Lightbridge(LTBR) - 2020 Q4 - Annual Report

PART I Business Lightbridge develops proprietary all-metal nuclear fuel for SMRs, aiming for enhanced performance and safety, with commercialization dependent on funding and infrastructure - The company is developing next-generation all-metal nuclear fuel (Lightbridge Fuel™) to improve the economics, safety, and proliferation resistance for existing and new nuclear reactors, with a strategic pivot towards Small Modular Reactors (SMRs)[18][21][23] - Lightbridge Fuel™ is designed to offer significant performance benefits, including a power uprate of up to 10-17% in existing Pressurized Water Reactors (PWRs) or up to 30% in new SMRs, and the potential to extend operating cycles from 18 to 24 months[25][26][32] - The company faces competition from conventional uranium dioxide fuels and Accident Tolerant Fuels (ATF). While ATF poses a threat in the market for existing large PWRs, Lightbridge believes its fuel has a competitive advantage in the SMR market due to its superior power uprate capabilities[54][55][57] - Key challenges to commercialization include the need for substantial U.S. government funding (estimated at $10 million per year in R&D), limited availability of suitable test reactors, the necessity of establishing a supply chain for high-assay low-enriched uranium (HALEU), and forming strategic partnerships[60][63][64] - In February 2021, the company settled its legal dispute with Framatome, resulting in the dissolution of their joint venture, Enfission, LLC. Lightbridge agreed to pay Framatome approximately $4.2 million[73] Risk Factors The company faces significant going concern risks due to recurring losses, requiring substantial capital and government funding for its long-term R&D - There is substantial doubt about the company's ability to continue as a going concern due to recurring losses from operations, which resulted in an accumulated deficit of $129.1 million as of December 31, 2020[117] - The company is highly dependent on securing significant U.S. government funding to support its projected 15-20 year fuel development timeline, as it is unfeasible for the company to fund this effort on its own[126][128] - Development is contingent on the availability of a suitable test reactor. The shutdown of the Halden reactor in Norway and the limited loop capacity at the U.S. Advanced Test Reactor (ATR) present significant potential delays and cost increases[132][133] - The company's fuel requires high-assay low-enriched uranium (HALEU) in metallic form, which necessitates modifications to the existing commercial nuclear infrastructure (enrichment, fabrication, shipping), posing a risk to commercialization[139] - A material weakness was identified in the company's internal control over financial reporting related to the amortization of patent costs[178] Properties The company leases its principal executive office in Reston, Virginia, with a monthly rent of approximately $10,000 through December 2021 - The company's office is located at 11710 Plaza America Drive, Suite 2000, Reston, VA. The lease runs through December 31, 2021, with monthly rent of approximately $10,000[181] Legal Proceedings The company settled all legal disputes with Framatome in February 2021, paying approximately $4.2 million and dissolving their Enfission joint venture - The company settled all legal disputes with Framatome concerning their joint venture, Enfission, LLC, on February 11, 2021[183] - Under the settlement, Lightbridge paid Framatome approximately $4.2 million for outstanding invoices and other expenses. The Enfission joint venture was officially dissolved on March 23, 2021[184] PART II Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under "LTBR", with no history or current plans for dividend payments, prioritizing reinvestment in operations - The company's common stock is listed on the Nasdaq Capital Market with the ticker symbol "LTBR"[187] - The company has never paid dividends and currently expects to utilize cash resources for ongoing operations rather than shareholder distributions[189] Management's Discussion and Analysis of Financial Condition and Results of Operation In 2020, Lightbridge's net loss increased to $14.4 million due to legal settlements and impairment charges, partially offset by reduced R&D, ending with $21.5 million cash, but facing going concern doubts Consolidated Results of Operations (2020 vs. 2019) | Description | 2020 ($) | 2019 (revised) ($) | Change $ | Change % | | :--- | :--- | :--- | :--- | :--- | | General and administrative | 8,312,583 | 5,787,092 | 2,525,491 | 44% | | Research and development expenses | 891,626 | 2,676,156 | (1,784,530) | (67)% | | Legal settlement costs | 4,200,000 | — | 4,200,000 | — | | Patent write-off and impairment loss | 1,169,644 | — | 1,169,644 | — | | Total Operating Expenses | 14,573,853 | 8,463,248 | 6,110,605 | 72% | | Total Operating Loss | (14,501,144) | (11,069,859) | 3,431,285 | 31% | | Net Loss | (14,417,266) | (10,676,747) | 3,740,519 | 35% | - The increase in General and Administrative expenses was primarily driven by approximately $1.7 million in professional fees related to the Framatome arbitration and a $1.2 million increase in employee compensation and benefits[233] - Research and Development expenses decreased by $1.8 million (67%) due to the company's transition away from R&D work related to the Enfission joint venture and towards a new strategy focused on the DOE's National Laboratories[237] - The company ended 2020 with $21.5 million in cash and cash equivalents, an increase from $18.0 million at the end of 2019, primarily due to receiving $12.3 million in net proceeds from the sale of common stock[251] - Management has