SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(MARK ONE)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003
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 No.)
Incorporation or Organization)
67 SOUTH BEDFORD STREET
BURLINGTON, MASSACHUSETTS 01803
(Address of Principal Executive Offices) (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. |X| Yes | | No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). |X| Yes | | No
As of May 2, 2003, there were 27,134,407 shares of the registrant's common
stock, $.01 par value, outstanding.
LIGHTBRIDGE, INC.
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2003
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
Balance Sheets as of March 31, 2003 and December 31, 2002
Income Statements for the quarters ended March 31, 2003 and 2002
Statements of Cash Flows for the quarters ended March 31, 2003 and 2002
Notes to Unaudited Condensed Consolidated Financial Statements
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Item 3. QUANTITATIVE AND QUALITATIVE MARKET RISK DISCLOSURES.
Item 4. CONTROLS AND PROCEDURES.
PART II. OTHER INFORMATION
Item 5. OTHER INFORMATION.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
SIGNATURES
CERTIFICATIONS
2
PART I. FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
LIGHTBRIDGE, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
MARCH 31, DECEMBER 31,
2003 2002
--------- ------------
ASSETS
Current assets:
Cash and cash equivalents .................................................. $ 92,743 $ 90,664
Short-term investments ..................................................... 42,807 42,806
Accounts receivable, net ................................................... 15,308 17,679
Deferred tax assets ........................................................ 3,012 3,012
Other current assets ....................................................... 3,733 3,112
--------- ---------
Total current assets ................................................... 157,603 157,273
Property and equipment, net .................................................. 13,852 16,183
Deferred tax assets .......................................................... 3,713 3,713
Other assets, net ............................................................ 729 709
Goodwill ..................................................................... 1,664 1,664
Intangible assets, net ....................................................... 1,064 1,130
--------- ---------
Total assets ........................................................... $ 178,625 $ 180,672
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities ................................... $ 13,658 $ 15,145
Deferred revenues .......................................................... 5,437 4,292
Reserve for restructuring .................................................. 1,080 1,335
--------- ---------
Total current liabilities .............................................. 20,175 20,772
Long-term liabilities ...................................................... 109 259
--------- ---------
Total liabilities ...................................................... 20,284 21,031
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares authorized; no shares
issued or outstanding at March 31, 2003 and December 31, 2002 ............ -- --
Common stock, $.01 par value; 60,000,000 shares authorized;
29,448,703 and 29,400,762 shares issued and 27,136,365 and
27,282,224 shares outstanding at March 31, 2003 and December 31,
2002, respectively ....................................................... 296 296
Additional paid-in capital ................................................. 165,485 165,241
Warrants ................................................................... 206 206
Retained earnings .......................................................... 5,164 5,521
Less: treasury stock, at cost .............................................. (12,810) (11,623)
--------- ---------
Total stockholders' equity ............................................. 158,341 159,641
--------- ---------
Total liabilities and stockholders' equity .......................... $ 178,625 $ 180,672
========= =========
See notes to unaudited condensed consolidated financial statements.
3
LIGHTBRIDGE, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED INCOME STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
QUARTER ENDED
MARCH 31,
----------------------------
2003 2002
--------- ---------
Revenues:
Transaction ............................................... $ 19,783 $ 25,052
Software licensing ........................................ 1,606 3,957
Consulting and services ................................... 6,291 8,353
Hardware .................................................. 743 584
--------- ---------
Total revenues ......................................... 28,423 37,946
--------- ---------
Cost of revenues:
Transaction ............................................... 11,219 13,370
Software licensing ........................................ 144 395
Consulting and services ................................... 2,901 4,143
Hardware .................................................. 568 413
--------- ---------
Total cost of revenues ................................. 14,832 18,321
--------- ---------
Gross profit:
Transaction ............................................... 8,564 11,682
Software licensing ........................................ 1,462 3,562
Consulting and services ................................... 3,390 4,210
Hardware .................................................. 175 171
--------- ---------
Total gross profit ..................................... 13,591 19,625
--------- ---------
Operating expenses:
Development costs ......................................... 7,077 7,785
Sales and marketing ....................................... 3,987 3,736
General and administrative ................................ 3,366 4,553
Purchased in-process research and development ............. -- 1,618
Restructuring costs ....................................... 77 --
--------- ---------
Total operating expenses ............................... 14,507 17,692
--------- ---------
Income (loss) from operations ............................... (916) 1,933
Other income, net ........................................... 470 632
--------- ---------
Income (loss) before provision for income taxes ............. (446) 2,565
Income tax benefit .......................................... (89) (205)
--------- ---------
Net income (loss) ........................................... $ (357) $ 2,770
========= =========
Basic earnings (loss) per common share ...................... $ (0.01) $ 0.10
========= =========
Diluted earnings (loss) per common share .................... $ (0.01) $ 0.10
========= =========
See notes to unaudited condensed consolidated financial statements.
4
LIGHTBRIDGE, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
QUARTER ENDED
MARCH 31,
-------------------------
2003 2002
-------- ---------
Cash flows from operating activities:
Net income (loss) ......................................................... $ (357) $ 2,770
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Purchased in-process research and development ........................... -- 1,618
Depreciation and amortization ........................................... 3,041 4,152
Deferred income taxes ................................................... -- (1,898)
Changes in assets and liabilities:
Accounts receivable ..................................................... 2,371 (1)
Inventories ............................................................. -- 18
Other assets ............................................................ (641) (479)
Accounts payable and accrued liabilities ................................ (1,742) 298
Deferred revenues ....................................................... 1,145 3,146
Other liabilities ....................................................... (150) (19)
-------- ---------
Net cash provided by operating activities ................................. 3,667 9,605
-------- ---------
Cash flows from investing activities:
Purchases of property and equipment ..................................... (644) (1,967)
Purchase of short-term investments ...................................... (53,058) (21,607)
Proceeds from sales and maturities of short-term investments ............ 53,057 9,026
Acquisition of Altawave ................................................. -- (4,949)
-------- ---------
Net cash used in investing activities ..................................... (645) (19,497)
-------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock .................................. 244 1,028
Proceeds from notes receivable .......................................... -- 22
Repurchase of common stock .............................................. (1,187) --
-------- ---------
Net cash provided by (used in) financing activities ....................... (943) 1,050
-------- ---------
Net increase (decrease) in cash and cash equivalents ...................... 2,079 (8,842)
Cash and cash equivalents, beginning of period ............................ 90,664 107,499
-------- ---------
Cash and cash equivalents, end of period .................................. $ 92,743 $ 98,657
======== =========
See notes to unaudited condensed consolidated financial statements.
