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: September 30, 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)




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
             ̈ (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 November 10, 2010 is as follows:





Class of Securities
                  
                  Shares OutstandingCommon Stock, $0.001 par value
                  
                  12,335,481





Transitional
Small Business Disclosure Format (check one): Yes  ̈ No x





ITEM
1. FINANCIAL STATEMENTS





LIGHTBRIDGE
CORPORATION





UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS




SEPTEMBER 30, 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




September
                
                
                December
      31,2010
                
                
                2009(Unaudited)ASSETSCurrent
      AssetsCash
      and cash equivalents
                
                $
                3,569,526
                
                
                $
                3,028,791Marketable
      securities
                
                
                10,429,252
                
                
                
                0Restricted
      cash
                
                
                263,619
                
                
                
                652,174Accounts
      receivable - project revenue and reimbursable project
costs
                
                
                1,271,360
                
                
                
                2,421,088Prepaid
      expenses & other current assets
                
                
                528,635
                
                
                
                574,095Total
      Current Assets
                
                
                16,062,392
                
                
                
                6,676,148Property
      Plant and Equipment -net
                
                
                79,343
                
                
                
                97,559Other
      AssetsPatent
      costs - net
                
                
                289,561
                
                
                
                241,845Security
      deposits
                
                
                120,486
                
                
                
                120,486Total
      Other Assets
                
                
                410,047
                
                
                
                362,331Total
      Assets
                
                $
                16,551,782
                
                
                $
                7,136,038LIABILITIES
      AND STOCKHOLDERS EQUITYCurrent
      LiabilitiesAccounts
      payable and accrued liabilities
                
                $
                1,634,889
                
                
                $
                2,162,221Total
      Liabilities
                
                
                1,634,889
                
                
                
                2,162,221Commitments
      and contingenciesStockholders'
      EquityPreferred
      stock, $0.001 par value, 50,000,000 authorized shares, no shares issued
      and outstanding
                
                
                -
                
                
                
                -Common
      stock, $0.001 par value, 500,000,000 authorized, 12,419,967 shares issued,
      12,334,018 shares outstanding at September 30, 2010 and 10,168,412shares issued and
      outstanding at December 31, 2009
                
                
                12,334
                
                
                
                10,168Additional
      paid in capital - stock and stock equivalents
                
                
                68,917,377
                
                
                
                53,652,185Deficit
                
                
                (54,082,318
                )
                
                
                (48,723,286
                )Common
      stock reserved for issuance, 10,087 shares and 5,721 shares at September
      30, 2010 and December 31, 2009, respectively
                
                
                69,500
                
                
                
                34,750Total
      Stockholders' Equity
                
                
                14,916,893
                
                
                
                4,973,817Total
      Liabilities and Stockholders' Equity
                
                $
                16,551,782
                
                
                $
                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


(Unaudited)




Three
      Months Ended
                      
                      
                      Nine
      Months EndedSeptember
      30,
                      
                      
                      September
      30,2010
                      
                      
                      2009
                      
                      
                      2010
                      
                      
                      2009Revenue:Consulting
      Revenue
                      
                      $
                      2,050,456
                      
                      
                      $
                      2,009,548
                      
                      
                      $
                      6,411,883
                      
                      
                      $
                      8,384,086Cost
      of  Consulting Services Provided
                      
                      
                      1,255,877
                      
                      
                      
                      1,289,552
                      
                      
                      
                      4,024,275
                      
                      
                      
                      4,926,916Gross
      Margin
                      
                      
                      794,579
                      
                      
                      
                      719,996
                      
                      
                      
                      2,387,608
                      
                      
                      
                      3,457,170Operating
      ExpensesGeneral
      and administrative
                      
                      
                      1,942,132
                      
                      
                      
                      2,686,165
                      
                      
                      
                      6,642,487
                      
                      
                      
                      7,291,426Research
      and development expenses
                      
                      
                      562,783
                      
                      
                      
                      325,044
                      
                      
                      
                      1,142,043
                      
                      
                      
                      1,337,961Total
      Operating Expenses
                      
                      
                      2,504,915
                      
                      
                      
                      3,011,209
                      
                      
                      
                      7,784,530
                      
                      
                      
                      8,629,387Operating
      loss
                      
                      
                      (1,710,336
                      )
                      
                      
                      (2,291,213
                      )
                      
                      
                      (5,396,922
                      )
                      
                      
                      (5,172,217
                      )Other
      Income and (Expenses)Interest
      income
                      
                      
                      3,809
                      
                      
                      
                      5,197
                      
                      
                      
                      4,857
                      
                      
                      
                      21,717Other
                      
                      
                      35,563
                      
                      
                      
                      (907
                      )
                      
                      
                      33,033
                      
                      
                      
                      (5,834
                      )Total
      Other Income and Expenses
                      
                      
                      39,372
                      
                      
                      
                      4,290
                      
                      
                      
                      37,890
                      
                      
                      
                      15,883Net  loss
      before income taxes
                      
                      
                      (1,670,964
                      )
                      
                      
                      (2,286,923
                      )
                      
                      
                      (5,359,032
                      )
                      
                      
                      (5,156,334
                      )Income
      taxes
                      
                      
                      0
                      
                      
                      
                      0
                      
                      
                      
                      0
                      
                      
                      
                      0Net  loss
                      
                      $
                      (1,670,964
                      )
                      
                      $
                      (2,286,923
                      )
                      
                      $
                      (5,359,032
                      )
                      
                      $
                      (5,156,334
                      )Net
      Loss Per Common Share, Basic and diluted
                      
                      $
                      (0.14
                      )
                      
                      $
                      (0.23
                      )
                      
                      $
                      (0.50
                      )
                      
                      $
                      (0.51
                      )Weighted
      Average Number of shares outstanding for the period used to compute per
      share data - (prior reporting period restated to reflect 1 for 30 reverse
      stock split)
                      
                      
                      11,703,932
                      
                      
                      
                      10,140,767
                      
                      
                      
                      10,730,225
                      
                      
                      
                      9,987,178





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


3


Lightbridge
Corporation


Unaudited
Condensed Consolidated Statements of Cash Flows


(Unaudited)




Nine
      Months EndedSeptember
      30,2010
                      
                      
                      2009Operating
      Activities:Net
      Loss
                      
                      $
                      (5,359,032
                      )
                      
                      $
                      (5,156,334
                      )Adjustments
      to reconcile net loss from operations to net cash used in operating
      activities:Stock
      based compensation
                      
                      
                      2,259,348
                      
                      
                      
                      3,694,604Depreciation
      and amortization
                      
                      
                      18,216
                      
                      
                      
                      20,084Unrealized
      gain on marketable securities
                      
                      
                      (38,638
                      )
                      
                      
                      0Changes
      in non-cash operating working capital items:Accounts
      receivable - fees and reimburseable project costs
                      
                      
                      1,149,728
                      
                      
                      
                      3,287,683Prepaid
      expenses and other current assets
                      
                      
                      45,460
                      
                      
                      
                      (458,098
                      )Accounts
      payable, accrued liabilities and other current liabilities
                      
                      
                      176,405
                      
                      
                      
                      (3,057,656
                      )Net
      Cash Used In Operating Activities
                      
                      
                      (1,748,513
                      )
                      
                      
                      (1,669,717
                      )Investing
      Activities:Marketable
      securities
                      
                      
                      (10,390,614
                      )
                      
                      
                      0Property
      and equipment
                      
                      
                      0
                      
                      
                      
                      (13,102
                      )Patent
      costs
                      
                      
                      (47,716
                      )
                      
                      
                      (23,970
                      )Net
      Cash Used In Investing Activities
                      
                      
                      (10,438,330
                      )
                      
                      
                      (37,072
                      )Financing
      Activities:Proceeds
      from the issuance of common stock - net of offering costs
                      
                      
                      12,582,575
                      
                      
                      
                      0Redemption
      of common stock into treasury stock
                      
                      
                      (243,552
                      )
                      
                      
                      0Restricted
      cash
                      
                      
                      388,555
                      
                      
                      
                      (1,409
                      )Net
      Cash Provided by (Used In) Financing Activities
                      
                      
                      12,727,578
                      
                      
                      
                      (1,409
                      )Net
      Increase (Decrease) In Cash and Cash Equivalents
                      
                      
                      540,735
                      
                      
                      
                      (1,708,198
                      )Cash
      and Cash Equivalents, Beginning of Period
                      
                      
                      3,028,791
                      
                      
                      
                      5,580,244Cash
      and Cash Equivalents, End of Period
                      
                      $
                      3,569,526
                      
                      
                      $
                      3,872,046Supplemental
      Disclosure of Cash Flow InformationCash
      paid during the year:Interest
      paid
                      
                      $
                      0
                      
                      
                      $
                      0Income
      taxes paid
                      
                      $
                      0
                      
                      
                      $
                      266,000Non-Cash
      Financing ActivityRetirement
      of Treasury Stock
                      
