Lightbridge Corporation — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016. The filing was signed May 5, 2016. Lightbridge develops nuclear fuel technology and provides nuclear-energy consulting; all reported revenue came from consulting.
Financial results and position
| Metric | Q1 2016 | Q1 2015 / comparison |
|---|---|---|
| Revenue | $166,546 | $123,895; up 34% |
| Gross profit / margin | $98,321 / 59% | $66,504 / 54% |
| Operating expenses | $1.682 million | $1.144 million; up 47% |
| Operating loss | $1.584 million | $1.078 million |
| Net loss / earnings per share | $334,705 / $(0.02) | Net income $117,662 / $0.01 |
| Cash used in operations | $1.315 million | $1.029 million |
| Cash and cash equivalents at period end | $751,265 | $623,184 at Dec. 31, 2015 |
| Restricted cash at period end | $325,832 | Unchanged from Dec. 31, 2015 |
| Current assets / current liabilities | $1.707 million / $1.760 million | Negative working capital of about $0.1 million |
| Total liabilities | $2.971 million | $3.707 million at Dec. 31, 2015 |
Net income in Q1 2015 included a $1.198 million noncash warrant revaluation gain; Q1 2016 included a $1.254 million noncash gain. The warrant liability, valued using Level 3 inputs, declined to $1.073 million from $2.327 million. Thus, the reported net loss does not reflect operating cash burn alone.
Research and development expense rose 175% to $586,250, principally due to work with IFE, CNL and BWXT, professional fees, and labor. General and administrative expense rose 18% to $1.096 million. The company recorded no income tax provision. A $135,000 vendor-financing note was issued in February; $108,214 remained payable at quarter-end and was scheduled to be repaid by November 2016.
Changes, financing, and liquidity
- Revenue increased by $42,651, primarily from additional FANR project work. Gross margin improved by five percentage points, attributed to a better margin on a 2016 consulting project.
- Operating expenses increased by $537,885, with the largest change in R&D. The operating loss widened by $506,068; despite the warrant gain, results shifted from net income to net loss.
- Financing activities provided $1.505 million, including approximately $1.396 million of net common-stock proceeds and $135,000 in note proceeds. Cash rose by $128,081 during the quarter.
- The company sold approximately 2.2 million shares through its Aspire Capital equity purchase agreement during Q1 for about $1.4 million gross. From April 1 through May 5, it sold another 500,000 shares for approximately $255,000. Common shares outstanding were 20,828,957 at March 31 and 21,328,957 on April 27.
- Management estimated an average monthly operating cash shortfall of $400,000–$500,000 through the remainder of 2016 and said available working capital, without further financing, was insufficient for the next 12 months. Management expected funding to be sufficient if anticipated equity raises and other financing were obtained, but stated there was no assurance of availability or terms.
Business outlook, risks, and contingencies
- Funding and going concern: The filing states that recurring losses, limited capital, and the need for additional financing raise substantial doubt about the company’s ability to continue as a going concern. Failure to raise funds could require delays or reductions in operations.
- R&D plans: Management projected investing $3 million–$3.5 million in nuclear-fuel development over the next 12–15 months, with R&D activity expected to increase. The development schedule targets semi-scale fuel samples for irradiation testing in 2017, potential commercial-reactor lead test assembly operation as early as 2020–2021, and initial reload orders as early as 2023–2024; these are forward-looking targets, not commitments.
- Partnerships: A March 14, 2016 joint development agreement with AREVA sets out feasibility and planning work toward possible joint ventures; definitive arrangements depend on successful completion of the work. The company also reported an initial services agreement with BWXT and agreements with CNL and IFE for fabrication and irradiation-testing activities. The AREVA work was expected to cost Lightbridge about $141,000.
- Customer and concentration risk: Consulting revenue depends on a small number of customers and foreign markets. Two customers represented 100% of receivables at quarter-end. The FANR contract was extended through December 31, 2016; future work and revenue depend on agreed work plans.
- Nasdaq listing: The company reported that it was out of compliance with Nasdaq’s stockholders’ equity requirement, with a May 25, 2016 deadline to regain compliance, and the $1.00 minimum bid-price requirement, with a June 8, 2016 deadline. Delisting could impair liquidity and access to capital.
- Legal matter: A former CFO’s state-court complaint was voluntarily dismissed without prejudice in November 2015 and could be refiled within the stated period. A related OSHA retaliation complaint remained disclosed. The company disputed the allegations; approximately $105,000 of legal fees had been incurred and were expected to be paid by insurance.
- Other obligations: Minimum operating lease payments were approximately $0.9 million, before $0.4 million of future minimum sublease rentals. No material off-balance-sheet arrangements were reported.
Most important facts for investors to verify
- Whether the company secured enough financing to meet its stated cash needs, and the resulting dilution and remaining availability under the Aspire agreement and ATM facility.
- Whether Lightbridge regained Nasdaq stockholders’ equity and minimum-bid-price compliance by the applicable deadlines.
- Actual cash burn and R&D spending versus the stated monthly shortfall and $3 million–$3.5 million development budget.
- Whether consulting contracts, particularly FANR and ENEC work, continued or expanded, and how customer concentration changed.
- Progress and costs under the AREVA, BWXT, CNL, and IFE arrangements, including whether definitive commercialization or joint-venture agreements are reached.
- Any refiling or material developments in the former CFO disputes, and changes in the warrant liability, whose reported fair value depends on unobservable assumptions.