UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10−Q





(Mark
One)


x QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934


For the
quarterly period ended: March 31, 2010





 ̈ TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934


For the
transition period from ____________ to _____________




Commission
File Number: 000-28543




LIGHTBRIDGE
CORPORATION


(Exact
name of registrant as specified in its charter)





Nevada
                    
                    91-1975651(State
      or other jurisdiction of
                    
                    (I.R.S.
      Empl. Ident. No.)incorporation
      or organization)





1600
Tysons Boulevard, Suite 550


McLean,
VA 22102


(Address
of principal executive offices, Zip Code)





(571)
730-1200


(Registrant’s
telephone number, including area code)


Thorium
Power Ltd.


(Former
Name, Former Address and Former Fiscal Year if Changed Since Last
Report)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes x No  ̈





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes  ̈ No  ̈




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.





Large Accelerated Filer
             ̈
            Accelerated Filer  ̈Non-Accelerated Filer
            o (Do not check if a smaller reporting company)
            Smaller reporting company x





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).   Yes  ̈ No x




The
number of shares outstanding of each of the issuer’s classes of common equity,
as of May 1, 2010 is as follows:





Class of Securities
                  
                  Shares OutstandingCommon Stock, $0.001 par value
                  
                  10,168,412





Transitional
Small Business Disclosure Format (check one): Yes ̈Nox





ITEM
1. FINANCIAL STATEMENTS





LIGHTBRIDGE
CORPORATION





UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS




MARCH 31, 2010 AND
2009




TABLE OF
CONTENTS




PageCondensed
      Consolidated Balance Sheets
              
              2Unaudited
      Condensed Consolidated Statements of Operations
              
              3Unaudited
      Condensed Consolidated Statements of Cash Flows
              
              4Unaudited
      Condensed Consolidated Statement of Changes in Stockholders’
      Equity
              
              5Notes
      to Unaudited Condensed Consolidated Financial Statements
              
              6


1


Lightbridge
Corporation


Condensed
Consolidated Balance Sheets





March
      31,
                
                
                December
      31,2010
                
                
                2009(Unaudited)ASSETSCurrent
      AssetsCash
      and cash equivalents
                
                $
                2,000,134
                
                
                $
                3,028,791Restricted
      cash
                
                
                652,174
                
                
                
                652,174Accounts
      receivable - project revenue and reimbursable project
costs
                
                
                2,647,233
                
                
                
                2,421,088Prepaid
      expenses & other current assets
                
                
                675,523
                
                
                
                574,095Total
      Current Assets
                
                
                5,975,064
                
                
                
                6,676,148Property
      Plant and Equipment -net
                
                
                90,608
                
                
                
                97,559Other
      AssetsPatent
      costs - net
                
                
                241,845
                
                
                
                241,845Security
      deposits
                
                
                120,487
                
                
                
                120,486Total
      Other Assets
                
                
                362,332
                
                
                
                362,331Total
      Assets
                
                $
                6,428,004
                
                
                $
                7,136,038LIABILITIES
      AND STOCKHOLDERS EQUITYCurrent
      LiabilitiesAccounts
      payable and accrued liabilities
                
                $
                1,575,718
                
                
                $
                2,162,221Total
      Liabilities
                
                
                1,575,718
                
                
                
                2,162,221Commitments
      and contingenciesStockholders'
      EquityPreferred
      stock, $0.001 par value, 50,000,000 authorized shares, no shares issued
      and outstanding
                
                
                -
                
                
                
                -Common
      stock, $0.001par value, 500,000,000 authorized, 10,168,412shares issued and
      outstanding at March 31, 2010 and December 31, 2009
                
                
                10,168
                
                
                
                10,168Additional
      paid in capital - stock and stock equivalents
                
                
                54,836,265
                
                
                
                54,108,685Accumulated
      Deficit
                
                
                (50,407,044
                )
                
                
                (48,723,286
                )Common
      stock reserved for issuance, 135,318 and 5,721 shares at March 31, 2010
      and December 31, 2009, respectively
                
                
                1,134,264
                
                
                
                34,750Deferred
      stock compensation
                
                
                (721,367
                )
                
                
                (456,500
                )Total
      Stockholders' Equity
                
                
                4,852,286
                
                
                
                4,973,817Total
      Liabilities and Stockholders' Equity
                
                $
                6,428,004
                
                
                $
                7,136,038




The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements


2


Lightbridge
Corporation


Unaudited
Condensed Consolidated Statements of Operations





Three
      Months EndedMarch, 312010
                          
                          
                          2009Revenue:Consulting
      Revenue
                          
                          $
                          2,399,132
                          
                          
                          $
                          2,944,053Cost
      of Consulting Services Provided
                          
                          
                          1,505,490
                          
                          
                          
                          1,748,518Gross
      Margin
                          
                          
                          893,642
                          
                          
                          
                          1,195,535Operating
      ExpensesGeneral
      and administrative
                          
                          
                          2,372,263
                          
                          
                          
                          2,262,681Research
      and development expenses
                          
                          
                          204,743
                          
                          
                          
                          453,805Total
      Operating Expenses
                          
                          
                          2,577,006
                          
                          
                          
                          2,716,486Operating
      loss
                          
                          
                          (1,683,364
                          )
                          
                          
                          (1,520,951
                          )Other
      Income and (Expenses)Interest
      income
                          
                          
                          152
                          
                          
                          
                          3,028Other
      expenses
                          
                          
                          (546
                          )
                          
                          
                          (4,538
                          )Total
      Other Income and Expenses
                          
                          
                          (394
                          )
                          
                          
                          (1,510
                          )Net
      loss before income taxes
                          
                          
                          (1,683,758
                          )
                          
                          
                          (1,522,461
                          )Income
      taxes
                          
                          
                          0
                          
                          
                          
                          0Net
      loss
                          
                          $
                          (1,683,758
                          )
                          
                          $
                          (1,522,461
                          )Net
      Loss Per Common Share, Basic and diluted
                          
                          $
                          (0.17
                          )
                          
                          $
                          (0.15
                          )Weighted
      Average Number of shares outstanding for the period used to compute per
      share data
                          
                          
                          10,168,412
                          
                          
                          
                          10,055,580





The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements


3





Lightbridge
Corporation


Unaudited
Condensed Consolidated Statements of Cash Flows





Three
      Months EndedMarch 31,2010
                  
                  
                  2009Operating
      Activities:Net
      Loss
                  
                  $
                  (1,683,758
                  )
                  
                  $
                  (1,522,461
                  )Adjustments
      to reconcile net loss from operations to net cash used in operating
      activities:Stock
      based compensation
                  
                  
                  859,576
                  
                  
                  
                  1,272,971Depreciation
      and amortization
                  
                  
                  6,951
                  
                  
                  
                  6,004Changes
      in non-cash operating working capital items:Accounts
      receivable - fees and reimburseable project costs
                  
                  
                  (226,145
                  )
                  
                  
                  1,038,592Prepaid
      expenses and other current assets
                  
                  
                  (101,428
                  )
                  
                  
                  (387,189
                  )Accounts
      payable, accrued liabilities and other current liabilities
                  
                  
                  116,147
                  
                  
                  
                  (1,596,398
                  )Net
      Cash Used In Operating Activities
                  
                  
                  (1,028,657
                  )
                  
                  
                  (1,188,481
                  )Investing
      Activities:Patent
      costs
                  
                  
                  0
                  
                  
                  
                  (16,402
                  )Net
      Cash Used In Investing Activities
                  
                  
                  0
                  
                  
                  
                  (16,402
                  )Financing
      Activities:Net
      Cash Provided by (Used In) Financing Activities
                  
                  
                  0
                  
                  
                  
                  0Net
      Decrease In Cash and Cash Equivalents
                  
                  
                  (1,028,657
                  )
                  
                  
                  (1,204,883
                  )Cash
      and Cash Equivalents, Beginning of Period
                  
                  
                  3,028,791
                  
                  
                  
                  5,580,244Cash
      and Cash Equivalents, End of Period
                  
                  $
                  2,000,134
                  
                  
                  $
                  4,375,361Supplemental
      Disclosure of Cash Flow InformationCash
      paid during the year:Interest
      paid
                  
                  $
                  0
                  
                  
                  $
                  0Income
      taxes paid
                  
                  $
                  0
                  
                  
                  $
                  266,000Non-Cash
      Financing ActivityGrant
      of Common Stock for Payment of Accrued Liabilities
                  
                  $
                  702,651
                  
                  
                  $
                  0





The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements


4


Lightbridge
Corporation


Unaudited
Condensed Consolidated Statements of Changes in Stockholders’
Equity


For
the Three Months Ended March 31, 2010 (Unaudited) and Year Ended December 31,
2009





Common Stock
                  
                  
                  Additional
                  
                  
                  
                  
                  
                  Stock Committed
                  
                  
                  Deferred
                  
                  
                  Stockholders’Shares
                  
                  
                  Amount
                  
                  
                  Paid-in Capital
                  
                  
                  Deficit
                  
                  
                  Future Issuance
                  
                  
                  Stock
                    Compensation
                  
                  
                  EquityBalance
      - December 31, 2008
                  
                  
                  10,049,769
                  
                  
                  $
                  10,050
                  
                  
                  $
                  48,898,894
                  
                  
                  $
                  (41,489,974
                  )
                  
                  $
                  114,787
                  
                  
                  $
                  (225,959
                  )
                  
                  $
                  7,307,798Stock
      based compensation
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  4,483,735
                  
                  
                  
                  0
                  
                  
                  
                  139,000
                  
                  
                  
                  226,252
                  
                  
                  
                  4,848,987Net
      loss for the year
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  (7,233,312
                  )
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  (7,233,312
                  )Shares
      issued - non cash
                  
                  
                  108,026
                  
                  
                  
                  108
                  
                  
                  
                  675,722
                  
                  
                  
                  0
                  
                  
                  
                  (219,037
                  )
                  
                  
                  (456,793
                  )
                  
                  
                  0Shares
      issued - cash (options exercised)
                  
                  
                  10,617
                  
                  
                  
                  10
                  
                  
                  
                  50,334
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  50,344Balance
      - December 31, 2009
                  
                  
                  10,168,412
                  
                  
                  
                  10,168
                  
                  
                  
                  54,108,685
                  
                  
                  
                  (48,723,286
                  )
                  
                  
                  34,750
                  
                  
                  
                  (456,500
                  )
                  
                  
                  4,973,817Stock
      based compensation
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  727,580
                  
                  
                  
                  0
                  
                  
                  
                  35,750
                  
                  
                  
                  96,246
                  
                  
                  
                  859,576Net
      loss for the period
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  (1,683,758
                  )
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  (1,683,758
                  )Shares
      issued - non cash
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  1,063,764
                  
                  
                  
                  (361,113
                  )
                  
                  
                  702,651Balance
      - March 31, 2010
                  
                  
                  10,168,412
                  
                  
                  $
                  10,168
                  
                  
                  $
                  54,836,265
                  
                  
                  $
                  (50,407,044
                  )
                  
                  $
                  1,134,264
                  
                  
                  $
                  (721,367
                  )
                  
                  $
                  4,852,286





The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements


5




Lightbridge
Corporation
 Notes
to Unaudited Condensed Consolidated Financial Statements
 For
the Three Months Ended March 31, 2010 and 2009


1. NATURE
OF OPERATIONS AND BASIS OF PRESENTATION
 
 Basis
of presentation
 
 The
accompanying unaudited condensed consolidated financial statements of
the 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 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 consolidated
financial statements and should be read in conjunction with our audited
consolidated financial statements for the year ended December 31, 2009, included
in our Annual Report on Form 10-K for the year ended December 31,
2009.
 