                      $
                      243,552
                      
                      
                      $
                      0Grant
      of Common Stock for Payment of Accrued Liabilities
                      
                      $
                      703,737
                      
                      
                      $
                      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 Nine Months Ended September 30, 2010 (Unaudited) and Year Ended December 31,
2009




Common
      Stock
                        
                        
                        Additional
                        
                        
                        
                        
                        
                        Stock
                            Committed
                        
                        
                        Deferred
                            Stock
                        
                        
                        Stockholders’Shares
                        
                        
                        Amount
                        
                        
                        Paid-in
      Capital
                        
                        
                        Deficit
                        
                        
                        Future
      Issuance
                        
                        
                        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
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        4,483,735
                        
                        
                        
                        
                        
                        
                        
                        139,000
                        
                        
                        
                        226,252
                        
                        
                        
                        4,848,987Net
      loss for the year
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (7,233,312
                        )
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (7,233,312
                        )Shares
      issued - non cash
                        
                        
                        108,026
                        
                        
                        
                        108
                        
                        
                        
                        675,722
                        
                        
                        
                        
                        
                        
                        
                        (219,037
                        )
                        
                        
                        (456,793
                        )
                        
                        
                        0Shares
      issued - cash (options exercised)
                        
                        
                        10,617
                        
                        
                        
                        10
                        
                        
                        
                        50,334
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        50,344Balance
      - December 31, 2009 - originally reported
                        
                        
                        10,168,412
                        
                        
                        
                        10,168
                        
                        
                        
                        54,108,685
                        
                        
                        
                        (48,723,286
                        )
                        
                        
                        34,750
                        
                        
                        
                        (456,500
                        )
                        
                        
                        4,973,817Reclassification
      of deferred compensation to additional paid-in capital
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (456,500
                        )
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        456,500Balance
      - December 31, 2009 - reclassfied
                        
                        
                        10,168,412
                        
                        
                        
                        10,168
                        
                        
                        
                        53,652,185
                        
                        
                        
                        (48,723,286
                        )
                        
                        
                        34,750
                        
                        
                        
                        0
                        
                        
                        
                        4,973,817Stock-based
      compensation
                        
                        
                        65,280
                        
                        
                        
                        66
                        
                        
                        
                        2,224,532
                        
                        
                        
                        
                        
                        
                        
                        34,750
                        
                        
                        
                        
                        
                        
                        
                        2,259,348Shares
      issued - options exercised and stock redeemed and retired
                        
                        
                        30,334
                        
                        
                        
                        30
                        
                        
                        
                        460,155
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        460,185Net
      loss for the period
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (5,359,032
                        )
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (5,359,032
                        )Shares
      issued - registered direct offering - net of offering
costs
                        
                        
                        2,069,992
                        
                        
                        
                        2,070
                        
                        
                        
                        12,580,505
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        12,582,575Balance
      - September 30, 2010
                        
                        
                        12,334,018
                        
                        
                        $
                        12,334
                        
                        
                        $
                        68,917,377
                        
                        
                        $
                        (54,082,318
                        )
                        
                        $
                        69,500
                        
                        
                        $
                        0
                        
                        
                        
                        14,916,893




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 Nine Months Ended September 30, 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 advanced nuclear fuel
designs for existing and new light water reactors. Currently, we have two
primary fuel product families in the development stage: (1) All-metal fuel
technology based on a uranium-zirconium alloy that has a potential to increase
power output by up to 30% per reactor, reduce initial capital cost per megawatt
and annual operating costs per kilowatt-hour, and reduce the volume of spent
fuel per kilowatt-hour compared to reactors operating on conventional uranium
oxide fuel, and (2) Thorium-based fuel technology based on a seed-and-blanket
fuel assembly configuration that provides enhanced proliferation resistance,
reduced volume and long-term radio-toxicity of spent fuel, and other
benefits.




Within
the all-metal fuel product family, most of our research and development work
to-date has been focused on Western-type pressurized water reactors
(PWRs).  However, while we have not yet studied in sufficient detail
its application to other reactor types, we expect that the all-metal fuel’s
benefits seen in PWRs could also potentially apply to boiling water reactors
(BWRs) as well as small modular reactors.  We also believe that the
all-metal fuel technology can be synergistic with future fast reactor fuel
designs currently under development.




One of
the key benefits of our designed all-metal fuel technology is a potential
increase of up to 30% in power output per reactor compared to reactors using
standard oxide nuclear fuel. This increased power output is expected to lower
the initial capital cost per megawatt and annual operating costs per
kilowatt-hour which we believe would strengthen the economics of nuclear power
versus other forms of power generation. In addition, currently operating light
water reactors could also take advantage of this increased power output by
switching to our all-metal fuel design as part of a power uprate
process.  An actual power uprate level is expected to be determined
based on results of a cost/benefit analysis as some major reactor modifications
may be required to accommodate power uprates above a certain level.




Our
all-metal fuel design is expected to provide a proliferation resistant fuel
cycle and result in up to 23% less volume of used fuel per kilowatt-hour of
electricity generated.  It is also expected to have improved fuel
operation compared to standard oxide fuel.




Within
the thorium-based fuel product family, we currently have three types, or
variants, of thorium-based fuel designs in various stages of development. The
first is designed to provide reactor owners/operators with a proliferation
resistant fuel technology 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.  To-date, our focus has been on the first
variant.


6


Lightbridge
Corporation


Notes
to Unaudited Condensed Consolidated Financial Statements


For
the Nine Months Ended September 30, 2010 and 2009





From our
U.S. and Moscow offices, we are working with our US partners, Texas A&M
University and Idaho National Laboratory, and Russian nuclear research
institutes on testing and demonstration of our metallic fuel rods in a test
reactor environment as a key step toward a full-scale demonstration in a Western
commercial reactor.





Once our
nuclear fuel designs 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 our all-metal fuel design and commencing the demonstration of our
fuel in an operating commercial reactor within the next five to six years.
Presently most 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.





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 conducted the first
phase of an investigation of specific topics of thorium fuel cycles in AREVA’s
light water reactors, or LWRs. This first phase primarily focused 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.
The first phase under the Consulting Agreement includes total fees of
approximately $550,000 payable to us for services provided thereunder. We
completed the work under phase one of the Consulting Agreement during the
quarter ended June 30, 2010. 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. 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.  AREVA’s use of our
intellectual property for commercial purposes or any purpose other than as
specified in the agreement would be separately negotiated on a royalty
basis.





Pursuant
to our agreements with AREVA, each party retains ownership in its existing
(i.e., developed prior
to entering into the agreements with AREVA) intellectual property. The parties
have also agreed that AREVA will retain full ownership of any work product
resulting from the services performed under the Consulting Agreement that relate
to AREVA’s LWRs and we will retain full ownership of any work product resulting
from the services performed under the Consulting Agreement that relate to
reactors other than AREVA’s LWRs, including, but not limited to Russian
VVER-type reactors.





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, one of the member Emirates of the UAE.
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.





In April
2010 we entered into an agreement with another foreign government to evaluate
the feasibility of developing and deploying a civil nuclear power program as one
element of a strategy to meet future electricity generation needs. Lightbridge's
statement of work for the country's government will initially focus on two
distinct areas. The first, an economic feasibility study that will address the
question of whether deployment of a civil nuclear power program would meet the
economic, energy portfolio mix and environmental objectives of the country. The
second, a site suitability study that will evaluate and rank sites that are
potentially suitable for the construction and operation of commercial nuclear
power plants. If sites are identified and meet the necessary protocol,
Lightbridge will determine up to three preferred locations. Lightbridge intends
to communicate additional details about the client relationship pending the
outcome of the initial scope of work. Total contract price for this work was
approximately $700,000 and we completed this project and recognized all the
revenue during the third quarter of 2010. We were required under the agreement
to issue a letter of credit to this customer to secure the upfront fee they paid
to us. We deposited $213,300, which is part of the restricted cash total of
$263,500 at September 30, 2010, to the bank as security for this letter of
credit.


7


Lightbridge
Corporation


Notes
to Unaudited Condensed Consolidated Financial Statements


For
the Nine Months Ended September 30, 2010 and 2009





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, which are both wholly-owned by Lightbridge Power International
Holding, LLC.





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.





c)
Marketable Securities





The
Company determines the appropriate classification of its investments in debt and
equity securities at the time of purchase and reevaluates such determinations at
each balance sheet date. Debt securities are classified as held to maturity when
the Company has the positive intent and ability to hold the securities to
maturity. Debt securities for which the Company does not have the intent or
ability to hold to maturity are classified as available for sale.
Held-to-maturity securities are recorded as either short term or long term on
the Balance Sheet, based on contractual maturity date and are stated at
amortized cost.





