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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
<TABLE>
<C> <S>
(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, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
</TABLE>
Commission file number: 000-21319
LIGHTBRIDGE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 04-3065140
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
</TABLE>
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 May 5, 2000, there were 16,980,703 shares of the registrant's common
stock, $.01 par value, outstanding.
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<PAGE>
LIGHTBRIDGE, INC.
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000
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, 2000 and December 31, 1999... 3
Income Statements for the three months ended March 31, 2000
and March 31, 1999........................................ 4
Statements of Cash Flows for the three months ended March
31, 2000
and March 31, 1999........................................ 5
Notes to Unaudited Condensed Consolidated Financial
Statements................................................ 6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 8
Item 3. QUANTITATIVE AND QUALITATIVE MARKET RISK DISCLOSURES........ 14
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K............................ 15
SIGNATURE............................................................ 16
</TABLE>
2
<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,
2000 1999
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $35,980,811 $35,477,909
Accounts receivable, net.................................. 22,592,947 16,785,873
Other current assets...................................... 2,035,943 1,970,393
----------- -----------
Total current assets.................................... 60,609,701 54,234,175
Property and equipment, net................................. 18,164,510 17,367,173
Acquired intangible assets, net............................. 1,993,500 2,347,217
Other assets, net........................................... 1,854,746 1,908,165
----------- -----------
Total assets........................................ $82,622,457 $75,856,730
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.................. $16,159,046 $14,049,209
Short-term borrowings and current portion of notes
payable................................................. 500,000 500,000
Deferred revenues......................................... 3,550,542 2,914,155
----------- -----------
Total current liabilities............................... 20,209,588 17,463,364
Other long-term liabilities............................... 936,972 910,463
Notes payable............................................. 75,016 191,109
----------- -----------
Total liabilities....................................... 21,221,576 18,564,936
----------- -----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares
authorized; no shares issued or outstanding at
March 31, 2000 or December 31, 1999..................... -- --
Common stock, $.01 par value; 60,000,000 shares
authorized; 17,751,141 and 17,510,661 shares issued and
16,859,236 and 16,618,756 shares outstanding at
March 31, 2000 and December 31, 1999, respectively...... 177,510 175,105
Additional paid-in capital................................ 59,599,957 58,297,842
Warrants.................................................. 362,625 398,875
Retained earnings......................................... 4,005,172 1,164,355
----------- -----------
Total................................................... 64,145,264 60,036,177
Less: treasury stock, at cost............................ (2,744,383) (2,744,383)
----------- -----------
Total stockholders' equity.............................. 61,400,881 57,291,794
----------- -----------
Total liabilities and stockholders' equity.......... $82,622,457 $75,856,730
=========== ===========
</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
MARCH 31,
-------------------------
2000 1999
----------- -----------
<S> <C> <C>
Revenues:
Transaction............................................... $20,427,347 $14,080,360
Software licensing and maintenance........................ 3,150,469 1,850,301
Consulting services....................................... 2,700,557 3,412,475
----------- -----------
Total revenues.......................................... 26,278,373 19,343,136
----------- -----------
Cost of revenues:
Transaction............................................... 9,063,211 6,617,030
Software licensing and maintenance........................ 1,705,407 950,548
Consulting services....................................... 1,651,382 1,634,925
----------- -----------
Total cost of revenues.................................. 12,420,000 9,202,503
----------- -----------
Gross profit................................................ 13,858,373 10,140,633
----------- -----------
Operating expenses:
Development costs......................................... 4,086,272 2,496,389
Sales and marketing....................................... 2,235,442 2,003,726
General and administrative................................ 2,924,217 2,610,084
Amortization of goodwill and acquired workforce........... 190,868 348,258
----------- -----------
Total operating expenses................................ 9,436,799 7,458,457
----------- -----------
Income from operations...................................... 4,421,574 2,682,176
Other income (expense):
Interest income........................................... 270,098 154,678
Interest expense.......................................... (24,740) (41,721)
Other non-operating income................................ 68,885 8,076
----------- -----------
Income before provision for income taxes.................... 4,735,817 2,803,209
Provision for income taxes.................................. 1,895,000 1,374,000
----------- -----------
Net income.................................................. $ 2,840,817 $ 1,429,209
=========== ===========
Basic earnings per common share............................. $ 0.17 $ 0.09
=========== ===========
Diluted earnings per common share........................... $ 0.15 $ 0.08
=========== ===========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
4
<PAGE>
LIGHTBRIDGE, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------
2000 1999
------------- -------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income................................................ $ 2,840,817 $ 1,429,209
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 2,442,574 2,149,002
Changes in assets and liabilities:
Accounts receivable and other current assets.......... (5,872,624) (638,955)
Other assets.......................................... (19,000) 227,497
Accounts payable and accrued liabilities.............. 2,109,837 (252,105)
Deferred revenues..................................... 636,387 1,321,111
Other liabilities..................................... 26,508 21,723
----------- -----------
Net cash provided by operating activities................. 2,164,499 4,257,482
----------- -----------
Cash Flows From Investing Activities:
Principal payment--note receivable from officer......... -- 5,328
Purchases of property and equipment..................... (2,804,868) (820,847)
----------- -----------
Net cash used in investing activities..................... (2,804,868) (815,519)
----------- -----------
Cash Flows From Financing Activities:
Principal payments on notes payable..................... -- (201,301)
Principal payments under capital lease obligations...... -- (32,093)
Proceeds from issuance of common stock.................. 1,133,271 47,426
Proceeds from exercise of warrants...................... 10,000 125,000
----------- -----------
Net cash provided by (used in) financing activities....... 1,143,271 (60,968)
----------- -----------
Net increase in cash and cash equivalents................... 502,902 3,380,995
Cash and cash equivalents, beginning of period.............. 35,477,909 16,436,995
----------- -----------
Cash and cash equivalents, end of period.................... $35,980,811 $19,817,990
=========== ===========
</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 accompanying unaudited condensed consolidated financial statements
include the accounts of Lightbridge, Inc. and its subsidiaries ("Lightbridge").
Lightbridge believes that the unaudited condensed consolidated financial
statements reflect all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of Lightbridge's financial
position, results of operations and cash flows at the dates and for the periods
indicated. Although certain information and disclosures normally included in
Lightbridge's annual financial statements have been omitted, Lightbridge
believes that the disclosures provided are adequate to make the information
presented not misleading. Results of interim periods may not be indicative of
results for the full year or any future periods. These financial statements
should be read in conjunction with the consolidated financial statements and
related notes included in Lightbridge's Annual Report on Form 10-K for the year
ended December 31, 1999.
2. SIGNIFICANT ACCOUNTING POLICIES:
REVENUE RECOGNITION
Lightbridge generates revenue from the processing of qualification and
activation transactions; granting of software licenses; services (including
maintenance, installation and training); development and consulting contracts;
and certain hardware sold in conjunction with certain software licenses.
Revenues from processing of qualification and activation transactions for
wireless telecommunications carriers are recognized in the period when services
are performed. Lightbridge's software license agreements have typically provided
for an initial license fee and annual maintenance based on a defined number of
subscribers, as well as additional license and maintenance fees for net
subscriber additions. Lightbridge has entered into license agreements that
provide for either a one-time license fee or a monthly license fee with no
additional fees based on incremental subscriber growth.
