-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ILNetQlkd4xFbVTu52bryZNnl+mhThZHV19LGS80UPaJMDClVzxRCnVYeLOcWbZU v5dGeX0EnR53fuecssxTGA== 0001047469-99-013023.txt : 19990402 0001047469-99-013023.hdr.sgml : 19990402 ACCESSION NUMBER: 0001047469-99-013023 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LIGHTBRIDGE INC CENTRAL INDEX KEY: 0001017172 STANDARD INDUSTRIAL CLASSIFICATION: RADIO TELEPHONE COMMUNICATIONS [4812] IRS NUMBER: 043065140 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 000-21319 FILM NUMBER: 99583193 BUSINESS ADDRESS: STREET 1: 67 S BEDFORD ST CITY: BURLINGTON STATE: MA ZIP: 01803 BUSINESS PHONE: 6173594000 MAIL ADDRESS: STREET 1: 67 SOUTH BEDFORD STREET CITY: BURLINGTON STATE: MA ZIP: 01803 10-Q/A 1 10-Q/A - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q/A (MARK ONE) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________ TO ______________ COMMISSION FILE NUMBER: 000-21319 ------------------------ LIGHTBRIDGE, INC. (Exact name of registrant as specified in its charter) DELAWARE 04-3065140 (State or other jurisdiction of (I.R.S employer identification incorporation or organization) number) 67 SOUTH BEDFORD STREET BURLINGTON, MASSACHUSETTS 01803 (Address of principal executive offices, including Zip Code) (781) 359-4000 (Registrant's telephone number, including area code) ------------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes /X/ No / / As of April 1, 1998, there were 15,794,675 shares of the registrant's common stock, $.01 par value, outstanding. On February 24, 1999, the registrant announced that it had restated its financial statements for the year ended December 31, 1997 and the quarters ended March 31, June 30, and September 30, 1998 to correct the accounting relating to the acquisition of Coral Systems, Inc. in November 1997. This amended Quarterly Report on Form 10-Q contains restated financial information and disclosures for the quarter ended March 31, 1998 reflecting the restatement and certain other matters. (See Note 3 to the unaudited condensed consolidated financial statements). Unless otherwise stated, information in the originally filed Form 10-Q for the quarter ended March 31, 1998 is presented as of the original filing date, and has not been updated in this amended filing. Financial statement information and related disclosures included in this amended filing reflect, where appropriate, changes as a result of the restatement. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- LIGHTBRIDGE, INC. FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1998 TABLE OF CONTENTS
PAGE NO. ------------- PART I. FINANCIAL INFORMATION Item 1. Unaudited Condensed Consolidated Financial Statements: Balance Sheets as of March 31, 1998 (Restated) and December 31, 1997......................................................... 3 Statements of Operations for the three months ended March 31, 1998 (Restated) and March 31, 1997..................................................................................... 4 Statements of Cash Flow for the three months ended March 31, 1998 (Restated) and March 31, 1997..................................................................................... 5 Notes to Unaudited Condensed Consolidated Financial Statements............................. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...... 8 PART II. OTHER INFORMATION Signature.............................................................................................. 15
INTRODUCTORY NOTE This Amendment on Form 10-Q/A amends the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1998, as filed by the Registrant on May 1, 1998, and is being filed to reflect the restatement of the Registrant's condensed consolidated financial statements (the "Restatement"). The Restatement reflects the revaluation of acquired in-process research and development in connection with the acquisition of Coral Systems in November 1997. PART I. FINANCIAL INFORMATION ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS LIGHTBRIDGE, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31, 1998 1997 ----------- -------------- (RESTATED, SEE NOTE 3) ASSETS Current assets: Cash and cash equivalents.................................... 1$2,762,060 $ 15,715,726 Accounts receivable--net..................................... 14,700,335 13,213,052 Other current assets......................................... 2,917,004 2,885,583 ----------- -------------- Total current assets..................................... 30,379,399 31,814,361 Property and equipment--net.................................... 11,791,647 11,763,013 Goodwill--net.................................................. 9,848,891 10,383,581 Acquired intangible assets--net................................ 6,683,861 7,716,545 Other assets--net.............................................. 1,866,414 1,887,676 ----------- -------------- Total assets............................................. 6$0,570,212 $ 63,565,176 ----------- -------------- ----------- -------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities..................... $5,230,359 $ 8,164,817 Short-term borrowings and current portion of notes payable... 