5
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 (collectively,
"Lightbridge" or the "Company"). 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, 2002.
2. STOCK-BASED COMPENSATION
The Company applies the intrinsic value based method of accounting for
stock options granted to employees. The Company accounts for stock options and
awards to non-employees using the fair value method.
Under the intrinsic value method, compensation expense associated with
stock awards to employees is determined as the difference, if any, between the
current fair value of the underlying common stock on the date compensation
expense is measured and the price an employee must pay to exercise the award.
The measurement date for employee awards is generally the date of grant. Under
the fair value method, compensation expense associated with stock awards to
non-employees is determined based on the estimated fair value of the award
itself, measured using either current market data or an established option
pricing model. The measurement date for non-employee awards is generally the
date of grant.
Had the Company used the fair value method to measure compensation expense
associated with grants of stock options to employees, reported net income (loss)
and basic and diluted earnings (loss) per share would have been as follows:
QUARTER ENDED MARCH 31,
---------------------------------
2003 2002
------------- ------------
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
Net income (loss) as reported..................................................... $ (357) $ 2,770
Stock based compensation recorded in income....................................... -- --
Stock based compensation measured using the fair value method..................... 820 476
------------- ------------
Net income (loss) pro forma....................................................... $ (1,177) $ 2,294
============= ============
Basic earnings (loss) per share pro forma......................................... $ (0.04) $ 0.08
============= ============
Diluted earnings (loss) per share pro forma....................................... $ (0.04) $ 0.08
============= ============
The fair value of options on their grant date was measured using the
Black-Scholes Option Pricing Model. Key assumptions used to apply this pricing
model for the quarters ended March 31, 2003 and 2002 are as follows:
6
QUARTER ENDED MARCH 31,
-------------------------------
2003 2002
---------- ----------
Risk-free interest rate................................................................. 2.9% - 4.7% 3.9% - 4.9%
Expected life of options grants......................................................... 1 - 5 years 1 - 5 years
Expected volatility of underlying stock................................................. 90% 96%
Expected dividend payment rate, as a percentage of the stock price on the date of grant. -- --
It should be noted that the option-pricing model used was designed to
value readily tradable stock options with relatively short lives. The options
granted to employees are not tradable and have contractual lives of up to ten
years.
3. REVENUE RECOGNITION
The Company generates revenue from the processing of qualification,
activation and authentication transactions; granting of software licenses;
services (including maintenance, installation and training); development and
consulting contracts; and hardware sold in conjunction with certain software
licenses. Revenues from processing of qualification, activation and
authentication transactions are recognized in the period in which services are
performed.
The Company's software license agreements have typically provided for an
initial license fee and annual maintenance fees based on a defined number of
subscribers, as well as additional license and maintenance fees for net
subscriber additions in certain circumstances. Revenues from software license
sales are recognized when persuasive evidence of an arrangement exists, delivery
of the product has been made, and a fixed fee and collectibility have been
determined. To the extent that obligations exist for other services, the Company
allocates revenue between the license and the services based upon their relative
fair value or by the residual method.
Revenues from consulting and services contracts are generally recognized
as the services are performed. Revenues from software maintenance contracts are
recognized ratably over the term of the maintenance agreement and are reported
as consulting and services revenues. Revenues from hardware sales are recognized
upon shipment, unless testing, integration or implementation services are
required, in which case hardware revenue is recognized upon commissioning and
acceptance of the product. Revenues from hardware sold in conjunction with
software licenses are deferred until the related license revenues are
recognized.
4. EARNINGS PER SHARE (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.
A reconciliation of the shares used to compute basic EPS to those used for
diluted EPS is as follows:
QUARTER ENDED
MARCH 31,
-------------------------
2003 2002
------ ------
(IN THOUSANDS)
Shares for basic computation.......................... 27,328 28,195
Options and warrants (treasury stock method).......... -- 606
------ ------
Shares for diluted computation........................ 27,328 28,801
====== ======
7
Stock options for which the exercise price exceeds the average market
price over the period have an anti-dilutive effect on EPS and, accordingly, are
excluded from the diluted computations for both periods presented. Had such
shares been included (and had there been net income in 2003), shares for the
diluted computation would have increased by approximately 3,118,000 and
2,271,000 for the quarters ended March 31, 2003 and 2002, respectively.
In addition, all other stock options and warrants convertible into common
stock have been excluded from the diluted EPS computation in the quarter ended
March 31, 2003, as they are anti-dilutive due to the net loss recorded by the
Company. Had such shares been included, the number of shares for the diluted
computation would have increased by approximately 261,000 shares.
5. RESTRUCTURING RESERVES
In June 2002, the Company announced it would be reducing its workforce by
seven percent and consolidating its Waltham, Massachusetts call center
operations into its Lynn, Massachusetts and Broomfield, Colorado facilities by
the end of 2002. The Company recorded a restructuring charge of approximately
$3.6 million, consisting of $1.6 million for workforce reductions, $1.3 million
for facilities reductions including lease obligations, utilities and security
costs on unused space and $0.7 million for capital equipment write-offs
associated with these measures. The restructuring plan resulted in the
termination of 65 personnel as follows: 25 in product and service delivery, 22
in development, 11 in sales and marketing and seven in general and
administrative. The capital equipment write-offs and the majority of severance
costs related to this restructuring were incurred in 2002. The Company
anticipates that all other costs relating to this restructuring, consisting
principally of lease obligations on unused space, will be paid by the end of
2003.
