NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation, Summary of Significant Accounting Policies, and Nature of Operations
Basis of presentation
The accompanying unaudited condensed consolidated financial statements of Lightbridge Corporation and its subsidiaries have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission, or the SEC, including the instructions to Form 10-Q and Regulation S-X. Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America, including a summary of the Company’s significant accounting policies, have been condensed or omitted from these statements pursuant to such rules and regulations and, accordingly, they do not include all the information and notes necessary for comprehensive condensed consolidated financial statements and should be read in conjunction with our audited consolidated financial statements for the year ended December 31, 2021, included in our Annual Report on Form 10-K for the year ended December 31, 2021.
In the opinion of the management of the Company, all adjustments, which are of a normal recurring nature, necessary for a fair statement of the results for the three-month period have been made. Results for the interim period presented are not necessarily indicative of the results that might be expected for the entire fiscal year. When used in these notes, the terms “Lightbridge”, “Company,” “we,” “us” or “our” mean Lightbridge Corporation and all entities included in our condensed consolidated financial statements.
The Company was formed on October 6, 2006, when Thorium Power, Ltd., which was incorporated in the state of Nevada on February 2, 1999, merged with Thorium Power, Inc. (TPI), which was incorporated in the state of Delaware on January 8, 1992. On September 29, 2009, the Company changed its name from Thorium Power, Ltd. to Lightbridge Corporation and began its focus on developing and commercializing metallic nuclear fuels. The Company is a nuclear fuel technology company developing its next generation nuclear fuel technology.
Going Concern, Liquidity and Management’s Plan
The Company’s available working capital at March 31, 2022 and as of the date of this filing, exceeds its currently anticipated expenditures through the first quarter of 2023. However, there are inherent uncertainties in forecasting future expenditures, especially forecasting for uncertainties such as future research and development (R&D) costs and other cash outflows, as well as how the COVID-19 outbreak, including the emergence and spread of variant strains of the virus, may affect future costs and operations. Also, the cash requirements of the Company’s future planned operations to commercialize its nuclear fuel, including any additional expenditures that may result from unexpected developments, will require it to raise significant additional capital, including receiving government support. These uncertainties include the projected fuel development timeline of 15-20 years to fuel commercialization, the operational costs required to keep the fuel development project on schedule and the various risks of developing and commercializing the Company’s nuclear fuel. These uncertainties, when combined, raise substantial doubt about the Company’s ability to continue as a going concern for the 12 months following the date of this filing. The Company’s condensed consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and satisfaction of liabilities in the ordinary course of business. No adjustments have been made relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company not continue as a going concern. To the extent any uncertainties reduce the Company’s liquidity for the next 12 months, the Company will consider, if available, additional debt or equity raises and delaying certain expenditures, including R&D expenses, until sufficient capital becomes available.
At March 31, 2022, the Company had approximately $28.2 million in cash and had a working capital surplus of approximately $28.3 million. The Company’s net cash used in operating activities for the three months ended March 31, 2022 was approximately $1.9 million, and current projections indicate that the Company will have continued negative cash flows from operations for the foreseeable future. Net losses incurred for the three months ended March 31, 2022 and 2021 amounted to approximately $2.0 million for each period. As of March 31, 2022, the Company had an accumulated deficit of approximately $139.0 million, representative of recurring losses since inception. The Company will continue to incur losses because it is in the early research and development stage of developing its nuclear fuel.
The Company’s plans to fund future operations include: (1) raising additional capital through future equity issuances or convertible debt financings; (2) additional funding through new relationships to help fund future R&D costs; and (3) seeking other sources of capital, including grants from the federal government. The Company may issue securities, including common stock, preferred stock, and stock purchase contracts through private placement transactions or registered public offerings, pursuant to current and future registration statements. The Company’s current shelf registration statement on Form S-3 was filed with the SEC on March 25, 2021, registering the sale of up to $75 million of the Company’s securities and was declared effective on April 5, 2021. Due to the offering limitations applicable under General Instruction I.B.6. of Form S-3 and the market valuation of our future public float, we may be limited on the amount of funding available under this Form S-3 shelf registration statement in the future. There can be no assurance as to the future availability of equity capital or the acceptability of the terms upon which financing and capital might become available. The Company’s future liquidity needs to develop its nuclear fuel are long-term, and the ability to address those needs and to raise capital will largely be determined by the success of the development of its nuclear fuel, key nuclear development and government regulatory events, and its business decisions in the future.
Basis of Consolidation
These condensed consolidated financial statements include the accounts of Lightbridge, a Nevada corporation, and the Company’s wholly-owned subsidiaries, TPI, a Delaware corporation, and Lightbridge International Holding LLC, a Delaware limited liability company. These wholly-owned subsidiaries are inactive. All significant intercompany transactions and balances have been eliminated in consolidation.