805,205 805,205 Deferred revenues............................................ 2,139,526 1,658,406 ----------- -------------- Total current liabilities................................ 8,175,090 10,628,428 Other long-term liabilities.................................... 1,128,712 823,346 Notes payable.................................................. 1,080,219 1,397,614 ----------- -------------- Total liabilities........................................ 10,384,021 12,849,388 ----------- -------------- Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value; 5,000,000 shares authorized; no shares issued or outstanding at March 31, 1998 and December 31, 1997, respectively............................ -- -- Common stock, $.01 par value; 60,000,000 shares authorized; 16,621,967 and 16,492,954 shares issued; 15,794,675 and 15,665,662 shares outstanding at March 31, 1998 and December 31, 1997, respectively....................................... 166,219 164,929 Additional paid-in capital..................................... 53,852,248 53,660,991 Warrants....................................................... 598,875 598,875 Accumulated deficit............................................ (2,806,188) (2,084,044) ----------- -------------- Total.................................................... 51,811,154 52,340,751 Less treasury stock, at cost................................... (1,624,963) (1,624,963) ----------- -------------- Total stockholders' equity............................... 50,186,191 50,715,788 ----------- -------------- Total liabilities and stockholders' equity............. 6$0,570,212 $ 63,565,176 ----------- -------------- ----------- --------------
See notes to unaudited condensed consolidated financial statements 3 LIGHTBRIDGE, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
1998 1997 ---------- --------- THREE MONTHS ENDED MARCH 31, --------------------- (RESTATED, SEE NOTE 3) Revenues......................................................... $13,302,816 $8,822,838 Cost of revenues................................................. 7,124,059 4,168,670 ---------- --------- Gross profit..................................................... 6,178,757 4,654,168 ---------- --------- Operating expenses: Development.................................................... 2,292,097 1,330,919 Sales and marketing............................................ 1,955,937 1,256,417 General and administrative..................................... 2,798,116 1,145,626 ---------- --------- Total operating expenses......................................... 7,046,150 3,732,962 ---------- --------- Income (loss) from operations.................................... (867,393) 921,206 Other income (expense): Interest income................................................ 228,967 319,816 Interest expense............................................... (65,840) (107,855) Other non-operating income (expense)........................... 39,022 (9,280) ---------- --------- Income (loss) before provision for income taxes.................. (665,244) 1,123,887 Provision for (benefit from) income taxes........................ 56,900 (643,939) ---------- --------- Net income (loss)................................................ $ (722,144) $1,767,826 ---------- --------- ---------- --------- Basic earnings (loss) per common share........................... $ (0.05) $ 0.12 ---------- --------- ---------- --------- Diluted earnings (loss) per common share......................... $ (0.05) $ 0.11 ---------- --------- ---------- ---------
See notes to unaudited condensed consolidated financial statements 4 LIGHTBRIDGE, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
THREE MONTHS ENDED MARCH 31, ---------------------- 1998 1997 ---------- ---------- (RESTATED, SEE NOTE 3) Cash Flows From Operating Activities: Net income (loss)................................................ $ (722,144) $1,767,826 Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: Depreciation and amortization.................................. 2,939,039 986,904 Amortization of discount on notes.............................. 8,906 9,016 Deferred income taxes.......................................... -- (795,100) Changes in assets and liabilities: Accounts receivable and other current assets................. (1,518,704) (1,134,203) Other assets................................................. (122,699) 35,719 Accounts payable and accrued liabilities..................... (2,899,019) (418,828) Deferred revenues............................................ 481,120 411,077 Other liabilities............................................ 373,859 -- ---------- ---------- Net cash (used in) provided by operating activities........ (1,459,642) 862,411 ---------- ---------- Cash Flows From Investing Activities: Purchases of property and equipment.............................. (1,256,338) (1,175,294) Purchase of investments.......................................... -- (2,069,323) ---------- ---------- Net cash used in investing activities...................... (1,256,338) (3,244,617) ---------- ---------- Cash Flows From Financing Activities: Payments on notes payable........................................ (326,301) (176,301) Principal payments under capital lease obligations............... (103,932) (476,895) Proceeds from issuance of common stock........................... 192,547 17,862 ---------- ---------- Net cash used in financing activities...................... (237,686) (635,334) ---------- ---------- Net decrease in cash and cash equivalents.......................... (2,953,666) (3,017,540) Cash and cash equivalents, beginning of period..................... 15,715,726 27,900,802 ---------- ---------- Cash and cash equivalents, end of period........................... $12,762,060 $24,883,262 ---------- ---------- ---------- ----------