Marketable
securities that are bought and held principally for the purpose of selling them
in the near term are classified as trading securities and are reported at fair
value, with unrealized gains and losses recognized in earnings. Securities that
are bought and held principally for the purpose of selling them in the near term
(thus held for only a short period of time) shall be classified as trading
securities. Trading generally reflects active and frequent buying and selling,
and trading securities are generally used with the objective of generating
profits on short-term differences in price. Debt and marketable equity
securities not classified as held to maturity or as trading, are classified as
available for sale, and are carried at fair market value, with the unrealized
gains and losses, net of tax, included in the determination of comprehensive
income and reported in shareholders’ equity.





On
July 1, 2008, we adopted Statement of FASB ASC 825, “Financial
Instruments,” . Under FASB ASC 825, companies may elect to measure certain
financial instruments and certain other items at fair value. The standard
requires that unrealized gains and losses on items for which the fair value
option has been elected be reported in earnings.  We did elect to use the
fair value option for the marketable securities that were purchased September
2010.  Therefore, the adoption of FASB ASC 825 did have an impact our
consolidated financial position, results of operations or cash
flows.





The fair
value of substantially all securities is determined by quoted market prices. The
estimated fair value of securities for which there are no quotedmarket prices is based
on similar types of securities that are traded in the market.


8


Lightbridge
Corporation


Notes
to Unaudited Condensed Consolidated Financial Statements


For
the Nine Months Ended September 30, 2010 and 2009





All
marketable securities (consisting of four Vanguard mutual bond funds) were
purchased in September 30, 2010 and were classified as available-for-sale
securities and were reported at their fair value (level 1). The total fair value
of the marketable securities at September 30, 2010 was $10,429,252. The amount
recorded as unrealized gains and interest and dividends received which were
reinvested, reported under the caption of other income in the statement of
operations as a result of our election of the fair value option permitted under
FASB ASC 825, totaled $43,494 for the three months and nine months ended
September 30, 2010. The amount recorded as unrealized gains reported for the
three months and nine months ended September 30, 2010 totaled $38,638. The total
cost basis of these trading securities is $10,390,614.





d)
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 contract entered into April 2010 with the foreign government
mentioned above and the contracts with Executive Affairs Authority, or EAA, of
Abu Dhabi, one of the member Emirates of the UAE, and the entities: Emirates
Nuclear Energy Corporation, or ENEC, and Federal Authority for Nuclear
Regulation, or FANR represented substantially all or our revenue producing
consulting contracts for the nine months ended September 30, 2010. All of our
revenues recognized under these EAA contracts for the nine months and three
months ended September 30, 2010 and September 30, 2009 were recognized on a time
and expense basis. The revenue recognized from the other foreign government
contract entered into April 2010 was based on the completion and acceptance of
contractual milestones, which were all completed and the work was accepted by
this government entity during the third quarter of 2010.




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. We recognized revenue gross as a Principal for the nine
months ended September 30, 2010 and 2009.





Technology
Business Segment





Once our
all-metal fuel assembly design and 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
recognized revenue from our agreement with AREVA upon the completion of certain
defined contract deliverables that were accepted by AREVA.





e) 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 closing price 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.





The
Company has accounted for the share grants made to the non-employees, based on
the guidance provided in ASC 505-50 (previously EITF96-18).





ASC
505-50-30-6 (previously FAS 123R, par. 7) establishes that share-based payment
transactions with non-employees shall be measured at the fair value of the
consideration received or the fair value of the equity instruments issued,
whichever is more reliably measured.   ASC 505-50-30-11
(previously EITF 96-18) further provides that an issuer shall measure the fair
value of the equity instruments in these transactions using the stock price and
other measurement assumptions as of the earlier of the following dates, referred
to as the measurement date:


9


Lightbridge
Corporation


Notes
to Unaudited Condensed Consolidated Financial Statements


For
the Nine Months Ended September 30, 2010 and 2009





i.
            The
      date at which a commitment for performance by the counterparty to earn the
      equity instruments is reached (a performance
  commitment)


ii.
            The
      date at which the counterparty’s performance is
  complete.





The
Company has further assessed and concluded that there is no sufficiently large
disincentive for non-performance under the share grant arrangements with the
non-employees that would establish a performance commitment.  Thus,
the measurement date for the share grants to the non-employees would be the date
at which the non-employee’s performance is completed. In all cases we have
judged this to be the vesting date.





f) 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.




g) 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, 2010. As a result of our implementation of
the Codification during the quarter ended September 30, 2010, previous
references to new accounting standards and literature are no longer
applicable.





h) Reclassification





Certain
prior period amounts have been reclassified to the current presentation. Such
reclassifications had no impact on previously reported Net income or total
Stockholders’ equity. The deferred stock compensation amount of $456,500
presented on the Company’s balance sheet at December 31, 2009 represented the
unamortized balance of non-vested stock grants and was a contra-equity offset to
the value of the stock issued under the balance sheet captions “Common Stock” or
“Common stock reserved for issuance” until vesting occurs. In accordance with
ASC 718-10-25-2, these costs are not to be shown as deferred stock compensation
but recognized as expense as services are provided. We have reclassified the
deferred stock based compensation by eliminating this balance sheet caption,
“Deferred stock compensation” and recording a corresponding adjustment
(reduction) to Additional paid in capital – stock and stock equivalents in the
amount of $456,500. Total Stockholders equity remains the same after this
reclassification.





2.
FINANCIAL STATUS OF THE COMPANY





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, including our planned research and development activities,
at the current operating level until sometime in 2012. Currently, we
are working on other revenue opportunities with the overall goal of
increasing our profitability and cash flow.





3. CONSULTING
REVENUES





ENEC and
FANR Projects





Substantially
all of our total consulting revenue earned in the amount of approximately $2.1
million and $6.1 million for the three months  and nine months ended
September 30, 2010, and $1.9 million and $8.3 million for the three
months  and nine months ended September 30, 2009, has been derived
from the two consulting contracts we entered into in August 2008 and the one
consulting contract we entered into in April 2010.  The variation in
revenue reflects the uneven nature of consulting projects and the timing of
revenues recognized on the respective projects.


10


Lightbridge
Corporation


Notes
to Unaudited Condensed Consolidated Financial Statements


For
the Nine Months Ended September 30, 2010 and 2009





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 $26,000 and $665,000 for the three
months and nine months ended September 30, 2010 respectively and approximately
$$106,000 and $744,000 for the three months and nine months ended September 30,
2009, respectively. 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 $80,000 at
September 30, 2010 and approximately $159,000 at December 31, 2009. The
remaining accounts receivable reported at September 30. 2010 of approximately
$1,191,000 represents consulting fees billed and due for the work performed for
both the ENEC and FANR projects mentioned above and for the April 2010
consulting project with another foreign government, mentioned above. Total
accounts receivable reported on the accompanying balance sheet is approximately
$1,271,000 at September 30, 2010 and approximately $2,421,000 at December
31, 2009. At September 30, 2010 approximately $647,000 of the total accounts
receivable reported is for September 2010 work that was billed in October
2010.




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 and nine months ended
September 30, 2010 and 2009:




BUSINESS
SEGMENT RESULTS – THREE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009





Consulting
                    
                    
                    Technology
                    
                    
                    Corporate
      and
                      Eliminations
                    
                    
                    Total2010
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2009Revenue
                    
                    
                    2,050,456
                    
                    
                    
                    1,941,382
                    
                    
                    
                    0
                    
                    
                    
                    68,166
                    
                    
                    
                    0
                    
                    
                    
                    0
                    
                    
                    
                    2,050,456
                    
                    
                    
                    2,009,548Segment
      Profit – Pre Tax
                    
                    
                    697,326
                    
                    
                    
                    570,588
                    
                    
                    
                    (610,444
                    )
                    
                    
                    (402,388
                    )
                    
                    
                    (1,757,846
                    )
                    
                    
                    (2,455,123
                    )
                    
                    
                    (1,670,964
                    )
                    
                    
                    (2,286,923
                    )Total
      Assets
                    
                    
                    1,271,360
                    
                    
                    
                    2,008,435
                    
                    
                    
                    289,561
                    
                    
                    
                    379,553
                    
                    
                    
                    14,990,861
                    
                    
                    
                    5,539,403
                    
                    
                    
                    16,551,782
                    
                    
                    
                    7,927,391Property
      Additions
                    
                    
                    0
                    
                    
                    
                    0
                    
                    
                    
                    0
                    
                    
                    
                    0
                    
                    
                    
                    0
                    
                    
                    
                    1,900
                    
                    
                    
                    0
                    
                    
                    
                    1,900Interest
      Expense
                    
                    
                    0
                    
                    
                    
                    0
                    
                    
                    
                    0
                    
                    
                    
                    0
                    
                    
                    
                    0
                    
                    
                    
                    0
                    
                    
                    
                    0
                    
                    
                    
                    0Depreciation
                    
                    
                    0
                    
                    
                    
                    0
                    
                    
                    
                    0
                    
                    
                    
                    0
                    
                    
                    
                    4,800
                    
                    
                    
                    7,080
                    
                    
                    
                    4,800
                    
                    
                    
