<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q/A
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 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
incorporation or organization) number)
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 April 1, 1998, there were 15,794,675 shares of the registrant's common
stock, $.01 par value, outstanding.
On February 24, 1999, the registrant announced that it had restated its
financial statements for the year ended December 31, 1997 and the quarters ended
March 31, June 30, and September 30, 1998 to correct the accounting relating to
the acquisition of Coral Systems, Inc. in November 1997. This amended Quarterly
Report on Form 10-Q contains restated financial information and disclosures for
the quarter ended March 31, 1998 reflecting the restatement and certain other
matters. (See Note 3 to the unaudited condensed consolidated financial
statements).
Unless otherwise stated, information in the originally filed Form 10-Q for
the quarter ended March 31, 1998 is presented as of the original filing date,
and has not been updated in this amended filing.
Financial statement information and related disclosures included in this
amended filing reflect, where appropriate, changes as a result of the
restatement.
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<PAGE>
LIGHTBRIDGE, INC.
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
-------------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements: Balance Sheets as of March 31, 1998
(Restated) and December 31, 1997......................................................... 3
Statements of Operations for the three months ended March 31, 1998 (Restated) and March 31,
1997..................................................................................... 4
Statements of Cash Flow for the three months ended March 31, 1998 (Restated) and March 31,
1997..................................................................................... 5
Notes to Unaudited Condensed Consolidated Financial Statements............................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...... 8
PART II. OTHER INFORMATION
Signature.............................................................................................. 15
</TABLE>
INTRODUCTORY NOTE
This Amendment on Form 10-Q/A amends the Registrant's Quarterly Report on
Form 10-Q for the period ended March 31, 1998, as filed by the Registrant on May
1, 1998, and is being filed to reflect the restatement of the Registrant's
condensed consolidated financial statements (the "Restatement"). The Restatement
reflects the revaluation of acquired in-process research and development in
connection with the acquisition of Coral Systems in November 1997.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
LIGHTBRIDGE, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- --------------
(RESTATED,
SEE
NOTE 3)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................... 1$2,762,060 $ 15,715,726
Accounts receivable--net..................................... 14,700,335 13,213,052
Other current assets......................................... 2,917,004 2,885,583
----------- --------------
Total current assets..................................... 30,379,399 31,814,361
Property and equipment--net.................................... 11,791,647 11,763,013
Goodwill--net.................................................. 9,848,891 10,383,581
Acquired intangible assets--net................................ 6,683,861 7,716,545
Other assets--net.............................................. 1,866,414 1,887,676
----------- --------------
Total assets............................................. 6$0,570,212 $ 63,565,176
----------- --------------
----------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities..................... $5,230,359 $ 8,164,817
Short-term borrowings and current portion of notes payable... 805,205 805,205
Deferred revenues............................................ 2,139,526 1,658,406
----------- --------------
Total current liabilities................................ 8,175,090 10,628,428
Other long-term liabilities.................................... 1,128,712 823,346
Notes payable.................................................. 1,080,219 1,397,614
----------- --------------
Total liabilities........................................ 10,384,021 12,849,388
----------- --------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares authorized;
no shares issued or outstanding at March 31, 1998 and
December 31, 1997, respectively............................ -- --
Common stock, $.01 par value; 60,000,000 shares authorized;
16,621,967 and 16,492,954 shares issued; 15,794,675 and
15,665,662 shares outstanding at March 31, 1998 and December
31, 1997, respectively....................................... 166,219 164,929
Additional paid-in capital..................................... 53,852,248 53,660,991
Warrants....................................................... 598,875 598,875
Accumulated deficit............................................ (2,806,188) (2,084,044)
----------- --------------
Total.................................................... 51,811,154 52,340,751
Less treasury stock, at cost................................... (1,624,963) (1,624,963)
