LIGHTBRIDGE Corp 10-K

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 Part II. Item 8. Financial Statements and Supplementary Data , of this report. This discussion contains forward-looking statements that are based on our management’s current expectations, estimates, and projections for our business, which are subject to a number of risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those set forth under “Forward-Looking Statements” and Part I. Item 1A. Risk Factors . This MD&A consists of the following sections: 50 Table of Contents · Overview of Our Business and Recent Developments — a general overview of our business and updates; · 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 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. · Critical Accounting Policies, and Estimates — a discussion of accounting policies that require critical judgments and estimates; Overview of Our Business and Recent Developments Our Business Financial information is included in Part II. Item 8. Financial Statements and Supplementary Data , of this Annual Report on Form 10-K. Our Company’s goal is to impact in a meaningful way the world’s climate and energy problems. We are developing and plan to 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 an early-stage technology company in the product development phase and are pre-revenue. Our ongoing operations are currently being financed primarily by raising new equity capital. The U.S. Department of Energy (DOE), Office of Nuclear Energy has established the Gateway for Accelerated Innovation in Nuclear (GAIN) program to provide the nuclear community with access to the technical, regulatory, and financial support necessary to move new or advanced nuclear technologies toward commercialization, while ensuring the continued safe, reliable, and economic operation of the existing nuclear reactor fleet. We were awarded a GAIN voucher in 2019 for the experiment design for irradiation of material samples of Lightbridge metallic fuel in the Advanced Test Reactor (ATR) at Idaho National Laboratory (INL). On April 22, 2020, we entered into a Cooperative Research and Development Agreement (CRADA) with Battelle Energy Alliance, LLC (BEA), the DOE’s operating contractor at INL (see Recent Developments section below). The project commenced in the second quarter of 2020 and was originally expected to be completed in the second quarter of 2021. However, because of project staffing issues at INL related to the laboratory’s COVID-19 restrictions and U.S. export control matters, the project is currently expected to be completed by the end of the third quarter of 2021. Our metallic fuel can be used in different types of water-cooled commercial power reactors, such as pressurized water reactors (PWRs), boiling water reactors (BWRs), Russian designed water-water energetic reactors (VVERs), CANDU heavy water reactors, water-cooled small modular reactors (SMRs), as well as water-cooled research reactors. We have obtained patent validation in key countries and will continue to seek patent validation in countries that either currently operate or are expected to build and operate a large number of nuclear power reactors compatible with our fuel technology. 51 Table of Contents We currently expect to invest a total of $1.0 million to $1.5 million in the research and development of our nuclear fuel over the next 12 to 15 months. We have incurred net losses and negative cash flows from operations and expect this to continue for the foreseeable future. In 2021, we will continue to evaluate spending to reduce expenses with the overall goal of commercializing our fuel with the lowest R&D cost, in order to maximize our shareholders’ value. Our only source of funding in 2020 was our at-the-market (ATM) financing arrangement with Stifel, Nicolaus & Company. We are not currently utilizing this ATM facility but the ATM facility is expected to be a significant source of working capital for the Company sometime later in 2021. There is no assurance that an ATM financing arrangement will be available to us in the future. Please see Note 10. Stockholders’ Equity and Stock-Based Compensation of the Notes to the Consolidated 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 ATM and prior financings. Fuel Development Strategy Lightbridge originally focused on existing U.S. PWRs because they represented a large market segment for which Lightbridge Fuel™ could provide significant economic and safety benefits through a power uprate up to 10% along with an operating cycle extension from 18 to 24 months or a power uprate of 17% without extending the cycle length. However, with technological advances towards SMRs, the escalating costs associated with new build reactors, along with the need to operate these large reactors at a constant 24/7 pace to approach profitability, we estimate that these older types of large reactors will decrease in utilization going forward. In fact, we expect the net worldwide growth in the number of large reactors between now and 2050 to be fewer than 200, compared with the approximately 440 operable reactors worldwide. Emerging nuclear technologies that many in the industry believe have the potential to generate massive amounts of power include the SMRs now in the development and licensing phase. We expect that Lightbridge Fuel™ may provide SMRs all the benefits our technology brings to large reactors, but the benefits may be more meaningful to the economic case for deploying