                    7,080


11





Lightbridge
Corporation


Notes
to Unaudited Condensed Consolidated Financial Statements


For
the Nine Months Ended September 30, 2010 and 2009





BUSINESS
SEGMENT RESULTS – NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009





Consulting
                  
                  
                  Technology
                  
                  
                  Eliminations
                  
                  
                  Total2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009Revenue
                  
                  
                  6,069,333
                  
                  
                  
                  8,315,921
                  
                  
                  
                  342,550
                  
                  
                  
                  68,166
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  6,411,883
                  
                  
                  
                  8,384,087Segment
      Profit – Pre Tax
                  
                  
                  1,670,902
                  
                  
                  
                  3,170,607
                  
                  
                  
                  (1,058,744
                  )
                  
                  
                  (1,415,304
                  )
                  
                  
                  (5,971,190
                  )
                  
                  
                  (6,911,638
                  )
                  
                  
                  (5,359,032
                  )
                  
                  
                  (5,156,335
                  )Total
      Assets
                  
                  
                  1,271,360
                  
                  
                  
                  2,008,435
                  
                  
                  
                  289,561
                  
                  
                  
                  379,553
                  
                  
                  
                  14,990,861
                  
                  
                  
                  5,539,403
                  
                  
                  
                  16,551,782
                  
                  
                  
                  7,927,391Property
      Additions
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  13,102
                  
                  
                  
                  0
                  
                  
                  
                  13,102Interest
      Expense
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0Depreciation
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  18,216
                  
                  
                  
                  20,084
                  
                  
                  
                  18,216
                  
                  
                  
                  20,084




5.
RESEARCH AND DEVELOPMENT COSTS





Research
and development costs, included in the statement of operations amounted to
approximately $563,000 and $1,142,000 for the three months and nine months ended
September 30, 2010 respectively and approximately $325,000 and $1,338,000 for
the three months and nine months ended September 30, 2009, respectively. Total
cumulative expense has amounted to $8.9 million from January 8, 1992, the
inception of TPI, to September 30, 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.





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 received all
our fees under the terms of this AREVA Agreement.




AREVA
was 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 was also obligated to 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.
We have completed this phase 1 work and have billed the total amount to
AREVA.





6.
ACCOUNTS PAYABLE AND ACCRUED EXPENSES




Accounts payable and accrued expenses consisted
      of the following:
                  
                  September
      30,
                    2010
                  
                  
                  December,
      31
                    2009Trade
      Payables
                  
                  $
                  365,627
                  
                  
                  $
                  296,120Accrued
      Expenses
                  
                  
                  551,669
                  
                  
                  
                  928,054Accrued
      Payroll and Payroll Benefits
                  
                  
                  717,793
                  
                  
                  
                  938,047$
                  1,635,089
                  
                  
                  $
                  2,162,221


12


Lightbridge
Corporation


Notes
to Unaudited Condensed Consolidated Financial Statements


For
the Nine Months Ended September 30, 2010 and 2009





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 September 30, 2010 and December 31, 2009 was
12,334,018 and 10,168,412, respectively. At September 30, 2010, there were
10,087 shares reserved for future issuance, 85,949 unvested restricted stock
awards, and 1,764,121 stock options outstanding, all totaling 14,194,175 of
total stock and stock equivalents outstanding at September 30,
2010.




a)
Registered Direct Offering




On July
22, 2010 the Company completed an offering (the “Offering”) with certain
institutional investors on the sale of 2,069,992 shares of its common stock and
warrants to purchase a total of 1,034,996 shares of its common stock for
aggregate gross proceeds, before deducting fees to the Placement Agent and other
estimated offering expenses payable by the Company, of approximately $13.7
million. The common stock and warrants were sold in fixed combinations, with
each combination consisting of one share of common stock and a warrant to
purchase 0.5 shares of common stock. The purchase price is $6.60 per fixed
combination. The warrants will become exercisable six months and one day
following the closing date (July 28, 2010) of the Offering and will remain
exercisable for seven years from the date of issuance at an exercise price of
$9.00 per share. The exercise price of the warrants is subject to adjustment in
the case of stock splits, stock dividends, combinations of shares and similar
recapitalization transactions. The exercisability of some of the warrants may be
limited if, upon exercise, the holder or any of its affiliates would
beneficially own more than 4.99% of the Company's common stock. This limit may
be increased to up to 9.99% upon no fewer than 60 days' notice.




The
Company received net proceeds of approximately $12.6 million after payment of
certain fees and expenses related to the Offering. These fees and expenses
related to this Offering totaled approximately. $1.1 million. From the total
fees and expense paid, approximately $820,000 plus reimbursable expenses was
paid to William Blair & Company, L.L.C., who served as the placement agent
for the Offering. These fees and expense of approximating $1.1 million were
charged to additional paid-in capital. The allocation of the proceeds from the
offering, based on the relative fair value of the common stock and the warrants
resulted in the allocation of approximately $9.0 million to the common stock and
approximately $3.6 million to the warrants.





The value
of the warrants issued was calculated by using the Black Scholes Valuation
Model. using the following assumptions: volatility 99%; risk-free interest rate
of 2.38%; dividend yield of 0%, and expected term of 7 years. The volatility of
the Company’s common stock was estimated by management based on the historical
volatility of the trading history of the Company’s common stock. The risk-free
interest rate was based on the Treasury Constant Maturity Rates published by the
U.S. Federal Reserve for periods applicable to the expected life of the
warrants. The expected dividend yield was based on the Company’s current and
expected dividend policy and the expected term is equal to the contractual life
of the warrants.




The
Offering was effected as a takedown off the Company's shelf registration
statement on Form S-3 (File No. 333-162671), which became effective on November
24, 2009 pursuant to a prospectus supplement to be filed with the Securities and
Exchange Commission.




b)
Stock-based Compensation – Stock Options and Restricted Stock





Stock
Options Award Activity





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;





(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


13


Lightbridge
Corporation


Notes
to Unaudited Condensed Consolidated Financial Statements


For
the Nine Months Ended September 30, 2010 and 2009





(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 September 30, 2010 were 1,764,121 of which
1,311,232 of these options were vested at September 30, 2010. Stock option
expense was approximately $561,000 and approximately $1,062,000 for the three
months ended September 30, 2010 and 2009, respectively. Stock option expense was
approximately $1,858,000 and approximately $3,455,000 for the nine months ended
September 30, 2010 and 2009, respectively.




Stock
option transactions to the employees, directors, advisory board members and
consultants are summarized as follows for the six months ended September 30,
2010:





Stock
      Options Outstanding
                    
                    2010Beginning
      of the year
                    
                    
                    1,785,204Granted
                    
                    
                    139,091Exercised
                    
                    
                    -128,139ForfeitedExpired
                    
                    
                    -32,035End
      of period
                    
                    
                    1,764,121Options
      exercisable
                    
                    
                    1,311,232





The above
table includes options issued as of September 30, 2010 as follows:





i).
            A total of 566,874 non-qualified
      5-10 year options have been issued, and are outstanding, to advisory board
      members at exercise prices of $4.50 to $14.40 per
      share.





ii).
            A total of 1,068,622
      non-qualified 5-10 year options have been issued, and are
      outstanding, to our directors, officers and employees at
      exercise prices of $5.70 to $23.85 per share. From this total, 622,484
      options are outstanding to the Chief Executive Officer who is also a
      director, with remaining contractual lives of  5.2- 9.5 years.
      All other options issued have a remaining contractual life ranging from
      1.0 years to 9.5 years.





iii).
            A total of 128,625 non-qualified
      5-10 year options have been issued, and are outstanding, to
      our consultants at exercise prices of $6.30 to $19.20 per
      share.




The
following table provides certain information with respect to the
above-referenced stock options that are outstanding and exercisable at September
30, 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
                
                
                8.06
                
                
                
                777,914
                
                
                
                343,081
                
                
                $
                6.69$9.00
      - $12.90
                
                
                5.39
                
                
                
                185,674
                
                
                
                176,877
                
                
                $
                10.46$13.20-$18.90
                
                
                4.08
                
                
                
                493,865
                
                
                
                484,606
                
                
                $
                13.96$19.20-$23.85
                
                
                4.90
                
                
                
                306,668
                
                
                
                306,668
                
                
                $
                22.84Total
                
                
                6.11
                
                
                
                1,764,121
                
                
                
                1,311,232
                
                
                $
                13.66





The
aggregate intrinsic value of stock options outstanding at September 30, 2010 was
$296,701 of which 98,138 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 ($5.90 per share
as of the close on September 30, 2010).


14


Lightbridge
Corporation


Notes
to Unaudited Condensed Consolidated Financial Statements


For
the Nine Months Ended September 30, 2010 and 2009





In July
2010, two officers of the Company exercised stock option agreements. One
agreement was exercised under a broker assisted cashless exercise at a strike
price of $4.68 that resulted in a net purchase of 13,752 shares.  One
agreement was exercised that allowed the sale of 28,710 shares received by the
officer from the stock option exercise, back to the Company to cover the income
tax obligations resulting from the stock option exercise. As a result of this
option exercise, 28,710 shares were issued to the officer and 28,710 shares were
purchased from the officer at the fair value of the stock at the date of the
option exercise, which was $243,552. This stock purchase was recorded by the
Company as treasury stock, which was immediately retired upon
purchase.





