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, 2009





 ̈ 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
Tyson’s Boulevard, Suite 550


McLean,
VA  22102


(Address
of principal executive offices, Zip Code)





(571)
      730-1200(Registrant’s
      telephone number, including area code)Thorium
      Power Ltd.
 (Former Name, Former Address and Former Fiscal Year if Changed Since Last Report)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.


Yes   x  No   ̈





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





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 11, 2009 is as
follows:





Class of Securities
              Shares OutstandingCommon
      Stock, $0.001 par value
              10,154,512




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









ITEM
1.     FINANCIAL STATEMENTS




LIGHTBRIDGE
CORPORATION





UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS





SEPTEMBER 30, 2009 AND
2008





TABLE OF
CONTENTS





PageCondensed
      Consolidated Balance Sheets
                
                2Unaudited
      Condensed Consolidated Statements of Operations and Comprehensive Income
      (Loss)
                
                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 30,
                    
                    
                    December 31,2009
                    
                    
                    2008(Unaudited)ASSETSCurrent
      AssetsCash
      and cash equivalents
                    
                    $
                    3,872,046
                    
                    
                    $
                    5,580,244Restricted
      cash
                    
                    
                    651,409
                    
                    
                    
                    650,000Accounts
      receivable - project revenue and reimbursable project
costs
                    
                    
                    2,070,121
                    
                    
                    
                    5,357,804Prepaid
      expenses & other current assets
                    
                    
                    865,283
                    
                    
                    
                    394,315Total
      Current Assets
                    
                    
                    7,458,859
                    
                    
                    
                    11,982,363Property
      Plant and Equipment -net
                    
                    
                    101,139
                    
                    
                    
                    108,121Other
      AssetsPatent
      costs
                    
                    
                    241,845
                    
                    
                    
                    217,875Security
      deposits
                    
                    
                    125,548
                    
                    
                    
                    138,418Total
      Other Assets
                    
                    
                    367,393
                    
                    
                    
                    356,293Total
      Assets
                    
                    $
                    7,927,391
                    
                    
                    $
                    12,446,777LIABILITIES
      AND STOCKHOLDERS EQUITYCurrent
      LiabilitiesAccounts
      payable and accrued liabilities
                    
                    $
                    2,081,323
                    
                    
                    $
                    5,138,979Total
      Liabilities
                    
                    
                    2,081,323
                    
                    
                    
                    5,138,979Commitments
      and contingenciesStockholders'
      EquityPreferred
      stock, $0.001 par value, 50,000,000 authorized shares, no shares issued
      and outstanding
                    
                    
                    -
                    
                    
                    
                    -Common
      stock, $0.001par value, 500,000,000 authorized, 10,154,168 shares issued
      and outstanding at  September 30, 2009 and 10,049,769 shares
      (restated for reverse stock split of 1 to 30) issued and outstanding at
      December 31, 2008
                    
                    
                    10,154
                    
                    
                    
                    10,050Additional
      paid in capital - stock and stock equivalents
                    
                    
                    52,996,913
                    
                    
                    
                    48,898,894Accumulated
      Deficit
                    
                    
                    (46,646,308
                    )
                    
                    
                    (41,489,974
                    )Common
      stock reserved for issuance, 3,869 shares and 16,135 shares (restated for
      reverse stock split of 1 to 30) at September 30, 2009 and December 31,
      2008, respectively
                    
                    
                    34,250
                    
                    
                    
                    114,787Deferred
      stock compensation
                    
                    
                    (548,941
                    )
                    
                    
                    (225,959
                    )Total
      Stockholders' Equity
                    
                    
                    5,846,068
                    
                    
                    
                    7,307,798Total
      Liabilities and Stockholders' Equity
                    
                    $
                    7,927,391
                    
                    
                    $
                    12,446,777





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




2




Lightbridge
Corporation


Unaudited
Condensed Consolidated Statements of Operations and Comprehensive
Income


(Loss)





Three Months Ended
                    
                    
                    Nine Months EndedSeptember 30,
                    
                    
                    September 30,2009
                    
                    
                    2008
                    
                    
                    2009
                    
                    
                    2008Revenue:Consulting
      Revenue
                    
                    $
                    2,009,548
                    
                    
                    $
                    6,746,500
                    
                    
                    $
                    8,384,086
                    
                    
                    $
                    14,863,125Cost
      of  Consulting Services Provided
                    
                    
                    1,289,552
                    
                    
                    
                    1,862,309
                    
                    
                    
                    4,926,916
                    
                    
                    
                    5,246,875Gross
      Margin
                    
                    
                    719,996
                    
                    
                    
                    4,884,191
                    
                    
                    
                    3,457,170
                    
                    
                    
                    9,616,250Operating
      ExpensesGeneral
      and administrative
                    
                    
                    1,550,994
                    
                    
                    
                    2,478,894
                    
                    
                    
                    3,624,462
                    
                    
                    
                    5,595,881Research
      and development expenses
                    
                    
                    325,044
                    
                    
                    
                    211,779
                    
                    
                    
                    1,337,961
                    
                    
                    
                    497,228General
      and administrative - stock-based compensation
                    
                    
                    1,135,171
                    
                    
                    
                    1,384,828
                    
                    
                    
                    3,666,964
                    
                    
                    
                    4,172,007Total
      Operating Expenses
                    
                    
                    3,011,209
                    
                    
                    
                    4,075,501
                    
                    
                    
                    8,629,387
                    
                    
                    
                    10,265,116Operating
      income ( loss)
                    
                    
                    (2,291,213
                    )
                    
                    
                    808,690
                    
                    
                    
                    (5,172,217
                    )
                    
                    
                    (648,866
                    )Other
      Income and (Expenses)Realized
      loss on marketable securities
                    
                    
                    0
                    
                    
                    
                    0
                    
                    
                    
                    0
                    
                    
                    
                    (438,750
                    )Interest
      income
                    
                    
                    5,197
                    
                    
                    
                    19,113
                    
                    
                    
                    21,717
                    
                    
                    
                    162,293Foreign
      currency transaction loss
                    
                    
                    (907
                    )
                    
                    
                    0
                    
                    
                    
                    (5,834
                    )
                    
                    
                    0Total
      Other Income and Expenses
                    
                    
                    4,290
                    
                    
                    
                    19,113
                    
                    
                    
                    15,883
                    
                    
                    
                    (276,457
                    )Net
      income ( loss) before income taxes
                    
                    
                    (2,286,923
                    )
                    
                    
                    827,803
                    
                    
                    
                    (5,156,334
                    )
                    
                    
                    (925,323
                    )Income
      taxes
                    
                    
                    0
                    
                    
                    
                    (24,799
                    )
                    
                    
                    0
                    
                    
                    
                    7,140Net
      income ( loss)
                    
                    
                    (2,286,923
                    )
                    
                    
                    852,602
                    
                    
                    
                    (5,156,334
                    )
                    
                    
                    (932,463
                    )Other
      Comprehensive Income (Loss)Unrealized
      gain on marketable securities
                    
                    
                    0
                    
                    
                    
                    437,234
                    
                    
                    
                    0
                    
                    
                    
                    433,719Total
      Comprehensive Income (Loss)
                    
                    $
                    (2,286,923
                    )
                    
                    $
                    1,289,836
                    
                    
                    $
                    (5,156,334
                    )
                    
                    $
                    (498,744
                    )Net
      Income(Loss) Per Common Share, Basic and diluted
                    
                    $
                    (0.23
                    )
                    
                    $
                    0.09
                    
                    
                    $
                    (0.51
                    )
                    
                    $
                    (0.09
                    )Weighted
      Average Number of shares outstanding for the period used to compute per
      share data - (prior reporting periods restated to reflect 1 to 30 reverse
      stock split)
                    
                    
                    10,140,767
                    
                    
                    
                    9,987,178
                    
                    
                    
                    10,085,913
                    
                    
                    
                    10,013,543





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




3




Lightbridge
Corporation


Unaudited
Condensed Consolidated Statements of Cash Flows





Nine months endedSeptember 30,2009
                    
                    
                    2008Operating
      Activities:Net
      Loss
                    
                    $
                    (5,156,334
                    )
                    
                    $
                    (932,463
                    )Adjustments
      to reconcile net loss from operations to net cash used in operating
      activities:Stock-based
      compensation
                    
                    
                    3,694,604
                    
                    
                    
                    4,500,411Depreciation
      and amortization
                    
                    
                    20,084
                    
                    
                    
                    11,593Loss
      on marketable securities - available for sale
                    
                    
                    0
                    
                    
                    
                    433,719Changes
      in non-cash operating working capital items:Accounts
      receivable - fees and reimburseable project costs
                    
                    
                    3,287,683
                    
                    
                    
                    (759,929
                    )Prepaid
      expenses and other current assets
                    
                    
                    (470,968
                    )
                    
                    
                    88,449Security
      deposits
                    
                    
                    12,870
                    
                    
                    
                    (138,418
                    )Accounts
      payable, accrued liabilities and other current liabilities
                    
                    
                    (3,057,656
                    )
                    
                    
                    (319,406
                    )Deferred
      revenue
                    
                    
                    0
                    
                    
                    
                    (523,125
                    )Deferred
      project costs - net
                    
                    
                    0
                    
                    
                    
                    371,631Net
      Cash Provided By (Used In) Operating Activities
                    
                    
                    (1,669,717
                    )
                    
                    
                    2,732,462Investing
      Activities:Property
      and equipment
                    
                    
                    (13,102
                    )
                    
                    
                    (192,198
                    )Patent
      costs
                    
                    
                    (23,970
                    )
                    
                    
                    0Net
      Cash Used In Investing Activities
                    
                    
                    (37,072
                    )
                    
                    
                    (192,198
                    )Financing
      Activities:Proceeds
      from issue of common shares
                    
                    
                    0
                    
                    
                    
                    49,975Payments
      on notes payable and other
                    
                    
                    0
                    
                    
                    
                    (10,433
                    )Increase
      in restricted cash
                    
                    
                    (1,409
                    )
                    
                    
                    0Net
      Cash Provided by (Used In) Financing Activities
                    
                    
                    (1,409
                    )
                    
                    
                    39,542Net
      Increase (Decrease) In Cash and Cash Equivalents
                    
                    
                    (1,708,198
                    )
                    
                    
                    2,579,806Cash
      and Cash Equivalents, Beginning of Period
                    
                    
                    5,580,244
                    
                    
                    
                    9,907,691Reclassification
      of cash equivalents to marketable securities - available for
      sale
                    
                    
                    0
                    
                    
                    
                    (2,127,429
                    )Cash
      and Cash Equivalents, End of Period
                    
                    $
                    3,872,046
                    
                    
                    $
                    10,360,068Supplemental
      Disclosure of Cash Flow InformationCash
      paid during the year:Interest
      paid
                    