 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 periods presented are
not necessarily indicative of the results that might be expected for the entire
fiscal year.  When used in these notes, the terms "Company", "we", "us" or
"our" mean Lightbridge Corporation and all entities included in our consolidated
financial statements.
  Nature
of operations
 
 Our
subsidiary, Thorium Power Inc., or TPI, was incorporated in the
state of Delaware on January 8, 1992. On February 14, 2006, Lightbridge
Corporation entered into an agreement and plan of merger with TPI.
On October 6, 2006 Lightbridge Corporation acquired TPI through
a merger transaction pursuant to the agreement and plan of merger. On
September 29, 2009 we changed our name from Thorium Power, Ltd. to Lightbridge
Corporation and we effected a 1-for-30 reverse stock split of our common
stock.
  We are
now engaged in two business segments. The first business segment is the
development, promotion and marketing of our patented thorium-based nuclear
fuel designs for existing pressurized water reactors. Presently, we are focusing
most of our efforts on demonstrating and testing our nuclear fuel technology for
the Russian designed VVER-1000 reactors. Operations to date in this business
segment have been devoted primarily to continued development of our fuel
designs, filing for certain patents related to our technology, developing
strategic relationships within the nuclear power industry, and securing
political as well as some financial support from the United States and Russian
governments.
 
 Once our
reactor fuels are further developed and tested, we plan to license our
intellectual property rights to fuel fabricators, nuclear generators, and
governments for use in commercial light water nuclear reactors, or sell the
technology to a major nuclear company or government contractor, or some
combination of the two. We anticipate having the final design of our fuel
technology for VVER-1000 reactors and commencing the demonstration of our fuel
in a VVER-1000 operating reactor within the next three to five years. Presently
all of our research, testing and demonstration activities are being conducted in
Russia. Our research operations are subject to various political, economic, and
other risks and uncertainties inherent in Russia.
 
 Our
business model expanded in 2007, and our second business segment is providing
consulting and strategic advisory services to companies and governments planning
to create or expand electricity generation capabilities using nuclear power
plants. We have secured four contracts with successively larger values for
consulting and strategic advisory services in the United Arab Emirates, or UAE.
On August 1, 2008, we signed separate consulting services agreements with two
government entities formed by Abu Dhabi. Under these two agreements, we are to
provide consulting and strategic advisory services over a contract term of five
years starting from June 23, 2008, with automatic renewals of these contracts
for one year periods.
  6
  Lightbridge
Corporation
 Notes
to Unaudited Condensed Consolidated Financial Statements
 For
the Three Months Ended March 31, 2010 and 2009


On July
23, 2009, we entered into an Initial Collaborative Agreement with AREVA (“AREVA
Agreement”). Pursuant to this agreement, we will conduct the first phase of an
investigation of specific topics of thorium fuel cycles in AREVA’s light water
reactors, or LWRs. This first phase will focus on providing initial general
results relating to evolutionary approaches to the use of thorium in AREVA’s
LWRs, specifically within AREVA’s Evolutionary Power Reactor. Anticipated phase
2 and further phases of the collaboration, including a detailed study of
evolutionary and longer-term thorium fuel concepts, will be conducted in
accordance with additional collaborative agreements.
  Phase 1
and phase 2 of the collaboration between us and AREVA are being conducted
with the intention of future collaborative agreements between the two parties in
order to develop and set up new products and technologies related to thorium
fuel concepts. AREVA’s use of our intellectual property for commercial purposes
or any purpose other than as specified in the AREVA Agreement would be
separately negotiated on a royalty basis.
 
 Pursuant
to our agreement with AREVA, each party retains ownership in its existing (i.e., developed prior to
entering into the AREVA Agreement) intellectual property. The parties have also
agreed that AREVA will retain full ownership of any work product resulting from
the services performed under the AREVA Agreement that relate to AREVA’s light
water reactors (LWRs) and we will retain full ownership of any work product
resulting from the services performed under the AREVA Agreement that relate to
reactors other than AREVA’s LWRs, including, but not limited to Russian
VVER-type reactors.
  Accounting
Policies
 
 a)
Consolidation
  These
financial statements include the accounts of Lightbridge Corporation, a Nevada
corporation, and our wholly-owned subsidiaries, Thorium Power, Inc., a Delaware
corporation, and Lightbridge Power International Holding, LLC, a Delaware
limited liability company.
  All
significant intercompany transactions and balances have been eliminated in
consolidation. We formed a branch office in the United Kingdom in 2008 called
Lightbridge Advisors Limited, which is wholly-owned by our subsidiary
Lightbridge Power International Holding, LLC, as well as a branch office in
Moscow Russia, established in July 2009 and a branch office in the UAE in
January 2010.
 
 b) Use of Estimates and
Assumptions
  The
preparation of financial statements, in conformity with accounting principles
generally accepted in the United States of America, requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
 
 Significant
Estimates
 
 These
consolidated financial statements include some amounts that are based on
management's best estimates and judgments. The most significant estimates relate
to valuation of stock grants and stock options, the valuation allowance for
deferred taxes, impairment testing of intangible assets and various contingent
liabilities. It is reasonably possible that the above-mentioned estimates and
others may be adjusted as more current information becomes available, and any
adjustment could be significant in future reporting periods.
  7
 Lightbridge
Corporation
 Notes
to Unaudited Condensed Consolidated Financial Statements
 For
the Three Months Ended March 31, 2010 and 2009
 c) Revenue
Recognition
 
 Consulting
Business Segment
 
 Revenue—at
the present time we are deriving substantially all of our revenue from our
consulting and strategic advisory services business segment, by offering
services to foreign governments planning to create or expand electricity
generation capabilities using nuclear power plants. Our fee structure for each
client engagement is dependent on a number of variables, including the size of
the client, the complexity, the level of the opportunity for us to improve the
client’s electrical generation capabilities using nuclear power plants, and
other factors. The accounting policy we use to recognize revenue depends on the
terms of the specific contract. Substantially all of our consulting contracts
mentioned below are with the Executive Affairs Authority, or EAA, of Abu Dhabi,
one of the member Emirates of the UAE, and the related entities: Emirates
Nuclear Energy Corporation, or ENEC, and Federal Authority for Nuclear
Regulation, or FANR. All of our revenues recognized for 2010 and 2009 are
recognized on a time and expense basis.
  Certain
customer arrangements require evaluation of the criteria outlined in the
accounting standards of reporting revenue Gross as a Principal Versus Net as an
Agent in
determining whether it is appropriate to record the gross amount of revenue and
related costs or the net amount earned as agent fees. Generally, when we are
primarily obligated in a transaction, revenue is recorded on a gross basis.
Other factors that we consider in determining whether to recognize revenue on a
gross versus net basis include our assumption of credit risk, our latitude in
establishing prices, our determination of service specifications and our
involvement in the provision of services. When we conclude that we are not
primarily obligated as a principal, we record the net amount earned as agent
fees within net sales.
 
 Technology
Business Segment
 
 Once our
thorium-based nuclear fuel designs have advanced to a commercially usable stage,
we will seek to license our technology to major government contractors or
nuclear companies, working for the U.S. and other governments. We expect that
our revenue from license fees will be recognized on a straight-line basis over
the expected period of the related license term.
 
 We
recognize revenue from our agreement with AREVA upon the completion of certain
defined contract deliverables that are accepted by AREVA.
 
 d) Stock-Based
Compensation
 
 We
account for stock-based awards at the fair value on the date of grant and
recognition of compensation over the service period for awards expected to vest.
The fair value of restricted stock and restricted stock units is determined
based on the number of shares granted and the average of the high bid and low
asked prices of the shares in the market on the trading day immediately
preceding the grant date. Such value is recognized as expense over the service
period, net of estimated forfeitures.
 
 e) Earnings per
Share
 
 Basic
earnings per share is calculated using our weighted-average outstanding common
shares. Diluted earnings per share is calculated using our weighted-average
outstanding common shares including the dilutive effect of stock awards as
determined under the treasury stock method.
 
 8
 Lightbridge
Corporation
 Notes
to Unaudited Condensed Consolidated Financial Statements
 For
the Three Months Ended March 31, 2010 and 2009
 
 f) Recent Accounting
Pronouncements
  FASB
Accounting Standards Codification (Accounting Standards Update “ASU”
2009-1). In June 2009, the FASB approved its Accounting Standards
Codification, or Codification, as the single source of authoritative United
States accounting and reporting standards applicable for all non-governmental
entities, with the exception of the SEC and its staff. The Codification is
effective for interim or annual financial periods ending after September 15,
2009 and impacts our financial statements as all future references to
authoritative accounting literature will be referenced in accordance with the
Codification. There have been no changes to the content of our financial
statements or disclosures as a result of implementing the Codification during
the quarter ended September 30, 2009. As a result of our implementation of
the Codification during the quarter ended September 30, 2009, previous
references to new accounting standards and literature are no longer
applicable.
 
