<PAGE>
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, 1997
OR
[ ] 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: 000-21319
LIGHTBRIDGE, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-3065140
(State or other jurisdiction of (I.R.S employer identification number)
incorporation or jurisdiction)
67 South Bedford Street
Burlington, MA 01803
(Address of principal executive offices, including Zip Code)
(781) 359-4000
(Registrant's telephone number, including area code)
281 Winter Street
Waltham, MA 02154
(Former address)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 [_]
As of October 31, 1997, there were 14,725,164 shares of the registrant's common
stock, $.01 par value, outstanding.
<PAGE>
LIGHTBRIDGE, INC.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1997
Table of Contents
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page No.
----------
<S> <C>
ITEM 1. Unaudited Condensed Consolidated Financial Statements:
Balance Sheets as of September 30, 1997 and December 31, 1996 ....................................... 3
Income Statements for the Three Months Ended September 30, 1997 and September 30, 1996................ 4
Income Statements for the Nine Months Ended September 30, 1997 and September 30, 1996................. 5
Statements of Cash Flow for the Nine Months Ended September 30, 1997 and September 30, 1996.......... 6
Notes to Condensed Consolidated Financial Statements.................................................. 7
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................. 9
<CAPTION>
PART II. OTHER INFORMATION Page No.
----------
<S> <C>
ITEM 2. Changes in Securities and Use of Proceeds............................................................. 16
ITEM 6. Exhibits and Reports on Form 8-K ..................................................................... 16
Signature............................................................................................. 17
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
LIGHTBRIDGE, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
--------------------------- --------------------------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents $20,994,026 $27,900,802
Accounts receivable - net 10,441,474 7,530,809
Other current assets 1,953,848 970,735
--------------------------- --------------------------
Total current assets 33,389,348 36,402,346
Property and equipment - net 9,086,943 4,271,880
Deferred tax asset 931,752 --
Other assets - net 1,429,105 1,091,429
--------------------------- --------------------------
Total assets $44,837,148 $41,765,655
=========================== ==========================
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable and accrued liabilities $3,931,746 $3,254,421
Short-term borrowings and current portion of subordinated notes
payable 805,205 567,705
Current portion of obligations under capital leases 318,396 1,533,899
Deferred revenues 346,349 422,875
Dividends payable on redeemable convertible preferred stock 166,876 166,876
--------------------------- -------------------------
Total current liabilities 5,568,572 5,945,776
Obligations under capital leases 15,667 100,301
Notes payable 229,071 457,808
Subordinated notes payable 1,227,478 1,663,127
Deferred rent 399,946 --
--------------------------- -------------------------
Total liabilities 7,440,734 8,167,012
--------------------------- -------------------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares authorized; no shares
issued or outstanding -- --
Common stock, $.01 par value; 60,000,000 shares authorized;
15,550,116 and 15,369,697 shares issued; 14,722,824 and
14,568,549 shares outstanding at September 30, 1997 and
December 31, 1996, respectively 155,507 153,698
Additional paid-in capital 36,594,905 36,296,969
Warrants 598,875 605,125
Retained earnings (deficit) 1,672,090 (1,921,075)
--------------------------- ------------------------
Total 39,021,377 35,134,717
Less treasury stock, at cost (1,624,963) (1,536,074)
--------------------------- ------------------------
Total stockholders' equity 37,396,414 33,598,643
--------------------------- ------------------------
Total liabilities and stockholders' equity $44,837,148 $41,765,655
=========================== ========================
</TABLE>
See notes to unaudited condensed consolidated financial statements
3
<PAGE>
LIGHTBRIDGE, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED INCOME STATEMENTS
<TABLE>
<CAPTION>
Three Months Ended September 30,
----------------------------------------------------------
1997 1996
-------------------------- --------------------------
<S> <C> <C>
Revenues $ 9,457,282 $ 7,372,091
Cost of revenues 4,385,102 3,969,733
-------------------------- --------------------------
Gross profit 5,072,180 3,402,358
-------------------------- --------------------------
Operating expenses:
Development 1,532,353 1,155,407
Sales and marketing 1,249,481 907,958
General and administrative 1,097,373 806,357
-------------------------- --------------------------
Total operating expenses 3,879,207 2,869,722
-------------------------- --------------------------
Income from operations 1,192,973 532,636
Other income (expense):
Interest income 292,304 34,177
Interest expense (88,194) (193,307)
Other non-operating income - net 98,432 --
-------------------------- --------------------------
Income before provision for income taxes 1,495,515 373,506
Provision for income taxes 568,300 20,000
-------------------------- --------------------------
Net income $ 927,215 $ 353,506
========================== ==========================
Net income per common share $0.06
==========================
Weighted average number of common and common
equivalent shares outstanding 16,646,998
==========================
Pro forma net income per common share $0.03
==========================
Pro forma weighted average number of common and common
equivalent shares outstanding 13,932,723
==========================
</TABLE>
See notes to unaudited condensed consolidated financial statements
4
<PAGE>
LIGHTBRIDGE, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED INCOME STATEMENTS
<TABLE>
<CAPTION>
Nine Months Ended September 30,
--------------------------------------------------------
1997 1996
------------------------- -------------------------
<S> <C> <C>
Revenues $27,287,970 $20,635,148
Cost of revenues 12,705,193 11,738,311
------------------------- -------------------------
Gross profit 14,582,777 8,896,837
------------------------- -------------------------