----------- --------------
Total stockholders' equity............................... 50,186,191 50,715,788
----------- --------------
Total liabilities and stockholders' equity............. 6$0,570,212 $ 63,565,176
----------- --------------
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</TABLE>
See notes to unaudited condensed consolidated financial statements
3
<PAGE>
LIGHTBRIDGE, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
1998 1997
---------- ---------
THREE MONTHS ENDED
MARCH 31,
---------------------
(RESTATED,
SEE NOTE
3)
<S> <C> <C>
Revenues......................................................... $13,302,816 $8,822,838
Cost of revenues................................................. 7,124,059 4,168,670
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Gross profit..................................................... 6,178,757 4,654,168
---------- ---------
Operating expenses:
Development.................................................... 2,292,097 1,330,919
Sales and marketing............................................ 1,955,937 1,256,417
General and administrative..................................... 2,798,116 1,145,626
---------- ---------
Total operating expenses......................................... 7,046,150 3,732,962
---------- ---------
Income (loss) from operations.................................... (867,393) 921,206
Other income (expense):
Interest income................................................ 228,967 319,816
Interest expense............................................... (65,840) (107,855)
Other non-operating income (expense)........................... 39,022 (9,280)
---------- ---------
Income (loss) before provision for income taxes.................. (665,244) 1,123,887
Provision for (benefit from) income taxes........................ 56,900 (643,939)
---------- ---------
Net income (loss)................................................ $ (722,144) $1,767,826
---------- ---------
---------- ---------
Basic earnings (loss) per common share........................... $ (0.05) $ 0.12
---------- ---------
---------- ---------
Diluted earnings (loss) per common share......................... $ (0.05) $ 0.11
---------- ---------
---------- ---------
</TABLE>
See notes to unaudited condensed consolidated financial statements
4
<PAGE>
LIGHTBRIDGE, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1998 1997
---------- ----------
(RESTATED,
SEE
NOTE 3)
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss)................................................ $ (722,144) $1,767,826
Adjustments to reconcile net income (loss) to net cash (used in)
provided by operating activities:
Depreciation and amortization.................................. 2,939,039 986,904
Amortization of discount on notes.............................. 8,906 9,016
Deferred income taxes.......................................... -- (795,100)
Changes in assets and liabilities:
Accounts receivable and other current assets................. (1,518,704) (1,134,203)
Other assets................................................. (122,699) 35,719
Accounts payable and accrued liabilities..................... (2,899,019) (418,828)
Deferred revenues............................................ 481,120 411,077
Other liabilities............................................ 373,859 --
---------- ----------
Net cash (used in) provided by operating activities........ (1,459,642) 862,411
---------- ----------
Cash Flows From Investing Activities:
Purchases of property and equipment.............................. (1,256,338) (1,175,294)
Purchase of investments.......................................... -- (2,069,323)
---------- ----------
Net cash used in investing activities...................... (1,256,338) (3,244,617)
---------- ----------
Cash Flows From Financing Activities:
Payments on notes payable........................................ (326,301) (176,301)
Principal payments under capital lease obligations............... (103,932) (476,895)
Proceeds from issuance of common stock........................... 192,547 17,862
---------- ----------
Net cash used in financing activities...................... (237,686) (635,334)
---------- ----------
Net decrease in cash and cash equivalents.......................... (2,953,666) (3,017,540)
Cash and cash equivalents, beginning of period..................... 15,715,726 27,900,802
---------- ----------
Cash and cash equivalents, end of period........................... $12,762,060 $24,883,262
---------- ----------
---------- ----------
</TABLE>
See notes to unaudited condensed consolidated financial statements
5
<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/A for the year ended December 31, 1997.
2. SIGNIFICANT ACCOUNTING POLICIES:
SOFTWARE REVENUE RECOGNITION
During the first quarter of 1998, the Company adopted the provisions of
Statement of Position 97-2, "Software Revenue Recognition" ("SOP 97-2"). SOP
97-2 provides guidance on applying generally accepted accounting principles in
recognizing revenue on software transactions and supersedes Statement of
Position 91-1, "Software Revenue Recognition." The adoption of SOP 97-2 had no
effect on the Company's reported revenues for the quarter ended March 31, 1998.