Fair Value of Financial Instruments
The Company’s consolidated financial instruments consist principally of cash and cash equivalents, and accounts payable. In accordance with the provisions of ASC 820, “Fair Value Measurements,” the Company determines fair value as 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. Assets and liabilities measured at fair value are categorized based on whether the inputs are observable in the market and the degree that the inputs are observable. The categorization of financial instruments within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement.
The Company generally applies the income approach to determine fair value. This method uses valuation techniques to convert future amounts to a single present amount. The measurement is based on the value indicated by current market expectations with respect to the future amounts.
ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to active markets for identical assets and liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The Company classifies fair value balances based on the observability of those inputs. The three levels of the fair value hierarchy are as follows:
Level 1 - Observable inputs such as quoted prices in active markets for identical assets or liabilities
Level 2 - Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and inputs other than quoted prices that are observable for the asset or liability
Level 3 - Unobservable inputs that reflect management’s assumptions
For disclosure purposes, assets and liabilities are classified in their entirety in the fair value hierarchy level based on the lowest level of input that is significant to the overall fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the placement within the fair value hierarchy levels.
Quoted market prices were applied to determine the fair value of U.S. Treasury Bill investments, therefore they were categorized as Level 1 on the fair value hierarchy. The Company buys and holds short-term U.S. Treasury Bills to maturity.
Certain Risks, Uncertainties and Concentrations
The Company will need additional funding by way of a combination of strategic alliances, government grants, further offerings of equity securities, or an offering of debt securities in order to support its future R&D activities required to further enhance and complete the development of its fuel products to a proof-of-concept stage and a commercial stage thereafter.
There can be no assurance that the Company will be able to successfully continue to conduct its operations if there is a lack of financial resources available in the future to continue its fuel development activities, and a failure to do so would have a material adverse effect on the Company’s future R&D activities, 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, contingent liabilities, potential competition with other nuclear fuel developers, including those entities developing accident tolerant fuels, changes in government regulations, support for nuclear power, changes in accounting and taxation standards, inability to achieve overall short-term and long-term R&D milestones toward commercialization, future impairment charges to its assets, and global or regional catastrophic events. The Company may also be subject to various additional political, economic, and other uncertainties.
On January 30, 2020, the World Health Organization (WHO) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the “COVID-19 outbreak”) and the risk to the international community as the virus spread globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak a pandemic, based on increased exposure globally. The current spread of COVID-19, including the emergence and spread of variant strains of the virus, that is impacting global economic activity and market conditions could lead to adverse changes in the Company’s ability to conduct R&D activities with the United States national labs and others. The COVID-19 outbreak impacted our business operations and results of operations for the years ended December 31, 2021 and 2020, which resulted in a delay of our R&D work and reduction of R&D expenses and an increase in general and administrative expenses due to severance payments to former employees. However, the effects of the pandemic are fluid and changing rapidly, including with respect to vaccine and treatment developments and deployment and potential mutations of COVID-19. While the Company continues to monitor the impact of COVID-19 on its business, the Company is unable to accurately predict the ultimate impact on future results of operations, financial condition and liquidity that COVID-19 will have due to various uncertainties, including the geographic spread of the virus, the severity of the disease, the duration of the outbreak, and actions that may be taken by governmental authorities and other third-parties.
Cash and Cash Equivalents
The Company may at times invest its excess cash in interest bearing accounts and U.S. Treasury Bills. It classifies all highly liquid investments with original stated maturities of three months or less from date of purchase as cash equivalents and all highly liquid investments with stated maturities of greater than three months as marketable securities. The Company holds cash balances in excess of the federally insured limits of $250,000. The Company deems this credit risk not to be significant as its cash is and was held by two prominent financial institutions in 2022 and 2021. The Company buys and holds short-term U.S. Treasury Bills to maturity. U.S. Treasury Bills totaled $9.0 million at March 31, 2022 and December 31, 2021. The remaining $19.2 million and $15.7 million at March 31, 2022 and December 31, 2021, respectively, are on deposit with one notable financial institution.
Contributed Services – Research and Development
The Company was awarded a grant from the United States Department of Energy (DOE) which represented contributed services to further the Company’s R&D activities. The Company concluded that its government grants were not within the scope of the revenue recognition standard ASC Topic 606 as they did not meet the definition of a contract with a customer. Additionally, the Company concluded that the grants met the definition of a contribution, as the grants were a non-reciprocal transaction. As such, the Company determined that Subtopic 958-605, Not-for-Profit-Entities-Revenue Recognition applies for these contributed services, even though the Company is a business entity, as guidance in the contributions received subsections of Subtopic 958-605 applies to all entities (not-for-profits and business entities).