The following summarizes the changes to the June 2002 restructuring
reserves for the quarter ended March 31, 2003:
BALANCE AT BALANCE AT
DECEMBER 31, 2002 ACCRUED UTILIZED MARCH 31, 2003
----------------- ---------- ---------- --------------
(IN THOUSANDS)
Employee severance and termination benefits ...... $ 343 $ -- $ 185 $ 158
Facility closing and related costs ............... 992 -- 147 845
---------- ---------- ---------- ----------
$ 1,335 $ -- $ 332 $ 1,003
========== ========== ========== ==========
In March 2003, the Company announced it would be streamlining its existing
Broomfield, Colorado call center operations into its Lynn, Massachusetts
facility and a neighboring Lightbridge facility in Broomfield, Colorado by the
end of May 2003. In the quarter ended March 31, 2003, the Company recorded a
restructuring charge of approximately $77,000 for workforce reductions and
expects to record an additional $900,000 charge relating to the facility
reductions and capital equipment write-offs during the second quarter of 2003.
The Company anticipates the majority of the severance costs related to this
restructuring will be paid in the second quarter of 2003.
6. PROVISION FOR (BENEFIT FROM) INCOME TAXES
Lightbridge's annual estimated effective tax rate was 20.0% for the
quarter ended March 31, 2003. The 20.0% rate differs from the statutory rate of
34.5% due to a decrease in estimated pre-tax profit. The income tax provision
for the quarter ended March 31, 2002 reflects a net benefit of $0.2 million
which consists of income taxes at an annual effective tax rate of 34.5%, offset
by a $1.0 million tax benefit related to the reduction of the valuation
allowance on acquired net operating loss carryforwards, as it was determined
that it was more likely than not that such net operating losses would be
utilized.
8
7. RECENT ACCOUNTING PRONOUNCEMENTS
In June 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 146 ("SFAS 146"), "Accounting
for Costs Associated with Exit or Disposal Activities." SFAS 146 requires that a
liability for a cost associated with an exit or disposal activity be recognized
when the liability is incurred. SFAS 146 nullifies EITF No. 94-3 "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity," which required a liability be recognized at the commitment date to an
exit plan. The Company adopted the provisions of SFAS 146 effective for exit or
disposal activities initiated after December 31, 2002. All restructuring
activities prior to December 31, 2002, including the June 2002 restructuring
described in Note 5, are accounted for under EITF No. 94-3. The Broomfield
restructuring described in Note 5 is accounted for under SFAS 146, the impact of
which was that the Company expects to record the $900,000 facility reduction and
capital equipment charge in the second quarter rather than the first quarter due
to the cease-use date being in the second quarter.
In December 2002, the FASB issued SFAS No. 148 ("SFAS 148"), "Accounting
for Stock-Based Compensation - Transition and Disclosure - an amendment of FASB
Statement No. 123." SFAS 148 amends SFAS No. 123 to provide alternative methods
of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, SFAS 148 amends
the disclosure requirements of SFAS 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The interim disclosure requirements of SFAS 148 have been implemented
in Note 2.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
THIS QUARTERLY REPORT ON 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 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - RISK FACTORS" IN THE ANNUAL REPORT ON FORM 10-K OF
LIGHTBRIDGE FOR THE YEAR ENDED DECEMBER 31, 2002, THAT MAY CAUSE THE ACTUAL
RESULTS, PERFORMANCE AND ACHIEVEMENTS OF LIGHTBRIDGE TO DIFFER MATERIALLY FROM
THOSE INDICATED BY THE FORWARD-LOOKING STATEMENTS. LIGHTBRIDGE ANTICIPATES THAT
ITS BUSINESS WILL BE IMPACTED BY CURRENT AND FUTURE ECONOMIC CONDITIONS
AFFECTING THE COMMUNICATIONS INDUSTRY INCLUDING, WITHOUT LIMITATION, DECREASES
OR DELAYS IN CAPITAL SPENDING BY COMMUNICATIONS PROVIDERS, INCREASING DEPENDENCE
ON A LIMITED NUMBER OF CLIENTS, THE COMPANY'S REVENUE CONCENTRATION IN THE
WIRELESS TELECOMMUNICATIONS BUSINESS AND THE DECLINING SUBSCRIBER GROWTH RATE,
CONSOLIDATION AND INCREASING PRESSURE TO CONTROL COSTS IN THAT BUSINESS, THE
IMPACT OF COMPETITIVE PRODUCTS, SERVICES AND PRICING ON THE COMPANY AND ITS
CLIENTS, THE ADVERSE IMPACT THAT THE FINANCIAL AND OPERATING DIFFICULTIES OF THE
COMPANY'S CLIENTS MAY HAVE ON THE COMPANY'S FUTURE REVENUES AND FINANCIAL AND
OPERATING RESULTS, THE POSSIBLE NEGATIVE IMPACT THAT CHANGES IN THE COMBINATION
OF SERVICES ACQUIRED BY THE COMPANY'S CLIENTS MAY HAVE ON ITS BUSINESS, THE
FAILURE TO PROPERLY IMPLEMENT REGULATORY REQUIREMENTS APPLICABLE TO THE
COMPANY'S AND ITS CLIENTS' BUSINESSES, THE POSSIBLE NEGATIVE IMPACT ON THE
COMPANY'S BUSINESS DUE TO ERRORS IN ITS SOFTWARE OR LACK OF SUCCESS IN IMPROVING
ITS SOFTWARE DESIGN AND DEVELOPMENT PROCESS, THE POSSIBLE NEGATIVE IMPACT ON THE
COMPANY'S FINANCIAL RESULTS IF ITS TAX BENEFITS DO NOT BECOME FULLY RECOVERABLE,
GLOBAL ECONOMIC RECESSION, ECONOMIC AND POLITICAL INSTABILITY IN THE DOMESTIC
AND INTERNATIONAL MARKETS INCLUDING, WITHOUT LIMITATION, THE IMPACT OF TERRORIST
THREATS AND HOSTILITIES AND THE DECLARATION OF WAR OR SIMILAR ACTIONS, POSSIBLE
DIFFICULTIES ASSOCIATED WITH PAST OR FUTURE ACQUISITIONS INCLUDING CORSAIR AND
ALTAWAVE, THE NEED TO DEVELOP AND WIN MARKET ACCEPTANCE OF NEW PRODUCTS,
SERVICES AND TECHNOLOGIES AND TO ENHANCE THE COMPANY'S EXISTING PRODUCTS,
SERVICES AND TECHNOLOGIES, LIGHTBRIDGE'S ABILITY TO EXECUTE ON ITS PLANS OR
STRATEGIES, INCLUDING WITHOUT LIMITATION ITS PLANS TO ENTER THE ONLINE
TRANSACTION AND WIRELESS DATA MARKETS, AND THE IMPACT OF RESTRUCTURING AND OTHER
CHARGES ON LIGHTBRIDGE'S BUSINESS AND OPERATIONS. LIGHTBRIDGE UNDERTAKES NO
OBLIGATIONS TO UPDATE ANY FORWARD-LOOKING STATEMENTS IT MAKES.