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 condensed consolidated financial statements included herein have been prepared by Lightbridge, Inc. (the "Company"), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Although certain information and footnote disclosures normally included in the Company's annual financial statements have been omitted, the Company believes that the disclosures are adequate to make the information presented not misleading and reflect all adjustments (consisting only of normal recurring adjustments) which are necessary for a fair presentation of results of operations for such periods. Results of interim periods may not be indicative of results for the full year. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K/A for the year ended December 31, 1997. 2. SIGNIFICANT ACCOUNTING POLICIES: SOFTWARE REVENUE RECOGNITION During the first quarter of 1998, the Company adopted the provisions of Statement of Position 97-2, "Software Revenue Recognition" ("SOP 97-2"). SOP 97-2 provides guidance on applying generally accepted accounting principles in recognizing revenue on software transactions and supersedes Statement of Position 91-1, "Software Revenue Recognition." The adoption of SOP 97-2 had no effect on the Company's reported revenues for the quarter ended March 31, 1998. However, there can be no assurance that the provisions of SOP 97-2 will not affect revenues from future software transactions entered into by the Company. EARNINGS PER SHARE During the fourth quarter of 1997, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings per Share." The Statement simplifies the standards for computing earnings per share ("EPS") and makes them comparable to international EPS standards. The Statement replaces primary EPS with basic EPS. Basic EPS is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock. Diluted EPS is computed similarly to fully diluted EPS previously presented. In accordance with the standard, all prior period EPS data have been restated. 6 LIGHTBRIDGE, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) A reconciliation of the numerators and denominators of the basic and diluted EPS computations for income (loss) from continuing operations is shown below:
INCOME (LOSS) SHARES EARNINGS (LOSS) (NUMERATOR) (DENOMINATOR) PER SHARE ------------- ------------- --------------- THREE MONTHS ENDED MARCH 31, 1998 Basic and Diluted EPS: Loss available to common shareholders........................... $ (722,144) 15,707,303 $ (0.05) ------------- ------------- THREE MONTHS ENDED MARCH 31, 1997 Basic EPS: Income available to common shareholders......................... $ 1,767,826 14,611,646 $ 0.12 Effect of dilutive securities Options and warrants............................................ 1,810,305 ------------- Diluted EPS: Income available to common shareholders......................... $ 1,767,826 16,421,951 $ 0.11 ------------- -------------
Stock options and warrants convertible into common stock have been excluded from the diluted computation for the three months ended March 31, 1998 as they are anti-dilutive. Had such shares been included, shares for the dilutive computation would have increased by approximately 2,100,000 shares for the three months ended March 31, 1998. RECLASSIFICATIONS Certain reclassifications have been made to the 1997 financial statements to conform with the 1998 presentation. 3. RESTATEMENT The Company has restated its previously filed condensed consolidated financial statements as of and for the three months ended March 31, 1998 to adjust the allocation of purchase price related to the acquisition of Coral Systems, Inc. ("Coral") in November, 1997, and the resulting amortization of goodwill and intangible assets. The Securities and Exchange Commission ("SEC") issued new guidance in September 1998 on its views regarding the valuation methodologies used to determine the allocation of purchase price to acquired in-process research and development ("IPRD") and intangible assets in a purchase business combination. Generally accepted accounting principles require that amounts allocated to IPRD be expensed upon consummation of an acquisition. Following discussions between the Company and the staff of the SEC regarding the application of this guidance, the Company has modified the methods used to value IPRD and other intangible assets acquired in connection with the acquisition of