The Company early adopted Accounting Standards Update 2020-07 in the fourth quarter of 2021, which amends Subtopic 958-605 and further clarifies the presentation and disclosure about contributions.
Subtopic 958-605 requires that nonfinancial assets, which includes services, such as the research and development services provided under the Gateway for Accelerated Innovation in Nuclear (GAIN) vouchers described in Note 5, should be shown on a gross method at the fair value of the services contributed, with contributed services – research and development shown as other operating income and the related costs as a charge to research and development expense, rather than depicting contributed services – research and development as a reduction of research and development expense. The fair value of contributed services was determined by the cost of professional time and materials which were charged by the subcontractor who fulfilled the services contributed under the grant award. The principal market used to arrive at fair value is the market in which the Company operates.
The Company recognized contributed services – research and development of approximately $0.1 million for each of the three months ended March 31, 2022 and 2021.
Trademarks
Costs for filing and legal fees for trademark applications are capitalized. Trademarks are considered intangible assets with an indefinite useful life and therefore are not amortized. The Company performed an impairment test in the fourth quarter of 2021 and 2020 and no impairment of the trademarks was identified. As of March 31, 2022 and December 31, 2021, the carrying value of trademarks was $0.1 million.
Leases
In accordance with ASU 2016-02, Leases (Topic 842), which requires recognition of most lease arrangements on the balance sheet, the Company recognizes operating lease right of use assets and liabilities at commencement date based on the present value of the future minimum lease payments over the lease term. Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheet in accordance with the short-term lease recognition exemption. The Company applies the practical expedient to non-separate and non-lease components for all leases that qualify. Lease expense is recognized on a straight-line basis over the lease term. The Company has only one lease for office rent and the lease is for a term of 12 months without renewal options. See Note 4 for additional information.
Common Stock Warrants
The Company accounts for common stock warrants as either equity instruments or derivative liabilities depending on the specific terms of the warrant agreement. Common stock warrants are accounted for as a derivative in accordance with ASC 815, Derivatives and Hedging, if the stock warrants contain terms that could potentially require “net cash settlement” and therefore, do not meet the scope exception for treatment as a derivative. Warrant instruments that could potentially require “net cash settlement” in the absence of explicit language precluding such settlement are initially classified as derivative liabilities at their estimated fair values, regardless of the likelihood that such instruments will ever be settled in cash.
Stock-Based Compensation
The stock-based compensation expense incurred by Lightbridge for employees and directors in connection with its equity incentive plan is based on the employee model of ASC 718, and the fair value of any stock options granted is measured at the grant date. In accordance with ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, options granted to our consultants are accounted for in the same manner as options issued to employees.
Awards with service-based vesting conditions only: Expense is recognized on a straight-line basis over the requisite service period of the award.
Awards with performance-based vesting conditions: Expense is not recognized until it is determined that it is probable the performance-based conditions will be met. When achievement of a performance-based condition is probable, a catch-up of expense is recorded as if the award had been vesting on a straight-line basis from the award date. The award will continue to be expensed on a straight-line basis over the requisite service period until a higher performance-based condition is met, if applicable.
Awards with market-based vesting conditions: Expense is recognized on a straight-line basis over the requisite service period, which is the lesser of the derived service period or the explicit service period if one is present. However, if the market condition is satisfied prior to the end of the requisite service period, the Company accelerates all remaining expense to be recognized.
Awards with both performance-based and market-based vesting conditions - If an award vesting or exercisability is conditional upon the achievement of either a market condition or performance or service conditions, the requisite service period is generally the shortest of the explicit, implicit, and derived service period.
The Company elected to use the Black-Scholes pricing model to determine the fair value of stock options on the measurement date of the grant for service-based vesting conditions and the Monte-Carlo valuation method for performance-based or market-based vesting conditions for stock options. The Company estimates forfeitures at the time of grant and revises the estimate, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The forfeiture rate estimate used for all equity awards was zero, based on the experience of the Company having an insignificant historical forfeiture rate. Shares that are issued to employees upon exercise of the stock options may be issued net of a number of shares with a fair value equal to the required tax withholding requirements to be paid by the Company regarding its tax withholding obligations. As a result, the actual number of shares issued are fewer than the actual number of shares exercised under the stock option or on the dates of vesting of Restricted Stock Unit (RSU) grants.
A Restricted Stock Award (“RSA”) is an award of our shares that have full voting rights and dividend rights (with dividends paid upon vesting of the RSA), but are restricted with regard to sale or transfer before vesting. As such, they are shown as shares issued and outstanding. These restrictions lapse over the vesting period. The shares are forfeited and returned to the Company if they do not vest. The RSAs are included in common stock issued and outstanding and are considered contingently issuable in the calculation of weighted-average shares outstanding for purposes of calculating earnings per share. The consolidated statement of changes in stockholders’ equity shows the initial grant of RSAs as a reclassification from additional paid-in capital to common stock, with any compensation expense related to the RSAs included in stock-based compensation. Other RSAs have only performance conditions. These other RSAs do not have voting and dividend rights until they vest as ordinary common shares and are not included in common stock issued and outstanding.
