LIGHTBRIDGE Corporation — Q3 2014 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2014. Financial statements are unaudited. Lightbridge develops nuclear fuel technology and provides nuclear consulting; all reported revenue came from consulting services.
Financial performance
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Revenue | $275,158 | $169,156 | $878,396 | $1,343,964 |
| Gross margin | $139,097 (51%) | $40,376 (24%) | $386,349 (44%) | $565,143 (42%) |
| Operating expenses | $899,716 | $1,362,636 | $4,236,989 | $4,175,053 |
| Operating loss | $(760,619) | $(1,322,260) | $(3,850,640) | $(3,609,910) |
| Net loss | $(761,312) | $(1,319,279) | $(3,850,342) | $(3,622,046) |
| Basic and diluted loss per share | $(0.05) | $(0.11) | $(0.26) | $(0.29) |
Cash, liquidity and debt: At September 30, cash and cash equivalents were $440,837; restricted cash was $555,842 and marketable securities were $16,287. Current assets were $1.45 million versus current liabilities of $389,404, or working capital of approximately $1.06 million. The company reported no debt or credit lines and no interest expense. For the first nine months, operating cash outflow was $3.43 million, investing outflow $102,279 and financing inflow $304,656; cash declined $3.23 million.
Changes and key developments
- Q3 revenue increased about 63% year over year, primarily due to work on the Lloyd’s Register/KHNP project. Nine-month revenue decreased about 35%, mainly because of reduced ENEC and FANR work; increased KHNP revenue partly offset the decline.
- Q3 net loss narrowed year over year, alongside higher gross margin and lower R&D expense. Nine-month net loss increased about 6%; G&A rose to $3.06 million from $2.36 million, more than offsetting lower R&D and consulting costs.
- R&D expense was $1.17 million for the first nine months, down from $1.82 million. The company said it expects approximately $2 million of R&D spending over the next 12–15 months, primarily for fuel development and testing with Canadian Nuclear Laboratories (CNL).
- After quarter-end, Lightbridge reported a November 17, 2014 registered offering that generated approximately $4.5 million net. It sold 2,878,516 shares and warrants for 2,734,590 shares; proceeds were intended for R&D and working capital. The filing reports 18,082,874 common shares outstanding as of November 17, versus 15,204,358 at September 30.
Outlook, risks and contingencies
- Management estimated a current operating cash shortfall of approximately $300,000 per month and said additional funding would likely be needed. Potential sources cited include equity, new consulting contracts and strategic alliances. The November offering provided additional capital but also diluted existing shareholders.
- The company expects R&D activity to increase over the next 2–3 years. It described goals of obtaining a utility letter of intent in early 2016 and initial major irradiation-test results in 2017; these are plans, not assured outcomes.
- Fuel technology remains in development and has not been tested in a commercial reactor. Regulatory approval, fabrication scale-up, commercial adoption, intellectual-property rights and access to funding remain material uncertainties.
- Operations and revenue are concentrated in international markets and a limited number of consulting customers; UAE contracts represented approximately 74% of nine-month revenue. ENEC was extended through 2015. A planned FANR extension through 2016 was subject to final signatures; the company later disclosed signing an amendment, also pending final signatures.
- Management highlighted political and economic risks, including U.S.-Russia tensions affecting engineering work, nuclear-industry regulation and public acceptance, competition, and the possibility of customer work plans changing. It reported no known legal proceedings expected to have a material adverse effect and no material off-balance-sheet arrangements.
Important facts for investors to verify
- Whether the November offering proceeds and any further financing can support operations and the stated development program, given the reported cash burn.
- Final execution, scope and revenue contribution of FANR, ENEC, CNL, KHNP and Vietnam-related agreements; announced awards or cooperation plans do not establish the amount or timing of revenue.
- Progress, cost and timing of fuel fabrication, irradiation testing, regulatory review and eventual commercial qualification.
- Customer and geographic concentration, future consulting utilization, and the effect of additional share and warrant issuance on dilution.
- Whether reported liquidity figures appropriately distinguish unrestricted cash from restricted cash and whether actual cash use tracks management’s estimate.