                    $
                    0
                    
                    
                    $
                    40Income
      taxes paid
                    
                    $
                    266,000
                    
                    
                    $
                    31,939





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




4




Lightbridge
Corporation


Unaudited
Condensed Consolidated Statements of Changes in Stockholders’
Equity


For
the Nine Months Ended September 30, 2009 (Unaudited) and Year Ended December 31,
2008





Common Stock
                                                      
                                                      
                                                      Additional
                                                        Paid-in
                                                      
                                                      
                                                      Accumulated
                                                      
                                                      
                                                      Common Stock
                                                        Reserved For Future
                                                      
                                                      
                                                      Accumulated
                                                        Other
                                                        Comprehensive
                                                      
                                                      
                                                      Deferred
                                                        Stock
                                                      
                                                      
                                                      Treasury Stock
                                                      
                                                      
                                                      Stockholders’Shares
                                                      
                                                      
                                                      Amount
                                                      
                                                      
                                                      Capital
                                                      
                                                      
                                                      Deficit
                                                      
                                                      
                                                      Issuance
                                                      
                                                      
                                                      Income
                                                      
                                                      
                                                      Compensation
                                                      
                                                      
                                                      Shares
                                                      
                                                      
                                                      Amount
                                                      
                                                      
                                                      EquityBalance
      - December 31, 2007 – restated to reflect 1 for 30 reverse stock
      split
                                                      
                                                      
                                                      9,967,139
                                                      
                                                      
                                                      
                                                      9,967
                                                      
                                                      
                                                      
                                                      42,080,782
                                                      
                                                      
                                                      $
                                                      (38,630,572
                                                      )
                                                      
                                                      $
                                                      590,000
                                                      
                                                      
                                                      $
                                                      30,143
                                                      
                                                      
                                                      $
                                                      (479,445
                                                      )
                                                      
                                                      $
                                                      __
                                                      
                                                      
                                                      
                                                      __
                                                      
                                                      
                                                      $
                                                      3,600,875Unrealized
      loss on marketable securities
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      (30,143
                                                      )
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      (30,143
                                                      )Exercise
      of stock options
                                                      
                                                      
                                                      10,678
                                                      
                                                      
                                                      
                                                      11
                                                      
                                                      
                                                      
                                                      49,964
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      49,975Stock
      option expense
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      6,138,220
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      6,138,220Stock
      based compensation
                                                      
                                                      
                                                      5,285
                                                      
                                                      
                                                      
                                                      5
                                                      
                                                      
                                                      
                                                      39,995
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      114,787
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      (114,787
                                                      )
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      40,000Amortization
      of deferred stock compensation costs
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      368,273
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      368,273Shares
      issued
                                                      
                                                      
                                                      66,667
                                                      
                                                      
                                                      
                                                      67
                                                      
                                                      
                                                      
                                                      589,933
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      (590,000
                                                      )
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      0Net
      loss for the year
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      (2,859,402
                                                      )
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      (2,859,402
                                                      )Balance
      - December 31, 2008
                                                      
                                                      
                                                      10,049,769
                                                      
                                                      
                                                      
                                                      10,050
                                                      
                                                      
                                                      
                                                      48,898,894
                                                      
                                                      
                                                      
                                                      (41,489,974
                                                      )
                                                      
                                                      
                                                      114,787
                                                      
                                                      
                                                      __
                                                      
                                                      
                                                      
                                                      (225,959
                                                      )
                                                      
                                                      __
                                                      
                                                      
                                                      __
                                                      
                                                      
                                                      
                                                      7,307,798Stock
      based compensation
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      3,524,967
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      34,250
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      3,559,217Amortization
      of deferred stock compensation costs
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      135,387
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      135,387Net
      loss for the period
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      (5,156,334
                                                      )
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      (5,156,334
                                                      )Shares
      issued/ net of grant forfeitures
                                                      
                                                      
                                                      104,399
                                                      
                                                      
                                                      
                                                      104
                                                      
                                                      
                                                      
                                                      573,052
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      (114,787
                                                      )
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      (458,369
                                                      )
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      0__Balance
      - September 30, 2009
                                                      
                                                      
                                                      10,154,168
                                                      
                                                      
                                                      
                                                      10,154
                                                      
                                                      
                                                      
                                                      52,996,913
                                                      
                                                      
                                                      
                                                      (46,646,308
                                                      )
                                                      
                                                      
                                                      34,250
                                                      
                                                      
                                                      __
                                                      
                                                      
                                                      
                                                      (548,941
                                                      )
                                                      
                                                      __
                                                      
                                                      
                                                      __
                                                      
                                                      
                                                      
                                                      5,846,068





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




5




Lightbridge
Corporation


Notes
to Unaudited Condensed Consolidated Financial Statements


For
the Nine Months Ended September 30, 2009 and 2008





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, 2008, included
in our Annual Report on Form 10-K for the year ended December 31,
2008.





In the
opinion of the management of the Company, all adjustments, which are of a normal
recurring nature, necessary for a fair statement of the results for the
three-month period have been made. Results for the interim periods presented are
not necessarily indicative of the results that might be expected for the entire
fiscal year.  When used in these notes, the terms "Company", "we", "us" or
"our" mean Lightbridge Corporation and all entities included in our consolidated
financial statements.




Nature
of operations





Our
subsidiary, Thorium Power Inc., or TPI, was incorporated in the
state of Delaware on January 8, 1992. On February 14, 2006, Lightbridge
Corporation entered into an agreement and plan of merger with TPI.
On October 6, 2006 Lightbridge Corporation acquired TPI through
a merger transaction pursuant to the agreement and plan of merger. On
September 29, 2009 we changed our name from Thorium Power, Ltd. to Lightbridge
Corporation and we effected a 1-for-30 reverse stock split of our common
stock.




We are
now engaged in two business segments. The first business segment is the
development, promotion and marketing of our patented thorium-based nuclear
fuel designs for existing pressurized water reactors. Presently, we are focusing
most of our efforts on demonstrating and testing our nuclear fuel technology for
the Russian designed VVER-1000 reactors. Operations to date in this business
segment have been devoted primarily to continued development of our fuel
designs, filing for certain patents related to our technology, developing
strategic relationships within the nuclear power industry, and securing
political as well as some financial support from the United States and Russian
governments.





Once our
reactor fuels are further developed and tested, we plan to license our
intellectual property rights to fuel fabricators, nuclear generators, and
governments for use in commercial light water nuclear reactors, or sell the
technology to a major nuclear company or government contractor, or some
combination of the two. We anticipate having the final design of our fuel
technology for VVER-1000 reactors and commencing the demonstration of our fuel
in a VVER-1000 operating reactor within the next three to five years. Presently
all of our research, testing and demonstration activities are being conducted in
Russia. Our research operations are subject to various political, economic, and
other risks and uncertainties inherent in Russia.





Our
business model expanded in 2007, and our second business segment is providing
consulting and strategic advisory services to companies and governments planning
to create or expand electricity generation capabilities using nuclear power
plants. We have secured four contracts with successively larger values for
consulting and strategic advisory services in the United Arab Emirates, or UAE.
On August 1, 2008, we signed separate consulting services agreements with two
government entities to be formed by Abu Dhabi. Under these two agreements, we
are to provide consulting and strategic advisory services over a contract term
of five years starting from June 23, 2008, with automatic renewals of these
contracts for one year periods.




On July
23, 2009, we entered into an Initial Collaborative Agreement with AREVA.
Pursuant to this agreement, we will conduct the first phase of an investigation
of specific topics of thorium fuel cycles in AREVA’s light water reactors,
or LWRs. This first phase will focus on providing initial general results
relating to evolutionary approaches to the use of thorium in AREVA’s LWRs,
specifically within AREVA’s Evolutionary Power Reactor. Anticipated phase 2 and
further phases of the collaboration, including a detailed study of evolutionary
and longer-term thorium fuel concepts, will be conducted in accordance with
additional collaborative agreements.




6




Lightbridge
Corporation
 Notes
to Unaudited Condensed Consolidated Financial Statements
 For
the Nine Months Ended September 30, 2009 and 2008




Phase 1
and phase 2 of the collaboration between us and AREVA are being conducted
with the intention of future collaborative agreements between the two parties in
order to develop and set up new products and technologies related to thorium
fuel concepts. AREVA’s use of our intellectual property for commercial purposes
or any purpose other than as specified in the Agreement would be separately
negotiated on a royalty basis.





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




Accounting
Policies





a)
Consolidation




These
financial statements include the accounts of Lightbridge Corporation, a Nevada
corporation, and our wholly-owned subsidiaries, Thorium Power, Inc., a Delaware
corporation, and Lightbridge Power International Holding, LLC, a Delaware
limited liability company.




All
significant intercompany transactions and balances have been eliminated in
consolidation. We have 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.





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)Revenue
Recognition





Consulting
Business Segment





Revenue—at
the present time we are deriving substantially all of our revenue from our
consulting and strategic advisory services business segment, by offering
services to foreign governments planning to create or expand electricity
generation capabilities using nuclear power plants. Our fee structure for each
client engagement is dependent on a number of variables, including the size of
the client, the complexity, the level of the opportunity for us to improve the
client’s electrical generation capabilities using nuclear power plants, and
other factors. The accounting policy we use to recognize revenue depends on the
terms of the specific contract. All of our consulting contracts mentioned below
are with the Executive Affairs Authority, or EAA, of Abu Dhabi, one of the
member Emirates of the UAE, and the related entities to be formed: Emirates
Nuclear Energy Corporation, or ENEC, and Federal Authority for Nuclear
Regulation, or FANR. All of our revenues recognized for 2009 were recognized on
a time and expense basis. All of our revenues recognized for the first quarter
of 2008 were recognized under the completed performance model of revenue
recognition for our first consulting project with EAA (Roadmap). All of our
revenues for the second quarter of 2008 were derived from the completion of the
defined contract deliverables required from the second consulting contract
entered into in March 2008 with the EAA, and completed in June 2008. All of our
consulting revenue was recognized on a time and expense basis for the third and
fourth quarter of 2008.




7




Lightbridge
Corporation
 Notes
to Unaudited Condensed Consolidated Financial Statements
 For
the Nine Months Ended September 30, 2009 and 2008




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 (“EITF
99-19”), 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.





For the
year ended December 31, 2008, we were paid upfront by our customer for all
travel costs and other reimbursable costs, thus these costs were not recorded as
revenue in 2008. Starting January 1, 2009 we have determined, based on the
credit risk that we now bear for collecting travel costs and other reimbursable
costs, that in 2009 we are acting as a principal, and therefore we are
recognizing the revenue related to all travel costs and other reimbursable
costs.





Technology
Business Segment





Once our
thorium-based nuclear fuel designs have advanced to a commercially usable stage,
we will seek to license our technology to major government contractors or
nuclear companies, working for the U.S. and other governments. We expect that
our revenue from license fees will be recognized on a straight-line basis over
the expected period of the related license term.