However, there can be no assurance that the provisions of SOP 97-2 will not
affect revenues from future software transactions entered into by the Company.
EARNINGS PER SHARE
During the fourth quarter of 1997, the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings per Share." The Statement
simplifies the standards for computing earnings per share ("EPS") and makes them
comparable to international EPS standards. The Statement replaces primary EPS
with basic EPS. Basic EPS is computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock. Diluted EPS is
computed similarly to fully diluted EPS previously presented. In accordance with
the standard, all prior period EPS data have been restated.
6
<PAGE>
LIGHTBRIDGE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
A reconciliation of the numerators and denominators of the basic and diluted
EPS computations for income (loss) from continuing operations is shown below:
<TABLE>
<CAPTION>
INCOME (LOSS) SHARES EARNINGS (LOSS)
(NUMERATOR) (DENOMINATOR) PER SHARE
------------- ------------- ---------------
<S> <C> <C> <C>
THREE MONTHS ENDED MARCH 31, 1998
Basic and Diluted EPS:
Loss available to common shareholders........................... $ (722,144) 15,707,303 $ (0.05)
-------------
-------------
THREE MONTHS ENDED MARCH 31, 1997
Basic EPS:
Income available to common shareholders......................... $ 1,767,826 14,611,646 $ 0.12
Effect of dilutive securities
Options and warrants............................................ 1,810,305
-------------
Diluted EPS:
Income available to common shareholders......................... $ 1,767,826 16,421,951 $ 0.11
-------------
-------------
</TABLE>
Stock options and warrants convertible into common stock have been excluded
from the diluted computation for the three months ended March 31, 1998 as they
are anti-dilutive. Had such shares been included, shares for the dilutive
computation would have increased by approximately 2,100,000 shares for the three
months ended March 31, 1998.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1997 financial statements to
conform with the 1998 presentation.
3. RESTATEMENT
The Company has restated its previously filed condensed consolidated
financial statements as of and for the three months ended March 31, 1998 to
adjust the allocation of purchase price related to the acquisition of Coral
Systems, Inc. ("Coral") in November, 1997, and the resulting amortization of
goodwill and intangible assets.
The Securities and Exchange Commission ("SEC") issued new guidance in
September 1998 on its views regarding the valuation methodologies used to
determine the allocation of purchase price to acquired in-process research and
development ("IPRD") and intangible assets in a purchase business combination.
Generally accepted accounting principles require that amounts allocated to IPRD
be expensed upon consummation of an acquisition. Following discussions between
the Company and the staff of the SEC regarding the application of this guidance,
the Company has modified the methods used to value IPRD and other intangible
assets acquired in connection with the acquisition of Coral. The revised
valuation is based on management's best estimates at the date of acquisition of
the net cash flows expected to be generated by Coral on a going-forward basis
and gives explicit consideration to the SEC's views on IPRD as set forth in its
September 1998 letter to the American Institute of Certified Public Accountants.
As a result of this revised valuation, the amount of purchase price allocated to
IPRD at the date of
7
<PAGE>
3. RESTATEMENT (CONTINUED)
acquisition decreased from $16.0 million to $4.0 million, and the amount
ascribed to goodwill and acquired intangible assets increased by $4.0 million
and $8.0 million, respectively.
