-----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, IFFTdMw31pObbR+gTAiyQq33vFX1M+VoM8jKfW21R/kUO/zKFfy7997Jhcqu0xNL ol17/SKvlyohXFz5OfqcYg== 0001047469-99-031730.txt : 19990816 0001047469-99-031730.hdr.sgml : 19990816 ACCESSION NUMBER: 0001047469-99-031730 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990813 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 SEC ACT: SEC FILE NUMBER: 000-21319 FILM NUMBER: 99687478 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 1 FORM 10-Q - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 June 30, 1999 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to
Commission file number: 000-21319 LIGHTBRIDGE, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 04-3065140 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER) INCORPORATION OR ORGANIZATION)
67 SOUTH BEDFORD STREET BURLINGTON, MASSACHUSETTS 01803 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE) (781) 359-4000 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes /X/ No / / As of August 4, 1999, there were 16,232,243 shares of the registrant's common stock, $.01 par value, outstanding. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- LIGHTBRIDGE, INC. QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1999 TABLE OF CONTENTS
PAGE NO. ------------- PART I. FINANCIAL INFORMATION Item 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Balance Sheets as of December 31, 1998 and June 30, 1999..................................... 3 Statements of Operations for the Three Months Ended June 30, 1998 and June 30, 1999.......................................................................... 4 Statements of Operations for the Six Months Ended June 30, 1998 and June 30, 1999.......................................................................... 5 Statements of Cash Flows for the Six Months Ended June 30, 1998 and June 30, 1999.......................................................................... 6 Notes to Unaudited Condensed Consolidated Financial Statements............................... 7 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS........ 8 Item 3. QUANTITATIVE AND QUALITATIVE MARKET RISK DISCLOSURES......................................... 17 PART II. OTHER INFORMATION Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......................................... 18 Item 6. EXHIBITS AND REPORTS ON FORM 8-K............................................................. 18 SIGNATURE............................................................................................... 19
2 PART I. FINANCIAL INFORMATION ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS LIGHTBRIDGE, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, JUNE 30, 1998 1999 ------------- ------------- ASSETS Current assets: Cash and cash equivalents........................................................ $ 16,436,995 $ 25,087,527 Accounts receivable, net......................................................... 18,831,962 16,443,875 Other current assets............................................................. 1,399,196 1,823,244 ------------- ------------- Total current assets........................................................... 36,668,153 43,354,646 Property and equipment, net........................................................ 13,454,070 14,089,461 Acquired intangible assets, net.................................................... 4,024,811 3,282,444 Goodwill, net...................................................................... 2,145,313 1,865,464 Other assets, net.................................................................. 1,484,932 712,447 ------------- ------------- Total assets............................................................... $ 57,777,279 $ 63,304,462 ------------- ------------- ------------- ------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities......................................... $ 9,507,670 $ 11,272,720 Short-term borrowings and current portion of notes payable....................... 652,770 525,261 Deferred revenues................................................................ 1,460,636 2,010,161 ------------- ------------- Total current liabilities...................................................... 11,621,076 13,808,142 Other long-term liabilities...................................................... 1,053,618 998,552 Notes payable.................................................................... 655,484 423,297 ------------- ------------- Total liabilities.............................................................. 13,330,178 15,229,991 ------------- ------------- Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value; 5,000,000 shares authorized; no shares issued or outstanding at December 31, 1998 and June 30, 1999, respectively............... -- -- Common stock, $.01 par value; 60,000,000 shares authorized; 16,841,823 and 17,004,706 shares issued and 16,014,531 and 16,177,414 shares outstanding at December 31, 1998 and June 30, 1999, respectively.............................. 168,417 170,045 Additional paid-in capital....................................................... 54,285,766 54,769,285 Warrants......................................................................... 598,875 473,875 Accumulated deficit.............................................................. (8,980,994) (5,713,771) ------------- ------------- Total.......................................................................... 46,072,064 49,699,434 Less: treasury stock, at cost................................................... (1,624,963) (1,624,963) ------------- ------------- Total stockholders' equity..................................................... 44,447,101 48,074,471 ------------- ------------- Total liabilities and stockholders' equity................................. $ 57,777,279 $ 63,304,462 ------------- ------------- ------------- -------------