SMRs. Lightbridge Fuel™ is expected to generate more power in SMRs than traditional nuclear fuels, which will help decarbonize sectors that are now powered by electricity. We also plan to explore using Lightbridge Fuel™ in new SMRs to produce hydrogen for liquid non-carbon fuels for use in other, hard-to-decarbonize sectors such as aviation and shipping. Our ongoing research and development (R&D) initiatives are entirely compatible with Lightbridge Fuel™ powering SMRs for multiple purposes. We believe we are seeing an overall shift in focus by government and the private sector from large PWRs to SMRs and other advanced reactor technologies. As a result, we intend to increase our focus on opportunities that are likely to attract financing, both currently and in the future. The first SMRs that could use our fuel are expected to begin operations in 2029. Our fuel development strategy, which focuses on SMRs, includes several major development activities or key steps. In certain cases, it may be possible to conduct development work relating to multiple key steps in parallel, resulting in some overlap in timelines between two or more such major development activities. For example, the core of an SMR can serve as a testbed for Lightbridge Fuel™, without the necessity of new test loops in the ATR, as discussed below. Additional government funding expected to be directed towards the development of SMRs has the potential to reduce the amount of funding Lightbridge would need to raise on its own for its fuel development efforts. We anticipate that the improved competitive position of Lightbridge Fuel™ versus Accident Tolerant Fuels (ATF) in the SMR market segment, with government support, would generate sustainable economic benefits, including the 30% power uprates achieved with Lightbridge Fuel™. 52 Table of Contents For a typical power system, base load power is usually about 35-40 percent of the maximum load during the year. Demand spikes are handled by intermediate and then peak power plants. Base load power plants include coal and nuclear facilities due to low fuel costs and steady power production. In some regions, geothermal and hydro can also be used as base load power. Intermediate plants include natural gas, and some peak plants run on light oil. We see the push for clean energy, particularly renewables, changing this structure fairly rapidly. The existing plant structure is being replaced by wind and solar power backed up by other power, usually natural gas, when the sun is not shining or the wind is not blowing. To replace the carbon-emitting natural gas plants with something non-emitting and economical, to balance with renewables, is one of the greatest challenges in decarbonizing the energy supply. We are designing Lightbridge Fuel™ for use in SMRs to combine with renewables globally to decarbonize the energy supply, with SMRs providing base load power with high interoperability with intermittent renewables. We believe that a 30% power uprate from Lightbridge Fuel™ will uniquely provide a lower levelized cost of electricity and a faster ramp rate than uranium dioxide fuel (including ATF) and will allow SMRs to replace natural gas plants to balance with renewables. We believe Lightbridge Fuel™ in SMRs will align with the energy and climate strategy of the U.S. and other governments. We do not expect that economical grid-level battery storage or large-scale carbon capture will be available at large enough scale to help with climate change. We believe that large-scale SMR production in factories and shipyards can meet a significant portion of the global energy supply. The world is currently on a path towards having most of its energy in 2050 produced by fossil fuels without carbon capture. We believe our fuel in SMRs combined with renewables on the grid can change that future energy mix. Below is a brief description of each key fuel development step leading up to a lead test assembly (LTA) operation in an SMR. a. Fuel Fabrication Development of the fabrication processes for Lightbridge Fuel is expected to be performed utilizing existing facilities and equipment within the DOE national laboratory complex. Discussions have begun with the INL and Pacific Northwest National Laboratory to perform the process development activities and establish the capability to manufacture development quantities of fuel rods for loop irradiation testing, and possibly a limited lead test assembly. These discussions are currently on-going. Fabrication of multiple LTAs and batch reload quantities of fuel will require a dedicated pilot-scale fuel fabrication facility. We estimate the major scopes of work to establish a manufacturing capability for LTAs would take 5 years to complete, with batch reload capability achieved within 8 years from the start of pilot-scale fuel fabrication facility design and construction work. These estimates assume sufficient funding availability and that the project receives prioritization by the DOE. b. Nuclear Material/Coupon Sample Irradiation Test Lightbridge’s irradiation testing program includes coupon irradiation of material samples of its uranium-zirconium fuel alloy which will allow characterization of the underlying thermophysical behavior of the fuel alloy. The design of this program is currently underway, and it is expected to yield results in approximately four years. The data obtained from this program will be a fundamental component of Lightbridge’s accelerated fuel qualification