<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
------------------
FORM 10-Q/A
AMENDMENT NO. 1 TO
(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, 1998
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 organization)
67 South Bedford Street
Burlington, Massachusetts 01803
(Address of principal executive offices, including Zip Code)
(781) 359-4000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the 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 27, 1998, there were 16,000,877 shares of the registrant's
common stock, $.01 par value, outstanding.
The undersigned registrant hereby amends the following items, financial
statements, exhibits or portions of its Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998 as set forth in the pages hereto, in order
to correct a typographical error under the heading "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
<PAGE>
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. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE
RESULTS CONTEMPLATED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF A NUMBER
OF FACTORS, INCLUDING (a) THE UNPREDICTABILITY OF FUTURE REVENUES AND POTENTIAL
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS, (b) CONTINUING RAPID CHANGE IN THE
TELECOMMUNICATIONS INDUSTRY THAT MAY AFFECT BOTH LIGHTBRIDGE, INC. AND ITS
CUSTOMERS, (c) CUSTOMER CONCENTRATION, (d) UNCERTAINTIES ASSOCIATED WITH THE
ABILITY OF LIGHTBRIDGE, INC. TO DEVELOP NEW PRODUCTS AND TECHNOLOGIES, (e)
MARKET ACCEPTANCE OF NEW PRODUCTS OF LIGHTBRIDGE, INC. AND CONTINUING DEMAND FOR
PRODUCTS OF LIGHTBRIDGE, INC. BY TELECOMMUNICATIONS COMPANIES, (f) THE IMPACT OF
COMPETITIVE PRODUCTS AND PRICING ON BOTH LIGHTBRIDGE, INC. AND ITS CUSTOMERS AND
(g) THE OTHER FACTORS SET FORTH UNDER "ITEM 1A. RISK FACTORS" IN THE ANNUAL
REPORT ON FORM 10-K OF LIGHTBRIDGE, INC. FOR THE YEAR ENDED DECEMBER 31, 1997.
Information set forth under the heading "ITEM 1A. Risk Factors" in the Annual
Report on Form 10-K of Lightbridge, Inc. for the year ended December 31, 1997 is
incorporated as an exhibit to this Form 10-Q. Unless the context otherwise
requires, "Lightbridge" and the "Company" refer collectively to Lightbridge and
its subsidiaries.
CHURNALERT and FRAUDBUSTER are registered trademarks of the Company, and
CUSTOMER ACQUISITION SYSTEM, LIGHTBRIDGE and POPS are trademarks of the Company.
All other trademarks or trade names referred to in this Form 10-Q are the
property of their respective owners.
Overview
Lightbridge develops, markets and supports a network of integrated products
and services that enable telecommunications carriers to improve their customer
acquisition and retention processes.
In November 1997, the Company acquired all of the outstanding stock of
Coral Systems, Inc. ("Coral") in exchange for 892,073 shares of the Company's
common stock. The Company also assumed the obligations under Coral's
outstanding stock options and warrants. The acquisition was accounted for as
a purchase and, accordingly, the results of Coral are included with those of
the Company from the date of acquisition.
Lightbridge's transaction services revenues are derived primarily from
the processing of applications for qualification of subscribers for wireless
telecommunications services and the activation of service for those
subscribers. Over time, the Company has expanded its offerings from credit
evaluation services to include screening for subscriber fraud, evaluating
carriers' existing accounts, interfacing with carrier and third-party systems
and providing call center services. These services are provided pursuant to
contracts with carriers which specify the services to be utilized and the
markets to be served. The Company's clients are charged for these services 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's clients. Revenues are recognized in the period in which the
services are performed.
The Company's software licensing and maintenance revenues consist of
revenues attributable to the licensing of the Company's Channel Solutions,
Customer Management and Fraud Management software. Lightbridge's Channel
Solutions products are designed to assist customers in interfacing with the
Company's
-2-
<PAGE>
systems as well as to perform other point-of-sale and channel functionality. The
Company's Customer Management products are designed to help carriers analyze
their marketplace to improve their business operations. The Company's Fraud
Management products are designed to assist carriers in monitoring subscriber
accounts to identify activity that may indicate fraud. While the Company's
software products are licensed as packaged software products, each of these
products generally requires insignificant customization and integration with
other products and systems to varying degrees. Revenues are recognized when
delivery has occurred and collectibility is probable. Revenues from software
maintenance contracts are recognized ratably over the term of the maintenance
agreement.