Information set forth under the heading "ITEM 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations - Risk Factors" in
the Company's Annual Report on Form 10-K for the year ended December 31, 2002 is
incorporated as an exhibit to this Quarterly Report on Form 10-Q. Unless the
context otherwise requires, "Lightbridge" and the "Company" refer collectively
to Lightbridge, Inc. and its subsidiaries.
ALTALINKS, LIGHTBRIDGE, the Lightbridge logo and PHONEPRINT are registered
trademarks of Lightbridge, and ALTAWAVE, CAS, CORSAIR, CUSTOMER ACQUISITION
SYSTEM, LIGHTBRIDGE MOBILE DATA MANAGER, PREPAY and LIGHTBRIDGE TELESERVICES are
trademarks of Lightbridge. All other trademarks or trade names appearing in this
Quarterly Report on Form 10-Q are the property of their respective owners.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Lightbridge has identified and discussed certain critical accounting
policies and estimates in its Annual Report on Form 10-K for the year ended
December 31, 2002. The Company did not modify its critical accounting policies
during the quarter ended March 31, 2003. Those policies and estimates have been
applied in the preparation of the Company's financial statements included in
this Quarterly Report on Form 10-Q. In
10
applying its critical accounting policies, the Company reduced the annual
estimated effective tax rate to 20% in the quarter ended March 31, 2003.
11
OVERVIEW
Lightbridge develops, markets and supports a suite of products and
services for communications providers that supports the customer lifecycle
including customer qualification and acquisition, risk management, prepaid
billing, mobile data management and authentication services. Lightbridge derives
the majority of its revenues from clients located in the United States.
On February 22, 2002, a wholly owned subsidiary of Lightbridge acquired
all of the assets and certain of the liabilities of Altawave Inc. ("Altawave")
in exchange for the payment of $4.0 million in cash, plus up to an additional
$6.0 million contingent on the achievement of certain revenue goals. The
technology acquired from Altawave includes solutions that offer wireless
carriers a service platform for the development and management of data content
and applications. The condensed consolidated financial statements for the
quarter ended March 31, 2002 include the operations related to Altawave from the
date of acquisition.
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.
Over time, the Company has expanded its offerings from credit evaluation
services to include screening for subscriber fraud, evaluating carriers'
existing accounts, interfacing with carrier and third-party systems and
providing call center services. The Company also offers transaction services to
pre-screen and authenticate the identity of users engaged in mobile and online
transactions. Transaction services are provided pursuant to contracts with
carriers and others, which specify the services to be utilized and the markets
to be served. The Company's clients are charged for these services on a per
transaction basis. Pricing varies depending primarily on the volume of
transactions, the number and type 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 and others utilizing the
Company's services in attracting subscribers and the markets served by the
Company's clients. Transaction services revenues are recognized in the period in
which the services are performed.
The Company's software licensing revenues consist of revenues attributable
to the licensing of the Company's CAS Application Modules, Risk Management,
Prepaid Billing and Mobile Data Management software. Lightbridge's CAS modules
are designed to assist customers in interfacing with the Company's transaction
processing systems as well as to perform other point-of-sale and channel
functionality. The Company's Risk Management products are designed to assist
carriers in monitoring subscriber accounts to identify activity that may
indicate fraud. The Company's Prepaid Billing system allows carriers to market
and manage prepaid wireless services to customers. The Company's Mobile Data
Management solutions provide wireless carriers a platform for the development
and management of data content and applications. The Company's software products
are licensed as packaged software products and each product generally requires
incidental customization or 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 collectiblity have been determined.
The Company's consulting and services revenues historically have been
derived principally from providing solution development and deployment services
and business advisory consulting in the areas of customer acquisition and
retention, authentication, prepay billing and risk management. The majority of
consulting and services engagements are performed on a time and materials basis
and revenues from these engagements are generally recognized as the services are
performed. When the Company performs work under a fixed fee arrangement,
revenues are generally recognized as services are performed. Revenues from
software maintenance contracts are recognized ratably over the term of the
maintenance agreement and are reported as consulting and services revenues.
12
The Company's hardware revenues historically have been derived in
connection with sales of its PrePay and PhonePrint products. Revenue from
hardware sales is recognized upon shipment, unless testing, integration or other
services are required, in which case it is recognized upon commissioning and
acceptance of the product. Revenue from hardware sold in conjunction with
software is deferred until the software revenue is recognized. The Company does
not expect hardware revenues to be a significant component of revenue in the
future.
