Quarterly report pursuant to Section 13 or 15(d)

Stockholders??? Equity

v3.8.0.1
Stockholders’ Equity
3 Months Ended
Mar. 31, 2018
Notes to Financial Statements  
Note 7. Stockholders’ Equity

At March 31, 2018, there were 23,927,882 common shares outstanding, and there were also outstanding warrants relating to 1,511,001 shares of common stock, stock options relating to 3,973,550 shares of common stock, 1,020,000 shares of Series A convertible preferred stock convertible into 1,020,000 shares of common stock (plus accrued dividends of $342,813, relating to an additional 124,659 common shares), and 2,666,667 shares of Series B convertible preferred stock convertible into 2,666,667 shares of common stock (plus accrued dividends of $46,667, relating to an additional 31,111 common shares), all totaling 33,254,870 shares of common stock and common stock equivalents outstanding at March 31, 2018.

 

At December 31, 2017, there were 12,737,703 common shares outstanding, and there were also outstanding warrants relating to 1,210,905 shares of common stock, stock options relating to 3,976,884 shares of common stock, and 1,020,000 shares of Series A convertible preferred stock convertible into 1,020,000 shares of common stock (plus accrued dividends of $276,578, relating to an additional 100,753 common shares), all totaling 19,046,245 shares of common stock and common stock equivalents outstanding at December 31, 2017.

 

Filing of New $75 Million Shelf Registration Statement

 

On March 15, 2018, 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 became effective on March 23, 2018.

 

Common Stock Equity Offerings

 

ATM Offering - 2018

 

On March 30, 2018, the Company entered into an at-the-market issuance sales agreement (“New ATM”) with B. Riley FBR, Inc. (the “Distribution Agent”), pursuant to which the Company may issue and sell shares of its common stock from time to time through the Distribution Agent as the Company’s sales agent. Sales of the Company’s common stock through the Distribution Agent, 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, as amended, pursuant to the Company’s effective shelf registration statement on Form S-3 (File No. 333-223674) filed on March 15, 2018 with the Securities and Exchange Commission and declared effective on March 23, 2018, the base prospectus filed as part of such registration statement and the prospectus supplement dated March 30, 2018, which registered the offer and sale of up to $50 million of common stock under the New ATM. No sales under the New ATM were made during the three months ended March 31, 2018.

 

On January 24, 2018, January 26, 2018, February 7, 2018 and March 2, 2018, the Company filed prospectus supplements registering an aggregate of approximately $22.6 million under the prior ATM agreement with B. Riley FBR, Inc., of which the Company sold approximately $20.4 million during the three months ended March 31, 2018. No additional sales may be made under the prior ATM agreement.

 

ATM Offering - 2017

 

On July 12, 2017, the Company entered into an ATM sales agreement with FBR Capital Markets & Co. and MLV & Co. LLC. The Company registered the sale of approximately $1.6 million under the ATM sales agreement on July 12, 2017 and sold all of such amount in the year ended December 31, 2017, through the issuance of approximately 1.4 million shares.

   

Preferred Stock Equity Offerings

 

Series B Preferred Stock - Securities Purchase Agreement

 

On January 30, 2018, the Company issued 2,666,667 shares of newly created Non-Voting Series B Convertible Preferred Stock (the “Series B Preferred Stock”) and associated warrants to purchase up to 666,664 shares of the Company’s common stock to the several purchasers for approximately $4.0 million or approximately $1.50 per share of Series B Preferred Stock and associated 0.25 of a warrant. Dividends accrue on the Series B Preferred Stock at the rate of 7% per year and will be paid in-kind through an increase in the liquidation preference per share. The liquidation preference, initially $1.50 per share of Series B Preferred Stock, is the base that is also used to determine the number of common shares into which the Series B Preferred Stock will convert as well as the calculation of the 7% dividend. Each share of Series B Preferred Stock is convertible at the option of the holder into such number of shares of the Company’s common stock equal to the liquidation preference divided by the conversion price of $1.50 per share subject to adjustments in the case of stock splits and stock dividends.