Operating expenses:
Development 4,214,566 3,126,142
Sales and marketing 3,854,030 2,567,603
General and administrative 3,219,990 1,978,452
------------------------- -------------------------
Total operating expenses 11,288,586 7,672,197
------------------------- -------------------------
Income from operations 3,294,191 1,224,640
Other income (expense):
Interest income 939,545 79,716
Interest expense (279,736) (608,850)
Other non-operating income - net 113,956 --
------------------------- -------------------------
Income before provision for income taxes 4,067,956 695,506
Provision for income taxes 474,791 39,500
------------------------- -------------------------
Net income $ 3,593,165 $ 656,006
========================= =========================
Net income per common share $0.22
=========================
Weighted average number of common and common
equivalent shares outstanding 16,448,080
=========================
Pro forma net income per common share $0.05
=========================
Pro forma weighted average number of common and common
equivalent shares outstanding 13,752,080
=========================
</TABLE>
See notes to unaudited condensed consolidated financial statements
5
<PAGE>
LIGHTBRIDGE, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Nine Months Ended September 30,
--------------------------------------------------
1997 1996
---------------------- ---------------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 3,593,165 $ 656,006
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 3,217,823 2,597,576
Amortization of discount on notes 26,847 54,284
Gain on disposal of equipment (43,003) --
Deferred taxes (931,752) --
Changes in assets and liabilities:
Accounts receivable and other current assets - net (4,148,183) (1,344,583)
Accounts payable and accrued liabilities 677,325 (415,610)
Deferred revenues (76,526) 138,748
Other assets - net (249,811) 35,226
Deferred rent 399,946 --
----------------------- ----------------------
Net cash provided by operating activities 2,465,831 1,721,647
----------------------- ----------------------
Cash Flows Used in Investing Activities:
Purchase of property and equipment (7,681,993) (1,541,990)
Purchase of investments (2,069,323) --
Redemption of investments 2,069,323 --
Other assets -- (350,000)
Capitalization of software costs (333,203) --
Proceeds from sale of equipment 166,246 --
Reimbursement for leasehold improvements 254,405 --
----------------------- ----------------------
Net cash used in investing activities (7,594,545) (1,891,990)
----------------------- ----------------------
Cash Flows From (Used In) Financing Activities:
Payments on notes payable (453,737) (1,151,000)
Principal payments under capital lease obligations (1,230,320) (1,612,542)
Proceeds from issuance of common stock 139,910 136,158
Proceeds from exercise of warrant 25,000 --
Proceeds from equipment line borrowings -- 763,013
Payments toward the purchase of treasury stock -- (608,833)
Expenses paid on behalf of stockholder -- (260,000)
Initial public offering expenditures -- (667,610)
Expenditures made for acquisition activities (183,915) --
Proceeds from issuance of mandatory redeemable
convertible preferred stock, net -- 5,958,467
Issuance of note receivable (75,000) --
----------------------- ----------------------
Net cash provided by (used in) financing activities (1,778,062) 2,557,653
----------------------- ----------------------
Net increase (decrease) in cash and cash equivalents (6,906,776) 2,387,310
Cash and cash equivalents, beginning of period 27,900,802 58,064
----------------------- ----------------------
Cash and cash equivalents, end of period $20,994,026 $ 2,445,374
======================= ======================
</TABLE>
See notes to unaudited condensed consolidated financial statements
6
<PAGE>
LIGHTBRIDGE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation:
The condensed consolidated financial statements included herein have been
prepared by Lightbridge, Inc. (the "Company"), without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. Although
certain information and footnote disclosures normally included in the Company's
annual financial statements have been omitted, the Company believes that the
disclosures are adequate to make the information presented not misleading and
reflect all adjustments (consisting only of normal recurring adjustments) which
are necessary for a fair presentation of results of operations for such periods.
Results of interim periods may not be indicative of results for the full year.
These financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1996.
2. Significant Accounting Policies:
Net Income Per Common Share
Net income per common and per common equivalent share are computed using the
weighted average number of common and dilutive common equivalent shares
outstanding during the period, using the provisions of Accounting Principles
Board Opinion No. 15, "Earnings per Share." Dilutive common equivalent shares
represent shares issuable upon exercise of stock options and warrants,
calculated using the treasury stock method. Primary and fully diluted earnings
per share were the same for the three and nine month periods ended September 30,
1997.
Pro forma income per common share for the three month and nine month periods
ended September 30, 1996 is based on the weighted average number of common and
dilutive common equivalent shares (common stock options and warrants)
outstanding and assumes that all series of the Company's redeemable convertible
preferred stock had been converted to common stock as of January 1, 1996. In
connection with the closing of the Company's initial public offering in October
1996, all outstanding shares of redeemable convertible preferred stock were
converted to shares of the Company's common stock. Common equivalent shares are
not included in the per share calculations where the effect of their inclusion
would be anti-dilutive, except in accordance with the requirements of Securities
and Exchange Commission Staff Accounting Bulletin No. 83. That Bulletin
requires all common shares issued and options or warrants to purchase common
stock granted by the Company during the twelve-month period prior to the filing
of a proposed initial public offering be included in the calculation as if they
were outstanding for all periods. For purposes of applying the Bulletin, the
Company has used the initial public offering price of $10 per share from the
Company's offering in October 1996.
