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, 2022. This MD&A consists of the following sections: • Overview of Our Business and Development of Lightbridge Fuel™- 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 AND DEVELOPMENT OF LIGHTBRIDGE FUEL TM 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. Our Business At Lightbridge we are developing the next generation of nuclear fuel to impact, in a meaningful way, the world’s climate and energy security problems. Our nuclear fuel could significantly improve the economics and safety of existing and new nuclear power plants, large and small, enhance proliferation resistance of spent nuclear fuel, and have 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 believe Lightbridge can benefit from a growing nuclear power industry, and we believe our nuclear fuel can help enable that growth to happen. We believe our metallic fuel will offer significant economic and safety benefits over traditional nuclear fuel, primarily because of the superior heat transfer properties and the resulting lower operating temperature of all-metal 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 nuclear power industry believe have the potential to help drive growth in nuclear power include small modular reactors (SMRs), which are now in the development and licensing phases. We expect that Lightbridge Fuel™ can provide SMRs with all the same benefits our technology brings to large reactors, with such benefits being even more meaningful to the economic case for deployment of SMRs, including potential load following capability when included on a low-carbon electric grid with renewable energy sources. We expect Lightbridge Fuel™ 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 lead to Lightbridge Fuel™ powering SMRs for multiple purposes. The first SMRs are expected to begin operations as early as 2029. 15 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’s (DOE) national laboratories. Currently, we are performing the majority of our R&D activities with the DOE’s national laboratories. Development of Lightbridge Fuel™ We believe 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), Canadian Deuterium Uranium (CANDUs), water-cooled SMRs, and water-cooled research reactors. We have obtained patent validation in key countries (in our judgement) 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. Recent Developments HALEU Consortium Membership To support establishment of domestic high-assay low-enriched uranium (HALEU) infrastructure, the DOE announced on December 7, 2022 the creation of a HALEU Consortium. According to the DOE, the purposes of the HALEU Consortium include: (i) providing the Secretary of Energy HALEU demand estimates for domestic commercial use, (ii) purchasing HALEU made available to members for commercial use under the program, (iii) carrying out demonstration projects using HALEU under the program, and (iv) identifying actionable opportunities to improve the reliability of the HALEU supply chain. On December 15, 2022, the Company submitted a formal request to the DOE to join the HALEU Consortium to mitigate HALEU supply risk. On January 12, 2023, the Company received written confirmation from the DOE of Lightbridge’s membership in the HALEU Consortium. Idaho National Laboratory Agreements In the second half of 2022, Lightbridge entered into agreements with Idaho National Laboratory (INL), in collaboration with the DOE, to support the development of Lightbridge Fuel™. The framework agreements use an innovative structure that consists of an “umbrella” Strategic Partnership Project Agreement (SPP) and an “umbrella” Cooperative Research and Development Agreement (CRADA), each with Battelle Energy Alliance, LLC, the DOE’s operating contractor for INL, with an initial duration of seven years. We anticipate that the initial phase of work under the two agreements that has been released will culminate in irradiation testing in the Advanced Test Reactor (ATR) of our fuel material samples, known as fuel material coupons, using enriched uranium supplied by the DOE. The initial phase of work aims to generate irradiation performance data for Lightbridge’s delta-phase uranium-zirconium alloy relating to various thermophysical properties. The data will support fuel performance modeling and regulatory licensing efforts for commercial deployment of Lightbridge Fuel™. We anticipate that subsequent phases of work under the two umbrella agreements that have not yet been released may include post-irradiation examination of the irradiated fuel material coupons, loop irradiation testing in the ATR, and post-irradiation examination of one or more uranium-zirconium fuel rodlets, as well as transient experiments in the Transient Reactor Test Facility at INL. During the first quarter of 2023, we worked with INL to complete and issue a Quality Implementation Plan (QIP) for our collaborative project at INL. The QIP was an essential first step to ensure all future work performed at INL on the project would be conducted in accordance with nuclear quality assurance requirements of the U.S. Nuclear Regulatory Commission. We are currently working with INL to demonstrate casting of delta-phase uranium-zirconium ingots with depleted uranium using existing INL equipment. 16 Table of Contents Future Steps Toward Our Fuel Development and Timeline For The Commercialization of Our Nuclear Fuel Assemblies We anticipate fuel development milestones for Lightbridge Fuel™ over the next 2-3 years will consist of the following: • continue to execute SPP/CRADA work at INL leading to irradiation testing in the ATR of our fuel material coupons using enriched uranium supplied by INL. • conduct a feasibility study for the use of our nuclear fuel in CANDU heavy water reactors. • conduct a front-end engineering and design study for a Lightbridge pilot-scale fuel fabrication facility. • demonstrate extrusion with our uranium-zirconium fuel alloy and produce fuel material coupons for irradiation testing. 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, 2022, filed with the SEC on March 30, 2023. There have been no significant changes in our critical accounting policies and estimates during the six months ended June 30, 2023. 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. 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 June 30, 2023 and 2022 The following table presents our historical operating results and the change in amounts for the periods indicated (rounded to millions): Three Months Ended Increase Increase June 30, (Decrease) (Decrease) 2023 2022 Change $ Change % Operating Expenses General and administrative $ 1.6 $ 1.4 $ 0.2 14 % Research and development $ 0.4 $ 0.2 $ 0.2 100 % Total Operating Expenses $ 2.0 $ 1.6 $ 0.4 25 % Other Operating Income Contributed services - research and development $ — $ 0.1 $ (0.1 ) (100 )% Total Other Operating Income $ — $ 0.1 $ (0.1 ) (100 )% Total Operating Loss $ (2.0 ) $ (1.5 ) $ 0.5 33 % Other Income $ 0.3 $ — $ 0.3 — % Net loss before Income Taxes $ (1.7 ) $ (1.5 ) $ 0.2 13 % Net Loss $ (1.7 ) $ (1.5 ) $ 0.2 13 % 17 Table of Contents 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 $0.2 million for the three months ended June 30, 2023, as compared to the three months ended June 30, 2022. There was an increase in stock-based compensation of $0.1 million, and an increase in professional fees of $0.1 million. 