SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
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ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the Fiscal Year Ended: December 31, 2009
OR
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¨
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the Transition Period from ___ to ___
Commission
File Number: 000-28543
LIGHTBRIDGE
CORPORATION
(Exact
Name of Registrant As Specified in Its Charter)
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Nevada
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91-1975651
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(State
or Other Jurisdiction of
Incorporation
or Organization)
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(I.R.S.
Employer
Identification
Number)
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1600
Tysons Boulevard, Suite 550
McLean,
Virginia 22102
(Address
of Principal Executive Office and Zip Code)
(571)
730-1200
(Registrant’s Telephone Number,
Including Area Code)
Securities
registered pursuant to Section 12(b) of the Act: None
Securities
registered pursuant to Section 12(g) of the Act: Common Stock, par value
$.001
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes ¨ No x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes ¨ No x
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x No ¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “large
accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule
12b-2 of the Exchange Act. (Check one):
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Large
accelerated filer ¨
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Accelerated
filer ¨
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Non-accelerated
filer ¨
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Smaller
reporting
company x |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).Yes ¨ No x
As of
June 30, 2009, the aggregate market value of the shares of the Registrant’s
common stock held by non-affiliates (based upon the closing price of such shares
as reported on the Over-the-Counter Bulletin Board on such date) was
approximately $55.8 million. Shares of the Registrant’s common stock held by
each executive officer and director have been excluded in that such persons may
be deemed to be affiliates of the Registrant. This determination of affiliate
status is not necessarily a conclusive determination for other
purposes.
As of
March 12, 2010 there were 10,168,412 shares of the Registrant’s common stock
outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE:
Portions
of the Registrant’s Definitive Proxy Statement for its 2009 Annual Meeting of
Shareholders to be filed with the Commission within 120 days after the close of
the Registrant’s fiscal year are incorporated by reference into Part III of this
Annual Report on Form 10-K.
FORM
10-K
For
the Fiscal Year Ended December 31, 2009
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Page
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PART
I
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Item
1.
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Business
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4
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Item
1A.
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Risk
Factors
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12
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Item
1B.
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Unresolved
Staff Comments
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17
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Item
2.
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Properties
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17
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Item
3.
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Legal
Proceedings
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17
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Item
4.
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Submission
of Matters to a Vote of Security Holders
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17
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PART
II
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Item
5
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Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
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18
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Item
6.
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Selected
Financial Data
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19
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Item
7.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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19
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Item
7A.
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Quantitative
and Qualitative Disclosures About Market Risk
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29
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Item
8.
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Financial
Statements and Supplementary Data
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29
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Item
9.
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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29
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Item
9A.
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Controls
and Procedures
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30
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Item
9B.
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Other
Information
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31
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PART
III
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Item
10.
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Directors,
Executive Officers and Corporate Governance
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32
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Item
11.
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Executive
Compensation
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32
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Item
12.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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32
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Item
13.
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Certain
Relationships and Related Transactions
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32
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Item
14.
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Principal
Accountant Fees and Services
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32
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PART
IV
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Item
15.
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Exhibits,
Financial Statement Schedules
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33
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2
FORWARD-LOOKING
STATEMENTS
In
addition to historical information, this report contains forward-looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. We use words such as “believe”, “expect”, “anticipate”,
“project”, “target”, “plan”, “optimistic”, “intend”, “aim”, “will” or similar
expressions which are intended to identify forward-looking statements. Such
statements include, among others, (1) those concerning market and business
segment growth, demand and acceptance of our Nuclear Energy Consulting Services
and Nuclear Fuel Technology Business, (2) any projections of sales, earnings,
revenue, margins or other financial items, (3) any statements of the plans,
strategies and objectives of management for future operations, (4) any
statements regarding future economic conditions or performance, (5)
uncertainties related to conducting business in foreign countries, as well as
(6) all assumptions, expectations, predictions, intentions or beliefs about
future events. You are cautioned that any such forward-looking statements are
not guarantees of future performance and involve risks and uncertainties, as
well as assumptions that if they were to ever materialize or prove incorrect,
could cause the results of the Company to differ materially from those expressed
or implied by such forward-looking statements. Such risks and uncertainties,
among others, include:
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our ability to attract new
customers,
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our ability to employ and retain
qualified employees and consultants that have experience in the Nuclear
Industry,
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competition and competitive
factors in the markets in which we
compete,
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general economic and business
conditions in the local economies in which we regularly conduct business,
which can affect demand for the Company’s
services,
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changes in laws, rules and
regulations governing our
business,
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development and utilization of
our intellectual property,
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potential and contingent
liabilities, and
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the risks identified in Item 1A.
“Risk Factors” included
herein.
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All
statements other than statements of historical fact are statements that could be
deemed forward-looking statements. The Company assumes no obligation and does
not intend to update these forward-looking statements, except as required by
law. When used in this report, the terms “Lightbridge”, “Company”, “we”, “our”,
and “us” refer to Lightbridge Corporation and its wholly-owned subsidiaries
Thorium Power, Inc. (a Delaware corporation) and Lightbridge Power International
Holding, LLC (a Delaware limited liability company).
3
History
and Corporate Structure
We were
incorporated under the laws of the State of Nevada on February 2, 1999. During
the period from inception until October 6, 2006 we were engaged in businesses
other than our current business. On October 6, 2006, we acquired our
wholly-owned subsidiary Thorium Power, Inc. in a merger transaction and changed
our name to Thorium Power, Ltd. Thorium Power, Inc. was incorporated on January
8, 1992. The merger was accounted for as a reverse merger and Thorium Power,
Inc. is treated as the accounting acquirer. In 2008 we formed Lightbridge Power
International Holding, LLC (a Delaware limited liability company). We have
formed a branch office in England in 2008 called Lightbridge Advisors Limited, a
branch office in Moscow Russia in July 2009 and a branch office in the United
Arab Emirates in January 2010. On September 21, 2009, we changed the Company’s
name from Thorium Power Ltd. to Lightbridge Corporation to more accurately
reflect the varied nature of our business operations.
General
Overview of Our Business Segments
We
participate in the nuclear power industry in the U.S. and internationally. Our
business operations can be categorized into two segments, (1) a provider of
nuclear energy consulting services, and (2) a developer of proprietary nuclear
fuel designs. Our consulting services aim at providing strategic advice to
international commercial and government owned entities in countries with new and
growing nuclear energy programs. In 2009 we had provided substantially all of
our consulting and strategic advisory services to the United Arab Emirates
(“UAE”). In 2010 we are seeking to provide our consulting services to other
commercial or governmental entities. Our nuclear fuel development business
involves the development of proprietary thorium-based nuclear fuel designs which
we intend ultimately to introduce for sale into three markets: (1) nuclear fuel
designs for use in commercial nuclear power plants, (2) nuclear fuel designs for
reactor-grade plutonium disposition, and (3) nuclear fuel designs for
weapons-grade plutonium disposition.
Overview
of the Nuclear Power Industry
Presently,
nuclear power provides approximately 7% of the world’s energy, including 17% of
the world’s electricity. According to the International Atomic Energy Agency,
there are over 440 nuclear power plants in operation today, mostly light water
reactors, with the most dominant types being pressurized water reactors, or
PWRs, boiling water reactors, or BWRs, and VVER reactors (a Russian equivalent
of PWRs).
Nuclear
power generators, which convert nuclear energy into electricity, are the largest
consumers of products and services within the nuclear power industry. The
product and service providers to these customers include both large
vertically-integrated nuclear companies that provide a complete array of reactor
services, and niche providers. These services include (1) reactor design,
construction, servicing, and decommissioning, (2) front-end nuclear fuel
services (nuclear fuel materials procurement and processing; nuclear fuel design
(a market of interest to us) and fuel fabrication), and (3) back-end nuclear
fuel services (spent fuel management and reprocessing), transportation, and
various other services.
Today the
vast majority of commercial nuclear power plants around the world use uranium
oxide fuel. This uranium oxide fuel is comprised of uranium enriched up to 5% by
uranium-235, with the remaining 95% or more being uranium-238. During
irradiation inside a reactor core, some of the uranium-238 isotopes capture a
neutron and become plutonium-239, a long-lived fissionable element that can be
used to make nuclear weapons. Each year, an average 1,000-megawatt PWR produces
over 200 kilograms of reactor-grade plutonium in its spent fuel. The
plutonium-bearing spent fuel may be (1) buried in a repository such as the
facility which was under development by the U.S. Department of Energy in Yucca
Mountain, Nevada, (2) recycled so the plutonium is “burned” as nuclear fuel, or
(3) used to make nuclear weapons. All of the above-mentioned options for the
disposition of plutonium-bearing spent fuel raise environmental, safety, and/or
non-proliferation issues.
Our
Nuclear Energy Consulting and Advisory Services Business Segment
The
Nature of Our Consulting Services
We are
primarily engaged in the business of assisting commercial and governmental
entities with developing and expanding their nuclear industry capabilities and
infrastructure. We provide integrated strategic advice across a range of
expertise areas including nuclear reactor procurement & deployment, reactor
& fuel technology, international relations and regulatory
affairs.
4
Due to
the relatively limited growth in the nuclear energy industry since the 1980’s,
and corresponding limited recruitment into the industry, the cadre of engineers,
managers and other nuclear energy industry experts is aging. In the nuclear
renaissance, we believe that the industry will be challenged in acquiring and
retaining sufficient qualified expertise. Moreover, in countries studying new
nuclear energy programs, the number of qualified nuclear energy personnel is
very limited, and we believe that those countries will need to rely on
significant support from non-domestic service providers and experts to ensure
success in those programs.
Our
emergence in the field of nuclear energy consulting is in direct response to the
need for independent assessments and highly qualified technical consulting
services from countries looking to establish nuclear energy programs, by
providing a blueprint for safe, clean, efficient and cost-effective
non-proliferative nuclear power. We offer full-scope strategic planning and
advisory services for new and growing existing markets. Furthermore, we only
engage with commercial entities and governments that are dedicated to
non-proliferative and transparent nuclear programs.
Our
consulting services are expert and relationship based, with particular emphasis
on top-of-mind issues of key decision makers in senior positions within
governments or companies, as well as focus on overall management of nuclear
energy programs.
On
November 30, 2007, we were retained by the Executive Affairs Authority, or EAA,
a government agency of Abu Dhabi, one of the member Emirates of the United Arab
Emirates, or UAE, to provide consulting services designed to produce a Roadmap
that would constitute the first phase of a feasibility study for a prospective
program to deploy civilian nuclear power plants within the UAE, by acting as
strategic advisor for the entity responsible for managing nuclear energy related
activities in the UAE. We completed the Roadmap project in March 2008 and then
entered into a larger follow-on consulting agreement dubbed Quickstart. The
terms of the projects called for an upfront payment of professional fees to the
Company of $4.3 million and $3.8 million, for Quickstart and Roadmap
respectively. We completed work on the Quickstart project in June 2008. For
these agreements, certain reimbursable expenses that were repaid to us were
capped at 20% of the total professional fees and were billed separately to the
EAA.
On August
1, 2008, we entered into two separate consulting services agreements with two
governmental entities to be formed in the UAE, and a side agreement with the EAA
(“Side Letter”). The first agreement is with the Emirates Nuclear Energy
Corporation, or ENEC, an Abu Dhabi entity that, upon formation, became
responsible for implementing the country’s nuclear energy infrastructure.
Pursuant to the services agreement we entered into with ENEC, we provide
strategic advisory services regarding the development and management of ENEC
(the “ENEC Agreement”). Under the second agreement with the Federal Authority
for Nuclear Regulation, or FANR, a UAE federal entity, which upon formation,
became the independent nuclear regulatory agency in the UAE, we provide
strategic advisory services regarding the development and management of FANR
(the “FANR Agreement” and collectively with the ENEC Agreement, the
“Agreements”). According to the Agreements, we were to be paid $8.9 million from
ENEC and $8.5 million from FANR (aggregate of $17.4 million was to be paid for
2008 work, but was later adjusted to $14.1 million, based upon subsequent
changes after signing these agreements, to the agreed upon detailed work plans)
for strategic advisory services performed from June 23, 2008 through December
31, 2008. In addition, we were compensated for certain defined reimbursable
expenses which are capped at 20% of professional fees. The term of these
Agreements is five years, with automatic renewal for one year periods unless
otherwise terminated pursuant to the provisions of these
Agreements.
A Side
Letter with the EAA provided that upon execution of the agreements, the EAA
would pay us $10 million, which we received in September 2008. Of the $10
million payment by the EAA, $5 million was deemed to be made as a partial
payment from ENEC and FANR, under each of the agreements. The remaining $4.1
million in outstanding fees for our services performed in 2008 under the
agreements was paid to us in 2009.
Based on
the successful completion of our consulting work under these agreements in 2008,
we continued in 2009 to perform and bill our consulting services under both of
these consulting agreements. Effective March 2009 and July 2009, we signed
follow-on agreements with ENEC and FANR respectively, specifying the detailed
work plans for the rest of the 2009 year. Revenue earned under these
agreements and future agreements depends upon the agreed upon work
plans and time spent working on these projects, which can be more or less than
the revenue amounts initially planned to be earned under these agreements.
Consulting revenue including reimbursed expenses earned in 2009 under the ENEC
and FANR agreements was approximately $4.1 million and $6.1 million,
respectively. Future billings for future periods under the agreements will
depend on detailed work plans, which will typically be discussed and agreed upon
between us and our clients on a quarterly basis during project
reviews.
5
Revenue
from the Roadmap contract was recognized during our first fiscal quarter of
2008, when the work on the contract was substantially completed. We recognized
revenue related to the Quickstart project ratably over the term of the agreement
as this contract called for on-going consulting services from March 2008 through
June 2008. Under the August 1, 2008 Agreements, revenues were initially being
recognized from our fixed professional fee agreements using the proportional
performance method of revenue recognition, but after the contract was started
and more detailed work plans were agreed to, revenue was recognized on a time
and expense basis. Going forward, we anticipate recognizing revenue from both of
these agreements on a time and expense basis, which will be based on our agreed
upon hourly billing rates and time spent working on the detailed work
plans.
We may
enter into additional consulting contracts to provide support and assistance to
other commercial and governmental entities that are looking to develop and
expand their nuclear power industry capabilities and infrastructure. In future
consulting engagements we expect that revenues may be derived either from fixed
professional fee agreements or from fees generated through hourly rates billed
on a time and expense basis. Our current strategy in the consulting services
business is focused on the following:
Primarily
: Further strengthening the relationship with our existing clients in
the UAE and increasing the revenue potential by providing additional consulting
and strategic advisory services; and
Secondarily
: Expanding our client base by further penetrating markets and
attracting new clients with similar needs as our existing clients, and also
enhancing and extending our services, including the creation of new service
offerings.
Our most
significant expense related to our consulting and strategic advisory services
business segment is the cost of services before reimbursable expenses, which
generally relates to costs associated with generating consulting revenues, and
includes employee payroll expenses and benefits, contractor compensation, vendor
compensation, marketing expenses, and direct costs of training and recruiting
the consulting staff. Consultant compensation consists of salaries, incentive
compensation, and benefits. As revenues are generated from services performed by
our permanent staff and contractors, our success depends on attracting,
retaining and motivating talented, creative and experienced professionals at all
levels.
Competition
in Nuclear Industry Consulting
In
general, the market for nuclear industry consulting services is competitive,
fragmented and subject to rapid change. The market includes a large number of
participants with a variety of skills and industry expertise, including local,
regional, national and international firms that specialize in political
assessment, nuclear technology or program implementation. Some of these
companies are global in scope and have greater personnel, financial, technical,
and marketing resources than we do. The larger companies offering similar
services as we do typically are also active in the delivery of nuclear power
plant hardware and/or provision of engineering design services. However, we
believe that our independence, experience, expertise, reputation and segment
focus, enable us to compete effectively in this marketplace.
Our
Nuclear Fuel Technology Business Segment
The
Nature of Our Proprietary Technology Development Activities
For most
of the past decade we have been engaged in the development of proprietary
thorium-based nuclear fuel designs which we ultimately intend to introduce for
sale into two markets: (1) nuclear fuel designs for use in commercial nuclear
power plants and (2) nuclear fuel designs for reactor-grade plutonium
disposition. In addition, we have a conceptual nuclear fuel design for
weapons-grade plutonium disposition. These three types of fuel design are
primarily for use in existing or future VVER-1000 light water reactors. We have
also been conducting research and development related to a variant of these
nuclear fuel designs for use in existing pressurized water reactors
(PWR).
To date,
our operations have been devoted primarily to the development and demonstration
of our nuclear fuel designs, developing strategic relationships within and
outside of the nuclear power industry, securing political and financial support
from the U.S. and Russian governments, and the filing of patent applications
(including related administrative functions).
On August
3, 2009, we entered into two agreements with AREVA, one of the largest
companies in the nuclear energy industry, regarding our fuel technology
business. The first was an Agreement for Consulting Services, or
Consulting Agreement, pursuant to which we will conduct the first phase of
an investigation of specific topics of thorium fuel cycles in AREVA’s light
water reactors, or LWRs. This first phase will focus on providing initial
general results relating to evolutionary approaches to the use of thorium in
AREVA’s LWRs, specifically within AREVA’s Evolutionary Power Reactor. We will
receive total fees of $550,000 for services provided pursuant to
the Consulting Agreement. The anticipated second phase and further phases
of the collaboration, including a detailed study of evolutionary and longer-term
thorium fuel concepts, will be conducted in accordance with additional
collaborative agreements based upon the results of the first phase. The second
agreement we signed with AREVA was a five-year Collaborative Framework
Agreement, pursuant to which we will establish a joint steering committee
with AREVA, which will be responsible for reviewing project proposals, will be
empowered to make scientific and/or technical decisions and will allocate the
resources required to implement future collaborative projects between us and
AREVA.
6
To date,
we have only had minimal direct revenues from our research and development
activities regarding our thorium-based proprietary nuclear fuel technology, and
we do not expect to generate licensing revenues from this business for several
years, until our fuel designs can be fully tested and demonstrated and we obtain
the proper approvals to use our nuclear fuel designs in nuclear reactors. We
believe we can leverage our general nuclear technology, business and regulatory
expertise as well as industry relationships, to optimize our technology
development plans and create integrated advisory services with the highest
levels of expertise and experience in the nuclear power industry. Additionally,
our knowledge of and credibility in addressing proliferation related issues that
we have developed over many years, benefit our consulting and strategic advisory
services business. Our advisory services include a focus on non-proliferation,
safety and operational transparency of nuclear power programs.
Our
future customers may include nuclear fuel fabricators, nuclear power plant
owner/operators and/or the U.S. or foreign governments.
Nuclear
Fuel Development and Qualification Process
We have
been developing, testing and qualifying our nuclear fuel designs in accordance
with established industry processes and standard practices associated with new
nuclear fuel development programs. Typically, new fuel designs go through three
major development phases: (1) Conceptual design, (2) Preliminary design, and (3)
Final design.
From
inception until the late 1990s, we were primarily working on the conceptual
design of our seed-and-blanket unit, or SBU fuel technology, for application in
VVER-1000 reactors (“VVER SBU fuel”). Since the late 1990s, we have been largely
engaged in activities relating to the preliminary design of VVER SBU
fuel.
As
announced earlier, over the next several years we intend to focus our
development efforts primarily on the final design of VVER SBU fuel. In our
opinion, one of the most significant technical risks remaining in our
development efforts is the manufacture and testing of our full-size three-meter
long metallic seed fuel rods for a VVER-1000 reactor. We plan that these
full-length fuel rods will be manufactured in the second half of calendar year
2010 and then testing of these rods will begin.
We expect
to have the final design of the VVER SBU fuel completed within three to four
years, subject to successful conclusion of agreements with our development
partners in 2010 and 2011, for the full scope of work relating to final design
activities. In parallel, we, together with our development partners, expect to
continue working with regulatory authorities to obtain regulatory clearance for
insertion of several lead test assemblies, or LTAs, into an operating VVER-1000
reactor for final demonstration of our VVER SBU fuel technology.
The LTA
testing in an operating VVER-1000 reactor is expected to be carried out over
approximately 3 - 4.5 years (three 12-month or 18-month fuel cycles for a
VVER-1000 reactor operating with standard uranium oxide fuel), which is
one-third to one-half of the expected life of the blanket in a VVER-1000
reactor. After three cycles of operation, one or more irradiated seed and
blanket fuel assemblies will undergo post-irradiation examination to collect the
data on the results of LTA testing up to that point. Typically, post-irradiation
examination studies take a year to complete (which includes time necessary for
the cooling of irradiated fuel assemblies in a spent fuel pool before the
post-irradiation examination can commence). Once the post-irradiation
examination data from LTAs confirm VVER SBU fuel performance within acceptable
safety limits, we expect to be able to transition to partial cores, followed by
a full core and then multiple VVER-1000 reactor cores, subject to regulatory
approval.