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40), which simplifies the complexity associated with applying U.S. GAAP for certain financial instruments with characteristics of liabilities and equity. This ASU (1) simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in ASC 470-20, Debt: Debt with Conversion and Other Options, that requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock; (2) revises the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing certain criteria required for equity classification; and (3) revises the guidance in ASC 260, Earnings Per Share, to require entities to calculate diluted earnings per share for convertible instruments by using the if-converted method. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Adoption is either through a modified retrospective method or a full retrospective method of transition. The adoption of this standard will not materially impact the Company’s consolidated financial statements in 2022.
The FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326). This standard requires a financial asset to be presented at the net amount expected to be collected. The financial assets of the Company in scope of ASU 2016-13 will primarily be accounts receivable. The Company will estimate an allowance for expected credit losses on accounts receivable that result from the inability of customers to make required payments. In estimating the allowance for expected credit losses, consideration will be given to the current aging of receivables, historical experience, and a review for potential bad debts. The Company will adopt this guidance in the first quarter of fiscal 2023 and does not expect the adoption to have an impact on its results of operations, financial position, and disclosures.
Note 2. Net Loss Per Share
Basic net loss per share is computed using the weighted-average number of common shares outstanding during the year except that it does not include unvested common shares subject to repurchase or cancellation. Diluted net income per share is computed using the weighted-average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon the exercise of stock options, warrants and convertible preferred shares (see Note 6. Stockholders’ Equity and Stock-Based Compensation). The common stock equivalents of performance-based milestone compensation arrangements are included as potentially dilutive shares only if the performance condition has been met as of the end of the reporting period.
The treasury stock method is used in calculating diluted EPS for potentially dilutive stock options and share purchase warrants, which assumes that any proceeds received from the exercise of in-the-money stock options and share purchase warrants would be used to purchase common shares at the average market price for the period, unless including the effects of these potentially dilutive securities would be anti-dilutive.
The following table sets forth the computation of the basic and diluted loss per share (dollars in millions, except share data):
| | Three Months Ended | |
| | March 31, | |
| | 2022 | | | 2021 | |
Basic | | | | | | |
Numerator: | | | | | | |
Net loss attributable to common stockholders | | $ | (2.0 | ) | | $ | (2.2 | ) |
Denominator: | | | | | | | | |
Weighted-average common shares outstanding | | | 10,283,280 | | | | 6,589,392 | |
Basic net loss per share | | $ | (0.20 | ) | | $ | (0.33 | ) |
| | | | | | | | |
Diluted | | | | | | | | |
Numerator: | | | | | | | | |
Net loss attributable to common stockholders, basic | | $ | (2.0 | ) | | $ | (2.2 | ) |
Effect of dilutive securities | | | — | | | | — | |
Net loss, diluted | | $ | (2.0 | ) | | $ | (2.2 | ) |
Denominator: | | | | | | | | |
Weighted average common shares outstanding - basic | | | | | | | | |
Potential common share issuances: | | | 10,283,280 | | | | 6,589,392 | |
Incremental dilutive shares from equity instruments (treasury stock method) | | | — | | | | — | |
Weighted-average common shares outstanding | | | 10,283,280 | | | | 6,589,392 | |
Diluted net loss per share | | $ | (0.20 | ) | | $ | (0.33 | ) |
The following outstanding securities have been excluded from the computation of diluted weighted shares outstanding for the periods noted below, as they would have been anti-dilutive due to the Company’s losses for the three months ended March 31, 2022 and 2021 and also because the exercise price of certain of these outstanding securities was greater than the average closing price of the Company’s common stock.
| | Three Months Ended | |
| | March 31, | |
| | 2022 | | | 2021 | |
Warrants outstanding | | | 45,577 | | | | 59,242 | |
Stock options outstanding | | | 543,297 | | | | 515,136 | |
RSAs outstanding | | | 188,588 | | | | — | |
RSUs outstanding | | | — | | | | 243,800 | |
Series A convertible preferred stock to common shares | | | — | | | | 80,712 | |
Series B convertible preferred stock to common shares | | | — | | | | 276,846 | |
Total | | | 777,462 | | | | 1,175,736 | |
Note 3. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consisted of the following (rounded in millions):
| | March 31, | | | December 31, | |
| | 2022 | | | 2021 | |
Trade payables | | $ | 0.1 | | | $ | 0.1 | |
Accrued legal and consulting expenses | | | 0.1 | | | | 0.1 | |
Accrued bonus | | | 0.3 | | | | — | |
Total | | $ | 0.5 | | | $ | 0.2 | |
Note 4. Commitments and Contingencies
Commitments
Operating Leases
The Company leased office space for a 12-month term from January 1, 2022 through December 31, 2022 with a monthly payment of approximately $8,000. The future minimum lease payments required under the non-cancellable operating leases for 2022 total approximately $0.1 million. Total rent expense for the three months ended March 31, 2022 and 2021 was approximately $24,000 and $30,000, respectively.