In the quarter ended March 31, 2003, four clients accounted for 28%, 23%,
16% and 12% of the Company's total revenues. In the quarter ended March 31,
2002, three clients accounted for 30%, 18% and 17% of the Company's total
revenues. A loss of one or more of these major clients, a bankruptcy or period
of financial difficulty of one or more of these clients, a decrease in orders by
one or more of these clients or a change in the combination of products and
services obtained from the Company by one or more of these clients would
adversely affect Lightbridge's revenues, margins and net income.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
financial data as a percentage of total revenues:
QUARTER ENDED
MARCH 31,
----------------
2003 2002
------ -----
Revenues:
Transaction.............................................. 69.6% 66.0%
Software licensing....................................... 5.7 10.4
Consulting and services.................................. 22.1 22.0
Hardware................................................. 2.6 1.6
------ -----
Total revenues........................................ 100.0 100.0
------ -----
Cost of revenues:
Transaction.............................................. 39.5 35.2
Software licensing....................................... 0.5 1.1
Consulting and services.................................. 10.2 10.9
Hardware................................................. 2.0 1.1
------ -----
Total cost of revenues................................ 52.2 48.3
------ -----
Gross profit:
Transaction.............................................. 30.1 30.8
Software licensing....................................... 5.2 9.3
Consulting and services.................................. 11.9 11.1
Hardware................................................. 0.6 0.5
------ -----
Total gross profit.................................... 47.8 51.7
------ -----
Operating expenses:
Development costs........................................ 24.9 20.5
Sales and marketing...................................... 14.0 9.8
General and administrative............................... 11.8 12.0
Purchased in-process research and development............ -- 4.3
Restructuring costs...................................... 0.3 --
------ -----
Total operating expenses.............................. 51.0 46.6
------ -----
Income (loss) from operations.............................. (3.2) 5.1
Other income, net.......................................... 1.6 1.7
------ -----
Income (loss) before provision for income taxes............ (1.6) 6.8
Income tax benefit......................................... (0.3) (0.5)
------ -----
Net income (loss).......................................... (1.3)% 7.3%
====== =====
13
QUARTER ENDED MARCH 31, 2003 COMPARED WITH QUARTER ENDED MARCH 31, 2002.
REVENUES. Revenues and certain revenue comparisons for the quarters ended
March 31, 2003 and 2002 were as follows:
QUARTER QUARTER
ENDED % OF ENDED % OF
MAR. 31, TOTAL MAR. 31, TOTAL $ %
REVENUES 2003 REVENUE 2002 REVENUE DIFFERENCE DIFFERENCE
-------- ------------ ------- ----------- ------- ---------- ----------
(DOLLARS IN THOUSANDS)
Transaction............................ $ 19,783 69.6% $ 25,052 66.0% $ (5,269) (21.0)%
Software licensing..................... 1,606 5.7 3,957 10.4 (2,351) (59.4)
Consulting and services................ 6,291 22.1 8,353 22.0 (2,062) (24.7)
Hardware............................... 743 2.6 584 1.6 159 27.2
-------- ----- -------- ----- ----------- -----
Total................................ $ 28,423 100.0% $ 37,946 100.0% $ (9,523) (25.1)%
======== ===== ======== ===== =========== =====
The decrease in transaction revenues of $5.3 million was due to slower
subscriber growth experienced by the Company's clients, resulting in a reduction
in transaction volume, and to clients selecting fewer transaction products and
services. The Company's transaction revenues also declined as a result of
reduced call volume and a change in the mix of services provided by
Lightbridge's TeleServices call centers. In addition, in the quarter ended March
31, 2002, approximately $2.6 million of transaction revenue was attributable to
transaction services provided to WorldCom, Inc. ("WorldCom"). No services were
provided to WorldCom in the quarter ended March 31, 2003.
The Company's transaction revenues continue to reflect in large part the
industry's rate of growth of new subscribers 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 subscriber growth will continue to slow in the current year and in upcoming
years, and that the rate of subscriber churn will remain fairly constant.
Lightbridge also believes it may experience decreases in the demand for its
TeleServices business and changes in the combination of services acquired by
clients that could continue to negatively impact transaction revenues in 2003.
The decrease in software licensing revenues of $2.4 million was due to the
continued capital spending slowdown in the telecommunications industry. Lower
capital spending by carriers affected the sales of all Lightbridge software
products. The Company expects that the capital spending slowdown and decline in
the telecommunications industry will continue for the remainder of 2003 and may
extend into 2004.
The decrease in consulting and services revenues of $2.1 million for the
quarter ended March 31, 2003 was principally due to the decline in software
sales and the related integration, deployment, optimization and maintenance
services provided in conjunction with software sales.
There was a slight increase in hardware revenues of $0.2 million for the
quarter ended March 31, 2003. The Company does not expect hardware revenues to
be a significant component of revenue in 2003 or thereafter.
COST OF REVENUES. Cost of revenues consists primarily of personnel costs,
costs of acquiring and maintaining systems and networks used in processing
qualification, activation and authentication transactions (including
depreciation and amortization of systems and networks) and amortization of
capitalized software and acquired technology. In the future, cost of revenues
may vary as a percentage of total revenues as a result of a number of factors,
including changes in the volume of transactions processed, the mix of
transaction revenues between revenues from automated transaction processing and
revenues from processing transactions through the
14
Lightbridge TeleServices Group and changes in the mix of total revenues among
transaction revenues, software licensing and maintenance revenues and
consulting services revenues.