In
addition to the VVER SBU fuel, we have also performed initial research and
testing of a similar seed-and-blanket fuel technology for application in western
pressurized water reactors, or PWR SBU fuel. In our work on the PWR SBU fuel
design, we largely benefit from the results of similar work already completed on
the VVER SBU fuel and the vast experience we have gained from the design of our
proprietary seed-and-blanket fuel technology over the years. As a result of
these past and anticipated future synergies, we believe we will be able to
accelerate the PWR SBU fuel development timeline compared to the overall VVER
SBU fuel development cycle.
To date,
we have spent approximately $7.9 million on research and development. Currently,
we estimate that we will require about $15 million in R&D investment over
the next three to five years to complete the final design of our VVER SBU
fuel.
7
Competition
in the Nuclear Fuel Design and Fabrication Area
There are
four groups of companies that collectively fabricate a large majority of the
fuel used in the world’s commercial nuclear power plants: AREVA, Westinghouse
Electric Company, General Electric, and AtomStroyExport/TYEL. We currently do
not plan to fabricate fuel for reactors. To the extent that the four companies
mentioned above currently own and may in the future develop new nuclear fuel
designs that can be used in the same types of reactors as those targeted by us,
they can also be viewed as competitors. The aforementioned agreements envision a
possibility of entering into a technology license agreement for the Lightbridge
intellectual property in the future.
We face
different competition for each of our three markets for our proprietary nuclear
fuel designs:
Thorium/Uranium
Fuel
We
believe that our thorium/uranium nuclear fuel will offer significant advantages
over conventional uranium fuel, including: (1) enhanced proliferation resistance
of spent fuel, (2) significantly reduced volume, weight and long-term
radio-toxicity of spent fuel, and (3) cost savings in the back-end operations
(spent fuel management and storage) of the nuclear fuel cycle. We expect the
front-end costs (cost of fresh thorium/uranium fuel) to be cost competitive with
conventional uranium fuel. At the same time, the back-end (waste handling and
storage) costs are expected to be less than that for conventional uranium fuel
due to significantly reduced volume and weight of spent thorium/uranium
fuel.
The
primary barrier to industry adoption of our fuel designs is that the entire
industry infrastructure is based on uranium fuel with enrichments of
3 – 5%. Our designs require plutonium or more highly enriched uranium
(up to nearly 20%). Although the designs can be accommodated by most existing
reactors, there are no existing fuel fabrication facilities licensed and capable
of fabricating commercial lots of fuel containing the more highly enriched
uranium. There are also transportation and logistics issues with the fuel that
must be addressed.
The
primary marketing strategy that we intend to pursue with respect to our
thorium/uranium fuel product is to form an alliance or alliances with existing
nuclear fuel fabricators, to which we would license our intellectual property
rights to our thorium/uranium nuclear fuel. An alternative marketing strategy
that we may pursue is to form an international consortium that may involve
government and/or private sector entities to build “green field” nuclear fuel
fabrication facilities. In that case, we would license our intellectual property
rights to the thorium/uranium fuel to the consortium that would own and/or
operate the new nuclear fuel fabrication facilities.
Thorium/Reactor-Grade
Plutonium Disposing Fuel
This fuel
technology is designed to provide an effective means to dispose of separated
reactor-grade plutonium. As of 2004, there were 274 metric tons of separated
reactor-grade plutonium (equivalent of 15,000 – 20,000 nuclear
weapons) stored at various locations around the world. According to No Future Plutonium? by Spiez
Laboratory, The Swiss NBC Defense Establishment, dated November 2002, another
1,400 metric tons of this potentially weapons useable material are embedded in
spent fuel and stored at hundreds of commercial reactor sites around the
globe.
We
believe that our thorium/reactor-grade plutonium disposing fuel technology may
offer a more economically viable way to dispose of separated reactor-grade
plutonium than alternative fuel technologies, such as the mixed oxide (“MOX”)
fuel, or long-term storage alternatives. Currently, some nuclear reactor
operators, primarily in the European Union and Japan, have their spent fuel
reprocessed and re-used in nuclear reactors as MOX fuel. We expect that our
thorium/reactor grade plutonium disposing fuel will be less expensive compared
to MOX or conventional uranium fuel, assuming that the separated reactor-grade
plutonium is available at no cost.
The cost
of reprocessing spent fuel from reactors and converting it into reactor fuel is
typically more expensive than producing new fuel from uranium. Spent reactor
fuel has been reprocessed as a method of reducing the amount of nuclear waste in
certain locations, particularly in Europe, Russia, and Japan. This reprocessing
has resulted in stockpiles of plutonium that have been extracted from the spent
reactor fuel. The governments of these countries generally regard this
stockpiled plutonium as a liability because they pay to safeguard and secure the
plutonium. In these locations, the governments may be willing to provide the
plutonium free of charge if it can be used to generate electricity in a way that
eliminates the plutonium stockpiles.
8
The
long-term storage alternative faces substantial opposition from the communities
chosen as sites, such as Yucca Mountain in Nevada, on grounds of environmental
and safety risks. Also, the long life of plutonium means that the stored spent
fuel will be a proliferation risk for centuries. Recently, the United States has
abandoned the idea of long-term storage of used fuel at the Yucca Mountain site
and is in the process of evaluating alternative options that may include used
fuel reprocessing. Many countries have been committed to the long-term storage
alternative for a number of years. In early 2006, in announcing its Global
Nuclear Energy Partnership (GNEP), the United States announced that it would
work with other countries to develop proliferation-resistant environmentally
compatible technologies and processes to promote recycling and reduce the need
for storage in long term repositories.
We
believe that benefits offered by thorium/reactor-grade plutonium fuel designs
include enhanced proliferation resistance, improved reactor safety, and
significantly reduced volume, weight and long-term radio-toxicity of spent
fuel.
Our
marketing strategy with respect to thorium/reactor-grade plutonium disposing
fuel is to educate reactor operators, who presently own stockpiles of separated
reactor-grade plutonium and are forced to pay ongoing plutonium storage fees,
about the benefits offered by this fuel technology to convince them to recycle
these plutonium stockpiles in their reactors using thorium/reactor-grade
plutonium disposing fuel.
Thorium/Weapons-Grade
Plutonium Disposing Fuel
This fuel
design (the Radkowsky Thorium Plutonium Incinerator, or RTPI) was developed to
meet the needs of the U.S.-Russia plutonium disposition program. It is the
policy of those countries to eliminate their extensive stockpiles of surplus
weapons grade plutonium. In 2000, the U.S. and Russia signed a bi-lateral
agreement, committing each country to dispose of 34 metric tons of surplus
weapons-grade plutonium.
We
believe that our thorium/weapons-grade plutonium disposing fuel could offer a
faster, cheaper, and more effective means than other available technologies to
dispose of excess quantities of weapons-grade plutonium by “burning” it using
the RTPI fuel design in existing VVER nuclear power plants in Russia (a similar
design may be usable in the U.S. and other Western countries). We plan to
continue educating government officials and key decision-makers on the benefits
of this technology for the plutonium disposition.
Licensing
Revenue from Our Fuel Technology
We plan
to license our nuclear fuel designs to one or more of the above mentioned
nuclear fuel fabricators that have long-term supply contracts with nuclear power
producers. Typically, firm commitments for fuel reloads are made by utilities
2 – 3 years before actual deliveries of fresh fuel to the nuclear
power plant are made by the supplier. As a result, we will have to secure a
commitment from a nuclear power producer for a first fuel reload using our
proprietary fuel at least 2 – 3 years prior to transitioning to
partial cores. Depending on the terms of the licensing arrangement with the fuel
fabricator, we may be able to generate early licensing revenue that may include
technology transfer fees and other upfront fees paid by the licensee to the
Company before a first partial core is fabricated and supplied to the nuclear
power plant, in addition to ongoing annual licensing fees paid by the licensee
on a per fuel assembly or per reactor basis.
Sources
and Availability of Raw Materials
We are a
fuel designer that intends to license our technology to fuel fabricators.
Accordingly, we do not plan to utilize any raw materials in the conduct of our
operations. However, the fuel fabricators which potentially will license our
fuel designs in the future, will need thorium and uranium to fabricate
thorium-based fuels.
All of
our nuclear fuel designs require both thorium and uranium in the oxide form
which are the main raw materials for blanket rods. The seed rods can contain
either enriched uranium or plutonium metals mixed with zirconium.
The
current demand for thorium is very low. Thorium is sometimes used in government
flares, camping lantern wicks and in other products in small quantities. If
thorium-based fuels become commercially accepted in the nuclear power industry,
there would be a significant increase in the demand for thorium. According to
the International Atomic Energy Agency, or IAEA, thorium is over three times
more naturally abundant than uranium and is found in large quantities in
monazite sands in many countries, including, Australia, India, the United States
of America, and China. Several companies that process monazite sands to extract
rare earth minerals for use in other markets have stockpiled thorium as a
byproduct with no significant current market. Currently, there is no large
supplier of thorium.
Uranium
and zirconium are available to the fuel fabricators from various suppliers at
market driven prices. Weapons-grade plutonium, which would be used to fabricate
Lightbridge’s weapons grade plutonium disposing fuel, is generally unavailable.
However, governments that have developed nuclear weapons capabilities could use
our fuel designs to dispose of their excess weapons-grade plutonium.
Reactor-grade plutonium is available in Europe, Russia and Japan from
reprocessed spent fuel. The transfer and use of reactor-grade plutonium is
highly regulated.
9
Nuclear
fuel provision generally works as a tolling operation. Rather than ordering
assembled nuclear fuel, reactor operators separately source (1) uranium, (2)
services to convert the uranium into uranium hexafluoride gas that is capable of
being enriched, (3) uranium enrichment services, and then (4) pay a nuclear fuel
fabricating company to fabricate the enriched uranium into nuclear fuel. We
expect that when its fuel is ordered in the future by a reactor operator from a
nuclear fuel fabrication company, following the standard nuclear power industry
model, the reactor operator will need to provide the thorium materials that the
nuclear fuel fabricating company will use to fabricate the nuclear fuel. It will
then be necessary for the nuclear reactor operator to obtain thorium material on
a timely basis and on acceptable terms. We believe that reactor operators will
readily be able to obtain thorium on a timely basis and on acceptable terms,
given that thorium is at least three times as abundant as uranium in the earth,
and that the extraction method for thorium is well established and is used for
extracting thorium for various small-scale industrial applications.
Dependence
on Government Support and Cooperation
We
believe that deployment and commercialization of the thorium/uranium and
reactor-grade plutonium disposing fuel designs can be largely completed without
direct government support. These fuel designs are more dependent on interest in
these fuels within the commercial nuclear power industry.
Successful
development and deployment of our thorium/weapons-grade plutonium disposing fuel
technology, however, is dependent upon government support. This fuel design is
being developed for application in the U.S.-Russia plutonium disposition mission
that is a government program run by the National Nuclear Security Administration
(“NNSA”) of the U.S. Department of Energy (“DOE”) and its Russian government
counterparts pursuant to the plutonium disposition agreement that the United
States and Russia entered into in 2000. The total cost to carry out the
plutonium disposition mission will be in the billions of dollars. To date, the
plutonium disposition program in the United States and Russia has been funded
primarily by the U.S. government. The G-8 countries have made funding
commitments for approximately $800 million toward the Russian part of the
plutonium disposition program but have not yet provided the funds.
In the
fiscal year 2004 federal budget cycle, the U.S. Congress appropriated $4 million
for testing and evaluation of our thorium/weapons-grade plutonium disposing fuel
technology for the plutonium disposition mission in Russia. Additional funding
support is required from the U.S. and other governments to complete the
development, testing, demonstration and deployment of our thorium/weapons-grade
plutonium disposing fuel.
In
March 2010, Nevada Senator Harry Reid and Utah Senator Orrin Hatch introduced a
bipartisan bill that would provide $250 million over a five-year period for
research and development of thorium-based fuels.
Our
Intellectual Property
Our
nuclear fuel technologies are protected by several U.S. and international
patents. Our current patent portfolio is comprised of the following
patents:
Issued
Patents
U.S.
patents:
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Patent
No. 6,026,136, a seed-blanket unit fuel assembly for a nuclear
reactor
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Patent
No. 5,949,837, a nuclear reactor having a core including a plurality of
seed-blanket units
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Patent
No. 5,864,593, a method for operating a nuclear reactor core comprised of
at least first and second groups of seed-blanket
units
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Patent
No. 5,737,375, a nuclear reactor having a core including a plurality of
seed-blanket units
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The U.S.
patents expire August 16, 2014.
International
patents:
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Russia — Patent
No. 2,176,826
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Russia — Patent
No. 2,222,837
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South
Korea — Patent No.
301,339
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South
Korea — Patent No.
336,214
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China — Patent
No. ZL 96196267.4
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The
international patents expire August 16, 2014.
10
Pending
Patents
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PCT
patent application NO. PCT/RU2007/000732 filed in Russia on December 27,
2007 — “Nuclear Reactor (Alternatives), Fuel Assembly of
Seed-Blanket Subassemblies for Nuclear (Alternatives), and Fuel Element
for Fuel Assembly”.
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PCT
patent application NO. PCT/RU2008/000801 filed on December 25, 2008
entitled “A Light Water Reactor Fuel Assembly (Alternatives), A Light
Water Reactor and A Fuel Assembly Fuel
Element”.
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Euroasian
patent application NO. 200802041, Priority claimed based on PCT/RU
200732.
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U.S.
provisional patent application NO. 61/116,730 filed on November 21, 2008
entitled “Nuclear Reactor (Alternatives), Fuel Assembly of Seed-Blanket
Subassemblies for Nuclear Reactor (Alternatives), and Fuel Element for
Fuel Assembly”.
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U.S.
utility patent application No. 12340833 filed on December 22, 2008.
Priority claimed on PCT/RU 2007/000732 and U.S. provisional patent
application No. 61/116,730.
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European
Patent Application No. EP08172834.7 filed on December 23, 2008 entitled “A
Fuel Element, A Fuel Assembly and a Method of Using a Fuel Assembly”.
Priority claimed on PCT/RU 2007/000732 and A U.S. provisional patent
application No. 61/116,730.
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We have
recently filed trademark applications in the United States, European Union and
Russia for the following trademarks:
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Lightbridge corporate name | |
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Lightbridge
corporate logo
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Thorium
Power corporate name
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Presently,
we are executing a strategy aimed at further expanding our intellectual property
portfolio.
Regulation
No safety
regulatory approval is required to design thorium-based nuclear fuels, although
certain technology transfers may be subject to national and international export
controls. However, the testing, fabrication and use of nuclear fuels by our
future partners and licensees are heavily regulated. The Kurchatov Institute and
other locations where our fuel designs may be initially tested require
governmental approvals from the host country’s nuclear regulatory authority to
test fuel in research reactors and other nuclear testing facilities. The
Kurchatov Institute has obtained such approvals from the Russian nuclear
regulatory authorities for the ongoing tests of our fuel designs that are taking
place at Russian facilities. Nuclear fuel fabricators, which will potentially
fabricate fuel using our technology under licenses from us, are similarly
regulated. Nuclear power plants that may utilize the fuel produced by these fuel
fabricators require specific licenses relating to possession and use of nuclear
materials as well as numerous other governmental approvals for the ownership and
operation of nuclear power plants.
Employees
As of
December 31, 2009, we had 21 employees, 18 of whom were full-time employees. We
believe that our relationship with our employees is satisfactory.
We use
consultants with specific skills to assist with various business functions
including evaluation, finance, due diligence, acquisition initiatives, corporate
governance, business development, research and development and government
relations.
Available
Information
11
Item
1A. Risk Factors.
Business
Risks
Our
results of operations could be adversely affected by disruptions in the
marketplace caused by economic and political conditions.
Global
economic and political conditions affect our clients’ businesses and the markets
they serve. A severe and/or prolonged economic downturn or a negative or
uncertain political climate could adversely affect our clients’ financial
condition and the levels of business activity engaged in by our clients and the
industries we serve. Clients could determine that discretionary projects are no
longer viable or that new projects are not advisable. This may reduce demand for
our services, depress pricing for our services or render certain services
obsolete, all of which could have a material adverse effect on our results of
operations. Changes in global economic conditions or the regulatory or
legislative landscape could also shift demand to services for which we do not
have competitive advantages, and this could negatively affect the amount of
business that we are able to obtain. Although we have implemented cost
management measures, if we are unable to appropriately manage costs or if we are
unable to successfully anticipate changing economic and political conditions, we
may be unable to effectively plan for and respond to those changes, and our
business could be negatively affected. In addition, any significant volatility
or sustained decline in the market price of our common stock could impair our
ability to use equity-based compensation to attract, retain and motivate key
employees.
Recent
turmoil in the credit markets and the financial services industry may impact our
ability to collect receivables on a timely basis and may negatively impact our
cash flow.
Recently,
the credit markets and the financial services industry have been experiencing a
period of unprecedented turmoil and upheaval. While the ultimate outcome of
these events cannot be predicted, they may have a material adverse effect on us.
These events could also adversely impact the availability of financing to our
clients and therefore adversely impact our ability to collect amounts due from
such clients or cause them to terminate their contracts with us
completely.
Our
limited operating history makes it difficult to judge our
prospects.
Before
2008 we were a development stage company. We have only recently commenced the
provision of nuclear consulting services and currently have only one significant
client in this area of our business. Similarly, our fuel design patents and
technology have not been commercially used and we have not received any royalty
or sales revenue. We are subject to the risks, expenses and problems frequently
encountered by companies in the early stages of development.
Competition
for highly skilled consulting professionals could have a material
adverse effect on our success.
We rely
heavily on our contractor staff and management team. Our success depends, in
large part, on our ability to hire, retain, develop and motivate highly skilled
professionals. Competition for these skilled professionals is intense and our
inability to hire, retain and motivate adequate numbers of consultants and
managers could have a serious effect on our ability to meet client needs. A loss
of a significant number of our employees could have a serious negative effect on
us.
Our
future profitability will suffer if we are not able to maintain current pricing
and utilization rates.
Our
revenue, and thereby our profitability, will be largely based on the bill rates
charged to clients and the number of hours our professionals will work on client
engagements, which we define as the “utilization” of our professionals.
Accordingly, if we are not able to maintain the pricing for our services or an
appropriate utilization rate for our professionals, revenues, project profit
margins and our future profitability will suffer. Bill rates and utilization
rates are affected by a number of factors, including:
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our
ability to predict future demand for services and maintain the appropriate
headcount without significant underutilized
personnel,
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our
ability to transition employees from completed projects to new
engagements,
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our
clients’ perceptions of our ability to add value through our
services,
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our
competitors’ pricing of services,
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the
market demand for our services,
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our
ability to manage our human capital resources,
and
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our
ability to manage significantly larger and more diverse workforces as we
increase the number of our professionals and execute our growth
strategies.
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We
expect that our future client engagements will generally be short term in
nature, less than one year, and may be terminated. Our inability to attract
business from new or then existing clients could have a material adverse effect
on us.
We might
not meet our current or future commitments if we do not continually secure new
engagements.
We expect
that many of our future client engagement agreements will be terminable by our
clients with little or no notice and without penalty. Some of our work will
involve multiple engagements or stages. In those engagements, there is a risk
that a client may choose not to retain us for additional stages of an engagement
or that a client will cancel or delay additional planned engagements. We expect
that our engagements will usually be relatively short term in comparison to our
office-related expenses and other infrastructure commitments.
Additionally,
the above mentioned factors limit our ability to predict future revenues and
required professional staffing, which can impact our financial
results.
Unsuccessful
future client engagements could result in damage to our professional reputation
or legal liability, which could have a material adverse effect on
us.
Our
professional reputation and that of our personnel is critical to our ability to
successfully compete for new client engagements and attract or retain
professionals. Any factors that damage our professional reputation could have a
material adverse effect on our business.
In
addition, any client engagements that we obtain will be subject to the risk of
legal liability. Any public assertion or litigation alleging that our services
were negligent or that we breached any of our obligations to a client could
expose us to significant legal liabilities, could distract our management and
could damage our reputation. We carry professional liability insurance, but our
insurance may not cover every type of claim or liability that could potentially
arise from our engagements. In addition, the limits of our insurance coverage
may not be enough to cover a particular claim or a group of claims, and the
costs of defense.
Our
fuel designs have never been tested in an existing commercial reactor and actual
fuel performance, as well as the willingness of commercial reactor operators and
fuel fabricators to adopt a new design, is uncertain.