We
recognize revenue from our agreement with AREVA upon the completion of certain
defined contract deliverables that are accepted by AREVA.





d)Stock-Based
Compensation





We
account for stock-based awards at the fair value on the date of grant and
recognition of compensation over the service period for awards expected to vest.
The fair value of restricted stock and restricted stock units is determined
based on the number of shares granted and the average of the high bid and low
asked prices of the shares in the market on the trading day immediately
preceding the grant date. Such value is recognized as expense over the service
period, net of estimated forfeitures.





e)Earnings per
Share





Basic
earnings per share is calculated using our weighted-average outstanding common
shares. Diluted earnings per share is calculated using our weighted-average
outstanding common shares including the dilutive effect of stock awards as
determined under the treasury stock method.





f)Recent Accounting
Pronouncements





FASB
Accounting Standards Codification (Accounting Standards Update “ASU”
2009-1). In June 2009, the FASB approved its Accounting Standards
Codification, or Codification, as the single source of authoritative United
States accounting and reporting standards applicable for all non-governmental
entities, with the exception of the SEC and its staff. The Codification is
effective for interim or annual financial periods ending after September 15,
2009 and impacts our financial statements as all future references to
authoritative accounting literature will be referenced in accordance with the
Codification. There have been no changes to the content of our financial
statements or disclosures as a result of implementing the Codification during
the quarter ended September 30, 2009. As a result of our implementation of
the Codification during the quarter ended September 30, 2009, previous
references to new accounting standards and literature are no longer
applicable.





In
April 2008, the FASB issued guidance regarding the, “Determination of the
Useful Life of Intangible Assets.” This guidance amends the factors that should
be considered in developing renewal or extension assumptions used to determine
the useful life of a recognized intangible asset. The intent of this guidance is
to improve the consistency between the useful life of a recognized intangible
asset and the period of expected cash flows used to measure the fair value of
the asset under other U.S. generally accepted accounting principles. This
guidance is effective for financial statements issued for fiscal years beginning
after December 15, 2008, and interim periods within those fiscal years. The
guidance for determining the useful life of a recognized intangible asset shall
be applied prospectively to intangible assets acquired after the effective date.
Certain disclosure requirements shall be applied prospectively to all intangible
assets recognized as of, and subsequent to, the effective date.




8




Lightbridge
Corporation
 Notes
to Unaudited Condensed Consolidated Financial Statements
 For
the Nine Months Ended September 30, 2009 and 2008




Interim
Disclosures about Fair Value of Financial Instruments (Included in ASC 825
“Financial Instruments”, previously FSP SFAS No. 107-1).This guidance requires that
the fair value disclosures required for all financial instruments within the
scope of SFAS No. 107, “Disclosures about Fair Value of Financial Instruments”,
be included in interim financial statements. This guidance also requires
entities to disclose the method and significant assumptions used to estimate the
fair value of financial instruments on an interim and annual basis and to
highlight any changes from prior periods. FSP 107-1 was effective for interim
periods ending after September 15, 2009. The adoption of FSP 107-1 did not have
a material impact on our Consolidated Financial Statements. The fair value of
all cash, receivables and payables are equal to the carrying
amounts.





In
May 2009, the FASB issued guidance regarding “Subsequent
Events” (Included in ASC 855 “Subsequent Events”, previously SFAS No. 165).
This guidance establishes general standards of accounting for and disclosure of
events that occur after the balance sheet date but before the financial
statements are issued or are available to be issued. It requires the disclosure
of the date through which an entity has evaluated subsequent events and the
basis for that date. This guidance is effective for interim and annual reporting
periods ending after June 15, 2009, and shall be applied
prospectively.





2.
FINANCIAL STATUS OF THE COMPANY





We are
currently executing our strategic plan for 2009 and working on
determining our future cash needs. Management anticipates, based on its
current working capital and projected working capital requirements, that it will
have enough working capital funds to sustain its current operations at its
current operating level until sometime in 2010. In support of the our
longer-term business plan, we will need to raise additional capital by way of an
offering of equity securities, an offering of debt securities, or by obtaining
financing through a bank or other entity to finance its research and development
expenditures. We may also need to raise additional capital sooner to
support our overhead operation if the consulting and strategic advisory
services business becomes non-sustaining. Currently, we are working on
revenue opportunities with the overall goal of increasing our profitability and
cash flow. We expect to meet all of its financial commitments and operating
needs for 2009.





3.  CONSULTING
REVENUES





ENEC and
FANR Projects





Substantially
all of our revenue earned in the amount of approximately $3.0 million for the
first quarter of 2009, $3.4 million for the second quarter of 2009 and
approximately $1.9 million for the third quarter of 2009, has been derived from
the two consulting contracts we entered into in August 2008, for consulting
services to be rendered for future periods.  The variation in revenue
reflects the uneven nature of consulting projects and the timing of revenues
recognized on the respective projects.





We expect
to continue to provide strategic advisory services to the EAA of Abu Dhabi and
to both the ENEC and FANR entities during the five-year term of these consulting
agreements. Under these agreements, revenue will be recognized on a time and
expense basis. We periodically discuss our consulting work with the EAA of Abu
Dhabi, who will review the work we perform, and our reimbursable travel
expenses, prior to the date of our monthly invoicing for services and
expenses.





Travel
costs and other reimbursable costs under these contracts are reported in the
accompanying statement of operations as both revenue and cost of consulting
services provided, and totaled approximately $122,000 for the three months ended
September 30, 2009 and approximately $760,000 for the nine months ended
September 30, 2009. The total travel and other reimbursable expenses that have
not been reimbursed are being presented on the accompanying balance sheet and
included in total accounts receivable in the amount of approximately $26,000 at
September 30, 2009. The remaining accounts receivable reported at September 30,
2009 of approximately $2,044,000, represents consulting fees billed and due for
the work performed for both the ENEC and FANR projects mentioned above, as well
as work performed on the AREVA project. Total accounts receivable reported on
the accompanying balance sheet is approximately $2,070,000 at September 30,
2009.




9




Lightbridge
Corporation
 Notes
to Unaudited Condensed Consolidated Financial Statements
 For
the Nine Months Ended September 30, 2009 and 2008




4.
BUSINESS SEGMENTS





We have
two principal operating segments, which are (1) 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, 2009 and 2008.




BUSINESS
SEGMENT RESULTS – THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008





Consulting
                  
                  
                  Fuel Technology
                  
                  
                  Corporate and
                    Eliminations
                  
                  
                  Total2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Revenue
                  
                  
                  1,941,382
                  
                  
                  
                  6,746,500
                  
                  
                  
                  68,166
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  2,009,548
                  
                  
                  
                  6,746,500Segment
      Profit (Loss) – Pre Tax
                  
                  
                  570,588
                  
                  
                  
                  4,884,191
                  
                  
                  
                  (402,388
                  )
                  
                  
                  (376,733
                  )
                  
                  
                  (2,455,123
                  )
                  
                  
                  (3,679,655
                  )
                  
                  
                  (2,286,923
                  )
                  
                  
                  827,803Total
      Assets
                  
                  
                  2,008,435
                  
                  
                  
                  875,515
                  
                  
                  
                  379,553
                  
                  
                  
                  217,875
                  
                  
                  
                  5,539,403
                  
                  
                  
                  11,353,387
                  
                  
                  
                  7,927,391
                  
                  
                  
                  12,446,777Property
      Additions
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  1,900
                  
                  
                  
                  192,198
                  
                  
                  
                  1,900
                  
                  
                  
                  192,198Interest
      Expense
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Depreciation
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  7,080
                  
                  
                  
                  8,126
                  
                  
                  
                  7,080
                  
                  
                  
                  8,126




BUSINESS
SEGMENT RESULTS – NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008





Consulting
                    
                    
                    Fuel Technology
                    
                    
                    Corporate and
                      Eliminations
                    
                    
                    Total2009
                    
                    
                    2008
                    
                    
                    2009
                    
                    
                    2008
                    
                    
                    2009
                    
                    
                    2008
                    
                    
                    2009
                    
                    
                    2008Revenue
                    
                    
                    8,315,921
                    
                    
                    
                    14,863,125
                    
                    
                    
                    68,166
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    8,384,086
                    
                    
                    
                    14,863,125Segment
      Profit (Loss) - Pre Tax
                    
                    
                    3,170,607
                    
                    
                    
                    9,616,250
                    
                    
                    
                    (1,415,304
                    )
                    
                    
                    (954,365
                    )
                    
                    
                    (6,911,638
                    )
                    
                    
                    (9,587,208
                    )
                    
                    
                    (5,156,334
                    )
                    
                    
                    (925,323
                    )Total
      Assets
                    
                    
                    2,008,435
                    
                    
                    
                    875,515
                    
                    
                    
                    379,553
                    
                    
                    
                    217,875
                    
                    
                    
                    5,539,403
                    
                    
                    
                    11,353,387
                    
                    
                    
                    7,927,391
                    
                    
                    
                    12,446,777Property
      Additions
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    13,102
                    
                    
                    
                    192,198
                    
                    
                    
                    13,102
                    
                    
                    
                    192,198Interest
      Expense
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    40
                    
                    
                    
                    —
                    
                    
                    
                    40Depreciation
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    20,084
                    
                    
                    
                    11,593
                    
                    
                    
                    20,084
                    
                    
                    
                    11,593




10




Lightbridge
Corporation
 Notes
to Unaudited Condensed Consolidated Financial Statements
 For
the Nine Months Ended September 30, 2009 and 2008




5.
RESEARCH AND DEVELOPMENT COSTS





Research
and development costs, included in the statement of operations amounted to
approximately $325,000 and $212,000 for the three months ended September 30,
2009 and 2008, respectively and approximately $1,338,000 and $497,000 for the
nine months ended September 30, 2009 and 2008, respectively. Total cumulative
expense has amounted to $7,586,867 from January 8, 1992 to September 30, 2009.
These totals do not include the costs incurred on the research and development
contracts shown below of $145,228, 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 July 23, 2009, under which we
are obligated to perform certain specific research and development
activities under an Initial Collaborative Agreement. We receive fees
under the terms of this Agreement.





AREVA is
obligated to pay us a total of $550,000 for services provided in phase 1,
assuming no early termination and assuming completion of the original scope of
work. AREVA will also reimburse us for any reasonable out of pocket
expenses properly incurred by us and directly attributable to the provision
of the services outlined in the Agreement.





Compensation
earned and costs incurred by us for the three months and nine months ended
September 30, 2009 under this contract are as follows:





Fees
      & Expense Reimbursements
                      
                      $
                      68,166Costs
      incurred to date - charged to cost of consulting services
      provided
                      
                      $
                      145,228





Deferred
projects costs, included on the balance sheet in the caption “prepaid expenses
and other current assets”, totaled $25,758 at September 30, 2009. Deferred
project costs are then recognized or amortized to an expense captioned, “cost of
consulting services provided” (on the accompanying Statement of Operations),
when the revenue is to be recognized or when the project is
completed.