Revenue from software license sales is recognized when persuasive evidence
of an arrangement exists, delivery of the product has been made, and a fixed fee
and collectibility has been determined; to the extent that obligations exist for
other services, Lightbridge allocates revenue between the license and the
services based upon their relative fair value. Revenue from customer maintenance
support agreements is deferred and recognized ratably over the term of the
agreements. Revenue from consulting and training services is recognized as those
services are rendered. Hardware is sold in conjunction with software licenses
only when required by the customer and such revenue is deferred until the
related license revenue is recognized.
EARNINGS PER SHARE
Basic earnings per share is computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential dilution that could
occur if outstanding dilutive options and warrants were exercised and resulted
in the issuance of common stock.
6
<PAGE>
A reconciliation of the denominators of the basic and diluted earnings per
share computations is shown below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
2000 1999
---------- ----------
<S> <C> <C>
Shares for basic earnings per share.................. 16,593,483 16,054,778
Effect of dilutive options and warrants.............. 2,031,718 1,202,084
---------- ----------
Shares for diluted earnings per share................ 18,625,201 17,256,862
========== ==========
</TABLE>
No adjustments were made to net income in computing diluted earnings per
share.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes standards
applicable to the manner in which Lightbridge accounts for derivative
instruments in its annual financial statements commencing with the quarter
beginning after June 15, 2000. Lightbridge has not yet determined the effect
that adoption will have on its consolidated financial statements.
Lightbridge has adopted Statement of Position No. 98-9 ("SOP 98-9")
"Modification of SOP 97-2," Software Revenue Recognition," with Respect to
Certain Transactions". SOP 98-9 amends SOP 97-2 to require that an entity
recognize revenue for multiple element arrangements by means of the "residual
method" when (1) there is vendor-specific objective evidence (VSOE) of the fair
values of all the undelivered elements that are not accounted for by means of
long-term contract accounting, (2) VSOE of fair value does not exist for one or
more of the delivered elements, and (3) all revenue recognition criteria of
SOP 97-2 (other than the requirement for VSOE of the fair value of each
delivered element) are satisfied. The provisions of SOP 98-9 that extend the
deferral of certain paragraphs of SOP 97-2 and SOP 98-9 will be effective for
transactions that are entered into in fiscal years beginning after March 15,
1999. The adoption of SOP 98-9 did not have a material effect on the
consolidated financial position or results of operations.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1999 financial statements to
conform with the 2000 presentation.
3. COMMITMENTS AND CONTINGENCIES
LEASES--Lightbridge has noncancelable operating lease agreements for office
space and certain equipment.
7
<PAGE>
Future minimum payments under operating leases and subrental income relating
to certain operating leases consisted of the following at March 31, 2000:
<TABLE>
<CAPTION>
OPERATING SUBRENTAL
LEASES INCOME
----------- ----------
<S> <C> <C>
2000................................................ $ 4,242,824 $1,174,000
2001................................................ 4,132,239 298,100
2002................................................ 3,294,029 --
2003................................................ 2,908,924 --
2004................................................ 1,224,317 --
Thereafter.......................................... 230,453 --
----------- ----------
Total minimum lease payments........................ $16,032,786 $1,472,100
=========== ==========
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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. ANY STATEMENTS CONTAINED HEREIN THAT ARE NOT STATEMENTS OF
HISTORICAL FACT MAY BE DEEMED TO BE FORWARD-LOOKING STATEMENTS. WITHOUT LIMITING
THE FOREGOING, THE WORDS "BELIEVES," "ANTICIPATES," "PLANS," "EXPECTS" AND
SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THE
FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND
OTHER FACTORS, INCLUDING THE 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, 1999, THAT MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE AND
ACHIEVEMENTS OF LIGHTBRIDGE, INC. TO DIFFER MATERIALLY FROM THOSE INDICATED BY
THE FORWARD-LOOKING STATEMENTS.
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, 1999 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.
ALIAS, FRAUDBUSTER, FRAUD SENTINEL, LIGHTBRIDGE, the Lightbridge logo,
PROFILE, and TELESTO are registered trademarks of Lightbridge, and @RISK,
ALLEGRO, CUSTOMER ACQUISITION SYSTEM, CREDIT DECISION SYSTEM, FRAUD CENTURION,
INSIGHT, POPS, and RETAIL MANAGEMENT SYSTEM are trademarks of Lightbridge. All
other trademarks or trade names appearing 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, service provisioning, retention and fraud management processes.
Lightbridge's transaction services revenues are derived primarily from the
processing of applications for qualification of subscribers for
telecommunications services and the activation of service for those subscribers.
Lightbridge's offerings include credit evaluation services, 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. Lightbridge's clients are
charged for these services on a per pransaction 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 industry, seasonal and retail trends, the success of the
carriers utilizing Lightbridge's services in attracting subscribers and the
8
<PAGE>
markets served by Lightbridge's clients. Transaction services revenues are
recognized in the period in which the services are performed.
Lightbridge's software licensing and maintenance revenues consist of
revenues attributable to the licensing of Lightbridge's Channel Solutions and
Fraud Management software. Lightbridge's Channel Solutions products are designed
to assist customers in interfacing with Lightbridge's transaction processing
systems as well as to perform other point-of-sale and channel functionality.
Lightbridge's Fraud Management products are designed to assist carriers in
monitoring subscriber accounts to identify activity that may indicate fraud.
While Lightbridge'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. Software
licensing revenues are recognized when persuasive evidence of an arrangement
exists, delivery of the product has been made, and a fixed fee and
collectibility has been determined. Revenues from software maintenance contracts
are recognized ratably over the term of the maintenance agreement.
Lightbridge's consulting services revenues are derived from solution
development and deployment consulting and business advisory services in the
areas of customer acquisition, retention and fraud 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 first quarter of 2000, Lightbridge continued its efforts to
complete development of in-process technology obtained through the acquisition
of Coral Systems Inc. ("Coral") in November 1997. Lightbridge commenced beta
testing of FraudBuster 5.0, which contains enhancements in performance,
scalability and functionality and is currently scheduled to generally be
released in the second quarter of 2000. Lightbridge is also continuing to
develop Alias and @Risk, which are complimentary to FraudBuster and contain new
subscription fraud detection tools. These products are being deployed in a
phased introduction that began in the third quarter of 1999 and is expected to
continue through the second quarter of 2000. If Lightbridge is unsuccessful in
completing these projects, Lightbridge's business, financial condition, results
of operations and cash flows could be materially adversely affected.
Substantially all of Lightbridge's revenues historically have been derived
from clients located in the United States, and Lightbridge expects that domestic
sales will continue to account for a substantial portion of its revenues for the
remainder of 2000.
9
<PAGE>
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Revenues:
Transaction............................................... 77.7% 72.8%
Software licensing and maintenance........................ 12.0 9.6
Consulting services....................................... 10.3 17.6
----- -----
Total revenues.......................................... 100.0 100.0
----- -----
Cost of revenues:
Transaction............................................... 34.5 34.2
Software licensing and maintenance........................ 6.5 4.9
Consulting services....................................... 6.3 8.5
----- -----
Total cost of revenues.................................... 47.3 47.6
----- -----
Gross profit................................................ 52.7 52.4
----- -----
Operating expenses:
Development costs......................................... 15.6 12.9
Sales and marketing....................................... 8.5 10.3
General and administrative................................ 11.1 13.5
Amortization of goodwill and acquired workforce........... 0.7 1.8
----- -----
Total operating expenses................................ 35.9 38.5
----- -----
Income from operations...................................... 16.8 13.9
Other income, net........................................... 1.2 0.6
----- -----
Income before provision for income taxes.................... 18.0 14.5
Provision for income taxes.................................. 7.2 7.1
----- -----
Net income.................................................. 10.8% 7.4%
===== =====
</TABLE>
THREE MONTHS ENDED MARCH 31, 2000 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1999
REVENUES. Revenues increased by 35.9% to $26.3 million in the three months
ended March 31, 2000 from $19.3 million in the three months ended March 31,
1999.