See notes to unaudited condensed consolidated financial statements. 3 LIGHTBRIDGE, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, ---------------------------- 1998 1999 ------------- ------------- Revenues: Transaction...................................................................... $ 9,125,612 $ 14,738,840 Software licensing and maintenance............................................... 3,410,130 3,160,008 Consulting services.............................................................. 2,609,740 4,341,195 ------------- ------------- Total revenues................................................................. 15,145,482 22,240,043 ------------- ------------- Cost of revenues: Transaction...................................................................... 5,122,507 7,460,824 Software licensing and maintenance............................................... 1,143,057 1,013,484 Consulting services.............................................................. 1,684,528 2,162,695 ------------- ------------- Total cost of revenues......................................................... 7,950,092 10,637,003 ------------- ------------- Gross profit....................................................................... 7,195,390 11,603,040 ------------- ------------- Operating expenses: Development...................................................................... 2,429,574 3,242,598 Sales and marketing.............................................................. 1,715,305 2,039,931 General and administrative....................................................... 2,413,099 2,961,534 Amortization of goodwill and acquired workforce.................................. 745,557 348,256 ------------- ------------- Total operating expenses....................................................... 7,303,535 8,592,319 ------------- ------------- Income (loss) from operations...................................................... (108,145) 3,010,721 Other income (expense): Interest income.................................................................. 170,214 164,408 Interest expense................................................................. (33,772) (32,341) Other non-operating income....................................................... 84,311 461,226 ------------- ------------- Income before provision for income taxes........................................... 112,608 3,604,014 Provision for income taxes......................................................... 272,100 1,766,000 ------------- ------------- Net income (loss).................................................................. $ (159,492) $ 1,838,014 ------------- ------------- ------------- ------------- Basic earnings (loss) per common share............................................. $ (0.01) $ 0.11 ------------- ------------- ------------- ------------- 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 OPERATIONS
SIX MONTHS ENDED JUNE 30, ---------------------------- 1998 1999 ------------- ------------- Revenues: Transaction...................................................................... $ 16,985,333 $ 28,819,200 Software licensing and maintenance............................................... 7,521,062 5,010,309 Consulting services.............................................................. 3,941,903 7,753,670 ------------- ------------- Total revenues............................................................... 28,448,298 41,583,179 ------------- ------------- Cost of revenues: Transaction...................................................................... 10,119,916 14,077,854 Software licensing and maintenance............................................... 2,503,813 1,964,032 Consulting services.............................................................. 2,450,422 3,797,620 ------------- ------------- Total cost of revenues....................................................... 15,074,151 19,839,506 ------------- ------------- Gross profit....................................................................... 13,374,147 21,743,673 ------------- ------------- Operating expenses: Development...................................................................... 4,721,671 5,738,987 Sales and marketing.............................................................. 3,671,242 4,043,657 General and administrative....................................................... 4,465,657 5,571,618 Amortization of goodwill and acquired workforce.................................. 1,491,115 696,514 ------------- ------------- Total operating expenses..................................................... 14,349,685 16,050,776 ------------- ------------- Income (loss) from operations...................................................... (975,538) 5,692,897 Other income (expense): Interest income.................................................................. 399,181 319,086 Interest expense................................................................. (99,612) (74,062) Other non-operating income....................................................... 123,333 469,302 ------------- ------------- Income (loss) before provision for income taxes.................................... (552,636) 6,407,223 Provision for income taxes......................................................... 329,000 3,140,000 ------------- ------------- Net income (loss).................................................................. $ (881,636) $ 3,267,223 ------------- ------------- ------------- ------------- Basic earnings (loss) per common share............................................. $ (0.06) $ 0.20 ------------- ------------- ------------- ------------- Diluted earnings (loss) per common share........................................... $ (0.06) $ 0.19 ------------- ------------- ------------- -------------