Cost of revenues and certain cost of revenues comparisons for the quarters
ended March 31, 2003 and 2002 were as follows:
QUARTER QUARTER
ENDED % OF ENDED % OF
MAR. 31, TOTAL MAR. 31, TOTAL $ %
COST OF REVENUES 2003 REVENUE 2002 REVENUE DIFFERENCE DIFFERENCE
---------------- --------- ------- -------- ------- ---------- ----------
(DOLLARS IN THOUSANDS)
Transaction............................ $ 11,219 39.5% $ 13,370 35.2% $ (2,151) (16.1)%
Software licensing..................... 144 0.5 395 1.1 (251) (63.5)
Consulting and services................ 2,901 10.2 4,143 10.9 (1,242) (30.0)
Hardware............................... 568 2.0 413 1.1 155 37.5
--------- ---- -------- ---- -------- -----
Total................................ $ 14,832 52.2% $ 18,321 48.3% $ (3,489) (19.0)%
========= ==== ======== ==== ======== =====
The decrease in transaction cost of revenues was principally due to lower
transaction revenues as a result of a lower volume of transactions processed
through Lightbridge's TeleServices call centers and by a shift in the mix of
services provided to clients. The decrease in costs was also attributable to the
Company's staff reductions as a result of the closing of the Waltham,
Massachusetts call center in September 2002. Transaction cost of revenues
increased as a percentage of total transaction revenues to 56.7% in the quarter
ended March 31, 2003 from 53.4% in the quarter ended March 31, 2002. The
increase in cost of transaction revenues as a percentage of transaction revenues
was due to a change in the mix of services provided in the quarter ended March
31, 2003, as well as the level of fixed costs within the Company's
infrastructure, which resulted in lower gross profit margins as revenue
declined. Certain of these fixed costs have been eliminated or reduced as a
result of the Company's restructurings. Lightbridge believes that changes in the
mix of services provided to clients will continue to affect transaction cost of
revenues in the remainder of 2003.
Software licensing cost of revenues decreased in the quarter ended March
31, 2003 from the quarter ended March 31, 2002, and also decreased as a
percentage of total software licensing revenues to 9.0% from 10.0%. The decrease
was attributable to the decline in software revenues.
Consulting and services cost of revenues decreased in the quarter ended
March 31, 2003, and also decreased as a percentage of total consulting and
services revenues to 46.1% from 49.6% in the quarter ended March 31, 2002. The
decrease in consulting and services cost of revenue was attributable to a
decrease in consulting projects and revenue as well as a reduction in headcount
associated with the June 2002 restructuring.
Hardware cost of revenues increased and also increased as a percentage of
total hardware revenue to 76.4% in the quarter ended March 31, 2003 from 70.7%
in the quarter ended March 31, 2002. This increase was attributable to the
increase in hardware revenues.
The Company expects that fluctuations in gross profit may occur primarily
because of a change in the mix of revenue generated from the Company's four
revenue components, particularly revenues from software licensing and consulting
services.
15
OPERATING EXPENSES. Operating expenses and certain operating expense
comparisons for the quarters ended March 31, 2003 and 2002 were as follows:
QUARTER QUARTER
ENDED % OF ENDED % OF
MAR. 31, TOTAL MAR. 31, TOTAL $ %
2003 REVENUE 2002 REVENUE DIFFERENCE DIFFERENCE
--------- ------- -------- ------- ---------- ----------
(DOLLARS IN THOUSANDS)
Development ............................ $ 7,077 24.9% $ 7,785 20.5% $ (708) (9.1)%
Sales and marketing .................... 3,987 14.0 3,736 9.8 251 6.7
General and administrative ............. 3,366 11.8 4,553 12.0 (1,187) (26.1)
Purchased in-process R&D ............... -- -- 1,618 4.3 (1,618) --
Restructuring costs .................... 77 0.3 -- -- 77 --
-------- ---- -------- ---- -------- -----
Total ............................... $ 14,507 51.0% $ 17,692 46.6% $ (3,185) (18.0)%
======== ==== ======== ==== ======== =====
DEVELOPMENT. Development expenses include software development costs and
consist primarily of personnel and outside technical services costs related to
developing new products and services, enhancing existing products and services,
and implementing and maintaining new and existing products and services. The
decrease in development expenses for the quarter ended March 31, 2003 was due to
cost savings associated with the June 2002 restructuring. These cost savings
were partially offset by the addition of engineering personnel necessary to
support Lightbridge's product and services development plans. Development
expenses as a percentage of total revenues increased for the quarter ended March
31, 2003 as a result of lower total revenues. The Company expects to continue to
incur significant development expenses in the remainder of 2003 and may
experience an increase in such expenses for that period in connection with the
further development of its existing products and services and development of new
products and services.
SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries, commissions and travel expenses of direct sales, business development
and marketing personnel, as well as costs associated with advertising, trade
shows and conferences. The increase for the quarter ended March 31, 2003 was
primarily due to the expansion of the Company's business development
organization and costs associated with the Company's strategic partnerships.
These costs were partially offset by the cost savings associated with the June
2002 restructuring.
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. The
decrease in general and administrative costs for the quarter ended March 31,
2003 was primarily due to a decrease in headcount associated with the June 2002
restructuring and the Company's efforts to limit spending. There was also a
slight decrease in general and administrative expenses as a percentage of total
revenues to 11.8% in the quarter ended March 31, 2003 from 12.0% in the quarter
ended March 31, 2002. The Company may experience an increase in general and
administrative expenses during the remainder of 2003 due to increased regulatory
compliance requirements associated with operating as a public company and
consumer credit and privacy regulations.
IN-PROCESS RESEARCH AND DEVELOPMENT ("IPR&D"). In connection with the
Altawave acquisition, the Company recorded a $1.6 million charge during the
first quarter of 2002 for several IPR&D projects. The technology acquired from
Altawave includes solutions that offer wireless carriers and enterprises a
service platform for the development and management of data content and
applications. The complexity of the technology lies in its comprehensive, secure
and scalable characteristics. The research projects in process at the date of
acquisition related to the development of the Lightbridge Mobile Data Manager
("MDM") suite of products consisting of MDM Server, MDM Administration, MDM
Altalinks, MDM Provisioner, and the Consumer Group Applications ("CGA").
Development on the technology was started in 2000.