Restricted
Stock Award Activity




The
following summarizes our restricted stock unit activity:




Number of Units
                      
                      
                      Weighted
                        Average
                        Grant
                        Date
      Fair
                        ValueTotal  awards
      outstanding at December 31, 2009
                      
                      
                      95,658
                      
                      
                      $
                      6.13Units
      granted
                      
                      
                      41,723
                      
                      
                      $
                      8.66Units
      Exercised/Released
                      
                      
                      -51,432
                      
                      
                      $
                      6.36Total  awards
      outstandings at September 30, 2010
                      
                      
                      85,949
                      
                      
                      $
                      7.23Total
      units vested
                      
                      
                      0Total
      units nonvested
                      
                      
                      85,949
                      
                      
                      $
                      7.23Total
      shares outstanding at September 30, 2010
                      
                      
                      85,949
                      
                      
                      $
                      7.23





Scheduled
vesting for outstanding restricted stock units at September 30, 2010 is as
follows:




Year
      Ended December 31,2010
                                        
                                        
                                        2011
                                        
                                        
                                        2012
                                        
                                        
                                        2013
                                        
                                        2014
                                        
                                        Thereafter
                                        
                                        TotalScheduled
      vesting—restricted stock units
                                        
                                        
                                        2,038
                                        
                                        
                                        
                                        35,765
                                        
                                        
                                        
                                        34,237
                                        
                                        
                                        
                                        13,909
                                        
                                        
                                        
                                        
                                        
                                        
                                        85,949





As of
September 30, 2010, there was $0.52 million of net unrecognized compensation
cost related to unvested restricted stock-based compensation arrangements. This
compensation is recognized on a straight line basis resulting in approximately
$0.25 million of the compensation expected to be expensed in the next twelve
months, and the total unrecognized has a weighted average recognition period of
2.12 years.





We use
the historical volatility of our stock price since January 5, 2006, the date we
announced that we were becoming a public company, to estimate the future
volatility of our stock. At this time we do not believe that there is a better
objective method to predict the future volatility of our stock. We estimate the
term of our option awards based on the full term of the award. To date we have
had very few exercises of our options, and those exercises have occurred just
before the expiration date of the awards. Since the strike price of most of our
outstanding awards is greater than the price of our stock, generally awards have
expired at the end of the term.  We do not currently have sufficient
information to determine the effect of potential forfeitures on the terms of our
awards. We are monitoring historical data to determine a reasonable method to
estimate future forfeitures, and we plan to include this estimate in our fair
value calculations in 2011.


15


Lightbridge
Corporation


Notes
to Unaudited Condensed Consolidated Financial Statements


For
the Nine Months Ended September 30, 2010 and 2009





Assumptions
used in the Black Scholes option-pricing model for the nine months ended
September 30 2010 and 2009 were as follows:





Nine months ended9/30/2010
                  
                  
                  9/30/2009Average
      risk-free interest rate
                  
                  
                  3.59
                  %
                  
                  
                  3.61
                  %Average
      expected life
                  
                  10
                  
                  
                  10Expected
      volatility
                  
                  
                  98.57%
                  
                  
                  
                  97.63%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 September 30, 2010 and 2009, approximately $677,000 and
approximately $1,176,000 respectively, was recorded as total stock-based
compensation. During the nine months ended September 30, 2010 and 2009,
approximately $2,259,000 and $3,695,000 respectively, was recorded as total
stock-based compensation. Stock-based compensation expense is recorded under the
caption general and administrative expenses.




c).
Common Stock reserved for Future Issuance





Common
stock reserved for future issuance consists of





Shares ofCommonStock
                
                
                AmountStock-based
      compensation
                
                
                10,087
                
                
                $
                69,500





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%, before the effects of changes in the deferred tax
valuation allowance, for the U.S. federal and states statutory tax
rates.





As of
September 30, 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, as well as any unused tax
carryforwards. The significant components of deferred tax assets (at a 40%
effective federal and state tax rate) as of September 30, 2010 and December 31,
2009 respectively, are as follows:




Deferred
      Tax Assets
                
                Total
      Amount
                
                
                Deferred
      Tax Asset Amount2010
                
                
                2009
                
                
                2010
                
                
                2009Capitalized
      start up costs
                
                $
                6,229,747
                
                
                $
                7,125,807
                
                
                $
                2,491,898
                
                
                $
                2,850,323Stock-based
      compensation
                
                
                19,290,550
                
                
                
                17,929,307
                
                
                
                7,716,220
                
                
                
                7,171,723Net
      operating loss carryforward
                
                
                22,881,026
                
                
                
                15,956,432
                
                
                
                9,152,410
                
                
                
                6,382,573Less:
      valuation allowance
                
                
                
                
                
                
                
                
                
                
                (19,360,529
                )
                
                
                (16,404,619)$
                -
                
                
                $
                -


16


Lightbridge
Corporation


Notes
to Unaudited Condensed Consolidated Financial Statements


For
the Nine Months Ended September 30, 2010 and 2009





We
have net operating loss carryforward for federal and state tax purposes of
approximately $22.9 million that is available to offset future taxable income.
For financial reporting purposes, no deferred tax asset was recognized because
management estimates that it is more likely than not that substantially all of
the net operating losses will 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
changes in the valuation allowance were increases of approximately $1.5 million
and $3.0 million for the three months and nine months ended September 30, 2010.
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.




9. RESEARCH
AGREEMENT





Effective
on August 21, 2009, TPI entered into an agreement for ampoule irradiation
testing, or the AIT Agreement, with Kurchatov. 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 $385,000 has
already been paid to Kurchatov under the AIT Agreement.  The remaining
balance under the AIT Agreement is due upon the completion of certain
deliverables and the receipt of a Russian export license.





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.  On June 17, 2010,
TPI entered into Task Order No. 1 with SOSNY whereby TPI is obligated to pay to
SOSNY a total of 7,259,000 Russian Rubles (approximately $237,000 at the
September 30, 2010 exchange rate) for certain R&D work to be completed and
all deliverables to be submitted to TPI by December 31, 2010.  As of
September 30, 2010, a total of 2,832,000 Rubles (approximately $93,000 at the
September 30, 2010 exchange rate) worth of work was completed by SOSNY and its
subcontractors and invoiced to TPI.





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. 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 $75,149 at September 30,
2010.


17


Lightbridge
Corporation


Notes
to Unaudited Condensed Consolidated Financial Statements


For
the Nine Months Ended September 30, 2010 and 2009





Future
estimated rental payments under our operating leases are as
follows:





TotalYear
      ending - December 31, 2010
                
                
                134,117Year
      ending - December 31, 2011
                
                
                564,109Year
      ending - December 31, 2012
                
                
                586,136Year
      ending - December 31, 2013
                
                
                609,016Total
      minimum lease payments
                
                $
                1,893,378





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.


18




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, or the
Securities Act, and Section 21E of the Securities Exchange Act of 1934, as
amended, or 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: 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),
Lightbridge International Holding, LLC (a Delaware limited liability company),
Lightbridge Advisors Limited (a U.K. limited company), Lightbridge International
Holding LLC (a Russian limited liability company) and Lightbridge International
Holding LLC (an Abu Dhabi limited liability company).




ITEM 2.
            MANAGEMENT'S DISCUSSION AND
      ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS




General
Overview




We are a
developer of next generation nuclear fuel technology that has the potential to
significantly up-rate the power output of reactors, reducing the
per-megawatt-hour cost of generating nuclear energy and reduce nuclear waste and
proliferation. We are also a provider of nuclear energy consulting services to
commercial and governmental entities worldwide.




Technology
Business Segment




For the
past decade we have been engaged in the development of proprietary nuclear fuel
designs which we ultimately intend to introduce for use in nuclear power plants
around the world in partnership with major nuclear fuel vendors. Our proprietary
nuclear fuel designs are primarily geared toward two target markets: (1) nuclear
fuel designs for use in commercial nuclear power plants and (2) nuclear fuel
designs for reactor-grade plutonium disposition. In addition, we have a
conceptual nuclear fuel design for weapons-grade plutonium disposition. We have
been conducting research and development related to two variants of these
nuclear fuel designs: (1) A fuel variant for use in Russian-designed VVER-type
reactors, and (2) A fuel variant for use in Western-type pressurized water
reactors (PWRs).




As an
outgrowth of this research and development, we have recently designed a new
commercial fuel technology based on a proprietary all-metal fuel assembly
configuration that has the potential to increase power output per reactor and
enhance proliferation resistance as compared to reactors operating with
conventional uranium oxide fuel. The new fuel design could reduce both initial
capital costs per megawatt and annual operating costs per kilowatt-hour of
nuclear power, making it more competitive with other forms of electricity
generation while contributing to a significant reduction of CO2
emissions.