The Company's consulting services revenues historically have been derived
principally from providing consulting for customer acquisition and retention.
During the second quarter of 1998, the Company launched Lightbridge Consulting
Services, which provides business advisory, customization and integration,
deployment, and optimization services in the areas of customer acquisition and
retention, fraud prevention and distribution management. Revenues from
consulting services are generally recognized as the services are performed,
using the percentage-of-completion method, measured by labor hours.
During the third quarter of 1998, the Company continued its efforts to
complete development of in-process technology acquired from Coral. In June 1998,
the Company released FraudBuster 4.2.5, a new version of FraudBuster that
provides certain performance and functional enhancements. As of September 30,
1998, the Company was continuing to develop two new versions of FraudBuster, one
of which is expected to contain additional performance and functional
enhancements and is currently scheduled to be released in the fourth quarter of
1998, and the other of which is expected to contain substantial enhancements in
performance, scalability and functionality and is currently scheduled to be
released in 1999. The Company was also continuing to develop a product that is
expected to be complementary to FraudBuster and to contain new subscription
fraud detection tools. This product is currently scheduled to be available in
1999. Finally, the Company continued its development efforts with respect to two
versions of ChurnAlert, both of which currently are scheduled to be released in
1999. The Company has not changed its original estimates of the costs expected
to be incurred to complete these projects, although the estimated completion
dates have been delayed. If the Company is unsuccessful in completing these
projects, the Company's business, financial condition, results of operations and
cash flows could be materially adversely affected.
Substantially all of the Company's revenues historically have been derived
from clients located in the United States, and the Company expects that domestic
sales will continue to account for substantially all of its revenues in the
fourth quarter of 1998 and in 1999.
-3-
<PAGE>
Results of Operations
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
--------------------- ---------------------
1997 1998 1997 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Transaction services....................................... 71.4% 68.5% 68.7% 62.8%
Software licensing and maintenance......................... 9.1 16.0 9.6 22.7
Consulting services........................................ 19.5 15.5 21.7 14.5
------ ------- ------- -------
Total revenues........................................... 100.0 100.0 100.0 100.0
------ ------- ------- -------
Cost of revenues:
Transaction services....................................... 39.7 37.2 39.1 36.2
Software licensing and maintenance......................... 2.5 5.9 2.4 5.3
Consulting services........................................ 4.2 8.3 5.1 8.5
------ ------- ------- -------
Total cost of revenues................................... 46.4 51.4 46.6 50.0
------ ------- ------- -------
Gross profit.................................................... 53.6 48.6 53.4 50.0
------ ------- ------- -------
Operating expenses:
Development................................................ 16.2 14.9 15.4 16.0
Sales and marketing........................................ 13.2 10.3 14.1 12.0
General and administrative................................. 11.6 15.7 11.8 18.6
------ ------- ------- -------
Total operating expenses................................. 41.0 40.9 41.3 46.6
------ ------- ------- -------
Income from operations.......................................... 12.6 7.7 12.1 3.4
Other income, net............................................... 3.2 0.8 2.8 1.2
------ ------- ------- -------
Income before provision for income taxes........................ 15.8 8.5 14.9 4.6
Provision for income taxes...................................... 6.0 4.0 1.7 2.2
------ ------- ------- -------
Net income...................................................... 9.8% 4.5% 13.2% 2.4%
------ ------- ------- -------
------ ------- ------- -------
</TABLE>
Three Months Ended September 30, 1998 Compared with Three Months Ended
September 30, 1997
Revenues. Revenues increased by 65.0% to $15.6 million in the three months
ended September 30, 1998 from $9.5 million in the three months ended September
30, 1997.
Transaction services revenues increased by 58.3% to $10.7 million in the
three months ended September 30, 1998 from $6.7 million in the three months
ended September 30, 1997, while decreasing as a percentage of total revenues to
68.5% from 71.4%. The dollar increase in transaction services revenues for the
three months ended September 30, 1998 was primarily due to increased volume of
qualification and activation transactions processed for carrier clients. The
decrease in transaction services revenues as a percentage of total revenues for
the three month period ended September 30, 1998 principally resulted from a
greater increase in software licensing revenues than transaction services
revenues for the same period.