Nuclear
power research and development entails significant technological risk. New
designs must be fabricated, tested and licensed before market opportunities will
exist. Our fuel designs are still in the research and development stage and
while irradiation testing in a test reactor in Russia (which mimics the
operating characteristics of an actual commercial reactor) and thermal-hydraulic
experiments have been ongoing for several years, the fuel technology is yet to
be demonstrated in an existing commercial reactor. We will not be certain about
the ability of the fuel we design to perform in actual commercial reactors until
we are able to demonstrate our fuel designs. We will also have to establish a
relationship with a fuel fabricator to actually produce fuel using our designs.
If our fuel designs do not perform as anticipated in commercial use, we will not
realize revenues from licensing or other use of our fuel designs.
In
addition, there are several technical challenges involved in commercializing
thorium based fuels. Some of the technical challenges with our technology
identified by the experts at Russian Research Centre Kurchatov Institute, an
independent contractor that is closely affiliated with the government of the
Russian Federation, Westinghouse Electric Company LLC, and the International
Atomic Energy Agency (“IAEA”), include:
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Fuel Fabrication
: The relatively high melting point of thorium oxide will
require fuel pellet manufacturing techniques that are different from those
currently used for uranium pellets.
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Fuel Fabrication
: Our metallic seed fuel rod designs are greater than 3 meters
long compared to conventional Russian metallic icebreaker fuel rods that
we understand are approximately 1 meter long. The longer rods will require
new equipment, and experience making longer
extrusions.
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Fuel Design
: Our “seed-and-blanket” fuel assembly design has a detachable
central part which is not in conventional fuel
designs.
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Fuel Design
: Some of our fuel designs include plutonium-zirconium fuel
rods which will operate in a soluble boron environment. Current reactor
operating experience is with uranium-zirconium fuel in a boron-free
environment.
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Fuel Use
: Our fuel is expected to be capable of producing more gigawatt
days per ton of fuel than is allowed by current reactor licenses, so to
gain full economic benefits, reactor operators will have to obtain
regulatory approval.
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Fuel Use
: The thorium-uranium oxide blanket section in our fuels is
expected to produce energy economically for up to 9 years in the reactor
core. Conventional uranium fuel demonstrates that the cladding can remain
corrosion-free for up to 5 years. Testing is needed to prove corrosion
resistance for the longer residence
time.
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Fuel Reprocessing
: The IAEA has identified a number of ways that reprocessing
spent thorium fuel will require technologies different from existing
uranium fuel reprocessing. Management’s current marketing plans do not
assume or depend on the ability to reprocess and recycle spent fuel.
Management expects spent thorium fuel will go into long term storage. This
is current U.S. government policy for all spent commercial nuclear
fuel.
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Our
fuel designs differ from fuels currently licensed and used by commercial nuclear
power plants. As a result, the licensing and approval process for our fuels may
be delayed and made more costly, and industry acceptance of our fuels may be
hampered.
Our fuel
designs differ significantly in some aspects from the fuel licensed and used
today by commercial nuclear power plants. Some of the differences between our
fuels and those currently used include:
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use
of thorium and uranium oxide mix instead of only uranium
oxide,
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higher
uranium enrichment level,
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seed-and
blanket fuel assembly design integrating thorium and
uranium,
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high
burn-up levels of seed and blanket,
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use
of metallic seed rods,
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longer
residence time of the blanket in the reactor,
and
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the
ability of some of our fuels to dispose of reactor-grade plutonium and/or
weapons-grade plutonium through the use of new fuel designs and in
reactors that have never used plutonium-bearing fresh
fuels.
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These
differences will likely result in more prolonged and extensive review by the
U.S. Nuclear Regulatory Commission and other nuclear licensing authorities and
customers. Also, the nuclear industry may be hesitant to switch to another fuel
with little or no history of successful commercial use because of the need for
additional engineering and testing with no guarantee of success, as well as
investor reluctance to invest in a new technology when viable existing
technologies are available.
Our
plans to develop our thorium/weapons-grade plutonium disposing fuel are
dependent upon U.S. government funding and support. Without such support, we are
unlikely to be able to serve this market.
Our
thorium/weapons-grade plutonium disposing fuel design is highly dependent upon
U.S. and perhaps other government funding, and acceptance as a technology
appropriate to eliminate U.S. and Russian stockpiles of surplus weapons-grade
plutonium. In the past, we have faced resistance from some offices within the
U.S. Department of Energy (“DOE”) that support other alternative plutonium
disposing technology, particularly mixed plutonium uranium oxide (“MOX”) fuel
designs. The Company has spent a significant amount of funds to gain commercial
and market acceptance for its fuel designs.
Our
plans to develop our thorium-based fuel designs depend on us acquiring rights to
the designs, processes and methodologies that are used or may be used in our
business in the future. If we are unable to obtain such rights on reasonable
terms in the future, our ability to exploit our intellectual property may be
limited.
Dr. Alvin
Radkowsky invented the thorium fuel technology that we are developing. Upon
founding Thorium Power in 1992, Dr. Radkowsky assigned all of his rights in the
intellectual property relating to such fuel designs to Thorium Power, Inc.
Thorium Power, Inc. then filed patent applications in the United States and
other countries and the patents were issued and are held solely by our Company.
We are currently conducting fuel assembly design work in Russia through the
Russian Research Centre Kurchatov Institute, OKBM, MSZ Electrostal and others,
that are independent contractors that are owned or are closely affiliated with
the government of the Russian Federation. We do not currently have all of the
necessary licensing or other rights to acquire or utilize certain designs,
methodologies or processes required for the fabrication of fuel assemblies. If
we desire to utilize such processes or methodologies in the future, we must
obtain a license or other right to use such technologies from the Russian
entities that previously developed and own such technologies. If we are unable
to obtain such a license or other right on terms that the Russian entities deem
to be reasonable, then we may not be able to fully exploit our intellectual
property and may be hindered in the sale of products and services.
14
We
rely upon certain members of our senior management, including Seth Grae, and the
loss of Mr. Grae or any of our senior management would have an adverse effect on
the Company.
Our
success depends upon certain members of our senior management, including Seth
Grae. Mr. Grae’s knowledge of the nuclear power industry, his network of key
contacts within that industry and in governments and, in particular, his
expertise in the potential markets for the Company’s technologies, is critical
to the implementation of our business model. Mr. Grae is likely to be a
significant factor in our future growth and success. The loss of the service of
Mr. Grae would likely have a material adverse effect on our Company. We do not
have a key man insurance policy relating to Seth Grae or any other key
individuals, and do not anticipate obtaining any such insurance.
The
price of fossil fuels or uranium may fall, which would reduce the interest in
thorium fuel by reducing the economic advantages of utilizing thorium-based
fuels and adversely affect the market prospects for our fuel
designs.
Coal,
uranium and crude oil prices are currently at historically high levels.
Management believes the high cost of these energy sources has resulted in
increased interest in other sources of energy such as thorium. If prices of
traditional energy sources fall, then the demand that the company expects for
thorium based fuels may not materialize. A decrease in demand for thorium-based
fuels would negatively affect our future operating results.
Our
research operations are conducted primarily in Russia, making them subject to
political uncertainties relating to Russia and U.S.-Russian
relations.
Substantially
all of our present research activities are in Russia. Our research operations
are subject to various political risks and uncertainties inherent in the country
of Russia. If U.S.-Russia relations deteriorate, the Russian government may
decide to scale back or even cease completely its cooperation with the United
States on various international projects, including the plutonium disposition
program and nuclear power technology development programs. If this should
happen, our research and development program in Russia could be scaled back or
shut down, which could have a significant adverse impact on our ability to
execute our business model. Furthermore, the Russian institutes engaged in the
Lightbridge project are highly regulated and, in many instances, are controlled
by the Russian government. The Russian government could decide that the nuclear
scientists engaged in our project in Russia or testing facilities employed in
this project should be redirected to other high priority national projects in
the nuclear sector which could lead to delays or have other significant adverse
impacts on our project. Finally, certain future R&D activities to be
performed by Russian entities under contract with us will require formal
authorization from the Russian State Atomic Energy Corporation, “Rosatom”, which
owns those entities and is the main Russian government agency that oversees
Russia’s civil nuclear power industry. Securing such Russian government
authorization is vital to the overall success of our R&D activities relating
to the Russian VVER reactors and our ability to begin a full-scale product
demonstration (i.e., lead test assembly testing) in an operating VVER-1000
nuclear power plant.
We
serve the nuclear power industry, which is highly regulated.
The
nuclear power industry is a highly regulated industry. We intend to license our
fuel designs to nuclear fuel fabricators, which would in turn, sell the
thorium-based nuclear fuel that would be fabricated using our intellectual
property to nuclear generating companies. All nuclear companies are subject to
the jurisdiction of the United States Nuclear Regulatory Commission, or its
foreign equivalents, with respect to the operation of nuclear reactors, fuel
cycle facilities, and handling of nuclear materials and technologies. The U.S.
Nuclear Regulatory Commission, and its foreign equivalents, subject nuclear
facilities to continuing review and regulation covering, among other things,
operations, maintenance, emergency planning, and security, as well as the
environmental and radiological aspects of those facilities. These nuclear
regulatory bodies may modify, suspend or revoke operating licenses and impose
civil penalties for failure to comply with applicable laws and regulations such
as the Atomic Energy Act, the regulations under such Act, or the terms of such
licenses. Possession and use of nuclear materials, including thorium-based
nuclear fuel, would require the approval of the United States Nuclear Regulatory
Commission or its counterparts around the world, and would be subject to
monitoring by international agencies.
Public
opposition to nuclear power could increase.
Successful
execution of our business model is dependent upon public support for nuclear
power in the United States and other countries. Nuclear power faces strong
opposition from certain competitive energy sources, individuals and
organizations. The occurrence of another major, Chernobyl-like nuclear accident
could have a significant adverse effect on public opinion about nuclear power
and the favorable regulatory climate needed to introduce new nuclear
technologies. Strong public opposition could hinder the construction of new
nuclear power plants and lead to early shut-down of the existing nuclear power
plants. Furthermore, nuclear fuel fabrication and the use of new nuclear fuels
in reactors must be licensed by the United States Nuclear Regulatory Commission
and equivalent foreign governmental authorities. The licensing process includes
public hearings in which opponents of the use of nuclear power might be able to
cause the issuance of required licenses to be delayed or denied. In fact, since
the Chernobyl nuclear accident, no new nuclear power plant has been built and
opened in the United States.
15
Modifications
to existing nuclear fuel cycle infrastructure as well as reactors may prove too
extensive or costly.
The
existing nuclear fuel cycle infrastructure is predominantly based on
low-enrichment uranium oxide fuels. Introduction of thorium-based fuel designs,
which require relatively higher enriched uranium or plutonium as a source of
reactivity into the existing nuclear fuel cycle supply chain, would necessitate
certain changes to procedures, processes and equipment used by existing nuclear
fuel fabrication facilities, and nuclear fuel transportation companies. In
addition, our nuclear fuel designs rely on fabrication technologies that in
certain material ways are different from the fabrication techniques presently
utilized by existing commercial fuel fabricators. In particular, our metallic
seed rods must be produced using a co-extrusion fabrication process that was
developed in Russia. Presently, most commercial nuclear fuel is produced using a
pellet fabrication technology, whereby uranium oxide is packed into small
pellets that are stacked and sealed inside metallic tubes. The co-extrusion
fabrication technology involves extrusion of a single-piece solid fuel rod from
a metallic matrix containing uranium or plutonium seed fuel. While we understand
that the co-extrusion fabrication process has been successfully used in Russia
for decades to produce one meter long metallic nuclear fuel rods used in nuclear
reactors that propel Russian icebreakers, it must be upgraded and tested to
demonstrate its ability to produce longer metallic rods (approximately 3.5
meters long for Russian VVER-1000 reactors), so that our seed fuel can be
consistent with the standard length of fuel rods used in existing commercial
reactors. Full-size metallic fuel rods have not yet been produced using this
fabrication process, and there are no guarantees that this new fabrication
technology will be successful.
Deployment
of our nuclear fuel designs into existing commercial reactors may require
modifications to existing equipment, refueling and fuel handling procedures, and
other processes utilized at existing nuclear power plants. The costs of such
modifications are difficult to ascertain. While one of our goals is to make our
fuel designs as compatible as possible with the design of existing commercial
reactors in order to minimize the extent and cost of modifications that may be
required, we may not be able to achieve compatibility sufficient to reduce the
extent and costs of required modifications, to make our fuel designs economical
for reactor operations.
Our
nuclear fuel process is dependent on outside suppliers of nuclear and other
materials.
Production
of fuel assemblies using our nuclear fuel designs is dependent on the ability of
fuel fabricators to obtain supplies of thorium oxide for the “blanket” component
of our fuel assembly design. Fabricators will also need to obtain metal for
components, particularly zirconium. These materials are regulated and can be
difficult to obtain or may have unfavorable pricing terms. The inability of
fabricators to obtain these materials could have a material adverse effect on
their ability to market fuel based on our technology.
We
may be unable to protect our intellectual property, particularly in light of
Russian intellectual property laws.
Intellectual
property rights are evolving in Russia, trending towards international norms,
but are by no means fully developed. We work closely with our Russian branch
office employees and other Russian contractors to develop some of our
intellectual property and so some of our intellectual property rights derive, or
are affected by, Russian intellectual property laws. If the application of these
laws to our intellectual property rights proves inadequate, then the Company may
not be able to fully avail itself of our intellectual property and our business
model may therefore be impeded.
We
may not be able to receive or retain authorizations that may be required for us
to sell our services, or license our technology internationally.
The sales
and marketing of our services and technology internationally may also be subject
to U.S. export controls administered by the U.S. Department of Energy, and/or
the U.S. Department of Commerce. U.S. governmental authorizations may be
required before we can export our services or technology. These controls are
subject to change and a number of U.S. governmental licensing policies. If
authorizations are required and not granted, our international business plans
could be materially affected. Furthermore, the export authorization process is
often time consuming. Violation of export control regulations could subject us
to fines and other penalties, such as losing the ability to export for a period
of years, which would limit our revenue growth opportunities and significantly
hinder our attempts to expand our business internationally.
16
Risks
Relating to the Ownership of Our Securities
There
may be volatility in our stock price, which could negatively affect investments,
and stockholders may not be able to resell their shares at or above the value
they originally purchased such shares.
The
market price of our common stock may fluctuate significantly in response to a
number of factors, some of which are beyond its control, including:
|
•
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quarterly
variations in operating results,
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|
•
|
changes
in financial estimates by securities
analysts,
|
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•
|
changes
in market valuations of other similar
companies,
|
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•
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announcements
by us or our competitors of new products or of significant technical
innovations, contracts, receipt of (or failure to obtain) government
funding or support, acquisitions, strategic partnerships or joint
ventures,
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•
|
additions
or departures of key personnel,
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•
|
any
deviations in net sales or in losses from levels expected by securities
analysts, or any reduction in political support from levels expected by
securities analysts,
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•
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future
sales of common stock, and
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•
|
results
of analyses of mining and resources
assets.
|
In
addition, the stock market has recently experienced extreme volatility that has
often been unrelated to the performance of particular companies. These market
fluctuations may cause our stock price to fall regardless of its
performance.
Item
1B. Unresolved Staff Comments.
Not
applicable.
We are
obligated to pay approximately $41,768 per month for office rent and
approximately another $2,741 per month for other fees for the rented office
space located at 1600 Tysons Boulevard, Suite 550, McLean, Virginia 22102. The
space is used by our executives and employees for administrative purposes. The
term of the lease for our offices expires on December 31, 2013 and is renewable
for additional one-year terms.
We are obligated to pay approximately $9,322
per month for office rent and approximately another $1,500 per month for other
fees for the rented office space located at Zemlyanoi Val, 9, Moscow, Russia,
105064. The space is used by our Moscow staff for administrative purposes. The
term of the lease for our offices expires on April 30, 2010 and is renewable for
additional one-year terms.
Our
branch offices in London and Abu Dhabi are maintained via corporate agents, and
fees that we pay our agents include rental expense. The address for our branch
in London is Lightbridge Advisors Limited, High Street Partners, 83 Victoria
Street, London, SW1H OHW. The address for our branch in Abu Dhabi is Fotouh Al
Khair Center ( Marks & Spencer) Tower No. 3, ‘0’ floor, next to Etisalat
Head office, PO Box 44183, Abu Dhabi.
From time
to time, we may become involved in various lawsuits and legal proceedings which
arise in the ordinary course of business. However, litigation is subject to
inherent uncertainties, and an adverse result in these or other matters may
arise from time to time that may harm our business. We are currently not aware
of any such legal proceedings or claims that we believe will have a material
adverse affect on our business, financial condition or operating results.
We did
not submit any matters to a vote of our security holders during the quarter
ended December 31, 2009.
17
Market
Information
Our
common stock is quoted on the NASDAQ Capital Market under the symbol
“LTBR.”
The
following table sets forth, for the periods indicated, the high and low closing
bid prices of our common stock. These prices reflect inter-dealer
prices, without retail mark-up, mark-down or commission, and may not represent
actual transactions.
The
quotations for all periods prior to and including September 30, 2009 have been
adjusted to account for our 30-for-1 reverse stock split which was effective as
of September 21, 2009.
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Fiscal Year
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Quarter Ending
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High
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Low
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|||||||
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2009
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December
31
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$ | 12.05 | $ | 5.03 | |||||
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September
30
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$ | 10.95 | $ | 5.46 | ||||||
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June
30
|
$ | 7.35 | $ | 5.40 | ||||||
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March
31
|
$ | 8.40 | $ | 4.08 | ||||||
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2008
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December
31
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$ | 7.20 | $ | 4.20 | |||||
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September
30
|
$ | 8.40 | $ | 4.50 | |||||
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June
30
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$ | 9.30 | $ | 6.60 | |||||
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March
31
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$ | 10.80 | $ | 6.60 | |||||
Holders
As of
February 1, 2010, our common stock was held by 207 stockholders of record. This number excludes the shares of our
common stock owned by stockholders holding stock under nominee security position
listings.
Reports
to Stockholders
We plan
to furnish our stockholders with an annual report for each fiscal year ending
December 31, containing financial statements audited by our independent
certified public accountants. Additionally, we may in our sole discretion, issue
unaudited quarterly or other interim reports to our stockholders as we deem
appropriate. We intend to maintain compliance with the periodic reporting
requirements of the Exchange Act.
Dividends
We have
never paid dividends. While any future dividends will be determined by our
directors after consideration of the earnings, financial condition, and other
relevant factors, it is currently expected that available cash resources will be
utilized in connection with our ongoing operations.
Transfer
Agent
Our
transfer agent and registrar for our common stock is Computershare Trust
Company, 350 Indiana Street, Suite 800, Golden, Colorado, 80401. Its telephone
number is 800.962.4284 and facsimile is 303.262.0604.
Recent
Sales of Unregistered Securities
18
Securities
Authorized for Issuance Under Equity Compensation Plans
The
information under the heading “Equity Compensation Plan Information” in our
definitive proxy statement for the annual meeting of shareholders to be filed
with the SEC is incorporated herein by reference.
Not
applicable
Item
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
Overview
The
following Management’s Discussion and Analysis of Financial Condition and
Results of Operations (“MD&A”) is intended to help the reader understand
Lightbridge Corporation, our operations and our present business environment.
MD&A is provided as a supplement to, and should be read in conjunction with,
our consolidated financial statements and the accompanying notes thereto
contained in “Item 8. Financial Statements and Supplementary Data” of this
report. This overview summarizes the MD&A, which includes the following
sections:
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•
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Our Business
— a general overview of our two business segments, the material
opportunities and challenges of our
business;
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•
|
Critical Accounting Policies
and Estimates — a discussion of accounting policies that
require critical judgments and
estimates;
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|
•
|
Operations Review
— an analysis of our Company’s consolidated results of
operations for the two years presented in our consolidated financial
statements. Except to the extent that differences among our operating
segments are material to an understanding of our business as a whole, we
present the discussion in the MD&A on a consolidated basis;
and
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•
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Liquidity, Capital Resources
and Financial Position — an analysis of cash flows; an
overview of financial position.
|
The
following discussion contains forward-looking statements that involve risks,
uncertainties, and assumptions such as statements of our plans, objectives,
expectations, and intentions. Our actual results may differ materially from
those discussed in these forward-looking statements because of the risks and
uncertainties inherent in future events.
Our
Business
General
Overview
We are a
provider of nuclear energy consulting and strategic advisory services and a
developer of proprietary nuclear fuel designs, each of which will be described
in the following sections.