In February 1997, the Financial Accounting Standards Board released Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share," which
the Company will adopt in the fourth quarter of 1997. Had SFAS No. 128 been
effective for the three months and nine months ended September 30, 1997 and
1996, reported earnings per share would have been as follows:
<TABLE>
<CAPTION>
Three Months Nine Months Ended
Ended September 30, September 30,
----------------------------------- -----------------------------
1997 1996 1997 1996
----------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Basic............................... $0.06 $0.05 $0.25 $0.08
Diluted............................. 0.06 0.03 0.21 0.06
</TABLE>
7
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Income Taxes
In October 1993, the Company adopted SFAS No. 109, "Accounting for Income
Taxes." In connection with the adoption, the Company recorded a deferred tax
asset relating to the tax benefit of operating losses, and differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. At that time the Company provided
a full valuation allowance equal to the entire deferred tax asset as the Company
believed it was more likely than not that the deferred tax asset would not be
realized.
During the first quarter of 1997, the Company determined that a valuation
allowance was no longer necessary for the existing deferred tax assets and
deferred tax assets arising during the quarter, and recorded an income tax
benefit of approximately $644,000.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS
130), which is effective for fiscal years beginning after December 15, 1997.
SFAS 130 establishes standards for reporting and display of comprehensive income
and its components (revenues, expenses, gains, and losses) in a full set of
general-purpose financial statements. The adoption of SFAS 130 will not have a
material impact on the Company's results of operations, financial position, or
cash flow.
In June 1997, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS 131), which is effective for periods
beginning after December 15, 1997. SFAS 131 establishes standards for the way
that public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. The adoption of SFAS 131 will not have a material impact on the
Company's results of operations, financial position, or cash flow.
Reclassifications
Certain reclassifications have been made to the 1996 financial statements to
conform with the 1997 presentation.
3. Commitments:
The Company leases computer and other equipment under various noncancelable
leases which have been capitalized for financial reporting purposes. The Company
has noncancelable operating lease agreements for office space and certain
equipment. In August 1997 the Company relocated its corporate facilities to
Burlington, Massachusetts pursuant to a seven year lease agreement and subleased
a portion of it's corporate facility in Waltham, Massachusetts for the remaining
term of the existing leases for that facility.
Future minimum payments under operating leases and income from subleases
consist of the following at September 30, 1997:
<TABLE>
<CAPTION>
OPERATING SUBRENTAL
LEASES INCOME
- ----------------------------------------------------------------- ------------------- -----------------------
<S> <C> <C>
Three months ended December 31, 1997............................. $ 666,898 $ 203,656
Year ended December 31, 1998..................................... 2,496,225 828,202
Year ended December 31, 1999..................................... 2,465,296 860,787
Year ended December 31, 2000..................................... 2,358,077 787,370
Year ended December 31, 2001..................................... 1,894,284 298,139
Year ended December 31, 2002..................................... 1,159,916 --
------------------- -----------------------
Total minimum lease payments..................................... $11,040,696 $2,978,154
=================== =======================
</TABLE>
4. Coral Acquisition:
On September 9, 1997, the Company, SeeCross Acquisition Corp., a Delaware
corporation and wholly owned subsidiary of the Company ("Acquisition Corp."),
and Coral Systems, Inc. ("Coral") entered into an Agreement and Plan of
Reorganization (the "Reorganization Agreement") providing for the Company's
acquisition of all of the outstanding shares of Coral's capital stock ("Coral
Capital Stock"), consisting of Coral's common stock, $0.001 par value ("Coral
Common"), Series A preferred stock, $0.001 par value, Series B preferred stock,
$0.001 par value and Series C preferred stock, $0.001 par value. Coral provides
client-server software products both domestically and internationally for the
wireless telecommunications industry to enable carriers to reduce fraud and
customer turnover, or "churn", and increase operating efficiencies.
On November 6, 1997, the stockholders of Coral approved the Reorganization
Agreement. On November 7, 1997, a closing was held under the Reorganization
Agreement and a merger was effected in which Acquisition
8
<PAGE>
Corp. was merged with and into Coral (the "Merger"), with the surviving
corporation becoming a wholly owned subsidiary of the Company.
Pursuant to the Merger, each of the outstanding shares of Coral Capital Stock,
other than any duly qualified dissenting share, was converted into a fraction of
a share of Lightbridge common stock, $0.01 par value ("Lightbridge Common")
determined as set forth in the Reorganization Agreement. Pursuant to the
Reorganization Agreement, the Company will issue shares of Lightbridge Common in
exchange for Coral Capital Stock, subject to certain post-closing adjustments
based on Coral's working capital as of November 7, 1997.