The Company believes that its transaction services revenues in 1999 will
not increase at the same rate as they have in 1998. The Company's transaction
services revenues will continue to reflect in large part the industry's rate of
growth of new subscribers; the Company believes, based in part on reports of
wireless telecommunication industry analysts, that the rate of subscriber growth
will slow in upcoming years. The rate of growth in the Company's transaction
services revenues in 1998 reflects revenues from a number of major PCS carriers
that began operating in late 1997 and in 1998; the Company does not expect that
revenues from these PCS carriers will continue to increase at the same rate as
they have in 1998.
Software licensing and maintenance revenues increased by 189.6% to $2.5
million in the three months ended September 30, 1998 from $0.9 million in the
three months ended September 30, 1997, while
-4-
<PAGE>
increasing as a percentage of total revenues to 16.0% from 9.1%. Both the dollar
increase and the increase as a percentage of total revenues in software
licensing revenues for the three months ended September 30, 1998 were
principally a result of the increase in revenues attributable to the Company's
Channel Solutions and Fraud Management products and services.
The Company currently anticipates that its software licensing and
maintenance revenues in 1999 will approximate those in 1998, as the Company
continues to integrate its Fraud Management products with its other offerings
and to build its international sales capability. Actual results for 1999 will,
however, be subject to a number of uncertainties, some of which are not within
the Company's control. In particular, the Company believes that software
licensing revenues at least through 1999 will be subject to fluctuation and will
be more difficult to anticipate than the Company's other types of revenues,
principally due to the relatively large dollar costs and relatively long sales
cycles of the software licenses. The sales cycles for domestic software licenses
generally extend from three to six months and may extend as long as twelve
months; sales cycles for software licenses sold to international clients
typically are longer. The predictability of software licensing revenue is
further impeded because the Company's licensed software is a discretionary
purchase for most customers. As a result of the foregoing, a small number of
licensing transactions may have a significant effect on the Company's software
licensing revenues in a quarter.
Consulting services revenues increased by 31.3% to $2.4 million in the
three months ended September 30, 1998 from $1.8 million in the three months
ended September 30, 1997, while decreasing as a percentage of total revenues to
15.5% from 19.5%. The dollar increase in consulting services revenues for the
three months ended September 30, 1998 was principally due to increased demand
for the consulting services offered by the Company. The decrease in consulting
services revenue as a percentage of total revenues for the three months ended
September 30, 1998 principally resulted from a greater increase in software
licensing revenues than consulting services revenues for the same period. The
Company is continuing to standardize its consulting services offerings and to
build its consulting capabilities. Its consulting business has become less
concentrated in 1998, with consulting work being performed on more than thirty
projects during the three months ended September 30, 1998.
In the year ended December 31, 1997, one customer accounted for 29% of the
Company's total revenues. While Lightbridge believes that its relationship with
this customer is good, the Company currently expects that the percentage of the
Company's total revenues for the year ended December 31, 1998 attributable to
that customer will be significantly less than for the preceding year, as a
result of growth in the Company's total revenues, the Company's efforts to
diversify its customer base and a decrease in the consulting services utilized
by the customer.
Cost of Revenues. Cost of revenues consists primarily of personnel costs,
costs of maintaining systems and networks used in processing qualification and
activation transactions (including depreciation and amortization of 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 services revenues between revenues
from on-line transaction processing and revenues from processing transactions
services through the Company's Teleservices Group and changes in the mix of
total revenues among transaction services revenues, software licensing revenues
and consulting services revenues.
Transaction services cost of revenues increased by 54.6% to $5.8 million
in the three months ended September 30, 1998 from $3.8 million in the three
months ended September 30, 1997, while decreasing as a percentage of total
revenues to 37.2% from 39.7%. The increase in transaction services cost of
revenues for the three months ended September 30, 1998 resulted principally from
increases in transaction volume and costs attributable to expansion of the
Company's staff and systems capacity. The decrease in transaction
-5-
<PAGE>
services cost of revenues as a percentage of total revenues for the three months
ended September 30, 1998 principally resulted from an increase in the number of
transactions processed compared to the same period of the prior year.