Transaction revenues increased by 45.1% to $20.4 million in the three months
ended March 31, 2000 from $14.1 million in the three months ended March 31,
1999, while increasing as a percentage of total revenues to 77.7% from 72.8%.
The increase in transaction revenues for the three months ended March 31, 2000
was primarily due to increased volume of qualification and activation
transactions processed for carrier clients and an increase in special program
efforts through Lightbridge's TeleServices Call Center, which are generally not
provided under a long-term contract. Lightbridge believes that its
transaction-based activities benefited directly from client promotional
activities generally attributable to the current competitive market for wireless
services.
Lightbridge anticipates that the volume of transaction-based activities
during the quarters ended June 30, 2000 and September 30, 2000 will be
consistent with the level of activity for the three months ended March 31, 2000.
However, the volume of transaction-based activities may vary based on special
program efforts through Lightbridge's TeleServices Call Center or other factors.
Lightbridge's transaction revenues will continue to reflect in large part the
industry's rate of growth of new subscribers and seasonal trends as well as the
rate of switching among carriers by subscribers (subscriber churn). Lightbridge
believes, based in part on reports of wireless telecommunication industry
analysts, that the rate of
10
<PAGE>
subscriber growth will slow in upcoming years and that the rate of subscriber
churn will remain fairly constant.
Software licensing and maintenance revenues increased by 70.3% to
$3.2 million in the three months ended March 31, 2000 from $1.9 million in the
three months ended March 31, 1999, while increasing as a percentage of total
revenues to 12.0% from 9.6%. The increase in software licensing and maintenance
revenues for the three months ended March 31, 2000 resulted from increases in
both licensing and maintenance revenues.
Lightbridge currently anticipates that its software licensing and
maintenance revenues will experience modest growth for the remainder of 2000
when compared to 1999, as Lightbridge continues to integrate its Fraud
Management products with its other offerings and to build its international
sales capability. Actual results for 2000 will, however, be subject to a number
of uncertainties, some of which are not within Lightbridge's control. In
particular, Lightbridge believes that software licensing revenues at least
through 2000 will be subject to fluctuation and will be more difficult to
anticipate than Lightbridge's other types of revenues, principally due to the
relatively large dollar magnitude 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 often are longer. The
predictability of software licensing revenue is further impeded because
Lightbridge'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 Lightbridge's software licensing revenues within a given
quarter.
Consulting services revenues decreased by 20.9% to $2.7 million in the three
months ended March 31, 2000 from $3.4 million in the three months ended March
31, 1999, while decreasing as a percentage of total revenues to 10.3% from
17.6%. The decrease in consulting services revenues for the three months ended
March 31, 2000 was principally due to a decrease in backlog from the fourth
quarter of the year ended December 31, 1999, as a result of Year 2000 concerns.
Lightbridge currently anticipates that its consulting services revenue will grow
at a slower rate in 2000 when compared to 1999 levels as Lightbridge continues
to standardize its consulting services offerings and to build its consulting
capabilities.
COST OF REVENUES. Cost of revenues consists primarily of personnel costs,
costs of purchasing and maintaining systems and networks used in processing
qualification and activation transactions (including depreciation and
amortization of systems and networks) and amortization of capitalized software
and acquired technology. 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 Lightbridge's
TeleServices Group and changes in the mix of total revenues among transaction
revenues, software licensing revenues and consulting services revenues.
Transaction cost of revenues increased by 37.0% to $9.1 million in the three
months ended March 31, 2000 from $6.6 million in the three months ended
March 31, 1999, while decreasing as a percentage of total transaction revenues
to 44.4% from 47.0%. The increase in transaction cost of revenues for the three
months ended March 31, 2000 resulted principally from increases in transaction
volume and costs attributable to expansion of Lightbridge's staff and systems
capacity.
Software licensing and maintenance cost of revenues increased by 79.4% to
$1.7 million in the three months ended March 31, 2000 from $1.0 million in the
three months ended March 31, 1999, while increasing as a percentage of total
software licensing and maintenance revenues to 54.1% from 51.4%. The increase in
software licensing and maintenance cost of revenues for the three months ended
March 31, 2000 were primarily due to an increase in personnel in connection with
beta testing of Fraudbuster 5.0.
Consulting services cost of revenues increased by 1.0% to $1.7 million in
the three months ended March 31, 2000 from $1.6 million in the three months
ended March 31, 1999, while increasing as a
11
<PAGE>
percentage of total consulting services revenues to 61.1% from 47.9%. 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.
Lightbridge expects fluctuations in gross profit may occur primarily due to
fluctuations in revenue generated from Lightbridge's three revenue components,
particularly revenues from software licensing and consulting services.
DEVELOPMENT. Development expenses include software development costs
consisting 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 63.7% to $4.1 million in the three months
ended March 31, 2000 from $2.5 million in the three months ended March 31, 1999,
while increasing as a percentage of total revenues to 15.6% from 12.9%. The
increase in costs for the three months ended March 31, 2000 resulted primarily
from the addition of engineering personnel necessary to support Lightbridge's
product development plans. Included in these development efforts was the
development of enhanced versions of its Fraud Management software product,
FraudBuster, the continued enhancement of its Customer Acquisition System and
Retail Management System and development of its Fraud Management software
products, Alias and @Risk. Lightbridge expects to continue to increase the
dollar amount of 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. As a result, Lightbridge expects that its development expenses, as
a percentage of total revenues, will be higher during the last nine months of
2000 than in the last nine months of 1999.
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 11.6% to $2.2 million for the
three months ended March 31, 2000 from $2.0 million in the three months ended
March 31, 1999, while decreasing as a percentage of total revenues to 8.5% from
10.3%. The increase in sales and marketing expenses for the three months ended
March 31, 2000 was primarily due to various trade shows in which Lightbridge
participated during the quarter. Lightbridge 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.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
principally of salaries of executive, finance, human resources and
administrative personnel and fees for outside professional services.
General and administrative expenses increased by 12.0% to $2.9 million in
the three months ended March 31, 2000 from $2.6 million in the three months
ended March 31, 1999, while decreasing as a percentage of total revenues to
11.1% from 13.5%. The increase was primarily due to increases in general and
administrative personnel and fees for professional services. Lightbridge expects
that its general and administrative expenses as a percentage of total revenues
will not significantly change for the remainder of 2000.
AMORTIZATION OF GOODWILL AND ACQUIRED WORKFORCE. Amortization of goodwill
and acquired workforce consists of amortization expense of certain acquired
intangible assets from the acquisition of Coral Systems, Inc.