The effects of this restatement on the Company's consolidated financial
statements are as follows:
CONSOLIDATED BALANCE SHEETS:
<TABLE>
<CAPTION>
MARCH 31, 1998
----------------------------
AS PREVIOUSLY
REPORTED AS RESTATED
------------- -------------
<S> <C> <C>
Goodwill--net...................................................................... $ 5,734,510 $ 9,848,889
Acquired intangible assets--net.................................................... -- 6,683,861
Total assets....................................................................... 49,771,970 60,570,212
Total stockholders' equity......................................................... 39,387,949 50,186,191
</TABLE>
CONSOLIDATED STATEMENT OF OPERATIONS:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1998
----------------------------
AS PREVIOUSLY
REPORTED AS RESTATED
------------- -------------
<S> <C> <C>
Cost of revenues............................................... $ 6,229,709 $ 7,124,059
Total operating expenses....................................... 7,055,546 7,046,150
Net income (loss).............................................. 92,810 (722,144)
Basic and diluted income (loss) per common shares.............. $ 0.01 $ (0.05)
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE DISCUSSION IN THIS FORM 10-Q/A 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 (A) CONTINUING RAPID
CHANGE IN THE TELECOMMUNICATIONS INDUSTRY THAT MAY AFFECT BOTH LIGHTBRIDGE AND
ITS CUSTOMERS, (B) CUSTOMER CONCENTRATION, (C) UNCERTAINTIES ASSOCIATED WITH
LIGHTBRIDGE'S ABILITY TO DEVELOP NEW PRODUCTS AND TECHNOLOGIES, (D) MARKET
ACCEPTANCE OF LIGHTBRIDGE'S NEW PRODUCTS AND CONTINUING DEMAND FOR LIGHTBRIDGE'S
PRODUCTS BY TELECOMMUNICATIONS COMPANIES, (E) THE IMPACT OF COMPETITIVE PRODUCTS
AND PRICING ON BOTH LIGHTBRIDGE AND ITS CUSTOMERS, (F) MANAGEMENT OF GROWTH, AND
(G) THE OTHER FACTORS SET FORTH UNDER "ITEM 1A. Risk Factors" IN THE COMPANY'S
ANNUAL REPORT ON FORM 10-K/A FOR THE YEAR ENDED DECEMBER 31, 1997. Information
set forth under the heading "ITEM 1A. Risk Factors" in the Company's Annual
Report on Form 10-K/A for the year ended December 31, 1997 is incorporated as an
exhibit to this Quarterly Report.
CHURNALERT, FRAUDBUSTER and PROFILE are registered trademarks of the
Company, and LIGHTBRIDGE, POPS and SAMS 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.
8
<PAGE>
RESTATEMENT
The Company has restated its previously filed condensed consolidated
financial statements as of and for the three months ended March 31, 1998 to
adjust the allocation of purchase price related to the acquisitions of Coral
Systems, Inc. ("Coral") in November, 1997 and the resulting amortization of
goodwill and intangible assets.
The Securities and Exchange Commission ("SEC") issued new guidance in
September 1998 on its views regarding the valuation methodologies used to
determine the allocation of purchase price to acquire in-process research and
development ("IPRD") and intangible assets in a purchase business combination.
Generally accepted accounting principles require that amounts allocated to IPRD
be expensed upon consummation of an acquisition. Following discussions between
the Company and the staff of the SEC regarding the application of this guidance,
the Company has modified the methods used to value IPRD and other intangible
assets acquired in connection with the acquisition of Coral. The revised
valuation is based on management's best estimates at the date of acquisition of
the net cash flows expected to be generated by Coral on a going-forward basis
and gives explicit consideration to the SEC's views on IPRD as set forth in its
September 1998 letter to the American Institute of Certified Public Accountants.
As a result of this revised valuation, the amount of purchase price allocated to
IPRD at the date of acquisition decreased from $16 million to $4 million, and
the amount ascribed to goodwill and acquired intangible assets increased by $4.0
million and $8.0 million, respectively.