approach described below as it will be used to inform and develop the physics-based models and simulations of the fuel rod behaviors. c. Loop Irradiation Testing The purpose of the loop irradiation testing of Lightbridge’s metallic fuel rod is to demonstrate the performance and behavior of the fuel rod under prototypic commercial reactor operating conditions typical of PWRs at a power level and burnup accumulation higher than the fuel would experience in normal operation in a commercial power plant. This will provide a physical demonstration of the capabilities of the fuel rod in order to ensure reactor safety. Such a test is expected to provide information of sufficient detail to validate the performance of individual fuel rods such that their behavior in normal operating conditions of a regulated nuclear power plant would be sufficiently well understood to request a license amendment from the U.S. Nuclear Regulatory Commission (US-NRC) for operation of a lead test assembly. 53 Table of Contents Execution of such a loop irradiation test is expected to be performed in the ATR at INL. The ATR currently has limited irradiation loop test facilities and the performance of the above-mentioned test for Lightbridge fuel would require installation of a new test loop with increased heat removal capability to enable the desired test conditions. Preliminary discussions with INL personnel have indicated that installation of such a loop would take approximately three years (one year for design and safety evaluation and two years for installation and startup). We assume an additional year of time is required, making the loop available in four years. The performance of the irradiation test is expected to take three years of in-reactor time plus an additional one year for post-irradiation examination (PIE), wherein analysis of the fuel rod performance and behavior is performed. These estimates result in a total time for completion of the loop irradiation test of 7-8 years. d. Preparation for Lead Test Assembly Operation Insertion of an LTA with Lightbridge’s fuel rods in a nuclear power plant requires the power plant owner to obtain approval from the US-NRC based on a safety evaluation and justification that the LTA will not be detrimental to the plant’s licensed operations. This justification must address numerous technical areas (e.g. nuclear design, mechanical design, thermal hydraulic design, materials science, reactor operations, etc.) and include considerations of the performance of the LTA itself as well as its interaction with other fuel assemblies in the reactor core which may be impacted by the presence of the LTA. The safety evaluation must result in confirmation that the plant’s ability to ensure plant worker and public safety is not compromised due to the operation of the LTA. This safety justification will require cooperation between Lightbridge, the original fuel manufacturer, and the power plant owner. With historical approaches, the development and qualification of a nuclear fuel system can take 20-30 years as the approach has been driven largely by a cycle of physical testing and design changes based on the results of those physical tests. Computer modeling and simulation has increasingly been used in support of fuel qualification efforts, but the cyclical approach continues to be the default methodology. In order to shorten the timeframe for fuel qualification, advanced nuclear fuel developers are now taking an approach that leverages significant improvements in computational capability in a methodology referred to as Accelerated Fuel Qualification (AFQ). The AFQ approach combines physics-informed modeling and simulation coupled with targeted physical testing such that the overall fuel qualification effort is reduced in terms of cost and time, with a goal of fuel qualification taking 10-15 years. Lightbridge intends to leverage the AFQ methodology to qualify its advanced fuels. Along with leveraging the AFQ approach, Lightbridge’s U-Zr fuel technology has the benefits of being previously demonstrated in operating icebreaker reactors and several aspects of the performance of the fuel have been demonstrated. This enables Lightbridge to begin designing an LTA, and developing the necessary computer models of the fuel behavior, prior to obtaining the results of the loop irradiation testing of the fuel rod. Along with the irradiation testing and computer simulations, some physical testing of the fuel assembly design will be required. Lightbridge anticipates that such ‘out-of-pile’ testing to justify the LTA performance will take no more than four years. 54 Table of Contents It is expected that the LTA design effort, development of computer modeling and simulation capabilities, and performance of the LTA safety justification will take 8 years. The US-NRC review and approval of the license amendment for LTA insertion is expected to require two years after the license amendment is submitted. Based on these activities and time estimates, Lightbridge expects to have an LTA of its fuel ready for insertion in a commercial reactor in the early 2030s. The above fuel development strategy is based on the following key assumptions: · Funding requirements are always met with U.S. government providing most of the necessary fuel development costs; · Time estimates for irradiation loop design and construction at ATR can be achieved by the national laboratory complex; · Partnership with nuclear power plant and fuel