 

Holders of the Series B Preferred Stock are also entitled to participating dividends whenever dividends in cash securities (other than shares of the Company’s common stock paid on shares of common stock) or property are paid on common shares or shares of Series A Preferred Stock. The amount of the dividends will equal the amount to which the holder would be entitled if all shares of Series B Preferred Stock had been converted to common stock immediately prior to the record date.

 

The warrants have a per share of common stock exercise price of $1.875, which is subject to adjustment in the event of certain stock dividends and distributions, stock splits, recapitalizations, stock combinations, reclassifications or similar events affecting the Company’s common stock. The warrants are exercisable upon issuance and will expire six months after issuance. On February 6, 2017 the Company entered into an agreement with an investment bank that introduced the Company to these investors. The agreement calls for monthly retainer payments of $15,000, which are credited against any transaction introductory fee earned by the investment bank. This agreement calls for a seven percent transaction introductory fee and warrants equal to 5 percent of the total transaction amount, at a strike price equal to the offering price for a three-year term.

 

The holders of the Series B Preferred Stock have no voting rights. In addition, as long as the shares of Series A Preferred Stock are outstanding, the Company may not take certain actions without first having obtained the affirmative vote or waiver of the holders of a majority of the outstanding shares of Series B Preferred Stock. The Company has the option at any time after August 2, 2019 to redeem some or all of the outstanding Series B Preferred Stock for an amount in cash equal to the liquidation preference plus the amount of any accrued but unpaid dividends of the Series B Preferred Stock being redeemed. The holders of the Series B Preferred Stock do not have the ability to require the Company to redeem the Series B Preferred Stock.

 

The accumulated dividend (unpaid) at March 31, 2018 was approximately $47,000. The liquidation preference of the Series B Preferred Stock at March 31, 2018 is approximately $4,047,000.

 

The Company has the option of forcing the conversion of all or part of the Series B Preferred Stock if at any time the average closing price of the Company’s common stock for a thirty-trading day period is greater than $5.4902 prior to August 2, 2019 or greater than $8.2353 at any time. The Company can only exercise this option if it also requires the conversion of the Series A Preferred Stock in the same proportion as it is requiring of the Series B Preferred Stock.

 

Of the $4 million proceeds, approximately $0.3 million was allocated to the warrants with the remaining approximate $3.7 million allocated to the Series B Preferred Stock. The Series B Preferred Stock was initially convertible into 2,666,667 shares of common stock. The average of the high and low market prices of the common stock on January 30, 2018, the date of the closing of the sale of the preferred stock, was approximately $2.34 per share. At $2.34 per share the common stock into which the Series B Preferred Stock was initially convertible was valued at approximately $6.2 million. This amount was compared to the $3.6 million of proceeds allocated to the Series B Preferred Stock to indicate that a BCF of approximately $2.6 million existed at the date of issuance which was immediately accreted as a deemed dividend because the conversion rights were immediately effective. This deemed dividend is included on the statement of operations for the three months ended March 31, 2018.

  

Additionally, comparison of the $1.50 conversion price of the PIK dividends to the $2.34 commitment date fair value per share indicates that each PIK dividend will accrete $0.84 of BCF as an additional deemed dividend for every $1.50 of PIK dividend accrued. Total deemed dividends for this PIK dividend at March 31, 2018 was approximately $21,000.

 

Pursuant to the Series B Preferred Stock - Securities Purchase Agreement we terminated our stock purchase agreement with Aspire Capital and this termination resulted in a write-off of our deferred financing costs asset of approximately $1 million.