 2.
FINANCIAL STATUS OF THE COMPANY
 
 We are
currently executing our strategic plan for 2010 and working on
determining our future cash needs. Management anticipates, based on its
current working capital and projected working capital requirements, that we will
have enough working capital funds to sustain our current operations at the
current operating level until sometime in 2011. In support of our
longer-term business plan, we will need to raise additional capital by way of an
offering of equity securities, an offering of debt securities, or by obtaining
financing through a bank or other entity to finance our research and development
expenditures. We may also need to raise additional capital sooner to
support our overhead operation if the consulting and strategic advisory
services business becomes non-sustaining. Currently, we are working on
other revenue opportunities with the overall goal of increasing our
profitability and cash flow. We expect to meet all of our financial
commitments and operating needs for 2010.
 
 3.  CONSULTING
REVENUES
 
 ENEC and
FANR Projects
 
 Substantially
all of our revenue earned in the amount of approximately $2.4 million and $2.9
million for the first quarter of 2010 and 2009, has been derived from the two
consulting contracts we entered into in August 2008, for consulting services to
be rendered for future periods.  The variation in revenue reflects the
uneven nature of consulting projects and the timing of revenues recognized on
the respective projects.
 
 We expect
to continue to provide strategic advisory services to the EAA of Abu Dhabi and
to both the ENEC and FANR entities during the five-year term of these consulting
agreements. Under these agreements, revenue will be recognized on a time and
expense basis. We periodically discuss our consulting work with the EAA of Abu
Dhabi, who will review the work we perform, and our reimbursable travel
expenses, prior to the date of our monthly invoicing for services and
expenses.
 
 Travel
costs and other reimbursable costs under these contracts are reported in the
accompanying statement of operations as both revenue and cost of consulting
services provided, and totaled approximately $361,000 for the three months ended
March 31, 2010 and approximately $335,000 for the three months ended
March 31, 2009. The total travel and other reimbursable expenses that have not
been reimbursed are being presented on the accompanying balance sheet and
included in total accounts receivable in the amount of approximately $385,000 at
March 31, 2010 and approximately $159,000 at December 31, 2009. The remaining
accounts receivable reported at March 31. 2010 of approximately $2,263,000
represents consulting fees billed and due for the work performed for both the
ENEC and FANR projects mentioned above. Total accounts receivable reported on
the accompanying balance sheet is approximately $2,647,000 at March 31, 2010 and
approximately $2,421,000 at December 31, 2009. At March 31, 2010 approximately
$524,000 is for March 2010 work that was billed in April 2010.
 
 9
 Lightbridge
Corporation
 Notes
to Unaudited Condensed Consolidated Financial Statements
 For
the Three Months Ended March 31, 2010 and 2009
 
 4.
BUSINESS SEGMENTS
  We have
two principal operating segments, which are (1) fuel technology (includes the
AREVA contract) and (2) consulting and strategic advisory services. These
operating segments were determined based on the nature of the operations and the
services offered. Operating segments are defined as components of an enterprise
about which separate financial information is available that is evaluated
regularly by the chief operating decision-maker, in deciding how to allocate
resources and in assessing performance. Our Chief Executive Officer
and Chief Operating Officer/Chief Financial Officer have been identified as
the chief operating decision makers. Our chief operating decision makers
direct the allocation of resources to operating segments based on the
profitability, the cash flows, and the business plans of each respective
segment.
 
 We evaluate
performance based on several factors, of which the primary financial measure is
business segment income before taxes. The following tables show the operations
of our reportable segments for the three months ended March 31, 2010 and
2009:
  BUSINESS
SEGMENT RESULTS – THREE MONTHS ENDED MARCH 31, 2010 AND 2009
  Consulting
                            
                            
                            Fuel Technology
                            
                            
                            Corporate and
                              Eliminations
                            
                            
                            Total2010
                            
                            
                            2009
                            
                            
                            2010
                            
                            
                            2009
                            
                            
                            2010
                            
                            
                            2009
                            
                            
                            2010
                            
                            
                            2009Revenue
                            
                            
                            2,294,132
                            
                            
                            
                            2,944,053
                            
                            
                            
                            105,000
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            2,399,132
                            
                            
                            
                            2,944,053Segment
      Profit (Loss) – Pre Tax
                            
                            
                            612,816
                            
                            
                            
                            1,195,535
                            
                            
                            
                            (134,449
                            )
                            
                            
                            (453,805
                            )
                            
                            
                            (2,162,125
                            )
                            
                            
                            (2,264,191
                            )
                            
                            
                            (1,683,758
                            )
                            
                            
                            (1,522,461
                            )Total
      Assets
                            
                            
                            2,650,113
                            
                            
                            
                            2,297,070
                            
                            
                            
                            224,432
                            
                            
                            
                            309,274
                            
                            
                            
                            3,553,459
                            
                            
                            
                            4,529,694
                            
                            
                            
                            6,428,004
                            
                            
                            
                            7,136,038Property
      Additions
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —Interest
      Expense
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —Depreciation
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            199
                            
                            
                            
                            —
                            
                            
                            
                            6,752
                            
                            
                            
                            6,004
                            
                            
                            
                            6,951
                            
                            
                            
                            6,004
  5.
RESEARCH AND DEVELOPMENT COSTS
 
 Research
and development costs, included in the statement of operations amounted to
approximately $205,000 and $454,000 for the three months ended March 31, 2010
and 2009, respectively. Total cumulative expense has amounted to $8.1 million
from January 8, 1992, the inception of TPI, to March 31, 2010. These totals do
not include the costs incurred on the research and development contracts with
AREVA which may result in potential intellectual property for us to use in
the future, for other than AREVA’s LWRs reactors, including but not limited to
Russian VVER-type reactors.
  10
 Lightbridge
Corporation
 Notes
to Unaudited Condensed Consolidated Financial Statements
 For
the Three Months Ended March 31, 2010 and 2009
 Research
and Development Contracts
  We entered
into a contract with AREVA on August 3, 2009, under which we
are obligated to perform certain specific research and development
activities under an Initial Collaborative Agreement. We receive fees
under the terms of this AREVA Agreement.
 
 AREVA is
obligated to pay us a total of $550,000 for services provided in phase 1,
assuming no early termination and assuming completion of the original scope of
work. AREVA will also reimburse us for any reasonable out of pocket
expenses properly incurred by us and directly attributable to the provision
of the services outlined in the AREVA Agreement.
 
 Compensation
earned and costs incurred by us for the three months ended March 31, 2010
under this contract are as follows:
 
 Fees
      & Expense Reimbursements
                      
                      $
                      105,000Costs
      incurred to date - charged to cost of consulting services
      provided
                      
                      $
                      40,282
 
 Deferred
project costs, included on the balance sheet in the caption “prepaid expenses
& other current assets”, totaled approximately $111,000 at March 31, 2010.
Deferred project costs are then recognized or amortized to an expense captioned,
“cost of consulting services provided” (on the accompanying Statement of
Operations), when the revenue is to be recognized or when the project is
completed.
 
 6.
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
  Accounts payable and accrued expenses consisted
                          of the following:
                        
                        March
      31,
                          2010
                        
                        
                        December
      31,
                          2009Trade
      Payables
                        
                        $
                        99,048
                        
                        
                        $
                        296,120Accrued
      Expenses
                        
                        
                        1,014,267
                        
                        
                        
                        928,054Accrued
      Payroll
                        
                        
                        462,403
                        
                        
                        
                        938,047$
                        1,575,718
                        
                        
                        $
                        2,162,221
 
 7.  STOCKHOLDERS'
EQUITY
 
 All
common stock shares and share prices reflected in the financial statements,
hereto, and in the discussion below reflect the effect of the 1-for-30 stock
reverse stock split on September 29, 2009.
 
 Total
common stock outstanding at March 31, 2010 and December 31, 2009 was 10,168,412.
At March 31, 2010, there were 135,318 shares reserved for future issuance and
1,899,691 stock options outstanding, all totaling 12,203,421 of total stock and
stock equivalents outstanding at March 31, 2010.
  a)
Stock-based Compensation
 
 We
have a stock-based compensation plan to reward for services rendered by
officers, directors, employees and consultants. On July 17, 2006, we
amended this stock plan. We have reserved 2,500,000 shares of common
stock of our unissued share capital for the stock plan. Other limitations
are as follows:
  (i)
              No
      more than an aggregate of 1,250,000 shares can be granted for the purchase
      of restricted common shares during the term of the stock
    plan;
 
  11
 Lightbridge
Corporation
 Notes
to Unaudited Condensed Consolidated Financial Statements
 For
the Three Months Ended March 31, 2010 and 2009
 (ii)
              The
      maximum number of shares of common stock with respect to which options may
      be granted to any one person during any fiscal year may not exceed
      266,667 shares; and
  (iii)
              The
      maximum number of restricted shares that may be granted to any one person
      during any fiscal year may not exceed 166,667 common
      shares.
 
 Total
stock options outstanding at March 31, 2010 were 1,899,691 of which 1,336,943 of
these options were vested at March 31, 2010. Stock option expense was
approximately $728,000 and approximately $1,210,000 for the three months ended
March 31, 2010 and 2009, respectively.
  Stock
option transactions to the employees, directors, advisory board members and
consultants are summarized as follows for the three months ended March 31,
2010:
 
 Stock
      Options Outstanding
                          
                          2010Beginning
      of the year
                          
                          
                          1,785,204Granted
                          
                          
                          114,487ExercisedForfeitedExpiredEnd
      of period
                          
                          
                          1,899,691Options
      exercisable
                          
                          
                          1,336,943
 
 The above
table includes options issued as of March 31, 2010 as follows:
 
 i).
              A
      total of 608,938 non-qualified 5-10 year options have been issued, and are
      outstanding, to advisory board members at exercise prices of $4.50 to
      $19.20 per share.
 
 ii).
              A
      total of 1,228,796 non-qualified 5-10 year options have been issued, and
      are outstanding, to our directors, officers and
      employees at exercise prices of $4.68 to $23.85 per share. From this
      total, 750,623 options are outstanding to the Chief Executive Officer who
      is also a director, with remaining contractual lives of 0.94– 10 years.
      All other options issued have a remaining contractual life ranging from
      0.3 years to 10 years.
 
 iii).
              A
      total of 61,957 non-qualified 5-10 year options have been issued, and are
      outstanding, to our consultants at exercise prices of $6.30 to
      $15.30 per share.
  The
following table provides certain information with respect to the
above-referenced stock options that are outstanding and exercisable at March 31,
2010:
 