Amortization of goodwill and acquired workforce expense decreased by 45.2%
to $0.2 million in the three months ended March 31, 2000 from $0.3 million in
the three months ended March 31, 1999 and also decreased as a percentage of
total revenues to 0.7% from 1.8%. The decrease was due to the write-off
12
<PAGE>
during the fourth quarter of 1999 of the remainder of the net goodwill balance
and a portion of the acquired workforce asset to reflect the return of a portion
of the shares escrowed at the time of the Coral acquisition in settlement of
claims made by Lightbridge. As a result, Lightbridge expects that acquired
workforce amortization expense will be approximately $0.1 million for the
remainder of 2000.
OTHER INCOME, NET. Other income, net in the three months ended March 31,
2000 consisted predominantly of interest income and expense. Interest expense
consists of interest payable with respect to Lightbridge's subordinated notes.
Interest income increased to $0.3 million in the quarter ended March 31, 2000
from $0.2 million in the quarter ended March 31, 1999 as a result of higher
average cash balances during the quarter.
PROVISION FOR INCOME TAXES. Lightbridge's effective tax rate was 40% and
49% for the three months ended March 31, 2000 and 1999, respectively. The
relatively high effective tax rate for 1999 resulted from the amortization of
goodwill related to Lightbridge's acquisition of Coral, which is recognized as
an expense for accounting purposes, but is not deductible for tax purposes.
Lightbridge anticipates that its effective tax rate for the year ending
December 31, 2000 will be approximately 40%. The actual effective tax rate for
2000 may vary significantly from Lightbridge's estimates as the result of a
number of factors, including any and all factors that cause Lightbridge's actual
pretax book income for the year to vary from Lightbridge's internal estimates.
Lightbridge has net operating loss carryforwards for federal income tax purposes
which were acquired from Coral. These net operating loss carryforwards are
limited in use and therefore a valuation allowance has been established against
a portion of the deferred tax assets as their full realization is not assured.
LIQUIDITY AND CAPITAL RESOURCES
During the first three months of 2000 Lightbridge generated positive cash
flows from operating and financing activities of $2.2 million and $1.1 million,
respectively, and used cash of $2.8 million in investing activities.
Lightbridge's capital expenditures in the three months ended March 31, 2000
and 1999 aggregated $2.8 million and $0.8 million, respectively. The capital
expenditures during these periods consisted of an increase in purchases of fixed
assets, principally for Lightbridge's services delivery infrastructure and
computer equipment for development activities. Lightbridge currently estimates
that its capital expenditures for the remainder of 2000 will total approximately
$13.0 million to $15.0 million, although the actual amount of those expenditures
may vary significantly, depending upon, among other things, the extent to which
Lightbridge determines to update the capacity of its data center and to acquire
additional computer equipment. Lightbridge leases its facilities and certain
equipment under non-cancelable operating lease agreements that expire at various
dates through December 2005.
Lightbridge has a $5.0 million working capital line of credit and a
$3.0 million equipment line of credit with a bank. The lines of credit are
secured by all of Lightbridge's assets. Borrowing availability on the working
capital line of credit 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 (9.0% at March 31, 2000). 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 March 31, 2000, there were no borrowings
outstanding under the working capital line of credit or the equipment line of
credit. Borrowing availability at March 31, 2000 was $4.0 million and
$3.0 million for the working capital line of credit and equipment line of
credit, respectively. Lightbridge's agreements with the bank contain covenants
that, among other things, prohibit the declaration or payment of dividends and
require Lightbridge to maintain certain financial ratios which Lightbridge
believes are not restrictive to its business operations. The working capital
line of credit expires in June 2000 and the equipment line of credit expires in
June 2001.
13
<PAGE>
Lightbridge considers earnings before interest, taxes, depreciation, and
amortization ("EBITDA") to be meaningful given the impact on operating income
from non-cash expenses such as depreciation of property and equipment and the
amortization of intangible assets. EBITDA and after-tax cash flow should not be
considered in isolation from, or as a substitute for, operating income, net
income or cash flow and other consolidated income or cash flow statement data
computed in accordance with generally accepted accounting principles or as a
measure of Lightbridge's profitability or liquidity. Although these measures of
performance are not calculated in accordance with generally accepted accounting
principles, Lightbridge believes they are widely used in the telecommunications
industry as a measure of a company's operating performance because they assist
in comparing companies on a more consistent basis without regard to depreciation
and amortization which can vary significantly depending on accounting methods
(particularly when acquisitions are involved). EBITDA increased by 75.9% to
$7.2 million in the three months ended March 31, 2000, from $4.1 million in the
three months ended March 31, 1999. The increase for the three months ended
March 31, 2000 resulted primarily from an increase in operating income.
As of March 31, 2000, Lightbridge had cash and cash equivalents of
$36.0 million and working capital of $40.4 million. Lightbridge believes that
the current cash balances and funds available under existing lines of credit,
together with cash flows provided by operations, will be sufficient to finance
Lightbridge's operations and capital expenditures for at least the next twelve
months.
INFLATION
Although certain of Lightbridge's expenses increase with general inflation
in the economy, inflation has not had a material impact on Lightbridge's
financial results to date.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes standards
applicable to the manner in which Lightbridge accounts for derivative
instruments in its annual financial statements commencing with the quarter
beginning after June 15, 2000. Lightbridge has not yet determined the effect
that adoption will have on its consolidated financial statements.
Lightbridge has adopted Statement of Position No. 98-9 ("SOP 98-9")
"Modification of SOP 97-2," Software Revenue Recognition," with Respect to
Certain Transactions". SOP 98-9 amends SOP 97-2 to require that an entity
recognize revenue for multiple element arrangements by means of the "residual
method" when (1) there is vendor-specific objective evidence (VSOE) of the fair
values of all the undelivered elements that are not accounted for by means of
long-term contract accounting, (2) VSOE of fair value does not exist for one or
more of the delivered elements, and (3) all revenue recognition criteria of
SOP 97-2 (other than the requirement for VSOE of the fair value of each
delivered element) are satisfied. The provisions of SOP 98-9 that extend the
deferral of certain paragraphs of SOP 97-2 and SOP 98-9 will be effective for
transactions that are entered into in fiscal years beginning after March 15,
1999. The adoption of SOP 98-9 did not have a material effect on the
consolidated financial position or results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE MARKET RISK DISCLOSURES
The market risk exposure inherent in Lightbridge's financial instruments and
consolidated financial position represents the potential losses arising from
adverse changes in interest rates. Lightbridge is exposed to such interest rate
risk primarily in its significant investment in cash and cash equivalents and
the use of fixed- and variable-rate debt to fund its acquisitions of property
and equipment in past years.
Market risk for cash and cash equivalents and fixed-rate borrowings is
estimated as the potential change in the fair value of the assets or obligations
resulting from a hypothetical ten percent adverse
14
<PAGE>
change in interest rates, which would not have been significant to Lightbridge's
financial position or results of operations during 2000. The effect of a similar
hypothetical change in interest rates on Lightbridge's variable-rate debt also
would have been insignificant due to the immaterial amounts of borrowings
outstanding under Lightbridge's credit arrangements.
For additional information about Lightbridge's financial instruments and
debt obligations, see Notes to Consolidated Financial Statements in
Lightbridge's Annual Report on Form 10-K for the year ended December 31, 1999.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
NO. DESCRIPTION
- --------------------- -----------
<C> <S>
10.1 Fifth and Sixth Amendments dated March 10, 2000 to the
office lease included as item 10.13 in the Annual Report on
Form 10-K of the Company for the year ended December 31,
1999.