It is
expected that our all-metal fuel technology could be applied to currently
operating or new light water reactors as well as small modular reactors while
providing the same benefits as in larger commercial nuclear power plants. It is
also highly synergistic with fast reactor designs under development in several
countries.




In June
2010, Idaho National Laboratory has approved a Texas A&M University-led
joint proposal with us for irradiation testing of this kind of metallic fuel in
the Advanced Test Reactor. The fuel demonstration in a test reactor environment
is a key milestone to demonstration and deployment of this fuel in commercial
Western-type light water reactors. Testing is expected to begin in
2011.


19


Our
future customers may include nuclear fuel fabricators, nuclear power plants
and/or the U.S. government or other foreign governments.




Our
operations within our technology business segment have been devoted primarily to
the development and demonstration of our nuclear fuel designs, developing
strategic relationships within and outside 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).




Currently,
we have generated only minimal direct revenues from our technology business
segment. We do not expect that we will 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 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 create integrated advisory services with
the highest levels of expertise and experience in the nuclear power
industry.




Consulting
and Strategic Advisory Services Business Segment




We are
primarily engaged in the business of assisting commercial and governmental
entities with developing and expanding their nuclear industry capabilities and
infrastructure. We provide integrated strategic advice across a range of
expertise areas including, for example, regulatory development, nuclear reactor
site selection, procurement and deployment, reactor and fuel technology,
international relations and regulatory affairs.




Due to
the relatively limited growth in the nuclear energy industry during the 1980’s
and 1990’s, and corresponding limited recruitment into the industry, the cadre
of engineers, managers and other nuclear energy industry experts is aging. In
any nuclear renaissance, we believe that the industry will be challenged in
acquiring and retaining sufficient qualified expertise. Moreover, in countries
studying new nuclear energy programs, the number of qualified nuclear energy
personnel is limited, and we believe that those countries will need to rely on
significant support from non-domestic service providers and experts to ensure
success in those programs.




Our
emergence in the field of nuclear energy consulting is in direct response to the
need for independent assessments and highly qualified technical consulting
services from countries looking to establish nuclear energy programs, by
providing a blueprint for safe, secure, efficient and cost-effective nuclear
power. We offer full-scope strategic planning and advisory services for new and
growing existing markets. Furthermore, we only engage with commercial entities
and governments that are dedicated to non-proliferative and transparent nuclear
programs.




Our
consulting services are expert and relationship based, with particular emphasis
on key decision makers in senior positions within governments or companies, as
well as focus on overall management of nuclear energy programs. To date,
substantially all of our revenues are derived from our consulting and strategic
advisory services business segment, which primarily provides nuclear consulting
services to entities within the United Arab Emirates, our first significant
consulting and strategic advisory client. In April 2010 we began to provide
consulting services in an additional country.




Material
Opportunities and Challenges




Proprietary
Nuclear Fuel Technology Development




We
believe that a major opportunity for us is the possibility that our advanced
nuclear fuel designs, which are currently in the research and development stage,
will be used in many existing and new light water nuclear reactors. Light water
reactors are the dominant reactor types currently used in the world, and fuels
for such reactors constitute the majority of the commercial market for nuclear
fuel. Currently, we have two primary fuel product families in the development
stage: (1) All-metal fuel technology based on a uranium-zirconium alloy that has
potential to increase power output by up to 30% per reactor, reduce the initial
capital cost per megawatt and annual operating costs per kilowatt-hour, reduce
the volume of spent fuel per kilowatt-hour compared to reactors operating on
conventional uranium oxide fuel, and enhance proliferation resistance, and (2)
Thorium-based fuel technology that utilizes a seed-and-blanket fuel assembly
configuration providing enhanced proliferation resistance, reduced volume and
long-term radio-toxicity of spent fuel, and enhanced fuel
performance.


20


Most of
our all-metal fuel design research and development work to-date has been focused
on Western-type pressurized water reactors, or PWRs. Although we have not yet
studied in sufficient detail its application to other reactor types, we expect
that the all-metal fuel’s benefits seen in PWRs could also potentially apply to
boiling water reactors, or BWRs, as well as small modular reactors. We also
believe that the all-metal fuel technology can be synergistic with future fast
reactor fuel designs currently under development.




With
respect to our thorium-based fuel designs, we currently have three types, or
variants, in various stages of development. The first is designed to provide
reactor owners/operators with a proliferation resistant fuel technology 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, the U.K., and other countries. The third is designed to dispose
of weapons-grade plutonium that is stockpiled in Russia and the U.S. 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. To-date, our primary focus has been on
the first variant.




From our
U.S. and Moscow offices, we are working with our U.S. partners, Texas A&M
University and Idaho National Laboratory, and Russian nuclear research
institutes on the testing and demonstration of our metallic fuel rods in a test
reactor environment. Test reactor demonstration is a key step toward a
full-scale demonstration in a Western commercial reactor. We believe that it
will be necessary to enter into commercial arrangements with 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.





We
believe that because of the reduced initial capital cost per megawatt and annual
operating costs per kilowatt-hour, the all-metal fuel technology could offer
significant economic incentives to nuclear power plant operators that could make
it palatable to them to adopt this fuel technology in their existing or new
build reactors. Due to the expected cost savings on a per kilowatt-hour basis,
we also believe that the all-metal fuel technology will offer significant
revenue opportunities to us in the Western light water reactor market in the
future. As a result, we intend to focus a significant portion of our future
research and development efforts on testing and demonstration of this fuel
technology in the U.S. and overseas. At the same time, we believe the testing
and demonstration work on our all-metal fuel technology will also benefit and
advance our thorium-based seed-and-blanket fuel assembly design due to the
similarities and synergies between the all-metal fuel rods and the metallic seed
fuel rods utilized in the seed-and-blanket fuel assembly design.





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 U.S. and 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 them.





Another
major challenge are the long nuclear fuel product development, qualification and
regulatory licensing timelines that are typical for new fuel designs in the
nuclear industry. As a result, successful commercialization of new nuclear fuel
products requires a sustained commitment of significant research and development
funding over an extended period of time until revenue from new product sales can
be realized. This timing gap between research and development expenditures and
projected revenues could present a challenge in securing additional capital in
the future necessary for the completion of the remaining testing and
demonstration work.





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. Companies 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 encourage these nuclear fuel
vending companies to provide their nuclear power plant operating customers to
use 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 a test
reactor environment, followed by a full-scale demonstration in an operating
commercial reactor, and in continuing to build relationships with nuclear fuel
vendors, we believe it may lead to major companies in the nuclear power industry
working with us in producing and selling our nuclear fuel designs to commercial
reactor operators and governments.


21


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, secure, 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.




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 and nine months ended September 30, 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 SEPTEMBER 30, 2010 AND 2009





Consulting
                  
                  
                  Technology
                  
                  
                  Corporate and
                    Eliminations
                  
                  
                  Total2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009Revenue
                  
                  
                  2,050,456
                  
                  
                  
                  1,941,382
                  
                  
                  
                  0
                  
                  
                  
                  68,166
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  2,050,456
                  
                  
                  
                  2,009,548Segment
      Profit (Loss) – Pre Tax
                  
                  
                  697,326
                  
                  
                  
                  570,588
                  
                  
                  
                  (610,444
                  )
                  
                  
                  (402,388
                  )
                  
                  
                  (1,757,846
                  )
                  
                  
                  (2,455,123
                  )
                  
                  
                  (1,670,964
                  )
                  
                  
                  (2,286,923
                  )Total
      Assets
                  
                  
                  1,271,360
                  
                  
                  
                  2,008,435
                  
                  
                  
                  289,561
                  
                  
                  
                  379,553
                  
                  
                  
                  14,990,861
                  
                  
                  
                  5,539,403
                  
                  
                  
                  16,551,782
                  
                  
                  
                  7,927,391Property
      Additions
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  1,900
                  
                  
                  
                  0
                  
                  
                  
                  1,900Interest
      Expense
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0Depreciation
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  4,800
                  
                  
                  
                  7,080
                  
                  
                  
                  4,800
                  
                  
                  
                  7,080


22


BUSINESS
SEGMENT RESULTS – NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009





Consulting
                  
                  
                  Technology
                  
                  
                  Eliminations
                  
                  
                  Total2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009Revenue
                  
                  
                  6,069,333
                  
                  
                  
                  8,315,921
                  
                  
                  
                  342,550
                  
                  
                  
                  68,166
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  6,411,883
                  
                  
                  
                  8,384,087Segment
                    Profit
      (Loss)  – Pre Tax
                  
                  
                  1,670,902
                  
                  
                  
                  3,170,607
                  
                  
                  
                  (1,058,744
                  )
                  
                  
                  (1,415,304
                  )
                  
                  
                  (5,971,190
                  )
                  
                  
                  (6,911,638
                  )
                  
                  
                  (5,359,032
                  )
                  
                  
                  (5,156,335
                  )Total
      Assets
                  
                  
                  1,271,360
                  
                  
                  
                  2,008,435
                  
                  
                  
                  289,561
                  
                  
                  
                  379,553
                  
                  
                  
                  14,990,861
                  
                  
                  
                  5,539,403
                  
                  
                  
                  16,551,782
                  
                  
                  
                  7,927,391Property
      Additions
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  13,102
                  
                  
                  
                  0
                  
                  
                  
                  13,102Interest
      Expense
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0Depreciation
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  18,216
                  
                  
                  
                  20,084
                  
                  
                  
                  18,216
                  
                  
                  
                  20,084





Technology
Business





Over the
next 12 to 15 months we expect to incur $8 – $9 million in research and
development expenses related to the development of our proprietary nuclear fuel
designs. We spent approximately $563,000 and $1,142,000 for research and
development during the three and nine months ended September 30, 2010,
respectively, and a cumulative amount from the date of our inception (January 8,
1992, date of inception of Thorium Power Inc.) to September 30, 2010, of
approximately $8.9 million.