 Stock Options Outstanding
                      
                      
                      Stock Options VestedExercise Prices
                      
                      Weighted
                        Average
                        Remaining
                        Contractual Life
                        - Years
                      
                      
                      Number of
                        Awards
                      
                      
                      Number of
                        Awards
                      
                      
                      Weighted
                        Average
                        Exercise Price$4.50
      - $8.70
                      
                      
                      4.58
                      
                      
                      
                      913.484
                      
                      
                      
                      417,412
                      
                      
                      $
                      6.04$9.00
      - $12.90
                      
                      
                      5.54
                      
                      
                      
                      185,674
                      
                      
                      
                      156,035
                      
                      
                      $
                      10.46$13.20-$18.90
                      
                      
                      4.49
                      
                      
                      
                      493,865
                      
                      
                      
                      456,828
                      
                      
                      $
                      13.99$19.20-$23.85
                      
                      
                      5.40
                      
                      
                      
                      306,668
                      
                      
                      
                      306,668
                      
                      
                      $
                      22.84Total
                      
                      
                      4.85
                      
                      
                      
                      1,899,691
                      
                      
                      
                      1,336,943
                      
                      
                      $
                      13.12
  12
 Lightbridge
Corporation
 Notes
to Unaudited Condensed Consolidated Financial Statements
 For
the Three Months Ended March 31, 2010 and 2009
 The
aggregate intrinsic value of stock options outstanding at March 31, 2010 was
$1,891,515 of which $887,188 related to vested awards. Intrinsic value is
calculated based on the difference between the exercise price of the underlying
awards and the quoted price of our common stock as of the reporting date ($8.15
per share as of the close on March 31, 2010).
 
 Assumptions
used in the Black Scholes option-pricing model for the three months ended March
31, 2010 and 2009 were as follows:
 
 Three months ended3/31/2010
                      
                      
                      3/31/2009Average
      risk-free interest rate
                      
                      
                      3.73%
                      
                      
                      
                      2.56%Average
      expected life
                      
                      10
                      
                      
                      10Expected
      volatility
                      
                      
                      192.16%
                      
                      
                      
                      97.62%Expected
      dividends
                      
                      
                      0
                      %
                      
                      
                      0
                      %
 
 Stock-based
compensation expense includes the expense related to (1) grants of stock
options, (2) grants of restricted stock, and (3) stock issued as consideration
for some of the services provided by our directors and strategic advisory
council members. We record these director stock-based compensation expenses and
advisory council stock-based compensation expenses in the caption with all of
our other general and administrative expenses. Grants of stock options and
restricted stock are awarded to our employees, directors, consultants and board
members, and we recognize the fair market value of these awards ratably as they
are earned. The expense related to payments in stock for services is recognized
as the services are provided.
 
 During
the three months ended March 31 2010 and 2009, approximately $859,000 and
approximately $1,273,000 respectively, was recorded as total stock-based
compensation.
 
 The
total fair market value of restricted stock awards is recorded as deferred stock
compensation (a component of equity, which is presented in the Balance Sheet),
as grants are awarded. Deferred stock compensation is amortized as stock-based
compensation expense is recognized, or grants are forfeited. On March 31, 2010
and December 31, 2009, the balance carried in the deferred stock compensation
account was approximately $721,000 and approximately $456,000 respectively.
During the three months ended March 31, 2010, we have amortized approximately
$96,000 as stock-based compensation expense. We have recorded deferred stock
compensation related to new grants of restricted stock in the amount of
approximately $361,000.
 
 b).
Warrants
 
 There are
no warrants outstanding as of March 31, 2010.
  c).
Common Stock reserved for Future Issuance
 
 Common
stock reserved for future issuance consists of
 
 Shares ofCommonStock
                  
                  
                  AmountStock-based
      compensation
                  
                  
                  135,318
                  
                  
                  $
                  1,134,264
  13




Lightbridge
Corporation
 Notes
to Unaudited Condensed Consolidated Financial Statements
 For
the Three Months Ended March 31, 2010 and 2009
  8. INCOME
TAXES
  Our tax
provision for interim periods is determined using an estimate of our annual
effective tax rate adjusted for discrete items, if any, that are taken into
account in the relevant period. Each quarter we update our estimate of the
annual effective tax rate, and if our estimated tax rate changes we make a
cumulative adjustment. The 2010 and 2009 annual effective tax rate is estimated
to be at a combined 40% for the U.S. federal and states statutory tax
rates.
  As of
March 31, 2010 and December 31, 2009, there were no tax contingencies
recorded.
  Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities recognized for financial reporting
and the amounts recognized for income tax purposes. The significant components
of deferred tax assets (at a 40% effective tax rate) as of March 31, 2010 and
December 31, 2009 respectively, are as follows:
  Deferred Tax Assets
                        
                        Total Amount
                        
                        
                        Deferred Tax Asset Amount2010
                        
                        
                        2009
                        
                        
                        2010
                        
                        
                        2009Capitalized
      start up costs
                        
                        $
                        7,125,807
                        
                        
                        $
                        7,125,807
                        
                        
                        $
                        2,850,323
                        
                        
                        $
                        2,850,323Stock-based
      compensation
                        
                        
                        18,788,883
                        
                        
                        
                        17,929,307
                        
                        
                        
                        7,515,553
                        
                        
                        
                        7,171,723Net
      operating loss carryforward
                        
                        
                        16,780,614
                        
                        
                        
                        15,956,432
                        
                        
                        
                        6,712,246
                        
                        
                        
                        6,382,573Less:
      valuation allowance
                        
                        
                        (42,695,304
                        )
                        
                        
                        (41,011,546
                        )
                        
                        
                        (17,078,122
                        )
                        
                        
                        (16,404,619
                        )$
                        -
                        
                        
                        $ _
                        
                        
                        $
                        —
                        
                        
                        $
                        —
 We have
net operating loss carryforwards for federal and state tax purposes of
approximately $17 million that is available to offset future taxable income. For
financial reporting purposes, no deferred tax asset was recognized because
management’s expectation is that it is more likely than not that substantially
all of the net operating losses at December 31, 2009 are expected to expire
unused. As a result, the amount of the deferred tax assets considered realizable
was reduced 100% by a valuation allowance. We have no other deferred tax assets
or liabilities. The change in the valuation allowance was approximately $674,000
and $509,000 for the three months ended March 31, 2010 and 2009, respectively.
Many of our operating expenses in the 2007 and 2006 tax years were classified
under the internal revenue code as capitalized start-up costs which were not
deductible for tax purposes in those tax years, but are now amortized as
start-up costs in 2010 and 2009.
  We filed
a consolidated tax return with our subsidiaries.
  In 2009,
we prepaid federal and state income taxes in the amount of $266,000 for
estimates for 2008 corporate taxes. We received this amount back from the
Internal Revenue Service and State taxing authorities in the fourth quarter of
2009.
  9.
RESEARCH AGREEMENT
  Effective
on August 21, 2009, TPI entered into an agreement for ampoule irradiation
testing, or the AIT Agreement, with Kurchatov Institute. Under the AIT
Agreement, TPI agreed to compensate Kurchatov for irradiation testing of TPI’s
proprietary nuclear fuel designs conducted in 2008 and part of 2009. Pursuant to
the AIT Agreement, TPI is obligated to pay to Kurchatov a total of $400,000, and
Kurchatov is obligated to transfer to TPI the worldwide rights in all of the
test data generated in the course of the irradiation testing of TPI’s
proprietary nuclear fuel designs in 2008 and part of 2009, and Kurchatov agrees
not to use, in any manner, the work product associated with such testing or
exercise any rights associated therewith without the written consent of TPI.
Further, Kurchatov is obligated to provide to TPI and its affiliates specified
information and documentation for audit purposes and to obtain any and all
permits from Russian governmental entities which may be required in order for
Kurchatov to perform under the AIT Agreement. To-date, a total of $35,000 has
already been paid to Kurchatov under the AIT Agreement.
  14
 Lightbridge
Corporation
 Notes
to Unaudited Condensed Consolidated Financial Statements
 For
the Three Months Ended March 31, 2010 and 2009
 In
October 2009 we entered into an umbrella agreement, or the SOSNY Agreement, with
Russian Limited Liability Research and Development Company, or SOSNY. SOSNY will
serve as our prime contractor in Russia to manage the research and development
activities related to the lead test assembly, or LTA, program for Russian
designed VVER-1000 reactors. SOSNY is a leading Russian commercial nuclear
entity specializing in front-end and back-end nuclear fuel cycle management and
logistics services. Specific work will be carried out under individual task
orders to be issued under the SOSNY Agreement. The scope, deliverables, and
costs are to be agreed between the parties for each individual task order. As of
the date hereof, no task orders have been issued.
  In
addition to the above agreements, there are consulting agreements with several
consultants working on various projects for the Company, which total
approximately $5,000 per month.
  10.
COMMITMENTS AND CONTINGENCIES
  We have
employment agreements with our executive officers and some consultants, the
terms of which expire at various times. Such agreements provide for minimum
compensation levels, as well as incentive bonuses that are payable if specified
management goals are attained. Under each of the agreements, in the event the
officer's employment is terminated (other than voluntarily by the officer or by
us for cause, or upon the death of the officer), we, if all provisions of the
employment agreements are met, are committed to pay certain benefits, including
specified monthly severance.
  We
entered into an agreement to lease new office space under the terms of a
sublease with a term of 65 months commencing August 1, 2008. Under the terms of
the sublease, the lease payments are inclusive of pass-through costs, which
include real estate taxes and standard operating expenses. We paid the security
deposit related to this sublease agreement in the amount of $120,486. We pay
monthly rental fees in the amount of $40,162 in the first year of the sublease
agreement, and payments increase by a factor of 4% each year thereafter in
addition to increases in the pass-through of costs. We may terminate this
agreement by providing 60 days notice to the sublessor. The monthly
straight-line rental expense from August 1, 2008 to December 1, 2013 is $45,189.
As a result of the straight-line rent calculation generated by the one free rent
period and rent escalation, we have a deferred rent credit of $49,360 at March
31, 2010 and $55,807 at December 31, 2009.
  Future
estimated rental payments under our operating leases are as
follows:
 