Coral. The revised valuation is based on management's best estimates at the date of acquisition of the net cash flows expected to be generated by Coral on a going-forward basis and gives explicit consideration to the SEC's views on IPRD as set forth in its September 1998 letter to the American Institute of Certified Public Accountants. As a result of this revised valuation, the amount of purchase price allocated to IPRD at the date of 7 3. RESTATEMENT (CONTINUED) acquisition decreased from $16.0 million to $4.0 million, and the amount ascribed to goodwill and acquired intangible assets increased by $4.0 million and $8.0 million, respectively. The effects of this restatement on the Company's consolidated financial statements are as follows: CONSOLIDATED BALANCE SHEETS:
MARCH 31, 1998 ---------------------------- AS PREVIOUSLY REPORTED AS RESTATED ------------- ------------- Goodwill--net...................................................................... $ 5,734,510 $ 9,848,889 Acquired intangible assets--net.................................................... -- 6,683,861 Total assets....................................................................... 49,771,970 60,570,212 Total stockholders' equity......................................................... 39,387,949 50,186,191
CONSOLIDATED STATEMENT OF OPERATIONS:
THREE MONTHS ENDED MARCH 31, 1998 ---------------------------- AS PREVIOUSLY REPORTED AS RESTATED ------------- ------------- Cost of revenues............................................... $ 6,229,709 $ 7,124,059 Total operating expenses....................................... 7,055,546 7,046,150 Net income (loss).............................................. 92,810 (722,144) Basic and diluted income (loss) per common shares.............. $ 0.01 $ (0.05)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE DISCUSSION IN THIS FORM 10-Q/A CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE RESULTS CONTEMPLATED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF A NUMBER OF FACTORS, INCLUDING (A) CONTINUING RAPID CHANGE IN THE TELECOMMUNICATIONS INDUSTRY THAT MAY AFFECT BOTH LIGHTBRIDGE AND ITS CUSTOMERS, (B) CUSTOMER CONCENTRATION, (C) UNCERTAINTIES ASSOCIATED WITH LIGHTBRIDGE'S ABILITY TO DEVELOP NEW PRODUCTS AND TECHNOLOGIES, (D) MARKET ACCEPTANCE OF LIGHTBRIDGE'S NEW PRODUCTS AND CONTINUING DEMAND FOR LIGHTBRIDGE'S PRODUCTS BY TELECOMMUNICATIONS COMPANIES, (E) THE IMPACT OF COMPETITIVE PRODUCTS AND PRICING ON BOTH LIGHTBRIDGE AND ITS CUSTOMERS, (F) MANAGEMENT OF GROWTH, AND (G) THE OTHER FACTORS SET FORTH UNDER "ITEM 1A. Risk Factors" IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K/A FOR THE YEAR ENDED DECEMBER 31, 1997. Information set forth under the heading "ITEM 1A. Risk Factors" in the Company's Annual Report on Form 10-K/A for the year ended December 31, 1997 is incorporated as an exhibit to this Quarterly Report. CHURNALERT, FRAUDBUSTER and PROFILE are registered trademarks of the Company, and LIGHTBRIDGE, POPS and SAMS are trademarks of the Company. All other trademarks or trade names referred to in this Form 10-Q are the property of their respective owners. 8 RESTATEMENT The Company has restated its previously filed condensed consolidated financial statements as of and for the three months ended March 31, 1998 to adjust the allocation of purchase price related to the acquisitions of Coral Systems, Inc. ("Coral") in November, 1997 and the resulting amortization of goodwill and intangible assets. The Securities and Exchange Commission ("SEC") issued new guidance in September 1998 on its views regarding the valuation methodologies used to determine the allocation of purchase price to acquire in-process research and development ("IPRD") and intangible assets in a purchase business combination. Generally accepted accounting principles require that amounts allocated to IPRD be expensed upon consummation of an acquisition. Following discussions between the Company and the staff of the SEC regarding the application of this guidance, the Company has modified the methods used to value IPRD and other intangible assets acquired in connection with the acquisition of Coral. The revised valuation is based on management's best estimates at the date of acquisition of the net cash flows expected to be generated by Coral on a going-forward basis and gives explicit consideration to the SEC's views on IPRD as set forth in its September 1998 letter to the American Institute of Certified Public Accountants. As a result of this revised valuation, the amount of purchase price allocated to IPRD at the date of acquisition decreased from $16 million to $4 million, and the amount ascribed to goodwill and acquired intangible assets increased by $4.0 million and $8.0 million, respectively. RESULTS OF OPERATIONS OVERVIEW Lightbridge develops, markets and supports a network of integrated products and services that enable telecommunications carriers to improve their customer acquisition and retention processes. In November 1997, the Company acquired all of the outstanding stock of Coral, pursuant to an Agreement and Plan of Reorganization dated as of September 9, 