Consulting
and Strategic Advisory Services Business Segment
Substantially
all of our revenues are derived from our Consulting and Strategic Advisory
Services business segment, which provides nuclear consulting services to
entities within the United Arab Emirates, or UAE, as described in Note 3 to our
financial statements for the years ended December 31, 2009 and 2008, which are
included with this report. We may enter into additional consulting
contracts to provide support and assistance to other commercial and governmental
entities that are looking to develop and expand their nuclear power industry
capabilities and infrastructure. In future consulting engagements, we expect
that revenues may be derived either from fixed professional fee agreements or
from fees generated through hourly rates, billed on a time and expense
basis.
Our most
significant expense related to our consulting and strategic advisory services
business segment is the cost of consulting services provided, which relates to
costs associated with generating consulting revenues, and includes employee
payroll expenses and benefits, contractor compensation, vendor compensation,
marketing expenses, direct costs of training and recruiting the consulting staff
and other costs. As revenues are generated from services performed by our
permanent staff and contractors, our success depends on attracting, retaining
and motivating talented, creative and experienced professionals at all levels in
our business.
19
Technology
Business Segment
Our
operations related to development and demonstration of our thorium-based nuclear
fuel designs primarily involve testing of the fuel designs, developing strategic
relationships within and outside of the nuclear power industry, securing
political and financial support from the U.S. and Russian governments, and the
filing of patent applications including related administrative
functions.
On August
3, 2009, we entered into two agreements with AREVA regarding our fuel
technology business. The first was an Agreement for Consulting
Services, or Consulting Agreement, pursuant to which we will conduct the
first phase of an investigation of specific topics of thorium fuel cycles in
AREVA’s light water reactors, or LWRs. This first phase will focus on providing
initial general results relating to evolutionary approaches to the use of
thorium in AREVA’s LWRs, specifically within AREVA’s Evolutionary Power Reactor.
We will receive total fees of $550,000 for services provided pursuant to
the Consulting Agreement. The anticipated second phase and further phases
of the collaboration, including a detailed study of evolutionary and longer-term
thorium fuel concepts, will be conducted in accordance with additional
collaborative agreements based upon the results of the first phase. The second
agreement we signed with AREVA was a five-year Collaborative Framework
Agreement, pursuant to which we will establish a joint steering committee
with AREVA, which will be responsible for reviewing project proposals, will be
empowered to make scientific and/or technical decisions and will allocate the
resources required to implement future collaborative projects between us and
AREVA.
To date,
we have only had minimal direct revenues from our research and development
activities regarding our proprietary nuclear fuel technology, and we do not
expect to generate licensing revenues from this business for several years,
until our fuel designs can be fully tested and demonstrated and we obtain the
proper approvals to use our nuclear fuel designs in nuclear reactors. We believe
we can leverage our general nuclear technology, business and regulatory
expertise as well as industry relationships, to optimize our technology
development plans and create integrated advisory services with the highest
levels of expertise and experience in the nuclear power industry. Additionally,
our knowledge of and credibility in addressing proliferation related issues that
we have developed over many years, benefit our consulting and strategic advisory
services business. Our advisory services include a focus on non-proliferation,
safety and operational transparency of nuclear power programs.
Material
Opportunities and Challenges
Consulting
and Strategic Advisory Services
Our
emergence in the field of nuclear energy consulting is in direct response to the
need for independent assessments and highly qualified and integrated strategic
advisory services for countries looking to establish nuclear energy programs,
while still providing a blueprint for safe, clean, efficient and cost-effective
non-proliferative nuclear power. We offer full-scope planning and strategic
advisory services for new and existing markets and offer such services without a
bias towards or against any reactor vendor or fuel technology. We believe that
there are significant opportunities available to provide services to governments
that are dedicated to non-proliferative, safe, and transparent nuclear
programs.
Our major
challenge in pursuing our business is that the decision making process for
nuclear power programs typically involves careful consideration by many parties
and therefore requires significant time. Also, many of the potential clients
that could benefit from our services are in regions of the world where tensions
surrounding nuclear energy are high, or in countries where public opinion plays
an important role. Domestic and international political pressure may hinder our
efforts to provide nuclear energy services, regardless of our focus on
non-proliferative nuclear power.
Proprietary
Nuclear Fuel Technology Development
We
believe that a major opportunity for us is the possibility that our
thorium-based fuel designs, which are currently in the research and development
stage, will be used in the manufacturing of nuclear fuel utilized in many
existing light water nuclear reactors in the future. Light water reactors are
the dominant reactor types currently in use in the world, and fuels for such
reactors constitute the majority of the commercial market for nuclear fuel.
Currently, we have three types, or variants, of thorium-based fuel designs in
various stages of development. The first is designed to provide reactor
owner/operators with an economically viable alternative fuel that will not
generate weapons-usable plutonium in the spent fuel. The second is designed to
dispose of reactor-grade plutonium that has been extracted from spent fuel from
commercial reactors and stockpiled in Russia, Western Europe, the U.S., Japan,
and other countries. The third is designed to dispose of weapons-grade plutonium
that is stockpiled in Russia and the United States. All three of these fuel
variants are expected to have additional benefits, including reduced volume and
reduced long-term radio-toxicity of spent fuel for the same amount of
electricity generated, as compared with the uranium fuels that are currently
used in light water reactors. Presently, our focus is on the first
design.
20
From our
U.S. and Moscow offices, we are working with Russian nuclear research institutes
and Russian nuclear regulatory authorities, to have one or more of the fuel
designs demonstrated in a Russian VVER-1000 reactor within the next three to
four years, if we are able to obtain necessary support and enter into agreements
with the Russian government and Russian research institutes. We believe that it
will be necessary to enter into commercial arrangements with one or more major
nuclear fuel fabricators, which in many cases are also nuclear fuel vendors, as
a prerequisite to having our fuel designs widely deployed in global
markets.
Our
nuclear fuel designs have never been demonstrated in a full-size commercial
reactor. Our planned demonstration of the fuels in a VVER-1000 reactor in Russia
would provide operating experience that is critical to reactor owners and
regulatory authorities. We believe that once the fuels have been demonstrated in
the VVER-1000 reactor, this can help convince other light water reactor
operators around the world to accept our thorium-based fuel
designs.
We
have also been conducting research and development related to a variant of these
nuclear fuel designs for use in existing and future western pressurized water
reactors.
We
believe that our greatest challenge will be acceptance of these fuel designs by
nuclear power plant operators, which have in the past been hesitant to be the
first to use a new type of nuclear fuel. In addition, our fuel designs would
require regulatory approval by relevant nuclear regulatory authorities, such as
the Nuclear Regulatory Commission in the United States or its equivalent
agencies in other countries, before they can be used in commercial reactors. The
regulatory review process, which is outside of our control, may take longer than
expected and may delay a rollout of the fuel designs into the market. We believe
that demonstration of one of the Company’s fuel designs in a commercial nuclear
reactor would make deployment of the other designs easier, due to the many
similarities that exist among all of our fuel designs.
We have
been building relationships with companies and organizations in the nuclear
power industry for several years. We will attempt to cause some or all of these
companies and organizations to work in a consortium or a joint venture type
arrangement with us in the future. However, we may not be able to develop any
such consortium or arrangement in the near term or at all. The companies that we
have identified for potential relationships have existing contracts with nuclear
power plant owner/operators, under which they supply nuclear fuel branded with
their name to such nuclear power plants. We will attempt to cause these nuclear
fuel vending companies to provide their nuclear power plant operating customers
with fuels that are designed with our technology. To do so, we will need to
enter into agreements with one or more of these companies. Without such
arrangements it would be more difficult for us to license our fuel designs
because, in addition to the reputations, guarantees, services, and other
benefits that these nuclear fuel vendors provide when selling fuel to nuclear
power plant operators, they also often have multi-year fuel supply contracts
with the reactor operators. These multi-year fuel supply contracts act as a
barrier to entry into the market, such that it can be almost impossible to
penetrate some markets for nuclear fuel without working with a nuclear fuel
vendor that can support long term contracts. If we are successful in
demonstrating our fuel designs in Russia and in continuing to build
relationships with nuclear fuel vendors, we believe it may lead to one or more
of these major companies in the nuclear power industry working with us in
producing and selling our nuclear fuel designs to commercial reactor operators
and governments.
See also
“Item 1A. Risk Factors” in Part I of this report for additional information
about risks and uncertainties facing our Company.
21
Critical
Accounting Policies
Critical
Accounting Policies and Estimates
The SEC
issued Financial Reporting Release No. 60, “Cautionary Advice Regarding
Disclosure About Critical Accounting Policies” suggesting that companies
provide additional disclosure and commentary on their most critical accounting
policies. In Financial Reporting Release No. 60, the SEC has defined the most
critical accounting policies as the ones that are most important to the
portrayal of a company’s financial condition and operating results, and require
management to make its most difficult and subjective judgments, often as a
result of the need to make estimates of matters that are inherently uncertain.
Based on this definition, we have identified the following significant policies
as critical to the understanding of our financial statements.
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make a variety of estimates and
assumptions that affect (i) the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements and (ii) the reported amounts of revenues and expenses during the
reporting periods covered by the financial statements.
Our
management expects to make judgments and estimates about the effect of matters
that are inherently uncertain. As the number of variables and assumptions
affecting the future resolution of the uncertainties increase, these judgments
become even more subjective and complex. Although we believe that our estimates
and assumptions are reasonable, actual results may differ significantly from
these estimates. Changes in estimates and assumptions based upon actual results
may have a material impact on our results of operation and/or financial
condition. We have identified certain accounting policies that we believe are
most important to the portrayal of our current financial condition and results
of operations.
Accounting
for Stock Based Compensation, Stock Options and Warrants Granted to Employees
and Non-employees
We
adopted the FASB requirements for stock-based compensation, where all forms of
share-based payments to employees, including employee stock options and employee
stock purchase plans, are treated the same as any other form of compensation by
recognizing the related cost in the statement of income.
Under
these requirements, stock-based compensation expense is measured at the grant
date based on the fair value of the award, and the expense is recognized ratably
over the award’s vesting period. For all grants made, we recognize compensation
cost under the straight-line method.
We
measure the fair value of stock options on the date of grant using a
Black-Scholes option-pricing model which requires the use of several estimates,
including:
|
•
|
the
volatility of our stock price;
|
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•
|
the
expected life of the option;
|
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•
|
risk
free interest rates; and
|
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•
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expected
dividend yield.
|
Prior to
the completion of our merger in October 2006, we had limited historical
information on the price of our stock as well as employees’ stock option
exercise behavior for stock options issued prior to the merger. As a result, we
could not rely on historical experience alone to develop assumptions for stock
price volatility and the expected life of options. As such, our stock price
volatility was estimated with reference to our historical stock price for the
time period before the merger, from the date the announcement of the merger was
made. We utilized the closing prices of our publicly-traded stock from the
announcement date in January 2006 to determine our volatility and we have
continued to use our historical stock price closing prices to determine our
volatility.
The
expected life of options is based on internal studies of historical experience
and projected exercise behavior. We estimate expected forfeitures of stock-based
awards at the grant date and recognize compensation cost only for those awards
expected to vest. The forfeiture assumption is ultimately adjusted to the actual
forfeiture rate. Estimated forfeitures are reassessed in subsequent periods and
may change based on new facts and circumstances. We utilize a risk-free interest
rate, which is based on the yield of U.S. treasury securities with a maturity
equal to the expected life of the options. We have not and do not expect to pay
dividends on our common shares.
22
The
options were valued using the Black-Scholes option pricing model. The
assumptions used were as follows: volatility of 96% to 284%, a risk-free
interest rate of 2.6% to 5.24%, dividend yield of 0% and an exercise term of two
to ten years.
Income
Taxes
We
account for income taxes using the liability method in accordance with the FASB
accounting pronouncement “Accounting for Income Taxes”,
which requires the recognition of deferred tax assets or liabilities for the
tax-effected temporary differences between the financial reporting and tax bases
of our assets and liabilities, and for net operating loss and tax credit carry
forwards. The tax expense or benefit for unusual items, prior year tax exposure
items, or certain adjustments to valuation allowances are treated as discrete
items in the interim period in which the events occur.
On
January 1, 2007, we adopted FASB Accounting Interpretation “Accounting for Uncertainty in Income
Taxes”, which addresses the determination of whether tax benefits claimed
or expected to be claimed on a tax return should be recorded in the financial
statements. Under this FASB requirement, we may recognize the tax benefit from
an uncertain tax position only if it is more likely than not that the tax
position will be sustained on examination by the taxing authorities, based on
the technical merits of the position. As a result of the implementation of this
standard, we did not recognize any current tax liability for unrecognized tax
benefits. We do not believe that there are any unrecognized tax positions that
would have a material effect on the net operating losses disclosed.
Revenue
Recognition from Consulting Contracts
We
believe one of our critical accounting policies is revenue recognition from our
consulting contracts. We are currently primarily deriving our revenue from fees
by offering consulting and strategic advisory services to foreign commercial and
government owned entities planning to create or expand electricity generation
capabilities, using nuclear power plants. Our fee type and structure for each
client engagement depend on a number of variables, including the size of the
client, the complexity, the level of the opportunity for us to improve the
client’s electricity generation capabilities using nuclear power plants, and
other factors.
The two
consulting agreements that we entered into in August 2008 were fixed-fee service
contracts but were subsequently changed to time and expense contracts. We
recognized revenue associated with these contracts in accordance with the time
and expense billed to our customer, which is subject to their review and
approval. When a loss is anticipated on a contract, the full amount of the
anticipated loss is recognized immediately. Our management uses its judgment
concerning the chargeable number of hours to bill under each contract
considering a number of factors, including the experience of the personnel that
are performing the services, the value of the services provided and the overall
complexity of the project. Should changes in management’s estimates be required,
due to business conditions that cause the actual financial results to differ
significantly from management’s present estimates, revenue recognized in future
periods could be adversely affected.
We
recognize revenue in accordance with SEC Staff Accounting Bulletin or SAB, No.
104, “Revenue
Recognition”. We recognize revenue when all of the following conditions
are met:
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(1)
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There
is persuasive evidence of an
arrangement;
|
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(2)
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The
service has been provided to the
customer;
|
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(3)
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The
collection of the fees is reasonably assured;
and
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(4)
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The
amount of fees to be paid by the customer is fixed or
determinable.
|
In
situations where contracts include client acceptance provisions, we do not
recognize revenue until such time as the client has confirmed its
acceptance.
Intangibles
As
presented on the accompanying balance sheet, we had patents with a net book
value of approximately $242,000 as of December 31, 2009. There are many
assumptions and estimates that may directly impact the results of impairment
testing, including an estimate of future expected revenues, earnings and cash
flows, and discount rates applied to such expected cash flows in order to
estimate fair value. We have the ability to influence the outcome and ultimate
results based on the assumptions and estimates we choose for testing. To
mitigate undue influence, we set criteria that are reviewed and approved by
various levels of management. The determination of whether or not intangible
assets have become impaired involves a significant level of judgment in the
assumptions. Changes in our strategy or market conditions could significantly
impact these judgments and require adjustments to recorded amounts of intangible
assets.
23
Contingencies
Management
assesses the probability of loss for certain contingencies and accrues a
liability and/or discloses the relevant circumstances, as appropriate.
Management believes that any liability to the Company that may arise as a result
of having to pay out additional expenses that may have a material adverse effect
on the financial condition of the Company taken as a whole should be disclosed.
Refer to Note 10 of Notes to Consolidated Financial Statements.
Recent
Accounting Standards and Pronouncements
Refer to
Note 1 of Notes to Consolidated Financial Statements for a discussion of recent
accounting standards and pronouncements.
Business
Segments and Periods Presented
We have
provided a discussion of our results of operations on a consolidated basis and
have also provided certain detailed segment information for each of our business
segments below for the years ended December 31, 2009 and 2008, in order to
provide a meaningful discussion of our business segments. We have organized our
operations into two principal segments: Consulting and Strategic Advisory
Services and Fuel Technology. We present our segment information along the same
lines that our chief executives review our operating results in assessing
performance and allocating resources.
|
Consulting
|
Technology
|
Corporate and
Eliminations
|
Total
12 Months
|
|||||||||||||
|
December
31, 2009
|
||||||||||||||||
|
Revenue
|
10,257,306 | 259,072 | — | 10,516,378 | ||||||||||||
|
Segment
Profit (Loss) – Before Tax
|
3,771,974 | (1,597,699 | ) | (9,407,586 | ) | (7,233,312 | ) | |||||||||
|
Total
Assets
|
2,297,070 | 309,274 | 4,529,694 | 7,136,038 | ||||||||||||
|
Property
Additions
|
— | — | 14,920 | 14,920 | ||||||||||||
|
Interest
Expense
|
— | — | — | — | ||||||||||||
|
Depreciation
|
— | — | 25,482 | 25,482 | ||||||||||||
|
|
||||||||||||||||
|
December
31, 2008
|
||||||||||||||||
|
Revenue
|
22,219,905 | — | — | 22,219,905 | ||||||||||||
|
Segment
Profit (Loss) – Before Tax
|
11,131,182 | (2,505,990 |
)
|
(11,474,568 | ) | (2,849,376 | ) | |||||||||
|
Total
Assets
|
1,278,020 | 217,875 | 10,950,882 | 12,446,777 | ||||||||||||
|
Property
Additions
|
— | — | 102,113 | 102,113 | ||||||||||||
|
Interest
Expense
|
— | — | — | — | ||||||||||||
|
Depreciation
|
— | — | 24,668 | 24,668 | ||||||||||||
Consulting
and Strategic Advisory Services Business
At the
present time, substantially all of our revenue for the year ended December 31,
2009, is derived from our consulting and strategic advisory services business
segment by offering services to foreign governments planning to create or expand
electricity generation capabilities using nuclear power plants benefiting from
thorium-based or other nuclear fuels. The fee type and structure that we offer
for each client engagement is dependent on a number of variables, including the
complexity, the level of the opportunity for us to improve the client’s
electricity generation capabilities using nuclear power plants, and other
factors. Substantially all of the Company’s revenues, totaling approximately
$10.2 million, for the year ended December 31, 2009, have been derived from our
continuing work under the August 1, 2008 agreements and follow-on agreements in
2009, with the Executive Affairs Authority, or EAA, of Abu Dhabi, and upon their
subsequent formation, the Emirates Nuclear Energy Corporation, or ENEC, and the
Federal Authority for Nuclear Regulation, or FANR. We entered into
next phase follow-on agreements in March 2009 and July 2009 to continue our
consulting services under the ENEC and FANR agreements for 2009.
Revenue
was recognized on a time and expense basis for the year ended December 31, 2009
and for the third and fourth quarter of 2008. Revenue was recognized
during our first fiscal quarter of 2008 on a fixed-fee basis from our initial
project with the EAA called Roadmap on March 31, 2008, when the work on this
contract was substantially completed. We recognized revenue during the second
quarter of 2008 from our second project with the EAA called the Quickstart
project ratably over the term of the agreement, as this contract called for
on-going consulting services from March 2008 through June 2008. Revenues from
these two projects and the August 1, 2008 agreements mentioned above totaled
approximately $22.2 million for the year ended December 31, 2008.
24
The cost
of consulting services provided was approximately $6.2 million and $11.1 million
for the years ended December 31, 2009 and 2008, respectively. These amounts
consisted primarily of direct labor consulting expenses and other labor support
costs incurred, as mentioned in the general overview section above. Some
indirect corporate overhead expenses incurred were allocated to the consulting
and strategic advisory services business segment, and are included above in the
business segment information chart as part of Segment Profit (Loss) – Before
Tax.
Technology
Business
On August
3, 2009, we entered into a consulting agreement with AREVA for $550,000, as
discussed above. For the year ended December 31, 2009 our total revenue from
AREVA was approximately $259,000 (fees of $238,000 and expense billings of
$21,000). As of the date hereof, we have successfully completed the
first three tasks and two-thirds of task four out of the total of six tasks
under Phase 1 of the consulting agreement. We are executing work on
the remaining tasks as planned.
Over the
next 12 to 15 months we expect to incur up to $5 – $6 million in
research and development expenses related to the development of our proprietary
thorium-based nuclear fuel designs. We expect to incur these expenses after we
have entered into formal agreements with Russian nuclear entities that will
grant us licensing and other rights to use such technologies or intellectual
property developed by the Russian entities. Any such agreement may require
formal review and approval by the Russian State Atomic Energy Corporation
(“RosAtom”). We spent approximately $1.6 million for research and development in
2009, and a cumulative amount from the date of our inception (January 8, 1992,
date of inception of Thorium Power Inc.) to December 31, 2009 of approximately
$7.9 million. As of May 1, 2008, we established an office in Moscow and leased
office space to support research and development activities in Russia, and, in
July 2009, we hired several employees (former consultants) to work on our
research and development projects in Russia.