 TotalYear
      ending - December 31, 2010
                          
                          
                          536,467Year
      ending - December 31, 2011
                          
                          
                          564,109Year
      ending - December 31, 2012
                          
                          
                          586,136Year
      ending - December 31, 2013
                          
                          
                          609,016Total
      minimum lease payments
                          
                          $
                          2,857,368
  15
 Lightbridge
Corporation
 Notes
to Unaudited Condensed Consolidated Financial Statements
 For
the Three Months Ended March 31, 2010 and 2009
  11.
SUBSEQUENT EVENTS
  Subsequent
Events (Included in ASC 855 “Subsequent Events”, previously SFAS No. 165). SFAS
No.165, “Subsequent Events” establishes accounting and disclosure requirements
for subsequent events. SFAS 165 details the period after the balance sheet date
during which we should evaluate events or transactions that occur for potential
recognition or disclosure in the financial statements, the circumstances under
which we should recognize events or transactions occurring after the balance
sheet date in its financial statements and the required disclosures for such
events. We adopted this statement effective June 15, 2009 and have evaluated all
subsequent events through the filing date with the SEC.
  16
  FORWARD-LOOKING
STATEMENTS
 
 This
Quarterly Report on Form 10-Q contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
“Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). The words “believe,” “expect,” “anticipate,”
“project,” “target,” “optimistic,” “intend,” “aim,” “will” or similar
expressions are intended to identify forward-looking statements. Such statements
include, among others, those concerning our expected financial performance and
strategic and operational plans, as well as all assumptions, expectations,
predictions, intentions or beliefs about future events. These statements are
based on the beliefs of our management as well as assumptions made by and
information currently available to us and reflect our current view concerning
future events. As such, they are subject to risks and uncertainties that could
cause our results to differ materially from those expressed or implied by such
forward-looking statements. Such risks and uncertainties include, among many
others: our significant operating losses; our limited operating history;
uncertainty of capital resources; the speculative nature of our business; our
ability to successfully implement new strategies; present and possible future
governmental regulations; operating hazards; competition; the loss of key
personnel; any of the factors in the “Risk Factors” section of the Company’s
Annual Report on Form 10-K; other risks identified in this Report; and any
statements of assumptions underlying any of the foregoing. You should also
carefully review other reports that we file with the SEC. The Company assumes no
obligation and does not intend to update these forward-looking statements,
except as required by law.
 
 All
statements other than statements of historical fact are statements that could be
deemed forward-looking statements. The Company assumes no obligation and does
not intend to update these forward-looking statements, except as required by
law. When used in this report, the terms “Lightbridge”, “Company”, “we”, “our”,
and “us” refer to Lightbridge Corporation (a Nevada corporation) and its
wholly-owned subsidiaries Thorium Power, Inc. (a Delaware corporation) and
Lightbridge International Holding, LLC (a Delaware limited liability
company).
 
 ITEM
      2.
              MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
 
 General
Overview
 
 We are a
provider of nuclear energy consulting and strategic advisory services and a
developer of proprietary nuclear fuel designs, each of which will be described
in the following sections.
 
 Consulting
and Strategic Advisory Services Business Segment
 
 Substantially
all of our revenues are derived from this business segment, which provides
nuclear consulting services to entities within the United Arab Emirates (“UAE”),
as described in Item 1 of Part 1, “Financial Statements – Note 3 – Consulting
Revenues.” Going forward, we may enter into additional consulting contracts to
provide support and assistance to other commercial and governmental entities
that are looking to develop and expand their nuclear power industry capabilities
and infrastructure. In future consulting engagements, we expect that revenues
may be derived either from fixed professional fee agreements or from fees
generated through hourly rates, billed on a time and expense basis.
 
 Our most
significant expense related to our consulting and strategic advisory services
business segment is the cost of consulting services provided, which relates to
costs associated with generating consulting revenues, and includes employee
payroll expenses and benefits, contractor compensation, vendor compensation,
marketing expenses, direct costs of training and recruiting the consulting staff
and other costs. As revenues are generated from services performed by our
permanent staff and contractors, our success depends on attracting, retaining
and motivating talented, creative and experienced professionals at all levels in
our business.
  17





Technology Business
Segment





To date,
our operations have been devoted primarily to the development and demonstration
of our nuclear fuel designs, developing strategic relationships within and
outside of the nuclear power industry, securing political and financial support
from the U.S. and Russian governments, and the filing of patent applications
(including related administrative functions).





On August
3, 2009, we entered into two agreements with AREVA regarding our fuel
technology business.  The first was an Agreement for Consulting
Services, or Consulting Agreement, pursuant to which we will conduct the
first phase of an investigation of specific topics of thorium fuel cycles in
AREVA’s light water reactors, or LWRs. This first phase will focus on providing
initial general results relating to evolutionary approaches to the use of
thorium in AREVA’s LWRs, specifically within AREVA’s Evolutionary Power Reactor.
We will receive total fees of $550,000 for services provided pursuant to
the Consulting Agreement. The anticipated second phase and further phases
of the collaboration, including a detailed study of evolutionary and longer-term
thorium fuel concepts, will be conducted in accordance with additional
collaborative agreements based upon the results of the first phase. The second
agreement we signed with AREVA was a five-year Collaborative Framework
Agreement, pursuant to which we will establish a joint steering committee
with AREVA, which will be responsible for reviewing project proposals, will be
empowered to make scientific and/or technical decisions and will allocate the
resources required to implement future collaborative projects between us and
AREVA.




To date,
we have only had minimal direct revenues from our research and development
activities regarding our proprietary nuclear fuel technology, and we do not
expect to generate licensing revenues from this business for several years,
until our fuel designs can be fully tested and demonstrated and we obtain the
proper approvals to use our thorium-based nuclear fuel designs in nuclear
reactors. We believe we can leverage our general nuclear technology, business
and regulatory expertise as well as industry relationships, to optimize our
technology development plans and to support our consulting and strategic
advisory services with the highest levels of expertise and experience in the
nuclear power industry. Additionally, our knowledge of and credibility in
addressing proliferation related issues that we have developed over many years,
benefit our consulting and strategic advisory services business. Our advisory
services include a focus on non-proliferation, safety and operational
transparency of nuclear power programs.





Material
Opportunities and Challenges





Consulting and Strategic Advisory
Services





Our
emergence in the field of nuclear energy consulting is in direct response to the
need for independent assessments and highly qualified and integrated strategic
advisory services for countries looking to establish nuclear energy programs,
while still providing a blueprint for safe, clean, efficient and cost-effective
non-proliferative nuclear power. We offer full-scope planning and strategic
advisory services for new and existing markets and offer such services without a
bias towards or against any reactor vendor or fuel technology. We believe that
there are significant opportunities available to provide services to governments
that are dedicated to non-proliferative, safe, and transparent nuclear
programs.





Our major
challenge in pursuing our business is that the decision making process for
nuclear power programs typically involves careful consideration by many parties
and therefore requires significant time. Also, many of the potential clients
that could benefit from our services are in regions of the world where tensions
surrounding nuclear energy are high, or in countries where public opinion plays
an important role. Domestic and international political pressure may hinder our
efforts to provide nuclear energy services, regardless of our focus on
non-proliferative nuclear power.




18


Proprietary Nuclear Fuel Technology
Development





We
believe that a major opportunity for us is the possibility that our
thorium-based fuel designs, which are currently in the research and development
stage, will be used in the manufacturing of nuclear fuel utilized in many
existing light water nuclear reactors in the future. Light water reactors are
the dominant reactor types currently in use in the world, and fuels for such
reactors constitute the majority of the commercial market for nuclear fuel.
Currently, we have three types, or variants, of thorium-based fuel designs in
various stages of development. The first is designed to provide reactor
owner/operators with an economically viable alternative fuel that will not
generate weapons-usable plutonium in the spent fuel. The second is designed to
dispose of reactor-grade plutonium that has been extracted from spent fuel from
commercial reactors and stockpiled in Russia, Western Europe, the U.S., Japan,
and other countries. The third is designed to dispose of weapons-grade plutonium
that is stockpiled in Russia and the United States. All three of these fuel
variants are expected to have additional benefits, including reduced volume and
reduced long-term radio-toxicity of spent fuel for the same amount of
electricity generated, as compared with the uranium fuels that are currently
used in light water reactors.  Presently, our focus is on the first
design.




From our
U.S. and Moscow offices, we are working with Russian nuclear research institutes
and Russian nuclear regulatory authorities, to have one or more of the fuel
designs demonstrated in a Russian VVER-1000 reactor within the next three years,
if we are able to obtain necessary support and enter into agreements with the
Russian government and Russian research institutes. We believe that it will be
necessary to enter into commercial arrangements with one or more major nuclear
fuel fabricators, which in many cases are also nuclear fuel vendors, as a
prerequisite to having our fuel designs widely deployed in global
markets.





Our
nuclear fuel designs have never been demonstrated in a full-size commercial
reactor. Our planned demonstration of the fuels in a VVER-1000 reactor in Russia
would provide operating experience that is critical to reactor owners and
regulatory authorities. We believe that once the fuels have been demonstrated in
the VVER-1000 reactor, this can help convince other light water reactor
operators around the world to accept our thorium-based fuel
designs.





We have
also been conducting research and development related to a variant of these
nuclear fuel designs for use in existing and future western pressurized water
reactors.





We
believe that our greatest challenge will be acceptance of these fuel designs by
nuclear power plant operators, which have in the past been hesitant to be the
first to use a new type of nuclear fuel. In addition, our fuel designs would
require regulatory approval by relevant nuclear regulatory authorities, such as
the Nuclear Regulatory Commission in the United States or its equivalent
agencies in other countries, before they can be used in commercial reactors. The
regulatory review process, which is outside of our control, may take longer than
expected and may delay a rollout of the fuel designs into the market. We believe
that demonstration of one of the Company’s fuel designs in a commercial nuclear
reactor would make deployment of the other designs easier, due to the many
similarities that exist among our fuel designs.





