LIGHTBRIDGE Corp quarterly report, Q2 FY2016

Lightbridge Corporation — Q2 2016 Form 10-Q

Reporting period: Three and six months ended June 30, 2016. Unaudited results. Lightbridge develops nuclear-fuel technology and provides nuclear-industry consulting; all reported revenue came from consulting. Share figures and per-share amounts reflect the July 20, 2016 one-for-five reverse stock split.

Financial performance

MetricQ2 2016Q2 2015Six months 2016Six months 2015
Revenue$122,377$298,162$288,923$422,057
Gross margin$60,240 (49%)$22,500 (8%)$158,561 (55%)$89,003 (21%)
Operating expenses$1,532,080$1,503,522$3,214,442$2,646,645
Operating loss$(1,471,840)$(1,481,022)$(3,055,881)$(2,557,642)
Net loss$(1,297,205)$(1,021,356)$(1,631,911)$(902,342)
Basic and diluted loss per share$(0.30)$(0.28)$(0.40)$(0.25)

Revenue fell 59% in Q2 and 32% in the first half, primarily because less work was performed under the FANR consulting project. Gross margin improved, which management attributed to better margins on consulting work and lower stock-based compensation allocated to service costs. First-half R&D expense rose 66% to $1.01 million; G&A increased 8% to $2.21 million.

Other income included noncash warrant revaluation income of $312,000 in Q2 and $1.57 million in the first half. These gains reduced reported net losses; they are not operating cash inflows. Q2 also included $129,000 of warrant-modification expense. The warrant liability was valued using Level 3 inputs and fell from $2.33 million at year-end to $199,000 at June 30, partly following a warrant amendment and reclassification to equity.

Cash, liquidity and capital

  • At June 30, cash and cash equivalents were $1.48 million and restricted cash was $35,021. Working capital was approximately $0.4 million. Total liabilities were $1.72 million; stockholders’ equity was $1.10 million, versus a $1.50 million deficiency at December 31, 2015.
  • First-half operating cash use was $2.39 million; investing cash use was $97,924, chiefly patent costs; financing provided $3.35 million. Cash increased by $860,915 to $1.48 million.
  • A vendor-financed note issued for $135,000 had a $68,036 balance at June 30 and was expected to be repaid by November 2016. The filing says it had no debt or debt credit lines apart from this short-term note.
  • During the first half, common-stock issuance provided approximately $2.99 million net. Management estimated monthly cash shortfall of $400,000–$500,000 through the remainder of 2016 and expected to seek further equity funding. It stated anticipated raises should support 12 months of operations, but funding availability was not assured.
  • After quarter-end, on August 2, the company closed a $2.8 million Series A preferred-stock offering. The preferred shares are convertible initially one-for-one and accrue 7% annual dividends payable in kind. On August 10, it granted Aspire Capital an option to enter up to two equity purchase agreements for up to $20 million in aggregate through December 31, 2019; the company issued warrants for 500,000 shares at $0.01 as consideration. These arrangements can dilute existing shareholders.

Outlook, developments and risks

  • Management expected to spend approximately $3 million to $3.5 million on fuel R&D over the next 12–15 months. It described a long development path: semi-scale fuel samples for irradiation testing targeted for 2017, commercial-reactor lead test assemblies as soon as 2020–2021, and potential initial reload orders in 2023–2024. These are estimates, not assured milestones.
  • Lightbridge entered a joint development agreement with AREVA in March to assess feasibility and potential terms for a joint venture; it also engaged BWXT to evaluate fuel-sample fabrication. Neither agreement establishes a completed commercialization partnership. The FANR consulting contract was extended through December 31, 2016; future work and revenue depend on agreed work plans.
  • On July 27, Nasdaq granted continued listing subject to conditions. The $1 minimum bid-price condition was met August 2; a further condition required the company to demonstrate equity above $2.5 million and provide updated projections by August 15. The filing warns failure to satisfy listing requirements could result in delisting.
  • Key risks include recurring losses, dependence on additional capital, early-stage fuel development and commercialization, reliance on international consulting revenue, customer concentration, nuclear-industry regulation and public acceptance, and execution of research and partnership milestones. Two customers represented 99% of receivables at June 30.
  • A former CFO’s defamation claim was dismissed and is now time-barred; a separate OSHA retaliation complaint remained unresolved. The company said it considered the OSHA complaint without merit and intended to defend itself.

Important facts for investors to verify

  • Whether the post-quarter preferred-stock proceeds and Aspire financing options provide adequate runway, and on what terms further capital may be raised.
  • Whether Nasdaq’s remaining listing conditions were satisfied by the stated deadline and whether continued listing was maintained.
  • Progress, funding requirements and partner commitments for AREVA/BWXT work and the fuel-testing schedule; no technology revenue had been recorded.
  • The sustainability of consulting revenue and margins, including FANR work after its December 2016 contract extension.
  • Potential dilution from preferred conversion, outstanding warrants and options, and the new Aspire commitment warrants.