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 . 31 Table of Contents This MD&A consists of the following sections: · 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. · 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 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 Department of Energy’s (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 expedite moving 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 the Idaho National Laboratory (INL). On April 22, 2020, we entered into a Cooperative Research and Development Agreement (CRADA) with Battelle Energy Alliance, LLC, 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 was completed during the third quarter of 2021. The total project amount recorded as contributed services – research and development was approximately $0.5 million. This experiment design forms the basis of our current and future efforts with the INL. DOE awarded us a second GAIN voucher 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™. On July 14, 2021, the Company executed a CRADA with the Battelle Memorial Institute, Pacific Northwest Division, the operating contractor of the PNNL, in collaboration with the DOE. The project commenced in the third quarter of 2021 and we expect it to be completed by the third quarter of 2022. The total project value is approximately $0.7 million, with three-quarters of this amount provided by DOE for the scope performed by PNNL. 32 Table of Contents 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-cooled, water-moderated energetic reactors (VVERs), CANDUs, water-cooled SMRs, and 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. We currently expect to invest a total of $4.0 million to $6.0 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 2022, we will continue to evaluate spending to reduce expenses with the overall goal of commercializing our nuclear fuel with the lowest research and development (R&D) cost, in order to maximize our shareholders’ value. Our only source of funding in 2021 was our at-the-market (ATM) financing arrangement with Stifel, Nicolaus & Company. Although we expect this ATM facility to continue to be a significant source of working capital for the Company in 2022, there is no assurance that an ATM financing arrangement will be available to us in the future (see liquidity outlook section below). Please also see Note 7. 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 small modular reactors (SMRs), the escalating costs associated with new build reactors, along with the need to operate large reactors at a constant 24/7 pace to achieve 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 nuclear power industry believe have the potential to generate significant amounts of power include potential deployment of large numbers of SMRs that are 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 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 2028. 33 Table of Contents 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. 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% potential power uprates that may be achieved with Lightbridge Fuel™. 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 hydroelectric 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 the potential 30% power uprate from Lightbridge Fuel™ will uniquely provide a lower levelized cost of electricity 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 nuclear 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 We expect the development of the fabrication processes for Lightbridge Fuel™ to be performed utilizing existing facilities and equipment within the DOE national laboratory complex and other facilities. Discussions are currently ongoing with the INL and PNNL to perform process development activities and establish the capability to manufacture development quantities of fuel rods for loop irradiation testing, and possibly an initial lead test assembly. 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 5-8 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 and U.S. Nuclear Regulatory Commission (US-NRC). 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 we expect it 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. 34 Table of Contents 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 testing 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 US-NRC for operation of a lead test assembly. We expect execution of such a loop irradiation test 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™ may 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 potentially available in four years. We expect the performance of the irradiation test 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. neutronics 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 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 methodologies to qualify its advanced fuels. 35 Table of Contents Along with leveraging the AFQ approach, uranium-zirconium (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. We expect 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 LTAs 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 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 our research and development activities; · 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. 36 Table of Contents Recent Developments GAIN Vouchers · The DOE awarded us a GAIN voucher in 2019 for the experiment design for irradiation of material samples of Lightbridge metallic fuel in the ATR at INL. On April 22, 2020, we entered into a CRADA with Battelle Energy Alliance, LLC, the DOE’s operating contractor at INL, and the project commenced in the second quarter of 2020 and was completed during the third quarter of 2021. This experiment design forms the basis of our current and future efforts with the INL. The total project value provided by the DOE was approximately $0.5 million. · On March 25, 2021, we were awarded a second voucher from the DOE’s GAIN program to support development of Lightbridge Fuel™ in collaboration with PNNL. The scope of the project was to demonstrate Lightbridge’s nuclear fuel casting process using depleted uranium, a key step in the manufacture of Lightbridge Fuel™. On July 14, 2021, the Company executed a CRADA with the Battelle Memorial Institute, Pacific Northwest Division, the operating contractor of the PNNL, in collaboration with the DOE. The project commenced in the third quarter of 2021 and we expect it to be completed by the third quarter of 2022. The total project value is approximately $0.7 million, with three-quarters of this amount provided by DOE for the scope performed by PNNL. This second GAIN voucher demonstrates the DOE’s support of Lightbridge’s development of its advanced nuclear fuel technologies. Lightbridge demonstrated in 2021 the co-extrusion process for the three-lobed variant of its U-Zr fuel technology for use in certain SMRs by producing several SMR-length surrogate rods (i.e., non-uranium bearing). We expanded our patent portfolio by successfully obtaining 7 new patents in 2021, in the United States and other key foreign countries. The new patents will help safeguard the Company’s intellectual property. Operations Review Consolidated Results of Operations The following table presents our operating results as a percentage of revenues for the years indicated (rounded to millions): Years Ended Increase Increase December 31, (Decrease) (Decrease) 2021 2020 Change $ Change % Operating Expenses General and administrative $ 7.1 $ 8.3 $ (1.2 ) (14 )% Research and development $ 1.4 $ 0.9 $ 0.5 56 % Legal settlement costs $ — $ 4.2 $ (4.2 ) (100 )% Patents write-off and impairment loss $ — $ 1.2 $ (1.2 ) (100 )% Total Operating Expenses $ 8.5 $ 14.6 $ (6.1 ) (42 )% Other Operating Income Distribution from joint venture $ 0.1 $ — $ 0.1 — Contributed services – research and development $ 0.5 $ 0.1 $ 0.4 400 % Total Other Operating Income $ 0.6 $ 0.1 $ 0.5 500 % Total Operating Loss $ (7.9 ) $ (14.5 ) $ 6.6 (46 )% Other Income $ 0.1 $ 0.1 $ — — Net loss before Income Taxes $ (7.8 ) $ (14.4 ) $ 6.6 (46 )% Net Loss $ (7.8 ) $ (14.4 ) $ 6.6 (46 )% 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. 