manufacturer for LTA demonstration purposes is achieved in a timely manner and does not delay the assumed start of work; · Accelerated fuel qualification methodology developed for Lightbridge Fuel™ is accepted by the US-NRC as sufficient for the safety justification of the LTAs; · Execution of out-of-reactor fuel development activities can be performed in parallel with LTA design; · Facilities and personnel for completion of the fuel development work are available when necessary and do not delay the execution of; · By implementation of accelerated burn-up techniques, the irradiation loop at ATR is capable of 50% reduction in irradiation time compared to operating commercial reactor fuel cycle; and · The pilot fabrication facility will be capable of manufacturing up to one batch reload per year. Recent Developments GAIN Voucher On December 20, 2019 we announced an award voucher from the DOE’s GAIN program to support development of Lightbridge Fuel™ in collaboration with INL. On April 22, 2020, we entered into a CRADA with BEA, the operating contractor of INL, in collaboration with DOE. Signing the CRADA was the last step in the contracting process to formalize the voucher award from the DOE GAIN program. The scope of the project includes experiment design for irradiation of Lightbridge metallic fuel material samples in the ATR at INL. The project commenced in the second quarter of 2020 and was originally expected to be completed in the second quarter of 2021. However, because of project staffing issues at INL related to the laboratory’s COVID-19 restrictions and U.S. Export Control matters, the project is currently expected to be completed by the end of the third quarter of 2021. The total project value is approximately $846,000, with three-quarters of this amount funded by DOE for the scope performed by INL. Awarded Second Funding Voucher Award from the DOE from the GAIN Program On March 25, 2021, we were awarded a voucher from the DOE’s GAIN program to support development of Lightbridge Fuel™ in collaboration with the Pacific Northwest National Laboratory (PNNL). The scope of the project is to demonstrate Lightbridge’s nuclear fuel casting process using depleted uranium, a key step in the manufacture of Lightbridge Fuel™. The project is anticipated to commence in the first half of 2021. The total project value is approximately $664,000, with three-quarters of this amount funded by DOE for the scope performed by PNNL. This is the DOE’s second GAIN voucher awarded to Lightbridge in support of the development of its advanced fuel technologies. Lightbridge is currently demonstrating in 2021 the manufacturing processes for the three-lobed variant of its uranium-zirconium (U-Zr) fuel technology for use in certain SMRs by producing several SMR-length surrogate rods. We expanded our patent portfolio by successfully obtaining 30 new patents in 2020 and, as of the filing date an additional 2 patents in 2021, in the United States and other key foreign countries. The new patents will help safeguard the Company’s intellectual property. 55 Table of Contents Operations Review Consolidated Results of Operations During the fourth quarter for the year ended December 31, 2020, we identified an error related to the amortization of our capitalized patent costs. Consequently, the Company corrected this error by revising the December 31, 2019 financial table numbers shown below. Please see Note 2. Revision and Correction of an Immaterial Error in Previously Issued Financial Statements of the Notes to the Consolidated 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 revision of the December 31, 2019 financial statements. The following table presents our operating results as a percentage of revenues for the years indicated: Years Ended Increase Increase December 31, (Decrease) (Decrease) 2020 2019 Change $ Change % (revised) Operating Expenses General and administrative $ 8,312,583 $ 5,787,092 $ 2,525,491 44 % Research and development expenses $ 891,626 $ 2,676,156 $ (1,784,530 ) (67 )% Legal settlement costs $ 4,200,000 — $ 4,200,000 — Patent write-off and impairment loss $ 1,169,644 $ — $ 1,169,644 — Total Operating Expenses $ 14,573,853 $ 8,463,248 $ 6,110,605 72 % Other Operating Income and (Loss) Grant income $ 72,709 $ — $ 72,709 — Other income from joint venture $ — $ 715,126 $ (715,126 ) (100 )% Equity in loss from joint venture $ — $ (3,321,737 ) $ 3,321,737 (100 )% Total Other Operating Income (Loss) $ 72,709 $ (2,606,611 ) $ 2,679,320 103 % Total Operating Loss $ (14,501,144 ) $ (11,069,859 ) $ 3,431,285 31 % Other Income $ 83,878 $ 393,112 $ (309,234 ) (79 )% Net loss before Income Taxes $ (14,417,266 ) $ (10,676,747 ) $ 3,740,519 35 % Income taxes $ — $ — $ — — Net Loss $ (14,417,266 ) $ (10,676,747 ) $ 3,740,519 35 % Operating Expenses 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 legal, audit, strategic advisory services, and outsourcing services. Total general and administrative expenses increased by approximately $2.5 million for the year ended December 31, 2020, as compared to the year ended December 31, 2019. These increases included an increase in professional fees relating to the Framatome arbitration of approximately $1.7 million, primarily due to legal fees, court filing fees, professional and expert fees. It also included an increase in total employee compensation and employee benefits of approximately $1.2 million, which consisted of an increase in bonuses of $0.4 million and an increase in