Lightbridge Corporation — Q3 2016 Form 10-Q
Business context and period. This unaudited quarterly report covers the three and nine months ended September 30, 2016. Lightbridge is an early-stage nuclear-fuel technology developer, with a consulting business that generated all reported revenue. It reported no technology-segment revenue.
Financial performance
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $83,219 | $234,163 | $372,142 | $656,220 |
| Gross profit / margin | $39,300 / 47% | $115,209 / 49% | $197,861 / 53% | $204,213 / 31% |
| Operating expenses | $1,547,999 | $1,370,078 | $4,762,442 | $4,016,723 |
| Operating loss | $(1,508,699) | $(1,254,869) | $(4,564,581) | $(3,812,510) |
| Net loss | $(1,503,517) | $(174,271) | $(3,135,427) | $(1,076,613) |
| Net loss attributable to common stockholders | $(2,117,484) | $(174,271) | $(3,749,394) | $(1,076,613) |
| Basic and diluted loss per share | $(0.44) | $(0.05) | $(0.91) | $(0.30) |
Revenue declined 64% in Q3 and 43% for the nine-month period, mainly because of reduced work under the FANR consulting project. Nine-month gross margin improved primarily due to a higher-margin consulting project. Research and development expense rose 59% to $1.45 million for the nine months; general and administrative expense increased 7% to $3.31 million.
Reported other income included non-cash warrant revaluation gains of $78,442 in Q3 and $1.64 million for the nine months. These gains were lower than the prior-year periods and are sensitive to share price and valuation assumptions. The common-stockholder loss also includes a $581,300 deemed preferred-stock dividend and $32,667 of accrued preferred dividends.
Cash, liquidity and capital
- At September 30, cash and cash equivalents were $3.21 million, restricted cash was $114,000, and working capital was approximately $3.1 million. Total assets were $6.26 million and stockholders’ equity was $5.10 million.
- Nine-month operating cash use was $3.91 million, investing cash use was $171,000, and financing provided $6.67 million. Cash and cash equivalents increased by $2.59 million from year-end 2015.
- Current liabilities were $979,000, including a $27,377 note payable. Total liabilities were $1.17 million; the company said it had no debt or debt credit lines. Operating lease payments totaled approximately $600,000 before about $300,000 of future sublease rentals.
- Financing included $2.8 million from Series A preferred stock and approximately $3.6 million of common-stock proceeds raised in 2016 through Aspire Capital arrangements. The preferred shares carry a 7% annual dividend payable in kind and are initially convertible one-for-one into common shares.
- Cash and restricted cash were approximately $3.3 million. Management estimated a monthly cash-flow shortfall of $400,000–$500,000 through the rest of 2016 and said it expected funding for the next 12 months from anticipated equity raises, while warning that financing availability was not assured.
Outlook, developments and risks
- Management expected to spend approximately $3–$4 million on fuel research and development over the next 12–15 months; another MD&A passage gives $3–$3.5 million, so the filing presents differing estimates. It anticipated rising development activity and said additional capital would be needed in 2017.
- The development program targets metallic fuel for existing pressurized-water reactors, with a stated potential for up to 10% higher power output and a 24-month operating cycle. These are development objectives, not demonstrated commercial results. Management’s schedule anticipated sample fabrication in 2017, irradiation data around 2018, and possible commercial lead-test-assembly operation in 2020–2021.
- After quarter-end, Lightbridge reported an October 31 non-binding term sheet with AREVA for a proposed equally owned U.S. joint venture, and a November 2 non-binding letter of intent with Southern Nuclear to negotiate a lead-test-assembly agreement. The Southern Nuclear proposal depends in part on a joint venture or similar arrangement with AREVA. Neither item was a completed definitive commercial agreement.
- The company’s FANR contract had been extended through December 31, 2016; future work and revenue depended on agreed work plans. It also reported that a separate Aspire milestone for up to $1 million of stock issuance was not met. An additional $3 million Aspire purchase opportunity depended on announcement of a binding commercialization joint venture by March 31, 2017.
- From October 1 to November 9, 2016, Lightbridge raised approximately $624,000 net through ATM sales of about 370,000 shares. Common shares outstanding were 5,183,231 at September 30 and 5,545,150 as of November 10.
- Principal risks include recurring losses, dependence on additional equity or strategic funding, the unproven and lengthy commercialization path, reliance on international consulting revenue, customer concentration, nuclear-industry regulation and public acceptance, and competition. One customer represented approximately 100% of accounts receivable at September 30. Management reported effective disclosure controls and no material legal proceedings.
Most important facts for investors to verify
- Cash runway and the timing, availability, and dilution implications of future equity financing; management’s 12-month liquidity expectation depends on anticipated raises.
- Whether the AREVA term sheet and Southern Nuclear letter of intent become definitive agreements, and whether financing and technical milestones can be met.
- Actual R&D spending versus the filing’s differing $3–$4 million and $3–$3.5 million estimates, and progress toward fuel fabrication, irradiation testing, and licensing.
- Consulting contract renewals and customer concentration, particularly the FANR contract’s expiration and the concentration of receivables.
- Potential dilution from preferred conversion, warrants, options, ATM issuance, and Aspire facilities; the filing lists 8.41 million common shares, warrants, and options outstanding in aggregate at September 30, 2016.