1997 (the "Reorganization Agreement"). The acquisition was effected through a reverse triangular merger (the "Merger") in which a newly formed subsidiary of Lightbridge was merged with and into Coral and the surviving corporation became a wholly owned subsidiary of the Company. Pursuant to the Merger, each of the outstanding shares of Coral's stock was converted into a fraction of a share of Lightbridge's common stock, determined as set forth in the Reorganization Agreement. In addition, as a result of the Merger, all options and warrants to purchase shares of Coral's stock became exercisable, when vested, to purchase shares of Lightbridge's common stock. As a result of the Merger, Lightbridge issued 892,073 shares of its common stock for all of the outstanding shares of Coral's common stock and reserved 114,399 shares of its common stock for Coral's options and warrants. The merger has been accounted for using the purchase method, which combines the results of Coral from the date of acquisition with those of the Company. As a result, the Company's results of operation include Coral's results for the three months ended March 31, 1998, but not for the three months ended March 31, 1997. Coral provides client-server software products for the wireless telecommunications industry to enable carriers to reduce fraud and customer turnover, or "churn," and increase operating efficiencies. Coral's products are based upon its core technology, which is designed to provide several advantages, including rapid product development, portability, technology independence and enhanced scalability. Coral's fraud management software, FraudBuster, incorporates a fraud profiler and subscription fraud monitoring functionality and is designed to combat most currently identified types of wireless fraud. FraudBuster detects multiple types of existing and emerging fraud, including cloning, subscription fraud, tumbling fraud and cellular telephone theft. Coral's churn prevent product, ChurnAlert, allows carriers to analyze and identify potential churn candidates before they seek customer service assistance or deactivate service. 9 Lightbridge's transaction revenues are derived primarily from the processing of applications of subscribers for wireless telecommunications services and the activation of service for those subscribers. Over time, the Company has expanded its offerings from credit evaluation services to include screening for subscriber fraud, evaluating carriers' existing accounts, interfacing with carrier and third-party systems and providing teleservices call center services. These services are provided pursuant to contracts with carriers which specify the services to be utilized and the markets to be served. Generally, the Company's clients are charged on a per transaction or, to a lesser extent, on a per minute basis. Pricing varies depending primarily on the volume of transactions, the type and number of other products and services selected for integration with the services and the term of the contract under which services are provided. The volume of processed transactions varies depending on seasonal and retail trends, the success of the carriers utilizing the Company's services in attracting subscribers and the markets served by the Company for its clients. Revenues are recognized in the period when the services are performed. The Company's software and services revenues have been derived primarily from developing customized software and providing consulting services. The Company also began licensing its Channel Solutions software with the introduction of its POPS product in fiscal 1995 and its SAMS software in 1996. Lightbridge's Channel Solutions products and services are designed to assist customers in interfacing with the Company's systems and are being marketed primarily to wireless telecommunications carriers that utilize the Company's transaction processing services. The Company's Customer Management products are being designed to help carriers analyze their marketplace to improve their business operations. While its Channel Solutions and Fraud Management products are, and its Customer Management and ChurnAlert products are currently expected to be, licensed as packaged software products, each of these products requires customization and integration with other products and systems to varying degrees. Revenues derived from consulting and other projects are recognized throughout the performance period of the contracts. Revenues from licensing software are recognized at the later of delivery of the licensed product or satisfaction of acceptance criteria. Lightbridge's software and services revenues depend primarily on the continuing need for integration of diverse systems and acceptance of the Company's software products by the Company's existing and new clients. Lightbridge is seeking to broaden and strengthen its management team. First, the Company expects to engage a new head of worldwide sales and marketing in late April 1998. Second, during the three months ending June 30, 1998, Lightbridge expects to consolidate its consulting services group and to name a vice president to head the new group. Third, the Company is seeking to hire a new chief financial officer who will have responsibility for matters such as the Company's financial reporting systems, business measures and analysis, and relationships with public market analysts and investors. 