RESULTS OF OPERATIONS
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, pursuant to an Agreement and Plan of Reorganization dated as of September
9, 1997 (the "Reorganization Agreement"). The acquisition was effected through a
reverse triangular merger (the "Merger") in which a newly formed subsidiary of
Lightbridge was merged with and into Coral and the surviving corporation became
a wholly owned subsidiary of the Company. Pursuant to the Merger, each of the
outstanding shares of Coral's stock was converted into a fraction of a share of
Lightbridge's common stock, determined as set forth in the Reorganization
Agreement. In addition, as a result of the Merger, all options and warrants to
purchase shares of Coral's stock became exercisable, when vested, to purchase
shares of Lightbridge's common stock. As a result of the Merger, Lightbridge
issued 892,073 shares of its common stock for all of the outstanding shares of
Coral's common stock and reserved 114,399 shares of its common stock for Coral's
options and warrants. The merger has been accounted for using the purchase
method, which combines the results of Coral from the date of acquisition with
those of the Company. As a result, the Company's results of operation include
Coral's results for the three months ended March 31, 1998, but not for the three
months ended March 31, 1997.
Coral provides client-server software products for the wireless
telecommunications industry to enable carriers to reduce fraud and customer
turnover, or "churn," and increase operating efficiencies. Coral's products are
based upon its core technology, which is designed to provide several advantages,
including rapid product development, portability, technology independence and
enhanced scalability. Coral's fraud management software, FraudBuster,
incorporates a fraud profiler and subscription fraud monitoring functionality
and is designed to combat most currently identified types of wireless fraud.
FraudBuster detects multiple types of existing and emerging fraud, including
cloning, subscription fraud, tumbling fraud and cellular telephone theft.
Coral's churn prevent product, ChurnAlert, allows carriers to analyze and
identify potential churn candidates before they seek customer service assistance
or deactivate service.
9
<PAGE>
Lightbridge's transaction revenues are derived primarily from the processing
of applications 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 teleservices 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. Generally, the
Company's clients are charged on a per transaction or, to a lesser extent, on a
per minute 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 services revenues have been derived primarily
from developing customized software and providing consulting services. The
Company also began licensing its Channel Solutions software with the
introduction of its POPS product in fiscal 1995 and its SAMS software in 1996.
Lightbridge's Channel Solutions products and services are designed to assist
customers in interfacing with the Company's systems and are being marketed
primarily to wireless telecommunications carriers that utilize the Company's
transaction processing services. The Company's Customer Management products are
being designed to help carriers analyze their marketplace to improve their
business operations. While its Channel Solutions and Fraud Management products
are, and its Customer Management and ChurnAlert products are currently expected
to be, licensed as packaged software products, each of these products requires
customization and integration with other products and systems to varying
degrees. 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 services
revenues depend primarily on the continuing need for integration of diverse
systems and acceptance of the Company's software products by the Company's
existing and new clients.
Lightbridge is seeking to broaden and strengthen its management team. First,
the Company expects to engage a new head of worldwide sales and marketing in
late April 1998. Second, during the three months ending June 30, 1998,
Lightbridge expects to consolidate its consulting services group and to name a
vice president to head the new group. Third, the Company is seeking to hire a
new chief financial officer who will have responsibility for matters such as the
Company's financial reporting systems, business measures and analysis, and
relationships with public market analysts and investors.
10
<PAGE>
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1997
---------
1998
---------
(1)
<S> <C> <C>
Revenues:
Transaction................................................................. 58.7% 68.3%
Software and services....................................................... 41.3 31.7
--------- ---------
100.0 100.0
Cost of revenues.............................................................. 53.6 47.3
--------- ---------
Gross profit.................................................................. 46.4 52.7
--------- ---------
Operating expenses:
Development................................................................. 17.2 15.1
Sales and marketing......................................................... 14.7 14.2
General and administrative.................................................. 21.0 13.0
--------- ---------
Total operating expenses.................................................. 52.9 42.3
--------- ---------
Income (loss) from operations................................................. (6.5) 10.4
Other income (expense), net................................................... 1.5 2.3
--------- ---------
Income (loss) before income taxes............................................. (5.0) 12.7
Provision for (benefit from) income taxes..................................... 0.4 (7.3)
--------- ---------
Net income.................................................................... (5.4)% 20.0%
--------- ---------
--------- ---------
</TABLE>
- ------------------------
(1) As restated. See Note 3 of Notes to Unaudited Condensed Consolidated
Financial Statements.