 

Series A Preferred Stock - Securities Purchase Agreement

 

On August 2, 2016, the Company issued 1,020,000 shares of newly created Non-Voting Series A Convertible Preferred Stock (the “Series A Preferred Stock”) to General International Holdings, Inc. (“GIH”) for $2.8 million or approximately $2.75 per share. Dividends accrue on the Series A Preferred Stock at the rate of 7% per year and will be paid in-kind through an increase in the liquidation preference per share. The liquidation preference, initially $2.7451 per share of Series A Preferred Stock, is the base that is also used to determine the number of common shares into which the Series A Preferred Stock will convert as well as the calculation of the 7% dividend. Each share of Series A Preferred Stock is convertible at the option of the holder into such number of shares of the Company’s common stock equal to the liquidation preference divided by the conversion price of $2.7451 per share subject to adjustments in the case of stock splits and stock dividends.

 

Holders of the Series A Preferred Stock are also entitled to participating dividends whenever dividends in cash securities (other than shares of the Company’s common stock) or property are paid on common shares. The amount of the dividends will the amount to which the holder would be entitled if all shares of Series A Preferred Stock had been converted to common stock immediately prior to the record date.

 

The accumulated dividend (unpaid) at March 31, 2018 and December 31, 2017 was approximately $0.3 million dollars.

 

The Company has the option of forcing the conversion of the Series A Preferred Stock if the trading price for the Company’s common stock is more than two times the applicable conversion price (approximately $2.75 per share) before the third anniversary of the issuance of the Series A Preferred Stock, or if the trading price is more than three times the applicable conversion price following the third anniversary of issuance. The Company may also redeem the Series A Preferred Stock following the third anniversary of the issuance.

 

The Series A Preferred Stock was initially convertible into 1,020,000 shares of common stock. The average of the high and low market prices of the common stock on August 6, 2016, the date of the closing of the sale of the Series A Preferred Stock, was approximately $3.315 per share. At $3.315 per share the common stock into which the Series A Preferred Stock was initially convertible was valued at approximately $3.4 million. This amount was compared to the $2.8 million of proceeds of the Series A Preferred Stock to indicate that a BCF of approximately$0.6 million existed at the date of issuance which was immediately accreted as a deemed dividend because the conversion rights were immediately effective.

 

Additionally, comparison of the $2.7451 conversion price of the PIK dividends to the $3.315 commitment date fair value per share indicates that each PIK dividend will accrete $0.5699 of BCF as an additional deemed dividend for every $2.7451 of PIK dividend accrued. Total deemed dividends for this PIK dividend at March 31, 2018 was approximately $10,000.

   

The holders of the Series A Preferred Stock have no voting rights. In addition, as long as 255,000 shares of Series A Preferred Stock are outstanding, the Company may not take certain actions without first having obtained the affirmative vote or waiver of the holders of a majority of the outstanding shares of Series A Preferred Stock. The Company has the option at any time after August 2, 2019 to redeem some or all of the outstanding Series A Preferred Stock for an amount in cash equal to the liquidation preference plus the amount of any accrued but unpaid dividends of the Series A Preferred Stock being redeemed. The holders of the Series A Preferred Stock do not have the ability to require the Company to redeem the Series A Preferred Stock. The liquidation preference of the Series A Preferred Stock at March 31, 2018 and December 31, 2017 was approximately $3.1 million.

 

Warrants

 

    March 31,     December 31,  
Outstanding Warrants   2018     2017  
Issued to Investors on October 25, 2013, entitling the holders to purchase 250,000 common shares in the Company at an exercise price of $11.50 per common share up to and including April 24, 2021. In 2016, 59,450 of these warrants were exchanged for common stock, and all remaining warrant holders agreed to new warrant terms which excluded any potential net cash settlement provisions in exchange for a reduced exercise price of $6.25 per share.     163,986       163,986  
                 
Issued to Investors on November 17, 2014, entitling the holders to purchase 546,919 common shares in the Company at an exercise price of $11.55 per common share up to and including May 16, 2022. On June 30, 2016, the warrant holders agreed to new warrant terms which excluded any potential net cash settlement provisions in order to classify them as equity in exchange for a reduced exercise price of $6.25 per share.     546,919       546,919  
                 