In addition, the Company reserved shares of Lightbridge Common for issuance
upon exercise of outstanding Coral options and warrants. As a result of the
Merger, each Coral option and warrant outstanding at November 7, 1997, whether
vested or unvested, now entitles its holder, upon exercise (if and when vested),
to receive that number of whole shares of Lightbridge Common equal to the
product of the number of shares of Coral Common that were issuable upon exercise
of such option or warrant immediately prior to November 7, 1997 (without regard
to vesting) multiplied by the conversion rate for a single share of Coral
Common, rounded down to the nearest whole number of shares of Lightbridge
Common. The per share exercise price for the Lightbridge Common issuable upon
exercise of each such option and warrant is now equal to the per share exercise
price thereof immediately prior to November 7, 1997, divided by the conversion
rate for a single share of Coral Common.
The acquisition of Coral by Lightbridge is a tax-free reorganization and will
be accounted for as a purchase. It will include approximately $17 million of
expenses written off in the fourth quarter of 1997 which consists of $16 million
of in-process research and development technology and $1 million of other
expenses. The Company expects to incur a net loss for both the three months and
year ended December 31, 1997 as a result of the acquisition of Coral.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE DISCUSSION IN THIS FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THE RESULTS CONTEMPLATED IN THE FORWARD-LOOKING STATEMENTS AS A
RESULT OF A NUMBER OF FACTORS, INCLUDING RISK FACTORS SET FORTH UNDER "ITEM 1A.
Risk Factors" IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1996 AND INCORPORATED BY REFERENCE AS AN EXHIBIT TO THIS FORM 10-Q.
PROFILE is a registered trademark of the Company, and ALLEGRO, CAS_COMM, CHANNEL
WIZARD, CHURN PROPHET, CREDIT DECISION SYSTEM, CUSTOMER ACQUISITION SYSTEM, 800-
FOR-CREDIT, FRAUD SENTINEL, INSIGHT, IRIS, LIGHTBRIDGE, POPS, POSTALPRO, RETAIL
MANAGEMENT SYSTEM, SAMS, TELECOMMUNICATIONS INTELLIGENCE, TELESTO, and WIRELESS
INTELLIGENCE are trademarks of the Company. Other trademarks or trade names
referred to in this Form 10-Q are the property of their respective owners.
RESULTS OF OPERATIONS
Overview
- --------
Lightbridge, Inc. ("Lightbridge" or the "Company") develops, markets and
supports a suite of integrated products and services that enable
telecommunications carriers to improve their customer acquisition and retention
processes.
The Company's revenues consist of transaction revenues and software and
consulting revenues. Historically, transaction revenues have accounted for
substantially all of the Company's revenues, although software and consulting
revenues have increased during recent periods primarily as a result of the
licensing of certain software products and the demand for the Company's Business
Integration consulting services.
9
<PAGE>
Lightbridge's transaction revenues have been derived primarily from the
processing of applications of subscribers for wireless telecommunications
services and the activation of service for those subscribers. The Company's
clients are charged on a per transaction basis. Pricing varies depending
primarily on the volume of transactions, the type and number of other products
and services selected for integration with the services and the term of the
contract under which services are provided. The volume of processed transactions
varies depending on seasonal and retail trends, the success of the carriers
utilizing the Company's services in attracting subscribers and the markets
served by the Company for its clients. Revenues are recognized in the period
when the services are performed.
The Company's software and consulting revenues have been derived primarily from
developing customized software and providing Business Integration consulting
services. The Company also began licensing its Channel Solutions software with
the introduction of its POPS and Iris products in fiscal 1995, its SAMS software
in 1996 and its Retail Management Systems software in 1997. Revenues derived
from consulting and other projects are recognized throughout the performance
period of the contracts. Revenues from licensing software are recognized at the
later of delivery of the licensed product or satisfaction of acceptance
criteria. Lightbridge's software and consulting revenues depend substantially on
the continuing need for integration of disparate systems and acceptance of the
Company's software products by the Company's existing and new clients.
The acquisition of Coral by Lightbridge is a tax-free reorganization and will
be accounted for as a purchase. It will include approximately $17 million of
expenses written off in the fourth quarter of 1997 which consists of $16 million
of in-process research and development technology and $1 million of other
expenses. The Company expects to incur a net loss for both the three months and
year ended December 31, 1997 as a result of the acquisition of Coral.
