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:
our ability to attract new customers,
our ability to employ and retain qualified employees and consultants that have experience in the Nuclear Industry,
competition and competitive factors in the markets in which we compete,
general economic and business conditions in the local economies in which we regularly conduct business, which can affect demand for the Company’s services,
changes in laws, rules and regulations governing our business,
development and utilization of our intellectual property,
potential and contingent liabilities, and
the risks identified in Item 1A. “Risk Factors” included herein.
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.
PART I
Item 1. Description of Business
OVERVIEW ABOUT OUR TWO BUSINESS SEGMENTS
When used in this annual 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 International Holding, LLC (a Delaware limited liability company).
Lightbridge is a leading nuclear fuel technology company and we participate in the nuclear power industry in the United States and internationally. Our mission is to be a world leader in the design and licensing of nuclear fuels that are economically attractive, proliferation resistant, and produce less waste than current generation fuels, and to provide world-class strategic advisory services to governments and utilities seeking to develop proliferation-resistant civil nuclear power programs.
Our business operations can be categorized into two segments: (1) nuclear fuel technology business segment - we are a developer of next generation nuclear fuel technology that has the potential to significantly increase the power output of commercial reactors, reducing the cost of generating nuclear energy and the amount of nuclear waste on a per-megawatt-hour basis and enhancing proliferation resistance of spent fuel, and (2) nuclear consulting business segment - we are a provider of nuclear power consulting and strategic advisory services to commercial and governmental entities worldwide.
Financial information about our business segments is included in Part II Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, and Note 12 Segment Information, of the Notes to the Consolidated Financial Statements, included in Item 8, Financial Statements of this Annual Report on Form 10-K.
NUCLEAR FUEL TECHNOLOGY BUSINESS SEGMENT
Since the founding of our company in 1992, we have been engaged in the design and development of proprietary innovative nuclear fuels. This effort has led us to the development of a metallic fuel rod design that is at the heart of each of our nuclear fuel products.
We are currently focusing our development efforts on three primary fuel product lines: (1) all-uranium seed and blanket fuel for existing plants, (2) all-metal fuel (i.e., non-oxide fuel) for new build reactors, and (3) thorium-based seed and blanket fuel for both existing and new build reactors. Each of the fuel designs utilizes our metallic fuel rod technology, and each design advances our mission to improve the safety, proliferation resistance, performance, and cost competitiveness of nuclear power generation.
In response to the challenges associated with conventional oxide fuels, our innovative, proprietary metallic fuels are capable of significantly higher burnup and power density compared to conventional oxide fuels. The fuel in a nuclear reactor generates heat energy. That heat is then converted into electricity that is sold. Burnup is the total amount of electricity generated per unit mass of nuclear fuel. Burnup is largely a function of the power density of a nuclear fuel. Power density is the amount of heat power generated per unit volume of nuclear fuel. Conventional oxide fuel used in existing commercial reactors is approaching the limits of its burnup and power density capability. As a result, further optimization to increase power output from the same core size and improve the economics of nuclear power generation using conventional oxide fuel technologies may be limited. As the industry prepares to meet the increasing global demand for electricity production, longer operating cycles and higher reactor power outputs will become a much sought-after solution for the current and future reactor fleet.
Our proprietary nuclear fuel designs have the potential to significantly enhance the nuclear power industry’s economics and increase power output by: 1) extending the fuel cycle length from 18 to 24 months while simultaneously providing an increase in power output of up to 17% in existing pressurized water reactors (including Westinghouse 4-loop reactors, which are currently limited to an 18-month fuel cycle); 2) enabling increased reactor power output (up to 30% increase) without changing the core size in new build pressurized water reactors (PWRs); and 3) addressing the back-end of fuel cycle concerns related to the volume of used fuel per kilowatt-hour as well as proliferation of weapons-usable materials. For uprates up to 10%, only relatively minor plant modifications would be required. Hence, we believe that nuclear utilities with existing reactor fleets may find it economically attractive to initially start with a 10% power uprate fuel variant and switch to a 17% power uprate fuel variant at the time when steam generators and other expensive plant equipment are near the end of their service life and have to be replaced. In this case, nuclear utilities would only have to incur the incremental capital cost beyond and above the cost of standard plant equipment to accommodate a 17% power uprate in their existing PWR plants. There are significant technology synergies among our primary fuel products due to utilization of our proprietary metallic fuel rod technology that is inherent in all of our fuel designs. As a result, full-scale demonstration and qualification of the metallic fuel rod technology simultaneously advances all of our fuel product families currently in development. We believe our fuel designs will allow current and new build nuclear reactors to safely increase power production and reduce the initial capital investment and operations and maintenance costs on a per kilowatt-hour basis. In addition to the projected electricity production cost savings, we believe that our technology can result in utilities or countries needing to deploy fewer new reactors to generate the same amount of electricity. For utilities or countries that already have operating reactors, our technology could be utilized to increase the power output of those reactors as opposed to building new reactors. Further, we believe that the fuel fabrication or manufacturing process for this new fuel design is simpler, which we expect could lower fuel fabrication costs.
CONSULTING BUSINESS SEGMENT
We are engaged in the business of assisting commercial and governmental entities globally with developing and expanding their nuclear industry capabilities and infrastructure. We provide integrated strategic advice across a range of expertise areas including, for example, regulatory development, nuclear reactor site selection, procurement and deployment, reactor and fuel technology, international relations and regulatory affairs.