employee payroll expenses of $0.6 million and a decrease of $0.2 million in management and administrative service fees charged to Enfission, LLC (“Enfission”). In addition, there were severance payments made of approximately $0.2 million, for employee layoffs partially due to the uncertainty of COVID-19 on our future business operations and the cessation of the Enfission joint venture, as discussed above. Lastly, there were increases in insurance expense of $0.1 million. These increases were offset by a decrease in travel, promotional and various administrative expenses of approximately $0.4 million partially due to COVID-19 and a decrease in stock-based compensation of approximately $0.3 million, due to the decrease in stock option expense for prior stock option awards that have become fully vested in prior reporting periods. 56 Table of Contents Total stock-based compensation included in general and administrative expenses was approximately $0.1 million and $0.4 million for the year ended December 31, 2020 and 2019, respectively. See Note 10. Stockholders’ Equity and Stock-Based Compensation of the Notes to our Consolidated Financial Statements included in Part II. Item 8. Financial Statements and Supplementary Data , of this Annual Report on Form 10-K for more information regarding our stock-based compensation. Research and Development R&D 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 R&D expenses decreased by approximately $1.8 million for the year ended December 31, 2020, as compared to the year ended December 31, 2019, due to the transitioning from R&D work relating to Enfission to developing a new fuel development strategy with the DOE’s National Laboratories. There was a decrease in employee compensation and employee benefits working on research projects of approximately $0.9 million, which costs included a decrease in allocated bonuses and payroll expenses of approximately $1.1 million, offset by a decrease in management and administrative service fees charged to Enfission of approximately $0.2 million. In addition, there was a decrease in professional fees of approximately $0.2 million, a decrease in consulting fees of approximately $0.3 million, and a decrease in stock-based compensation of approximately $0.4 million due to the decrease in stock option expense for prior stock option awards. Total stock-based compensation included in R&D expenses was approximately $0 and $0.4 million for the year ended December 31, 2020 and 2019, respectively. Due to the nature of our R&D expenditures, cost and schedule estimates are inherently uncertain and can vary significantly as new information and the outcome of these R&D activities become available. During the fiscal year of 2020, we had a significant decrease in R&D expense compared to 2019, also partially due to the uncertainty of COVID-19 on our future business operations, resulting in budgetary constraints due primarily to current market conditions and the uncertainty of future liquidity and capital resources available to us to conduct our future R&D activities. Legal settlement costs On February 11, 2021, the Company entered into a settlement agreement with our former JV partner in Enfission and agreed to pay approximately $4.2 million in legal settlement costs (see Note 12. Subsequent Events in the accompanying consolidated financial statements). This amount was recorded in operating expenses as legal settlement costs for the year ended December 31, 2020. Patent write-off and impairment loss As a result of recent triggering events that required an impairment provision of the total carrying value of our patent costs, we recorded a total impairment loss and patent write-off of $1.2 million in the fourth quarter of 2020, which included $0.1 million in patent write-offs. There was no impairment of our patents in 2019. Other Operating Loss Total other operating loss decreased by approximately $2.7 million for the year ended December 31, 2020, as compared to the year ended December 31, 2019. This change was due to a net decrease in the equity loss from the Enfission joint venture of $2.6 million and an increase in grant income from the GAIN voucher of approximately $0.1 million for the year ended December 31, 2020. Grant income is recorded on a gross method with the grant income shown as other operating income and the related costs as a charge to research and development expenses. There was no grant income in 2019. 57 Table of Contents During the year ended December 31, 2020, the Company did not provide additional equity contributions or share in any loss in Enfission. The Company had not separately guaranteed any obligations of Enfission at December 31, 2020 and December 31, 2019 and is not obligated under the joint venture operating agreement to fund its deficit capital account balance in Enfission to pay for any liabilities incurred by Enfission and therefore did not record its share of loss in Enfission for the year ended December 31, 2020. Other Income There was a decrease in other income of approximately $0.3 million due to a decrease 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, 2020, as compared to the year ended December 31, 2019. Provision for Income Taxes On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits net operating loss (NOL) carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The Company has evaluated the impact of the CARES Act and does not expect that the NOL carryback provision of the CARES Act will result