Issued to an investor on August 10, 2016, entitling the holders to purchase 500,000 common shares in the Company at an exercise price of price of $0.01 per share, up to and including December 31, 2019. These warrants were exercised in January 2018.     -       500,000  
                 
Issued to Series B Preferred Stock investors on January 30, 2018, entitling the holders to purchase 666,664 common shares in the Company at an exercise price of price of $1.875 per share, up to and including July 30, 2018.     666,664       -  
                 
Issued to an investment bank regarding the Series B Preferred Stock investment on January 30, 2018, entitling the holder to purchase 133,432 common shares in the Company at an exercise price of price of $1.50 per share, up to and including January 30, 2021.     133,432       -  
                 
      1,511,001       1,210,905  

  

Stock-based Compensation – Stock Options

 

2015 Equity Incentive Plan

 

On March 25, 2015, the Compensation Committee and Board of Directors approved the Lightbridge Corporation 2015 Equity Incentive Plan (the “Plan”) to authorize grants of (a) Incentive Stock Options, (b) Non-qualified Stock Options, (c) Stock Appreciation Rights, (d) Restricted Awards, (e) Performance Share Awards, and (f) Performance Compensation Awards to the employees, consultants, and directors of the Company. The Plan initially authorized a total of 600,000 shares to be available for grant under the Plan, which amount was increased to 1,400,000 shares in May 2016 and 2,900,000 shares in May 2017. Subsequent to March 31, 2018, the Company’s shareholders approved an increase in the shares available under the Plan to 6,300,000 shares (see Note 10).

 

Total stock options outstanding at March 31, 2018 and December 31, 2017, under the 2006 Stock Plan and 2015 Equity Incentive Plan were 3,973,550 and 3,976,884 of which 3,551,136 and 2,434,148 of these options were vested at March 31, 2018 and December 31, 2017, respectively. Total stock-based compensation was approximately $1.3 million and $0.2 million for the three months ended March 31, 2018 and 2017, respectively.

 

Short-Term Incentive Stock Options and Non-Qualified Stock Option Grants

 

On August 30, 2017 the Compensation Committee and Board granted 31,425 non-qualified stock options with a strike price of $1.08 which was the closing price of the Company’s stock on the grant date to a consultant of the company, under the 2015 Equity Incentive Plan. These options have a 10-year contractual term, with a grant date fair market value of approximately $0.80 per option. These options vest annually straight line over a three-year period.

 

On October 26, 2017, the Compensation Committee of the Board granted 523,319 short-term incentive stock options and non-qualified stock options under the 2015 Equity Incentive Plan to employees and consultants of the Company. All of these stock options vested immediately, with a strike price of $1.05, which was the closing price of the Company’s stock on October 26, 2017. These options have a 10-year contractual term, with a fair market value of approximately $0.73 per option with an expected term of 5 years.

 

Long-Term Non-Qualified Option Grants

 

On October 26, 2017 the Compensation Committee of the Board granted 1,299,533 long-term non-qualified stock options to employees, consultants and directors of the Company. Out of this total, approximately 1,120,322 stock options were issued to employees and consultants containing both performance-based and market-based vesting provisions. These performance-based and market-based stock options vest only upon the applicable performance conditions or market conditions being satisfied by certain milestone dates, based on either a graded vesting schedule for each performance-based milestone or an accelerated 100% vesting for one performance-based milestone and one market-based milestone, as discussed below. The graded vesting schedule is based on the achievement of performance-based milestones related to the formation of the joint venture with Framatome and the development milestones for the fuel. Accelerated vesting of all these option grants would occur upon achievement of one or both of the following performance-based and market-based milestones:

 

  1. The Company’s closing stock price is above $3 per share by December 31, 2018
     
  2. The Company secures at least a $2 million investment from a commercial nuclear industry entity other than Framatome by December 31, 2019

   

Accelerated vesting occurred on January 25, 2018 when the Company’s stock price closed above $3 per share and therefore met the market-based milestone for 100% vesting of these option grants, as set forth in these stock option agreements. 