Results of Operations Data:
- ---------------------------
(As a percentage of total income)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------ -----------------------------
1997 1996 1997 1996
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Revenues:
Transaction............................................. 71.4% 70.1% 68.7% 77.6%
Software and consulting................................. 28.6 29.9 31.3 22.4
------------ ------------ ----------- ------------
100.0 100.0 100.0 100.0
Cost of revenues.......................................... 46.4 53.8 46.6 56.9
------------ ------------ ----------- ------------
Gross profit.............................................. 53.6 46.2 53.4 43.1
------------ ------------ ----------- ------------
Operating expenses:
Development............................................. 16.2 15.7 15.4 15.1
Sales and marketing..................................... 13.2 12.3 14.1 12.4
General and administrative.............................. 11.6 10.9 11.8 9.7
------------ ------------ ----------- ------------
Total operating expenses.............................. 41.0 38.9 41.3 37.2
------------ ------------ ----------- ------------
Income from operations.................................... 12.6 7.2 12.1 5.9
Other income (expense), net............................... 3.2 (2.2) 2.8 (2.5)
------------ ------------ ----------- ------------
Income before income taxes................................ 15.8 5.0 14.9 3.4
Provision for income taxes................................ 6.0 0.3 1.7 0.2
------------ ------------ ----------- ------------
Net income................................................ 9.8% 4.7% 13.2% 3.2%
============ ============ =========== ============
</TABLE>
10
<PAGE>
Three Months Ended September 30, 1997 and 1996
- ----------------------------------------------
Revenues. Revenues increased by 28.3% to $9.5 million in the three months ended
- --------
September 30, 1997 from $7.4 million in the three months ended September 30,
1996.
Transaction revenues increased by 30.6% to $6.8 million in the three months
ended September 30, 1997 from $5.2 million in the three months ended September
30, 1996. The increase in transaction revenues for the three month period ended
September 30, 1997 was primarily due to increased volume of wireless customer
qualification and activation transactions processed for existing carrier clients
and additional new carrier clients.
Software and consulting revenues increased by 22.9% to $2.7 million in the three
months ended September 30, 1997 from $2.2 million in the three months ended
September 30, 1996. The increase in software and consulting revenues for the
three month period ended September 30, 1997 was a result of the increase in
revenues attributable to both customized software integration services and
licensed software from existing carrier clients and additional new carrier
clients.
Cost of Revenues. Cost of revenues consists primarily of personnel costs, costs
- ----------------
of maintaining systems and networks used in processing subscriber qualification
and activation transactions (including depreciation and amortization of those
systems and networks), and amortization of capitalized software. Cost of
revenues may vary as a percentage of total revenues in the future as a result of
a number of factors, including changes in the mix of transaction revenues
between revenues from on-line transaction processing and revenues from
processing transactions through the Company's Teleservices Group and changes in
the mix of total revenues between transaction revenues and software and
consulting revenues.
Cost of revenues increased by 10.5% to $4.4 million in the three months ended
September 30, 1997 from $4.0 million in the three months ended September 30,
1996, while decreasing as a percentage of total revenues to 46.4% from 53.8%.
The dollar increase in costs for the three month period ended September 30, 1997
resulted principally from increases in transaction volume and costs attributable
to expansion of the Company's staff and systems capacity. The decrease in cost
of revenues as a percentage of total revenues for the three month period ended
September 30, 1997 primarily resulted from a higher percentage of transaction
revenues from on-line processing and increased utilization of the Company's
operating and networking systems. During the three months ended September 30,
1997, the Company capitalized approximately $334,000 of software development
costs. These costs will be amortized over twenty-four months beginning with the
fourth quarter of 1997.
Development. Development expenses consist primarily of personnel and outside
- -----------
technical service costs related to developing new products and services,
enhancing existing products and services, and implementing and maintaining new
and existing products and services. Development expenses increased by 32.6% to
$1.5 million in the three months ended September 30, 1997 from $1.2 million in
the three months ended September 30, 1996, while increasing as a percentage of
total revenues to 16.2% from 15.7%. Both the dollar increase and the increase as
a percentage of total revenues for the three month period ended September 30,
1997 resulted primarily from the addition of engineering personnel necessary to
support the Company's development programs. The Company expects to continue to
increase its engineering and development efforts in order to continue enhancing
its existing products and services as well as to develop new products and
services.
Sales and Marketing. Sales and marketing expenses consist primarily of
- -------------------
salaries, commissions and travel expenses of direct sales and marketing
personnel, as well as costs associated with advertising, trade shows and
conferences. Sales and marketing expenses increased by 37.6% to $1.2 million in
the three months ended September 30, 1997 from $0.9 million in the three months
ended September 30, 1996, and increased as a percentage of total revenues to
13.2% from 12.3%. Both the dollar increase and the increase as a percentage of
total revenues for the three month period ended September 30, 1997 were due to
the addition of direct sales and product marketing personnel, increased
commissions resulting from the higher level of revenues and increased use of
marketing programs. The Company continues to invest in sales and marketing
efforts in order to increase its penetration into existing accounts and to add
new clients in the Company's existing markets and other markets.
11
<PAGE>
General and Administrative. General and administrative expenses consist
- --------------------------
principally of salaries of administrative, executive, finance and human
resources personnel, as well as outside professional fees. General and
administrative expenses increased by 36.1% to $1.1 million in the three months
ended September 30, 1997 from $0.8 million in the three months ended September
30, 1996, and increased as a percentage of total revenues to 11.6% from 10.9%.
Both the dollar increase and the increase as a percentage of total revenues for
the three month period ended September 30, 1997 resulted primarily from
increased recruiting fees and the addition of finance and human resource
personnel. The Company expects further increases in general and administrative
expenses through the end of 1997.
Other Income (Expense) Net. Other income (expense) in the three month period
- --------------------------
ended September 30, 1997 consisted predominantly of interest income and expense.