in a material cash benefit. We incurred a pre-tax net loss for both 2020 and 2019. We reviewed all sources of income for purposes of recognizing the deferred tax assets and concluded a full valuation allowance for 2020 and 2019 was necessary. Therefore, we did not have a provision for taxes for both years ended December 31, 2020 and 2019. See Note 9. Income Taxes of the Notes to our Consolidated 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 income taxes. Liquidity, Capital Resources and Financial Position Liquidity Outlook While the Company’s cash balance at December 31, 2020 exceeds its currently budgeted expenditures through the first quarter of 2022, there are inherent uncertainties in forecasting future expenditures, especially forecasting for uncertainties such as future R&D costs and how COVID-19 may affect future costs and operations. We reduced our 2020 operating budgets for discretionary spending, including revising our R&D strategy which reduced our R&D costs in 2020 during this transitionary period of planning future R&D work with the United States national labs. While the impact and duration of COVID-19 on our business activities in the future is currently uncertain, the situation required us to reduce our operating budgets and R&D activities during 2020. At December 31, 2020, we had cash and cash equivalents of approximately $21.5 million, as compared to approximately $18.0 million at December 31, 2019, an increase of approximately $3.5 million. The cash inflow of approximately $12.3 million resulted from net proceeds from the sale of common stock during the year ended December 31, 2020. This cash inflow was offset by net cash used in operating activities of approximately $8.6 million and $0.2 million used in investing activities associated with incurring patent legal and filing costs. 58 Table of Contents We have approximately $16 million of working capital as of the date of this filing, which includes the $4.2 million settlement payment made to Framatome. We currently project a negative cash flow from our current operations averaging approximately $0.8 million per month for our general and administrative and R&D expenses, for total expected expenditures of approximately $9 million to $10 million for the next 12 to 15 months. We believe that our current working capital exceeds our budgeted expenditures through the first quarter of 2022. However, there are inherent uncertainties in forecasting future required R&D expenditures, as we are currently working on establishing our first fuel development agreements with the DOE’s National Laboratories. Once many of these agreements are finalized and the future R&D costs are known, we expect to forecast a significantly higher level of future required R&D expenses and higher negative monthly cash flows from operations. If sufficient funding becomes available to us, our R&D activities may significantly increase in the future. This funding is needed to continue our fuel development project and to achieve our future R&D milestones. COVID-19 may also affect costs and future operations by potentially delaying our work at the DOE’s National Laboratories. The actual amount of cash we will need to operate is subject to many factors, including, but not limited to, the timing, design and conduct of the R&D work at the DOE’s National Laboratories for our fuel along with cost to commercialize our nuclear fuel. Accordingly, there is high potential for budget variances in the current cost projections and fuel development timelines of our current planned operations over the fuel development period. Currently, we will seek shareholder approval in May 2021 to increase the number of authorized common shares, which is needed in order for us to finance our future R&D and corporate activities through future equity financing. We will also need to receive substantial U.S. government support throughout our nuclear fuel R&D period in order to fund our R&D efforts in the future. If we are unable to obtain this government funding that meets our future R&D cash requirements, we will need to seek other funding, if available. This will result in dilution to our existing stockholders. If we can raise additional funds through the issuance of preferred stock, other equity or convertible securities, these securities could have rights or preferences senior to those of our common stock and could contain covenants that restrict our operations in the future. There can be no assurance that we will be able to obtain additional equity or debt financing on terms acceptable to us, if at all. Considering the above-mentioned uncertainties and lack of financial resources to fund our current and long-term fuel development costs and corporate overhead expenses, substantial doubt exists about the Company’s ability to continue as a going concern for the 12 months following the date of this filing. We have the ability to delay or reduce certain operating expenses, including R&D expenses in the next 12 to 15 months, which could reduce our cash flow shortfall. However, this delay would also extend our projected fuel development timeline discussed above. The current primary sources of cash available to us for the next 12 months are potential funding from equity issuances, including potential future ATM financing and U.S. government support. The Company has an effective shelf registration statement on Form S-3 (File No. 333-223674) filed on March 15, 2018, and declared effective March 23, 2018, and