concluded that substantial doubt exists about the Company's ability to continue as a going concern for the next 12 months, citing recurring losses, negative cash flows, and the need for significant additional capital to fund its long-term fuel development[255][388] Financial Statements and Supplementary Data Audited financial statements for 2020 and 2019 are presented, with the auditor expressing substantial doubt about going concern and identifying patent cost impairment as a critical audit matter - The independent auditor's report expresses substantial doubt about the company's ability to continue as a going concern, citing recurring losses, negative cash flows, and an accumulated deficit of approximately $129.2 million[367] - The auditor identified the impairment assessment of capitalized patent costs as a critical audit matter due to the significant management judgment and complex assumptions involved in estimating future cash flows and fair value[372][374] - The 2019 financial statements were revised to correct an immaterial error related to the amortization of capitalized patent costs. This correction increased the 2019 net loss by approximately $90,000 and reduced total assets by approximately $654,000[442][443][444] - A total impairment charge of $1.1 million was recognized in Q4 2020 for capitalized patent costs, reducing their carrying value to zero. This was triggered by extended development timelines and reduced prospects for government funding and facility availability[461][462] Controls and Procedures Management concluded disclosure controls were ineffective as of December 31, 2020, due to a material weakness in internal control over financial reporting related to patent cost amortization - Management concluded that disclosure controls and procedures were not effective as of December 31, 2020[283] - A material weakness was identified in internal control over financial reporting concerning the proper accounting policy for the amortization of capitalized patent costs[286] - A remediation plan is underway to enhance access to accounting literature and increase communication with third-party professionals to address the material weakness[287] PART III Directors, Executive Officers and Corporate Governance This section details the company's corporate governance, including biographical information for directors and executive officers, Board structure, and committee roles - The Board of Directors consists of five members: Seth Grae (President & CEO), Thomas Graham, Jr. (Chairman), Victor E. Alessi, Daniel B. Magraw, and Kathleen Kennedy Townsend[291] - The company maintains separate roles for the Chairman of the Board and the Chief Executive Officer to allow the CEO to focus on day-to-day operations[301] - The Board has four committees: Audit, Compensation, Governance and Nominating, and Executive. The Audit, Compensation, and Governance/Nominating committees are composed entirely of independent directors[300] Executive Compensation This section details 2020 executive compensation for named officers, including salary, bonus, and stock awards, along with director compensation 2020 Summary Compensation | Name | Position | Salary ($) | Bonus ($) | Stock Awards ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | :--- | | Seth Grae | CEO, President and Director | 489,673 | 244,654 | 213,855 | 974,182 | | Andrey Mushakov | Executive Vice President | 305,407 | 152,589 | 142,570 | 620,566 | | Larry Goldman | CFO and Corporate Secretary | 282,545 | 141,167 | 142,570 | 592,282 | - Director compensation for 2020 consisted of annual cash retainers ranging from $45,000 to $60,000, plus stock awards valued at $14,257 for each director[334][338] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section details beneficial ownership of common stock as of March 15, 2021, for directors, executive officers, and 5% beneficial owners - As of March 15, 2021, all current directors and executive officers as a group beneficially owned 343,694 shares, representing 5.0% of the outstanding common stock[341] - The largest individual beneficial holdings among insiders belong to Seth Grae (CEO) with 140,135 shares (2.1%) and Andrey Mushakov (EVP) with 80,970 shares (1.2%)[341] Certain Relationships and Related Transactions, and Director Independence The company reported no related party transactions, and the Board determined that a majority of its members are independent directors - No related party transactions involving directors, executive officers, or 5% stockholders were required to be disclosed[345] - The Board has determined that Victor Alessi, Daniel Magraw, and Kathleen Kennedy Townsend are independent directors, forming a majority of the Board[347] Principal Accountant Fees and Services This section details fees billed by BDO for 2020 and 2019, showing an increase in total fees primarily due to audit-related services Accountant Fees (BDO) | Fee Type | 2020 ($) | 2019 ($) | | :--- | :--- | :--- | | Audit Fees | 156,159 | 157,485 | | Audit Related Fees | 46,072 | 17,177 | | Tax Fees | 16,375 | 17,062 | | All Other Fees | — | — | | Total | 218,966 | 191,724 | - All audit and non-audit services provided by BDO were pre-approved by the Audit Committee, which determined that the provision of these services was compatible with maintaining auditor independence[353][354] PART IV Exhibits and Financial Statement Schedules This section provides an index of all exhibits filed with the Form 10-K report, including corporate governance documents, material contracts, and certifications - This section provides an index of all exhibits filed with the annual report, including corporate governance documents, material contracts, and required certifications[357][358][359]