See notes to unaudited condensed consolidated financial statements. 5 LIGHTBRIDGE, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, ---------------------------- 1998 1999 ------------- ------------- Cash Flows From Operating Activities: Net income (loss)................................................................ $ (881,636) $ 3,267,223 Gain on sale of investment....................................................... -- (414,725) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization.................................................. 5,223,389 4,337,383 Changes in assets and liabilities: Accounts receivable and other current assets................................. (1,605,417) 1,964,040 Other assets................................................................. (1,048,621) 344,216 Accounts payable and accrued liabilities..................................... (2,421,376) 1,776,831 Deferred revenues............................................................ 290,405 549,525 Other liabilities............................................................ 408,436 (55,067) ------------- ------------- Net cash (used in) provided by operating activities.............................. (34,820) 11,769,426 ------------- ------------- Cash Flows From Investing Activities: Principal payment--note receivable from officer................................ 20,000 15,328 Purchases of property and equipment............................................ (1,933,661) (3,629,603) Proceeds from sale of investment............................................... -- 550,378 ------------- ------------- Net cash used in investing activities............................................ (1,913,661) (3,063,897) ------------- ------------- Cash Flows From Financing Activities: Principal payments on notes payable............................................ (527,603) (377,508) Principal payments under capital lease obligations............................. (174,415) (37,636) Proceeds from issuance of common stock......................................... 316,377 235,147 Proceeds from exercise of warrants............................................. -- 125,000 ------------- ------------- Net cash used in financing activities............................................ (385,641) (54,997) ------------- ------------- Net (decrease) increase in cash and cash equivalents............................... (2,334,122) 8,650,532 Cash and cash equivalents, beginning of period..................................... 15,715,726 16,436,995 ------------- ------------- Cash and cash equivalents, end of period........................................... $ 13,381,604 $ 25,087,527 ------------- ------------- ------------- -------------
See notes to unaudited condensed consolidated financial statements. 6 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 (the "Company"). The Company believes that the unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the Company'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 the Company's annual financial statements have been omitted, the Company 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 the Company's Annual Report on Form 10-K for the year ended December 31, 1998. 2. SIGNIFICANT ACCOUNTING POLICIES: REVENUE RECOGNITION The Company generates revenues from processing qualification and activation transactions, licensing software and related maintenance, and rendering services (including business advisory, customization and integration, deployment, and optimization services). Historically, hardware was sold in conjunction with certain software licenses. The Company's transaction processing agreements typically provide for fees, payable based on the number of transactions processed. The Company's software license agreements typically provide for an initial license fee and annual maintenance, as well as, in certain cases, additional license and maintenance fees for net subscriber additions. The Company's consulting agreements typically are on a time and materials basis. Revenues from processing of transactions generally are recognized in the period when services are performed. Revenues from software license sales are recognized when persuasive evidence of an arrangement exists, delivery of the product has been made, the fee is fixed and collectibility has been determined. To the extent that obligations exist for other services, the Company allocates revenues between the license and the services based upon their relative fair value. Revenues from maintenance support agreements are deferred and recognized ratably over the term of the agreements. Revenues from consulting and other services are recognized as those services are rendered. EARNINGS PER SHARE Basic earnings per share is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if outstanding dilutive options and warrants were exercised and resulted in the issuance of common stock. A reconciliation of the denominators of the basic and diluted earnings per share computations is shown below:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------------- -------------------------- 1998 1999 1998 1999 ------------ ------------ ------------ ------------ Shares for basic earnings per share...................... 15,798,486 16,115,364 15,752,223 16,037,421 Effect of dilutive options and warrants.................. -- 1,469,221 -- 1,334,152 ------------ ------------ ------------ ------------ Shares for diluted earnings per share.................... 15,798,486 17,584,585 15,752,223 17,371,573 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
7 Stock options and warrants convertible into common stock were excluded from shares for diluted earnings per share for the three and six months ended June 30, 1998 because they were anti-dilutive. Had such shares been included, shares for dilutive earnings per share would have increased by approximately 1,800,000 and 2,000,000 shares for the three and six months ended June 30, 1998, respectively. No adjustments were made to net income in computing diluted earnings per share. RECENT ACCOUNTING PRONOUNCEMENTS In December 1998, the AICPA released Statement of Position No. 98-9 ("SOP 98-9") "Modification of SOP 97-2 'Software Revenue Recognition' with Respect to Certain Transactions" which the Company adopted January 1, 1999. Retroactive application is prohibited. The adoption of SOP 98-9 did not have a material effect on its consolidated financial position or results of operations of the Company. RECLASSIFICATIONS Certain reclassifications have been made to the 1998 financial statements to conform with the 1999 presentation. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THIS FORM 10-Q CONTAINS "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934. ANY STATEMENTS CONTAINED HEREIN THAT ARE NOT STATEMENTS OF HISTORICAL FACT MAY BE DEEMED TO BE FORWARD-LOOKING STATEMENTS. WITHOUT LIMITING THE FOREGOING, THE WORDS "BELIEVES," "ANTICIPATES," "PLANS," "EXPECTS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THE FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE AND ACHIEVEMENTS OF LIGHTBRIDGE, INC. TO DIFFER MATERIALLY FROM THOSE INDICATED BY THE FORWARD-LOOKING STATEMENTS. ACTUAL RESULTS MAY VARY SIGNIFICANTLY BASED ON A NUMBER OF FACTORS, INCLUDING (A) CONTINUING RAPID CHANGE IN THE TELECOMMUNICATIONS INDUSTRY THAT MAY AFFECT BOTH LIGHTBRIDGE AND ITS CLIENTS, (B) UNCERTAINTIES ASSOCIATED WITH LIGHTBRIDGE'S ABILITY TO DEVELOP NEW PRODUCTS AND TECHNOLOGIES, (C) MARKET ACCEPTANCE OF LIGHTBRIDGE'S NEW PRODUCTS AND CONTINUING DEMAND FOR LIGHTBRIDGE'S PRODUCTS BY TELECOMMUNICATIONS COMPANIES, (D) THE IMPACT OF COMPETITIVE PRODUCTS AND PRICING ON BOTH LIGHTBRIDGE AND ITS CLIENTS AND (E) CHANGING ECONOMIC CONDITIONS. Unless the context otherwise requires, "Lightbridge" and the "Company" refer collectively to Lightbridge and its subsidiaries. CHANNEL WIZARD, CHURN PROPHET, and FRAUDBUSTER are registered trademarks of Lightbridge, and ALIAS, @RISK, CUSTOMER ACQUISITION SYSTEM, LIGHTBRIDGE, the Lightbridge logo, and RETAIL MANAGEMENT SYSTEM are trademarks of Lightbridge. All other trademarks or trade names appearing in this Form 10-Q are the property of their respective owners. OVERVIEW Lightbridge develops, markets and supports a network of integrated products and services that enable telecommunications carriers to improve their customer acquisition, retention and fraud prevention processes. Lightbridge's transaction revenues are derived primarily from the processing of applications for qualification of subscribers for wireless telecommunications services and the activation of service for those subscribers. Over time, the Company has expanded its offerings from credit evaluation services to include screening for subscriber fraud, evaluating carriers' existing accounts, interfacing with carrier and third-party systems and providing call center services. These services are provided pursuant to contracts with carriers which specify the services to be utilized and the markets to be served. The Company's clients are charged for these services on a per-transaction basis. Pricing varies depending primarily on the volume of transactions, the type and number of other products and services selected for integration with the services and the term of the contract under which services are provided. The volume of processed transactions 8 varies depending on seasonal and retail trends, the success of the carriers utilizing the Company's services in attracting subscribers and the markets served by the Company's clients. Revenues generally are recognized in the period in which the services are performed. The Company's software licensing and maintenance revenues consist of revenues attributable to the licensing of the Company's Channel Solutions, Customer Management and Fraud Management software. Lightbridge's Channel Solutions products are designed to assist customers in interfacing with the Company's transaction processing systems as well as to provide other point-of-sale and distribution channel functionality. The Company's Customer Management products are designed to help carriers analyze their marketplaces to improve their business operations. The Company's Fraud Management products are designed to assist carriers in monitoring subscriber accounts to identify activity that may indicate fraud. While the Company's software products are licensed as packaged software products, each of these products generally requires insignificant customization and integration with other products and systems to varying degrees. Revenues are recognized when persuasive evidence of an arrangement exists, delivery of the product has been made, the fee is fixed and collectibility has been determined. Revenues from software maintenance contracts are recognized ratably over the term of the maintenance agreement. Prior to the second quarter of 1998, the Company's consulting services revenues were derived principally from providing consulting for customer acquisition and retention. During the second quarter of 1998, the Company launched Lightbridge Consulting Services, which provides business advisory, customization and integration, deployment, and optimization services in the areas of customer acquisition and retention, fraud prevention and distribution management. Revenues from consulting services are generally recognized as the services are performed, using the percentage-of-completion method, measured by labor hours. During the first six months of 1999, the Company continued its efforts to complete development of in-process technology obtained through Lightbridge's acquisition of Coral Systems, Inc. in November 1997. The Company is continuing to develop a new version of FraudBuster that is expected to contain substantial enhancements in performance, scalability and functionality and is currently scheduled to be released in the fourth quarter of 1999. The Company is also continuing to develop Alias and @Risk, which will be complementary to FraudBuster and will contain new subscription fraud detection tools. These products are scheduled to be deployed in a phased introduction during the third and fourth quarters of 1999. If the Company is unsuccessful in completing these projects on schedule, the Company's business, financial condition, results of operations and cash flows could be materially adversely affected. Substantially all of the Company's revenues historically have been derived from clients located in the United States, and the Company expects that domestic sales will continue to account for more than 90% of its revenues during 1999. 9 RESULTS OF OPERATIONS
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------- -------------------- 1998 1999 1998 1999 --------- --------- --------- --------- Revenues: Transaction services..................................................... 60.3% 66.3% 59.7% 69.3% Software licensing and maintenance....................................... 22.5 14.2 26.4 12.1 Consulting services...................................................... 17.2 19.5 13.9 18.6 --------- --------- --------- --------- Total revenues........................................................... 100.0 100.0 100.0 100.0 --------- --------- --------- --------- Cost of revenues:.......................................................... Transaction services..................................................... 33.8 33.5 35.6 33.9 Software licensing and maintenance....................................... 7.5 4.6 8.8 4.7 Consulting services...................................................... 