We have
been building relationships with companies and organizations in the nuclear
power industry for several years. We will attempt to cause some or all of these
companies and organizations to work in a consortium or a joint venture type
arrangement with us in the future. However, we may not be able to develop any
such consortium or arrangement in the near term or at all. The companies that we
have identified for potential relationships have existing contracts with nuclear
power plant owner/operators, under which they supply nuclear fuel branded with
their name to such nuclear power plants. We will attempt to cause these nuclear
fuel vending companies to provide their nuclear power plant operating customers
with fuels that are designed with our technology. To do so, we will need to
enter into agreements with one or more of these companies. Without such
arrangements it would be more difficult for us to license our fuel designs
because, in addition to the reputations, guarantees, services, and other
benefits that these nuclear fuel vendors provide when selling fuel to nuclear
power plant operators, they also often have multi-year fuel supply contracts
with the reactor operators. These multi-year fuel supply contracts act as a
barrier to entry into the market, such that it can be very difficult to
penetrate some markets for nuclear fuel without working with a nuclear fuel
vendor that can support long term contracts. If we are successful in
demonstrating our fuel designs in Russia and in continuing to build
relationships with nuclear fuel vendors, we believe it may lead to one or more
of these major companies in the nuclear power industry working with us in
producing and selling our nuclear fuel designs to commercial reactor operators
and governments.




19




Business Segments and Periods
Presented




We have
provided a discussion of our results of operations on a consolidated basis and
have also provided certain detailed segment information for each of our business
segments below for the three months ended March 31, 2010 and 2009, in order to
provide a meaningful discussion of our business segments. We have organized our
operations into two principal segments: Consulting and Strategic Advisory
Services and Fuel Technology. We present our segment information along the same
lines that our chief executives review our operating results in assessing
performance and allocating resources.




BUSINESS
SEGMENT RESULTS – THREE MONTHS ENDED MARCH 31, 2010 AND 2009




Consulting
                  
                  
                  Fuel Technology
                  
                  
                  Corporate and
                    Eliminations
                  
                  
                  Total2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009Revenue
                  
                  
                  2,294,132
                  
                  
                  
                  2,944,053
                  
                  
                  
                  105,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,399,132
                  
                  
                  
                  2,944,053Segment
      Profit (Loss) – Pre Tax
                  
                  
                  612,816
                  
                  
                  
                  1,195,535
                  
                  
                  
                  (134,449
                  )
                  
                  
                  (453,805
                  )
                  
                  
                  (2,162,125
                  )
                  
                  
                  (2,264,191
                  )
                  
                  
                  (1,683,758
                  )
                  
                  
                  (1,522,461
                  )Total
      Assets
                  
                  
                  2,650,113
                  
                  
                  
                  2,297,070
                  
                  
                  
                  224,432
                  
                  
                  
                  309,274
                  
                  
                  
                  3,553,459
                  
                  
                  
                  4,529,694
                  
                  
                  
                  6,428,004
                  
                  
                  
                  7,136,038Property
      Additions
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Interest
      Expense
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Depreciation
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  201
                  
                  
                  
                  -
                  
                  
                  
                  6,750
                  
                  
                  
                  6,004
                  
                  
                  
                  6,951
                  
                  
                  
                  6,004




Consulting and Strategic Advisory
Services Business





At the
present time, substantially all of our revenue for the three months ended March
31, 2010, is derived from our consulting and strategic advisory services
business segment by offering services to governments outside the U.S. planning
to create or expand electricity generation capabilities using nuclear power
plants benefiting from thorium-based or other nuclear fuels. The fee type and
structure that we offer for each client engagement is dependent on a number of
variables, including the complexity, the level of the opportunity for us to
improve the client’s electricity generation capabilities using nuclear power
plants, and other factors. Substantially all of the Company’s revenues totaling
approximately $2.4 million for the three months ended March 31,
2010,  have been derived from our continuing work under the August 1,
2008 agreements and follow-on agreements in 2009, with the Executive Affairs
Authority (“EAA”) of Abu Dhabi, and with the related entities, the Emirates
Nuclear Energy Corporation (“ENEC”) and the Federal Authority for Nuclear
Regulation (“FANR”) as described in Item 1, Part 1, “Financial Statements – Note
1 - Nature of Operations and Basis of Presentation.” We entered into next phase
follow-on agreements in March 2009 and July 2009 to continue our consulting
services under the ENEC and FANR agreements for 2009.  Revenue was
recognized on a time and expense basis for the three months ended March 31, 2010
and 2009.




20


The cost
of consulting services provided was approximately $1.5 million and $1.7 million
for the three months ended March 31, 2010 and 2009, respectively. These amounts
consisted primarily of direct labor consulting expenses and other labor support
costs incurred, as mentioned in the general overview section above. Some
indirect corporate overhead expenses incurred were allocated to the consulting
and strategic advisory services business segment, and are included above in the
business segment information chart as part of Segment Profit (Loss) – Pre
Tax.





Technology
Business





On August
3, 2009, we entered into a consulting agreement with AREVA for $550,000 as
discussed above. For the three months ended March 31, 2010, our total revenue
from AREVA was approximately $105,000 and since the inception of the agreement,
our total revenue has been approximately $364,000.  We are under
contract to complete six tasks under Phase 1 of the consulting
agreement.  We are executing work on the remaining tasks as
planned.





Over the
next 12 to 15 months we expect to incur up to $5 – $6 million in
research and development expenses related to the development of our proprietary
nuclear fuel designs. We expect to incur these expenses after we have entered
into formal agreements with Russian nuclear entities that will grant us
licensing and other rights to use such technologies or intellectual property
that would be developed by the Russian entities. Any such agreement may require
formal review and approval by the Russian State Atomic Energy Corporation
(RosAtom). We spent approximately $0.2 million for research and development
during the three months ended March 31, 2010, and a cumulative amount from the
date of our inception (January 8, 1992, date of inception of Thorium Power Inc.)
to March 31, 2010, of approximately $8.1 million. As of May 1, 2008, we
established an office in Moscow and leased office space to support research and
development activities in Russia, and, in July 2009, we hired several employees
(former consultants) to work on our research and development projects in
Russia.





Over the
next several years, we expect that our research and development activities will
increase and will be primarily focused on testing and demonstration of our fuel
technology for VVER-1000 reactors. The main objective of this research and
development phase is to prepare for full-scale demonstration of our nuclear fuel
technology in an operating commercial VVER-1000 reactor in Russia. Key research
and development activities will include: (1) Scaling up the fuel fabrication
process to full length (10 feet) rods used in commercial VVER-1000 reactors, (2)
Validating thermal hydraulic performance of the full size (10 feet) seed and
blanket fuel assembly, (3) Performing post-irradiation examination of fuel
samples that have been irradiated in ampoules in the IR-8 research reactor and
conducting loop irradiation testing, and (4) Obtaining final regulatory
approvals for insertion of fuel in VVER-1000 commercial reactors. As this
research and development program relates to commercial applications of our fuel
technology, and retaining ownership or control over as much key intellectual
property as we possibly can is critical to the long-term success of our
licensing business model, our plan is to fully fund these research and
development activities ourselves. At the same time, we do not currently plan to
fund further development, testing and demonstration of our thorium/weapons-grade
plutonium disposing fuel, which can only be used in the U.S.-Russia
government-to-government weapons-grade plutonium disposition program and has no
commercial applications. Hence, funding for any future research and development
activities on this fuel design would have to be provided by the U.S. government
or other stakeholders.




21


Financial
Status





At March
31, 2010, our total assets were approximately $6.4 million and total liabilities
were approximately $1.6 million. From the results of operations including our
consulting business segment, our working capital surplus at December 31, 2009
was approximately $4.5 million, and as of March 31, 2010, our working capital
surplus was approximately $4.4 million. Accounts payable and accrued liabilities
balance as of March 31, 2010 equaled approximately $1.6 million, a decrease of
approximately $0.6 million from the total accounts payable and accrued expenses
reported at December 31, 2009.





Management
expects that our current cash position, as well as the revenue and profits that
are expected to be earned from our follow-on agreements from the two consulting
agreements entered into in August 2008, and the AREVA agreement, will meet our
foreseeable working capital needs for our current operations until sometime in
2011. We anticipate
entering into other consulting and technology agreements with our existing and
new clients that may generate additional revenues in 2010 and
beyond.In support of our longer-term business plan for our
technology business segment, we will need to raise additional capital in the
near term by way of an offering of equity securities, an offering of debt
securities, or by obtaining financing through a bank or other entity to finance
our future overhead and research and development expenditures. We will also need
to raise capital to support our technology business if the consulting and
strategic advisory services business becomes non-sustaining. Our current average
monthly projected working capital requirements for the Company, excluding the
$5 – $6 million of research and development expenses we expect to
incur in Russia over the next 12 to 15 months, is approximately $1
million per month. A financing will need to take place sometime in 2010 to
ensure that we have the necessary working capital to continue our planned
business operations through 2010 and beyond. It is important to note that
financing may not be available or we may not be able to obtain that financing on
terms acceptable to us. If additional funds are raised through the issuance of
equity securities, there may be a significant dilution in the value of our
outstanding common stock. To support this financing activity, we are exploring
transaction opportunities that could simultaneously create strategic industry
and market alliances for the Company to support our operations in 2010 and
beyond.





Recent
Events





None.





Consolidated
Results of Operations





Comparison
of the Three Months Ended March 31, 2010 to March 31, 2009





The
following table summarizes certain aspects of the Company’s consolidated results
of operations for the three months ended March 31, 2010 compared to the three
months ended March 31, 2009.