REVENUES. Revenues increased by 50.8% to $13.3 million in the three months
ended March 31, 1998 from $8.8 million in the three months ended March 31, 1997.
Transaction revenues increased by 29.7% to $7.8 million in the three months
ended March 31, 1998 from $6.0 million in the three months ended March 31, 1997.
The increase in transaction revenues for the three months ended March 31, 1998
was primarily due to increased volume of qualification and activation
transactions processed for carrier clients.
Software and services revenues increased by 96.3% to $5.5 million in the
three months ended March 31, 1998 from $2.8 million in the three months ended
March 31, 1997. The increase in software and services revenues for the three
months ended March 31, 1998 was principally a result of the increase in revenues
attributable to the Company's Channel Solutions and Fraud Management products
and services. Increased revenues from Fraud Management products resulted in part
from the inclusion of sales of Coral products in the three months ended March
31, 1998. Software and services revenues for the three months ended March 31,
1998 were adversely affected by (i) a lower-than-expected level of consulting
projects from the Company's largest client and (ii) the Company's inability,
under governing revenue recognition policies, to recognize revenue from Fraud
Management software that was installed for a new international client but which
had not been fully accepted by the client as of March 31, 1998 under the terms
of the client's contract with the Company. Lightbridge expects to recognize the
revenue from this Fraud Management software during the three months ending June
30, 1998, although there can be no assurance that the required contractual
acceptance will be received by this time or at any time.
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 those
systems and networks) and amortization of capitalized software and certain
acquired
11
<PAGE>
intangible assets. 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 services revenues.
Cost of revenues increased by 70.9% to $7.1 million in the three months
ended March 31, 1998 from $4.2 million in the three months ended March 31, 1997,
while increasing as a percentage of total revenues to 53.6% from 47.3%. The
dollar increase in costs for the three months ended March 31, 1998 resulted
principally from increases in transaction volume and costs attributable to
expansion of the Company's staff and systems capacity through the Company's
acquisition of Coral and through internal growth as well as amortization expense
of certain acquired intangible assets.
DEVELOPMENT. Development expenses 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 also
include software development costs incurred prior to the establishment of
technological feasibility.
Development expenses increased by 72.2% to $2.3 million in the three months
ended March 31, 1998 from $1.3 million in the three months ended March 31, 1997,
while increasing as a percentage of total revenues to 17.2% from 15.1%. The
dollar increase in costs for the three months ended March 31, 1998 resulted
primarily from the addition of engineering personnel necessary to support the
Company's product development plans, including personnel employed by Coral. 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 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 55.7% to $2.0 million in
the three months ended March 31, 1998 from $1.3 million in the three months
ended March 31, 1997, and increased as a percentage of total revenues to 14.7%
from 14.2%. Both the dollar increase and the increase as a percentage of total
revenues for the three months ended March 31, 1998 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,
including trade shows. The dollar increase also reflected costs of Coral's sales
and marketing personnel and activities. The Company continues to invest in sales
and marketing efforts in order to increase its penetration of existing accounts
and to add new clients and markets.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
principally of salaries of administrative, executive, finance and human
resources personnel, fees for outside professional services, and amortization of
goodwill and certain acquired intangible assets incurred pursuant to the
acquisition of Coral. General and administrative expenses increased by 144.2% to
$2.8 million in the three months ended March 31, 1998 from $1.1 million in the
three months ended March 31, 1997, and increased as a percentage of total
revenues to 21.0% from 13.0%. Both the dollar increase and the increase as a
percentage of total revenues resulted primarily from amortization of $0.8
million of goodwill and acquired intangible assets, certain costs associated
with the integration of Coral, and the addition of finance and human resource
personnel. The Company believes that the remaining costs associated with the
integration of Coral will be incurred in the three months ending June 30, 1998
and will not exceed $100,000.