Over the
next several years, we expect that our research and development activities will
increase and will be primarily focused on testing and demonstration of our fuel
technology for VVER-1000 reactors. The main objective of this research and
development phase is to prepare for full-scale demonstration of our
thorium-based nuclear fuel technology in an operating commercial VVER-1000
reactor in Russia. Key research and development activities will include: (1)
scaling up the fuel fabrication process to full length (10 feet) rods used in
commercial VVER-1000 reactors, (2) validating thermal hydraulic performance of
the full size (10 feet) seed and blanket fuel assembly, (3) designing the loop
irradiation test, fabricating longer fuel samples and conducting loop
irradiation testing of the fabricated longer samples, and (4) obtaining final
regulatory approvals for insertion of fuel in VVER-1000 commercial reactors. As
this research and development program relates to commercial applications of our
fuel technology, and retaining ownership or control over as much key
intellectual property as we possibly can is critical to the long-term success of
our licensing business model, our plan is to fully fund these research and
development activities ourselves. At the same time, we do not currently plan to
fund research, testing and demonstration of our thorium/weapons-grade plutonium
disposing fuel, which can only be used in the U.S.-Russia
government-to-government weapons-grade plutonium disposition program and has no
commercial applications. Hence, funding for any future research and development
activities on this fuel design would have to be provided by the U.S. government
or other stakeholders.
Financial
Status
At
December 31, 2009, our total assets were approximately $7.1 million and total
liabilities were approximately $2.1 million. From the results of operations
including our consulting business segment, our working capital surplus decreased
by approximately $2.3 million at December 31, 2009. Our working capital was
approximately $4.5 million and $6.8 million at December 31, 2009 and 2008,
respectively.
Management
expects that our current cash position, as well as the revenue and profits that
are expected to be earned from our follow-on agreements from the two consulting
agreements entered into in August 2008, and the AREVA agreement, will meet our
foreseeable working capital needs for our current operations until sometime in
2011. We anticipate entering into other consulting and technology agreements
with our existing and new clients that may generate additional revenues going
forward. In support of our longer-term business plan for our
technology business segment, we will need to raise additional capital in the
near term by way of an offering of equity securities, an offering of debt
securities, or a financing through a bank or other entity to finance our
overhead and research and development expenditures. We will also need to raise
capital to support our technology business if the consulting and strategic
advisory services business becomes non-sustaining. Our current average monthly
projected working capital requirements for the Company’s total expenses,
excluding the $5 – $6 million of research and development expenses we
expect to incur in Russia over the next 12 – 15 months, is
approximately $1,000,000 per month. A financing or other capital raising
transaction will need to take place sometime during 2010 or 2011, to ensure that
we have the necessary working capital to continue our planned business
operations through 2010 and beyond. A financing may not be available or we may
not be able to obtain that financing on terms acceptable to us. If additional
funds are raised through the issuance of equity securities, there may be a
significant dilution in the value of our outstanding common stock. To support
this financing activity, we are exploring transaction opportunities that could
simultaneously create strategic industry and market alliances for us to support
our operations going forward.
25
Consolidated
Results of Operations
The
following table summarizes certain aspects of the Company’s consolidated results
of operations for the year ended December 31, 2009 compared to the year ended
December 31, 2008.
Comparison
of the Year Ended December 31, 2009 to the Year Ended December 31,
2008
|
Year Ended
December 31,
|
(Decrease)
Change $
|
(Decrease)
Change %
|
||||||||||||||
|
|
2009
|
2008
|
||||||||||||||
|
Consulting
Revenues
|
$ | 10,516,378 | 22,219,905 | $ | (11,703,527 | ) | (53 | )% | ||||||||
|
Cost
of services provided
|
||||||||||||||||
|
Consulting
expenses
|
$ | 6,228,046 | 11,088,723 | $ | (4,860,677 | ) | (44 | )% | ||||||||
|
%
of total revenues
|
59 | % | 50 | % | ||||||||||||
|
Gross
profit
|
$ | 4,288,332 | $ | 11,131,182 | $ | (6,842,850 | ) | (61 | )% | |||||||
|
%
of total revenues
|
41 | % | 50 | % | ||||||||||||
|
Operating
Expenses
|
||||||||||||||||
|
General
and administrative
|
$ | 9,896,027 | $ | 12,608,000 | $ | (2,711,973 | ) | (22 | )% | |||||||
|
%
of total revenues
|
94 | % | 57 | % | ||||||||||||
|
Research
and development expenses
|
$ | 1,632,208 | $ | 1,565,594 | $ | 66,614 | 4 | % | ||||||||
|
%
of total revenues
|
16 | % | 7 | % | ||||||||||||
|
Total
Operating Loss
|
$ | (7,239,903 | ) | $ | (3,042,412 | ) | $ | 4,197,491 | 138 | % | ||||||
|
%
of total revenues
|
(69 | )% | (14 | )% | ||||||||||||
|
Other
Income and (Expenses)
|
||||||||||||||||
|
Interest
income/expense, other
|
$ | 6,591 | $ | 193,036 | $ | (186,445 | ) | (97 | )% | |||||||
|
%
of total revenues
|
0 | % | 1 | % | ||||||||||||
|
Net
loss – before income taxes
|
$ | (7,233,312 | ) | $ | (2,849,376 | ) | $ | 4,383,936 | 154 | % | ||||||
|
%
of total revenues
|
(69 | )% | (13 | )% | ||||||||||||
Revenues
There was
$10.2 million of revenue for the year ended December 31, 2009 that was mostly
generated from our consulting and strategic advisory services business segment.
The 53 percent decrease in revenue for the year ended December 31, 2009 compared
to 2008 was primarily due to the uneven nature of our consulting projects with
ENEC and FANR, which are being performed pursuant to ongoing requests to work on
specific projects on a time and expense basis as needed. For the first and
second quarter of 2008, for the Road Map Project (first quarter of 2008) and
Quick Start project (second quarter of 2008), these two contracts were entered
into on a fixed fee basis and we therefore earned more revenue on these
contracts and other work performed with ENEC and FANR in 2008, than on the 2009
contracts that were performed on a time and expense basis.
Our work
with ENEC was reduced in 2009 due in part to ENEC’s focus on selecting a prime
contractor for the development and implementation of its nuclear power program.
Our work with FANR was delayed in the third and fourth quarters of 2009 due to
FANR’s implementation of a new security clearance review process for all
consultants retained by FANR. Notwithstanding the normal variations in billable
hours worked under these contracts, we re-negotiated some of our billing rates
in 2009 to further enhance and maintain the competitiveness of our advisory
services which also resulted in a reduction of our revenue for the year ended
December 31, 2009, compared to 2008. The future revenue to be earned and
recognized under both the ENEC and FANR agreements will depend upon future
agreed upon work plans which can differ from the revenue amounts initially
planned to be earned under these agreements and amounts earned in prior
periods.
26
For the
year ended December 31, 2009, we earned approximately $259,000 (fees of $238,000
and expense reimbursement billings of $21,000) from our new consulting agreement
with AREVA mentioned above. We will receive total fees of $550,000
for services provided pursuant to this Consulting Agreement. The
anticipated second phase and further phases of the collaboration, including a
detailed study of evolutionary and longer-term thorium fuel concepts, will be
conducted in accordance with additional collaborative agreements based upon the
results of the first phase of our work.
Cost
of Services Provided
The
decrease in the cost of services for the year ended December 31, 2009 compared
with 2008 is due to the decrease in billable hours for the ENEC and FANR
projects, which also reduced our reported revenue numbers for the year ended
December 31, 2009. These expenses related to the consulting, professional,
administrative and other costs allocated to the consulting projects, which were
incurred to perform and support the work done for our consulting projects with
the EAA in Abu Dhabi. The billing rates to us from our consultants who provide
services under our consulting contracts primarily remained unchanged in 2009 and
2008. This decrease was offset by an approximately $216,000 increase in the cost
of services provided for the AREVA project mentioned above, for the year ended
December 31, 2009.
Gross
Profit
The total
gross profit margin of 41 percent for the year ended December 31, 2009 is lower
as compared to 2008 because the advisory contracts changed from fixed price
contracts to time and expense contracts for the entire year of
2009. Our gross margins from our advisory contracts with ENEC and
FANR also decreased due to the reduction that occurred in the third quarter and
fourth quarter of 2009 in some of our hourly consultants’ billing rates to the
EAA.
General
and Administrative Expenses
There was
a 22 percent decrease in the general and administrative expenses for the year
ended December 31, 2009, as compared to 2008. This decrease was primarily due to
decreases in (1) consulting expenses of approximately $1,200,000, (2) travel
expenses of approximately $156,000, (3) stock-based compensation of
approximately $1 million, (4) public relations expenses and other professional
fees of approximately $576,000, (5) payroll and payroll related benefits of
$283,000 and (6) office expenses of $129,000. The decreases in these expenses
were partially offset by increases in (1) finance personnel to support our new
ERP accounting system and to support the activities of our consulting projects,
as well as to strengthen our internal controls for Sarbanes Oxley compliance of
approximately $349,000, (2) the cost of more office space for our branch offices
established in 2009 of approximately $28,000, (3) insurance expense of
approximately $118,000, (4) dues of $67,000 and (5) telephone and internet of
$41,000. In 2009, we incurred professional fees to engage firms to assist us in
establishing branch offices in Abu Dhabi and Russia. To reduce our consulting
fees in 2009, we established our Strategic Advisory Council, which replaced our
International Advisory Board, and we also hired employees who were formerly
consultants. We expect that our general and administrative expenses may increase
in future periods due to the expansion of our consulting and strategic advisory
services business segment and the hiring of new officers, employees and
consultants to help further develop and support our consulting and strategic
advisory services and technology business segments.
The
decrease in stock-based compensation for the year ended December 31, 2009 as
compared to 2008, is due to certain long-term incentive stock options and stock
that were granted in prior years under our stock plan to executives, directors,
advisors and employees, which became fully vested in 2008. Stock-based
incentives were granted to current management, directors, board members and
employees on January 21, 2009, April 6, 2009, April 26, 2009, July 14, 2009, and
July 22, 2009. In the future, stock-based compensation may be offered to attract
new employees in 2010, due to our expansion to meet the demands of contracts
with our current customers, and anticipated future business with new
customers.
Research
and Development Costs
The
increase in research and development costs for the year ended December 31, 2009
compared to 2008 is due to the increase in the scope of work for our research
and development activities in Russia. We expect that our research and
development expenses will increase in the future periods. Over
the next 12 to 15 months we expect to incur approximately up to
$5 – $6 million in research and development expenses related to the
development of our proprietary nuclear fuel designs.
27
Other
Income and Expense
The
decrease in other income and expense for the year ended December 31, 2009 is due
to the decrease in interest income earned on our idle cash.
Liquidity
and Capital Resources
As of
December 31, 2009, we had total cash and cash equivalents of approximately $3.0
million. The following table provides detailed information about our net cash
flow for all financial statements periods presented in this Report.
Cash
Flow
|
December 31,
|
||||||||
|
|
2009
|
2008
|
||||||
|
Net
cash provided by (used in) operating activities
|
$ | (2,560,733 | ) | $ | (3,614,876 | ) | ||
|
Net
cash provided by (used in) investing activities
|
$ | (38,890 | ) | $ | (102,113 | ) | ||
|
Net
cash provided by (used in) financing activities
|
$ | 48,170 | $ | (610,458 | ) | |||
|
Net
cash inflow (outflow)
|
$ | (2,551,453 | ) | $ | (4,327,447 | ) | ||
Operating
Activities
Net cash
used by our operating activities decreased by approximately $1.0 million for the
year ended December 31, 2009, as compared to 2008. This decrease in
funds used by our operating activities was primarily due to an increase in our
collections of our accounts receivable in 2009 of approximately $8.0 million and
a decrease in our deferred revenue liability of approximately $3.8 million (cash
received in 2007 as a prepayment for 2008 consulting services). This decrease in
funds used by our operating activities was offset by an increase in funds used
by our operating activities due to the increased operating loss of approximately
$4.3 million ($6.0 million increase in our net loss or use of cash in 2009, if
you exclude the $1.7 million decrease in non-cash stock-based compensation
expense in 2009 versus 2008, that is included in the $4.3 million net loss
difference). Total stock-based compensation was approximately $6.5 million in
2008, which was included in the net loss reported of approximately $2.9 million
in 2008. Total stock-based compensation was approximately $4.8 million in 2009,
which was included in the net loss reported for 2009 of approximately $7.2
million. There was also an increase in 2009 for payments made for our accounts
payable and accrued liabilities of approximately $4.8 million. Some of the
detail related to changes in the operating activities cash flows are mentioned
above in the Consolidated Results of Operations section of this management
discussion and analysis, regarding our operating expenses and other income and
expense items.
Investing
Activities
Net cash
used in our investing activities for the year ended December 31, 2009 as
compared to 2008 decreased by approximately $64,000, which was due to the
decrease in the acquisition of property and equipment in 2009 of approximately
87,000. This decrease was partially offset by an increase in professional fees
incurred in 2009 for the filing of patent applications of approximately $24,000.
These patent applications are filed for the new developments resulting from our
research and development activities in our fuel technology business
segment.
Financing
Activities
Net cash
provided by our financing activities increased by approximately $658,000 for the
year ended December 31, 2009, as compared to 2008. This increase in the cash
provided by financing activities was mainly attributable to a decrease in 2009
in cash used for collateral and classified as restricted cash of $648,000, and a
decrease in the payments of notes payable of approximately $10,000.
Off
Balance Sheet Arrangements
We do not
have any off balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity or capital
expenditures or capital resources that is material to an investor in our
securities.
28
Seasonality
Our
business has not been subject to any material seasonal variations in operations,
although this may change in the future.
Inflation
Our
business, revenues and operating results have not been affected in any material
way by inflation.
Item
7A. Quantitative and Qualitative Disclosure About Market Risk.
Not
applicable.
Item
8. Financial Statements.
The full
text of our audited consolidated financial statements as of December 31, 2009
and 2008 begins on page F- 1 of this
Report.
Item
9. Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure.
There
have been no disagreements regarding accounting and financial disclosure matters
with our independent certified public accountants.
29
Item
9A. Controls and Procedures.
(a)
Evaluation of Disclosure Controls and Procedures
We
maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under
the Exchange Act) that are designed to ensure that information that would be
required to be disclosed in Exchange Act reports is recorded, processed,
summarized and reported within the time period specified in the SEC’s rules and
forms, and that such information is accumulated and communicated to our
management, including to our Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosure.
As
required by Rule 13a-15 under the Exchange Act, our management, including our
Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness
of the design and operation of our disclosure controls and procedures as of
December 31, 2009. Based on that evaluation, our Chief Executive Officer
and Chief Financial Officer concluded that as of December 31, 2009, our
disclosure controls and procedures were effective to satisfy the objectives for
which they are intended.
(b)
Management’s annual report on internal control over financial
reporting
The
management of the Company is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in Rules 13a-15(f)
and 15d-15(f) under the Exchange Act. The Exchange Act defines internal control
over financial reporting as a process designed by, or under the supervision of,
the Company’s principal executive and principal financial officers and effected
by the Company’s board of directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
accounting principles generally accepted in the United States of America and
includes those policies and procedures that:
|
·
|
Pertain
to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of the assets of the
Company;
|
|
·
|
Provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America, and that
receipts and expenditures of the Company are being made only in accordance
with authorizations of management and directors of the Company;
and
|
|
·
|
Provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Company’s assets that
could have a material effect on the financial
statements.
|
All
internal control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement
preparation and presentation. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Management
assessed the effectiveness of our internal control over financial reporting as
of December 31, 2009. In making this assessment, management used the framework
set forth in the report entitled Internal Control - Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission, or
COSO. The COSO framework summarizes each of the components of a company’s
internal control system, including (i) the control environment, (ii) risk
assessment, (iii) control activities, (iv) information and communication, and
(v) monitoring. Based on our assessment we determined that, as of December 31,
2009, the Company’s internal control over financial reporting is effective based
on those criteria.
Child,
Van Wagoner & Bradshaw, PLLC, Certified Public Accountants (“CVB”), our
independent registered public accounting firm, has performed an audit of the
effectiveness of the Company’s internal control over financial reporting as of
December 31, 2009, and, as part of its audit, has issued its attestation report
on the effectiveness of the Company’s internal controls over financial reporting
herein as of December 31, 2009. CVB’s attestation report is included in this
Annual Report on Form 10-K on page F-2. This audit is required to be performed
in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Our independent auditors were given unrestricted access
to all financial records and related data.
|
(c)
Changes in internal control over financial
reporting
|
During
the fourth quarter of 2009, there were no changes in our internal control over
financial reporting identified in connection with the evaluation performed
during the fiscal year covered by this report that has materially affected, or
is reasonably likely to materially affect our internal control over financial
reporting.
30
Item
9B. Other Information.
None.
31
PART
III
Item
10. Directors and Executive Officers of the Registrant.
The
information required by Item 10 of Part III is included in our Proxy Statement
relating to the 2010 Annual Meeting of Stockholders and is incorporated herein
by reference.
Item
11. Executive Compensation.
The
information required by Item 11 of Part III is included in our Proxy Statement
relating to the 2010 Annual Meeting of Stockholders and is incorporated herein
by reference.
Item
12. Security Ownership of Certain Beneficial Owners and Management and Related
Shareholders.
The
information required by Item 12 of Part III is included in our Proxy Statement
relating to the 2010 Annual Meeting of Stockholders and is incorporated herein
by reference.
Item
13. Certain Relationships and Related Transactions, and Director
Independence.
Information
required by Item 13 of Part III is included in our Proxy Statement relating to
the 2010 Annual Meeting of Stockholders and is incorporated herein by
reference.
Item
14. Principal Accountant Fees and Services.
Information
required by Item 14 of Part III is included in our Proxy Statement relating to
the 2010 Annual Meeting of Stockholders and is incorporated herein by
reference.
32
PART
IV
Item
15. Exhibits and Financial Statement Schedules.
The
following exhibits are filed with this report, except those indicated as having
previously been filed with the Securities and Exchange Commission and are
incorporated by reference to another report, registration statement or form. As
to any shareholder of record requesting a copy of this report, we will furnish
any exhibit indicated in the list below as filed with this report upon payment
to us of our expenses in furnishing the information.
|
Exhibit
Number
|
Description
|
||
|
3.1*
|
Articles
of Incorporation
|
||
|
3.2
|
By-laws
(incorporated by reference from the Company’s Current Report on Form 8-K
filed on September 18, 2006).
|
||
|
4.1
|
2005
Compensation Plan for Outside Consultants of Custom Brand Networks, Inc.
dated March 1, 2005 (incorporated by reference from the Company’s
Registration Statement on Form S-8 filed on March 10,
2005).
|
||
|
4.2
|
2005
Augmented Compensation Plan for Outside Consultants of the Company dated
August 15, 2005 (incorporated by reference from the Company’s Registration
Statement on Form S-8 filed on August 19, 2005).
|
||
|
4.3
|
2006
Stock Plan (incorporated by reference to Exhibit 10.1 of the current
report of the Company on Form 8-K filed February 21,
2006).
|
||
|
10.1
|
Employment
Agreement, dated as of February 14, 2006, between the Company and Seth
Grae (incorporated by reference to Exhibit 10.2 of the current report of
the Company on Form 8-K filed February 21, 2006).
|
||
|
10.2
|
Teaming
Agreement dated February 22, 2006 between The University of Texas System,
The University of Texas of the Permian Basin, The University of Texas at
Austin, The University of Texas at Arlington, The University of Texas at
Dallas, The University of Texas at El Paso, The City of Andrews, Texas,
Andrews County, Texas, the Midland Development Corporation, the Odessa
Development Corporation, Thorium Power and General Atomics (incorporated
by reference from Exhibit 10. the Company’s Registration Statement on Form
S-4 filed June 14, 2006).
|
||
|
10.3
|
Employment
Agreement, dated July 27, 2006, between the Company and Andrey Mushakov
(incorporated by reference to Exhibit 10.1 of the current report of the
Company on Form 8-K filed August 4, 2006).
|
||
|
10.4
|
Independent
Director Contract, dated August 21, 2006, between the Company and Victor
Alessi (incorporated by reference to Exhibit 10.1 of the current report of
the Company on Form 8-K filed August 25, 2006).
|
||
|
10.5
|
Independent
Director Contract, dated October 23, 2006, between the Company and Jack D.