22




Three
      Months Ended31-Mar
                      
                      
                      (Decrease)
                      
                      
                      (Decrease)2010
                      
                      
                      2009
                      
                      
                      Change $
                      
                      
                      Change %Consulting
      Revenues
                      
                      $
                      2,399,132
                      
                      
                      
                      2,944,053
                      
                      
                      $
                      (544,921
                      )%
                      
                      
                      -19
                      %Cost
      of services providedConsulting
      expenses
                      
                      $
                      1,505,490
                      
                      
                      
                      1,748,518
                      
                      
                      $
                      (243,028
                      )%
                      
                      
                      -14
                      %%
      of total revenues
                      
                      
                      63
                      %
                      
                      
                      59
                      %Gross
      profit
                      
                      $
                      893,642
                      
                      
                      $
                      1,195,535
                      
                      
                      $
                      (301,893
                      )%
                      
                      
                      -25
                      %%
      of total revenues
                      
                      
                      37
                      %
                      
                      
                      41
                      %Operating
      ExpensesGeneral
      and administrative
                      
                      $
                      2,372,263
                      
                      
                      $
                      2,262,681
                      
                      
                      $
                      109,582
                      %
                      
                      
                      5
                      %%
      of total revenues
                      
                      
                      99
                      %
                      
                      
                      77
                      %Research
      and development expenses
                      
                      $
                      204,743
                      
                      
                      $
                      453,805
                      
                      
                      $
                      (249,062
                      )%
                      
                      
                      -55
                      %%
      of total revenues
                      
                      
                      9
                      %
                      
                      
                      15
                      %Total
      Operating Loss
                      
                      $
                      (1,683,364
                      )
                      
                      $
                      (1,520,951
                      )
                      
                      $
                      162,413
                      %
                      
                      
                      11
                      %%
      of total revenues
                      
                      
                      -70
                      %
                      
                      
                      -52
                      %Other
      Income and (Expenses)Interest
      income/expense, other
                      
                      $
                      (394
                      )
                      
                      $
                      (1,510
                      )
                      
                      $
                      (1,116
                      )%
                      
                      
                      74
                      %%
      of total revenues
                      
                      
                      0
                      %
                      
                      
                      0
                      %Net
      loss - before income taxes
                      
                      $
                      (1,683,758
                      )
                      
                      $
                      (1,522,461
                      )
                      
                      $
                      161,297
                      %
                      
                      
                      11
                      %%
      of total revenues
                      
                      
                      -70
                      %
                      
                      
                      -52
                      %





Revenues





We entered into next phase
follow-on agreements in March 2009 and July 2009 to continue our consulting
services under the ENEC and FANR agreements.Revenue earned under both of
these agreements for the three months ended March 31, 2010 and 2009 and under
the August 1, 2008 agreements with ENEC and FANR were recognized on a time and
expense basis.





The
$2.4 million
of revenue for the three months ended March 31, 2010 was generated primarily
from our consulting and strategic advisory services business segment. The 19
percent decrease in revenue for the three months ended March 31, 2010 compared
to the same period in 2009 was primarily due to the uneven nature of our
consulting projects with ENEC and FANR which are being performed pursuant to
ongoing requests to work on specific projects on a time and expense basis as
needed. Notwithstanding the normal variations in billable hours worked under
these contracts, in the third quarter of 2009 we re-negotiated some of our
billing rates to further enhance and maintain the competitiveness of our
advisory services which also resulted in a reduction of our revenue for the
three months ended March 31, 2010 compared to the same three month period in
2009. The future revenue to be earned and recognized under both the ENEC and
FANR agreements will depend upon agreed upon work plans which can differ from
the revenue amounts initially planned to be earned under these
agreements





For the three months ended
March 31, 2010, we earned approximately $105,000of fees from our new
consulting agreement with AREVA mentioned above.We will
receive total fees of $550,000 for services provided pursuant to
the Consulting Agreement. The anticipated second phase and further phases
of the collaboration, including a detailed study of evolutionary and longer-term
thorium fuel concepts, will be conducted in accordance with additional
collaborative agreements based upon the results of the first phase.




23


Cost of Services
Provided





The
decrease in the cost of services for the three months ended March 31, 2010
compared with the same period in 2009 is due to the decrease in billable hours
for the ENEC and FANR projects. These expenses related to the consulting,
professional, administrative and other costs allocated to the consulting
projects, which were incurred to perform and support the work done for our
consulting projects with ENEC and FANR. The billing rates to us from our
consultants who provide services under our consulting contracts have primarily
remained unchanged in 2010 and 2009.





Gross
Profit





Gross
profit margin of 37% for the three
months ended March 31, 2010 is lower compared to the same period in 2009. Our
gross margins from our advisory contracts with ENEC and FANR decreased due to
the reduction that occurred in the third quarter of 2009 in some of our hourly
consultants billing rates to the ENEC and FANR.





General and Administrative
Expenses





There was
a 5 %increase in the general and administrative expenses for the three months
ended March 31, 2010, as compared to the same period in 2009. This increase was
primarily due to an increase in (1) employee wages and payroll related benefits
of approximately $118,000, (2) costs for accounting and audit fees of
approximately $39,000, incurred to strengthen our internal controls and for
Sarbanes Oxley compliance, (3) cost of our Nasdaq listing dues of $33,000, (4)
insurance costs of approximately $33,000, (5) consulting and other professional
fees of approximately $70,000 and (6) other general overhead costs of
approximately $184,000. The increases in these above expenses were partially
offset by a decrease in stock-based compensation of approximately $367,000.
The decrease in
stock-based compensation for the three months ended March 31, 2010 as compared
to the same period in 2009, is due to certain long-term incentive stock options
and stock that were granted in prior years under our stock plan to executives,
directors, advisors and employees, which became fully vested in 2009. In the
future, stock-based compensation may be offered to attract new employees in
2010, due to our expansion to meet the demands of contracts with our current
customers, and anticipated future business with new customers.We expect
our general and administrative expenses may increase in future periods due to
the expansion of our consulting and strategic advisory services business segment
and the hiring of new officers, employees and consultants to help further
develop and support our consulting and strategic advisory services and
technology business segments.





Research and Development
Costs





The
decrease in research and development costs for the three months ended March 31,
2010 compared to the same period in 2009 is due to a temporary decrease in this
quarter in our research and development activities in Russia. We expect that our
research and development expenses will increase in the future
periods.   Over the next 12 to 15
months we expect to incur approximately up to $5 – $6 million in
research and development expenses related to the development of our proprietary
nuclear fuel designs.





Other Income and
Expense





The
decrease in other income and expense for the three months ended March 31, 2010
compared to the same period in 2009 is due to the decrease in interest income
earned on our idle cash.





Liquidity
and Capital Resources





As of
March 31, 2010, we had a total of cash and cash equivalents of $2 million. The
following table provides detailed information about our net cash flow for all
financial statements periods presented in this report.


24





Cash
      FlowThree
      Months EndedMarch
      31,2010
                  
                  
                  2009Net
      cash provided by (used in) operating activities
                  
                  $
                  (1,028,657
                  )
                  
                  $
                  (1,188,481
                  )Net
      cash used in investing activities
                  
                  $
                  0
                  
                  
                  $
                  (16,402
                  )Net
      cash provided by (used in) financing activities
                  
                  $
                  0
                  
                  
                  $
                  0Net
      cash inflow (outflow)
                  
                  $
                  (1,028,657
                  )
                  
                  $
                  (1,204,883
                  )




Operating
Activities




Net cash
used in our operating activities decreased by approximately $160,000 for the
three months ended March 31, 2010 as compared to the same period in
2009.  This decrease in funds used by our operating activities was
primarily due to an increase in our operating loss, which was due to a decrease
in our revenue for the three months ended March 31, 2010, and a decrease in the
payment of accounts payable and accrued liabilities. This decrease in funds used
in our operating activities was partially offset by a decrease in the
collections of our accounts receivable in 2010, in payment for our work in 2009
and 2010. The other changes to the operating activities cash flows are mentioned
above in the Consolidated Results of Operations section of this management
discussion and analysis, regarding our operating expenses.




Investing
Activities




Net cash
used in our investing activities for the three months ended March 31, 2010 as
compared to the same period in 2009, decreased by approximately $16,000, which
was due to the decrease in patent costs in 2010 for the filing of patent
applications. These patent applications are filed for the new developments
resulting from our research and development activities in our fuel technology
business segment. We anticipate these patent costs to increase in the future
periods.




Financing
Activities




There was
no net cash provided by or used in our financing activities for the three months
ended March 31, 2010 and 2009.




Management
expects that the proceeds from our consulting agreements in 2010, as well as the
expected proceeds that we will earn under the two consulting agreements entered
into in August 2008 and the follow-on agreements with ENEC and FANR, and the
AREVA agreement, will meet our foreseeable working capital needs for our current
operations until sometime in 2011. However, we will need to raise additional
capital in the near term by way of an offering of equity securities, an offering
of debt securities, or by obtaining financing through a bank or other entity to
support our longer term business plan. We will also need to raise capital in the
near term to support our overhead operation if the consulting and strategic
advisory services business becomes non-sustaining. If we need to obtain
additional financing, that financing may not be available or we may not be able
to obtain that financing on terms acceptable to us. If additional funds are
raised through the issuance of equity securities, there may be a significant
dilution in the value of our outstanding common stock.





Off Balance Sheet
Arrangements




We do not
have any off balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity or capital
expenditures or capital resources that is material to an investor in our
securities.




25


Seasonality




Our
business has not been subject to any material seasonal variations in operations,
although this may change in the future.




Inflation





Our
business, revenues and operating results have not been affected in any material
way by inflation.





Critical
Accounting Policies and Estimates




The SEC
issued Financial Reporting Release No. 60, “Cautionary Advice Regarding
Disclosure About Critical Accounting Policies” suggesting that companies provide
additional disclosure and commentary on their most critical accounting policies.
In Financial Reporting Release No. 60, the SEC has defined the most critical
accounting policies as the ones that are most important to the portrayal of a
company’s financial condition and operating results, and require management to
make its most difficult and subjective judgments, often as a result of the need
to make estimates of matters that are inherently uncertain. Based on this
definition, we have identified the following significant policies as critical to
the understanding of our financial statements.




The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make a variety of estimates and
assumptions that affect (i) the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements and (ii) the reported amounts of revenues and expenses during the
reporting periods covered by the financial statements.




Our
management expects to make judgments and estimates about the effect of matters
that are inherently uncertain. As the number of variables and assumptions
affecting the future resolution of the uncertainties increase, these judgments
become even more subjective and complex. Although we believe that our estimates
and assumptions are reasonable, actual results may differ significantly from
these estimates. Changes in estimates and assumptions based upon actual results
may have a material impact on our results of operation and/or financial
condition. We have identified certain accounting policies that we believe are
most important to the portrayal of our current financial condition and results
of operations. Our significant accounting policies are disclosed in Note 2 to
the Consolidated Financial Statements included in the Annual Report on Form 10-K
filed with the Commission on March 16, 2010





Accounting for Stock Based
Compensation, Stock Options and Warrants Granted to Employees and
Non-employees




We
adopted the FASB requirements for stock-based compensation, where all forms of
share-based payments to employees, including employee stock options and employee
stock purchase plans, are treated the same as any other form of compensation by
recognizing the related cost in the statement of income.





Under
these requirements, stock-based compensation expense is measured at the grant
date based on the fair value of the award, and the expense is recognized ratably
over the award’s vesting period. For all grants made, we recognize compensation
cost under the straight-line method.





