Lightbridge Corporation — Q1 2014 Form 10-Q
Business context and reporting period. This unaudited report covers the three months ended March 31, 2014, with balance-sheet comparisons to December 31, 2013. Lightbridge develops nuclear-fuel technology and provides nuclear consulting services. All reported revenue came from consulting; its fuel technology remained in research and development.
Key financial metrics
| Metric | Q1 2014 | Q1 2013 / comparison |
|---|---|---|
| Revenue | $254,107 | $515,950; down about 51% |
| Cost of consulting services | $125,012 | $284,337 |
| Gross margin | $129,095; 51% of revenue | $231,613; 45% of revenue |
| Operating expenses | $1,563,405 | $1,525,051 |
| Operating loss | $1,434,310 | $1,293,438 |
| Net loss | $1,433,922 | $1,278,922 |
| Basic and diluted loss per share | $0.10 | $0.10 |
| Net cash used in operating activities | $1,469,206 | $1,061,974 |
| Cash and cash equivalents | $2,177,072 | $3,672,877 at Dec. 31, 2013 |
| Total assets | $4,443,626 | $5,657,639 at Dec. 31, 2013 |
| Current liabilities | $636,742 | $476,628 at Dec. 31, 2013 |
| Debt | No debt or credit lines reported | — |
At March 31, cash, restricted cash, and marketable securities totaled approximately $2.75 million; working capital was approximately $3.1 million. Quarterly investing cash use was $26,420, principally patent costs; financing cash use was $179. No interest expense or income tax provision was reported.
Material changes versus the prior period
- Revenue fell by approximately $262,000, primarily because of reduced work on the FANR project. ENEC and FANR together accounted for approximately 86% of Q1 2014 revenue, compared with 95% in Q1 2013.
- Gross margin improved to 51% from 45%, as consulting costs declined more than revenue, including from reduced use of outside consultants.
- Research and development expense declined to $431,986 from $643,273, mainly due to lower salaries and wages. General and administrative expense rose to $1,131,419 from $881,778, primarily due to payroll, benefits, and professional fees, partly offset by lower stock compensation.
- Despite lower revenue and R&D expense, operating and net losses widened; operating cash use increased by about $407,000 year over year.
Outlook, commentary, and risks
- Management estimated a current operating cash-flow shortfall of approximately $300,000 per month. Its expectation that funds would sustain operations for 12 months depended on anticipated 2014 equity financing. The company stated it would need additional capital in 2014 and was exploring equity, debt, bank financing, or a strategic alliance.
- Management expected to spend approximately $3–4 million on fuel-technology R&D over the next 12–15 months. It sought strategic partners and a definitive fuel-vendor/fabricator agreement; proposals for new consulting and technology work were pending, with timing and awards uncertain.
- The ENEC contract was extended through 2015; the FANR contract runs through December 31, 2014. A subcontract with Lloyd’s Register for KHNP work runs from February 1, 2014 through February 1, 2015, with a maximum price of $400,000 including expenses and taxes.
- The company’s fuel designs had not been demonstrated in a commercial reactor. Risks include technical and regulatory approval, fabrication scale-up, access to technology and intellectual property, and reliance on Russian research activities amid political and authorization uncertainties.
- Revenue concentration in a small number of international consulting clients, exposure to nuclear-sector demand and public sentiment, and the need for new capital are material risks. Management reported no known legal proceedings expected to have a material adverse effect, no defaults on senior securities, and no material off-balance-sheet arrangements.
- The October 2013 offering included warrants for 1.25 million shares, exercisable beginning April 22, 2014 at $2.30 per share, subject to stated terms. Such exercises could dilute shareholders.
Important facts for investors to verify
- Whether the company completed the anticipated 2014 financing, on what terms, and whether proceeds were sufficient for the stated cash shortfall and R&D plan.
- Whether pending consulting proposals and the KHNP subcontract generated revenue and cash collections, and whether ENEC and FANR work plans continued at expected levels.
- Actual monthly cash burn, unrestricted liquidity, and runway, distinguishing cash equivalents from restricted cash.
- Progress toward a binding fuel-fabrication or strategic partnership, required regulatory approvals, and commercial demonstration milestones.
- Potential share dilution from warrants and other outstanding stock equivalents.