27.1 Financial Data Schedule for the three months ended
March 31, 2000
99.1 Information set forth under the heading "ITEM 1A. Risk
Factors" in the Annual Report on Form 10-K of the Company
for the year ended December 31, 1999 is incorporated herein
by reference
</TABLE>
(b) Reports on Form 8-K
Lightbridge did not file any Current Report on Form 8-K during the three
months ended March 31, 2000.
15
<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.
<TABLE>
<S> <C> <C>
LIGHTBRIDGE, INC.
BY: /S/ PAMELA D.A. REEVE
-----------------------------------------
Pamela D.A. Reeve
President and Chief Executive Officer
(Principal Financial and Accounting
Officer)
Date: May 11, 2000
</TABLE>
16
<PAGE>
Exhibit 10.1A
Burlington Business Center
67 South Bedford Street
Burlington, Massachusetts
("the Building")
SIXTH AMENDMENT
March 10, 2000
LANDLORD: Gateway Rosewood, Inc., successor-in-interest to
Sumitomo Life Realty (N.Y.), Inc.
TENANT: Lightbridge, Inc.
EXISTING
PREMISES: An area on the first (1st) floor East Pod of the
Building, containing 21,055 rentable square feet,
substantially as shown on Lease Plan, Exhibit F,
Sheet 1; an area on the second (2nd) floor East
Pod of the Building, containing 21,892 rentable
square feet, substantially as shown on Lease
Plan, Exhibit F, Sheet 2; an area ("Third
Amendment Premises") on the second (2nd) floor,
Pod C of the Building, containing 220 square feet
of Rentable Floor Area, substantially as shown on
Exhibit A, Third Amendment; an area on the third
(3rd) floor East Pod of the Building, containing
3,411 rentable square feet, substantially as
shown on Lease Plan, Exhibit F, Sheet 3; and an
area on the fourth (4th) floor West Lobby of the
Building, containing 11,226 square feet of
Rentable Floor Area, substantially as shown on
Exhibit A, Second Amendment, dated October 6,
1997; an area, known as the Generator Premises,
adjacent to the Building more particularly shown
on Exhibit A, First Amendment dated July 22,
1997; an area on the third (3rd) floor, Pod C of
the Building, containing 7,733 square feet of
Rentable Area, substantially as shown on Exhibit
A, Fourth Amendment, dated July 16, 1999 ("Fourth
Amendment Premises"); and an area on the third
(3rd) floor of Pod C of the Building, containing
3,982 square feet of Rentable Floor Area,
substantially as shown on Exhibit A, Fifth
Amendment
-1-
<PAGE>
ORIGINAL LEASE
LEASE EXECUTION
DATA: DATE: March 5, 1997
TERMINATION
DATE IN RESPECT
OF EXISTING
PREMISES (EXCEPT
THIRD AMENDMENT
PREMISES): May 31, 2004
TERMINATION
DATE IN RESPECT
OF THIRD
AMENDMENT
PREMISES: March 31, 2001
TERMINATION
DATE IN RESPECT
OF SIXTH AMENDMENT
PREMISES: October 31, 2005
PREVIOUS
LEASE
AMENDMENTS: First Amendment dated July 22, 1997
Second Amendment dated October 6, 1997
Third Amendment dated as of March 15, 1999
Fourth Amendment dated July 16, 1999
Fifth Amendment dated March 10, 2000
SIXTH
AMENDMENT
PREMISES: Area A: An area on the second (2nd) floor,
Center Pod of the Building, containing
7,320 square feet of Rentable Floor
Area, substantially as shown on Exhibit
A, Sixth Amendment, a copy of which is
attached hereto and incorporated by
reference herein
-2-
<PAGE>
Area B: An area on the second (2nd) floor of
Pod B of the Building, containing 8,431
square feet of Rentable Floor Area,
substantially as shown on Exhibit A,
Sixth Amendment, a copy of which is
attached hereto and incorporated by
reference herein
Area C: An area on the second (2nd) floor,
Pod B of the Building, containing 4,000
square feet of Rentable Floor Area,
substantially as shown on Exhibit A,
Sixth Amendment, a copy of which is
attached hereto and incorporated by
reference herein
WHEREAS, Tenant desires to lease additional premises located in the
Building, to wit, the Sixth Amendment Premises;
WHEREAS, Landlord is willing to lease the Sixth Amendment Premises to
Tenant upon the terms and conditions hereinafter set forth;
NOW THEREFORE, the parties hereby agree that the above-described lease, as
previously amended ("the Lease"), is hereby further amended as follows:
1. TERMINATION OF TEMPORARY PREMISES TENANCY AGREEMENT
The parties acknowledge that Tenant has executed a Temporary Premises
Tenancy Agreement ("Temporary Premises Tenancy Agreement"), in respect of Area
B, dated February 1, 2000, by and between Landlord, as landlord and Tenant, as
tenant. The parties hereby further acknowledge that the Temporary Premises
Tenancy Agreement is superseded in all respects by this Sixth Amendment, and
therefore that the Temporary Premises Tenancy Agreement is hereby deemed void
and is of no further force or effect.
2. DEMISE OF THE SIXTH AMENDMENT PREMISES
Landlord hereby leases and demises to Tenant, and Tenant hereby hires and
takes from Landlord, the Sixth Amendment Premises. Said demise of the Sixth
Amendment Premises shall be upon all of the terms and conditions of the Lease
applicable to the Existing Premises except as follows:
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<PAGE>
I. AREA A
A. The Term Commencement Date in respect of Area A shall be November 1,
2000 or, if later, the date Area A is delivered to Tenant by Landlord.
B. The Rent Commencement Date in respect of Area A shall be the earlier
of: (i) sixty (60) days after the Term Commencement Date in respect of Area A or
(ii) the date Tenant or those claiming by, through or under Tenant start to use
Area A for purposes permitted under the Lease.
C. The Termination Date in respect of Area A shall be October 31, 2005.
D. Annual Fixed Rent in respect of Area A shall be Two Hundred Twelve
Thousand Two Hundred Eighty and 00/100 Dollars ($212,280.00) (i.e., a monthly
payment of $17,690.00) (i.e., $29.00 per rentable square foot).
E. Tenant's Operating Expense Base in respect of Area A shall be the
actual amount of Operating Expenses Allocable to Area A for calendar year 2000.
F. Tenant's Tax Base in respect of Area A shall be the actual amount of
Tax Expenses Allocable to Area A for fiscal/tax year 2001.
G. Tenant's Annual Electricity Charge in respect of Area A shall be Six
Thousand Nine Hundred Fifty-Four and 00/100 Dollars ($6,954.00), based upon a
charge of $.95 per square foot of Rentable Floor Area in respect of Area A
(i.e., $579.50 per month). Tenant's obligation to commence paying the Annual
Electricity Charge in respect of Area A shall commence as of the Rent
Commencement Date in respect of Area A.
II. AREA B
A. The Term Commencement Date in respect of Area B shall be March 1, 2000.
B. The Rent Commencement Date in respect of Area B shall be November 1,
2000.
C. The Termination Date in respect of Area B shall be October 31, 2005.
D. Annual Fixed Rent in respect of Area B shall be Two Hundred Forty-Four
Thousand Four Hundred Ninety-Nine and 00/100 Dollars ($244,499.00) (i.e., a
monthly payment of $20,374.92) (i.e., $29.00 per rentable square foot).