37 Table of Contents Total general and administrative expenses decreased by approximately $1.2 million for the year ended December 31, 2021, as compared to the year ended December 31, 2020. There was a decrease in professional fees of approximately $2.2 million primarily due to a decrease in the legal and professional fees relating to the settlement to terminate the Enfission joint venture, a decrease in amortization expense of approximately $0.1 million due to patents costs being expensed in 2021 and a decrease in business development expenses of approximately $0.1 million. These decreases were offset by an increase of approximately $0.6 million in stock-based compensation expense due to the acceleration of the vesting of the remaining unvested 2020 RSU grants in 2021, an increase of $0.2 million in various consulting fees, an increase of approximately $0.2 million in insurance expense, due to the increased premiums in directors’ and officers’ insurance, and an increase of approximately $0.2 million in Directors’ fees, due to the increase in the number of independent directors serving on our board of directors in 2021. Total stock-based compensation included in general and administrative expenses was approximately $0.8 million and $0.1 million for the year ended December 31, 2021and 2020, respectively. 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 nuclear fuel, including work performed with the DOE’s national laboratories. Total R&D expenses increased by approximately $0.5 million for the year ended December 31, 2021, as compared to the year ended December 31, 2020. There was an increase of approximately $0.5 million in outside research and development work with the DOE’s national laboratories related to the first GAIN voucher and an increase of approximately $0.2 million in patent expenses. These increases were offset by a decrease in allocated employee compensation and employee benefits to R&D of approximately $0.2 million. All other R&D expenses were primarily consistent period over period. 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. Our future business operations are dependent on budgetary constraints due primarily to 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 joint venture partner in Enfission resolving the pending claims and counterclaims between the parties in arbitration and judicial proceedings and the Company paid approximately $4.2 million in legal settlement costs on March 15, 2021. This amount was recorded in operating expenses as legal settlement costs for the year ended December 31, 2020. Under the terms of the settlement agreement, all joint venture agreements were terminated, and the joint venture was dissolved on March 23, 2021. (See Note 4. Commitments and Contingencies 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 more information). 38 Table of Contents Patent write-off and impairment loss As a result of a triggering event 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. All patent costs were expensed as incurred in 2021. Other Operating Income Total other operating income increased approximately $0.5 million for the year ended December 31, 2021, as compared to the year ended December 31, 2020. This increase was due to the final cash distribution from the dissolved Enfission joint venture of $0.1 million and an increase in contributed services – research and development from the GAIN voucher of approximately $0.4 million. Contributed services – research and development is recorded on a gross method with the contributed services – research and development shown as other operating income and the related costs as a charge to research and development expenses. Other Income Interest income generated from the interest earned from our treasury bills and from our bank savings account was not significant for both years ended December 31, 2021 and 2020. 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 2021 and 2020. We reviewed all sources of income for purposes of recognizing the deferred tax assets and concluded a full valuation allowance for 2021 and 2020 was necessary. Therefore, we did not have a provision for taxes for both years ended December 31, 2021 and 2020. Prior period ownership changes, coupled with the Company’s projections of taxable income for the foreseeable future, could substantially limit any future benefit to be derived from our NOLs. See Note 6. 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 and the limitations on the utilization and amount of our net operating loss carry-forwards. Liquidity, Capital Resources and Financial Position Liquidity Outlook Our cash requirements for the future planned operations to develop and commercialize our nuclear fuel, including any additional expenditures that may result from unexpected developments, requires us to raise significant additional capital and receive government support. Our cash requirements are approximately $10 million of outside R&D expenditures per year over the next 10-15 years. Our cash balance at December 31, 2021 and as of the date of this filing does not exceed our anticipated cash requirements for the next 12 months or through the first quarter of 2023. At December 31, 2021, we had cash and cash equivalents of approximately $24.7 million, as compared to approximately $21.5 million at December 31, 2020, an increase of approximately $3.2 million. The Company raised approximately $14.8 million from the sale of approximately 2.0 million shares of common stock during the year ended December 31, 2021. The Company’s net cash used in operating activities for the year ended December 31, 2021 was approximately $11.0 million and current projections indicate that we will have continued negative cash flows for the foreseeable future. We are not profitable, and we cannot provide any assurance that we will become profitable in the future. We will continue to incur losses because we are in the early development stage of commercializing our nuclear fuel. 39 Table of Contents We have approximately $28.8 million of working capital as of the date of this filing. We currently project a negative cash flow from our current operations averaging approximately $1.0 to $1.2 million per month for our general and administrative and R&D expenses, for total expected expenditures of approximately $12 million to $18 million for the next 12 to 15 months. We believe, however, that our actual expenditures may exceed our current available working capital through the first quarter of 2023. There are inherent uncertainties in forecasting future required R&D or other expenditures, as we are currently working on establishing fuel development agreements with the DOE’s national laboratories and others. Once many of these anticipated agreements are finalized or other future R&D agreements are entered into 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 in the future. If sufficient funding becomes available to us, our R&D activities may significantly increase in the future. This funding is needed to continue our nuclear 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. We will continue to utilize our ATM to finance our future R&D and corporate activities. 