OUR BUSINESS STRATEGY – NUCLEAR FUEL TECHNOLOGY BUSINESS SEGMENT
We intend to license our intellectual property for our nuclear fuel designs to existing major nuclear fuel fabricators that own and operate fuel fabrication facilities and have long-term fuel supply contracts with nuclear power plants. We believe that this partnering strategy will allow us to take advantage of the existing customer base of such major fuel fabricators, thus enabling our fuel products to achieve higher market penetration rates in a relatively short period of time. We are currently pursuing a research, development, and demonstration strategy aimed at generating sufficient interest and confidence in our fuel technology among major fuel fabricators with a view of entering into a commercial arrangement with one or more of them within the next 2-3 years. We believe that there may be opportunities for manufacturing technology licenses or manufacturing support fees from fuel fabricators.
We anticipate that the following factors will play a key role in structuring a technology license agreement with a major fuel supplier:
Sharing of future fuel development costs;
An upfront technology access fee payable to us;
Ongoing royalty fees from future fuel product sales payable to us based on a cost sharing formula; and
Potential training and consulting payments payable to us.
Our commercialization efforts are based on a multi-prong approach that we believe will increase the likelihood of success:
We are putting a significant amount of effort into reaching out to major fuel fabricators. Our ultimate commercial success depends on how soon and what kind of a commercial arrangement we are able to negotiate with one or more of these potential partners. As a result, building relationships with these potential partners and keeping them up-to-date on our fuel technology progress through ongoing dialogue are the essential elements of our commercialization strategy.
KEY FUEL DEVELOPMENTS IN 2011
In 2010, we began working with Texas A&M University and Idaho National Laboratory, or INL, on the continued development of our technology. Following an extensive independent technical evaluation by INL of the Texas A&M University-led joint proposal for capsule irradiation testing of our metallic fuel samples in the Advanced Test Reactor, or ATR, at INL, the US Department of Energy, or DOE, approved the project in June 2010. During the second quarter of 2011, we were informed by INL that we may be able to skip capsule irradiation testing of our metallic fuel samples and proceed with direct fuel-coolant contact irradiation, which is a critical path item in our fuel development program schedule. In the third quarter of 2011, the team completed a preliminary scoping study confirming, in principle, the feasibility of performing irradiation of our metallic fuel samples in the ATR. As a result, INL has now begun performing a more detailed technical design of the experiment and specific operating conditions. This detailed analysis will provide input into a safety analysis report, which is a key prerequisite for the irradiation experiment. We expect the safety analysis to be completed in 2012.
We have made considerable progress toward execution of our technology development roadmap in 2011, including the following developments:
Established a Nuclear Utility Fuel Advisory Board, or NUF Advisory Board, the objective and purpose of which is to further strengthen our dialogue with global nuclear utilities, consistent with U.S. export control laws, and provide their input into our nuclear fuel development and commercialization efforts. The initial NUF Advisory Board members include top nuclear fuel managers from Exelon, Duke Energy, Dominion, and Southern Company.
Began negotiations with a US fuel fabrication partner relating to metal fuel fabrication process development and demonstration work in the United States. We are hopeful for negotiations to conclude in 2012.
Signed a memorandum of understanding relating to loop irradiation testing and collaboration in other areas with the Research Institute of Atomic Reactors, or RIAR, in Dimitrovgrad, Russia, which houses the MIR loop-type research reactor. We expect to begin commercial negotiations with RIAR relating to loop irradiation in the second half of 2012.
Completed thermal-hydraulic and vibration testing on a VVER seed and blanket fuel assembly mockup at Russian test facilities. In the third quarter of 2011, we completed our preliminary analysis of a significant amount of data that had been generated in that experiment. Our preliminary analysis indicates that the results are extremely positive and reaffirm the thermal-hydraulic performance advantages of our seed-and- blanket fuel assembly compared to standard fuel assembly. Results of this testing will be used to develop analytical models necessary for further safety analyses of our fuel.
Submitted a technical article for publication in a peer-reviewed journal. We will provide an update once the article is published.
Issued a white paper on the safety attributes of our metallic fuel technology which has been posted to our corporate website. The main conclusion of the white paper is that the inherent characteristics of our metal fuel technology, particularly the increased heat transfer capability resulting in lower fuel operating temperature and improved cladding integrity due to a metallurgical bond between the fuel and the cladding, are expected to contribute to increased safety margins during normal reactor operation and certain off- normal events.
Granted a Eurasian patent which covers our thorium-based seed and blanket fuel assembly design for Russian-type VVER-1000 reactors. Countries that are signatories to the Eurasian Patent Convention include Russia, Kazakhstan, Belarus, Azerbaijan, Armenia, Turkmenistan, Tajikistan, Kyrgyz Republic, and Republic of Moldova. Of these countries, Russia and Kazakhstan are of key importance to Lightbridge and will be our top priority as far as patent maintenance is concerned. The new patent extends patent protection for our thorium-based seed and blanket fuel assembly design to 2027, which is well beyond the 2014-2015 when the original patents covering that fuel design are set to expire.
Received a notice of allowance from the U.S. Patent and Trademark Office for a patent application covering a locking mechanism for our seed-and-blanket fuel assembly. The patent will issue on February 14, 2012 (US Patent No. 8,116,423) and will provide protection for the locking mechanism invention in the United States from its issuance until December 2028. We have also filed counterpart foreign patent applications for this invention, and will file an additional international PCT patent application for an improved locking mechanism in early 2012.
Filed an international patent application under the Patent Cooperation Treaty for Lightbridge’s all-uranium seed and blanket and all-metal fuel technologies as well as national phase patent applications in key countries based on the 2008 Patent Cooperation Treaty application that covers the thorium-based seed and blanket fuel technology for Western-type pressurized water reactors. Once granted, the new patents would extend patent protection for these fuel designs to 2028-2030.