Ladd (incorporated by reference to Exhibit 10.1 to the Company’s Current
Report on Form 8-K, filed on October 23, 2006).
|
||
|
10.6
|
Independent
Director Contract, dated October 23, 2006, between the Company and Daniel
B. Magraw (incorporated by reference to Exhibit 10.2 to the Company’s
Current Report on Form 8-K, filed on October 23, 2006).
|
||
|
10.7
|
Employment
Agreement, dated February 1, 2007, between James Guerra and the Company
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report
on Form 8-K, filed on October 23, 2007).
|
||
|
10.8
|
Agreement
for Ampoule Irradiation Testing in 2006 – 2007, dated December
28, 2007, between Thorium Power, Inc. and Russian Research Centre
Kurchatov Institute (incorporated by reference to Exhibit 10.9 to the
Company’s Annual Report on Form 10-K, filed on March 26,
2009).
|
||
|
10.9
|
Restricted
Stock Grant Agreement, dated July 14, 2009, between Seth Grae and the
Company (incorporated by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K, filed on July 20, 2009).
|
||
|
10.10
|
Stock
Option Agreement, dated July 14, 2009, between Seth Grae and the Company
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report
on Form 8-K, filed on July 20, 2009).
|
||
|
10.11
|
Restricted
Stock Grant Agreement, dated July 14, 2009, between James Guerra and the
Company (incorporated by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K, filed on July 20, 2009).
|
||
|
10.12
|
Stock
Option Agreement, dated July 14, 2009, between James Guerra and the
Company (incorporated by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K, filed on July 20, 2009).
|
||
|
10.13
|
Initial
Collaborative Agreement, dated July 23, 2009, between the Company and
AREVA (incorporated by reference to Exhibit 10.1 to the Company’s Current
Report on Form 8-K, filed on July 23, 2009).
|
||
33
|
10.14
|
Agreement
for Consulting Services, dated August 3, 2009, between the Company and
AREVA (incorporated by reference to Exhibit 10.1 to the Company’s Current
Report on Form 8-K, filed on August 4, 2009).
|
|
|
10.15
|
Collaboration
Framework Agreement, dated August 3, 2009, between the Company and AREVA
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report
on Form 8-K, filed on August 6, 2009).
|
|
|
10.16
|
Agreement
for Ampoule Irradiation Testing, effective as of August 21, 2009,
between Thorium Power, Inc. and Russian Research Centre Kurchatov
Institute (incorporated by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K, filed on August 25, 2009).
|
|
|
14.1
|
Code
of Ethics (incorporated by reference from the Company’s Annual Report on
Form 10-KSB filed on November 25, 2005).
|
|
|
31.1*
|
Rule
13a-14(a)/15d-14(a) Certification — Principal Executive
Officer.
|
|
|
31.2*
|
Rule
13a-14(a)/15d-14(a) Certification — Principal Accounting
Officer.
|
|
|
32*
|
Section
1350 Certifications.
|
* Filed herewith
34
AUDITED
FINANCIAL STATEMENTS
LIGHTBRIDGE
CORPORATION
December
31, 2009 and 2008
TABLE
OF CONTENTS
|
Page
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
Consolidated
Balance Sheets
|
F-3
|
|
Consolidated
Statements of Operations
|
F-4
|
|
Consolidated
Statements of Cash Flows
|
F-5
|
|
Consolidated
Statements of Changes in Stockholders’ Equity
|
F-6
|
|
Notes
to Consolidated Financial Statements
|
F-7
|
F-1
 |
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and
Stockholders
of Lightbridge Corporation
McLean,
VA 22102
We
have audited the accompanying consolidated balance sheets of Lightbridge
Corporation as of December 31, 2009 and 2008, and the related consolidated
statements of operations, changes in stockholders’ equity, and cash flows
for each of the years then ended. We also have audited Lightbridge
Corporation’s internal control over financial reporting as of December 31,
2009, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Lightbridge Corporation’s
management is responsible for these financial statements, for maintaining
effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management’s Report on Internal
Control over Financial Reporting. Our responsibility is to express an
opinion on these financial statements and an opinion on the company’s
internal control over financial reporting based on our
audits.
We
conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audits to obtain reasonable assurance
about whether the financial statements are free of material misstatement
and whether effective internal control over financial reporting was
maintained in all material respects. Our audits of the consolidated
financial statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists,
and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also included
performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for
our opinions.
A
company’s internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. A
company’s internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on
the financial statements.
Because
of its inherent limitations, internal control over financial reporting may
not prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls
may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may
deteriorate.
In
our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Lightbridge Corporation as of December 31, 2009 and 2008, and the results
of its operations and its cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United
States of America. Also in our opinion, Lightbridge Corporation
maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2009, based on criteria established
in Internal
Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
/s/
Child, Van Wagoner & Bradshaw, PLLC
Child,
Van Wagoner & Bradshaw, PLLC
Salt
Lake City, Utah
March
5, 2010
|
F-2
LIGHTBRIDGE
CORPORATION
CONSOLIDATED
BALANCE SHEETS
|
December
31,
|
December
31,
|
|||||||
|
2009
|
2008
|
|||||||
|
ASSETS
|
||||||||
|
Current
Assets
|
||||||||
|
Cash
and cash equivalents
|
$ | 3,028,791 | $ | 5,580,244 | ||||
|
Restricted
cash
|
652,174 | 650,000 | ||||||
|
Accounts
receivable - project revenue and reimbursable project
costs
|
2,421,088 | 5,357,804 | ||||||
|
Prepaid
expenses & other current assets
|
574,095 | 394,315 | ||||||
|
Total
Current Assets
|
6,676,148 | 11,982,363 | ||||||
|
Property
Plant and Equipment -net
|
97,559 | 108,121 | ||||||
|
Other
Assets
|
||||||||
|
Patent
costs - net
|
241,845 | 217,875 | ||||||
|
Security
deposits
|
120,486 | 138,418 | ||||||
|
Total
Other Assets
|
362,331 | 356,293 | ||||||
|
Total
Assets
|
$ | 7,136,038 | $ | 12,446,777 | ||||
|
LIABILITIES
AND STOCKHOLDERS EQUITY
|
||||||||
|
Current
Liabilities
|
||||||||
|
Accounts
payable and accrued liabilities
|
$ | 2,162,221 | $ | 5,138,979 | ||||
|
Total
Liabilities
|
2,162,221 | 5,138,979 | ||||||
|
Commitments
and contingencies
|
||||||||
|
Stockholders'
Equity
|
||||||||
|
Preferred
stock, $0.001 par value, 50,000,000 authorized shares, no shares issued
and outstanding
|
- | - | ||||||
|
Common
stock, $0.001par value, 500,000,000 authorized, 10,168,412 shares issued and
outstanding at December 31, 2009 and 10,049,769 shares
(restated for reverse stock split of 1 for 30, prior to reverse stock
split was 301,493,084 shares issued and outstanding at December 31,
2008)
|
10,168 | 10,050 | ||||||
|
Additional
paid in capital - stock and stock equivalents
|
54,108,685 | 48,898,894 | ||||||
|
Accumulated
Deficit
|
(48,723,286 | ) | (41,489,974 | ) | ||||
|
Common
stock reserved for issuance, 5,721 shares and 16,135 shares (restated for
reverse stock split of 1 for 30, prior to reverse stock split was 484,055
shares) at December 31, 2009 and 2008, respectively
|
34,750 | 114,787 | ||||||
|
Deferred
stock compensation
|
(456,500 | ) | (225,959 | ) | ||||
|
Total
Stockholders' Equity
|
4,973,817 | 7,307,798 | ||||||
|
Total
Liabilities and Stockholders' Equity
|
$ | 7,136,038 | $ | 12,446,777 | ||||
The
accompanying notes are an integral part of these consolidated financial
statements
F-3
LIGHTBRIDGE
CORPORATION
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
Years
Ended
December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Revenue:
|
||||||||
|
Consulting
Revenue
|
$ | 10,516,378 | $ | 22,219,905 | ||||
|
Cost
of Consulting Services Provided
|
6,228,046 | 11,088,723 | ||||||
|
Gross
Margin
|
4,288,332 | 11,131,182 | ||||||
|
Operating
Expenses
|
||||||||
|
General
and administrative
|
9,896,027 | 12,608,000 | ||||||
|
Research
and development expenses
|
1,632,208 | 1,565,594 | ||||||
|
Total
Operating Expenses
|
11,528,235 | 14,173,594 | ||||||
|
Operating
loss
|
(7,239,903 | ) | (3,042,412 | ) | ||||
|
Other
Income and (Expenses)
|
||||||||
|
Interest
income
|
22,422 | 162,893 | ||||||
|
Other
|
(15,831 | ) | 0 | |||||
|
Realized
loss on marketable securities
|
30,143 | |||||||
|
Total
Other Income and Expenses
|
6,591 | 193,036 | ||||||
|
Net loss
before income taxes
|
(7,233,312 | ) | (2,849,376 | ) | ||||
|
Income
taxes
|
0 | 10,026 | ||||||
|
Net loss
|
$ | (7,233,312 | ) | $ | (2,859,402 | ) | ||
|
Net
Loss Per Common Share, Basic and diluted
|
$ | (0.72 | ) | $ | (0.29 | ) | ||
|
Weighted
Average Number of shares outstanding for the period used to compute per
share data - (prior reporting periods restated to reflect 1 for 30 reverse
stock split)
|
10,021,429 | 10,002,364 | ||||||
The
accompanying notes are an integral part of these consolidated financial
statements
F-4
LIGHTBRIDGE
CORPORATION
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
Years
Ended
December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Operating
Activities:
|
||||||||
|
Net
Loss
|
$ | (7,233,312 | ) | $ | (2,859,402 | ) | ||
|
Adjustments
to reconcile net loss from operations to net cash used in operating
activities:
|
||||||||
|
Stock
based compensation
|
4,848,987 | 6,546,493 | ||||||
|
Depreciation
and amortization
|
25,482 | 24,668 | ||||||
|
Gain
on marketable securities - available for sale
|
0 | (30,143 | ) | |||||
|
Changes
in non-cash operating working capital items:
|
||||||||
|
Accounts
receivable - fees and reimbursable project costs
|
2,936,716 | (5,357,804 | ) | |||||
|
Prepaid
expenses and other current assets
|
(179,780 | ) | (190,280 | ) | ||||
|
Security
deposits
|
17,932 | (136,369 | ) | |||||
|
Accounts
payable, accrued liabilities and other current liabilities
|
(2,976,758 | ) | 1,809,455 | |||||
|
Deferred
revenue
|
0 | (3,793,125 | ) | |||||
|
Deferred
project costs - net
|
0 | 371,631 | ||||||
|
Net
Cash Used In Operating Activities
|
(2,560,733 | ) | (3,614,876 | ) | ||||
|
Investing
Activities:
|
||||||||
|
Property
and equipment
|
(14,920 | ) | (102,113 | ) | ||||
|
Patent
costs
|
(23,970 | ) | 0 | |||||
|
Net
Cash Used In Investing Activities
|
(38,890 | ) | (102,113 | ) | ||||
|
Financing
Activities:
|
||||||||
|
Proceeds
from issue of common shares
|
50,344 | 49,975 | ||||||
|
Payments
on notes payable and other
|
0 | (10,433 | ) | |||||
|
Increase
in restricted cash
|
(2,174 | ) | (650,000 | ) | ||||
|
Net
Cash Provided by (Used In) Financing Activities
|
48,170 | (610,458 | ) | |||||
|
Net
Decrease In Cash and Cash Equivalents
|
(2,551,453 | ) | (4,327,447 | ) | ||||
|
Cash
and Cash Equivalents, Beginning of Year
|
5,580,244 | 9,907,691 | ||||||
|
Cash
and Cash Equivalents, End of Year
|
$ | 3,028,791 | $ | 5,580,244 | ||||
|
Supplemental
Disclosure of Cash Flow Information
|
||||||||
|
Cash
paid during the year:
|
||||||||
|
Interest
paid
|
$ | 0 | $ | 0 | ||||
|
Income
taxes paid
|
$ | 0 | $ | 10,026 | ||||
The
accompanying notes are an integral part of these consolidated financial
statements
F-5
LIGHTBRIDGE
CORPORATION
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
|
Common Stock
|
Additional
|
Accumulated
|
Stock
Committed
Future
|
Accumulated
Comprehensive
|
Deferred
Stock
|
Stockholders’
|
||||||||||||||||||||||||||
|
Shares
|
Amount
|
Paid-in Capital
|
Deficit
|
Issuance
|
Income
|
Compensation
|
Equity
|
|||||||||||||||||||||||||
|
Balance
- December 31, 2007
|
299,014,182 | $ | 299,014 | $ | 41,791,735 | $ | (38,630,572 | ) | $ | 590,000 | $ | 30,143 | $ | (479,445 | ) | $ | 3,600,875 | |||||||||||||||
|
Balance
- December 31, 2007 - Restated to reflect 1 to 30 reverse stock split on
September 29, 2009
|
9,967,139 | 9,967 | 42,080,782 | (38,630,572 | ) | 590,000 | 30,143 | (479,445 | ) | 3,600,875 | ||||||||||||||||||||||
|
Unrealized
loss on marketable securities
|
(30,143 | ) | (30,143 | ) | ||||||||||||||||||||||||||||
|
Exercise
of stock options
|
10,678 | 11 | 49,964 | 49,975 | ||||||||||||||||||||||||||||
|
Stock
option expense
|
6,138,220 | 6,138,220 | ||||||||||||||||||||||||||||||
|
Stock
based compensation
|
5,285 | 5 | 39,995 | 114,787 | (114,787 | ) | 40,000 | |||||||||||||||||||||||||
|
Amortization
of deferred stock compensation costs
|
368,273 | 368,273 | ||||||||||||||||||||||||||||||
|
Shares
issued
|
66,667 | 67 | 589,933 | (590,000 | ) | 0 | ||||||||||||||||||||||||||
|
Net
loss for the year
|
(2,859,402 | ) | (2,859,402 | ) | ||||||||||||||||||||||||||||
|
Balance
- December 31, 2008
|
10,049,769 | 10,050 | 48,898,894 | (41,489,974 | ) | 114,787 | 0 | (225,959 | ) | 7,307,798 | ||||||||||||||||||||||
|
Stock
based compensation
|
4,483,735 | 139,000 | 226,252 | 4,848,987 | ||||||||||||||||||||||||||||
|
Net
loss for the period
|
(7,233,312 | ) | (7,233,312 | ) | ||||||||||||||||||||||||||||
|
Shares
issued- non cash
|
108,026 | 108 | 675,722 | (219,037 | ) | (456,793 | ) | 0 | ||||||||||||||||||||||||
|
Shares
issued- cash (options exercised)
|
10,617 | 10 | 50,334 | 50,344 | ||||||||||||||||||||||||||||
|
Balance
- December 31, 2009
|
10,168,412 | $ | 10,168 | $ | 54,108,685 | $ | (48,723,286 | ) | $ | 34,750 | $ | 0 | $ | (456,500 | ) | $ | 4,973,817 | |||||||||||||||
F-6
LIGHTBRIDGE
CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE
OF OPERATIONS AND BASIS OF PRESENTATION
Nature
of operations
Radkowsky
Thorium Power Corp., incorporated in the state of Delaware on January 8, 1992,
changed its name to Thorium Power, Inc. in April 2001. On February 14, 2006,
Novastar Resources Ltd. (“Novastar”), entered into an Agreement and merged on
October 6, 2006 with Thorium Power, Inc. After the merger, the company was known
as Thorium Power, Ltd. On September 29, 2009 we changed our name from
Thorium Power, Ltd. to Lightbridge Corporation (“Lightbridge” or the “Company”)
and we effected a 1-for-30 reverse stock split of the Company’s common stock,
effective on September 29, 2009. Lightbridge is engaged in two business
segments.
Technology
Business Segment
The first
business segment is the development, promotion and marketing of our
patented thorium-based nuclear fuel designs for existing pressurized water
reactors. Presently, we are focusing most of our efforts on demonstrating and
testing our nuclear fuel technology for the Russian designed VVER-1000 reactors.
Operations to date in this business segment have been devoted primarily to
continued development of our fuel designs, filing for certain patents related to
our technology, developing strategic relationships within the nuclear power
industry, and securing political as well as some financial support from the
United States and Russian governments.
Once our
reactor fuels are further developed and tested, we plan to license our
intellectual property rights to fuel fabricators, nuclear generators, and
governments for use in commercial light water nuclear reactors, or sell the
technology to a major nuclear company or government contractor, or some
combination of the two. We anticipate having the final design of our fuel
technology for VVER-1000 reactors and commencing the demonstration of our fuel
in a VVER-1000 operating reactor within the next three to five years. Presently
all of our research, testing and demonstration activities are being conducted in
Russia.
On July
23, 2009, we entered into an Initial Collaborative Agreement (“AREVA Agreement”)
with AREVA, the world’s largest nuclear energy company. Pursuant to the AREVA
Agreement, the Company will conduct the first phase of an investigation of
specific topics of thorium fuel cycles in AREVA’s light water reactors (“LWRs”).
This first phase will focus on providing initial, general results relating to
evolutionary approaches to the use of thorium in AREVA’s LWRs, specifically
within AREVA’s Evolutionary Power Reactor. AREVA is obligated to pay the Company
a total of $550,000 for services provided in phase 1, assuming no early
termination and assuming completion of the original scope of work. Anticipated
phase 2 and further phases of the collaboration, including a detailed study of
evolutionary and longer-term thorium fuel concepts, will be conducted in
accordance with additional collaborative agreements.
Phase 1
and phase 2 of the collaboration between our Company and AREVA are now being
conducted with the intention of future collaborative agreements between the two
parties in order to develop and set up new products and technologies related to
thorium fuel concepts. AREVA’s use of our intellectual property for commercial
purposes or any purpose, other than as specified in the AREVA Agreement, would
be separately negotiated on a royalty basis.
Pursuant
to the AREVA Agreement, each party shall retain ownership in its existing (i.e., developed prior to
entering into the AREVA Agreement) intellectual property. The parties have also
agreed that AREVA will retain full ownership of any work product resulting from
the services performed by us under the AREVA Agreement that relate to AREVA’s
LWRs, and we will retain full ownership of any work product resulting from the
services performed by us under the AREVA Agreement that relate to reactors other
than AREVA’s LWRs, including, but not limited to Russian VVER-type
reactors.
Consulting
Business Segment
Our
business model expanded in 2007, and our second business segment is providing
consulting and strategic advisory services to companies and governments planning
to create or expand electricity generation capabilities using nuclear power
plants. To date, we have secured four contracts with successively larger values
for consulting and strategic advisory services in the United Arab Emirates
(“UAE”). On August 1, 2008, we signed separate consulting services agreements
with two government entities in Abu Dhabi. Under these two new agreements, we
are to provide consulting and strategic advisory services over a contract term
of five years starting June 23, 2008, with automatic renewals of these contracts
for one year periods. In 2009, certain contractual items in these two agreements
were amended, and we entered into amended agreements. These contracts are billed
on a time and expense basis.
F-7
Accounting
Policies and Pronouncements
In June
2009, the Financial Accounting Standards Board (“FASB”) issued a new accounting
pronouncement which identifies the sources of accounting principles and the
framework for selecting the principles to be used in the preparation of
financial statements that are presented in conformity with U.S. generally
accepted accounting principles (“GAAP”). This accounting pronouncement does not
change the way the Company accounts for its transactions or the nature of
related disclosures made. This accounting pronouncement affects the way the
Company references U.S. GAAP in its consolidated financial statements. The
Company adopted this accounting pronouncement in the fourth quarter of fiscal
2009 and is referring to these new sources of accounting principles in these
financial statements as accounting pronouncements.
Certain
reclassifications have been made to the 2008 financial statements so that it
conforms to the classifications made in the 2009 financial
statements.
A
reclassification has been made for stock-based compensation, originally reported
as a separate line item in 2008 but now is reported for 2009 and 2008 in general
and administrative expenses.
On
September 29, 2009, a 1-for-30 reverse stock split of the Company’s common
shares became effective. Total common stock outstanding at December 31, 2008 was
originally reported as 301,493,084 shares and is being restated as 10,049,769
shares. The loss per share reported for the year ended December 31, 2008 was
originally reported at $0.01 per share, and has been restated to a loss per
share of $0.29, based on the restated weighted average shares outstanding at
December 31, 2008, originally reported on the statement of operations as
300,070,925 shares, and restated as 10,002,364 shares (restated to reflect this
1 for 30 reverse stock split).
a)
Consolidation
These
financial statements include the accounts of Lightbridge, a Nevada corporation,
and our wholly-owned subsidiaries, Thorium Power, Inc., a Delaware corporation,
Lightbridge Power International Holding, LLC, a Delaware limited liability
company and our branch offices.