Software licensing and maintenance cost of revenues increased by 292.9% to
$0.9 million in the three months ended September 30, 1998 from $0.2 million in
the three months ended September 30, 1997, while increasing as a percentage of
total revenues to 5.9% from 2.5%. Both the dollar increase and the increase as a
percentage of total revenues in software licensing cost of revenues for the
three months ended September 30, 1998 were primarily due to the increased cost
of revenues for Fraud Management products.
Consulting services cost of revenues increased by 224.9% to $1.3 million
in the three months ended September 30, 1998 from $0.4 million in the three
months ended September 30, 1997, while increasing as a percentage of total
revenues to 8.3% from 4.2%. Both the dollar increase and the increase as a
percentage of total revenues in consulting services cost of revenues were
attributable primarily to the increase in consulting staff due to the expansion
of the consulting services group, including both newly hired personnel and
personnel reallocated from other areas of the Company's operations, including
sales and marketing, as part of the establishment of Lightbridge Consulting
Services. The Company expects to continue hiring consulting staff during the
three months ending December 31, 1998.
The Company expects fluctuations in gross profit may occur primarily due
to fluctuations in revenue generated from the Company's three revenue
components, particularly revenues from software licensing which have
historically generated higher gross profit margins.
Development. Development expenses include internal software development
costs and consist primarily of personnel and outside technical services 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 51.9% to $2.3 million in the three
months ended September 30, 1998 from $1.5 million in the three months ended
September 30, 1997. The increase in costs for the three months ended September
30, 1998 resulted primarily from the addition of engineering personnel necessary
to support the Company's product development plans in connection with the
development and deployment of enhanced versions of its Fraud Management software
product, FraudBuster. The Company expects to continue to increase its
engineering and development efforts in order to continue enhancing its existing
products and services, including its Channel Solutions, Churn and Fraud
Management 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 28.8% to $1.6 million in
the three months ended September 30, 1998 from $1.2 million in the three months
ended September 30, 1997. The increase for the three months ended September 30,
1998 was due principally 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. This increase was offset in part by the
reallocation of certain personnel to Lightbridge Consulting Services as well as
the allocation of certain related expenses to consulting services cost of
revenues. The Company expects to continue to invest in sales and marketing
efforts, both domestically and internationally, in order to increase its
penetration of existing accounts and to add new clients and markets.
-6-
<PAGE>
General and Administrative. General and administrative expenses consist
principally of salaries of executive, finance, human resources and
administrative personnel, fees for outside professional services, and
amortization of goodwill incurred pursuant to the acquisition of Coral. General
and administrative expenses increased by 123.2% to $2.4 million in the three
months ended September 30, 1998 from $1.1 million in the three months ended
September 30, 1997. The increase reflected the amortization of $0.6 million of
goodwill attributable to the Company's acquisition of Coral and an increase in
the number of personnel. The Company expects that its general and administrative
costs will not materially change during the three months ended December 31,
1998. The Company will continue to recognize approximately $0.6 million of
goodwill amortization each quarter through the three months ended December 31,
2000 as a result of the Coral acquisition.
Other Income, Net. Other income, net in the three months ended September
30, 1998 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 remained the same at $0.1 million in the three
months ended September 30, 1998 and 1997. Interest income decreased to $0.1
million in the three months ended September 30, 1998 from $0.3 million in the
three months ended September 30, 1997 as a result of lower cash balances.
Interest income for the three months ended September 30, 1998 reflected an
average rate of return of approximately 3.5%.
Provision for (Benefit From) Income Taxes. The Company's effective tax
rate was 47.0% and 38.0% for the three months ended September 30, 1998 and 1997,
respectively. The Company anticipates its effective tax rate will be 47.0% for
the year ended December 31, 1998. The relatively high effective tax rate for
1998 results in part from goodwill attributable to the Company's acquisition of
Coral; the amortization of this goodwill is recognized as an expense for
accounting purposes, but is not deductible for tax purposes. Since the goodwill
attributable to the Coral acquisition will continue to be amortized through the
three months ending December 31, 2000, the Company anticipates that its
effective tax rate will continue to be relatively high during that amortization
period and, in particular, estimates that its effective tax rate for the year
ending December 31, 1999 also will be approximately 47%. The actual effective
tax rate for 1998 and 1999 may vary significantly from the Company's estimates
as the result of a number of factors, including any and all factors that cause
the Company's actual revenues for those years to vary from the Company's
internal estimates.