16
The value of the projects was determined by an independent appraiser using
the income approach. The discounted cash flow method was utilized to estimate
the present value of the expected income that could be generated through
revenues from the projects over their estimated useful lives through 2009. The
percentage of completion for the projects was determined based on the amount of
research and development expenses incurred through the date of acquisition as a
percentage of estimated total research and development expenses to bring the
projects to technological feasibility. At the acquisition date, the Company
estimated that the MDM suite and CGA were approximately 70% and 32% complete,
respectively, with fair values of approximately $1.0 million and $0.6 million,
respectively. The discount rate used for the fair value calculation was 37% for
the MDM suite and 40% for CGA. At the date of acquisition, development of the
technology involved risks to the Company including the remaining development
effort required to achieve technological feasibility and uncertainty with
respect to the market for the technology.
Lightbridge completed the development of the MDM suite in the quarter
ended September 30, 2002, having spent approximately $150,000 on the project
after the acquisition. Total cost to complete the CGA project after acquisition
is estimated to be approximately $300,000, of which approximately $225,000 had
been spent through March 31, 2003. CGA is expected to be completed by July 2003.
If the development of the technology is not completed on schedule, the potential
consequences to the Company may include increased development costs and
increased competition from other companies that have competitive products in the
market.
RESTRUCTURING COSTS. In March 2003, the Company announced it would be
streamlining its existing Broomfield, Colorado call center operations into its
Lynn, Massachusetts facility and a neighboring Lightbridge facility in
Broomfield, Colorado by the end of May 2003. In the quarter ended March 31,
2003, the Company recorded a restructuring charge of approximately $77,000 for
workforce reductions and expects to record an additional $900,000 charge
relating to the facility reductions and capital equipment write-offs during the
second quarter of 2003. The Company anticipates the majority of the severance
costs related to this restructuring will be paid in the second quarter of 2003.
OTHER INCOME, NET. Other income, net consisted predominantly of interest
income and decreased to $0.5 million in the quarter ended March 31, 2003 from
$0.6 million in the quarter ended March 31, 2002. This decrease was primarily
due to a decline in interest rates.
PROVISION FOR (BENEFIT FROM) INCOME TAXES. Lightbridge's annual estimated
effective tax rate was 20.0% for the quarter ended March 31, 2003 due to a
decrease in estimated pre-tax profit. The income tax provision for the quarter
ended March 31, 2002 reflects a net benefit of $0.2 million which consists of
income taxes at an annual effective tax rate of 34.5%, offset by a $1.0 million
tax benefit related to the reduction of the valuation allowance on acquired net
operating loss carryforwards, as it was determined that it was more likely than
not that such net operating losses would be utilized. Lightbridge anticipates
that its effective tax rate for the full year 2003 will approximate 20.0%.
RESTRUCTURINGS
In June 2002, the Company announced it would be reducing its workforce by
seven percent and consolidating its Waltham, Massachusetts call center
operations into its Lynn, Massachusetts and Broomfield, Colorado facilities by
the end of 2002. The Company recorded a restructuring charge of approximately
$3.6 million, consisting of $1.6 million for workforce reductions, $1.3 million
for facilities reductions including lease obligations, utilities and security
costs on unused space and $0.7 million for capital equipment write-offs
associated with these measures. The restructuring plan resulted in the
termination of 65 personnel as follows: 25 in product and service delivery, 22
in development, 11 in sales and marketing and seven in general and
administrative. The capital equipment write-offs and the majority of severance
costs related to this restructuring
17
were incurred in 2002. The Company anticipates that all other costs relating to
this restructuring, consisting principally of lease obligations on unused space,
will be paid by the end of 2003.
The following summarizes the changes to the June 2002 restructuring
reserves for the quarter ended March 31, 2003:
BALANCE AT BALANCE AT
DECEMBER 31, 2002 ACCRUED UTILIZED MARCH 31, 2003
----------------- ------------ ------------- --------------
(IN THOUSANDS)
Employee severance and termination benefits....... $ 343 $ -- $ 185 $ 158
Facility closing and related costs................ 992 -- 147 845
------------ ------------ ------------- ------------
$ 1,335 $ -- $ 332 $ 1,003
============ ============ ============= ============
In March 2003, the Company announced it would be streamlining its existing
Broomfield, Colorado call center operations into its Lynn, Massachusetts
facility and a neighboring Lightbridge facility in Broomfield, Colorado by the
end of May 2003. In the quarter ended March 31, 2003, the Company recorded a
restructuring charge of approximately $77,000 for workforce reductions and
expects to record an additional $900,000 charge relating to the facility
reductions and capital equipment write-offs during the second quarter of 2003.
The Company anticipates the majority of the severance costs related to this
restructuring will be paid in the second quarter of 2003.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2003, Lightbridge had cash and cash equivalents and
short-term investments of $135.6 million. Lightbridge's working capital
increased slightly to $137.4 million at March 31, 2003 from $136.5 million at
December 31, 2002. The Company believes that its current cash balances will be
sufficient to finance the Company's operations and capital expenditures for the
next twelve months. Thereafter, the adequacy of the Company's cash balances will
depend on a number of factors that are not readily foreseeable such as the
impact of general market conditions on the Company's operations, cash
requirements associated with acquisitions and investments, and the sustained
profitability of the Company's operations.
During the first quarter of 2003, the Company generated cash flows from
operating activities of $3.7 million and used $0.6 million and $0.9 million in
investing and financing activities, respectively.
The Company's capital expenditures totaled $0.6 million for the quarter
ended March 31, 2003. The capital expenditures during this period were
principally associated with the Company's service delivery infrastructure and
computer equipment for software development activities. The Company leases its
facilities and certain equipment under non-cancelable operating lease agreements
that expire at various dates through January 2008.
During the quarter ended March 31, 2003, the Company used $1.2 million for
the repurchase of common stock under its stock repurchase program.
At March 31, 2003, the Company had an outstanding letter of credit in the
amount of $1.0 million expiring in May 2004.