10 RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, -------------------- 1997 --------- 1998 --------- (1) Revenues: Transaction................................................................. 58.7% 68.3% Software and services....................................................... 41.3 31.7 --------- --------- 100.0 100.0 Cost of revenues.............................................................. 53.6 47.3 --------- --------- Gross profit.................................................................. 46.4 52.7 --------- --------- Operating expenses: Development................................................................. 17.2 15.1 Sales and marketing......................................................... 14.7 14.2 General and administrative.................................................. 21.0 13.0 --------- --------- Total operating expenses.................................................. 52.9 42.3 --------- --------- Income (loss) from operations................................................. (6.5) 10.4 Other income (expense), net................................................... 1.5 2.3 --------- --------- Income (loss) before income taxes............................................. (5.0) 12.7 Provision for (benefit from) income taxes..................................... 0.4 (7.3) --------- --------- Net income.................................................................... (5.4)% 20.0% --------- --------- --------- ---------
- ------------------------ (1) As restated. See Note 3 of Notes to Unaudited Condensed Consolidated Financial Statements. REVENUES. Revenues increased by 50.8% to $13.3 million in the three months ended March 31, 1998 from $8.8 million in the three months ended March 31, 1997. Transaction revenues increased by 29.7% to $7.8 million in the three months ended March 31, 1998 from $6.0 million in the three months ended March 31, 1997. The increase in transaction revenues for the three months ended March 31, 1998 was primarily due to increased volume of qualification and activation transactions processed for carrier clients. Software and services revenues increased by 96.3% to $5.5 million in the three months ended March 31, 1998 from $2.8 million in the three months ended March 31, 1997. The increase in software and services revenues for the three months ended March 31, 1998 was principally a result of the increase in revenues attributable to the Company's Channel Solutions and Fraud Management products and services. Increased revenues from Fraud Management products resulted in part from the inclusion of sales of Coral products in the three months ended March 31, 1998. Software and services revenues for the three months ended March 31, 1998 were adversely affected by (i) a lower-than-expected level of consulting projects from the Company's largest client and (ii) the Company's inability, under governing revenue recognition policies, to recognize revenue from Fraud Management software that was installed for a new international client but which had not been fully accepted by the client as of March 31, 1998 under the terms of the client's contract with the Company. Lightbridge expects to recognize the revenue from this Fraud Management software during the three months ending June 30, 1998, although there can be no assurance that the required contractual acceptance will be received by this time or at any time. COST OF REVENUES. Cost of revenues consists primarily of personnel costs, costs of maintaining systems and networks used in processing qualification and activation transactions (including depreciation and amortization of those systems and networks) and amortization of capitalized software and certain acquired 11 intangible assets. Cost of revenues may vary as a percentage of total revenues in the future as a result of a number of factors, including changes in the mix of transaction revenues between revenues from on-line transaction processing and revenues from processing transactions through the Company's Teleservices Group and changes in the mix of total revenues between transaction revenues and software and services revenues. Cost of revenues increased by 70.9% to $7.1 million in the three months ended March 31, 1998 from $4.2 million in the three months ended March 31, 1997, while increasing as a percentage of total revenues to 53.6% from 47.3%. The dollar increase in costs for the three months ended March 31, 1998 resulted principally from increases in transaction volume and costs attributable to expansion of the Company's staff and systems capacity through the Company's acquisition of Coral and through internal growth as well as amortization expense of certain acquired intangible assets. DEVELOPMENT. Development expenses consist primarily of personnel and outside technical services costs related to developing new products and services, enhancing