All
significant intercompany transactions and balances have been eliminated in
consolidation. We formed a branch office in England in 2008 called Lightbridge
Advisors Limited, which is wholly-owned by Lightbridge Power International
Holding, LLC, as well as a branch office in Moscow, Russia, established in July
2009.
b)
Use of Estimates and Assumptions
The
preparation of financial statements, in conformity with accounting principles
generally accepted in the United States of America, requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
Significant
Estimates
These
consolidated financial statements include some amounts that are based on
management's best estimates and judgments. The most significant estimates relate
to valuation of stock grants and stock options, the valuation allowance for
deferred taxes and various contingent liabilities. It is reasonably possible
that these above-mentioned estimates and others may be adjusted as more current
information becomes available, and any adjustment could be significant in future
reporting periods.
c)
Risks and Uncertainties
The
Company’s future operations and earnings will depend on the results of the
Company’s operations outside the United States. There can be no assurance that
the Company will be able to successfully continue to conduct such operations,
and a failure to do so would have a material adverse effect on the Company’s
financial position, results of operations, and cash flows. Also, the success of
the Company’s operations will be subject to other numerous contingencies, some
of which are beyond management’s control. These contingencies include general
and regional economic conditions, prices for the Company’s services,
competition, changes in regulations, changes in accounting and taxation
standards, inability to achieve our overall long-term goals, future impairment
charges and global or regional catastrophic events. Because the Company is
dependent on international operations for all its revenue, particularly in one
country right now, the Company will be subject to various additional political,
economic, and other uncertainties.
F-8
We
participate in a highly regulated industry that is characterized by governmental
regulation. Our results of operations are affected by a wide variety of factors
including decreases in the use or public favor of nuclear power, the ability of
our technology, the ability to safeguard the production of nuclear power, and
safeguarding our patents and intellectual property from competitors. Due to
these factors, we may experience substantial period-to-period fluctuations in
our future operating results. Potentially, a loss of a key officer, key
management, and other personnel could impair our ability to successfully execute
our business strategy, particularly when these individuals have acquired
specialized knowledge and skills with respect to nuclear power and our
operations. Our research operations are subject to various political, economic,
and other risks and uncertainties inherent in Russia.
Our
Company monitors our operations with a view to minimizing the impact to our
overall business that could arise as a result of the risks and uncertainties
inherent in our business.
d)
Revenue Recognition
Consulting
Business Segment
At the
present time we are deriving substantially all of our revenue from our
consulting and strategic advisory services business segment, by offering
services to governments outside the United States planning to create or expand
electricity generation capabilities using nuclear power plants. Our fee
structure for each client engagement is dependent on a number of variables,
including the size of the client, the complexity, the level of the opportunity
for us to improve the client’s electrical generation capabilities using nuclear
power plants, and other factors. The accounting policy we use to recognize
revenue depends on the terms and conditions of the specific
contract.
All of
our consulting contracts in 2009 and 2008 mentioned below are with the Executive
Affairs Authority (“EAA”) of Abu Dhabi, one of the member Emirates of the UAE,
and the related entities, Emirates Nuclear Energy Corporation (“ENEC”) and
Federal Authority for Nuclear Regulation (“FANR”). All of the Company's revenues
recognized for 2009 were recognized on a time and expense basis. All of the
Company's revenues recognized for the first quarter of 2008 were recognized
under the completed performance model of revenue recognition for our first
consulting project with EAA (Roadmap). All of the Company’s revenues for the
second quarter of 2008 were derived from the completion of the defined contract
deliverables required from the second consulting contract entered into March
2008 with the EAA, and completed in June 2008. All of the Company’s revenues for
the third and fourth quarter of 2008 were recognized on a time and expense
basis.
Certain
customer arrangements require evaluation of the criteria outlined in the
accounting standards for reporting revenue “Gross as a Principal Versus Net as
an Agent” in determining whether it is appropriate to record the gross
amount of revenue and related costs, or the net amount earned as agent fees.
Generally, when we are primarily obligated in a transaction, revenue is recorded
on a gross basis. Other factors that we consider in determining whether to
recognize revenue on a gross versus net basis include our assumption of credit
risk, latitude in establishing prices, our determination of service
specifications and our involvement in the provision of services. We have
determined, based on the credit risk that we now bear for collecting consulting
fees, travel costs and other reimbursable costs from our customers, that in 2009
we acted as a principal, and therefore we are recognizing as revenue all travel
costs and other reimbursable costs billed to our customers.
For the
year ended December 31, 2008, we were paid upfront by our customer for all
travel costs and other reimbursable costs, thus these reimbursed costs were not
recorded as revenue in 2008.
Technology
Business Segment
We
recognize revenue from our agreement with AREVA upon the completion of certain
defined contract deliverables that are accepted by AREVA.
Once the
Company's thorium-based nuclear fuel designs have advanced to a commercially
usable stage, the Company will seek to license our technology to major
government contractors, working for the U.S. and other governments or nuclear
companies. We expect that our revenue from license fees will be recognized on a
straight-line basis over the expected period of the related license
term.
e) Trade Accounts
Receivable
We record
trade accounts receivable at net realizable value. This value includes an
appropriate allowance for estimated uncollectible accounts to reflect any loss
anticipated on the trade accounts receivable balances and charged to the
provision for doubtful accounts. We calculate this allowance based on our
history of write-offs, level of past-due accounts based on the contractual terms
of the receivables, and our relationships with and the economic status of our
customers. There was no provision for doubtful accounts recorded at December 31,
2009 and 2008. Substantially all accounts receivable at December 31, 2009 and
2008 were from ENEC and FANR.
F-9
f) Deferred Project
Costs
All costs
directly related to producing the work under the agreements with AREVA, such as
consulting costs, other professional fees and various administrative support and
other costs, are capitalized as deferred project costs (reported as prepaid
expenses and other current assets on the accompanying balance sheet). Deferred
project costs are then recognized or amortized to an expense captioned “cost of
consulting services provided” on the accompanying statement of operations, when
the revenue is to be recognized upon delivery and acceptance of defined
deliverables.
g)
Segment Reporting
The
Company uses the “management approach” in determining reportable operating
segments. The management approach considers the internal organization and
reporting used by the Company’s chief operating decision makers for making
operating decisions and assessing performance, as the source for determining the
Company’s reportable segments. The Company has determined that the Company has
two operating segments as mentioned above and defined by the FASB accounting
pronouncement, “Disclosures
about Segments of an Enterprise and Related Information”. The two
reporting business segments are our technology business and our consulting and
strategic advisory services business.
h) Cash and Cash Equivalents and
Restricted Cash
We
classify marketable securities that are highly liquid and have maturities of
three months or less at the date of purchase as cash equivalents. We manage our
exposure to counterparty credit risk through specific minimum credit standards,
diversification of counterparties and procedures to monitor our credit risk
concentrations. Restricted cash represents cash being held by Capital One, and
this cash is used as collateral for the Company’s corporate credit cards. This
cash became unrestricted in January 2010 when the Company cancelled its credit
card program with Capital One. The Company does hold cash balances in excess of
the federally insured limits of $250,000 with two prominent financial
institutions. The Company deems this credit risk not to be
significant.
i)
Fair Value Measurements
We
adopted the FASB accounting pronouncement, “Fair Value Measurements,”
effective January 1, 2008 for financial assets and liabilities measured on a
recurring basis. This FASB accounting pronouncement applies to all financial
assets and financial liabilities that are being measured and reported on a fair
value basis. As defined by this FASB accounting pronouncement, fair value is the
price that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement date (exit
price). This FASB accounting pronouncement requires disclosure that establishes
a framework for measuring fair value and expands disclosure about fair value
measurements. The statement requires that fair value measurements be classified
and disclosed in one of the following categories:
|
Level 1:
|
Unadjusted
quoted prices in active markets that are accessible at the measurement
date for identical, unrestricted assets or liabilities. We consider active
markets as those in which transactions for the assets or liabilities occur
with sufficient frequency and volume to provide pricing information on an
ongoing basis.
|
|
|
Level 2:
|
Quoted
prices in markets that are not active, or inputs that are observable,
either directly or indirectly, for substantially the full term of the
asset or liability. This category includes those derivative instruments
that we value using observable market data. Substantially all of these
inputs are observable in the marketplace throughout the full term of the
derivative instrument, and can be derived from observable data or
supported by observable levels at which transactions are executed in the
marketplace. Instruments in this category include non-exchange traded
derivatives such as over-the-counter commodity price swaps, investments,
and interest rate swaps.
|
|
|
Level 3:
|
Measured
based on prices or valuation models that require inputs that are both
significant to the fair value measurement and less observable from
objective sources (i.e., supported by
little or no market activity).
|
We held
approximately $1.6 million of auction rate securities throughout the year in
2008, which were classified at a Level 3 fair value measurement. These
securities were originally recorded at face value because their full redemption
at face value was guaranteed by the financial institution holding these
securities. In the fourth quarter of 2008 this financial institution redeemed
all of these securities at their full face value. We did not hold any marketable
securities at December 31, 2008, therefore the balance in accumulated other
comprehensive income was $0 at December 31, 2009 and 2008.
Unrealized
gains and losses and the related deferred income tax effects are excluded from
earnings and reported as a separate component of stockholders’ equity, other
comprehensive income (loss). Realized gains or losses are computed based on
specific identification of the securities sold. There was a realized gain of
$30,143, reported as other income and expense on the accompanying statement of
operations, for the year ended December 31, 2008.
F-10
j) Property and
Equipment
Property,
plant and equipment is comprised of furniture, computers and office equipment
and is stated at cost less accumulated depreciation. Depreciation of furniture,
computers and office equipment is recognized over the estimated useful life of
the asset, generally five years utilizing the straight line balance methodology.
Upon disposition of assets, the related cost and accumulated depreciation are
eliminated and any gain or loss is included in the statement of income.
Expenditures for major improvements are capitalized. Expenses related to
maintenance and repairs are recognized as the costs are incurred.
k)
Intangible Assets — Patents
Patents
are stated in the balance sheet at cost less accumulated amortization. The costs
of the patents, once placed in service, are amortized on a straight-line basis
over their estimated useful lives. The amortization periods for our patents
range between 17 and 20 years. The patents have not been placed in
service for the years ended December 31, 2009 and 2008.
l)
Income Taxes
Income
taxes are accounted for under the asset and liability method in accordance with
the FASB accounting pronouncement “Accounting for Income Taxes.”
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial carrying amounts
of existing assets and liabilities and their respective tax bases as well as
operating loss and tax credit carry forwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. Deferred tax assets are reduced by a valuation allowance to the
extent that the recoverability of the asset is unlikely to be recognized. The
Company did not provide any current or deferred income tax provision or benefit
for any periods presented to date because the Company has continued to
experience a net operating loss since inception.
The
Company adopted the FASB accounting pronouncement “Accounting for Uncertainty in Income
taxes”. This pronouncement provides guidance for recognizing and
measuring uncertain tax positions, as defined in the FASB accounting
pronouncement “Accounting for
Income Taxes”. This pronouncement prescribes a threshold condition that a
tax position must meet for any of the benefits of the uncertain tax position to
be recognized in the financial statements. This pronouncement also provides
accounting guidance on derecognizing, classification and disclosure of these
uncertain tax positions.
m)
Stock-Based Compensation
In
December 2004, the FASB issued a revised FASB accounting pronouncement, “Share-Based Payment”, which is a revision of the
original FASB accounting pronouncement, “Accounting for Stock-Based
Compensation”.
In addition to requiring supplemental disclosures, this pronouncement addresses
the accounting for share-based payment transactions in which a company receives
goods or services in exchange for (a) equity instruments of the company or (b)
liabilities that are based on the fair value of the company’s equity instruments
or that may be settled by the issuance of such equity instruments. This
accounting pronouncement focuses primarily on accounting for transactions in
which a company obtains employee services in share-based payment transactions.
The pronouncement generally requires that such transactions be accounted for
using a fair value based method. Accordingly, pro-forma disclosure is no longer
an alternative.
Under
this accounting pronouncement, the Company is required to recognize compensation
cost for the portion of outstanding awards previously accounted for under the
provisions of APB-25 for which the requisite service had not been rendered as of
the adoption date for this Statement. The Statement also requires companies to
estimate forfeitures of stock compensation awards as of the grant date of the
award.
The
Company adopted this FASB accounting pronouncement on January 1, 2006, using the
modified prospective method. Stock issued to consultants for consulting services
is valued as of the date of the agreements with the various consultants, which
in all cases is earlier than the dates when the services are committed to be
performed by the various consultants.
n) Basic and Diluted Loss
per Share
In
accordance with the FASB accounting pronouncement, “Earnings Per Share,” the
basic loss per common share is computed by dividing net loss available to common
stockholders by the weighted average number of common shares outstanding.
Diluted loss per common share is computed in a manner similar to basic loss per
common share except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the potential
common shares had been issued and if the additional common shares were dilutive.
At December 31, 2009 and 2008, the Company’s stock equivalents were
anti-dilutive and excluded in the diluted loss per share computation because the
Company had a net loss.
F-11
o)
Impairment Charges
Unlike
goodwill and indefinite-lived intangible assets, the accounting pronouncements
do not provide for an annual impairment test in determining whether property,
plant, and equipment and finite-lived intangible assets (e.g., patents) are impaired.
Instead, they require that a triggering event occur before testing an asset for
impairment. Examples of such triggering events include current-period operating
or cash flow loss combined with a history of operating or cash flow losses, a
significant disposal of a portion of such assets, an adverse change in the
market involving the business employing the related asset, a significant
decrease in the benefits realized from an acquired business, difficulties or
delays in integrating the business and a significant change in the operations of
an acquired business.
Once a
triggering event has occurred, the impairment test employed is based on whether
the intent is to hold the asset for continued use or to hold the asset for sale.
If the intent is to hold the asset for continued use, the impairment test
involves a comparison of undiscounted cash flows against the carrying value of
the asset as an initial test. If the carrying value of such asset exceeds the
undiscounted cash flow, the asset would be deemed to be impaired. Impairment
would then be measured as the difference between the fair value of the fixed or
amortizing intangible asset and the carrying value to determine the amount of
the impairment. The Company generally determines fair value by using the
discounted cash flow method. If the intent is to hold the asset for sale and
certain other criteria are met (i.e., the asset can be
disposed of currently, appropriate levels of authority have approved the sale,
and there is an actively pursuing buyer), the impairment test is a comparison of
the asset’s carrying value to its fair value less costs to sell. To the extent
that the carrying value is greater than the asset’s fair value less costs to
sell, an impairment loss is recognized for the difference. The Company conducted
an impairment test of its patent at December 31, 2009 and 2008, and determined
that the future undiscounted cash flows associated with the patent rights were
sufficient to recover its carrying value on the balance sheet.
p)
Commitments and Contingencies
Liabilities
for loss contingencies arising from various claims, assessments, litigation,
fines and penalties and other sources are recorded when it is probable that a
liability has been incurred and the amount of the assessment can be reasonably
estimated.
q)
Retirement 401K Plan
We have a
401(k) savings plan that was set up in 2006 covering substantially all of our
employees. Eligible employees may contribute through payroll deductions. There
were no Company matching contributions made to the 401(k) savings plan in 2009
and 2008.
r)
Recent Accounting Pronouncements
In
April 2008, the FASB issued a pronouncement regarding the “Determination of the Useful Life of
Intangible Assets.” This guidance amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset. The intent of this guidance is to
improve the consistency between the useful life of a recognized intangible asset
and the period of expected cash flows used to measure the fair value of the
asset under other U.S. GAAP. This guidance is effective for financial statements
issued for fiscal years beginning after December 15, 2008, and interim
periods within those fiscal years. The guidance for determining the useful life
of a recognized intangible asset shall be applied prospectively to intangible
assets acquired after the effective date. Certain disclosure requirements shall
be applied prospectively to all intangible assets recognized as of, and
subsequent to, the effective date.
In
April 2009, the FASB issued a pronouncement regarding “Interim Disclosures about Fair Value
of Financial Instruments Disclosures” to require disclosures about fair
value of financial instruments in interim financial statements as well as in
annual financial statements. This new guidance requires these disclosures in all
interim financial statements. This guidance is effective for interim and annual
periods ending after June 15, 2009, with early application permitted. The
fair value of all cash, receivables and payables are equal to the carrying
amounts.
In
May 2009, the FASB issued a pronouncement regarding “Subsequent Events”. This
guidance establishes general standards of accounting for and disclosure of
events that occur after the balance sheet date but before the financial
statements are issued or are available to be issued. It requires the disclosure
of the date through which an entity has evaluated subsequent events and the
basis for that date. This guidance is effective for interim and annual reporting
periods ending after June 15, 2009, and shall be applied
prospectively.
F-12
2.
FINANCIAL STATUS OF THE COMPANY
The
Company is currently executing its strategic plan for 2010 and is working on
determining its future cash needs. Management anticipates, based on its current
working capital and projected working capital requirements, that it will have
enough working capital funds to sustain its current operations at its current
operating level until sometime in 2011. In support of the Company’s business
plan regarding its research and development activities for developing its fuel,
the Company will need to raise additional capital in 2010 by way of an offering
of equity securities, an offering of debt securities, or a financing through a
bank or other entity. The Company may also need to raise additional capital
sooner to support its overhead operation if the consulting and strategic
advisory services business becomes non-sustaining. Currently, the Company is
working on revenue opportunities with the overall goal of increasing the
Company’s profitability and cash flow. The Company expects to meet all of its
financial commitments and operating needs for 2010.
3. CONSULTING
REVENUES
ENEC and
FANR Projects
Substantially
all of the Company’s revenue earned in the amount of approximately $3.0 million
for the first quarter of 2009, approximately $3.4 million for the second quarter
of 2009, approximately $2.0 million for the third quarter of 2009 and
approximately $2.1 million for the fourth quarter of 2009, has been derived from
the two consulting contracts entered into in August 2008 with ENEC and FANR, for
consulting services. The variation in revenue reflects the uneven
nature of consulting projects and the timing of revenues recognized on the
respective projects.
We expect
to continue to provide strategic advisory services to the EAA of Abu Dhabi and
to both the ENEC and FANR entities during the five-year term of these consulting
agreements. Under these agreements, revenue will be recognized on a time and
expense basis. We periodically discuss our consulting work with the EAA of Abu
Dhabi, who will review the work we perform, and our reimbursable travel
expenses, and accept our monthly invoicing for services and
expenses.
Travel
costs and other reimbursable costs under these contracts are reported in the
accompanying statement of operations as both revenue and cost of consulting
services provided, and totaled approximately $917,000 for the year ended
December 31, 2009. The total travel and other reimbursable expenses that have
not been reimbursed are being presented on the accompanying balance sheet and
included in total accounts receivable in the amount of approximately $159,000 at
December 31, 2009. The remaining accounts receivable reported at December 31,
2009 of approximately $2,262,000, represents consulting fees billed and due for
the work performed for both the ENEC and FANR projects mentioned above, as well
as work performed on the AREVA project. Total accounts receivable reported on
the accompanying balance sheet is approximately $2,421,000 at December 31, 2009,
of which approximately $610,000 is for December 2009 work that was billed in
January 2010. Foreign currency exchange loss was approximately $16,000 and $0
for the years ended December 31, 2009 and 2008, respectively, which is reported
in other income and expense.
4.
BUSINESS SEGMENTS
The
Company has two principal operating segments, which are (1) technology and (2)
consulting and strategic advisory services. These operating segments were
determined based on the nature of the operations and the services offered.
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief decision-makers, in deciding how to allocate resources and in assessing
performance. The Company’s Chief Executive Officer, Chief Operating Officer and
Chief Financial Officer have been identified as the chief operating decision
makers. The Company’s chief operating decision makers direct the allocation of
resources to operating segments based on the profitability, the cash flows, and
the business plans of each respective segment.
The
Company evaluates performance based on several factors, of which the primary
financial measure is business segment income before taxes. The following tables
show the operations of the Company’s reportable segments for the years ended
December 31, 2009 and 2008.
