Lightbridge Corporation — FY2016 Form 10-K
Reporting period: Fiscal year ended December 31, 2016; comparisons are with FY2015. This is an annual report, not a quarterly filing. Lightbridge develops metallic nuclear fuel technology and provides nuclear energy consulting. In 2016, all revenue came from consulting; the fuel technology remained in development.
Financial results and liquidity
| Metric | FY2016 | FY2015 |
|---|---|---|
| Revenue | $760,577 | $910,531 |
| Gross profit / margin | $304,012 / 40% | $216,239 / 24% |
| Research and development expense | $2.75 million | $1.48 million |
| General and administrative expense | $5.19 million | $5.35 million |
| Operating loss | $(7.63) million | $(6.62) million |
| Net loss | $(6.35) million | $(4.32) million |
| Net loss attributable to common shareholders / loss per share | $(7.01) million / $(1.48) | $(4.32) million / $(1.18) |
| Operating cash flow | $(5.98) million | $(3.65) million |
| Investing cash flow | $(0.21) million | $(0.12) million |
| Financing cash flow | $9.15 million | $0.17 million |
- Revenue fell 16%, reflecting pricing competition and reduced FANR project work. Gross margin improved primarily because consulting costs included less stock-based compensation.
- R&D expense rose 85% as outside development work and related costs increased. The larger operating and net losses reflect the company’s spending on fuel development and corporate overhead, partly offset by noncash warrant revaluation income.
- At year-end, cash and cash equivalents were $3.58 million and restricted cash was $114,012. Working capital was approximately $3.4 million. Total assets were $6.80 million, total liabilities $1.24 million, and stockholders’ equity $5.56 million.
- The company reported no debt or credit lines at year-end. A $135,000 vendor-financing note issued and repaid during 2016 was fully paid by November.
- Financing included $2.8 million from issuance of Series A preferred stock and proceeds from common-stock sales. The preferred stock carries a 7% in-kind dividend and is initially convertible one-for-one into common shares; the filing records an $581,300 deemed dividend and approximately $80,600 of accumulated preferred dividends.
Material changes and business developments
- Lightbridge executed a nonbinding term sheet with AREVA NP in October 2016 for a proposed equally owned joint venture to develop, manufacture and commercialize fuel assemblies. The development agreement expired December 31, 2016; definitive joint-venture documentation was still being pursued at filing.
- A November 2016 nonbinding letter of intent with a U.S. utility contemplated negotiations for a lead test assembly (LTA) agreement. Execution depended, among other things, on a joint venture or similar arrangement with AREVA NP.
- Consulting revenue remained the sole source of revenue. The FANR contract expired December 31, 2016 and had not been renewed for 2017, although services continued through a Lloyd’s Register subcontract. Other consulting contracts also ended in 2016.
- The company completed a 1-for-5 reverse stock split in July 2016 to regain compliance with Nasdaq’s minimum bid-price requirement. It also raised $2.8 million through a preferred-stock placement and used equity purchase and at-the-market arrangements to fund operations.
Outlook, risks and contingencies
- Going concern: The auditor and management disclosed substantial doubt about Lightbridge’s ability to continue as a going concern. The company had recurring losses, limited cash relative to expected spending, and expected to seek additional equity or other financing. If funding is unavailable, it may delay, reduce or curtail operations.
- Management expected average monthly cash-flow shortfalls of approximately $500,000–$600,000 over the next 12 months from filing, and forecast $3 million–$5 million of R&D spending over the following 12–15 months, conditional on raising additional equity. It said it could defer some expenses if needed.
- Fuel development is lengthy and unproven in a commercial reactor. Management’s anticipated schedule included experiments and model development in 2017–2020, LTA operation as soon as 2023–2024, an initial reload-batch order as soon as 2026–2027, and commercial deployment as soon as 2028–2029. These are projections, not commitments.
- Key execution risks include financing and dilution, obtaining commercial partners and a host utility, fabrication of full-length fuel rods, experimental validation, regulatory approval, infrastructure changes for enrichment above 5%, and market acceptance. The company also cited nuclear-industry competition, public opposition, low natural-gas prices, export controls, customer concentration, and dependence on key personnel.
- The 2016 net loss included $1.67 million of noncash warrant revaluation income; the comparable 2015 amount was $2.31 million. Warrant modifications moved the relevant warrants from liability to equity classification by year-end. These accounting items do not represent operating cash generation.
- A former CFO’s OSHA complaint alleged retaliation and sought damages. Lightbridge said it considered the claims without merit and intended to defend itself. The filing did not provide a clear estimate of potential loss.
- After year-end through March 23, 2017, the company reported approximately $2.8 million of gross proceeds from ATM share sales. This adds liquidity but increases share count and potential dilution.
Important facts for investors to verify
- Available cash, actual monthly burn, and whether additional financing is secured on acceptable terms.
- Status and definitive terms of the proposed AREVA NP joint venture and utility LTA agreement; both were nonbinding or pending in this filing.
- Renewal, scope and revenue contribution of FANR and other consulting work after 2016.
- Progress, cost and timing of fuel testing, fabrication, regulatory review and commercial qualification against management’s projected milestones.
- Potential dilution from ATM and Aspire Capital sales, warrants, stock options and conversion of Series A preferred stock.
- Developments in the former CFO complaint and any resulting financial or operational exposure.