6.
ACCOUNTS PAYABLE AND ACCRUED EXPENSES




Accounts payable and accrued expenses consisted
                    of the following:
                  
                  September
                    2009
                  
                  
                  December
                    2008Trade
      Payables
                  
                  $
                  84,162
                  
                  
                  $
                  2,474,564Accrued
      Expenses
                  
                  
                  1,226,403
                  
                  
                  
                  801,082Accrued
      Payroll and Severance
                  
                  
                  770,758
                  
                  
                  
                  1,863,333$
                  2,081,323
                  
                  
                  $
                  5,138,979





7.  STOCKHOLDERS'
EQUITY





On
September 29, 2009, the 1-for-30 reverse split of our common shares became
effective. Total common stock outstanding at September 30, 2009 and December 31,
2008 was 10,154,168 and 10,049,769, respectively (restated to reflect the 1 for
30 reverse stock split). This reverse stock split resulted in a decrease in the
par value of the common stock and a corresponding increase in additional paid in
capital of $294,471and $291,443 at December 31, 2009 and 2008, respectively. At
September 30, 2009, there were 3,869 shares reserved for future issuance and
2,007,717 stock options outstanding, all totaling 12,165,754 of total stock and
stock equivalents outstanding at September 30, 2009.




11




Lightbridge
Corporation
 Notes
to Unaudited Condensed Consolidated Financial Statements
 For
the Nine Months Ended September 30, 2009 and 2008




a)
Stock-based Compensation





We
have a stock-based compensation plan to reward for services rendered by
officers, directors, employees and consultants. On July 17, 2006, we
amended this stock plan. We have reserved 2,500,000 shares of common
stock of our unissued share capital for the stock plan. Other limitations
are as follows:




(i)
            No
      more than an aggregate of 1,250,000 shares can be granted for the purchase
      of restricted common shares during the term of the stock
    plan;





(ii)
            The
      maximum number of shares of common stock with respect to which options may
      be granted to any one person during any fiscal year may not exceed
      266,667 shares; and




(iii)
            The
      maximum number of restricted shares that may be granted to any one person
      during any fiscal year may not exceed 166,667 common
      shares.





Total
stock options outstanding at September 30, 2009 were 2,007,717 of which
1,395,769 of these options were vested at September 30, 2009. Stock option
expense was $1,062,039 and $3,454,969 for the three months and nine months ended
September 30, 2009.




Stock
option transactions to the employees, directors, advisory board members and
consultants are summarized as follows for the nine months ended September 30,
2009:





Stock
      Options Outstanding
                  
                  2009Beginning
      of the year
                  
                  
                  1,736,179Granted
                  
                  
                  406,749Exercised
                  
                  
                  —Forfeited
                  
                  
                  (85,663
                  )Expired
                  
                  
                  (49,548
                  )End
      of period
                  
                  
                  2,007,717Options
      exercisable
                  
                  
                  1,395,769





The above
table includes options issued as of September 30, 2009 as follows:





i).
            A
      total of 601,262 non-qualified 5-10 year options have been issued, and are
      outstanding, to advisory board members at exercise prices of $4.50 to
      $19.20 per share.





ii).
            A
      total of 1,168,755 non-qualified 5-10 year options have been issued, and
      are outstanding, to our directors, officers and
      employees at exercise prices of $4.50 to $23.85 per share. From this
      total, 683,985 options are outstanding to the Chief Executive Officer who
      is also a director, with remaining contractual lives of 0.9 – 9.8 years.
      All other options issued have a remaining contractual life ranging from
      0.8 years to 9.8 years.





iii).
            A
      total of 237,700 non-qualified 3-10 year options have been issued, and are
      outstanding, to our consultants at exercise prices of $4.68 to
      $15.30 per share.




The
following table provides certain information with respect to the
above-referenced stock options that are outstanding and exercisable at September
30, 2009:




12




Lightbridge
Corporation
 Notes
to Unaudited Condensed Consolidated Financial Statements
 For
the Nine Months Ended September 30, 2009 and 2008




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
                    
                    
                    5.66
                    
                    
                    
                    981,621
                    
                    
                    
                    523,179
                    
                    
                    $
                    5.59$9.00
      - $12.90
                    
                    
                    6.40
                    
                    
                    
                    188,891
                    
                    
                    
                    134,610
                    
                    
                    $
                    10.46$13.20-$18.90
                    
                    
                    5.19
                    
                    
                    
                    530,536
                    
                    
                    
                    456,311
                    
                    
                    $
                    14.06 7$19.20-$23.85
                    
                    
                    5.90
                    
                    
                    
                    306,669
                    
                    
                    
                    281,669
                    
                    
                    $
                    22.75Total
                    
                    
                    5.64
                    
                    
                    
                    2,007,717
                    
                    
                    
                    1,395,769
                    
                    
                    $
                    12.29





The
aggregate intrinsic value of stock options outstanding at September 30, 2009 was
$2,466,690 of which $1,295,260 related to vested awards. Intrinsic value is
calculated based on the difference between the exercise price of the underlying
awards and the quoted price of our common stock as of the reporting date ($8.05
per share as of the close on September 30, 2009).





Assumptions
used in the Black Scholes option-pricing model for the nine months ended
September 30, 2009 and 2008 were as follows:





Nine months ended9/30/2009
                  
                  
                  9/30/2008Average
      risk-free interest rate
                  
                  
                  2.99
                  %
                  
                  
                  3.61
                  %Average
      expected life
                  
                  10
      years
                  
                  
                  8.8
      yearsExpected
      volatility
                  
                  
                  97.63
                  %
                  
                  
                  112.3
                  %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, 2009 and 2008, $1,175,507 and $1,733,234
respectively, was recorded as total stock-based compensation. For the three
months ended September 30, 2009, stock-based compensation expense is presented
in the Statement of Operations as $1,169,421in general and administrative
expenses and $6,086 which is included in the cost of consulting services
provided. For the three months ended September 30, 2008, stock-based
compensation expense is presented in the Statement of Operations as $1,394,828
in general and administrative expenses and $338,406 which is included in the
Cost of consulting services provided.





During
the nine months ended September 30, 2009 and 2008, $3,694,606 and $4,500,411
respectively, was recorded as total stock-based compensation. For the nine
months ended September 30, 2009, stock-based compensation expense is presented
in the Statement of Operations as $3,666,964 in general and administrative
expenses and $27,642 which is included in the Cost of consulting services
provided. For the nine months ended September 30, 2008, stock-based compensation
expense is presented in the Statement of Operations as $4,172,007 in general and
administrative expenses and $328,404 which is included in the Cost of consulting
services provided.





The total
fair market value of restricted stock awards is recorded as deferred stock
compensation (a component of equity, which is presented in the Balance Sheet),
as grants are awarded. Deferred stock compensation is amortized as stock-based
compensation expense is recognized, or grants are forfeited. On September 30,
2009 and December 31, 2008, the balance carried in the deferred stock
compensation account was $548,941 and $225,959 respectively. During the nine
months ended September 30, 2009, we have amortized $135,387 as stock-based
compensation expense and recorded grant forfeitures in the amount of $70,748. We
have recorded deferred stock compensation related to new grants of restricted
stock in the amount of $529,117 which net of the grant forfeitures of $70,748 is
$458,369.




13




Lightbridge
Corporation


Notes
to Unaudited Condensed Consolidated Financial Statements


For
the Nine Months Ended September 30, 2009 and 2008





b).
Warrants





There are
no warrants outstanding as of September 30, 2009.




c).
Common Stock reserved for Future Issuance





Common
stock reserved for future issuance consists of





Shares of
                    
                    StockCommon
                    
                    PurchaseStock
                    
                    Warrants
                    
                    AmountStock-based
      compensation
                    
                    
                    3,869
                    
                    —
                    
                    $
                    34,250





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 2009 and 2008 annual effective tax rate is estimated
to be at a combined 40% for the U.S. federal and states statutory tax
rates.





As of
September 30, 2009 and December 31, 2008, there were no tax contingencies
recorded.





Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities recognized for financial reporting
and the amounts recognized for income tax purposes. The significant components
of deferred tax assets (at a 40% effective tax rate) as of September 30, 2009
and December 31, 2008 respectively, are as follows:





Deferred Tax Assets
                
                Total Amount
                
                
                Deferred Tax Asset Amount2009
                
                
                2008
                
                
                2009
                
                
                2008Capitalized
      start up costs
                
                $
                7,125,807
                
                
                $
                7,125,807
                
                
                $
                2,850,323
                
                
                $
                2,850,323Stock-based
      compensation
                
                
                17,929,307
                
                
                
                14,474,338
                
                
                
                7,171,723
                
                
                
                5,789,735Net
      operating loss carryforward
                
                
                15,956,432
                
                
                
                14,494,704
                
                
                
                6,382,573
                
                
                
                5,797,882Less:
      valuation allowance
                
                
                
                
                
                
                
                
                
                
                (16,404,619
                )
                
                
                (14,437,940
                )$
                41,011,546
                
                
                $
                36,094,849
                
                
                $
                —
                
                
                $
                —





We have net operating losscarryforwardfor federal and state tax purposes of
approximately $16 million that is available to offset future taxable income. For
financial reporting purposes, no deferred tax asset was recognized because at
September 30, 2009 substantially all of the net operating losses are expected to
expire unused. As a result, the amount of the deferred tax assets considered
realizable was reduced 100% by a valuation allowance. We have no other
deferred tax assets or liabilities. The change in the valuation allowance was
$1,966,679 for the nine months ended September 30, 2009. Many of our
operating expenses in its 2007 and 2006 tax years were classified under the
internal revenue code as capitalized start-up costs which were not deductible
for tax purposesin those
tax years, but are now amortized as start-up costs in 2009 and 2008.





We
filed a consolidated tax return with our subsidiaries.





In
2009, we prepaid federal and state income taxes in the amount of $266,000
for estimates for 2008 corporate taxes. We will receive this amount back
from the Internal Revenue Service and State taxing authorities in the fourth
quarter of 2009.




14


Lightbridge
Corporation


Notes
to Unaudited Condensed Consolidated Financial Statements


For
the Nine Months Ended September 30, 2009 and 2008





9.  RESEARCH
AGREEMENT





On
September 15, 2008, TPI, our wholly-owned subsidiary, entered into an
agreement for post-irradiation examination of experimental fuel element,
or the PIE Agreement, with the Russian Research Centre “Kurchatov
Institute,” or Kurchatov. Under the PIE Agreement, Kurchatov agreed to
perform post-irradiation examination of an irradiated uranium-zirconium seed
fuel sample using non-destructive and destructive methods. Pursuant to the PIE
Agreement, TPI is obligated to pay to Kurchatov a total of approximately
$138,000 ($45,000 of which has already been paid), and Kurchatov is obligated to
transfer to TPI the worldwide rights in all of the post-irradiation examination
data generated in the course of performance by Kurchatov of work under the PIE
Agreement. Kurchatov agrees not to use, in any manner, the work product
associated with such post-irradiation examination work 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 PIE 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.