Nine Months Ended September 30, 1998 and 1997
Revenues. Revenues increased by 61.4% to $44.1 million in the nine months
ended September 30, 1998 from $27.3 million in the nine months ended September
30, 1997.
Transaction services revenues increased by 47.5% to $27.7 million in the
nine months ended September 30, 1998 from $18.8 million in the nine months ended
September 30, 1997. The increase in transaction services revenues for the nine
months ended September 30, 1998 was primarily due to increased volume of
qualification and activation transactions processed for carrier clients.
Software licensing and maintenance revenues increased by 284.2% to $10.0
million in the nine months ended September 30, 1998 from $2.6 million in the
nine months ended September 30, 1997. The increase in software licensing
revenues for the nine months ended September 30, 1998 was principally a result
of the increase in revenues attributable to the Company's Channel Solutions and
Fraud Management products and services.
-7-
<PAGE>
Consulting services revenues increased by 7.4% to $6.4 million in the nine
months ended September 30, 1998 from $5.9 million in the nine months ended
September 30, 1997. The increase in consulting services revenues for the nine
months ended September 30, 1998 was principally due to an increased demand for
the consulting services provided to clients of the Company.
Cost of Revenues. Transaction services cost of revenues increased by 49.2%
to $15.9 million in the nine months ended September 30, 1998 from $10.7 million
in the nine months ended September 30, 1997. The increase in transaction
services cost of revenues for the nine months ended September 30, 1998 resulted
principally from increases in transaction volume and costs attributable to
expansion of the Company's staff and systems capacity.
Software licensing and maintenance cost of revenues increased by 256.3% to
$2.3 million in the nine months ended September 30, 1998 from $0.7 million in
the nine months ended September 30, 1997. The increase in software licensing
cost of revenues for the nine months ended September 30, 1998 was primarily due
to the increased costs of revenues for Fraud Management products.
Consulting services cost of revenues increased by 173.0% to $3.7 million
in the nine months ended September 30, 1998 from $1.4 million in the nine months
ended September 30, 1997. The increase in consulting services cost of revenues
was attributable primarily to the increase in consulting staff due to the
expansion of the consulting services group, including both newly hired personnel
and personnel reallocated from other areas of the Company's operations as part
of the establishment of Lightbridge Consulting Services.
Development. Development expenses increased by 67.3% to $7.0 million in
the nine months ended September 30, 1998 from $4.2 million in the nine months
ended September 30, 1997. The increase in costs for the nine months ended
September 30, 1998 resulted primarily from the addition of engineering personnel
necessary to support the Company's product development plans.
Sales and Marketing. Sales and marketing expenses increased by 37.0% to
$5.3 million in the nine months ended September 30, 1998 from $3.9 million in
the nine months ended September 30, 1997. The increase for the nine months ended
September 30, 1998 was due principally 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, including trade
shows. This increase was offset in part by the reallocation during the six
months ended September 30, 1998 of certain personnel to Lightbridge Consulting
Services as well as the allocation of certain related expenses for those three
months to consulting services cost of revenues.
General and Administrative. General and administrative expenses increased
by 155.4% to $8.2 million in the nine months ended September 30, 1998 from $3.2
million in the nine months ended September 30, 1997. The increase reflected the
amortization of $1.9 million of goodwill and acquired technology attributable to
the Company's acquisition of Coral, certain costs associated with the
integration of Coral and the hiring of additional personnel. The increase also
reflected (i) a one-time write-off during the nine months ended September 30,
1998 of approximately $0.1 million relating to fixed assets, including leasehold
improvements and telephone systems, used at Coral's existing facilities in
Longmont, Colorado, that were not deployed at its new facilities in Broomfield,
Colorado, (ii) write-offs of approximately $0.3 million for bad debts
attributable principally to contracts of Coral that predated the Company's
acquisition of Coral and (iii) accruals of approximately $0.3 million for
various matters, including sales taxes, the Company's allowance for doubtful
accounts and costs attributable to the Company's establishment of foreign
subsidiaries in Asia and the United Kingdom.