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, which may include the issuance of additional shares of the Company’s common stock, 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 primary source of cash available to us for the next 12 months is the potential funding from equity issuances from our ATM equity offering sales agreement, as amended, with Stifel, Nicolaus & Company, Incorporated. The Company has an effective shelf registration statement on Form S-3 that was filed with the SEC on March 25, 2021, registering the sale of up to $75 million of the Company’s securities and declared effective on April 5, 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 this Form S-3 shelf registration statement in the future. We filed a prospectus supplement dated April 9, 2021, with the Securities and Exchange Commission pursuant to which we offered and sold shares of common stock having an aggregate offering price of up to $9.0 million through our ATM. We filed a second prospectus supplement, dated November 19, 2021, with the Securities and Exchange Commission pursuant to which we may offer and sell shares of common stock having an aggregate offering price of up to up to $20.0 million from time to time under this prospectus supplement, through the ATM. 40 Table of Contents We have no debt or lines of credit and we have financed our operations to date through 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. 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. 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; · Collaboration with potential industry partners; 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 7. 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, 2021 and 2020: Cash Flow Year Ended December 31, 2021 2020 (rounded in millions) Net cash used in operating activities $ (11.0 ) $ (8.6 ) Net cash used in investing activities $ — $ (0.2 ) Net cash provided by financing activities $ 14.2 $ 12.4 Net cash inflow $ 3.2 $ 3.6 41 Table of Contents Operating Activities Cash used in operating activities for the fiscal years 2021 and 2020 was $11.0 million and $8.6 million, an increase of $2.4 million. Fiscal year 2021 operating cash flows reflect our net loss of $7.8 million, noncash charges (stock-based compensation expense) of $1.1 million and a net decrease from changes in our working capital accounts of approximately $4.3 million. Decreases in operating cash flows caused by working capital changes include a net decrease in accounts payable and accrued expenses of $4.4 million, offset by a decrease in prepaid expenses and other current assets of $0.1 million. The decrease in accounts payable and accrued expenses is primarily related to the payment of the $4.2 million expense accrued in 2020 related to the arbitration settlement (see Note 4. Commitments and Contingencies 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). Investing Activities Net cash used in our investing activities for the year ended December 31, 2021, as compared to net cash used in our investing activities in 2020, decreased by approximately $0.2 million. The decrease was due primarily to a decrease in trademark costs. Financing Activities Cash provided by financing activities was $14.2 million and $12.4 million for fiscal years 2021 and 2020, an increase of $1.8 million. Cash provided by our ATM facility was $14.8 million (sale of approximately 2 million common shares). Cash provided by the exercise of stock options was $0.2 million. Cash used during fiscal year 2021 relates to the payment of withholding taxes on net share settlement of equity awards of $0.8 million. Critical Accounting Policies and Estimates Patent Costs Beginning January 1, 2021, patent filing fees with patent granting agencies and legal fees directly relating to those filings, incurred to file patent applications are expensed as the Company believes that there is not a high likelihood that there will be a future economic benefit associated with the patents, due to the uncertainties in the current fuel development timelines and the patents being commercialized. Contributed services – research and development The Company concluded that its government grants were not within the scope of ASC Topic 606 as they did not meet the definition of a contract with a customer. Additionally, the Company concluded that the grants met the definition of a contribution, as the grants were a non-reciprocal transaction. As such, the Company determined that Subtopic 958-605, Not-for-Profit-Entities-Revenue Recognition applies for these contributed services, even though the Company is a business entity, as guidance in the contributions received subsections of Subtopic 958-605 applies to all entities (NFPs and business entities). The Company has early adopted Accounting Standards Update 2020-07 which amends Subtopic 958-605 which further clarifies the presentation and disclosure about contributions. Subtopic 958-605 requires that nonfinancial assets, which includes services, such as the research and development services provided under the GAIN vouchers described in Note 5, should be shown on a gross method at the fair value of the services contributed, with the contributed services – research and development shown as other operating income and the related costs as a charge to research and development expense, rather than depicting the contributed services – research and development as a reduction of research and development expense. The fair value of contributed services was determined by the cost of professional time and materials which were charged by the subcontractor who fulfilled the services contributed under the grant award. 42 Table of Contents 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. 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. 43 Table of Contents 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. 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. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act. 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, 2021 and 2020 begins on page 52 of this Report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None