Interest expense consists of interest, commitment fees and other similar fees
payable with respect to the Company's bank lines of credit, subordinated notes
and capital leases. Interest expense decreased by 54.4% to $0.1 million in the
three months ended September 30, 1997 from $0.2 million in the three months
ended September 30, 1996. Interest income, which historically had not been
significant, increased to $0.3 million in the three month period ended September
30, 1997 from approximately $34,000 in the three months ended September 30, 1996
as a result of the investment of the proceeds from the Company's initial public
offering received in October 1996.
Provision for Income Taxes. During the three months ended September 30, 1997
- --------------------------
the Company experienced a net income tax provision of $0.6 million. No
significant provision for or benefit from income taxes was recorded in the three
months ended September 30, 1996. The effective tax rates for the three months
ended September 30, 1997 and 1996 were approximately 38.0% and 5.4%,
respectively
Nine Months Ended September 30,1997 and 1996
- --------------------------------------------
Revenues. Revenues increased by 32.2% to $27.3 million in the nine months ended
- --------
September 30, 1997 from $20.6 million in the nine months ended September 30,
1996.
Transaction revenues increased by 17.1% to $18.8 million in the nine months
ended September 30, 1997 from $16.0 million in the nine months ended September
30, 1996. The increase in transaction revenues for the nine month period ended
September 30, 1997 was primarily due to increased volume of wireless customer
qualification and activation transactions processed for existing carrier clients
and additional new carrier clients.
Software and consulting revenues increased by 84.9% to $8.5 million in the nine
months ended September 30, 1997 from $4.6 million in the nine months ended
September 30, 1996. The increase in software and consulting revenues for the
nine month period ended September 30, 1997 was a result of the increase in
revenues attributable to customized software integration services and licensed
software from existing carrier clients and additional new carrier clients.
Cost of Revenues. Cost of revenues increased by 8.2% to $12.7 million in the
- ----------------
nine months ended September 30, 1997 from $11.7 million in the nine months ended
September 30, 1996, while decreasing as a percentage of total revenues to 46.6%
from 56.9%. The dollar increase in costs for the nine month period ended
September 30, 1997 resulted principally from increases in transaction volume and
costs attributable to expansion of the Company's staff and systems capacity. The
decrease in cost of revenues as a percentage of total revenues for the nine
month period ended September 30, 1997 primarily resulted from a combination of
the effects of a higher percentage of transaction revenues from on-line
processing and increased utilization of the Company's operating and networking
systems. During the nine months ended September 30, 1997, the Company
capitalized approximately $334,000 of software development costs. These costs
will be amortized over twenty-four months beginning with the fourth quarter of
1997.
12
<PAGE>
Development. Development expenses increased by 34.8% to $4.2 million in the nine
- -----------
months ended September 30, 1997 from $3.1 million in the nine months ended
September 30, 1996, increasing as a percentage of total revenues to 15.4% from
15.1%. Both the dollar increase and the increase as a percentage of total
revenues for the nine month period ended September 30, 1997 resulted primarily
from the addition of engineering personnel necessary to support the Company's
development programs.
Sales and Marketing. Sales and marketing expenses increased by 50.1% to $3.9
- -------------------
million in the nine months ended September 30, 1997 from $2.6 million in the
nine months ended September 30, 1996, and increased as a percentage of total
revenues to 14.1% from 12.4%. Both the dollar increase and the increase as a
percentage of total revenues for the nine month period ended September 30, 1997
were due to the addition of direct sales and product marketing personnel,
increased commissions resulting from the higher level of revenues and increased
use of marketing programs.
General and Administrative. General and administrative expenses increased by
- --------------------------
62.8% to $3.2 million in the nine months ended September 30, 1997 from $2.0
million in the nine months ended September 30, 1996, and increased as a
percentage of total revenues to 11.8% from 9.7%. Both the dollar increase and
the increase as a percentage of total revenues for the nine month period ended
September 30, 1997 resulted primarily from increased recruiting fees and the
addition of finance and human resource personnel.
Other Income (Expense) Net. Other income (expense) in the nine month period
- --------------------------
ended September 30, 1997 consisted predominantly of interest income and expense.
Interest expense decreased by 54.1% to $0.3 million in the nine months ended
September 30, 1997 from $0.6 million in the nine months ended September 30,
1996. Interest income, which historically had not been significant, increased to
$0.9 million in the nine month period ended September 30, 1997 principally as a
result of the investment of the proceeds from the Company's initial public
offering in October 1996.
Provision for Income Taxes. During the nine months ended September 30, 1997,
- --------------------------
the Company's net income tax expense of $0.5 million was derived from the
reversal of the Company's deferred tax asset valuation allowance of $0.7
million, the utilization of tax credits, which aggregated $0.4 million, offset
by a provision of $1.6 million. No significant provision for or benefit from
income taxes was recorded in the nine months ended September 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Prior to its initial public offering, the Company funded its operations
primarily through private placements of equity and debt securities, cash
generated from operations, bank borrowings and equipment financings.