 

The remaining approximate 179,211 stock options were issued to the directors of the Company and vest over a one-year period on the anniversary date of the grant. These stock options have a strike price of $1.05, which was the closing price of the Company’s stock on October 26, 2017. All options granted have a 10-year contractual term.

 

Approximately 0.7 million of such long-term non-qualified stock options were issued contingent upon shareholder approval of an increase in the number of shares available under the 2015 Equity Stock Plan (see Note 7 of the notes to the accompanying condensed consolidated financial statements), with such number of contingent options granted pro-rata among the grantees.

 

Stock option transactions to the employees, directors and consultants are summarized as follows for the three months ended March 31, 2018:

 

   

Options

Outstanding 

   

Weighted

Average

Exercise

Price

   

Weighted

Average

Grant Date

Fair Value

 
Beginning of the period     3,976,884     $ 3.58     $ 2.49  
Granted     -       -       -  
Exercised     -       -       -  
Forfeited     -       -       -  
Expired     (3,334 )   $ 50.25     $ 30.73  
End of the period     3,973,550     $ 3.54     $ 2.53  
                         
Options exercisable     3,551,136     $ 3.60     $ 2.60  

 

Stock option transactions to the employees, directors and consultants are summarized as follows for the year ended December 31, 2017:

 

   

Options

Outstanding

   

Weighted

Average

Exercise

Price

   

Weighted

Average

Grant Date

Fair Value

 
Beginning of the year      2,172,581     $ 6.70     $ 4.83  
Granted     1,854,277       1.05       0.77  
Exercised     -       -       -  
Forfeited     -       -       -  
Expired     (49,974 )     45.53       38.70  
End of the year     3,976,884     $ 3.58     $ 2.49  
                         
Options exercisable     2,434,148     $ 4.84     $ 3.36  

   

A summary of the status of the Company’s non-vested options as of March 31, 2018 and December 31, 2017, and changes during the year ended December 31, 2017 and the three months ended March 31, 2018, is presented below:

 

    Shares    

Weighted-

Average Fair

Value

Grant Date

   

Weighted

Average

Exercise Price

 
Non-vested – December 31, 2016     450,476     $ 3.60     $ 5.40  
                         
Granted     1,854,277     $ 0.77     $ 1.05  
Vested     (762,017 )     1.67       2.54  
Forfeited     -       -       -  
Non-vested – December 31, 2017     1,542,736     $ 1.10     $ 1.58  
                         
Granted     -       -       -  
Vested     (1,120,322 )   $ 1.03     $ 1.05  
Forfeited                        
Non-vested – March 31, 2018     422,414     $ 1.95     $ 3.00  

 

As of March 31, 2018, there was approximately $0.4 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the plans. That cost is expected to be recognized over a weighted-average period of 0.73 years. For stock options outstanding at March 31, 2018, the intrinsic value was approximately $0.2 million. For stock options outstanding at December 31, 2017, the intrinsic value was approximately $0.3 million. No stock options have been awarded in 2018.

 

The above tables include options issued and outstanding as of March 31, 2018 and December 31, 2017, as follows:

 

i) A total of 71,556 non-qualified 10-year options have been issued, and are outstanding, to advisory board members at exercise prices of $1.08 to $42.75 per share.
   
ii) A total of 3,213,029 non-qualified 5-10-year options have been issued, and are outstanding, to our directors, officers, and employees at exercise prices of $1.05 to $43.25 per share. From this total, 1,070,659 options are outstanding to the Chief Executive Officer who is also a director, with remaining contractual lives of 1.1 years to 9.6 years. All other options issued to directors, officers, and employees have a remaining contractual life ranging from 0.2 years to 9.6 years.
   
iii) A total of 688,965 non-qualified 3-10-year options have been issued, and are outstanding, to our consultants at exercise prices of $1.05 to $43.25 per share.