expired on March 23, 2021. Due to the offering limitations currently applicable under General Instruction I.B.6. of Form S-3 and the market valuation of our current public float, we may be limited on the amount of funding available under a new shelf registration statement that we will file in March 2021. We have no debt or lines of credit and we have financed our operations to date through our prior years’ consulting revenue margins and the sale of our preferred stock and common stock. Management believes that public or private equity investments may be available in the future, however adverse market conditions in our common stock price and trading volume, as well as other factors like COVID-19 could substantially impair our ability to raise capital in the future and to continue the nuclear fuel development project. 59 Table of Contents Short-Term and Long-Term Liquidity Sources As discussed above, we will seek new financing bringing us additional sources of capital, depending on the capital market conditions of our common stock and us obtaining shareholder approval to increase the current number of authorized common shares, over the next 12 months. There can be no assurance that 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 or debt investment from third party investors in Lightbridge; and · Strategic investment and U.S. government funding to support the remaining R&D activities required to continue the development of our fuel products and move them to a commercial stage. In support of our long-term business with respect to our fuel technology business, we endeavor to create strategic alliances with other parties during the next three years, to support the remaining R&D activities 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. See Note 10. Stockholders’ Equity and Stock-Based Compensation of the Notes to the Consolidated 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, 2020 and 2019: Cash Flow Year Ended December 31, 2020 2019 (rounded in millions) Net cash used in operating activities $ (8.6 ) $ (6.7 ) Net cash used in investing activities $ (0.2 ) $ (3.8 ) Net cash provided by financing activities $ 12.4 $ 3.8 Net cash inflow (outflow) $ 3.6 $ (6.7 ) Operating Activities Our primary uses of cash from our operating activities include employee compensation and related costs, payments for professional and consulting fees and other fees relating to the arbitration matter with Framatome. The increase in our cash used in operating activities in 2020 of approximately $1.9 million was primarily due to the net increase in these and other costs and the change in working capital items as explained below. Cash used in operating activities for the year ended December 31, 2020 consisted of a net loss of approximately $14.4 million and adjustments to our net loss for non-cash expense items totaling approximately $1.4 million, consisting of non-cash adjustments for stock-based compensation of approximately $0.1 million, the total impairment loss and write-off of patent costs of approximately $1.2 million and amortization of patent costs of approximately $0.1 million. Total cash provided by operating working capital totaled approximately $4.4 million, which was primarily due to a net increase in accrued legal settlement costs and other accrued liabilities of $4.1 million, a decrease of $0.4 million in other receivables from the Enfission joint venture, offset by and an increase in prepaid expense and other assets of $0.1 million. 60 Table of Contents Investing Activities Net cash used in our investing activities for the year ended December 31, 2020, as compared to net cash used in our investing activities in 2019, decreased by approximately $3.6 million. The decrease was due primarily to the reduced investment in the Enfission joint venture of approximately $3.6 million. The spending for patent application costs was approximately the same for the years ended December 31, 2020 and 2019. These patent applications are filed for new developments resulting from our R&D activities. We anticipate patent costs to continue in the future periods due to the continuing R&D work we are planning to perform on our all-metal fuel design at the DOE’s National Laboratories. We anticipate future patent costs to be expensed in future periods, which is due to the uncertainties in the current fuel development timelines and the patents being commercialized. Future patent costs will become part of cash flows used in operating activities in future reporting periods. Financing Activities Net cash provided by our financing activities for the year ended December 31, 2020, as compared to net cash provided by our financing activities for the year ended December 31, 2019 increased by approximately $8.6 million. The increase was primarily due to an increase in the net proceeds from the issuance of our common stock, which resulted from the sale of approximately 3.3 million shares of common stock for net proceeds of $12.4 million for the year ended December 31, 2020. Critical Accounting Policies and Estimates Impairment of Capitalized Patent Costs When there are events or changes in circumstances, we assess whether there are any indicators that the value of capitalized patent costs may be impaired. The patent asset’s value is impaired if both the estimate of future undiscounted cash flows to be generated by the patents and the fair value of the patents are less than the carrying value of the patent costs. The determination