-8-
<PAGE>
Other Income, Net. Other income, net in the nine months ended September
30, 1998 consisted predominantly of interest income and expense. Interest
expense decreased to $0.1 million in the nine months ended September 30, 1998
from $0.3 million in the nine months ended September 30, 1997. Interest income
decreased to $0.5 million in the nine months ended September 30, 1998 from $0.9
million in the nine months ended September 30, 1997 as a result of lower cash
balances due to the investment made in the service delivery infrastructure and
computer equipment for development activities of the business during 1997.
Provision for (Benefit From) Income Taxes. During the nine months ended
September 30, 1998 and 1997, the Company's effective tax rate was 47.0% and
11.7%, respectively. The Company's effective tax rate in 1997 was affected by
the reversal of its deferred tax valuation allowance and the utilization of
certain tax credits in the quarter ended March 31, 1997.
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.
The Company has a $4.0 million working capital line of credit and a $3.0
million equipment line of credit with a bank. The working capital line of credit
is secured by a pledge of the Company's accounts receivable, equipment and
intangible assets, and borrowing availability is based on the amount of
qualifying accounts receivable. Advances under the working capital line of
credit and equipment line of credit bear interest at the bank's prime rate (8.5%
at September 30, 1998). The working line of credit also provides for the
issuance of letters of credit, which reduce the amount that may be borrowed
under the line of credit and are limited to $1,250,000 in the aggregate. At
September 30, 1998, there were no borrowings outstanding under the working
capital line of credit and borrowings of $0.2 million were outstanding under the
equipment line of credit. The Company's agreements with the bank 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 expires in June 1999 and the equipment line of credit
expires in June 2001.
The Company's capital expenditures totalled $3.3 million and $5.3 million,
respectively, for the three and nine months ended September 30, 1998 and $4.2
million and $7.7 million, respectively, for the three and nine months ended
September 30, 1997. The capital expenditures during these periods consisted of
purchases of fixed assets, principally for the Company's services delivery
infrastructure and computer equipment for development activities. Capital
expenditures during the three months ended September 30, 1998 also included
leasehold improvements and other costs attributable to the relocation of Coral's
facilities to Broomfield, Colorado. The Company expects capital expenditures for
the remainder of 1998 to total approximately $0.3 million. The Company currently
estimates that its capital expenditures for 1999 will total approximately $4.0
million to $5.0 million, although the actual amount of those expenditures may
vary significantly, depending upon, among other things, the extent to which the
Company determines to update the capacity of its data center and to acquire
additional computer equipment. The Company leases its
-9-
<PAGE>
facilities and certain equipment under non-cancelable capital and operating
lease agreements that expire at various dates through December 2002.
As of September 30, 1998, the Company had cash and cash equivalents of
$12.6 million and working capital of $23.5 million. The Company believes that
the current cash balances and funds available under existing lines of credit
will be sufficient to finance the Company's operations and capital expenditures
for at least the next twelve months.
Year 2000 Impact on Information Technology Costs
Many companies' currently installed computer systems and software products
are coded to accept only two digit year entries in date coded fields,
potentially with the incorrect assumption of 1900 as the century. To eliminate
date ambiguity, these date coded fields need to accept four digit entries, or
utilize a consistent, predictable technique to distinguish twenty-first century
dates from twentieth century dates. In addition, four digit year dates must be
stored in database or file fields, regardless of the entry of two digit years.
As a result, in less than two years, computer systems and software used by many
companies may need to be upgraded to comply with these "Year 2000" requirements.
Significant uncertainty exists in the software industry concerning the potential
effects associated with such compliance.
Lightbridge has been actively involved in addressing Year 2000 issues
since early 1997. Lightbridge believes that its software products are generally
Year 2000 compliant, meaning that the use or occurrence of dates after January
1, 2000 will not materially affect the performance of Lightbridge's software
products with respect to date dependent data, or the ability of such products to
correctly create, store, process and output information related to such date
data. In October 1998, the Company completed development of version 1.20 of the
Customer Acquisition System ("CAS"), the Company's transaction processing
system. Version 1.20 is Year 2000 compliant for the core CAS and for the
front-end access points to CAS, and also includes Year 2000 support for
third-party interfaces to CAS, such as interfaces with credit bureaus and
billing systems. During the third quarter of 1998, the Company completed Year
2000 compliance for its Fraud Management software product, FraudBuster. The
Company had previously verified Year 2000 compliance for its Retail Management
System, its point-of-sale system. The Company is continuing its testing and
modification efforts relating to its software products. There can be no
assurance that Lightbridge's software products contain all necessary software
routines and codes necessary for the accurate calculation, display, storage and
manipulation of data involving dates. The Company may be required to make
significant expenditures in connection with the on-going design and testing of
its software-based services and products and interfaces to third-party systems
for Year 2000 compatibility, and any related modifications or other development
work that may be required to cause those services and products to be Year 2000
compatible. In addition, in certain circumstances, Lightbridge has warranted
that the use or occurrence of dates on or after January 1, 2000 will not
adversely affect the performance of Lightbridge's products with respect to date
dependent data or the ability to create, store, process and output information
related to such data. If any of Lightbridge's clients experience Year 2000
problems, such clients could assert claims for damages against Lightbridge.
