)
The accompanying notes to the financial statements are an integral part of this statement.
4
Table of Contents
ENFISSION, LLC
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 24, 2018 (DATE OF INCEPTION) TO DECEMBER 31, 2018
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Increase in accrued expenses
Increase in amounts due to related parties
Net cash used in operating activities
Cash flows from financing activities:
Contributions from members
Net cash provided by financing activities
Net increase in cash
Cash at beginning of period
Cash at end of period
Supplemental disclosure of noncash financing activities:
Capital contributions due from member
The accompanying notes to the financial statements are an integral part of this statement.
$
(7,691,227)
8,914
1,872,809
(5,809,504)
6,484,000
6,484,000
674,496
-
674,496
770,700
5
$
$
Table of Contents
ENFISSION, LLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 24, 2018 (DATE OF INCEPTION) TO DECEMBER 31, 2018
Note 1—Nature of operations and summary of significant accounting policies
Nature of Operations and Operating Agreement – Enfission, LLC (the “Company”) is a Delaware limited liability company, formed as a 50-50 joint
venture arrangement by Framatome Inc., a subsidiary of Framatome S.A.S. (collectively “Framatome”) and Lightbridge Corporation (“Lightbridge”) in
January 2018 to design, develop and market certain nuclear fuel assembly technology (the “fuel assembly technology”) worldwide.
The Company is governed by its Operating Agreement (the “Agreement”), dated January 25, 2018 and as amended from time to time, which provides for
management of the Company through a Board of Directors comprised of six directors. Each of Framatome and Lightbridge have the right to appoint three
directors to the Board. The Agreement provides for both voting and nonvoting membership units, with Class A being voting units and Class B being
nonvoting units. Framatome and Lightbridge (the “Initial Members”) each made initial capital contributions of $10,000 in exchange for 1,000 Class A
membership units. The Company has no other membership units or class of membership units outstanding at December 31, 2018.
In addition to the initial capital contributions described above, The Board of Directors has the right to call for additional capital contributions from all or a
portion of the members, subject to the written consent of two-thirds of the Class A members. The liability of the members of the Company is limited to the
members’ total capital contributions, including any capital contributions a member has committed to make under the Agreement. Per the Agreement and
to the fullest extent permitted by Delaware law, no member is liable personally for the debts, obligations, or liabilities of the Company unless such
liability is expressly assumed by the member in a separate written agreement signed by the member.
In accordance with the Agreement, any distributions to the members, including tax distributions shall be made pro rata in accordance with the members’
respective ownership interest. The losses and profits of the Company are generally allocated to the Initial Members as follows:
a) First allocated to cause the capital accounts, as defined by the Agreement, of the Initial Members to be equal; then
b)
allocated to the Initial Members 50-50; then
c)
allocated among the members pro rata based on their ownership interest.
The Company is an early stage company currently conducting research and development activities to operationalize and commercialize its fuel assembly
technology. The Company’s activities are currently being funded solely through capital contributions from its members. The Company’s activities are
subject to significant risks and uncertainties, including failing to secure long-term future funding to support the research and development activities
required to complete the development of the fuel assembly technology to the point it is commercially viable. Furthermore, the success of the Company’s
activities and future operations are subject to numerous contingencies including general economic conditions, political uncertainty, competition, changes
in regulations, and the Company’s inability to achieve its overall long-term goals.
Basis of Accounting – The financial statements of the Company are prepared on the accrual basis of accounting in accordance with accounting principles
generally accepted in the United States of America (“GAAP”).
Estimates – The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial statements as well as amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
6
Table of Contents
ENFISSION, LLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 24, 2018 (DATE OF INCEPTION) TO DECEMBER 31, 2018
Note 1—Nature of operations and summary of significant accounting policies (continued)
Cash Equivalents – For purposes of the statement of cash flows, the Company considers all highly liquid instruments purchased with original maturities of
three months or less to be cash equivalents. The Company had no such instruments as of December 31, 2018.
Income Taxes – The Company is a pass-through entity for federal income tax purposes, and thus no provision or liability for federal or state income taxes
has been recorded in the financial statements. Earnings or losses of the Company are taxed to the members in their respective income tax returns.
Research and Development – Research, development, and related expenses are charged to operations in the period incurred and are shown as a separate
line item on the accompanying statement of operations.
Advertising – Advertising costs are expensed as incurred. Advertising expense was $83,293 for period January 24, 2018 (date of inception) to December
31, 2018.
Note 2—Going concern
The Company follows the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 205-40, Going Concern. This
guidance requires an entity to disclose certain information about an entity’s ability to continue as a going concern and to provide related disclosures in
certain circumstances. The following information reflects the results of management’s assessment, plans, and conclusion of the Company’s ability to
continue as a going concern.
The Company has incurred losses and negative cash flows from operations since inception due to the fact that it is a development stage 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. The Company is currently funding its research and development activities and general and administrative expenses
through capital contributions from its members. There can be no assurance as to the availability of additional capital. The Company’s future liquidity
needs, and ability to address those needs, will largely be determined by the success of the development of the fuel assembly technology, key nuclear
development and regulatory events, and its business decisions in the future.