OTHER INCOME (EXPENSE) NET. Other income (expense) in the three months
ended March 31, 1998 consists 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
12
<PAGE>
and capital leases. Interest expense remained the same at $0.1 million in the
three months ended March 31, 1998 and 1997. Interest income decreased to $0.2
million in the three months ended March 31, 1998 from $0.3 million in the three
months ended March 31, 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 three months ended
March 31, 1998, the Company recorded a net income tax provision of $0.1 million.
During the three months ended March 31, 1997, the Company recorded a net income
tax benefit of $0.6 million, which was derived from the reversal of its deferred
tax valuation allowance and the utilization of certain tax credits, net of a
provision of $0.5 million.
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 $2.0
million equipment line of credit with Silicon Valley Bank (the "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 March 31, 1998). The working line of credit also provides
for the issuance of letters of credit, which reduce the amount Lightbridge may
borrow under the line of credit and are limited to $1,250,000 in the aggregate.
At March 31, 1998, there were no borrowings outstanding under the working
capital line of credit and borrowings of $0.4 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 the business operations. The working capital line of credit
expires in June 1998, and the equipment line of credit expires in June 1999. The
Company expects to renew the working capital line of credit with substantially
the same terms that currently exist. On March 24, 1998, the Company and the Bank
entered into a commitment letter that contemplates (i) an extension of the
working capital line of credit until June 1999 and (ii) an increase in the
equipment line of credit to $3.0 million and an extension in the equipment line
of credit to six years from the date of closing. The Company anticipates that
the definitive documentation for the changes contemplated by the commitment
letter will be entered into during the quarter ending June 30, 1998.
The Company's capital expenditures in the three months ended March 31, 1998
and 1997 aggregated $1.3 million and $1.2 million, respectively. The capital
expenditures consisted of purchases of fixed assets, principally for the
Company's services delivery infrastructure and computer equipment for
development activities. The Company expects capital expenditures for the
remainder of 1998 to approximate $3.0 million, including capital expenditures
related to the relocation of Coral's offices. The Company leases its facilities
and certain equipment under non-cancelable capital and operating lease
agreements that expire at various dates through December 2002.
13
<PAGE>
Further expansion of the Company's business, including the acquisition of
additional computer and network equipment and the relocation of the offices of
Coral in Colorado, will require the Company to make significant capital
expenditures. The Company may also be required to make significant expenditures
in connection with the on-going design and testing of its software-based
services and products for Year 2000 compatibility, and any related modifications
or other developmental work that may be required to cause those services and
products to be Year 2000 compatible. Because the Company has not completed a
significant portion of its Year 2000 testing, the Company currently is unable to
estimate accurately the amount of these expenditures.
As of March 31, 1998, the Company had cash and cash equivalents of $12.8
million and working capital of $22.2 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.
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 June 1997, the FASB released Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"), which is effective
for fiscal 1998. SFAS No. 130 requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial
statements. The adoption of SFAS No. 130 has not had a material effect on
reported results of operations or financial position.
In June 1997, the FASB released Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS No. 131"), which is effective for fiscal 1998. SFAS No. 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. While the Company is in the process of
evaluating the impact of SFAS No. 131, it does not expect that the adoption will
have a material impact on the Company's financial position or results of
operations.
14
<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: March 31, 1999 By: /s/ JOSEPH S. TIBBETTS, JR.
-----------------------------------------
Joseph S. Tibbetts, Jr.
SENIOR VICE PRESIDENT
FINANCE & ADMINISTRATION, AND CHIEF
FINANCIAL OFFICER (AUTHORIZED OFFICER AND
PRINCIPAL FINANCIAL AND ACCOUNTING
OFFICER)
15
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