Note 5. Research and Development Costs
On December 19, 2019, the Company was awarded a voucher from the DOE’s GAIN program to support development of Lightbridge Fuel™ in collaboration with Idaho National Laboratory (INL). The scope of the project included experiment design for irradiation of Lightbridge metallic fuel material samples in the Advanced Test Reactor at INL. On April 22, 2020, the Company entered into a Cooperative Research and Development Agreement (CRADA) with Battelle Energy Alliance, LLC (Battelle), the operating contractor of INL, in collaboration with DOE. Signing the CRADA was the last step in the contracting process to formalize a voucher award from the GAIN program. The voucher award can only be used to conduct the experiment defined in the CRADA. All work was completed on this GAIN voucher in the third quarter of 2021. The experiment design will form the basis of the Company’s current and future efforts with the INL. All work was completed in 2021 that caused the DOE to incur its payment obligations to Battelle, related to the GAIN voucher. The Company has no payment obligations related to the GAIN voucher. As of December 31, 2021, the total final project amount recorded as contributed services – research and development was approximately $0.5 million. During the three months ended March 31, 2021, the Company recorded approximately $0.1 million of contributed services – research and development for work that was completed that caused the DOE to incur payment obligations related to the GAIN voucher.
On March 25, 2021, the Company was awarded a second voucher from the DOE’s GAIN program to support development of Lightbridge Fuel™ in collaboration with the Pacific Northwest National Laboratory (PNNL). The scope of the project is to demonstrate Lightbridge’s nuclear fuel casting process using depleted uranium, a key step in the manufacture of Lightbridge Fuel™. On July 14, 2021, the Company executed a CRADA with the Battelle Memorial Institute, Pacific Northwest Division, the operating contractor of the PNNL, in collaboration with the DOE. The total project value is approximately $0.7 million, with three-quarters of this amount expected to be provided by DOE for the scope performed and the remaining amount funded by Lightbridge, by providing in-kind services to the project. The project commenced in the third quarter of 2021 and is expected to be completed by the third quarter of 2022. During the three months ended March 31, 2022 and 2021, the Company recorded approximately $0.1 million and $0 million of contributed services – research and development, respectively, for work that was completed that caused the DOE to incur payment obligations related to the GAIN voucher.
The contributed services – research and development for both GAIN vouchers were recorded in the Other Operating Income section of the condensed consolidated statement of operations and the corresponding amount was recorded as research and development expenses.
The R&D services provided under the GAIN vouchers are utilized by the Company in its ongoing development of its next generation nuclear fuel technology. The Company believes that the amounts paid by the DOE to Battelle for the service provided does not differ materially from what the Company would have paid had it directly contracted for these services for its R&D activity.
Note 6. Stockholders’ Equity and Stock-Based Compensation
At March 31, 2022, the Company had 10,588,674 common shares outstanding (including outstanding RSAs totaling 188,588 shares). Also outstanding were warrants relating to 45,577 shares of common stock, stock options relating to 543,297 shares of common stock and performance-based RSA awards of 188,588 shares, all totaling 11,366,136 shares of common stock and all common stock equivalents, outstanding at March 31, 2022.
At December 31, 2021, the Company had 9,759,223 common shares outstanding (including outstanding RSAs totaling 188,588 shares). Also outstanding were warrants relating to 45,577 shares of common stock, stock options relating to 538,713 shares of common stock and performance-based RSA awards of 188,588 shares, all totaling 10,532,101 shares of common stock and all common stock equivalents, outstanding at December 31, 2021.
Common Stock Equity Offerings
ATM Offerings
On May 28, 2019, the Company entered into an at-the-market (ATM) equity offering sales agreement with Stifel, Nicolaus & Company, Incorporated (Stifel), which was amended on April 9, 2021, pursuant to which the Company may issue and sell shares of its common stock from time to time through Stifel as the Company’s sales agent. Sales of the Company’s common stock through Stifel, if any, will be made by any method that is deemed to be an “at-the-market” equity offering as defined in Rule 415 promulgated under the Securities Act of 1933. On March 25, 2021, the Company filed a new shelf registration statement on Form S-3, registering the sale of up to $75 million of the Company’s securities, which registration statement was declared effective on April 5, 2021. The Company filed a prospectus supplement, dated April 9, 2021, with the SEC pursuant to which the Company offered and sold shares of common stock having an aggregate offering price of up to $9.0 million through its ATM. After this offering was completed, the Company filed a second prospectus supplement, dated November 19, 2021, with the SEC pursuant to which the Company may offer and sell shares of common stock having an aggregate offering price of up to $20.0 million from time to time through its ATM.