The Company expects to increase research and development activity and related spending. For 2019, the Company has budgeted to spend approximately
$11,000,000 on research and development, including capital expenditures for equipment. The Company expects its general and administrative expenses to
total approximately $1,100,000 which includes management and administrative service fees of $800,000 charged by the Company’s members pursuant to
the Services Agreement more fully described in Note 5. The Company plans to continue to fund these activities through additional capital contributions
from its members.
Currently, the ability of the Company to continue as a going concern is dependent upon its Initial Members providing additional capital contributions and
there can be no assurance that the Initial Members will continue to do so. As a result, management of the Company has concluded that this uncertainty
casts substantial doubt upon the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments
that might be necessary should the Company be unable to continue as a going concern.
7
Table of Contents
ENFISSION, LLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 24, 2018 (DATE OF INCEPTION) TO DECEMBER 31, 2018
Note 3—Cash balances
The Company places its cash on deposit with a financial institution in the United States. The Federal Deposit Insurance Company (“FDIC”) covers
$250,000 for substantially all depository accounts. During the period, the Company from time to time may have had amounts on deposit in excess of the
insured limits. As of December 31, 2018, the Company had $424,496 on deposit in excess of these insured limits. The Company has not experienced
significant losses in such accounts and does not believe it is exposed to any significant risk as cash is held by a prominent financial institution.
Note 4—Income taxes
The Company is treated as a pass-through entity for federal and state income tax purposes. Consequently, federal and state income taxes are not payable,
or provided for, by the Company. Members are taxed individually on their share of the Company’s earnings or losses. The Company’s net loss is allocated
among the members in accordance with the Operating Agreement of the Company.
Management has evaluated the effect of the guidance provided in FASB ASC 740, Income Taxes. Management has evaluated all tax positions that could
have a significant effect on the financial statements and determined the Company had no uncertainty in income tax positions at December 31, 2018.
Note 5—Related-party transactions
The Company is party to an R&D Services Agreement (the “R&D Agreement”) with its members, Framatome and Lightbridge, whereby Framatome and
Lightbridge provide substantially all research and development services to the Company. The R&D Agreement was effective November 14, 2017 and has
an initial term of five which will automatically renew for an additional five years unless a notice of non-renewal is submitted by one of the parties at least
six months prior to the expiration of the initial term. Research and development expenses incurred by the Company pursuant to the R&D Agreements
amounted to $5,532,654 and $1,074,846 from Framatome and Lightbridge, respectively for the period January 24, 2018 (date of inception) to December
31, 2018. In addition, the liabilities of the Company include $1,779,556 and $93,253 due to Framatome and Lightbridge, respectively, for research and
development expenses and are reported within amounts due to related parties on the accompanying balance sheet.
The Company entered into a management and administrative services agreement (the “Services Agreement”) with its members, Framatome and
Lightbridge, on January 24, 2018 whereby the members have agreed to provide certain management and administrative services to the Company. The
Services Agreement has a term of two years unless earlier terminated by the Company’s Board of Directors. During the period ended December 31, 2018,
the Company paid $400,000 to each of the members for services provided under the Services Agreement. These amounts are included in management and
administrative fees in the accompanying statement of operations.
In addition to preceding, the Company along with its Initial Members are party to certain other agreements which have been established in connection
with the formation of the Company, as follows:
·
Co-Ownership Agreement (the “COA”) – The COA governs the co-ownership between Framatome and Lightbridge of certain foreground
intellectual property developed by and between Framatome and Lightbridge, with one another and though the Company. The COA will
survive the life of the Company. The COA is limited to a domain consisting of the metallic fuel developed by Enfission for certain types of
nuclear reactors.
8
Table of Contents
ENFISSION, LLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 24, 2018 (DATE OF INCEPTION) TO DECEMBER 31, 2018
Note 5—Related-party transactions (continued)
·
Intellectual Property Annex (the “IP Annex”) – The IP Annex is a higher-level reference document included as part of the Company’s
Agreement and summarizes the parties’ understanding regarding intellectual property matters. The IP Annex will remain in force only so long
as the Company remains in existence.
During the period from January 24, 2018 (date of inception) to December 31, 2018, the Company reimbursed Lightbridge $146,242 for certain general
and administrative expenses that are included in the accompanying statement of operations under the following captions:
Description
Professional fees
Marketing and advertising
Travel
Miscellaneous
Note 6—Regulatory environment
Amount
87,025
7,395
40,265
11,557
146,242
$
$
In the ordinary course of research and development activities, the Company is subject to various laws and regulations. As of the date of these financial
statements, in the opinion of our management, compliance with existing laws and regulations is not expected to materially affect the Company’s financial
position, results of operations or cash flows.
Note 7—Subsequent events
The capital contributions due from one of the Company’s members as of December 31, 2018 in the amount of $770,700 was received in full in January
2019. Furthermore, in January 2019, Framatome and Lightbridge made additional capital contributions to the Company in the amounts of $399,300 and
$1,440,000, respectively.
Management has evaluated subsequent events through March 29, 2019, which is the date the financial statements were available to be issued. No other
transactions requiring disclosure have occurred through this date.
9