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. Total R&D expenses increased by $0.2 million for the three months ended June 30, 2023, as compared to the three months ended June 30, 2022. This increase was primarily due to an increase in project labor costs incurred from the U.S. National Laboratories of $0.1 million, and an increase in payroll of $0.1 million, and an increase in consulting fees of $0.1 million, and offset by a decrease in other R&D costs of $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 a decrease in other operating income of $0.1 million due to a decrease in contributed services – research and development of $0.1 million for the three months ended June 30, 2022 due to the GAIN voucher project that was completed in the first quarter of 2023. There are no outstanding GAIN vouchers. Contributed services – research and development are recorded with a charge to R&D expenses and a corresponding amount recorded to contributed services – research and development. Other Income There was an increase in other income of $0.3 million due to rising treasury bill interest rates over the past year, which resulted in an increase in interest income earned from the purchase of treasury bills and from our bank savings account for the three months ended June 30, 2023, as compared to the three months ended June 30, 2022. 18 Table of Contents Condensed Consolidated Results of Operations – Six Months Ended June 30, 2023 and 2022 The following table presents our historical operating results and the change in amounts for the periods indicated (rounded to millions): Six Months Ended Increase Increase June 30, (Decrease) (Decrease) 2023 2022 Change $ Change % Operating Expenses General and administrative $ 3.4 $ 3.4 $ — — % Research and development $ 0.8 $ 0.4 $ 0.4 100 % Total Operating Expenses $ 4.2 $ 3.8 $ 0.4 11 % Other Operating Income Contributed services – research and development $ — $ 0.2 $ (0.2 ) (100 )% Total Other Operating Income $ — $ 0.2 $ (0.2 ) (100 )% Total Operating Loss $ (4.2 ) $ (3.6 ) $ 0.6 17 % Other Income $ 0.5 $ — $ 0.5 — % Net loss before Income Taxes $ (3.7 ) $ (3.6 ) $ 0.1 3 % Net Loss $ (3.7 ) $ (3.6 ) $ 0.1 3 % 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 remained consistent for the six months ended June 30, 2023, as compared to the six months ended June 30, 2022. There was an increase in stock-based compensation of $0.2 million and an increase in professional fees of $0.1 million, offset by a decrease in employee compensation and employee benefits of $0.1 million and a decrease in insurance, promotion, and other general and administrative expenses of $0.2 million. 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. Total R&D expenses increased by $0.4 million for the six months ended June 30, 2023, as compared to the six months ended June 30, 2022. This increase was primarily due to an increase in project labor costs incurred from the U.S. National Laboratories of $0.3 million, an increase in consulting expense of $0.1 million, and an increase in employee compensation and employee benefits of $0.1 million, offset by a net decrease in other R&D costs of $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 a decrease in other operating income of $0.2 million related to a decrease in contributed services – research and development for the six months ended June 30, 2022 due to the GAIN voucher project that was completed in the first quarter 2023. There are no outstanding GAIN vouchers. Contributed services – research and development are recorded with a charge to R&D expenses and a corresponding amount recorded to contributed services – research and development. 19 Table of Contents Other Income There was an increase in other income of $0.5 million due to rising treasury bill interest rates over the past year which resulted in an increase in interest income earned from the purchase of treasury bills and from our bank savings account for the six months ended June 30, 2023, as compared to the six months ended June 30, 2022. LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL POSITION Liquidity Outlook We measure liquidity in terms of our ability to fund the cash requirements of our R&D activities and our general and administrative expenses, including our contractual obligations and other commitments. We believe that based on our current level of operating expenses and currently available cash resources, we will have sufficient funds available to cover our business activities and operating cash needs for the next 12 months. Our long-term cash requirements are currently projected to be an average of $10 million of outside R&D expenditures per year over the next 10-15 years. These long- term cash requirements for future planned operations to develop and commercialize our nuclear fuel, including any additional expenditures that may result from unexpected developments, will require us to receive government support in the future. At June 30, 2023, we had cash and cash equivalents of $28.2 million, as compared to $28.9 million at December 31, 2022, a decrease of $0.7 million. We raised net proceeds of $2.3 million from the sale of approximately 0.5 million shares of common stock during the six months ended June 30, 2023. Our net cash used in operating activities for the six months ended June 30, 2023 was $3.0 million and our cash flow 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 $28.2 million of working capital as of the date of this filing. We currently project a negative cash flow from our operations for both our general and administrative and R&D expenses, resulting in total expected expenditures of approximately $12.7 million for the next 12 months. Our R&D expenses are expected to increase over the next 12-15 months. Our cash balance at June 30, 2023 and as of the date of this filing exceeds our anticipated cash requirements for the next 12 months. There are inherent uncertainties in forecasting the future required R&D or other expenditures in the future. Once other anticipated agreements are finalized or other future R&D agreements are entered into and the future R&D costs are known, we expect to incur 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. 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. 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. The primary source of cash available to us for the next 12 months, in addition to cash and cash equivalents on hand, is the potential funding from equity issuances pursuant to the 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 filed a prospectus supplement, dated April 4, 2023, with the SEC pursuant to which we may offer and sell shares of common stock having an aggregate offering price of up to $17.9 million from time to time, through the ATM. We may file another prospectus supplement with the SEC after we have sold $17.9 million of our common stock under this prospectus supplement. 20 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 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 in order to bring 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 to support the remaining R&D activities that are 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 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.