In
October 2009 we entered into an umbrella agreement, or the SOSNY Agreement,
with Russian Limited Liability Research and Development Company, or SOSNY.
SOSNY will serve as our prime contractor in Russia to manage the research
and development activities related to the lead test assembly, or LTA,
program for Russian designed VVER-1000 reactors. SOSNY is a leading Russian
commercial nuclear entity specializing in front-end and back-end nuclear fuel
cycle management and logistics services.  Specific work will be
carried out under individual task orders to be issued under the SOSNY
Agreement.  The scope, deliverables, and costs are to be agreed
between the parties for each individual task order.  As of the date
hereof, no task orders have been issued.





In
addition to the above agreements, there are consulting agreements with several
consultants working on various projects for the Company, which total
approximately $5,000 per month.





10.  COMMITMENTS
AND CONTINGENCIES





We
have employment agreements with our executive officers and some
consultants, the terms of which expire at various times. Such agreements provide
for minimum compensation levels, as well as incentive bonuses that are payable
if specified management goals are attained. Under each of the agreements, in the
event the officer's employment is terminated (other than voluntarily by the
officer or by us for cause, or upon the death of the officer), we, if
all provisions of the employment agreements are met, are committed to pay
certain benefits, including specified monthly severance.





We moved
from our prior office facility and has 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 at September 30, 2009 of $80,239.





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





TotalYear
      ending - December 31, 2009
                  
                  $
                  561,640Year
      ending - December 31, 2010
                  
                  
                  536,467Year
      ending - December 31, 2011
                  
                  
                  564,109Year
      ending - December 31, 2012
                  
                  
                  586,136Year
      ending - December 31, 2013
                  
                  
                  609,016Total
      minimum lease payments
                  
                  $
                  2,857,368




15


Lightbridge
Corporation


Notes
to Unaudited Condensed Consolidated Financial Statements


For
the Nine Months Ended September 30, 2009 and 2008





11.
SUBSEQUENT EVENTS





Subsequent
Events (Included in ASC 855 “Subsequent Events”, previously SFAS No.
165). SFAS No.165, “Subsequent Events” establishes accounting and
disclosure requirements for subsequent events. SFAS 165 details the period after
the balance sheet date during which we should evaluate events or transactions
that occur for potential recognition or disclosure in the financial statements,
the circumstances under which we should recognize events or transactions
occurring after the balance sheet date in its financial statements and the
required disclosures for such events. We adopted this statement effective June
15, 2009 and have evaluated all subsequent events through the filing date with
the SEC.




16





FORWARD-LOOKING
STATEMENTS





This
Quarterly Report on Form 10-Q contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, 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: our significant operating losses; our limited operating history;
uncertainty of capital resources; the speculative nature of our business; our
ability to successfully implement new strategies; present and possible future
governmental regulations; operating hazards; competition; the loss of key
personnel; any of the factors in the “Risk Factors” section of our 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. We assume 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. We assume no obligation and does not intend
to update these forward-looking statements, except as required by law. When used
in this report, the terms “Lightbridge”, “Company”, “we”, “our”, and “us” refer
to Lightbridge Corporation, a Nevada corporation, and its wholly-owned
subsidiaries, Thorium Power, Inc., a Delaware corporation, and Lightbridge Power
International Holding, LLC, a Delaware limited liability company.





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





The
following discussion should be read in conjunction with our financial
statements, together with the notes to those statements, included elsewhere in
this report. The following discussion contains forward-looking statements that
involve risks, uncertainties, and assumptions such as statements of our plans,
objectives, expectations, and intentions. Our actual results may differ
materially from those discussed in these forward-looking statements because of
the risks and uncertainties inherent in future events. For additional
information, see Item 7 of Part II, “Management’s Discussion and Analysis
of Financial Condition and Results of Operations—Overview” of our 2008 Annual
Report on Form 10-K.





Name
Change and Stock Split





On
September 21, 2009, we filed a Certificate of Amendment to our Articles of
Incorporation with the Nevada Secretary of State to amend our Articles of
Incorporation to (1) change our name from Thorium Power, Ltd. to Lightbridge
Corporation, and (2) effect a 1-for-30 reverse split of our outstanding common
stock.  On October 9, 2009, our common stock began trading on the
Nasdaq Capital Market under the symbol “LTBR.”





General
Overview





We are a
provider of nuclear energy consulting and strategic advisory services and a
developer of proprietary nuclear fuel designs.


17





Consulting
and Strategic Advisory Services Business Segment





Substantially
all of our revenues are derived from our Consulting and Strategic Advisory
Services business segment, which provides nuclear consulting services to
entities within the United Arab Emirates, or UAE, as described in Item 1 of Part
1, “Financial Statements – Note 3 – Consulting Revenues.” We may enter into
additional consulting contracts to provide support and assistance to other
commercial and governmental entities that are looking to develop and expand
their nuclear power industry capabilities and infrastructure. In future
consulting engagements, we expect that revenues may be derived either from fixed
professional fee agreements or from fees generated through hourly rates, billed
on a time and expense basis.





Our most
significant expense related to our consulting and strategic advisory services
business segment is the cost of consulting services provided, which relates to
costs associated with generating consulting revenues, and includes employee
payroll expenses and benefits, contractor compensation, vendor compensation,
marketing expenses, direct costs of training and recruiting the consulting staff
and other costs. As revenues are generated from services performed by our
permanent staff and contractors, our success depends on attracting, retaining
and motivating talented, creative and experienced professionals at all levels in
our business.





Technology
Business Segment





Our
operations related to development and demonstration of our nuclear fuel designs
primarily involve testing of the fuel designs, developing strategic
relationships within and outside of the nuclear power industry, securing
political and financial support from the U.S. and Russian governments, and the
filing of patent applications including related administrative
functions.





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





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




To date,
we have only had minimal direct revenues from our research and development
activities regarding our proprietary nuclear fuel technology, and we do not
expect to generate licensing revenues from this business for several years,
until our fuel designs can be fully tested and demonstrated and we obtain the
proper approvals to use our 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. Additionally,
our knowledge of and credibility in addressing proliferation related issues that
we have developed over many years, benefit our consulting strategic advisory
services business. Our advisory services include a focus on non-proliferation,
safety and operational transparency of nuclear power programs.


18


Material
Opportunities and Challenges





Consulting
and Strategic Advisory Services





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





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





Proprietary
Nuclear Fuel Technology Development





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





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





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


19





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





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





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





Business
Segments and Periods Presented




We have
provided a discussion of our results of operations on a consolidated basis and
have also provided certain detailed segment information for each of our business
segments below for the three months and nine months ended September 30, 2009 and
2008, 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.


20




BUSINESS
SEGMENT RESULTS – THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008




Consulting
                      
                      Fuel Technology
                      
                      
                      Corporate and
                        Eliminations
                      
                      
                      Total2009
                      
                      2008
                      
                      2009
                      
                      2008
                      
                      
                      2009
                      
                      2008
                      
                      
                      2009
                      
                      
                      2008Revenue
                      
                      
                      1,941,382
                      
                      
                      6,746,500
                      
                      
                      68,166
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      —
                      
                      
                      
                      2,009,548
                      
                      
                      
                      6,746,500Segment
      Profit (Loss) – Pre Tax
                      
                      
                      570,588
                      
                      
                      4,884,191
                      
                      
                      (402,388
                      )
                      
                      (376,733
                      )
                      
                      
                      (2,455,123
                      )
                      
                      (3,679,655
                      )
                      
                      
                      (2,286,923
                      )
                      
                      
                      827,803Total
      Assets
                      
                      
                      2,008,435
                      
                      
                      875,515
                      
                      
                      379,553
                      
                      
                      217,875
                      
                      
                      
                      5,539,403
                      
                      
                      11,353,387
                      
                      
                      
                      7,927,391
                      
                      
                      
                      12,446,777Property
      Additions
                      
                      
                      —
                      
                      
                      —
                      
                      
                      —
                      
                      
                      —
                      
                      
                      
                      1,900
                      
                      
                      192,198
                      
                      
                      
                      1,900
                      
                      
                      
                      192,198Interest
      Expense
                      
                      
                      —
                      
                      
                      —
                      
                      
                      —
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —Depreciation
                      
                      
                      —
                      
                      
                      —
                      
                      
                      —
                      
                      
                      —
                      
                      
                      
                      7,080
                      
                      
                      8,126
                      
                      
                      
                      7,080
                      
                      
                      
                      8,126




BUSINESS
SEGMENT RESULTS – NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008




Consulting
                                            
                                            Fuel Technology
                                            
                                            
                                            Corporate and
                                              Eliminations
                                            
                                            
                                            Total2009
                                            
                                            2008
                                            
                                            2009
                                            
                                            2008
                                            
                                            
                                            2009
                                            
                                            2008
                                            
                                            
                                            2009
                                            
                                            
                                            2008Revenue
                                            
                                            
                                            8,315,921
                                            
                                            
                                            14,863,125
                                            
                                            
                                            68,166
                                            
                                            
                                            —
                                            
                                            
                                            
                                            —
                                            
                                            
                                            —
                                            
                                            
                                            
                                            8,384,086
                                            
                                            
                                            
                                            14,863,125Segment
      Profit (Loss)- Pre Tax
                                            
                                            
                                            3,170,607
                                            
                                            
                                            9,616,250
                                            
                                            
                                            (1,415,304
                                            )
                                            
                                            (954,365
                                            )
                                            
                                            
                                            (6,911,638
                                            )
                                            
                                            (9,587,208
                                            )
                                            
                                            
                                            (5,156,334
                                            )
                                            
                                            
                                            (925,323
                                            )Total
      Assets
                                            
                                            
                                            2,008,435
                                            
                                            
                                            875,515
                                            
                                            
                                            379,553
                                            
                                            
                                            217,875
                                            
                                            
                                            
                                            5,539,403
                                            
                                            
                                            11,353,387
                                            
                                            
                                            
                                            7,927,391
                                            
                                            
                                            
                                            12,446,777Property
      Additions
                                            
                                            
                                            —
                                            
                                            
                                            —
                                            
                                            
                                            —
                                            
                                            
                                            —
                                            
                                            
                                            
                                            13,102
                                            
                                            
                                            192,198
                                            
                                            
                                            
                                            13,102
                                            
                                            
                                            
                                            192,198Interest
      Expense
                                            
                                            
                                            —
                                            
                                            
                                            —
                                            
                                            
                                            —
                                            
                                            
                                            —
                                            
                                            
                                            
                                            —
                                            
                                            
                                            40
                                            
                                            
                                            
                                            —
                                            
                                            
                                            
                                            40Depreciation
                                            
                                            
                                            —
                                            
                                            
                                            —
                                            
                                            
                                            —
                                            
                                            
                                            —
                                            
                                            
                                            
                                            20,084
                                            
                                            
                                            11,593
                                            
                                            
                                            
                                            20,084
                                            
                                            
                                            
                                            11,593




Consulting
and Strategic Advisory Services Business




At the
present time, substantially all of our revenue for the three months and nine
months ended September 30, 2009, is derived 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 benefiting from thorium-based or other nuclear fuels. The fee type
and structure that we offer for each client engagement is dependent on a number
of variables, including the complexity, the level of the opportunity for us to
improve the client’s electricity generation capabilities using nuclear power
plants, and other factors. Substantially all of the Company’s revenues totaling
approximately $1.9 million and $8.3 million for the three months and nine months
ended September 30, 2009, respectively, have been derived 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 upon formation, with
the related entities to be formed, the Emirates Nuclear Energy Corporation,
or ENEC, and the Federal Authority for Nuclear Regulation, or FANR, as described
in Item 1, Part 1, “Financial Statements – Note 1 - Nature of Operations and
Basis of Presentation.” We entered into next phase follow-on agreements in March
2009 and July 2009 to continue our consulting services under the ENEC and FANR
agreements for 2009.


