Lightbridge Corporation — Q2 2018 Form 10-Q
Business context and reporting period. This unaudited report covers the three and six months ended June 30, 2018. Lightbridge is a development-stage nuclear-fuel technology company, with consulting as a secondary business. Its principal development vehicle is Enfission, a 50/50 joint venture with Framatome formed in January 2018 to develop, license and commercialize advanced metallic nuclear fuel.
Financial performance and position
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Revenue | $0 | $14,425 | $0 | $149,910 |
| Operating expenses | $1.99 million | $1.52 million | $5.13 million | $3.19 million |
| Net loss | $3.52 million | $1.64 million | $8.24 million | $3.38 million |
| Net loss attributable to common stockholders | $3.69 million | $1.69 million | $11.16 million | $3.48 million |
| Loss per common share, basic and diluted | $0.14 | $0.17 | $0.50 | $0.37 |
Consulting revenue and gross profit were nil in Q2 2018; gross margin was therefore not meaningful. The company said it did not expect significant consulting revenue in the near term. Six-month R&D expense was $1.45 million versus $1.01 million, while general and administrative expense was $3.68 million versus $2.18 million. Q2 R&D was broadly unchanged year over year; Q2 G&A rose 50% to $1.45 million, primarily reflecting higher professional fees and compensation.
- Cash and liquidity: Cash and cash equivalents were $25.71 million at June 30, 2018, versus $4.52 million at year-end 2017; working capital surplus was approximately $24.8 million. Cash included about $10 million in U.S. Treasury bills.
- Cash flows, six months: $3.22 million used in operating activities and $5.36 million used in investing activities, including $5.22 million invested in Enfission. Financing provided $29.77 million, chiefly from common-stock proceeds of $25.87 million and preferred-stock proceeds of $3.90 million.
- Debt and liabilities: The company reported no debt or debt credit lines. Total liabilities were $1.41 million, primarily accounts payable and accrued liabilities.
- Joint venture: Enfission’s reported six-month net loss was approximately $2.8 million; Lightbridge recorded the same amount as equity in loss under its stated allocation method. Lightbridge’s investment carrying value was $2.42 million, after approximately $5.2 million of contributions. The company reported about $0.4 million receivable from Enfission.
- Per-share effects: Preferred dividends and deemed dividends, including a $2.62 million deemed dividend on Series B issuance, increased the six-month loss attributable to common stockholders beyond the reported net loss. The filing reports 28.62 million common shares outstanding at June 30 and 29.48 million as of July 26, 2018.
Material changes versus the prior comparable period
- Revenue fell to zero as Lightbridge shifted resources away from consulting and toward nuclear-fuel development.
- Six-month net loss increased to $8.24 million from $3.38 million, reflecting higher G&A and R&D and the newly recorded Enfission loss, partly offset by Enfission-related service income.
- Cash increased substantially following equity financing. Common shares outstanding more than doubled from year-end 2017 to June 30, 2018, alongside issuance of Series B preferred stock.
- The company wrote off approximately $1.0 million of deferred financing costs after terminating its Aspire Capital stock purchase agreement.
Outlook, risks and unusual items
- Management estimated a general and administrative cash-flow shortfall of $0.5–$0.6 million per month over the next 12–15 months and anticipated $10–$12 million of R&D funding needs over that period. It expected to continue making Enfission contributions; the filing states contractual funding commitments to Enfission of approximately $10–$12 million.
- Management said available resources were sufficient for its current 12-month operating budget, while also indicating that additional capital would be needed in 2019. Potential sources include the ATM equity program, other investors and Department of Energy funding; availability and terms are not assured. Management also said certain expenses could be delayed if needed.
- Development and commercialization remain long-term and conditional. The company’s anticipated milestones included a lead-test-assembly agreement in 2019–2020, testing and fabrication work in subsequent years, and possible commercial deployment in 2028–2029. These are plans, not guaranteed outcomes.
- The Halden research reactor was no longer available after its operator decided not to renew its license beyond 2020. Lightbridge planned U.S.-based testing and was evaluating alternatives, including Idaho National Laboratory’s Advanced Test Reactor; the change could delay testing and commercialization, and a suitable alternative may not be found.
- Key risks include technical and regulatory hurdles, financing needs, reliance on Enfission and Framatome, and uncertainty around DOE funding and strategic partnerships. The company reported an appeal of a former CFO’s OSHA complaint; OSHA had dismissed the complaint in January 2018, and management said it would defend the appeal. The company stated it was not involved in material legal proceedings.
- Subsequent events included the CFO’s planned retirement and appointment of a successor effective September 1, 2018, new executive employment agreements, and approximately $0.9 million raised through the ATM after June 30 and before filing.
Most important facts for investors to verify
- Whether the cash balance, ATM capacity and other financing sources can fund the planned R&D program and Enfission commitments without substantial further dilution.
- How Enfission’s funding obligations, cash contributions and loss-allocation method operate in practice, including the reported allocation of the full $2.8 million JV loss to Lightbridge.
- Whether a suitable replacement test reactor is secured and whether testing, licensing and commercialization milestones remain achievable.
- Whether DOE or other third-party funding is obtained, and the associated cost-sharing requirements and timing.
- The effect of preferred-stock dividends, conversion terms, warrants, options and future equity issuance on common shareholders.