 

The following table provides certain information with respect to the above-referenced stock options that are outstanding and exercisable at March 31, 2018:

 

    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  
                                         
$1.05-$2.00     9.31       2,528,666     $ 1.18       9.29       2,318,030     $ 1.19  
$2.01-$6.00     7.61       821,174     $ 4.59       7.61       651,429     $ 4.58  
$6.01-$20.00     4.88       505,694     $ 7.47       4.68       463,661     $ 7.58  
$20.00-$45.00     1.41       118,016     $ 29.85       1.41       118,016     $ 29.85  
Total     8.16       3,973,550     $ 3.54       8.12       3,551,136     $ 3.60  

   

The following table provides certain information with respect to the above-referenced stock options that are outstanding and exercisable at December 31, 2017:

 

    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  
                                         
$1.05-$2.00     9.56       2,528,666     $ 1.18       9.28       1,197,708     $ 1.33  
$2.01-$6.00     7.86       821,174     $ 4.59       7.86       651,429     $ 4.58  
$6.01-$20.00     5.12       505,694     $ 7.47       4.93       463,661     $ 7.58  
$20.01-$45.00     1.66       118,016     $ 29.85       1.66       118,016     $ 29.85  
$45.01-$72.00     0.18       3,334     $ 50.25       0.18       3,334     $ 50.25  
Total     8.40       3,976,884     $ 3.58       7.70       2,434,148     $ 4.84  

 

We use the historical volatility of our stock price over the number of years that matches the expected life of our stock option grants. Prior to January 1, 2015, we estimated the life of our option awards based on the full contractual term of the option grant. To date we have had very few exercises of our option grants, and those stock option exercises had occurred just before the contractual expiration dates of the option awards. Since the strike price of most of our outstanding awards is greater than the price of our stock, generally awards have expired at the end of the contractual term. For options granted after January 1, 2015, we have applied the simplified method to estimate the expected term of our option grants as it is more likely that these options may be exercised prior to the end of the term. We estimate the effect of future forfeitures of our option grants based on an analysis of historical forfeitures of unvested grants, as we have no better objective basis for that estimate. The expense that we have recognized related to our grants includes the estimate for future pre-vest forfeitures. We will adjust the actual expense recognized due to future pre-vest forfeitures as they occur.

 

Weighted average assumptions used in the Black Scholes option-pricing model for the service-based stock options issued for the years ended December 31, 2017, was as follows: 

 

    Year ended  
    December 31,  
    2017  
       
Average risk-free interest rate     2.15 %
Average expected life- years     5.67  
Expected volatility     87.24 %
Expected dividends   $ 0.0  

 

In accordance with ASC 718, the market-based and performance-based long-term non-qualified option grants awards issued in 2017 were assigned a fair value of $0.80 per option share (total value of $0.9 million) on the date of grant using a Monte Carlo simulation. The following assumptions were used in the Monte-Carlo simulation model:

 

Expected volatility   87.5% to 91 %
Risk free interest rate   2.24% to 2.42 %
Dividend yield rate     0 %
Weighted average remaining expected life   4.2 years  
Closing price per share – common stock   $ 1.05  

   

Stock-based compensation expense includes the expense related to (1) grants of stock options, (2) grants of restricted stock, (3) stock issued as consideration for some of the services provided by our directors and strategic advisory council members, and (4) stock issued in lieu of cash to pay bonuses to our employees and contractors. Grants of stock options and restricted stock are awarded to our employees, directors, consultants, and board members and we recognize the fair 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 expense is recorded under the financial statement captions cost of services provided, general and administrative expenses and research and development expenses in the accompanying condensed consolidated statements of operations. Related income tax benefits were not recognized, as we incurred a tax loss for both periods.