11.2 9.7 8.6 9.1 --------- --------- --------- --------- Total cost of revenues................................................... 52.5 47.8 53.0 47.7 --------- --------- --------- --------- Gross profit............................................................... 47.5 52.2 47.0 52.3 --------- --------- --------- --------- Operating expenses: Development.............................................................. 16.0 14.6 16.6 13.8 Sales and marketing...................................................... 11.3 9.2 12.9 9.7 General and administrative............................................... 15.9 13.3 15.7 13.4 Amortization of goodwill and acquired workforce.......................... 5.0 1.6 5.2 1.7 --------- --------- --------- --------- Total operating expenses................................................. 48.2 38.7 50.4 38.6 --------- --------- --------- --------- Income (loss) from operations.............................................. (0.7) 13.5 (3.4) 13.7 Other income, net.......................................................... 1.4 2.7 1.5 1.7 --------- --------- --------- --------- Income (loss) before provision for income taxes............................ 0.7 16.2 (1.9) 15.4 Provision for income taxes................................................. 1.8 7.9 1.2 7.6 --------- --------- --------- --------- Net income (loss).......................................................... (1.1)% 8.3% (3.1)% 7.8% --------- --------- --------- --------- --------- --------- --------- ---------
THREE MONTHS ENDED JUNE 30, 1999 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1998 REVENUES. Revenues increased by 46.8% to $22.2 million in the three months ended June 30, 1999 from $15.1 million in the three months ended June 30, 1998. Transaction revenues increased by 61.5% to $14.7 million in the three months ended June 30, 1999 from $9.1 million in the three months ended June 30, 1998, while increasing as a percentage of total revenues to 66.3% from 60.3%. The dollar increase in transaction revenues for the three months ended June 30, 1999 was primarily due to increased volume of qualification and activation transactions processed for carrier clients. The Company believes that its transaction-based activities benefited directly from client promotional activities generally attributable to the current competitve market for wireless services. The increase in transaction revenues as a percentage of total revenues for the three months ended June 30, 1999 principally resulted from the increase in transaction revenue and a decrease in software licensing revenues during the period. The Company believes that its transaction revenues for the remainder of 1999 will not increase at the same rate as they did in 1998. In addition, the Company believes that transaction revenues in the third quarter of 1999 may not increase over the second quarter of 1999, in part due to seasonal effects. The Company's transaction revenues will continue to reflect in large part the industry's rate of growth of new subscribers. The Company believes, based in part on reports of wireless telecommunication industry analysts, that the rate of subscriber growth will slow in upcoming years. The rate of growth in the Company's transaction revenues in 1998 reflected revenues from a number of major PCS carriers that 10 began operating in late 1997 and in 1998; the Company does not expect that revenues from these PCS carriers will continue to increase at the same rate as they did in 1998. Software licensing and maintenance revenues decreased by 7.3% to $3.2 million in the three months ended June 30, 1999 from $3.4 million in the three months ended June 30, 1998, while decreasing as a percentage of total revenues to 14.2% from 22.5%. Both the dollar decrease and the decrease as a percentage of total revenues in software licensing and maintenance revenues were principally a result of the decrease in revenues attributable to the Company's Fraud Management product. The Company currently anticipates that its software licensing and maintenance revenues in 1999 will approximate those in 1998, as the Company continues to integrate its Fraud Management products with its other offerings and to build its international sales capability. See "Overview" above. Actual results for 1999 will, however, be subject to a number of uncertainties, some of which are not within the Company's control. In particular, the Company believes that software licensing revenues at least through 1999 will be subject to fluctuation and will be more difficult to anticipate than the Company's other types of revenues, principally due to the relatively large dollar magnitude and relatively long sales cycles of the software licenses. The sales cycles for domestic software licenses generally extend from three to six months and may extend as long as twelve months; sales cycles for software licenses sold to international clients often are longer. The predictability of software licensing revenue is further impeded because the Company's licensed software is a discretionary purchase for most customers. As a result of the foregoing, a small number of licensing transactions may have a significant effect on the Company's software licensing revenues in a quarter. Consulting services revenues increased by 66.3% to $4.3 million in the three months ended June 30, 1999 from $2.6 million in the three months ended June 30, 1998, while increasing as a percentage of total revenues to 19.5% from 17.2%. The dollar increase in consulting services revenues for the three months ended June 30, 1999 was principally due to increased demand for the consulting services offered by the Company. The increase in consulting services revenue as a percentage of total revenues for the three months ended June 30, 1999 principally resulted from an increase in consulting services revenues and a decrease in software licensing revenues for the same period. The Company is continuing to standardize its consulting services offerings and to build its consulting capabilities. Its consulting business continues to become less concentrated, with consulting work being performed on over 75 projects for nearly 40 clients during the three months ended June 30, 1999. In the year ended December 31, 1998, three customers accounted for 10% or more of the Company's total revenues. Lightbridge believes that its relationships with these