-4-
<PAGE>
E. Commencing as of the Term Commencement Date in respect of Area B
through the Rent Commencement Date in respect of Area B, the Operating Expenses
in respect of Area B, payable by Tenant, shall be the actual amount of Operating
Expenses Allocable to Area B for calendar year 2000 and shall be prorated for a
portion of any calendar year. Commencing as of the Rent Commencement Date in
respect of Area B, Tenant's Operating Expenses Base in respect of Area B shall
be the actual amount of Operating Expenses Allocable to Area B for calendar year
2000.
F. Commencing as of the Term Commencement Date in respect of Area B
through the Rent Commencement Date in respect of Area B, the Taxes in respect of
Area B, payable by Tenant, shall be the actual amount of Tax Expenses Allocable
to Area B for fiscal/tax year 2001. Commencing as of the Rent Commencement Date
in respect of Area B, Tenant's Tax Base in respect of Area B shall be the actual
amount of Tax Expenses Allocable to Area B for calendar year 2000.
G. Tenant's Annual Electricity Charge in respect of Area B shall be Eight
Thousand Nine and 45/100 Dollars ($8,009.45), based upon a charge of $.95 per
square foot of Rentable Floor Area in respect of Area B (i.e., $667.45 per
month). Tenant's obligation to commence paying the Annual Electricity Charge in
respect of Area B shall commence as of the Term Commencement Date in respect of
Area B.
III. AREA C
A. The Term Commencement Date in respect of Area C shall be the Term
Commencement Date in respect of Area A.
B. The Rent Commencement Date in respect of Area C shall be the earliest
of: (i) one hundred fifty (150) days after the Term Commencement Date in respect
of Area C; (ii) ninety (90) days after Tenant or anyone claiming by, through or
under Tenant commences construction in Area C, or (iii) sixty (60) days after
Tenant or anyone claiming by, through or under Tenant first commences to use
Area C for purposes permitted under the Lease.
C. The Termination Date in respect of Area C shall be October 31, 2005.
D. Annual Fixed Rent in respect of Area C shall be One Hundred Sixteen
Thousand and 04/100 Dollars ($116,000.00) (i.e., a monthly payment of $9,666.67)
(i.e., $29.00 per rentable square foot).
E. Tenant's Operating Expense Base in respect of Area C shall be the
actual amount of Operating Expenses Allocable to Area C for calendar year 2000.
F. Tenant's Tax Base in respect of Area C shall be the actual amount of
Tax Expenses Allocable to Area C for fiscal/tax year 2001.
-5-
<PAGE>
G. Tenant's Annual Electricity Charge in respect of Area C shall be Three
Thousand Eight Hundred and 00/100 Dollars ($3,800.00), based upon a charge of
$.95 per square foot of Rentable Floor Area in respect of Area C (i.e., $316.67
per month). Tenant's obligation to commence paying the Annual Electricity Charge
in respect of Area C shall commence as of the Rent Commencement Date in respect
of Area C.
IV. PROVISIONS APPLICABLE TO ALL PORTIONS OF THE SIXTH AMENDMENT
PREMISES
A. Article XI of the Lease shall have no applicability to the Sixth
Amendment Premises.
B. In the event of any conflict between the provisions of the Lease and
the provisions of this Amendment, the provisions of this Amendment shall
control.
3. CONDITION OF SIXTH AMENDMENT PREMISES
Notwithstanding anything to the contrary herein or in the Lease contained,
Tenant shall lease the Sixth Amendment Premises "as-is", in the condition in
which the Sixth Amendment Premises are in as of the Term Commencement Date in
respect of the Sixth Amendment Premises without any obligation on the part of
Landlord to prepare or construct the Sixth Amendment Premises for Tenant's
occupancy, and without any representation or warranty by Landlord as to the
condition of the Sixth Amendment Premises.
4. LANDLORD'S CONTRIBUTION IN RESPECT OF SIXTH AMENDMENT PREMISES
Landlord shall provide to Tenant up to Three Hundred Twenty-Five Thousand
Eight Hundred Ninety-One and 50/100 ($325,891.50) Dollars ("Landlord's Sixth
Amendment Contribution") towards the cost of leasehold improvements to be
installed by Tenant in the Sixth Amendment Premises; including, without
limitation, hard costs, architectural and engineering fees incurred by Tenant in
preparing Tenant's plans, moving costs and computer wiring and cabling costs
("Tenant's Sixth Amendment Premises Work"). Landlord's Sixth Amendment
Contribution shall be disbursed to Tenant in the same manner and subject to the
same conditions and limitations as set forth on Exhibit B to the Lease, except:
A. The first two (2) sentences of Paragraph B of Exhibit B to the Lease
shall not apply to Tenant's Sixth Amendment Premises Work.
B. For the purpose of clause (iii) of Paragraph D of Exhibit B to the
Lease, wherever the date "September 30, 1997" is used, the date "six (6) months
after the Term
-6-
<PAGE>
Commencement Date in respect of Area A" shall be substituted therefor in respect
of Area A.
C. For the purpose of clause (iii) of Paragraph D of Exhibit B to the
Lease, wherever the date "September 30, 1997" is used, the date "six (6) months
after the Term Commencement Date in respect of Area B" shall be substituted
therefor in respect of Area B.
D. For the purpose of clause (iii) of Paragraph D of Exhibit B to the
Lease, wherever the date "September 30, 1997" is used, the date "six (6) months
after the Term Commencement Date in respect of Area C" shall be substituted
therefor in respect of Area C.
5. BROKER
Landlord and Tenant each warrant that they have had no dealings with any
broker or agent, other than Meredith & Grew ("Broker"), in connection with this
Sixth Amendment and covenant to defend, hold harmless and indemnify each other
from and against any and all cost, expense or liability for any compensation,
commissions and charges claimed by any broker or agent, other than Broker,
claiming by or through them with respect to dealings in connection with this
Sixth Amendment or the negotiation thereof.
6. LETTER OF CREDIT
The parties hereby acknowledge that Landlord is presently holding a Letter
of Credit in an amount equal to One Million and 00/100 ($1,000,000.00) Dollars,
pursuant to Article X of the Lease. The parties hereby further acknowledge that
Landlord shall continue to hold said Letter of Credit during the term of the
Lease.
7. TENANT'S OPTION TO EXTEND THE TERM OF THE LEASE IN RESPECT OF THE
SIXTH AMENDMENT PREMISES
Tenant shall have the following right to extend the term of the Lease in
respect of the Sixth Amendment Premises. Tenant's extension option under this
Paragraph 7 shall be independent of Tenant's extension option with respect to
the Existing Premises as set forth in Article XI of the Lease.
A. On the conditions, which conditions Landlord may waive, at its
election, by written notice to Tenant at any time, that Tenant is not in default
of its covenants and obligations under the Lease beyond any applicable period of
notice and cure, and that Lightbridge, Inc., itself, is occupying the entirety
of the Sixth Amendment Premises, both as of the time of option exercise and as
of the commencement of the hereinafter described additional term, Tenant shall
have the option to extend the term of the Lease in respect of
-7-
<PAGE>
the Sixth Amendment Premises for one (1) additional five (5) year term, such
additional term commencing as of November 1, 2005 and terminating as of October
31, 2010. Tenant may exercise such option to extend by giving Landlord written
notice on or before February 1, 2005. Upon the timely giving of such notice, the
term of the Lease in respect of the Sixth Amendment Premises shall be deemed
extended upon all of the terms and conditions of the Lease, except that Landlord
shall have no obligation to construct or renovate the Sixth Amendment Premises
and that the Annual Fixed Rent, the Annual Electricity Charge, Tenant's
Operating Expense Base, and Tenant's Tax Base during such additional term shall
be as hereinafter set forth. If Tenant fails to give timely notice, as
aforesaid, Tenant shall have no further right to extend the term of the Lease in
respect of the Sixth Amendment Premises, time being of the essence of this
Paragraph 7.