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
all-metal fuel technology for Western-type pressurized water reactors. The main
objective of this research and development phase is to prepare for full-scale
demonstration of our fuel technology in an operating commercial PWR. As
discussed above, we believe the testing and demonstration work on our all-metal
fuel technology will also benefit and advance our thorium-based seed-and-blanket
fuel assembly design due to the similarities and synergies between the all-metal
fuel rods and the metallic seed fuel rods utilized in the seed-and-blanket fuel
assembly design.





On August
3, 2009, we entered into a consulting agreement with AREVA for $550,000. For the
nine months ended September 30, 2010, our total revenue from AREVA under this
agreement was approximately $342,550, including billings for expense
reimbursements. We have completed the scope of work under the initial phase of
the consulting agreement.





Consulting
and Strategic Advisory Services Business





At the
present time, substantially all of our revenue for the three and nine months
ended September 30, 2010, from our consulting and strategic advisory services
business segment is derived by offering services to governments outside the U.S.
planning to create or expand electricity generation capabilities using nuclear
power plants. 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. Our revenues
totaling approximately $2.1 million and $6.4 million for the three months and
nine months ended September 30, 2010, respectively, have been derived primarily
from our continuing work under the August 1, 2008 agreements and follow-on
agreements in 2009, with the Executive Affairs Authority, or EAA, of Abu Dhabi,
and with the Emirates Nuclear Energy Corporation, or ENEC, and the Federal
Authority for Nuclear Regulation, or FANR, and from our April 2010 contract with
another non-U.S. government, 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 and nine months
ended September 30, 2010 and 2009 for the ENEC and FANR contracts. For the April
2010 Contract, revenue is recognized upon the achievement of contractual
milestones and the acceptance by our customer of our work.


23


The cost
of consulting services provided was approximately $1.3 million for both the
three months ended September 30, 2010 and 2009, respectively, and approximately
$4.0 and $4.9 million for the nine months ended September 30, 2010 and 2009,
respectively. These amounts consisted primarily of direct labor consulting
expenses and other labor support costs incurred.





Financial
Status





At
September 30, 2010, our total assets were approximately $16.6 million and total
liabilities were approximately $1.6 million. As of September 30, 2010, our
working capital surplus was approximately $14.4 million, an increase of
approximately $10.0 million from December 31, 2009. The increase in our working
capital surplus is primarily due to the $13.7 million offering we completed on
July 28, 2010, as discussed below in “Recent Events”.





Management
expects that our current cash position, as well as the revenue from ongoing
operations, will meet our foreseeable working capital needs for our current
operations, including our planned research and development expenses, until
sometime in 2012. 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 endeavor to create strategic alliances, with
major fuel vendors, fuel fabricators and/or other strategic parties in order to
support the remaining research and development activities required to further
enhance and complete the development of our fuel products. It is important to
note, however, that we may be unable to form such strategic alliances on terms
acceptable to us or at all. Our total current average operating expenses,
excluding the $8 – $9 million of research and development expenses we expect to
incur over the next 12 to 15 months, is approximately $1 million per
month.





Recent
Events





On July
22, 2010, we entered into subscription agreements with certain institutional
investors in connection with an offer to sell an aggregate of 2,069,992 shares
of our common stock and warrants to purchase a total of 1,034,996 shares of our
common stock to such investors for aggregate gross proceeds of approximately
$13.7 million. The common stock and warrants were sold in fixed combinations,
with each combination consisting of one share of common stock and a warrant to
purchase 0.5 shares of common stock, at purchase price of $6.60 per fixed
combination. The warrants will become exercisable six months and one day
following the closing date of the offering and will remain exercisable for seven
years from the date of issuance at an exercise price of $9.00 per share. The
exercise price of the warrants is subject to adjustment in the case of stock
splits, stock dividends, combinations of shares and similar recapitalization
transactions.





In
connection with the offering, we retained William Blair & Company, L.L.C. to
act as placement agent of our common stock and warrants. For services as
placement agent, we paid a cash fee of $820,000, or 6% of the gross proceeds we
received from the sale of our securities, and reimbursed the placement agent for
all reasonable and documented out-of-pocket expenses incurred in connection with
the offering.




After the
deduction of placement agent fees and expenses, as well as expenses incurred by
us, we received net proceeds of $12.6 million from the offering. We will use the
net proceeds from the offering to continue our research and development
activities to further enhance and develop our nuclear fuel designs and for other
general working capital purposes.





Consolidated
Results of Operations





Comparison
of the Three Months Ended September 30, 2010 to September 30, 2009





The
following table summarizes certain aspects of the Company’s consolidated results
of operations for the three months ended September 30, 2010 compared to the
three months ended September 30, 2009.


24


Three Months Ended30-Sep
                
                
                (Decrease)
                
                
                (Decrease)2010
                
                
                2009
                
                
                Change $
                
                
                Change %Consulting
      Revenues
                
                $
                2,050,456
                
                
                
                2,009,548
                
                
                $
                40,908
                
                
                
                2
                %Cost
      of services providedConsulting
      expenses
                
                $
                1,255,877
                
                
                
                1,289,552
                
                
                $
                (33,675
                )
                
                
                -3
                %%
      of total revenues
                
                
                61
                %
                
                
                64
                %Gross
      profit
                
                $
                794,579
                
                
                $
                719,996
                
                
                $
                74,583
                
                
                
                10
                %%
      of total revenues
                
                
                39
                %
                
                
                36
                %Operating
      ExpensesGeneral
      and administrative
                
                $
                1,942,132
                
                
                $
                2,686,165
                
                
                $
                (744,033
                )
                
                
                -28
                %%
      of total revenues
                
                
                95
                %
                
                
                134
                %Research
      and development expenses
                
                $
                562,783
                
                
                $
                325,044
                
                
                $
                237,739
                
                
                
                73
                %%
      of total revenues
                
                
                27
                %
                
                
                16
                %Total
      Operating Loss
                
                $
                (1,710,336
                )
                
                $
                (2,291,213
                )
                
                $
                (580,877
                )
                
                
                -25
                %%
      of total revenues
                
                
                -83
                %
                
                
                -114
                %Other
      Income and (Expenses)Interest
      income/expense, other
                
                $
                39,372
                
                
                $
                4,290
                
                
                $
                35,082
                
                
                
                818
                %%
      of total revenues
                
                
                2
                %
                
                
                0
                %Net
      loss - before income taxes
                
                $
                (1,670,964
                )
                
                $
                (2,286,923
                )
                
                $
                (615,959
                )
                
                
                -27
                %%
      of total revenues
                
                
                -81
                %
                
                
                -114
                %




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 September 30,
2010 and 2009 and under the August 1, 2008 agreements with ENEC and FANR was
recognized on a time and expense basis.





We earned
$2.1 million of revenue for the three months ended September 30, 2010 as
compared to $2.0 million of revenue for the three months ended September 30,
2009 from our consulting and strategic advisory services business segment. The
revenue for the three months ended September 30, 2010 compared to the same
period in 2009 was primarily the same. The consulting projects with ENEC and
FANR 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. 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 September 30, 2010, we earned approximately $0.7 million of
fees and expenses from our consulting agreement we entered into in April 2010
with another non-U.S. government.




Cost of Services
Provided





The cost
of services for the three months ended September 30, 2010 compared with the same
period in 2009 is primarily the same, due to the comparative level of revenue
for the third quarters of 2010 and 2009. These expenses related to the
consulting, professional, administrative and other costs allocated to the
technology and consulting projects, which were incurred to perform and support
the work done for our AREVA agreement and 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.


25


Gross
Profit





Gross
profit margin of 39% for the three months ended September 30, 2010 increased 3%
as compared to the same period in 2009. Our gross margins increased due to the
work on our new and existing contracts.