Lightbridge's agreements with clients in most cases limit liability to prevent
unlimited exposure from such claims.
Lightbridge has completed an inventory and review of the Year 2000
compliance status of the software and systems considered critical to its service
bureau operations and its internal business, and has begun to obtain appropriate
assurances of compliance from manufacturers of such software and systems and
agreements to modify or replace all non-compliant products. In addition,
Lightbridge is considering converting certain of its software and systems to
commercial products that are known to be Year 2000 compliant. Implementation of
software products of third parties, however, will require the dedication of
substantial administrative and management information resources, the assistance
of consulting personnel from third party software vendors and the training of
Lightbridge's personnel using such systems. Based on the information available
to date, Lightbridge believes it will be able to make necessary modifications to
service bureau systems prior to the end of 1998. Back office software and
systems considered critical to Lightbridge's business are scheduled to be Year
2000 compliant by the second quarter of 1999. Nevertheless, particularly to the
extent Lightbridge is relying on the products of other vendors to resolve Year
2000 issues, there can be no assurance that Lightbridge will not experience
delays in completing the resolution of such issues. If a key system, or a
significant number of systems, were to fail as a result of
-10-
<PAGE>
software products that were not Year 2000 compliant, Lightbridge could incur
substantial costs and experience disruption of its business, which could have a
material adverse effect on Lightbridge's business, financial condition, results
of operations and cash flows.
Lightbridge expects that its Year 2000 procedures with respect to its
software products, service bureau systems, and internal business software and
systems, will be substantially completed by the second quarter of 1999.
Lightbridge has not separately tracked the costs incurred for investigating and
remedying issues related to Year 2000 compliance, and all of the costs have been
internal. Lightbridge currently estimates that it will spend approximately
$100,000 and $500,000 on Year 2000 testing and compliance during the fourth
quarter of 1998 and during 1999, respectively. There can be no assurance that
Company resources spent on investigating and remedying Year 2000 issues will not
have a material adverse effect on Lightbridge's business, financial condition,
results of operations and cash flows.
In addition, Year 2000 issues may affect the purchasing patterns of clients
and potential clients. Many companies are expending significant resources to
correct their current software systems for Year 2000 compliance. These
expenditures may adversely affect the amount or timing of funds available to
purchase software products such as those offered by Lightbridge, which could
have an adverse effect on Lightbridge's business, financial condition, results
of operations and cash flows.
The foregoing is a Year 2000 readiness disclosure within the meaning of the
Year 2000 Information and Readiness Disclosure Act.
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
Effective January 1, 1998, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" and
AICPA Statement of Position No. 97-2, "Software Revenue Recognition." Adoption
of these pronouncements has not had a material effect on reported results of
operations or financial position. The future effects of AICPA Statement of
Position No. 97-2 on the Company's results of operations will depend on the
nature and terms of the individual software agreements entered into in future
periods.
In September 1997, the Financial Accounting Standards Board released
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS No. 131"). SFAS No. 131
establishes standards applicable to the manner in which the Company reports
information about operating segments in its annual financial statements
commencing with the Company's fiscal year ending December 31, 1998 and will
require that the Company report selected information about operating segments in
subsequent interim financial reports issued to stockholders.
-11-
<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.
Date: November 23, 1998 By: /s/ JOSEPH S. TIBBETTS, JR.
-----------------------------------------------
Joseph S. Tibbetts, Jr.
Senior Vice President, Finance and Administration
and Chief Financial Officer (Authorized Officer
and Principal Financial and Accounting Officer)
-12-