B. Annual Fixed Rent
The Annual Fixed Rent during the additional term of the Lease in respect
of the Sixth Amendment Premises shall be based upon the Fair Market Rental
Value, as defined in Article XIII of the Lease, as of the commencement of the
additional term of the Lease in respect of the Sixth Amendment Premises,
provided however, that in no event shall the sum of Annual Fixed Rent, the
Annual Electricity Charge, Operating Expenses Allocable to the Premises and Tax
Expenses Allocable to the Sixth Amendment Premises payable by Tenant for any
twelve-(12)-month period during the additional term be less than the sum of
Annual Fixed Rent, Annual Electricity Charge, Operating Expenses Allocable to
the Premises and Tax Expenses Allocable to the Sixth Amendment Premises payable
by Tenant during the immediately preceding twelve (12) month period.
C. Tenant shall have no further option to extend the term of the Lease in
respect of the Sixth Amendment Premises other than the one (1) additional five
(5) year term herein provided.
D. Notwithstanding the fact that upon Tenant's exercise of the herein
option to extend the term of the Lease in respect of the Sixth Amendment
Premises such extension shall be self-executing, as aforesaid, the parties shall
promptly execute a lease amendment reflecting such additional term after Tenant
exercises the herein option, except that the Annual Fixed Rent payable in
respect of such additional term, the Annual Electricity Charge payable during
the initial term, Tenant's Operating Expenses Base during such additional term,
and Tenant's Tax Base during such additional term, may not be set forth in said
amendment. Subsequently, after such Annual Fixed Rent, the Annual Electricity
Charge, Tenant's Operating Expenses Base, and Tenant's Tax Base are determined,
the parties shall execute a written agreement confirming the same. The execution
of such lease amendment shall not be deemed to waive any of the conditions to
Tenant's exercise of its rights under this Paragraph 7, unless otherwise
specifically provided in such lease amendment.
-8-
<PAGE>
8. TENANT'S CANCELLATION RIGHT UPON LATE DELIVERY OF PORTIONS OF THE
SIXTH AMENDMENT PREMISES
If the Term Commencement Date in respect of any portion of the Sixth
Amendment Premises has not occurred on or before March 1, 2001, then Tenant
shall have the right to terminate the term of the Lease in respect of such
portion of the Sixth Amendment Premises by giving Landlord a written thirty (30)
day termination notice. If the Term Commencement Date in respect of such portion
of the Sixth Amendment Premises does not occur on or before the thirtieth (3Oth)
day after Landlord receives such termination notice, then the term of the Lease
in respect of such portion of the Sixth Amendment Premises shall terminate as of
said thirtieth (3Oth) day. If the Term Commencement Date in respect of such
portion of the Sixth Amendment Premises occurs on or before the thirtieth (30th)
day after Landlord receives such termination notice, then said termination
notice shall be void and of no further force or effect and Tenant shall have no
further right to terminate the Lease in respect of such portion of the Sixth
Amendment Premises pursuant to this Paragraph 8.
9. As herein amended, the Lease is ratified, confirmed and approved in all
respects.
EXECUTED UNDER SEAL as of the date first above written.
LANDLORD: TENANT:
Invesco Realty Advisors LIGHTBRIDGE, INC.
Division of Invesco, Inc.
as Agent for:
GATEWAY ROSEWOOD, INC.
By: /s/ Michael Kirby Vice President By: /s/ Pamela A. Reeve CEO
--------------------------------- ------------------------------
(Name) (Title) (Name) (Title)
Hereunto Duly Authorized Hereunto Duly Authorized
Date Signed: 4/28/2000 Date Signed: 4/28/2000
--------------------- ---------------------
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<PAGE>
Exhibit 10.1B
Burlington Business Center
67 South Bedford Street
Burlington, Massachusetts
("the Building")
FIFTH AMENDMENT
March 10, 2000
LANDLORD: Gateway Rosewood, Inc., successor-in-interest to
Sumitomo Life Realty (N.Y.), Inc.
TENANT: Lightbridge, Inc.
EXISTING
PREMISES: An area on the first (1st) floor East Pod of the
Building, containing 21,055 rentable square feet,
substantially as shown on Lease Plan, Exhibit F,
Sheet 1; an area on the second (2nd) floor East
Pod of the Building, containing 21,892 rentable
square feet, substantially as shown on Lease
Plan, Exhibit F, Sheet 2; an area ("Third
Amendment Premises") on the second (2nd) floor,
Pod C of the Building, containing 220 square feet
of Rentable Floor Area, substantially as shown on
Exhibit A, Third Amendment; an area on the third
(3rd) floor East Pod of the Building, containing
3,411 rentable square feet, substantially as
shown on Lease Plan, Exhibit F, Sheet 3; and an
area on the fourth (4th) floor West Lobby of the
Building, containing 11,226 square feet of
Rentable Floor Area, substantially as shown on
Exhibit A, Second Amendment, dated October 6,
1997; an area, known as the Generator Premises,
adjacent to the Building more particularly shown
on Exhibit A, First Amendment dated July 22,
1997; and an area on the third (3rd) floor, Pod C
of the Building, containing 7,733 square feet of
Rentable Area, substantially as shown on Exhibit
A, Fourth Amendment, dated July 16, 1999 ("Fourth
Amendment Premises")
ORIGINAL LEASE
LEASE EXECUTION
DATA: DATE: March 5, 1997
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<PAGE>
TERMINATION
DATE IN RESPECT
OF EXISTING
PREMISES (EXCEPT
THIRD AMENDMENT
PREMISES) AND FIFTH
AMENDMENT
PREMISES: May 31, 2004
TERMINATION
DATE IN RESPECT
OF THIRD
AMENDMENT
PREMISES: March 14, 2000
PREVIOUS
LEASE
AMENDMENTS: First Amendment dated July 22, 1997
Second Amendment dated October 6, 1997
Third Amendment dated as of March 15, 1999
Fourth Amendment dated July 16, 1999
FIFTH
AMENDMENT
PREMISES: An area on the third (3rd) floor of Pod C of the
Building, containing 3,982 square feet of
Rentable Floor Area, substantially as shown on
Exhibit A, Fifth Amendment, Sheet 1, a copy of
which is attached hereto and incorporated by
reference herein
EXTENDED
TERMINATION
DATE IN RESPECT
OF THIRD AMENDMENT
PREMISES: March 31, 2001
WHEREAS, Tenant desires to: (i) extend the term of the lease in respect of
the Third Amendment Premises; and (ii) lease additional premises located in the
Building, to wit, the Fifth Amendment Premises;
WHEREAS, Landlord is willing to: (i) extend the term of the lease in
respect of the Third Amendment Premises for an additional term; and (ii) lease
the Fifth Amendment Premises to Tenant upon the terms and conditions hereinafter
set forth;
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<PAGE>
NOW THEREFORE, the parties hereby agree that the above-described lease, as
previously amended ("the Lease"), is hereby further amended as follows:
1. EXTENSION OF TERM OF LEASE IN RESPECT OF THIRD AMENDMENT PREMISES
The term of the Lease in respect of the Third Amendment Premises is hereby
extended for an additional term commencing as of March 15, 2000 and terminating
as of March 31, 2001. Said additional term shall be upon all of the same terms
and conditions of the Lease in effect immediately preceding the commencement of
such additional term (including, without limitation, Annual Fixed Rent,
Operating Expense Base, Tax Base and Annual Electricity, all as set forth in
Paragraph 1 of the Third Amendment). Tenant shall have no option to further
extend the term of the Lease in respect of the Third Amendment Premises. In
implementation of the foregoing, Article XI of the Lease shall have no
applicability to the Third Amendment Premises.