customers are good and continues to make efforts to diversify its customer base. COST OF REVENUES. Cost of revenues consists primarily of personnel costs, costs of maintaining systems and networks used in processing qualification and activation transactions (including depreciation and amortization of systems and networks) and amortization of capitalized software and acquired technology. Cost of revenues may vary as a percentage of total revenues in the future as a result of a number of factors, including changes in the mix of transaction revenues between revenues from on-line transaction processing and revenues from processing transactions through the Company's Teleservices Group and changes in the mix of total revenues among transaction revenues, software licensing and maintenance revenues, and consulting services revenues. Transaction cost of revenues increased by 45.7% to $7.5 million in the three months ended June 30, 1999 from $5.1 million in the three months ended June 30, 1998, while decreasing as a percentage of total transaction revenues to 50.6% from 56.1%. The increase in transaction cost of revenues for the three months ended June 30, 1999 resulted principally from increases in transaction volume and costs attributable to expansion of the Company's staff and systems capacity. The decrease in transaction cost of revenues as a percentage of total transaction revenues for the three months ended June 30, 1999 11 principally resulted from an increase in the number of transactions processed compared to the same period of the prior year. Software licensing and maintenance cost of revenues decreased by 11.3% to $1.0 million in the three months ended June 30, 1999 from $1.1 million in the three months ended June 30, 1998, and also decreased as a percentage of total software licensing and maintenance revenues to 32.1% from 33.5%. Both the dollar decrease and the decrease as a percentage of total software licensing and maintenance revenues in software licensing and maintenance cost of revenues for the three months ended June 30, 1999 were primarily due to a decrease in amortization expense of acquired technology. Consulting services cost of revenues increased by 28.4% to $2.2 million in the three months ended June 30, 1999 from $1.7 million in the three months ended June 30, 1998, while decreasing as a percentage of total consulting revenues to 49.8% from 64.5%. The dollar increase in consulting services cost of revenues was attributable primarily to the increase in consulting staff due to the expansion of the consulting services group. The Company expects to continue hiring consulting staff during the remainder of 1999. The decrease in consulting services cost of revenues as a percentage of total consulting services revenues for the three months ended June 30, 1999 was principally from the growth in total consulting services revenues as well as a higher utilization of consulting resources during the same period. The Company expects fluctuations in gross profit may occur primarily due to fluctuations in revenue generated from the Company's three revenue components, particularly revenues from software licensing which have historically generated higher gross profit margins. DEVELOPMENT. Development expenses include software development costs consisting primarily of personnel and outside technical services costs related to developing new products and services, enhancing existing products and services, and implementing and maintaining new and existing products and services. Development expenses increased by 33.5% to $3.2 million in the three months ended June 30, 1999 from $2.4 million in the three months ended June 30, 1998, while decreasing as a percentage of total revenues to 14.6% from 16.0%. The increase in costs for the three months ended June 30, 1999 resulted primarily from the addition of engineering personnel necessary to support the Company's product development plans. Included in these development efforts were the development of an enhanced version of its Fraud Management software product, FraudBuster, the continued enhancement of its Customer Acquisition System and development of its Fraud Management software products, Alias and @Risk. The decrease in development expenses as a percentage of total revenues for the three months ended June 30, 1999 was principally due to total revenues increasing at a greater rate than total development expenses during the same period. The Company expects to continue to increase its engineering and development efforts in order to continue enhancing its existing products and services, including its Channel Solutions, Churn and Fraud Management products and services, as well as to develop new products and services. As a result, the Company expects that its development expenses, as a percentage of total revenues, will be slightly higher during the last six months of 1999 as compared to the first six months of 1999. SALES AND MARKETING. Sales and marketing expenses consist primarily of salaries, commissions and travel expenses of direct sales and marketing personnel, as well as costs associated with advertising, trade shows and conferences. Sales and marketing expenses increased by 18.9% to $2.0 million in the three months ended June 30, 1999 from $1.7 million in the three months ended June 30, 1998, while decreasing as a percentage of total revenues to 9.2% from 11.3%. Sales and marketing dollars increased due to the continued investment in sales and marketing efforts, both domestically and internationally, in order to increase penetration of existing accounts and to add new clients and markets. The decrease in sales and marketing expense as a percentage of total revenues for the three months ended June 30, 1999 was principally due to the rate of growth in total revenues during the period. The Company expects to continue to invest in sales and marketing efforts, both domestically and internationally, in order to increase its penetration of existing accounts and to add new clients and markets. 