21


Revenue
was recognized on a time and expense basis for the three months and nine ended
September 30, 2009 and for the third and fourth quarter of
2008.  Revenue was recognized during our first fiscal quarter of 2008
from our initial project with the EAA called Roadmap, or the Roadmap, when the
work on this contract was substantially completed March 31, 2008. We recognized
revenue during the second quarter of 2008 from the second project with the EAA
called the Quickstart project, or Quickstart. The revenue from Quickstart was
recognized ratably over the term of the agreement, as this contract called for
on-going consulting services from March 2008 through June 2008. Revenues from
these two projects and the August 1, 2008 agreements mentioned above totaled
$6.7 million and $14.9 million for the three months and nine months ended
September 30, 2008, respectively.





The cost
of consulting services provided was approximately $1.1 million and $4.8 million
for the three months and nine months ended September 30, 2009, respectively, and
$1.9 million and $5.2 million for the three months and nine months ended
September 30, 2008, respectively. These amounts consisted primarily of direct
labor consulting expenses and other labor support costs incurred, as mentioned
in the general overview section above. Some indirect corporate overhead expenses
incurred were allocated to the consulting and strategic advisory services
business segment, and are included above in the business segment information
chart as part of Segment Profit – Pre tax.





Technology
Business





On August
3, 2009, we entered into a consulting agreement with AREVA for $550,000 as
discussed above. For the three and nine months ended September 30, 2009 our
total revenue from AREVA was approximately $68,000 (fees of $52,000 and expense
billings of $16,000).  As of the date hereof, we have successfully
completed the first two out of the total of six tasks under Phase 1 of the
consulting agreement.  We are executing work on the remaining tasks as
planned.





Over the
next 12 to 15 months we expect to incur up to $5 – $6 million in
research and development expenses related to the development of our proprietary
nuclear fuel designs. We expect to incur these expenses after we have entered
into formal agreements with Russian nuclear entities that will grant us
licensing and other rights to use such technologies or intellectual property
developed by the Russian entities. Any such agreement may require formal review
and approval by the Russian State Atomic Energy Corporation (RosAtom). We have
spent approximately $1.3 million for research and development so far in 2009,
and a cumulative amount from the date of our inception (January 8, 1992, date of
inception of Thorium Power Inc.) to September 30, 2009 of approximately $7.6
million. As of May 1, 2008, we established an office in Moscow and leased office
space to support research and development activities in Russia, and, in July
2009, we hired several employees (former consultants) to work on our research
and development projects in Russia.





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


22


Financial
Status





At
September 30, 2009, our total assets were approximately $7.9 million and total
liabilities were approximately $2.0 million. From the results of operations
including our consulting business segment, our working capital surplus at
December 31, 2008 was $6.8 million, and as of September 30, 2009, our working
capital surplus was $5.5 million. Accounts payable and accrued liabilities
balance as of September 30, 2009 equaled approximately $2.0 million, a decrease
of approximately $3.1 million from the total accounts payable and accrued
expenses reported at December 31, 2008.





Management
expects that our current cash position, as well as the revenue and profits that
are expected to be earned from our follow-on agreements from the two consulting
agreements entered into in August 2008, and the AREVA agreement, will meet our
foreseeable working capital needs for our current operations until sometime in
2010. We anticipate
entering into other consulting and technology agreements with our existing and
new clients that may generate additional revenues in 2009 and
beyond.In support of our longer-term business plan for our
technology business segment, we will need to raise additional capital in the
near term by way of an offering of equity securities, an offering of debt
securities, or by obtaining financing through a bank or other entity to finance
our overhead and research and development expenditures. We will also need to
raise capital to support our technology business if the consulting and strategic
advisory services business becomes non-sustaining. Our current average monthly
projected working capital requirements for the Company, excluding the
$5 – $6 million of research and development expenses we expect to
incur in Russia over the next 12 – 15 months, is approximately $1
million per month. A financing or other capital raising transaction will need to
take place in 2009 or sometime in 2010 to ensure that we have the necessary
working capital to continue our planned business operations through 2010 and
beyond. A financing may not be available or we may not be able to obtain that
financing on terms acceptable to us. If additional funds are raised through the
issuance of equity securities, there may be a significant dilution in the value
of our outstanding common stock. To support this financing activity, we are
exploring transaction opportunities that could simultaneously create strategic
industry and market alliances for us to support our operations in 2009 and
beyond.




Consolidated
Results of Operations





Comparison
of the Three Months Ended September 30, 2009 to September 30, 2008





The
following table summarizes certain aspects of our consolidated results of
operations for the three months ended September 30, 2009 compared to the three
months ended September 30, 2008.


23





Three Months EndedSeptember 30,
                      
                      
                      (Decrease)
                      
                      
                      (Decrease)2009
                      
                      
                      2008
                      
                      
                      Change $
                      
                      
                      Change %Consulting
      Revenues
                      
                      $
                      2,009,548
                      
                      
                      
                      6,746,500
                      
                      
                      $
                      (4,736,952
                      )%
                      
                      
                      -70
                      %Cost
      of services providedConsulting
      expenses
                      
                      $
                      1,289,552
                      
                      
                      
                      1,862,309
                      
                      
                      $
                      (572,757
                      )%
                      
                      
                      -31
                      %%
      of total revenues
                      
                      
                      64
                      %
                      
                      
                      28
                      %Gross
      profit
                      
                      $
                      719,996
                      
                      
                      $
                      4,884,191
                      
                      
                      $
                      (4,164,195
                      )%
                      
                      
                      -85
                      %%
      of total revenues
                      
                      
                      36
                      %
                      
                      
                      72
                      %Operating
      ExpensesGeneral
      and administrative
                      
                      $
                      1,550,994
                      
                      
                      $
                      2,478,894
                      
                      
                      $
                      (927,900
                      )%
                      
                      
                      -37
                      %%
      of total revenues
                      
                      
                      77
                      %
                      
                      
                      37
                      %Research
      and development expenses
                      
                      $
                      325,044
                      
                      
                      $
                      211,779
                      
                      
                      $
                      113,265
                      %
                      
                      
                      53
                      %%
      of total revenues
                      
                      
                      16
                      %
                      
                      
                      3
                      %Stock-based
      compensation
                      
                      $
                      1,135,171
                      
                      
                      $
                      1,384,828
                      
                      
                      $
                      (249,657
                      )%
                      
                      
                      -18
                      %%
      of total revenues
                      
                      
                      56
                      %
                      
                      
                      21
                      %Total
      Operating Loss
                      
                      $
                      (2,291,213
                      )
                      
                      $
                      808,690
                      
                      
                      $
                      3,099,903
                      %
                      
                      
                      -383
                      %%
      of total revenues
                      
                      
                      -114
                      %
                      
                      
                      12
                      %Other
      Income and (Expenses)Interest
      income/expense, other
                      
                      $
                      4,290
                      
                      
                      $
                      19,113
                      
                      
                      $
                      (14,823
                      )%
                      
                      
                      78
                      %%
      of total revenues
                      
                      
                      0
                      %
                      
                      
                      0
                      %Net
      loss - before income taxes
                      
                      $
                      (2,286,923
                      )
                      
                      $
                      827,803
                      
                      
                      $
                      3,114,726
                      %
                      
                      
                      -376
                      %%
      of total revenues
                      
                      
                      -114
                      %
                      
                      
                      12
                      %





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, 2009 and 2008 and
under the August 1, 2008 agreements with ENEC and FANR were recognized on a time
and expense basis.





The
$2.0 million
of revenue for the three months ended September 30, 2009 was generated primarily
from our consulting and strategic advisory services business segment. The 70
percent decrease in revenue for the three months ended September 30, 2009
compared to the same period in 2008 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. Our work
with ENEC was reduced in the third quarter of 2009 due in part to ENEC’s focus
on selecting a prime contractor for the development and implementation of its
nuclear power program. Additionally, our work with FANR was temporarily halted
in the third quarter of 2009 due to FANR’s implementation of a new security
clearance review process for all consultants retained by FANR. Notwithstanding
the normal variations in billable hours worked under these contracts, we
recently re-negotiated some of our billing rates to further enhance and maintain
the competitiveness of our advisory services which also resulted in a reduction
of our revenue for the three months ended September 30, 2009 compared to the
same three month period ended September 30, 2008. 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, 2009, we earned approximately $68,000 (fees of $52,000 and expense
reimbursement billings of $16,000) from our new consulting agreement with AREVA
mentioned above.We will receive total fees of $550,000 for
services provided pursuant to the Consulting Agreement. The anticipated
second phase and further phases of the collaboration, including a detailed study
of evolutionary and longer-term thorium fuel concepts, will be conducted in
accordance with additional collaborative agreements based upon the results of
the first phase.


24


Cost of Services
Provided





The
decrease in the cost of services for the three months ended September 30, 2009
compared with the same period in 2008 is due to the decrease in billable hours
for the ENEC and FANR projects. These expenses related to the consulting,
professional, administrative and other costs allocated to the consulting
projects, which were incurred to perform and support the work done for our
consulting projects with the EAA in Abu Dhabi. The billing rates to us from our
consultants who provide services under our consulting contracts have primarily
remained unchanged in 2009 and 2008.





Gross
Profit





Gross
profit margin of 36 percent for the three months ended September 30, 2009 is
lower compared to the same period in 2008 because the advisory contracts changed
from fixed price contracts to time and expense contracts.  Our gross
margins from our advisory contracts with ENEC and FANR also decreased due to the
reduction that occurred in this quarter in some of our hourly consultants
billing rates to the EAA.