2. DEMISE OF THE FIFTH AMENDMENT PREMISES
Landlord hereby leases and demises to Tenant, and Tenant hereby hires and
takes from Landlord, the Fifth Amendment Premises. Said demise of the Fifth
Amendment Premises shall be upon all of the terms and conditions of the Lease
applicable to the Existing Premises (including, without limitation, Tenant's
Option to Extend the Term of the Lease, pursuant to Article XI of the Lease)
except as follows:
A. The Term Commencement Date in respect of the Fifth Amendment Premises
shall be the day after the current tenant ("Current Tenant") in the Fifth
Amendment Premises vacates the Fifth Amendment Premises.
B. The Rent Commencement Date in respect of the Fifth Amendment Premises
shall be the earlier to occur of (i) thirty (30) days after the Term
Commencement Date in respect of the Fifth Amendment Premises, or (ii) the date
that Tenant or those claiming by, through or under Tenant, commence to use the
Fifth Amendment Premises for the purposes permitted under the Lease.
C. The Termination Date in respect of the Fifth Amendment Premises shall
be May 31, 2004.
D. Annual Fixed Rent in respect of the Fifth Amendment Premises shall be
One Hundred Thirteen Thousand Four Hundred Eighty-Seven and 00/100 Dollars
($113,487.00) (i.e., a monthly payment of $9,457.25) (i.e., $28.50 per rentable
square foot).
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<PAGE>
E. Tenant's Operating Expense Base in respect of the Fifth Amendment
Premises shall be the actual amount of Operating Expenses Allocable to the Fifth
Amendment Premises for calendar year 2000.
F. Tenant's Tax Base in respect of the Fifth Amendment Premises shall be
the actual amount of Tax Expenses Allocable to the Fifth Amendment Premises for
fiscal/tax year 2001.
G. Tenant's Annual Electricity Charge in respect of the Fifth Amendment
Premises shall be Three Thousand Seven Hundred Eighty-Two and 90/100 Dollars
($3,782.90), based upon a charge of $.95 per square foot of Rentable Floor Area
in respect of the Fifth Amendment Premises (i.e., $315.24 per month). Tenant's
obligation to commence paying the Annual Electricity Charge in respect of the
Fifth Amendment Premises shall commence as of the Term Commencement Date in
respect of the Fifth Amendment Premises.
H. In the event of any conflict between the provisions of the Lease and
the provisions of this Amendment, the provisions of this Amendment shall
control.
3. CONDITION OF FIFTH AMENDMENT PREMISES
Notwithstanding anything to the contrary herein or in the Lease contained,
Tenant shall lease the Fifth Amendment Premises "as-is", in the condition in
which the Fifth Amendment Premises are in as of the Term Commencement Date in
respect of the Fifth Amendment Premises without any obligation on the part of
Landlord to prepare or construct the Fifth Amendment Premises for Tenant's
occupancy, and without any representation or warranty by Landlord as to the
condition of the Fifth Amendment Premises.
4. LANDLORD'S CONTRIBUTION IN RESPECT OF FIFTH AMENDMENT PREMISES
Landlord shall provide to Tenant up to Thirty-Nine Thousand Eight Hundred
Twenty and 00/100 Dollars ($39,820.00) ("Landlord's Fifth Amendment Premises
Contribution") towards the cost of leasehold improvements to be installed by
Tenant in the Fifth Amendment Premises, including, without limitation, hard
costs, architectural and engineering fees incurred by Tenant in preparing
Tenant's plans, moving costs and computer wiring and cabling costs ("Tenant's
Fifth Amendment Premises Work"). Landlord's Fifth Amendment Premises
Contribution shall be disbursed to Tenant in the same manner and subject to the
same conditions and limitations as set forth on Exhibit B to the Lease, except:
A. The first two (2) sentences of Paragraph B of Exhibit B to the Lease
shall not apply to Tenant's Fifth Amendment Premises Work.
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<PAGE>
B. For the purpose of clause (iii) of Paragraph D of Exhibit B to the
Lease, wherever the date "September 30, 1997" is used, the date "six (6) months
after the Term Commencement Date in respect of the Fifth Amendment Premises"
shall be substituted therefor in respect of the Fifth Amendment Premises.
5. BROKER
Landlord and Tenant each warrant that they have had no dealings with any
broker or agent in connection with this Fifth Amendment, except for Meredith &
Grew ("Broker") and covenant to defend, hold harmless and indemnify each other
from and against any and all cost, expense or liability for any compensation,
commissions and charges claimed by any broker or agent, other than Broker,
claiming by or through them with respect to dealings in connection with this
Fifth Amendment or the negotiation thereof.
6. LETTER OF CREDIT
The parties hereby acknowledge that Landlord is presently holding a Letter
of Credit in an amount equal to One Million and 00/100 Dollars ($1,000,000.00),
pursuant to Article X of the Lease. The parties hereby further acknowledge that
Landlord shall continue to hold said Letter of Credit during the term of the
Lease.
7. CANCELLATION RIGHT
Landlord represents to Tenant that Landlord's lease with the Current
Tenant ("Current Tenant Lease") expires as of May 31, 2005, but that Landlord
has the right, pursuant to the provisions of the Current Tenant Lease, to
relocate the Current Tenant from the Fifth Amendment Premises to other premises
in the Building. Landlord agrees that, after both parties execute and deliver
this Fifth Amendment, Landlord will promptly exercise such relocation right. If,
despite the exercise of such relocation right, Landlord is unable, on or before
October 1, 2000, to relocate the Current Tenant from the Fifth Amendment
Premises to other premises in the Building, then either party shall have the
right ("Cancellation Right") to cancel this Fifth Amendment and to render it
void and without further force or effect. Either party may exercise such
Cancellation Right by giving written notice to the other party after October 1,
2000 but prior to the date that the Current Tenant relocates from the Fifth
Amendment Premises to other premises in the Building.
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<PAGE>
8. As herein amended, the Lease is ratified, confirmed and approved in all
respects.
EXECUTED UNDER SEAL as of the date first above written.
LANDLORD: TENANT:
Invesco Realty Advisors LIGHTBRIDGE, INC.
Division of Invesco, Inc.
as Agent for:
GATEWAY ROSEWOOD, INC.
By: /s/ Michael Kirby Vice President By: /s/ Pamela A. Reeve CEO
--------------------------------- ------------------------------
(Name) (Title) (Name) (Title)
Hereunto Duly Authorized Hereunto Duly Authorized
Date Signed: 4/28/2000 Date Signed: 4/28/2000
--------------------- ---------------------
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