The Company records its ATM sales on a settlement date basis. The Company sold 0.8 million shares under the ATM for the three months ended March 31, 2022 resulting in net proceeds of $5.4 million under the November 19, 2021 prospectus supplement. No ATM sales occurred during the three months ended March 31, 2021.
Preferred Stock Equity Offerings
Exchange of Outstanding Series A and Series B Convertible Preferred Stock for Common Shares
On October 29, 2021, the Company entered into an agreement with the holder of all of the outstanding Series A Preferred Stock, to exchange all of the outstanding Series A Preferred Stock and the payment-in-kind (PIK) dividends for 262,910 shares of the Company’s common stock ($10 per share induced conversion price), without any cash payments by either party.
On December 3, 2021, the Company entered into a series of agreements with all of the holders of the Company’s Series B convertible preferred stock to exchange all outstanding Series B Preferred Stock for shares of the Company’s common stock at an exchange rate equal to the sum of the liquidation preference of the Series B Preferred Stock and the accrued and unpaid dividends thereon, divided by $10.00 per share. Upon the closing of the exchange, the Company issued an aggregate of 522,244 shares of common stock to the holders in exchange for all 2,666,667 issued and outstanding Series B Preferred Stock.
The exchange for both Series A and Series B preferred stock was effected without registration under the Securities Act of 1933, as amended, pursuant to the exemption from registration set forth in Section 3(a)(9) of the Securities Act.
In accordance with ASC 470-20, the Company accounted for both exchanges as an induced conversion based on the short period of time the exchange offer was open and that all equity securities pursuant to the original terms were exchanged. Pursuant to this accounting guidance, the Company evaluated the fair value of the incremental 183,098 common shares issued to the Series A Preferred stockholders. Based on the $9.57 closing stock price on October 29, 2021, the Company recorded to additional paid-in capital a deemed dividend of $1.8 million at the date of the exchange. Also, the Company evaluated the fair value of the incremental 232,111 common shares issued to the Series B Preferred stockholders. Based on the $7.57 closing stock price on December 3, 2021, the Company recorded to additional paid-in capital a deemed dividend of $1.8 million at the date of the exchange.
Warrants
The Company had 45,577 outstanding warrants at March 31, 2022 and December 31, 2021. These warrants were issued to investors on November 17, 2014, entitling the holders to purchase 45,577 common shares in the Company at an exercise price of $138.60 per common share up to and including May 16, 2022, the warrant expiration date. On June 30, 2016, the warrant holders agreed to new warrant terms, which excluded any potential net cash settlement provisions, in order to classify the warrants as equity in exchange for a reduced exercise price of $75.00 per share. These warrants are classified within equity on the unaudited condensed consolidated balance sheets.
Stock-based Compensation
2020 Equity Incentive Plan
On March 9, 2020, the Board of Directors adopted the Company’s 2020 Omnibus Incentive Plan (the “2020 Plan”). On September 3, 2020, the shareholders approved the 2020 Plan to authorize grants of the following types of awards (a) Options, (b) Stock Appreciation Rights, (c) Restricted Stock and Restricted Stock Units, and (d) Other Stock-Based and Cash-Based Awards.
Stock Options
During the three months ended March 31, 2022, the Company issued 13,514 stock options to one consultant. These options were assigned a fair value of $3.70 per share (total fair value of $50,000). The value was determined using the Black-Scholes pricing model. The following assumptions for this option grant were used in the Black-Scholes pricing model:
Expected volatility | | | 115.37 | % |
Risk free interest rate | | | 1.02 | % |
Dividend yield rate | | | 0 | |
Weighted average years | | 2 years | |
Closing price per share - common stock | | $ | 6.27 | |
Stock options issued to the Company’s employees, directors and consultants are summarized as follows for the three months ended March 31, 2022:
| | Options Outstanding | | | Weighted Average Exercise Price | | | Weighted Average Grant Date Fair Value | |
Beginning of the year - January 1, 2022 | | | 538,713 | | | $ | 18.51 | | | $ | 12.92 | |
Granted | | | 13,514 | | | | 6.27 | | | | 3.70 | |
Exercised | | | — | | | | — | | | | — | |
Forfeited | | | — | | | | — | | | | — | |
Expired | | | (8,930 | ) | | | 8.25 | | | | 2.80 | |
End of the period - March 31, 2022 | | | 543,297 | | | $ | 18.37 | | | $ | 12.86 | |
Options exercisable | | | 531,531 | | | $ | 18.65 | | | $ | 13.05 | |
A summary of the Company’s non-vested options as of March 31, 2022 and December 31, 2021, and changes during the three months ended March 31, 2022, is presented below:
| | Shares | | | Weighted Average Exercise Price | | | Weighted Average Fair Value Grant Date | |
Non-vested – December 31, 2021 | | | 11,766 | | | $ | 5.71 | | | $ | 4.25 | |
| | | | | | | | | | | | |
Granted | | | 13,514 | | | | 6.27 | | | | 3.70 | |
Vested | | | (13,514 | ) | | | 6.27 | | | | 3.70 | |
Forfeited | | | — | | | | — | | | | — | |
Non-vested– March 31, 2022 | | | 11,766 | | | $ | 5.71 | | | $ | 4.25 | |
The above tables include stock options issued and outstanding as of March 31, 2022 as follows:
i. A total of 339,855 incentive stock options and non-qualified 10-year options have been issued, and are outstanding, to the directors, officers, and employees at exercise prices of $3.82 to $75.60 per share. From this total, 127,299 options are held by the Chief Executive Officer, who is also a director. All options issued to directors, officers, and employees, including those issued to our Chief Executive Officer, have a remaining contractual life ranging from 3.02 years to 7.67 years.
