LIGHTBRIDGE Corp 10-Q

ITEM 2. 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 condensed consolidated financial statements and the accompanying notes thereto contained in Part I, Item 1 of this report, as well as those included in our Annual Report on Form 10-K for the year ended December 31, 2021. This MD&A consists of the following sections: · Overview of Our Business and Recent Developments — a general overview of our business and updates; · Critical Accounting Policies and Estimates — a discussion of accounting policies that require critical judgments and estimates; · Operations Review — an analysis of our condensed consolidated results of operations for the periods presented in our condensed consolidated financial statements; and · Liquidity, Capital Resources, and Financial Position — an analysis of our cash flows, and an overview of our financial position. As discussed in more detail under “Forward-Looking Statements” immediately preceding this MD&A, the following discussion contains forward-looking statements that are based on our management’s current expectations, estimates, and projections, which are subject to a number of risks and uncertainties. Our actual results may differ materially from those discussed in these forward-looking statements because of the risks and uncertainties inherent in future events. OVERVIEW OF OUR BUSINESS When used in this Quarterly Report on Form 10-Q, the terms “Lightbridge”, the “Company”, “we”, “our”, and “us” refer to Lightbridge Corporation together with its wholly-owned subsidiaries Lightbridge International Holding LLC and Thorium Power Inc. Lightbridge’s principal executive offices are located at 11710 Plaza America Drive, Suite 2000, Reston, Virginia 20190 USA. Overview At Lightbridge we are developing the next generation of nuclear fuel to impact, in a meaningful way, the world’s climate and energy problems. Our nuclear fuel could significantly improve the economics, safety, and proliferation resistance of nuclear fuel in existing and new nuclear reactors, large and small, with a meaningful impact on addressing climate change, and air pollution, all while benefiting national security. We project that the world’s energy and climate needs can only be met if nuclear power’s share of the energy-generating mix grows substantially in the coming decades. We are developing our nuclear fuel to enable that to happen. In particular, we are focusing on the potential of small modular reactors (SMRs) that we believe can benefit from our fuel with improved economics and load following when included on an electric grid with renewables. According to the World Nuclear Association (WNA), there are 437 operable power reactors worldwide and an additional 57 reactors under construction. We expect slow net growth in this number as old reactors close and fewer new large reactors are built, due to the inherent challenges facing new build large reactors, including regulatory and political challenges, financing difficulties, and the inability for large reactors to be profitable without running constantly. We believe our metallic fuel will offer significant economic and safety benefits over traditional nuclear fuel, primarily because of the superior heat transfer properties of all-metal fuel and the resulting lower operating temperature of the fuel. We also believe that uprating a reactor with Lightbridge Fuel™ will add incremental electricity at a lower levelized cost than any other means of generating baseload electric power, including any renewable, fossil, or hydroelectric energy source, or any traditional nuclear fuel. Emerging nuclear technologies that many in the industry believe have the potential to generate significant amounts of power include SMRs, which are now in the development and licensing phases. We expect that Lightbridge Fuel™ can provide SMRs with all the benefits our technology brings to large reactors, with the benefits being more meaningful to the economic case for deployment of 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 fossil fuels. We expect that our ongoing research and development (R&D) initiatives will be compatible with Lightbridge Fuel™ powering SMRs for multiple purposes. The first SMRs that could use our fuel are expected to begin operations as early as 2028. 20 Table Of Contents We have built a significant portfolio of patents reflecting years of R&D, and we anticipate testing our nuclear fuel through third party vendors and others, including the United States Department of Energy (DOE) national laboratories. Currently, we are performing the majority of our R&D activities with DOE national laboratories and are working on additional contracts with them for future scopes of R&D work. Development of Lightbridge Fuel™ Recent Developments The DOE awarded us a second voucher from the Gateway for Accelerated Innovation in Nuclear (GAIN) program to support development of Lightbridge Fuel™ in collaboration with 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 is expected 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. Growing Importance of Energy Security Russia’s invasion of Ukraine has made clear the need for countries to wean off dependency on fossil fuels from countries that can threaten their national security. Oil and natural gas prices have increased significantly since Russia commenced its invasion in early 2022 and other countries-imposed sanctions upon Russia in response. European countries are responding by rethinking their plans for nuclear energy by either keeping existing nuclear power plants running or moving ahead with plans for new plants or both. British Prime Minister Boris Johnson has challenged a committee of members of parliament to redouble efforts to expand nuclear energy in Britain. Belgium has decided to reverse its decision to close all of its nuclear plants in the wake of Russia’s invasion of Ukraine. It has become clear that a stable domestic energy supply ensures energy security and provides the strongest protection against energy price volatility. Increasingly, policymakers view nuclear energy as critical to a secure energy future. Impact of COVID-19 to our Business The recent COVID-19 pandemic has continued to impact our business operations for the three months ended March 31, 2022 and 2021. The future impacts of the COVID-19 pandemic on our financial position, results of operations and future liquidity and capital resources availability is unknown and uncertain. In an effort to protect the health and safety of our employees, we took proactive, aggressive action from the earliest signs of the outbreak in China, including working from home and curtailing employee travel. In an effort to contain COVID-19 or slow its spread, governments around the world have also enacted various measures, including orders to close all businesses not deemed “essential,” isolate residents to their homes or places of residence, and practice social distancing when engaging in essential activities. We will continue to actively monitor the COVID-19 pandemic and may take further actions altering our business operations that we determine are in the best interests of our employees and stakeholders, or as required by federal, state, or local authorities. It is not clear what the potential effects any such alterations or modifications may have on our financial position, results of operations or liquidity, including the effects on our employees and future prospects, including our R&D activities for the fiscal year 2022 and beyond. Future Potential Collaborations and Other Opportunities In the ordinary course of business, we engage in periodic reviews of opportunities to invest in or acquire companies or units within companies to leverage operational synergies and establish new streams of revenue. We will be opportunistic in this regard and may also partner or contract with entities that could be synergistic to our fuel business or present an attractive stable business and/or growth opportunity in the nuclear space. CRITICAL ACCOUNTING POLICIES AND ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make a variety of estimates and assumptions that affect (i) the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and (ii) the reported amounts of revenues and expenses during the reporting periods covered by the financial statements. For a discussion of the accounting judgments and estimates that we have identified as critical in the preparation of our financial statements, please see “Critical Accounting Policies and Estimates” under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 31, 2022. There have been no significant changes in our critical accounting policies and estimates during the three months ended March 31, 2022. 