12 GENERAL AND ADMINISTRATIVE. General and administrative expenses consist principally of salaries of executive, finance, human resources and administrative personnel and fees for outside professional services. General and administrative expenses increased by 22.7% to $3.0 million in the three months ended June 30, 1999 from $2.4 million in the three months ended June 30, 1998, while decreasing as a percentage of total revenues to 13.3% from 15.9%. The dollar increase was primarily due to increased professional and recruiting fees. The decrease in general and administrative expenses as a percentage of total revenues for the three months ended June 30, 1999 was principally due to the rate of growth in total revenues. The Company expects that its general and administrative expenses will not significantly change for the remainder of 1999. AMORTIZATION OF GOODWILL AND ACQUIRED WORKFORCE. Amortization of goodwill and acquired workforce consists of amortization expense of certain acquired intangible assets from the acquisition of Coral Systems, Inc. Amortization of goodwill and acquired workforce expense decreased by 53.3% to $348,000 in the three months ended June 30, 1999 from $746,000 in the three months ended June 30, 1998 and also decreased as a percentage of total revenues to 1.6% from 5.0%. Both the dollar decrease and the decrease as a percentage of total revenues were due to a decrease in goodwill amortization expense during the three months ended June 30, 1999 as a result of the goodwill impairment charge taken by the Company in the fourth quarter of 1998. OTHER INCOME, NET. Other income, net in the three months ended June 30, 1999 consisted predominantly of interest income and expense and a nonrecurring gain on the sale of investments of $415,000. Interest expense consists of interest, commitment fees and other similar fees payable with respect to the Company's bank lines of credit, subordinated notes and capital leases. Interest income remained the same at approximately $170,000 in the three months ended June 30, 1999 and 1998. Interest expense remained constant at approximately $33,000 for the three months ended June 30, 1999 and 1998. Interest income for the three months ended June 30, 1999 reflected a tax-adjusted average rate of return of approximately 4.8%. PROVISION FOR INCOME TAXES. The Company's effective tax rate was 49.0% and 241.6% for the three months ended June 30, 1999 and 1998, respectively. The relatively high effective tax rate for both years results in part from goodwill and acquired intangible assets attributable to the Company's acquisition of Coral; the amortization of this goodwill and acquired intangible assets is recognized as an expense for accounting purposes, but is not deductible for tax purposes. The substantially higher effective tax rate for the three months ended June 30, 1998 was primarily due to significantly higher amortization expense for goodwill and certain acquired intangible assets that is not deductible for income tax purposes during the three months ended June 30, 1998 compared to the three months ended June 30, 1999. This amortization expense was lower during the three months ended June 30, 1999 due to the write-down of goodwill and certain acquired intangible assets at December 31, 1998. Since the goodwill and acquired intangible assets attributable to the Coral acquisition will continue to be amortized at various rates through the quarter ending December 31, 2002, the Company anticipates that its effective tax rate will continue to be relatively high during that period. The actual effective tax rate for 1999 may vary significantly from the Company's estimates as the result of a number of factors, including any and all factors that cause the Company's actual revenues for those years to vary from the Company's internal estimates. SIX MONTHS ENDED JUNE 30, 1999 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1998 REVENUES. Revenues increased by 46.2% to $41.6 million in the six months ended June 30, 1999 from $28.4 million in the six months ended June 30, 1998. 13 Transaction revenues increased by 69.7% to $28.8 million in the six months ended June 30, 1999 from $17.0 million in the six months ended June 30, 1998. The increase in transaction revenues for the six months ended June 30, 1999 was primarily due to increased volume of qualification and activation transactions processed for carrier clients. Software licensing and maintenance revenues decreased by 33.4% to $5.0 million in the six months ended June 30, 1999 from $7.5 million in the six months ended June 30, 1998. The decrease in software licensing revenues for the six months ended June 30, 1999 was principally a result of the decrease in revenues attributable to the Company's Fraud Management products. Consulting services revenues increased by 96.7% to $7.8 million in the six months ended June 30, 1999 from $3.9 million in the six months ended June 30, 1998. The increase in consulting services revenues for the six months ended June 30, 1999 was principally due to an increased demand for the consulting services offered by the Company. COST OF REVENUES. Transaction cost of revenues increased by 39.1% to $14.1 million in the six months ended June 30, 1999 from $10.1 million in the six months ended June 30, 1998, while decreasing as a percentage of total transaction revenues to 48.8% from 59.6%. The increase in transaction cost of revenues for the six months ended June 30, 1999 resulted principally from increases in transaction volume and costs attributable to expansion of the Company's staff and systems capacity. The decrease in transaction cost of revenues as a percentage of total transaction revenues for the six months ended June 30, 1999 principally resulted from an increase in the number of transactions processed compared to the same period in the prior year. Software licensing and maintenance cost of revenues decreased by 21.6% to $2.0 million in the six months ended June 30, 1999 from $2.5 million in the six months ended June 30, 1998, while increasing as a percentage of total software licensing and maintenance revenues to 39.2% from 33.3%. The dollar decrease in software licensing and maintenance cost of revenues for the six months ended June 30, 1999 was primarily due to the decreased amortization expense for certain acquired intangible assets. The increase in software licensing and maintenance cost of revenues as a percentage of total software licensing and maintenance revenues for the six months ended June 30, 1999 principally resulted from a higher percentage of software maintenance revenues during that period when compared to the same period in the