General and Administrative
Expenses





There was
a 37percent
decrease in the general and administrative expenses for the three months ended
September 30, 2009, as compared to the same period in 2008. This decrease was
primarily due to a (1) decrease in employee wages, and payroll related benefits,
(2) a decrease in consulting expenses, and (3) a decrease in travel expenses.
The decreases in these expenses were partially offset by an increase in (1)
finance personnel to support our new ERP accounting system, to support the
activities of our consulting projects, and to strengthen our internal controls
for Sarbanes Oxley compliance, (2) the cost of larger office space to
accommodate the additional people working for us in 2008 and 2009, and (3) other
general overhead costs. In 2009, we incurred professional fees by engaging
consulting firms to assist us (1) in establishing foreign branch offices in Abu
Dhabi and Russia and (2) in establishing our Strategic Advisory Council, which
replaced our International Advisory Board, and which also helped to reduce our
consulting expenses. We expect our general and administrative expenses may
increase in future periods due to the expansion of our consulting and strategic
advisory services business segment and the hiring of new officers, employees and
consultants to help further develop and support our consulting and strategic
advisory services and technology business segments.





Research and Development
Costs





The
increase in research and development costs for the three months ended September
30, 2009 compared to the same period in 2008 is due to the increase in the scope
of work for our research and development activities in Russia. We expect that
our research and development expenses will increase in the future
periods.   Over the next 12 to 15
months we expect to incur approximately up to $5 – $6 million in
research and development expenses related to the development of our proprietary
nuclear fuel designs.





Stock-Based
Compensation





The
decrease in stock-based compensation for the three months ended September 30,
2009 as compared to the same period in 2008, is due to certain long-term
incentive stock options and stock that were granted in prior years under our
stock plan to executives, directors, advisors and employees, which became fully
vested in 2008. Stock based incentives were granted to current management,
directors, board members and employees on January 21, 2009, April 6, 2009, July
14, 2009, and July 22, 2009. In the future, stock-based compensation may be
offered to attract new employees in 2009, due to our expansion to meet the
demands of contracts with our current customers, and anticipated future business
with new customers.


25


Other Income and
Expense





The
decrease in other income and expense for the three months ended September 30,
2009 compared to the same period in 2008 is due to the decrease in interest
income earned on our idle cash.





Comparison
of the Nine months Ended September 30, 2009 to September 30, 2008





The
following table summarizes certain aspects of the Company’s consolidated results
of operations for the nine months ended September 30, 2009 compared to the nine
months ended September 30, 2008.





Nine Months EndedSeptember 30,
                    
                    
                    (Decrease)
                    
                    
                    (Decrease)2009
                    
                    
                    2008
                    
                    
                    Change $
                    
                    
                    Change %Consulting
      Revenues
                    
                    $
                    8,384,086
                    
                    
                    
                    14,863,125
                    
                    
                    $
                    (6,479,039
                    )%
                    
                    
                    -44
                    %Cost
      of services providedConsulting
      expenses
                    
                    $
                    4,926,916
                    
                    
                    
                    5,246,875
                    
                    
                    $
                    (319,959
                    )%
                    
                    
                    -6
                    %%
      of total revenues
                    
                    
                    59
                    %
                    
                    
                    35
                    %Gross
      profit
                    
                    $
                    3,457,170
                    
                    
                    $
                    9,616,250
                    
                    
                    $
                    (6,159,080
                    )%
                    
                    
                    -64
                    %%
      of total revenues
                    
                    
                    41
                    %
                    
                    
                    65
                    %Operating
      ExpensesGeneral
      and administrative
                    
                    $
                    3,624,462
                    
                    
                    $
                    5,595,881
                    
                    
                    $
                    (1,971,419
                    )%
                    
                    
                    -35
                    %%
      of total revenues
                    
                    
                    43
                    %
                    
                    
                    38
                    %Research
      and development expenses
                    
                    $
                    1,337,961
                    
                    
                    $
                    497,228
                    
                    
                    $
                    840,733
                    %
                    
                    
                    169
                    %%
      of total revenues
                    
                    
                    16
                    %
                    
                    
                    3
                    %Stock-based
      compensation
                    
                    $
                    3,666,964
                    
                    
                    $
                    4,172,007
                    
                    
                    $
                    (505,043
                    )%
                    
                    
                    -12
                    %%
      of total revenues
                    
                    
                    44
                    %
                    
                    
                    28
                    %Total
      Operating Loss
                    
                    $
                    (5,172,217
                    )
                    
                    $
                    (648,866
                    )
                    
                    $
                    4,523,351
                    %
                    
                    
                    697
                    %%
      of total revenues
                    
                    
                    -62
                    %
                    
                    
                    -4
                    %Other
      Income and (Expenses)Interest
      income/expense, other
                    
                    $
                    15,883
                    
                    
                    $
                    (276,457
                    )
                    
                    $
                    292,340
                    %
                    
                    
                    106
                    %%
      of total revenues
                    
                    
                    0
                    %
                    
                    
                    -2
                    %Net
      loss - before income taxes
                    
                    $
                    (5,156,334
                    )
                    
                    $
                    (925,323
                    )
                    
                    $
                    4,231,011
                    %
                    
                    
                    457
                    %%
      of total revenues
                    
                    
                    -62
                    %
                    
                    
                    -6
                    %




26


Revenues





The
$8.3 million
of revenue for the nine months ended September 30, 2009, was generated from our
consulting and strategic advisory services business segment. This revenue earned
was from the continuation of consulting work we performed, pursuant to the
August 1, 2008 consulting contracts we signed with ENEC and FANR. We expect to
continue in 2009 to provide consulting services under both of these agreements,
following the successful work we performed to date for the ENEC and FANR
projects.





In March
2009, we entered into a next phase follow-on agreements to continue our
consulting services under both agreements for 2009. Revenue earned in 2009 under
both these agreements will be recognized on a time and expense basis. The
revenue to be earned and recognized under both of these agreements will depend
upon the agreed upon work plans and time spent working on these projects, which
can be more or less than the revenue amounts initially planned to be earned
under these agreements. Notwithstanding normal variations in billable hours, we
have recently re-negotiated our billing rates under these contracts to further
enhance and maintain the competitiveness of our advisory services.  As a
result, we reported lower revenue on a per billable hours basis
which adversely affected our total revenue and gross margin.  The 44% decrease in
revenue for the nine months ended September 30, 2009 compared to the nine months
ended September 30, 2008 is also due to the uneven nature of our consulting
projects with ENEC and FANR which are being performed in 2009 pursuant to
ongoing requests to work on specific projects on a time and expense basis as
needed and the pricing of these contracts from a fixed fee basis for the first
six months in 2008 to a time and expense basis for the last six months of 2008
and all of 2009.





The
$14.9 million
of revenue for the nine months ended September 30, 2008 was earned from our
Roadmap and Quickstart consulting projects with the UAE, the first two
consulting projects that we worked on from the fourth quarter of 2007 to June
2008 and from our August 1, 2008 consulting agreements. The revenue from the
Roadmap project was recognized on a completed performance model method, where
revenue is usually recognized near the end of the contract, and the revenues
from the Quickstart project were recognized based upon the completion and
approval by the EAA of project deliverables.




We
currently anticipate that revenues in 2010 generated from our agreement with
FANR will be approximately equivalent to those generated in 2009, adjusted to
take into account the temporary work stoppage in the third quarter of 2009 due
to FANR’s implementation of a new security clearance review process for all
consultants retained by FANR. Total revenue earned from our work with FANR was
approximately $1.3 million and $4.7 million for the three and nine months ended
September 30, 2009, respectively. Our work with ENEC in 2010 will be performed
pursuant to requests to work on specific projects. Total revenue earned from our
work with ENEC was $0.6 million and $3.5 million for the three and nine months
ended September 30, 2009, respectively.





As
described above, we entered into a consulting agreement with AREVA on
August 3, 2009. For
the nine months ended September 30, 2009, we earned approximately $68,000 (fees
of $52,000 and expense reimbursement billings of $16,000) from this agreement.We will receive total fees of $550,000 for services provided pursuant to
this agreement. The anticipated second phase and further phases of the
collaboration, including a detailed study of evolutionary and longer-term
thorium fuel concepts, will be conducted in accordance with additional
collaborative agreements based upon the results of the first phase.





We
anticipate entering into other consulting and technology agreements with our
existing and new clients that may generate new 2009 revenues.





Cost of Services
Provided





The
decrease in the cost of services for the nine months ended September 30, 2009
compared to the same period in 2008 is due to the decrease in billable hours to
the ENEC and FANR projects. The cost of services are expenses related to the
consulting, professional, administrative and other costs allocated to the
consulting projects, which were incurred to perform and support the work done
for our consulting projects in Abu Dhabi. Our consultants billing rates to us
have primarily remained unchanged in 2009 and 2008.


27





Gross
Profit





Gross
profit margin of 41 percent for the nine months ended September 30, 2009 is
lower compared to the same period in 2008 because the advisory contracts changed
from fixed price contracts to time and expense contracts.  Our gross
margins from our advisory contracts with the EAA also decreased due to the
recent reduction this quarter in some of our hourly consultants billing rates to
the EAA.





General and Administrative
Expenses





There was
a 35percent
decrease in the general and administrative expenses for nine months ended
September 30, 2009 as compared to the same period in 2008. This decrease was due
to (1) a decrease in employee wages and payroll related benefits (2) a decrease
in consulting expenses, (3) a decrease in travel expenses, and (4) a decrease in
legal expenses. This decrease was partially offset by an increase in (1) finance
personnel to support our new ERP accounting system, to support the activities of
our consulting projects, and to strengthen our internal controls for Sarbanes
Oxley compliance, (2) the cost of larger office space to accommodate the
additional people working for us in 2008 and 2009, and (3) other general
overhead costs. In 2009 we incurred professional fees by engaging consulting
firms to assist us (1) in establishing foreign branch offices in Abu Dhabi and
Russia and (2) in establishing our Strategic Advisory Council, which replaced
our International Advisory Board, and which also helped reduce our consulting
expenses. We expect our general and administrative expenses may increase in
future periods due to the expansion of our consulting and strategic advisory
services business segment and the hiring of new officers, employees and
consultants to help further develop and support our consulting and strategic
advisory services and technology business segments.





Research and Development
Costs





The
increase in research and development costs for the nine months ended September
30, 2009 as compared to the same period in 2008 is due to the increase in the
scope of work for our research and development activities in Russia. We expect
that our research and development expenses will increase in the future
periods.   Over the next 12 to 15
months we expect to incur approximately up to $5 – $6 million in
research and development expenses related to the development of our proprietary
nuclear fuel designs.





Stock-Based
Compensation





The
decrease in stock-based compensation for the nine months ended September 30,
2009, is due to certain long-term incentive stock options and stock that were
granted in prior years under our stock plan to executives, directors, advisors
and employees, which became fully vested in 2008. Stock-based incentives were
granted to current management, directors, board members, and employees on
January 21, 2009, April 6, 2009, July 14, 2009, and on July 22, 2009. We
anticipate that stock-based incentives may be offered to attract new employees
in 2009 and in future years, due to our expansion to meet the demands of
contracts with our current customers, and anticipated future business with new
customers.





Other Income and
Expense





The
decrease in other income and expense for the nine months ended September 30,
2009 as compared to the same period in 2008 is due to the decrease in interest
income earned on our idle cash.