We
measure the fair value of stock options on the date of grant using a
Black-Scholes option-pricing model which requires the use of several estimates,
including:


26





•
            the
      volatility of our stock price;


•
            the
      expected life of the option;


•
            risk
      free interest rates; and


•
            expected
      dividend yield.




Prior to
the completion of our merger in October 2006, we had limited historical
information on the price of our stock as well as employees' stock option
exercise behavior for stock options issued prior to the merger. As a result, we
could not rely on historical experience alone to develop assumptions for stock
price volatility and the expected life of options. As such, our stock price
volatility was estimated with reference to our historical stock price for the
time period before the merger, from the date the announcement of the merger was
made. We utilized the closing prices of our publicly-traded stock from the
announcement date in January 2006 to determine our volatility and will continue
to use our historical stock price closing prices to determine our
volatility.




The
expected life of options is based on internal studies of historical experience
and projected exercise behavior. We estimate expected forfeitures of stock-based
awards at the grant date and recognize compensation cost only for those awards
expected to vest. The forfeiture assumption is ultimately adjusted to the actual
forfeiture rate. Estimated forfeitures are reassessed in subsequent periods and
may change based on new facts and circumstances. We utilize a risk-free interest
rate, which is based on the yield of U.S. treasury securities with a maturity
equal to the expected life of the options. We have not and do not expect to pay
dividends on our common shares in the near term.





The
options were valued using the Black-Scholes option pricing model. The
assumptions used were as follows: volatility of 98% to 284%, a risk-free
interest rate of 2.56% to 5.24%, dividend yield of 0% and an exercise term of
two to ten years.





Income
Taxes





We
account for income taxes using the liability method in accordance with ASC 740,
Accounting for Income Taxes, which requires the recognition of deferred tax
assets or liabilities for the tax-effected temporary differences between the
financial reporting and tax bases of our assets and liabilities and for net
operating loss and tax credit carry forwards. The tax expense or benefit for
unusual items, prior year tax exposure items or certain adjustments to valuation
allowances are treated as discrete items in the interim period in which the
events occur.





On
January 1, 2007, we adopted ASC 740 for Accounting for Uncertainty in Income
Taxes. ASC 740 addresses the determination of whether tax benefits claimed or
expected to be claimed on a tax return should be recorded in the financial
statements. Under ASC 740, we may recognize the tax benefit from an uncertain
tax position only if it is more likely than not that the tax position will be
sustained on examination by the taxing authorities, based on the technical
merits of the position. As a result of the implementation ASC 740, we did not
recognize any current tax liability for unrecognized tax benefits. We have a net
operating loss carry-forward of approximately $17 million against which we have
taken a 100% valuation allowance, as of the date of these financial
statements.





Contingent
Liabilities





Liabilities
for accrued expenses and loss contingencies arising from various claims,
assessments, litigation, fines and penalties and other sources are recorded when
it is probable that a liability has been incurred and the amount of the
liability can be reasonably estimated. When facts and circumstances show that in
a particular reporting period it is no longer probable that a contingent
liability previously reported will not be paid, those accrued liabilities are
adjusted in that period or are no longer recorded on the balance
sheet.




27


Revenue Recognition from
Consulting Contracts





We
believe one of our critical accounting policies is revenue recognition from our
consulting contracts. We are currently primarily deriving our revenue from fees
by offering consulting and strategic advisory services to foreign commercial and
government owned entities planning to create or expand electricity generation
capabilities, using nuclear power plants. Our fee type and structure for each
client engagement depend on a number of variables, including the size of the
client, the complexity, the level of the opportunity for us to improve the
client’s electricity generation capabilities using nuclear power plants, and
other factors.





We
recognize revenue from the current two consulting agreements that we entered
into with the EAA in August 2008 and the follow-on agreements in 2009, as time
and expense contracts.




We
recognize revenue associated with fixed-fee service contracts in accordance with
the provisions of the contract which include client acceptance provisions.
We do not recognize revenue until such time as the client has confirmed its
acceptance. When a loss is anticipated on a contract, the full amount of the
anticipated loss is recognized immediately. We are recognizing the revenue
associated with the AREVA agreements as our client accepts specified
deliverables under the contract.




We
recognize revenue in accordance with SEC Staff Accounting Bulletin or SAB,
No. 104, Revenue Recognition. We recognize revenue when all of the
following conditions are met:





1.           There
is persuasive evidence of an arrangement;





2.           The
service has been provided to the customer;




3.           The
collection of the fees is reasonably assured; and




4.           The
amount of fees to be paid by the customer is fixed or determinable.




Intangibles




As
presented on the accompanying balance sheets, we had patents with a net book
value of approximately $242,000 as of March 31, 2010 and December 31, 2009.
There are many assumptions and estimates that may directly impact the results of
impairment testing, including an estimate of future expected revenues, earnings
and cash flows, and discount rates applied to such expected cash flows in order
to estimate fair value. We have the ability to influence the outcome and
ultimate results based on the assumptions and estimates we choose for testing.
To mitigate undue influence, we set criteria that are reviewed and approved by various levels of management. The
determination of whether or not intangible assets have become impaired involves
a significant level of judgment in the assumptions. Changes in our strategy or
market conditions could significantly impact these judgments and require
adjustments to recorded amounts of intangible assets. We will amortize our
patents when they are placed in service. Our patents were not placed into
service as of March 31, 2010 and December 31, 2009.





Recent Accounting
Pronouncements





See
Item 1 of Part I, “Financial Statements — Note 1 — Accounting Policies —
Recent Accounting Pronouncements.”





28


ITEM 4T. CONTROLS AND
PROCEDURES.





Disclosure Controls and
Procedures





As
required by Rule 13a-15 under the Exchange Act, we carried out an evaluation of
the effectiveness of the design and operation of our disclosure controls and
procedures, as of the end of the period covered by this report on Form 10-Q.
This evaluation was carried out under the supervision and with the participation
of our management, including our President and Chief Executive Officer, and our
Chief Financial Officer. Based upon that evaluation, management concluded that
our disclosure controls and procedures are effective to ensure that information
required to be disclosed in the reports that it files or submits under the
Exchange Act is accumulated and communicated to management (including the Chief
Executive Officer and Chief Financial Officer) to allow timely decisions
regarding required disclosure and that our disclosure controls and procedures
are effective to give reasonable assurance that the information required to be
disclosed by us in reports that we file under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
rules and forms of the SEC.





There
were no changes in our internal control over financial reporting identified in
connection with the evaluation performed that occurred during the period covered
by this report that have materially affected or are reasonably likely to
materially affect, our internal control over financial reporting.





Disclosure
controls and procedures are controls and other procedures that are designed to
ensure that information required to be disclosed in our reports filed or
submitted under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the SEC’s rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed in our
reports filed under the Exchange Act is accumulated and communicated to
management, including the Company’s Chief Executive and acting Chief Financial
Officer as appropriate, to allow timely decisions regarding required
disclosure.





Internal Controls Over Financial
Reporting





Section
404 of the Sarbanes-Oxley Act of 2002 requires that management document and test
the Company’s internal control over financial reporting and include in this
Quarterly Report on Form 10-Q a report on management’s assessment of the
effectiveness of our internal control over financial reporting.





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Rule 13a-15(f) of
the Exchange Act. Under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer,
we conducted an evaluation of the effectiveness of our internal control over
financial reporting based upon the framework in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”). Based on that evaluation, our management concluded that our
internal control over financial reporting is effective, as of March 31, 2010,
and was effective during the entire quarter ended March 31, 2010.





PART
II


OTHER
INFORMATION





ITEM
1.     LEGAL PROCEEDINGS





From time
to time, we may become involved in various lawsuits and legal proceedings which
arise in the ordinary course of business. However, litigation is subject to
inherent uncertainties, and an adverse result in these or other matters may
arise from time to time that may harm our business. We are currently not aware
of any such legal proceedings or claims that we believe will have a material
adverse affect on our business, financial condition or operating
results.




29


ITEM
1A.     RISK FACTORS





In
addition to the other information set forth in this report, you should carefully
consider the factors discussed in Part I, "Item 1A. Risk Factors" in
our Annual Report on Form 10-K for the year ended December 31, 2009,
which could materially affect our business, financial condition or future
results. The risks described in our Annual Report on Form 10-K are not the
only risks facing our Company. Additional risks and uncertainties not currently
known to us or that we currently deem to be immaterial also may materially
adversely affect our business, financial condition or future
results.





ITEM
2.     UNREGISTERED SALES OF EQUITY SECURITIES OR USE
OF PROCEEDS





There
were no unregistered sales of equity securities during the fiscal quarter ended
March 31, 2010.





ITEM
3.     DEFAULTS UPON SENIOR SECURITIES





There
were no defaults upon senior securities during the fiscal quarter ended March
31, 2010.





ITEM
4.     (REMOVED AND RESERVED)





ITEM
5.     OTHER INFORMATION





Not
applicable.





ITEM
6.     EXHIBITS





The
following exhibits are filed with this report, except those indicated as having
previously been filed with the SEC and are incorporated by reference to another
report, registration statement or form. As to any shareholder of record
requesting a copy of this report, we will furnish any exhibit indicated in the
list below as filed with this report upon payment to us of our expenses in
furnishing the information.





Exhibit
                          Number
                        
                        Description31.1
                        
                        Rule
      13a-14(a)/15d-14(a) Certification - Principal Executive
      Officer31.2
                        
                        Rule
      13a-14(a)/15d-14(a) Certification - Principal Accounting
      Officer32
                        
                        Section
      1350
Certifications




30


SIGNATURES





In
accordance with section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant caused this Report on Form 10-Q to be signed on its behalf by the
undersigned, thereto duly authorized individuals.





Date: May
13, 2010





LIGHTBRIDGE
CORPORATION





By:
                /s/ Seth GraeSeth
      GraeChief
      Executive Officer,President
      and Director(Principal
      Financial Officer)By:
                /s/ James GuerraJames
      GuerraChief
      Operating Officer andChief
      Financial Officer(Principal
      Financial Officer andPrincipal
      Accounting Officer)




31


EXHIBIT
INDEX





Exhibit
                      Number
                    
                    Description31.1
                    
                    Rule
      13a-14(a)/15d-14(a) Certification - Principal Executive
      Officer31.2
                    
                    Rule
      13a-14(a)/15d-14(a) Certification - Principal Accounting
      Officer32
                    
                    Section
      1350
Certifications