ii. A total of 203,442 non-qualified 1 to 10-year options have been issued, and are outstanding, to consultants at exercise prices of $3.82 to $75.60 per share and have a remaining contractual life ranging from 0.04 years to 9.42 years.
As of March 31, 2022, there was approximately $0.1 million of total unrecognized compensation cost related to non-vested stock options granted under the plans. That cost is expected to be recognized over a weighted-average period of approximately 1.89 years. For stock options outstanding at March 31, 2022, the intrinsic value was approximately $0.5 million. For those vested stock options at March 31, 2021, the intrinsic value was approximately $0.2 million.
The following table provides certain information with respect to the above-referenced stock options that were outstanding and exercisable at March 31, 2022:
| | | Stock Options Outstanding | | | Stock Options Vested | |
| | | Weighted | | | | | | | | | Weighted | | | | | | | |
| | | Average | | | | | | | | | Average | | | | | | | |
| | | Remaining | | | | | | Weighted | | | Remaining | | | | | | Weighted | |
| | | Contractual | | | Number | | | Average | | | Contractual | | | Number | | | Average | |
| | | Life | | | of | | | Exercise | | | Life | | | of | | | Exercise | |
| Exercise Prices | | -Years | | | Awards | | | Price | | | -Years | | | Awards | | | Price | |
$ | 3.82-$9.00 | | | 5.09 | | | | 145,801 | | | $ | 5.10 | | | | 4.77 | | | | 134,035 | | | $ | 5.04 | |
$ | 9.01-$12.48 | | | 6.35 | | | | 116,544 | | | $ | 10.80 | | | | 6.35 | | | | 116,544 | | | $ | 10.80 | |
$ | 12.49-$24.00 | | | 4.87 | | | | 195,090 | | | $ | 14.23 | | | | 4.87 | | | | 195,090 | | | $ | 14.23 | |
$ | 24.01-$72.00 | | | 3.47 | | | | 62,771 | | | $ | 55.07 | | | | 3.47 | | | | 62,771 | | | $ | 55.07 | |
$ | 72.01-$75.60 | | | 2.90 | | | | 23,091 | | | $ | 75.59 | | | | 2.90 | | | | 23,091 | | | $ | 75.59 | |
| Total | | | 5.00 | | | | 543,297 | | | $ | 18.37 | | | | 4.92 | | | | 531,531 | | | $ | 18.65 | |
Common Share Issuances
For the three months ended March 31, 2022 and 2021, the Company issued 2,262 and 3,000 common shares, respectively, to its investor relations firm for services provided during the period.
Restricted Stock Awards
On November 18, 2021, the Board of Directors approved an equity grant of 188,588 RSAs, with a grant date fair value of approximately $2 million, to all of the Company’s employees and two consultants, valued at the stock price on the grant date of $10.69 per share. These RSAs contain a performance-based accelerated vesting provision and a service-based vesting provision, with the service-based vesting provision being one-third vesting on each of the first three anniversaries of the date of grant. As of March 31, 2022 and December 31, 2021, the Company had deemed it not probable that the performance-based vesting provision would be met. These 188,588 shares were included in the total outstanding common shares at March 31, 2022 and December 31, 2021 and compensation expense will be recognized straight line over the three-year vesting period. A total of $0.2 million of compensation expense was recorded for the three months ended March 31, 2022.