existing products and services, and implementing and maintaining new and existing products and services. Development expenses also include software development costs incurred prior to the establishment of technological feasibility. Development expenses increased by 72.2% to $2.3 million in the three months ended March 31, 1998 from $1.3 million in the three months ended March 31, 1997, while increasing as a percentage of total revenues to 17.2% from 15.1%. The dollar increase in costs for the three months ended March 31, 1998 resulted primarily from the addition of engineering personnel necessary to support the Company's product development plans, including personnel employed by Coral. The Company expects to continue to increase its engineering and development efforts in order to continue enhancing its existing products and services, including its Channel Solutions and Fraud Management products and services, as well as to develop new products and services. SALES AND MARKETING. Sales and marketing expenses consist primarily of salaries, commissions and travel expenses of direct sales and marketing personnel, as well as costs associated with advertising, trade shows and conferences. Sales and marketing expenses increased by 55.7% to $2.0 million in the three months ended March 31, 1998 from $1.3 million in the three months ended March 31, 1997, and increased as a percentage of total revenues to 14.7% from 14.2%. Both the dollar increase and the increase as a percentage of total revenues for the three months ended March 31, 1998 were due to the addition of direct sales and product marketing personnel, increased commissions resulting from the higher level of revenues and increased use of marketing programs, including trade shows. The dollar increase also reflected costs of Coral's sales and marketing personnel and activities. The Company continues to invest in sales and marketing efforts in order to increase its penetration of existing accounts and to add new clients and markets. GENERAL AND ADMINISTRATIVE. General and administrative expenses consist principally of salaries of administrative, executive, finance and human resources personnel, fees for outside professional services, and amortization of goodwill and certain acquired intangible assets incurred pursuant to the acquisition of Coral. General and administrative expenses increased by 144.2% to $2.8 million in the three months ended March 31, 1998 from $1.1 million in the three months ended March 31, 1997, and increased as a percentage of total revenues to 21.0% from 13.0%. Both the dollar increase and the increase as a percentage of total revenues resulted primarily from amortization of $0.8 million of goodwill and acquired intangible assets, certain costs associated with the integration of Coral, and the addition of finance and human resource personnel. The Company believes that the remaining costs associated with the integration of Coral will be incurred in the three months ending June 30, 1998 and will not exceed $100,000. OTHER INCOME (EXPENSE) NET. Other income (expense) in the three months ended March 31, 1998 consists predominantly of interest income and expense. Interest expense consists of interest, commitment fees and other similar fees payable with respect to the Company's bank lines of credit, subordinated notes 12 and capital leases. Interest expense remained the same at $0.1 million in the three months ended March 31, 1998 and 1997. Interest income decreased to $0.2 million in the three months ended March 31, 1998 from $0.3 million in the three months ended March 31, 1997 as a result of lower cash balances due to the investment made in the service delivery infrastructure and computer equipment for development activities of the business during 1997. PROVISION FOR (BENEFIT FROM) INCOME TAXES. During the three months ended March 31, 1998, the Company recorded a net income tax provision of $0.1 million. During the three months ended March 31, 1997, the Company recorded a net income tax benefit of $0.6 million, which was derived from the reversal of its deferred tax valuation allowance and the utilization of certain tax credits, net of a provision of $0.5 million. LIQUIDITY AND CAPITAL RESOURCES Prior to its initial public offering, the Company funded its operations primarily through private placements of equity and debt securities, cash generated from operations, bank borrowings and equipment financings. In October 1996, the Company consummated an initial public offering in which 4,370,000 shares of the Company's common stock, $.01 par value, were sold at an initial public offering price of $10.00 per share. The total shares consisted of 3,021,868 shares sold by the Company and 1,348,132 shares sold by selling shareholders. Proceeds to the Company, net of underwriters' discount and associated costs, were approximately $27.1 million. These proceeds were used to repay certain debt obligations of the Company, to repurchase certain shares of the common stock of the Company and to fund working capital and other general corporate purposes. The Company has a $4.0 million working capital line of credit and a $2.0 