General and Administrative
Expenses





There was
a 28% decrease in the general and administrative expenses for the three months
ended September 30, 2010, as compared to the same period in 2009. This decrease
was primarily due to a decrease in (1) professional/consulting fees of
approximately $191,000, (2) stock-based compensation of approximately $458,000
and (3) a decrease in other general and administrative costs, offset by an
increase in (4) employee wages and benefits of approximately $76,000. In the
future, stock-based compensation may be offered to attract new employees 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 technology and consulting and strategic advisory services business segments
and the hiring of new officers, employees and consultants to help further
develop and support our technology and consulting and strategic advisory
services segments.





Research and Development
Costs





The
increase in research and development costs for the three months ended September
30, 2010 compared to the same period in 2009 is due to an increase this quarter
in our research and development activities performed by outside contractors for
us in Russia. Over the next 12 to 15 months we expect to incur approximately $8
– $9 million in research and development expenses related to the development of
our proprietary nuclear fuel designs.





Other Income and
Expense





The
increase in other income and expense for the three months ended September 30,
2010 compared to the same period in 2009 is due to the increase in the
unrealized gains on marketable securities (mutual funds) that were purchased in
September 2010, which totaled approximately $39,000 for the three months ended
September 30, 2010.




Comparison
of the Nine months Ended September 30, 2010 to September 30, 2009





The
following table summarizes certain aspects of the Company’s consolidated results
of operations for the nine months ended September 30, 2010 compared to the nine
months ended September 30, 2009.





Nine Months Ended30-Sep
                
                
                (Decrease)
                
                
                (Decrease)2010
                
                
                2009
                
                
                Change $
                
                
                Change %Consulting
      Revenues
                
                $
                6,411,883
                
                
                
                8,384,086
                
                
                $
                (1,972,203
                )
                
                
                -24
                %Cost
      of services providedConsulting
      expenses
                
                $
                4,024,275
                
                
                
                4,926,916
                
                
                $
                (902,641
                )
                
                
                -18
                %%
      of total revenues
                
                
                63
                %
                
                
                59
                %Gross
      profit
                
                $
                2,387,608
                
                
                $
                3,457,170
                
                
                $
                (1,069,562
                )
                
                
                -31
                %%
      of total revenues
                
                
                37
                %
                
                
                41
                %Operating
      ExpensesGeneral
      and administrative
                
                $
                6,642,487
                
                
                $
                7,291,426
                
                
                $
                (648,939
                )
                
                
                -9
                %%
      of total revenues
                
                
                104
                %
                
                
                87
                %Research
      and development expenses
                
                $
                1,142,043
                
                
                $
                1,337,961
                
                
                $
                (195,918
                )
                
                
                -15
                %%
      of total revenues
                
                
                18
                %
                
                
                16
                %Total
      Operating Loss
                
                $
                (5,396,922
                )
                
                $
                (5,172,217
                )
                
                $
                224,705
                
                
                
                4
                %%
      of total revenues
                
                
                -84
                %
                
                
                -62
                %Other
      Income and (Expenses)Interest
      income/expense, other
                
                $
                37,890
                
                
                $
                15,883
                
                
                $
                22,007
                
                
                
                139
                %%
      of total revenues
                
                
                1
                %
                
                
                0
                %Net
      loss - before income taxes
                
                $
                (5,359,032
                )
                
                $
                (5,156,334
                )
                
                $
                202,698
                
                
                
                4
                %%
      of total revenues
                
                
                -84
                %
                
                
                -62
                %


26


Revenues





We earned
$6.4 million of total revenue for the nine months ended September 30, 2010 as
compared to $8.4 million of total revenue for the nine months ended September
30, 2009. The 24 percent decrease in revenue 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. As discussed above, 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 nine months ended September 30, 2010 compared to the same
nine 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
nine months ended September 30, 2010, we earned approximately $342,550 of fees
plus reimbursement of expenses from our consulting agreement with AREVA. The
anticipated further phases of the collaboration will be conducted in accordance
with additional collaborative agreements. For the nine months ended September
30, 2010, we earned approximately $711,000 of fees from our consulting agreement
we entered into in April 2010 with another non-U.S. government.




Cost of Services
Provided





The
primary reason for the decrease in the cost of services for the nine months
ended September 30, 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 our technology and 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 nine months ended September 30, 2010 is
approximately 4% 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 ENEC and FANR. 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.





General and Administrative
Expenses





There was
a 9% decrease in the general and administrative expenses for the nine months
ended September 30, 2010, as compared to the same period in 2009. This decrease
was primarily due to a decrease in (1) stock-based compensation of approximately
$1,304,000, which was offset by an increase in (2) consulting/professional fees
of $104,000 (2) costs for travel expenses of approximately $123,000, (3)
employee wages and benefits of approximately $318,000 and an increase in other
general and administrative costs. In the future, stock-based compensation may be
offered to attract new employees 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 technology and consulting and
strategic advisory services business segment and the hiring of new officers,
employees and consultants to help further develop and support both our
technology business segment and our consulting and strategic advisory services
business segment.


27


Research and Development
Costs





The
decrease in research and development costs for the nine months ended September
30, 2010 compared to the same period in 2009 is due to a temporary decrease in
our research and development activities performed by outside contractors for us
in Russia in the second quarter of 2010. Over the next 12 to 15 months we expect
to incur approximately $8 – $9 million in research and development expenses
related to the development of our proprietary nuclear fuel designs.





Other Income and
Expense





The
increase in other income and expense for the nine months ended September 30,
2010 compared to the same period in 2009 is due to the increase in the
unrealized gain on marketable securities (trading securities) that were
purchased in September 2010, which totaled approximately $39,000 for the three
months ended September 30, 2010.




Liquidity
and Capital Resources





As of
September 30, 2010, we had a total of cash and cash equivalents of approximately
$3.6 million, and marketable securities (mutual funds) of approximately $10.4
million. The following table provides detailed information about our net cash
flow for all financial statements periods presented in this report.




Cash FlowNine Months EndedSeptember 30,2010
                    
                    
                    2009Net
      cash provided by (used in) operating activities
                    
                    $
                    (1,748,513
                    )
                    
                    $
                    (1,669,717
                    )Net
      cash used in investing activities
                    
                    $
                    (10,438,330
                    )
                    
                    $
                    (37,072
                    )Net
      cash provided by (used in) financing activities
                    
                    $
                    12,727,578
                    
                    
                    $
                    (1,409
                    )Net
      cash inflow (outflow)
                    
                    $
                    540,735
                    
                    
                    $
                    (1,708,198
                    )




Operating
Activities




Net cash
used in our operating activities increased by approximately $79,000 for the nine
months ended September 30, 2010 as compared to the same period in 2009. The
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 nine months ended September 30, 2010 as
compared to the same period in 2009, increased by approximately $10.4 million,
which was due to the purchase of marketable securities in September 2010 of
approximately $10.4 million, and an increase 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 due to the work we plan to perform on our all-metal fuel
design.




Financing
Activities




There was
an increase in net cash provided by our financing activities for the nine months
ended September 30, 2010 as compared to the same period in 2009 of approximately
$12.7 million. This increase is primarily due to the securities offering that we
completed on July 28, 2010 (see Recent Events section above), for which we
received net proceeds of approximately $12.6 million. The increase is also due
to the return to us of restricted cash held by our credit card vendor of
approximately $0.4 million, offset by the redemption of stock from the exercise
of stock options by an officer of approximately $0.2 million.


28


Management
expects that our current cash position, as well as the revenue from ongoing
operations, will meet our foreseeable working capital needs for our current
operations until sometime in 2012. 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 endeavor to create strategic
alliances, with major fuel vendors, fuel fabricators and/or other strategic
parties in order to support the remaining research and development activities
required to further enhance and complete the development of our fuel products.
It is important to note, however, that we may be unable to form such strategic
alliances on terms acceptable to us or at all. Our total current average
operating expenses, excluding the $8 – $9 million of research and development
expenses we expect to incur over the next 12 to 15 months, is approximately $1
million per month.





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.




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 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.


29


We
measure the fair value of stock options on the date of grant for employees, and
the earlier of the vesting date or the reporting date for non-employees, using a
Black-Scholes option-pricing model which requires the use of several estimates,
including:




•
            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: weighted average volatility of 137%, 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 $18.2 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.




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.


30


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 $290,000 and $242,000 as of September 30, 2010 and
December 31, 2009, respectively. 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 September 30, 2010 and December 31, 2009.





Recent
Accounting Pronouncements





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





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.


31


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 September 30,
2010, and was effective during the entire quarter ended September 30,
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.




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,
and “Item 1A. Risk Factors" in our Quarterly Report on Form 10-Q for
the quarter ended June 30, 2010, which could materially affect our business,
financial condition or future results. The risks described in our Annual Report
on Form 10-K and Quarterly Report on Form 10-Q 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
September 30, 2010.





ITEM
3.     DEFAULTS UPON SENIOR SECURITIES





There
were no defaults upon senior securities during the fiscal quarter ended
September 30, 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.


32


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


33


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:
November 10, 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)


34


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


35