21 Table Of Contents Our management expects to make judgments and estimates about the effect of matters that are inherently uncertain. As the number of variables and assumptions affecting the future resolution of the uncertainties increase, these judgments become even more subjective and complex. Although we believe that our estimates and assumptions are reasonable, actual results may differ significantly from these estimates. Changes in estimates and assumptions based upon actual results may have a material impact on our results of operations and/or financial condition. Recent Accounting Standards and Pronouncements Refer to Note 1 to our unaudited condensed consolidated financial statements for a discussion of recent accounting standards and pronouncements. OPERATIONS REVIEW Financial information is included in Part I, Item 1 of this Quarterly Report on Form 10-Q. Condensed Consolidated Results of Operations – Three Months Ended March 31, 2022 and 2021 The following table presents our historical operating results and the increase (decrease) in amounts for the periods indicated (dollars in millions): Three months Ended Increase Increase March 31, (Decrease) (Decrease) 2022 2021 Change $ Change % Operating Expenses General and administrative $ 1.9 $ 1.8 $ 0.1 6 % Research and development $ 0.3 $ 0.4 $ (0.1 ) (25 )% Total Operating Expenses $ 2.2 $ 2.2 $ — — % Other Operating Income Contributed services – research and development $ 0.1 $ 0.1 $ — — % Total Other Operating Income $ 0.1 $ 0.1 $ — — % Total Operating Loss $ (2.1 ) $ (2.1 ) $ — — % Other Income $ 0.1 $ 0.1 $ — — % Net loss before Income Taxes $ (2.0 ) $ (2.0 ) $ — — % Net Loss $ (2.0 ) $ (2.0 ) $ — — % 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 $0.1 million for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021. This increase was primarily due to an increase in employee compensation and employee benefits of approximately $0.1 million, an increase in directors’ fees of approximately $0.1 million due to the addition of new board members, an increase in sponsorship fees and promotion fees of approximately $0.1 million due to increased promotion activities, and an increase in stock-based compensation of approximately $0.2 million due to the issuance of restricted stock awards in 2021. These increases were offset by a decrease in professional fees of approximately $0.4 million relating to fees incurred in connection with the arbitration matter that was settled in 2021 that were not repeated during the three months ended March 31, 2022. 22 Table Of Contents Research and Development Research and development expenses consist primarily of compensation and related fringe benefits including stock-based compensation and related allocable overhead costs for the research and development of our fuel and contributed services – research and development for the R&D work performed under the GAIN vouchers. We are working with the U.S. National Laboratories for research and development activities and are negotiating new contracts for additional future scopes of work in 2022. Total R&D expenses decreased by approximately $0.1 million for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021. This decrease was primarily due to a decrease in employee compensation and employee benefits of approximately $0.1 million. 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. We may have budgetary constraints due primarily to the uncertainty of future liquidity and capital resources available to us to conduct our future R&D activities. Other Operating Income There was contributed services – research and development of approximately $0.1 million for the three months ended March 31, 2022 and March 31, 2021, with a charge to R&D expenses and a corresponding amount recorded to contributed services – research and development. LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL POSITION Our cash requirements for 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. At March 31, 2022, we had cash and cash equivalents of approximately $28.2 million, as compared to approximately $24.7 million at December 31, 2021, an increase of approximately $3.5 million. The Company raised approximately $5.4 million from the sale of approximately 0.8 million shares of common stock during the three months ended March 31, 2022. The Company’s net cash used in operating activities for the three months ended March 31, 2022 was approximately $1.9 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. We have approximately $28 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. Our cash balance at March 31, 2022 and as of the date of this filing exceeds our anticipated cash requirements for the next 12 months or through the first quarter of 2023. 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 negotiating fuel development agreements with the DOE’s national laboratories and other agreements in the future. 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 (as defined below) to finance our future R&D and corporate activities. 23 Table Of Contents We will also need to receive substantial U.S. government support in the form of grants throughout our nuclear fuel R&D period in order to fund our R&D efforts in the future. If we are unable to obtain 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 long-term fuel development costs, corporate overhead expenses, and future potential collaborations and other opportunities, 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 at-the-market (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 Securities and Exchange Commission, or 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. 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 SEC pursuant to which we offered and sold shares of common stock having an aggregate offering price of $9.0 million through our ATM. We filed a second prospectus supplement, dated November 19, 2021, with the SEC pursuant to which we may offer and sell shares of common stock having an aggregate offering price of up to $20.0 million from time to time, through the ATM. 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 continue developing our nuclear fuel. 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 on terms that are acceptable to us, or at all. 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 6. Stockholders’ Equity and Stock-Based Compensation of the Notes to our condensed consolidated financial statements included in Part I. Item 1. Financial Statements, of this Quarterly Report on Form 10-Q for information regarding our prior equity financings. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES 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. 24 Table Of Contents