The Company entered into a foreign exchange agreement effective April 2003
with a bank for the purchase of one currency in exchange for the sale of another
currency. This agreement is secured by $3.0 million held by the bank.
18
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 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 146 ("SFAS 146"), "Accounting
for Costs Associated with Exit or Disposal Activities." SFAS 146 requires that a
liability for a cost associated with an exit or disposal activity be recognized
when the liability is incurred. SFAS 146 nullifies EITF No. 94-3 "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity," which required a liability be recognized at the commitment date to an
exit plan. The Company adopted the provisions of SFAS 146 effective for exit or
disposal activities initiated after December 31, 2002. All restructuring
activities prior to December 31, 2002, including the June 2002 restructuring
described in Note 5 to the financial statements included in this report, are
accounted for under EITF No. 94-3. The Broomfield restructuring described in
Note 5 is accounted for under SFAS 146, the impact of which was that the Company
expects to record the $900,000 facility reduction and capital equipment charge
in the second quarter rather than the first quarter due to the cease-use date
being in the second quarter.
In December 2002, the FASB issued SFAS No. 148 ("SFAS 148"), "Accounting
for Stock-Based Compensation - Transition and Disclosure - an amendment of FASB
Statement No. 123." SFAS 148 amends SFAS No. 123 to provide alternative methods
of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, SFAS 148 amends
the disclosure requirements of SFAS 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The interim disclosure requirements of SFAS 148 have been implemented
in Note 2 to the financial statements included in this report.
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. Cash
and cash equivalents include short-term, highly liquid instruments, which
consist primarily of money market accounts, purchased with remaining maturities
of three months or less. The Company's short-term investments consist of debt
securities maturing in one year or less and are classified as available for
sale. These investments are carried at fair value. The Company does not execute
transactions in or hold derivative financial instruments for trading or hedging
purposes.
The carrying value of available-for-sale debt securities is adjusted for
amortization of premiums and accretion of discounts to maturity. Realized gains
and losses, and declines in value judged to be other than temporary on
available-for-sale debt securities, if any, are included in interest income,
net. The cost of securities sold is based on the specific identification method.
Interest and dividends on securities are included in interest income, net.
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 change in interest rates. This
change, had it occurred, would not have been significant to Lightbridge's
financial position or results of operations during the quarter ended March 31,
2003.
The Company is not subject to any material market risk associated with
foreign currency exchange rates.
19
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, 2002.
ITEM 4. CONTROLS AND PROCEDURES.
Within 90 days before filing this report, the Company evaluated the
effectiveness of the design and operation of its disclosure controls and
procedures. The Company's disclosure controls and procedures are the controls
and other procedures that it designed to provide that it records, processes,
summarizes and reports in a timely manner the information it must disclose in
reports that it files with or submits to the Securities and Exchange Commission.
The Company's Chief Executive Officer and its Chief Financial Officer supervised
and participated in this evaluation. Based on this evaluation, the Company's
Chief Executive Officer and Chief Financial Officer concluded that, as of the
date of their evaluation, the Company's disclosure controls and procedures were
effective to provide a reasonable level of assurance of reaching the Company's
disclosure control objectives.
Since the date of the evaluation described above, there have not been any
significant changes in the Company's internal controls or in other factors that
could significantly affect those controls.
20
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION.
CERTIFICATION UNDER SARBANES-OXLEY ACT
Our chief executive officer and chief financial officer have furnished to
the Securities and Exchange Commission the certification with respect to this
Report that is required by Section 906 of the Sarbanes-Oxley Act of 2002.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
NO. DESCRIPTION
----- ----------------------------------------------------------------------
10.1 Foreign Exchange Master Agreement dated March 31, 2003 by and among
Citizens Bank of Massachusetts, the Company, Corsair Communications,
Inc., Coral Systems, Inc. and Lightbridge Security Corporation
99.1 Information set forth under the heading "ITEM 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Risk Factors" in the Annual Report on Form 10-K of the
Company for the year ended December 31, 2002 is incorporated herein by
reference
(b) REPORTS ON FORM 8-K
On February 7, 2003, the Company filed a Current Report on Form 8-K to
report under Item 5, Other Events, that on February 6, 2003 Torrence C. Harder
announced his retirement from the Board of Directors of Lightbridge, Inc. In
addition, the Company included under Item 7, Financial Statements, Pro Forma
Financial Information and Exhibits, a copy of the Press Release regarding the
retirement of Torrence C. Harder.
On March 28, 2003, the Company filed a Current Report on Form 8-K to
report under Item 5, Other Events, plans to consolidate its Broomfield, Colorado
call center operation into a neighboring Lightbridge facility and to its
existing Lynn, Massachusetts call center. In addition, the Company included
under Item 7, Financial Statements, Pro Forma Financial Information and
Exhibits, a copy of the Press Release regarding the consolidation plan.
21
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LIGHTBRIDGE, INC.
Date: May 15, 2003 By: /s/ Harlan Plumley
---------------------------------------------
Harlan Plumley
Vice President, Finance and
Administration,
Chief Financial Officer and Treasurer
(Principal Financial and Chief Accounting
Officer)
22
CERTIFICATIONS
I, Pamela D.A. Reeve, Chief Executive Officer of Lightbridge, Inc.,
certify that:
1. I have reviewed this quarterly report on Form 10-Q of Lightbridge,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 15, 2003
/s/ Pamela D.A. Reeve
-----------------------------------------
Pamela D.A. Reeve
Chief Executive Officer and Director
(Principal Executive Officer)
23
I, Harlan Plumley, Chief Financial Officer of Lightbridge, Inc., certify
that:
1. I have reviewed this quarterly report on Form 10-Q of Lightbridge,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 15, 2003
/s/ Harlan Plumley
-----------------------------------------------------
Harlan Plumley
Vice President, Finance and Administration,
Chief Financial Officer and Treasurer
(Principal Financial Officer)
24