In October 1996, the Company consummated an initial public offering in which
4,370,000 shares of the Company's Common Stock ($.01 par value) were sold at an
initial public offering price of $10.00 per share. The total shares consisted
of 3,021,868 shares sold by the Company and 1,348,132 shares sold by selling
shareholders. Proceeds to the Company, net of underwriters' discount and
associated costs, were approximately $27.1 million. These proceeds were used to
repay certain debt obligations of the Company, to repurchase certain shares of
the common stock of the Company, and to fund working capital and other general
corporate purposes.
Prior to its initial public offering, the Company financed its operations in
part with the proceeds of four offerings of convertible preferred stock and two
offerings of subordinated debt. The Company sold shares of its Series A
Redeemable Convertible Preferred Stock in February 1991 for an aggregate
purchase price of $1.0 million, shares of its Series B Redeemable Convertible
Preferred Stock in December 1991 for an aggregate purchase price of $1.1 million
and shares of its Series C Redeemable Convertible Preferred Stock in June, July
and August of 1993 for an aggregate purchase price of $0.6 million. In August
1994, the Company sold $2.1 million in principal amount of its 8% subordinated
notes, together with warrants exercisable to purchase up to 525,000 shares of
Common Stock. In August 1995, the Company sold $1.2 million in principal amount
of its 16% subordinated notes, together with warrants exercisable to purchase up
to 287,750 shares of Common Stock. The Company sold
13
<PAGE>
shares of its Series D Preferred Stock in April 1996 for an aggregate purchase
price of $6.0 million. A portion of the proceeds of the Series D Preferred Stock
was applied to repay the 16% subordinated notes.
As of September 30, 1997, the Company had cash and cash equivalents of $20.9
million and working capital of $27.8 million. Pursuant to the acquisition of
Coral, the Company will assume all of the liabilities of Coral as of November 7,
1997. The Company believes that the current cash balances and funds available
under existing lines of credit will be sufficient to finance the Company's and
Coral's operations and capital expenditures for at least the next twelve months.
In the normal course of business, the Company evaluates acquisitions or
investments in companies, technologies or assets that complement the Company's
business. The Company is not currently involved in negotiations with respect to,
and has no agreement or understanding regarding, any such acquisition or
investment.
The Company's capital expenditures aggregated $4.2 million and $8.0 million in
the three and nine month periods ended September 30, 1997 and $1.1 million and
$1.9 million, respectively in the three and nine month periods ended September
30, 1996. The capital expenditures consisted of purchases of fixed assets,
principally for the Company's services delivery infrastructure including the
addition of a second data center and leasehold improvements related to the
relocation of the Company's corporate headquarters. The Company expects capital
expenditures for the remainder of 1997 to approximate $1.5 million. The Company
leases its facilities and certain equipment under non-cancelable capital and
operating lease agreements that expire at various dates through December 2004.
The Company has a $4.0 million working capital line of credit and a $2.0
million equipment line of credit with Silicon Valley Bank (the ''Bank''). The
working capital line of credit is collateralized by a pledge of the Company's
accounts receivable, equipment and intangible assets, and borrowing
availability, which was approximately $2.5 million at September 30, 1997, is
based on the amount of qualifying accounts receivable. At September 30, 1997,
there were no borrowings outstanding under the working capital line of credit
and borrowings of approximately $0.5 million were outstanding under the
equipment line of credit. The agreements contain covenants that, among other
things, prohibit the declaration or payment of dividends and require the Company
to maintain certain financial ratios which the Company believes are not
restrictive to its business operations. The working capital line of credit was
renewed in June 1997 and will expire in June 1998. The equipment line of credit
expires in June 1999.
In March 1997 the Company entered into a seven year lease for approximately
46,000 square feet in Burlington, Massachusetts. In August 1997 the Company
relocated its headquarters to the Burlington facility and subleased a portion of
the 39,000 square foot facility in Waltham.
INFLATION
Although certain of the Company's expenses increase with general inflation in
the economy, inflation has not had a material impact on the Company's financial
results to date.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board released Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128),
which is effective for fiscal 1997. SFAS 128 will require the Company to
restate amounts previously reported as earnings per share to comply with the
requirements of SFAS 128. The Company will adopt SFAS 128 in the fourth quarter
of 1997. See Note 2 to the Unaudited Condensed Consolidated Financial
Statements included elsewhere herein.
In June 1997, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS
130), which is effective for fiscal years beginning after December 15, 1997.
SFAS 130 establishes standards for reporting and display of comprehensive income
and its components (revenues, expenses, gains, and losses) in a full set of
general-purpose financial statements. The adoption of SFAS 130 will not have a
material impact on the Company's results of operations, financial position, or
cash flows.
14
<PAGE>
In June 1997, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards No. 131, " Disclosures about Segments of an
Enterprise and Related Information" (SFAS 131), which is effective for periods
beginning after December 15, 1997. SFAS 131 establishes standards for the way
that public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. The adoption of SFAS 131 will not have a material impact on the
Company's results of operations, financial position, or cash flows.