F-13
BUSINESS
SEGMENT RESULTS – YEARS ENDED DECEMBER 31, 2009 AND 2008
|
Consulting
|
Technology
|
Corporate
and
Eliminations
|
Total
|
|||||||||||||||||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||||||||||||||
|
Revenue
|
10,257,306 | 22,219,905 | 259,072 | — | — | — | 10,516,378 | 22,219,905 | ||||||||||||||||||||||||
|
Segment
Profit – Before Tax
|
3,771,974 | 11,131,182 | (1,597,699 | ) | (2,505,990 | ) | (9,407,587 | ) | (11,474,568 | ) | (7,233,312 | ) | (2,849,376 | ) | ||||||||||||||||||
|
Total
Assets
|
2,297,070 | 1,278,020 | 309,274 | 217,875 | 4,529,694 | 10,950,882 | 7,136,038 | 12,446,777 | ||||||||||||||||||||||||
|
Property
Additions
|
— | — | — | — | 14,920 | 102,113 | 14,920 | 102,113 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Interest
Expense
|
— | — | — | — | — | — | — | — | ||||||||||||||||||||||||
|
Depreciation
|
— | — | — | — | 25,482 | 24,668 | 25,482 | 24,668 | ||||||||||||||||||||||||
5.
RESEARCH AND DEVELOPMENT COSTS
Research
and development costs, included in the statement of operations amounted to
approximately $1,632,000 and $1,566,000 for the years ended December 31, 2009
and 2008, respectively. Total cumulative expense has amounted to approximately
$7.9 million from January 8, 1992 (date of inception of Lightbridge) to December
31, 2009. These totals do not include the costs incurred on the research and
development contracts for AREVA shown below of approximately $216,000, which may
result in potential intellectual property for the Company to use in the future,
for other than AREVA’s LWRs reactors, including, but not limited to, Russian
VVER-type reactors.
Research
and Development Contracts
The
Company entered into the AREVA Agreement on July 23, 2009, under which it is
obligated to perform certain specific research and development activities. The
Company receives fees under the terms of this AREVA Agreement.
AREVA is
obligated to pay the Company a total of $550,000 for services provided in phase
1, assuming no early termination and assuming completion of the original scope
of work. AREVA will also reimburse the Company for any reasonable out of pocket
expenses properly incurred by the Company and directly attributable to the
provision of the services outlined in the Agreement.
Compensation
earned and costs incurred by the Company for the year ended December 31, 2009
under this contract are as follows:
|
Fees
earned and reimbursable expenses
|
$ | 259,072 | ||
|
Costs
incurred to date - charged to cost of consulting services
provided
|
$ | 215,963 |
Deferred
projects costs for this project, included on the balance sheet in the caption
“prepaid expenses and other current assets”, totaled approximately $53,000 at
December 31, 2009. Deferred project costs are then recognized or amortized to an
expense captioned, “cost of consulting services provided” (on the accompanying
statement of operations), when the revenue is to be recognized as specified
deliverables are accepted.
F-14
6. PROPERTY, PLANT AND
EQUIPMENT
The following represents the detail of
the Company’s property, plant and equipment at December 31, 2009 and
2008:
|
2009
|
2008
|
|||||||
|
Furniture, computers and office
equipment
|
$ | 135,001 | $ | 167,139 | ||||
|
Accumulated
Depreciation
|
37,442 | 59,018 | ||||||
|
Net Book
Value
|
$ | 97,559 | $ | 108,121 | ||||
Depreciation expense for the years ended
December 31, 2009 and 2008 was approximately $25,000 each year. Asset lives are
five years and the depreciation method is straight line for all of the above assets. There was no gain or loss on disposition
of assets in 2009 and 2008.
7. INTANGIBLE ASSETS -
PATENTS
Patents represent legal fees and filing
costs that are capitalized and amortized over their estimated useful lives of
17 to 20 years. There were no patents placed in service for the years
ended December 31, 2009 and 2008. As of December 31, 2008, we had
capitalized approximately $218,000 in patent costs. In 2009 we capitalized
approximately $24,000 for patents, for a total investment in patents of
approximately $242,000 as of December 31, 2009.
No amortization expense of patents was
recorded in either of the years ended December 31, 2009 and 2008. These patents
were not placed in service for the years ended December 31, 2009 and
2008.
8. ACCOUNTS PAYABLE AND ACCRUED
EXPENSES
|
Accounts payable and accrued expenses consisted
of the following:
|
2009
|
2008
|
||||||
|
|
|
|||||||
|
Trade payables
-
|
$ | 296,120 | $ | 2,474,564 | ||||
|
Accrued expenses and
other
|
928,054 | 801,082 | ||||||
|
Accrued
payroll
|
938,047 | 1,863,333 | ||||||
| $ | 2,162,221 | $ | 5,138,979 | |||||
9. STOCKHOLDERS'
EQUITY
On September 29, 2009, the 1-for-30
reverse split of the Company’s common shares became effective. Total common
stock outstanding at December 31, 2009 was 10,168,412 and was 10,049,769 at
December 31, 2008 (restated to reflect this 1 for 30 reverse stock split). This
reverse stock split resulted in a decrease in the par value of the common stock
and a corresponding increase in additional paid in capital of approximately
$295,000 and $291,000 at December 31, 2009 and 2008, respectively. At December
31, 2009, there were 5,721 shares reserved for future issuance and 1,785,204
stock options outstanding, all totaling 11,959,337 of total stock and stock
equivalents outstanding at December 31, 2009.
a) Share-Based
Compensation
The Company has in place a stock-based
compensation plan to reward for services rendered by officers, directors,
employees and consultants. On July 17, 2006, the Company amended this stock
plan. The Company has reserved 2,500,000 shares of common stock of its unissued
share capital for the stock plan. Other limitations are as
follows:
|
|
1.
|
No more than an aggregate of
1,250,000 shares can be granted for the purchase of restricted common
shares during the term of the stock
plan;
|
|
|
2.
|
The maximum number of shares of
common stock with respect to which options may be granted to any one
person during any fiscal year of the Company may not exceed 266,667
shares; and
|
|
|
3.
|
The maximum number of restricted
shares that may be granted to any one person during any fiscal year of the
Company may not exceed 166,667common
shares.
|
F-15
Total stock options outstanding at
December 31, 2009 were 1,785,204 of which 1,217,172 of these options were vested
at December 31, 2009.
Stock option transactions to the
employees, directors, advisory board members and consultants are summarized as
follows for the year ended December 31, 2009:
|
Stock Options
Outstanding
|
2009
|
|||
|
Beginning of the
Year
|
1,736,179 | |||
|
Granted
|
430,559 | |||
|
Exercised
|
(10,617 | ) | ||
|
Forfeited
|
(128,754 | ) | ||
|
Expired
|
(242,162 | ) | ||
|
End of
Period
|
1,785,204 | |||
|
Options
exercisable
|
1,217,172 | |||
The above table includes options issued
as of December 31, 2009 as follows:
|
|
1.
|
A total of 597,928 non-qualified
5-10 year options have been issued by Lightbridge Corporation., and are
outstanding, to advisory board members at exercise prices of $4.50 to
$19.20 per share.
|
|
|
2.
|
A total of 1,125,319 5-10 year
options have been issued to directors, officers and employees of the
Company and are outstanding, at exercise prices of $4.68 to $23.85 per
share. From this total, 683,985 options are outstanding to the Chief
Executive Officer who is also a director, with remaining contractual lives
of 0.6 – 9.5 years. All other options issued have a remaining contractual
life ranging from 0.5 years to 9.5
years.
|
|
|
3.
|
A total of 61,957 non-qualified
5-10 year options have been issued and are outstanding to consultants of
the Company, at exercise prices of $6.30 to $15.30 per
share.
|
The following table provides certain
information with respect to the above-referenced stock options that are
outstanding and exercisable at December 31, 2009:
|
Stock Options Outstanding
|
Stock Options Vested
|
||||||||||||||
|
Exercise Prices
|
Weighted
Average
Remaining
Contractual
Life
- Years
|
Number of
Awards
|
Number of
Awards
|
Weighted
Average
Exercise Price
|
|||||||||||
|
$4.50 -
$8.70
|
6.91
|
798,997 | 335,678 | $ | 6.23 | ||||||||||
|
$9.00 -
$12.90
|
6.13
|
185,674 | 145,013 | $ | 10.47 | ||||||||||
|
|
|||||||||||||||
|
$13.20-$18.90
|
4.82
|
493,865 | 439,813 | $ | 14.00 | ||||||||||
|
$19.20-$23.85
|
5.65
|
306,668 | 296,668 | $ | 22.81 | ||||||||||
|
|
|||||||||||||||
|
Total
|
6.04
|
1,785,204 | 1,217,172 | $ | 13.58 | ||||||||||
The aggregate intrinsic value of stock
options outstanding at December 31, 2009 was $537,705 of which $209,828 related
to vested awards. The aggregate intrinsic value of stock options outstanding at
December 31, 2008 was $0. Intrinsic value is calculated based on the difference
between the exercise price of the underlying awards and the quoted price of our
common stock as of the reporting date ($5.99 per share as of the close on
December 31, 2009 and $4.20 per share as of the close on December 31, 2008). The
weighted average fair value of stock options grants made in 2009 and 2008 was
approximately $4.71 and $7.09, respectively.
F-16
Assumptions used in the Black Scholes
option-pricing model for the years ended December 31, 2009 and 2008 were as
follows:
|
2009
|
2008
|
|||||||
|
|
||||||||
|
Average risk-free interest
rate
|
2.99 | % | 3.61 | % | ||||
|
Average expected
life
|
10 years
|
8.78 years
|
||||||
|
Expected
volatility
|
98.49 | % | 112.30 | % | ||||
|
Expected
dividends
|
0 | % | 0 | % | ||||
During the years ended December 31, 2009
and 2008, approximately $4,849,000 and $6,546,000, respectively, was recorded as
total stock-based compensation expense in the statement of
operations.
The Company received approximately
$50,000 for the year ended December 31, 2009 from the exercise of 10,617 stock
option grants.
Stock-based compensation expense
includes the expense related to (1) grants of stock options, (2) grants of
restricted stock, and (3) stock issued as consideration for some of the services
provided by our directors and strategic advisory council members. Grants of
stock options and restricted stock are awarded to our employees, directors,
consultants and board members, and we recognize the fair market value of these
awards ratably as they are earned. The expense related to payments in stock for
services is recognized as the services are provided.
|
Stock-Based Compensation
Recognized
|
2009
|
2008
|
||||||
|
Stock option awards recognized
ratably over the service period
|
$ | 4,483,735 | $ | 6,138,220 | ||||
|
Restricted stock awards recognized
ratably over the service period
|
226,252 | 339,106 | ||||||
|
Stock issued to compensate
directors and advisors for services
|
139,000 | 69,166 | ||||||
|
Total Stock-Based Compensation
Recognized
|
$ | 4,848,987 | $ | 6,546,492 | ||||
|
Stock Based
Compensation: Presentation in the Financial
Statements
|
2009
|
2008
|
||||||
|
Presented as Cost of Consulting
Services Provided
|
$ | 27,642 | $ | 856,657 | ||||
|
Presented as General and
Administrative Operating Expenses
|
4,821,346 | 5,689,835 | ||||||
|
Total Stock Based Compensation
Recognized
|
$ | 4,848,987 | $ | 6,546,492 | ||||
The total fair market value of
restricted stock awards is recorded as deferred stock compensation (a component
of equity, which is presented in the Balance Sheet), as grants are awarded.
Deferred stock compensation is amortized as stock-based compensation expense is
recognized, or grants are forfeited. On December 31, 2009 and 2008 the balance
carried in the deferred stock compensation account was $456,500 and $225,959,
respectively.
|
Deferred Stock
Compensation
|
2009
|
2008
|
||||||
|
Balance
Forward
|
$ | 225,959 | $ | 479,445 | ||||
|
Restricted Stock Awards
Granted
|
529,121 | 114,787 | ||||||
|
Restricted Stock Awards
Forfeited
|
(72,328 | ) | — | |||||
|
Recognition of Stock-Based Expense
for Restricted Stock Awards
|
(226,252 | ) | (368,273 | ) | ||||
|
December
31,
|
$ | 456,500 | $ | 225,959 | ||||
b). Warrants
There no warrants outstanding as of
December 31, 2009 and 2008.
F-17
c). Common Stock reserved for Future
Issuance
Common stock reserved for future
issuance consists of
|
Shares of
|
Stock
|
|||||||||||
|
Common
|
Purchase
|
|||||||||||
|
Stock
|
Warrants
|
Amount
|
||||||||||
|
|
|
|
||||||||||
|
Stock-based
Compensation
|
5,721 | — | $ | 34,750 | ||||||||
10. INCOME
TAXES
Our tax provision is determined using an
estimate of our annual effective tax rate adjusted for discrete items, if any,
that are taken into account in the relevant period. The 2009 and 2008 annual
effective tax rate is estimated to be at a combined 40% for the U.S. federal and
states statutory tax rate.
As of December 31, 2009 and 2008, there
were no tax contingencies recorded.
Deferred income taxes reflect the net
tax effects of temporary differences between the carrying amounts of assets and
liabilities recognized for financial reporting, and the amounts recognized for income
tax purposes. The significant components of deferred tax assets (at a 40%
effective tax rate) as of December 31, 2009 and 2008 respectively, are as
follows:
|
Deferred Tax
Assets
|
Total Amount
|
Deferred Tax Asset Amount
|
||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||
|
|
|
|||||||||||||||
|
Capitalized start up
costs
|
$ | 6,613,773 | $ | 7,125,807 | $ | 2,645,509 | $ | 2,850,323 | ||||||||
|
Stock-based
compensation
|
18,958,076 | 14,474,341 | 7,583,230 | 5,789,735 | ||||||||||||
|
Net operating loss
carryforward
|
17,756,315 | 14,494,704 | 7,102,526 | 5,797,882 | ||||||||||||
|
Less: valuation
allowance
|
(43,328,164 | ) | (36,094,849 | ) | (17,331,265 | ) | (14,437,940 | ) | ||||||||
| $ | — | $ | — | $ | — | $ | — | |||||||||
The Company has net operating loss
carryforwards for federal and state tax purposes of approximately $17.8 million
that is available to offset future taxable income that begin to expire in the
year 2021. For financial reporting purposes, no deferred tax asset was
recognized because at December 31, 2009 substantially all of the net operating
losses are presently expected to expire unused. As a result, the amount of the
deferred tax assets considered realizable was reduced 100% by a valuation
allowance. The Company has no other deferred tax assets or liabilities. The
change in the valuation allowance was approximately $2,893,000 for the year
ended December 31, 2009. Many of the Company’s operating expenses in its 2007
and 2006 tax years were classified under the internal revenue code as
capitalized start-up costs which were not deductible for tax purposes until
2008.
The Company files a consolidated tax
return with its subsidiaries.
In 2009, the Company prepaid federal and
state income taxes in the amount of $266,000, for estimates for 2008 corporate
taxes. The Company received its Federal tax refund of $225,000 from the Internal
Revenue Service in the fourth quarter of 2009, and its State tax refunds of $41,000 in
the first quarter of 2010.
11. RESEARCH
AGREEMENTS
Effective on August 21, 2009,
Lightbridge entered into an agreement for ampoule irradiation testing (the “AIT
Agreement”) with the Russian Research Centre Kurchatov Institute (“Kurchatov”).
Under the AIT Agreement, Lightbridge agreed to compensate Kurchatov for
irradiation testing of Lightbridge’s proprietary nuclear fuel designs conducted
in 2008 and part of 2009. Pursuant to the AIT Agreement, Lightbridge is
obligated to pay to Kurchatov a total of $400,000, and Kurchatov is obligated to
transfer to Lightbridge the worldwide rights in all of the test data generated
in the course of the irradiation testing of Lightbridge’s proprietary nuclear
fuel designs in 2008 and part of 2009. Kurchatov agrees not to use, in any
manner, the work product associated with such testing or exercise any rights
associated therewith without the written consent of Lightbridge. Further,
Kurchatov is obligated to provide to Lightbridge and its affiliates specified
information and documentation for audit purposes, and to obtain any and all
permits from Russian governmental entities which may be required in order for
Kurchatov to perform under the AIT Agreement.
F-18
In
October 2009 the Company entered into an umbrella agreement (“SOSNY Agreement”)
with Russian Limited Liability Research and Development Company ("SOSNY"). SOSNY
will serve as Lightbridge's prime contractor in Russia to manage the research
and development activities related to the lead test assembly program for
Russian-designed VVER-1000 reactors. SOSNY is a leading Russian commercial
nuclear entity specializing in front-end and back-end nuclear fuel cycle
management and logistics services. Specific work will be carried out
under individual task orders to be issued under the SOSNY
Agreement. The scope, deliverables, and costs are to be agreed to
between the parties in each individual task order. As of the date
hereof, no task orders have been issued.
In addition to the above agreements,
there are consulting agreements with several consultants working on various
projects for the Company, which total approximately $5,000 per
month.
12. COMMITMENTS AND
CONTINGENCIES
The Company has employment agreements
with its executive officers and some consultants, the terms of which expire at
various times. Such agreements provide for minimum compensation levels, as well
as incentive bonuses that are payable if specified management goals are
attained. Under each of the agreements, in the event the officer's employment is
terminated (other than voluntarily by the officer or by the Company for cause,
or upon the death of the officer), the Company, if all provisions of the
employment agreements are met, is committed to pay certain benefits, including
specified monthly severance.
The Company moved from its prior office
facility and has entered into an agreement to lease new office space under the
terms of a sublease with a term of 65 months commencing August 1, 2008. Under
the terms of the sublease, the lease payments are inclusive of pass-through
costs, which include real estate taxes and standard operating expenses. The
Company has paid the security deposit related to this sublease agreement in the
amount of $120,486. The Company pays monthly rental fees in the amount of
$40,162 in the first year of the sublease agreement, and payments increase by a
factor of 4% each year thereafter. The Company may terminate this agreement by
providing 60 days notice to the sublessor. The monthly straight-line rental
expense from August 1, 2008 to December 1, 2013 is approximately
$44,000. As a result of the straight-line rent calculation generated
by the one free month rent period and rent escalation, the Company has a
deferred rent credit at December 31, 2009 of $55,807. Total rent expense
was $562,856 and $578,143 for the years ended December 31, 2009 and 2008,
respectively.
Future estimated rental payments under
our operating leases are as follows:
|
Total
|
||||
|
Year Ending - December 31,
2010
|
$
|
509,643
|
||
|
Year Ending - December 31,
2011
|
530,034
|
|||
|
Year Ending - December 31,
2012
|
551,211
|
|||
|
Year Ending - December 31,
2013
|
571,271
|
|||
|
Total Minimum lease
payments
|
$
|
2,162,159
|
||
We
are obligated to pay approximately $9,322 per month for office rent and
approximately another $1,500 per month for other fees for the rented office
space located at Zemlyanoi Val, 9, Moscow, Russia, 105064. The space is used by
our Moscow staff for administrative purposes. The term of the lease for our
offices expires on April 30, 2010 and is renewable for additional one-year
terms
13. SUBSEQUENT
EVENTS
Effective this quarter, the Company
implemented a new FASB
accounting pronouncement, Subsequent Events. This standard establishes general
standards of accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are issued. The adoption of
this accounting pronouncement did not impact our financial position or results
of operations. The Company evaluated all events or transactions that occurred
after December 31, 2009 up through the date these financial statements were
issued on March 8,
2010. During this period
the Company did not have any material recognizable subsequent
events.
F-19
SIGNATURES
In
accordance with section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant caused this Report on Form 10-K to be signed on its behalf by the
undersigned, thereto duly authorized individual.
|
LIGHTBRIDGE
CORPORATION
|
|||
|
Date:
March 16, 2010
|
By:
|
/s/ Seth Grae
|
|
|
Seth
Grae
|
|||
|
Chief
Executive Officer,
|
|||
|
President
and
Director
|
|||
In
accordance with the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the Registrant and in the capacities
and on March 16, 2010.
|
Signature
|
Title
|
|
|
/s/ Seth Grae
|
Chief
Executive Officer, President and Director
|
|
|
Seth
Grae
|
(Principal
Executive Officer)
|
|
|
/s/ James Guerra
|
Chief Financial Officer, Chief Operating Officer and Treasurer
|
|
|
James
Guerra
|
(Principal
Financial Officer)
|
|
|
/s/ Thomas Graham, Jr.
|
Director
|
|
|
Thomas
Graham, Jr.
|
||
|
/s/ Victor Alessi
|
Director
|
|
|
Victor
Alessi
|
||
|
/s/ Jack Ladd
|
Director
|
|
|
Jack
Ladd
|
||
|
/s/ Daniel B. Magraw, Jr.
|
Director
|
|
|
Dan
Magraw
|
35
EXHIBIT
INDEX
|
Exhibit
Number
|
Description
|
|
|
3.1
|
Articles
of Incorporation
|
|
|
31.1
|
Rule
13a-14(a)/15d-14(a) Certification — Principal Executive
Officer.
|
|
|
31.2
|
Rule
13a-14(a)/15d-14(a) Certification — Principal Accounting
Officer.
|
|
|
32
|
Section
1350 Certifications.
|
36