Also on November 18, 2021, there was an additional performance-based equity grant of 188,588 RSAs, with a grant date fair value of approximately $2 million, with immediate vesting upon the Company completing a business acquisition in 2022, subject to certain target financial performance metrics. The RSAs were valued at the stock price on the grant date of $10.69 per share. This RSA grant, based on managements’ probability assessment of meeting this milestone at March 31, 2022 and December 31, 2021, was not probable of being met and no expense was recorded as stock-based compensation for the three months ended March 31, 2022 and for the year ended December 31, 2021. These 188,588 RSAs were not included in the total outstanding common shares at March 31, 2022 and December 31, 2021, on the accompanying balance sheet and statement of stockholders’ equity. The Company will reassess the probability of achieving this performance condition at each reporting period in 2022 and record the approximately $2 million as an expense as well as include these performance-based RSAs in the total outstanding common shares, if there is a change to management’s assessment that it is probable that this performance-condition will be met.
The following summarizes the Company’s RSAs activity:
| | | | | Weighted | |
| | Number | | | Average | |
| | of | | | Grant Date | |
| | Shares | | | Fair Value | |
Total RSAs outstanding at January 1, 2022 | | | 377,176 | | | $ | 10.69 | |
Total RSAs granted | | | — | | | $ | — | |
Total RSAs vested | | | — | | | $ | — | |
Total RSAs forfeited | | | — | | | $ | — | |
Total unvested RSAs outstanding at March 31, 2022 | | | 377,176 | | | $ | 10.69 | |
Scheduled vesting for outstanding RSAs with service conditions at March 31, 2022 is as follows:
| | Year Ending December 31, | |
| | 2022 | | | 2023 | | | 2024 | | | Total | |
Scheduled vesting | | | 62,862 | | | | 62,864 | | | | 62,862 | | | | 188,588 | |
As of March 31, 2022, there was approximately $1.7 million of total unrecognized compensation cost related to these unvested RSAs compensation arrangements. The compensation expense will be recognized on a straight-line basis over the three-year vesting period.
The components of total stock-based compensation expense included in the Company’s condensed consolidated statements of operations for the three months ended March 31, 2022 and 2021 are as follows (rounded in millions):
| | For the Three Months Ended | |
| | March 31, | |
| | 2022 | | | 2021 | |
Research and development expenses | | $ | — | | | $ | — | |
General and administrative expenses | | | 0.3 | | | | 0.1 | |
Total stock-based compensation expense | | $ | 0.3 | | | | 0.1 | |
FORWARD-LOOKING STATEMENTS
In addition to historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. 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:
| · | those concerning market and business segment growth, demand, and acceptance of our nuclear fuel technology and other steps to commercialization of Lightbridge Fuel™; |
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| · | any projections of sales, earnings, revenue, margins, or other financial items; |
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| · | any statements of the plans, strategies, and objectives of management for future operations and the timing and outcome of the development of our nuclear fuel technology; |
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| · | any statements regarding future economic conditions or performance; |
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| · | uncertainties related to conducting business in foreign countries; |
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| · | any statements about future financings and liquidity; |
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| · | the Company’s anticipated financial resources and position; and |
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| · | all assumptions, expectations, predictions, intentions, or beliefs about future events and other statements that are not historical facts |
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:
| · | our ability to commercialize our nuclear fuel technology, including risks related to the design and testing of nuclear fuel incorporating our technology and the degree of market adoption of the Company’s product and service offerings; |
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| · | dependence on strategic partners; |
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| · | our ability to fund our future operations, including general corporate overhead and outside research and development costs, and continue as a going concern; |
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| · | the demand for fuel for nuclear reactors, including small modular reactors (SMRs), and our ability to attract new customers; |
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| · | our ability to manage the business effectively in a rapidly evolving market; |
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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, including from accident tolerant fuels; |
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| · | the availability of nuclear test reactors and the risks associated with unexpected changes in our nuclear fuel development timeline; |
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| · | the increased costs associated with metallization of our nuclear fuel; |
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| · | uncertainties related to conducting business in foreign countries, including with respect to the Company’s intellectual property; |
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| · | risks associated with the further spread and uncertainty of COVID-19, including the ultimate impact of COVID-19 on people, economies, our ability to access capital markets, the Company’s financial position, results of operations or liquidity; |
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| · | public perception of nuclear energy generally; |
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| · | changes in laws, rules, and regulations governing our business; |
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| · | changes in the political environment; |
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| · | development and utilization of, and challenges to, our intellectual property; and |
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| · | the other risks identified in Item 1A. Risk Factors included in our Annual Report on Form 10-K for the year ended December 31, 2021. |
Most of these factors are beyond our ability to predict or control and you should not put undue reliance on any forward-looking statement. Future events and actual results could differ materially from those set forth in, contemplated by or underlying the forward-looking statements. Forward-looking statements speak only as of the date on which they are made. The Company assumes no obligation and does not intend to update these forward-looking statements for any reason after the date of the filing of this report, to conform these statements to actual results or to changes in our expectations, except as required by law.