15
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(d) Use of Proceeds
The Company sold 3,021,868 shares of the Company's Common Stock, par value
$0.01 per share, on October 2, 1996, pursuant to a Registration Statement on
Form S-1 (File No. 333-06589), which was declared effective by the Securities
and Exchange Commission on September 25, 1996 (the "Effective Date"). The
managing underwriters of the offering were Cowen & Company, Montgomery
Securities, and Prudential Securities Incorporated. The aggregate gross proceeds
of the offering were $30.2 million. The Company's total expenses in connection
with the offering were $3.1 million, of which $2.1 million was for underwriting
discounts and commissions and $1.0 million was for other expenses paid to
persons other than directors or officers of the Company, persons owning more
than ten percent of any class of equity securities of the Company, or affiliates
of the Company (collectively, "Affiliates"). The Company's net proceeds from the
offering were $27.1 million. From the Effective Date through September 30, 1997,
the Company used approximately (a) $8.5 million of such net proceeds to purchase
computers, software, and other equipment, (b) $2.1 million to purchase short-
term investments, (c) $2.0 million for repayment of outstanding debt, (d) $1.8
million for repayment of outstanding capital lease obligations, and (e) $0.9
million to repurchase treasury stock. None of these payments were made to
Affiliates. As of September 30, 1997, the Company had approximately $11.8
million of proceeds remaining from the offering, and pending use of the
proceeds, the Company intends to invest such proceeds primarily in short-term,
interest-bearing investment-grade securities, including money market
instruments.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11.1 Statement re Computation of Per Share Earnings
27.1 Financial Data Schedule for the three months ended September 30, 1997
99.1 Information set forth under the heading "ITEM 1A. Risk Factors" in
the Company's Annual Report on Form 10-K for the year ended December
31, 1996 is incorporated herein by reference.
- --------------
(b) Reports on Form 8-K
The Company did not file any Current Reports on Form 8-K during the quarter
ended September 30, 1997.
16
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LIGHTBRIDGE, INC.
Dated: November 14, 1997 By: /s/ William G. Brown
--------------------
William G. Brown
Chief Financial Officer, Vice President
of Finance and Administration and
Treasurer (Authorized Officer and
Principal Financial and Accounting
Officer )
17
<PAGE>
Exhibit 11.1 Statement re Computation of Per Share Earnings
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
PRO-FORMA:
Weighted average number of common and common equivalent
shares outstanding:
Common stock 6,707,136 6,788,910
Assumed conversion of preferred stock 5,247,324 5,247,324
Common equivalent shares resulting from stock options and
warrants (treasury stock method) 1,978,263 1,715,846
----------- -----------
Total 13,932,723 13,752,080
=========== ===========
Net income applicable to common stock $ 353,506 $ 656,006
=========== ===========
Pro-forma income per common share $ 0.03 $ 0.05
=========== ===========
PRIMARY:
Weighted average number of common and common equivalent
shares outstanding:
Common stock 14,698,003 6,485,436 14,646,282 6,441,486
Common equivalent shares resulting from stock options and
warrants (treasury stock method) 1,948,995 2,335,019 1,801,798 2,082,007
---------- ----------- ----------- ----------
Total 16,646,998 8,820,455 16,448,080 8,523,493
========== =========== =========== ==========
Net income $ 927,215 $ 353,506 $ 3,593,165 $ 656,006
Dividends accreted on preferred stock -- (45,636) -- (136,908)
---------- ----------- ----------- ----------
Net income applicable to common stock $ 927,215 $ 307,870 $ 3,593,165 $ 519,098
========== =========== =========== ==========
Primary income per common share $ 0.06 $ 0.03 $ 0.22 $ 0.06
========== =========== =========== ==========
FULLY DILUTED:
Weighted average number of common and common equivalent
shares outstanding:
Common stock 14,698,003 6,310,525 14,646,282 6,383,182
Assumed conversion of preferred stock -- 5,247,324 -- 4,558,435
Common equivalent shares resulting from stock options and
warrants (treasury stock method) 2,081,708 2,399,242 2,108,143 2,399,242
---------- ----------- ----------- ----------
Total 16,779,771 13,957,091 16,754,425 13,340,859
========== =========== =========== ==========
Net income applicable to common stock $ 927,215 $ 353,506 $ 3,593,165 $ 656,006
========== =========== =========== ==========
Fully diluted income per common share $ 0.06 $ 0.03 $ 0.22 $ 0.05
========== =========== =========== ==========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 20,994,026
<SECURITIES> 0
<RECEIVABLES> 10,560,364
<ALLOWANCES> 118,890
<INVENTORY> 0
<CURRENT-ASSETS> 33,389,348
<PP&E> 16,385,809
<DEPRECIATION> 7,298,866
<TOTAL-ASSETS> 44,837,148
<CURRENT-LIABILITIES> 5,568,572
<BONDS> 0
0
0
<COMMON> 155,507
<OTHER-SE> 37,240,907
<TOTAL-LIABILITY-AND-EQUITY> 44,837,148
<SALES> 27,287,970
<TOTAL-REVENUES> 27,287,970
<CGS> 12,705,193
<TOTAL-COSTS> 11,288,586
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 279,736
<INCOME-PRETAX> 4,067,956
<INCOME-TAX> 474,791
<INCOME-CONTINUING> 3,593,165
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,593,165
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.22
</TABLE>