Liquidity
and Capital Resources





As of
September 30, 2009, we had a total of cash and cash equivalents of $3.9 million.
The following table provides detailed information about our net cash flow for
all financial statements periods presented in this report.


28


Cash
      Flow
                      Nine
      months EndedSeptember
      30,2009
                    
                    
                    2008Net
      cash provided by (used in) operating activities
                    
                    $
                    (1,669,717
                    )
                    
                    $
                    2,732,462Net
      cash used in investing activities
                    
                    $
                    (37,072
                    )
                    
                    $
                    (192,198
                    )Net
      cash provided by (used in) financing activities
                    
                    $
                    (1,409
                    )
                    
                    $
                    39,542Net
      cash inflow (outflow)
                    
                    $
                    (1,708,198
                    )
                    
                    $
                    2,579,806





Operating
Activities




Net cash
provided by our operating activities decreased by approximately $4.4 million for
the nine months ended September 30, 2009 as compared to the same period in
2008.  This decrease in funds provided by our operating activities was
primarily due to an increase in our operating loss, which was due to a decrease
in our revenue for the nine months ended September 30, 2009, an increase in the
payment of accounts payable and accrued liabilities, and an increase in prepaid
expenses and other current assets. This decrease in funds provided by our
operating activities was partially offset by an increase in the collections of
our accounts receivable in 2009, in payment for our work in 2008. The other
changes to the operating activities cash flows are mentioned above in the
Consolidated Results of Operations section of this management discussion and
analysis, regarding our operating expenses and other income and expense
items.




Investing
Activities




Net cash
used in our investing activities for the nine months ended September 30, 2009 as
compared to the same period in 2008 decreased by $155,126, which was due to
the decrease in the acquisition of property and equipment in 2009. This decrease
was partially offset by an increase in professional fees incurred in 2009 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.




Financing
Activities




Net cash
provided by our financing activities decreased by $40,951 for the nine months
ended September 30, 2009 as compared to the same period in 2008. This decrease
in the cash provided by financing activities was mainly attributable to a
decrease in the proceeds from the issuance of stock from the exercise of stock
options, partially offset by a decrease in the payments of notes
payable.




Management
expects that the proceeds from our consulting agreements in 2009, as well as the
expected proceeds for the remainder of 2009 that we will earn under the two
consulting agreements entered into in August 2008 and the follow-on agreements
with ENEC and FANR and the AREVA agreement, will meet our foreseeable working
capital needs for our current operations until sometime in 2010. However, we
will need to raise additional capital in the near term by way of an offering of
equity securities, an offering of debt securities, or by obtaining financing
through a bank or other entity to support our longer term business plan. We will
also need to raise capital in the near term to support our overhead operation if
the consulting and strategic advisory services business becomes non-sustaining.
If we need to obtain additional financing, that financing may not be available
or we may not be able to obtain that financing on terms acceptable to us. If
additional funds are raised through the issuance of equity securities, there may
be a significant dilution in the value of our outstanding common
stock.


29


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 assets and liabilities as of the date of the financial
statements and (ii) the reported amounts of revenues and expenses during the
reporting periods covered by the financial statements.




Our
management expects to make judgments and estimates about the effect of matters
that are inherently uncertain. As the number of variables and assumptions
affecting the future resolution of the uncertainties increase, these judgments
become even more subjective and complex. Although we believe that our estimates
and assumptions are reasonable, actual results may differ significantly from
these estimates. Changes in estimates and assumptions based upon actual results
may have a material impact on our results of operation and/or financial
condition. We have identified certain accounting policies that we believe are
most important to the portrayal of our current financial condition and results
of operations. Our significant accounting policies are disclosed in Note 2 to
the Consolidated Financial Statements included in the Annual Report on Form 10-K
filed with the Commission on March 27, 2008.





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




We
adopted SFAS 123(R), as of January 1, 2006. SFAS 123(R) replaced the existing
requirements under SFAS No. 123, Accounting for Stock Based Compensation, and
Accounting Principles Board Opinion No. 25, Accounting for Stock-based
Compensation to Employees, or APB 25. According to SFAS 123(R), 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.


30




Under
SFAS 123(R), stock-based compensation expense is measured at the grant date
based on the fair value of the award, and the expense is recognized ratably over
the award's vesting period. For all grants made, we recognize compensation cost
under the straight-line method.




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




• 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 in
2008.




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.





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





Income
Taxes





We
account for income taxes using the liability method in accordance with SFAS
No.109, 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 FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109, or FIN
48. FIN 48 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 FIN 48, 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 of FIN 48, we did not
recognize any current tax liability for unrecognized tax benefits. We have a net
operating loss carry-forward of approximately $16 million which we have taken a
100% valuation allowance, as of the date of these financial
statements.


31




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.





We
recognized the revenues for our first consulting project with EAA which we
completed in March 2008, using the completed performance model and for our
second consulting project as contract deliverables were delivered and agreed
upon by our client. 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 proportional performance method, measured by the percentage of costs
(primarily labor) incurred to date as compared to the estimated total costs
(primarily labor) for each contract. When a loss is anticipated on a contract,
the full amount of the anticipated loss is recognized immediately.





Our
management uses its judgment concerning the estimation of the total costs to
complete the contract considering a number of factors, including the experience
of the personnel that are performing the services, and the overall complexity of
the project. Should changes in management’s estimates be required, due to
business conditions that cause the actual financial results to differ
significantly from management's present estimates, revenue recognized in future
periods could be adversely affected.





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.




In
situations where contracts include client acceptance provisions, we do not
recognize revenue until such time as the client has confirmed its acceptance. We
are recognizing the revenue associated with the Areva agreements as our client
accepts specified deliverables.




32




Intangibles




As
presented on the accompanying balance sheet, we had patents with a net book
value of $241,845 as of September 30, 2009. There are many assumptions and
estimates that may directly impact the results of impairment testing, including
an estimate of future expected revenues, earnings and cash flows, and discount
rates applied to such expected cash flows in order to estimate fair value. We
have the ability to influence the outcome and ultimate results based on the
assumptions and estimates we choose for testing. To mitigate undue influence, we
set criteria that are reviewed and approved by various levels of management. The
determination of whether or not intangible assets have become impaired involves
a significant level of judgment in the assumptions. Changes in our strategy or
market conditions could significantly impact these judgments and require
adjustments to recorded amounts of intangible assets. We will amortize our
patents when they are placed in service. Our patents were not placed into
service as of September 30, 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.





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.




33


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,
2009, and was effective during the entire quarter ended September 30,
2009.





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, 2008,
which could materially affect our business, financial condition or future
results. The risks described in our Annual Report on Form 10-K are not the
only risks facing our Company. Additional risks and uncertainties not currently
known to us or that we currently deem to be immaterial also may materially
adversely affect our business, financial condition or future
results.





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





There
were no unregistered sales of equity securities during the fiscal quarter ended
September 30, 2009.





ITEM
3.     DEFAULTS UPON SENIOR SECURITIES





There
were no defaults upon senior securities during the fiscal quarter ended
September 30, 2009.





ITEM
4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS





No
matters were submitted to a vote of our security holders during the fiscal
quarter ended September 30, 2009.





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.


34




Exhibit
                      Number
                    
                    Description3.1*
                    
                    Articles
      of Incorporation3.2
                    
                    By-laws
      (incorporated by reference from the Company’s Current Report on Form 8-K
      filed on September 18, 2006).4.1
                    
                    2005
      Compensation Plan for Outside Consultants of Custom Brand Networks, Inc.
      dated March 1, 2005 (incorporated by reference from the Company’s
      Registration Statement on Form S-8 filed on March 10,
    2005).4.2
                    
                    2005
      Augmented Compensation Plan for Outside Consultants of the Company dated
      August 15, 2005 (incorporated by reference from the Company’s Registration
      Statement on Form S-8 filed on August 19, 2005).4.3
                    
                    2006
      Stock Plan (incorporated by reference to Exhibit 10.1 of the current
      report of the Company on Form 8-K filed February 21,
  2006)10.1
                    
                    Restricted
      Stock Grant Agreement, dated July 14, 2009, between Seth Grae and the
      Company10.2
                    
                    Stock
      Option Agreement, dated July 14, 2009, between Seth Grae and the
      Company10.3
                    
                    Restricted
      Stock Grant Agreement, dated July 14, 2009, between James Guerra and the
      Company10.4
                    
                    Stock
      Option Agreement, dated July 14, 2009, between James Guerra and the
      Company10.5
                    
                    Initial
      Collaborative Agreement, dated July 23, 2009, between the Company and
      Areva.10.6
                    
                    Agreement
      for Consulting Services, dated August 3, 2009, between the Company and
      Areva.10.7
                    
                    Collaboration
      Framework Agreement, dated August 3, 2009, between the Company and
      Areva.10.8
                    
                    Agreement
      for Ampoule Irradiation Testing, effective as of August 21, 2009,
      between Thorium Power, Inc. and Russian Research Centre Kurchatov
      Institute.31.1*
                    
                    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





* Filed
Herewith


35


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 12, 2009





LIGHTBRIDGE
      CORPORATIONBy:
              /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)


36


EXHIBIT
INDEX





Exhibit
                            Number
                          
                          Description3.1*
                          
                          Articles
      of Incorporation3.2
                          
                          By-laws
      (incorporated by reference from the Company’s Current Report on Form 8-K
      filed on September 18, 2006).4.1
                          
                          2005
      Compensation Plan for Outside Consultants of Custom Brand Networks, Inc.
      dated March 1, 2005 (incorporated by reference from the Company’s
      Registration Statement on Form S-8 filed on March 10,
    2005).4.2
                          
                          2005
      Augmented Compensation Plan for Outside Consultants of the Company dated
      August 15, 2005 (incorporated by reference from the Company’s Registration
      Statement on Form S-8 filed on August 19, 2005).4.3
                          
                          2006
      Stock Plan (incorporated by reference to Exhibit 10.1 of the current
      report of the Company on Form 8-K filed February 21,
  2006)10.1
                          
                          Restricted
      Stock Grant Agreement, dated July 14, 2009, between Seth Grae and the
      Company10.2
                          
                          Stock
      Option Agreement, dated July 14, 2009, between Seth Grae and the
      Company10.3
                          
                          Restricted
      Stock Grant Agreement, dated July 14, 2009, between James Guerra and the
      Company10.4
                          
                          Stock
      Option Agreement, dated July 14, 2009, between James Guerra and the
      Company10.5
                          
                          Initial
      Collaborative Agreement, dated July 23, 2009, between the Company and
      Areva.10.6
                          
                          Agreement
      for Consulting Services, dated August 3, 2009, between the Company and
      Areva.10.7
                          
                          Collaboration
      Framework Agreement, dated August 3, 2009, between the Company and
      Areva.10.8
                          
                          Agreement
      for Ampoule Irradiation Testing, effective as of August 21, 2009,
      between Thorium Power, Inc. and Russian Research Centre Kurchatov
      Institute.31.1*
                          
                          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





*Filed
Herewith