of undiscounted cash flows requires significant estimates and judgments by management. In management’s estimate of cash flows, it considers factors such as expected revenues, operating expenses, R&D expenses, timing of commercialization, government grants and the undiscounted future cash flows analysis, which is based upon management’s best estimate of the likelihood of the alternative courses of action. Subsequent changes in estimated undiscounted cash flows arising from changes in anticipated actions could affect the determination of whether an impairment exists and whether the effects could have a material impact on the Company’s operations. To the extent an impairment has occurred, by comparing the future projected undiscounted cash flows to the carrying amount of the patent asset, the impairment loss is then measured as the excess of the carrying amount of the property over the fair value of the asset. In determining fair value, both the income approach and the cost approach are used to measure the impairment loss. The Company is required to make subjective assessments as to whether there are impairments in the value of its capitalized patent costs. These assessments have a direct impact on the Company’s estimates of the projected future cash flows, market conditions change, its evaluation of the impairment charges may be different, and such differences could be material to the Company’s consolidated financial statements. We identified impairment indicators in the fourth quarter of 2020 (see Note 5 of the accompanying consolidated financial statements for an explanation of these impairment indicators). We performed a recoverability test of the capitalized patents costs using an undiscounted cash flow method. The Company, after performing the recoverability test showing total negative cash flows, then determined the fair value of the patent costs using both the income approach and the cost approach methods. The fair value of our patent costs, under both these valuation methods, was $0. As a result, the Company recognized a total impairment charge of $1.1 million for the year ending at December 31, 2020. For further discussion on the impairment charge of the patent costs see Note 5 to the Consolidated Financial Statements. 61 Table of Contents Grant Income The Company has concluded that its government grant is not within the scope of the FASB Accounting Standards Codification (“ASC”) Topic 606 as it does not meet the definition of a contract with a customer. Additionally, the Company has concluded that the grant meets the definition of a contribution and are non-reciprocal transactions, and has also determined that Subtopic 958-605, Not-for-Profit-Entities-Revenue Recognition does not apply, as the Company is a business entity and the grant is with governmental agencies. In the absence of applicable guidance under United States Generally Accepted Accounting Principles (“US GAAP”), the Company management has developed a policy to recognize grant income at the time the related costs are incurred and the right to payment is realized. The Company believes this policy is consistent with the overarching premise in ASC Topic 606, to ensure that revenue recognition reflects the transfer of promised goods or services to customers in an amount that reflects the consideration that we expect to be entitled to in exchange for those goods or services, even though there is no exchange as defined in ASC Topic 606. Additionally, the Company has determined that the recognition of grant income as costs are incurred and amounts become realizable is analogous to the concept of transfer of control of a service over time under ASC Topic 606. Further, the Company believes that showing grant income on a gross method, with the grant income shown as other operating income and the related costs as a charge to research and development expense, rather than depicting the grant income as a reduction of research and development expense, is a more meaningful presentation. 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 consolidated 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 in connection with our employees is based on the employee model of ASC 718. Under ASC 718 an 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.” The stock-based compensation expense for our consultants is accounted for under ASU 2018-07, which allows us to account for options issued to consultants in the same manner as they are issued to our employees. For all service-based grants made, we recognize compensation cost under the straight-line method. 62 Table of Contents 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 U.S. 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. 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. 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. 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 for both Lightbridge and the outcome of the joint venture arbitration. Recent Accounting Standards and Pronouncements Refer to Note 1. Basis of Presentation, Summary of Significant Accounting Policies, and Nature of Operations of the Notes to our Consolidated Financial Statements in Part II. Item 8. Financial Statements and Supplementary Data , of this Form 10-K for a discussion of recent accounting standards and pronouncements. 63 Table of Contents 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, 2020 and 2019 begins on page 85 of this Report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None