million equipment line of credit with Silicon Valley Bank (the "Bank"). The working capital line of credit is secured by a pledge of the Company's accounts receivable, equipment and intangible assets, and borrowing availability is based on the amount of qualifying accounts receivable. Advances under the working capital line of credit and equipment line of credit bear interest at the Bank's prime rate (8.5% at March 31, 1998). The working line of credit also provides for the issuance of letters of credit, which reduce the amount Lightbridge may borrow under the line of credit and are limited to $1,250,000 in the aggregate. At March 31, 1998, there were no borrowings outstanding under the working capital line of credit and borrowings of $0.4 million were outstanding under the equipment line of credit. The agreements contain covenants that, among other things, prohibit the declaration or payment of dividends and require the Company to maintain certain financial ratios which the Company believes are not restrictive to the business operations. The working capital line of credit expires in June 1998, and the equipment line of credit expires in June 1999. The Company expects to renew the working capital line of credit with substantially the same terms that currently exist. On March 24, 1998, the Company and the Bank entered into a commitment letter that contemplates (i) an extension of the working capital line of credit until June 1999 and (ii) an increase in the equipment line of credit to $3.0 million and an extension in the equipment line of credit to six years from the date of closing. The Company anticipates that the definitive documentation for the changes contemplated by the commitment letter will be entered into during the quarter ending June 30, 1998. The Company's capital expenditures in the three months ended March 31, 1998 and 1997 aggregated $1.3 million and $1.2 million, respectively. The capital expenditures consisted of purchases of fixed assets, principally for the Company's services delivery infrastructure and computer equipment for development activities. The Company expects capital expenditures for the remainder of 1998 to approximate $3.0 million, including capital expenditures related to the relocation of Coral's offices. The Company leases its facilities and certain equipment under non-cancelable capital and operating lease agreements that expire at various dates through December 2002. 13 Further expansion of the Company's business, including the acquisition of additional computer and network equipment and the relocation of the offices of Coral in Colorado, will require the Company to make significant capital expenditures. The Company may also be required to make significant expenditures in connection with the on-going design and testing of its software-based services and products for Year 2000 compatibility, and any related modifications or other developmental work that may be required to cause those services and products to be Year 2000 compatible. Because the Company has not completed a significant portion of its Year 2000 testing, the Company currently is unable to estimate accurately the amount of these expenditures. As of March 31, 1998, the Company had cash and cash equivalents of $12.8 million and working capital of $22.2 million. The Company believes that the current cash balances and funds available under existing lines of credit, will be sufficient to finance the Company's operations and capital expenditures for at least the next twelve months. INFLATION Although certain of the Company's expenses increase with general inflation in the economy, inflation has not had a material impact on the Company's financial results to date. RECENT ACCOUNTING PRONOUNCEMENTS In June 1997, the FASB released Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"), which is effective for fiscal 1998. SFAS No. 130 requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. The adoption of SFAS No. 130 has not had a material effect on reported results of operations or financial position. In June 1997, the FASB released Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS No. 131"), which is effective for fiscal 1998. SFAS No. 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. While the Company is in the process of evaluating the impact of SFAS No. 131, it does not expect that the adoption will have a material impact on the Company's financial position or results of operations. 14 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LIGHTBRIDGE, INC. Dated: March 31, 1999 By: /s/ JOSEPH S. TIBBETTS, JR. ----------------------------------------- Joseph S. Tibbetts, Jr. SENIOR VICE PRESIDENT FINANCE & ADMINISTRATION, AND CHIEF FINANCIAL OFFICER (AUTHORIZED OFFICER AND PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER) 15 EX-27 2 EXHIBIT 27
5 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 12,762,060 0 14,919,208 218,873 0 2,917,004 21,523,413 9,731,766 49,771,970 8,175,090 0 0 0 166,219 39,221,730 49,771,970 13,302,816 13,302,816 6,299,709 7,055,546 0 0 65,840 149,710 56,900 92,810 0 0 0 92,810 0.01 0.01
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