prior year. The software maintenance component of software licensing and maintenance revenues generally has lower margins than the software licensing component. Consulting services cost of revenues increased by 55.0% to $3.8 million in the six months ended June 30, 1999 from $2.5 million in the six months ended June 30, 1998, while decreasing as a percentage of total consulting services revenues to 49.0% from 62.2%. The dollar increase in consulting services cost of revenues was primarily due to the increase in consulting staff due to the expansion of the consulting services group. The decrease in consulting services cost of revenues as a percentage of total consulting services revenues for the six months ended June 30, 1999 principally resulted from the growth in total consulting services revenues as well as a higher utilization of consulting resources during the same period. DEVELOPMENT. Development expenses increased by 21.5% to $5.7 million in the six months ended June 30, 1999 from $4.7 million in the six months ended June 30, 1998. The increase in costs for the six months ended June 30, 1999 resulted primarily from the addition of engineering personnel necessary to support the Company's product development plans. SALES AND MARKETING. Sales and marketing expenses increased by 10.2% to $4.0 million in the six months ended June 30, 1999 from $3.7 million in the six months ended June 30, 1998. The increase for the six months ended June 30, 1999 was 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. This increase was offset in part by the reallocation during the six months ended June 30, 1998 of certain personnel and related expenses to Lightbridge Consulting Services. 14 GENERAL AND ADMINISTRATIVE. General and administrative expenses increased by 24.8% to $5.6 million in the six months ended June 30, 1999 from $4.5 million in the six months ended June 30, 1998. The increase for the six months ended June 30, 1999 was primarily due to increased professional and recruiting fees. AMORTIZATION OF GOODWILL AND ACQUIRED WORKFORCE. Amortization of goodwill and acquired workforce expense decreased by 114.1% to $0.7 million in the six months ended June 30, 1999 from $1.5 million in the six months ended June 30, 1998. The decrease in amortization of goodwill and acquired workforce was due to the goodwill impairment charge taken by the Company in the fourth quarter of 1998. OTHER INCOME, NET. Other income, net in the six months ended June 30, 1999 consisted of interest income, interest expense and a nonrecurring gain on the sale of investments of $415,000. Interest expense remained constant at approximately $100,000 for the six months ended June 30, 1999 and 1998. Interest income decreased to $319,000 in the six months ended June 30, 1999 from $399,000 in the six months ended June 30, 1998 due to a change in the Company's investment mix during the six months ended June 30, 1999. PROVISION FOR INCOME TAXES. During the six months ended June 30, 1999, the Company's effective tax rate was 49.0%. During the six months ended June 30, 1998, the Company recorded tax provisions of $329,000 despite a pre-tax loss of $552,000 due primarily to the impact of nondeductible amortization. LIQUIDITY AND CAPITAL RESOURCES During the first six months of 1999 the Company generated cash flows from operating activities of $11.8 million and used cash of $3.1 million and $55,000 in investing and financing activities, respectively. The Company's capital expenditures totalled $2.8 million and $3.6 million, respectively, for the three and six months ended June 30, 1999 and $660,000 and $1.9 million, respectively, for the three and six months ended June 30, 1998. The capital expenditures during these periods consisted of purchases of fixed assets, principally for the Company's services delivery infrastructure and computer equipment for development activities and additional personnel added during these periods. The Company currently estimates that its capital expenditures for the remainder of 1999 will total approximately $4.9 million to $5.9 million, although the actual amount of those expenditures may vary significantly, depending upon, among other things, the extent to which the Company determines to update the capacity of its data center and to acquire additional computer equipment. The Company leases its facilities and certain equipment under non-cancelable capital and operating lease agreements that expire at various dates through December 2002. The Company has a $5.0 million working capital line of credit and a $3.0 million equipment line of credit with a bank. The working capital line of credit is secured by a pledge of the Company's accounts receivable, equipment and intangible assets, and borrowing availability is based on the amount of qualifying accounts receivable. Advances under the working capital line of credit and equipment line of credit bear interest at the bank's prime rate (7.75% at June 30, 1999). The working line of credit also provides for the issuance of letters of credit, which reduce the amount that may be borrowed under the line of credit and are limited to $1,250,000 in the aggregate. At June 30, 1999, there were no borrowings outstanding under the working capital line of credit or the equipment line of credit. The Company's agreements with the bank contain covenants that, among other things, prohibit the declaration or payment of dividends and require the Company to maintain certain financial ratios which the Company believes are not restrictive to its business operations. The working capital line of credit expires in June 2000 and the equipment line of credit expires in June 2001. Lightbridge considers earnings before interest, taxes, depreciation, and amortization ("EBITDA") to be meaningful given the impact on operating income from non-cash expenses such as depreciation of property and equipment and the amortization of intangible assets. EBITDA and after-tax cash flow should 15 not be considered in isolation from, or as a substitute for, operating income, net income or cash flow and other consolidated income or cash flow statement data computed in accordance with generally accepted accounting principles or as a measure of Lightbridges' profitability or liquidity. Although these measures of performance are not calculated in accordance with generally accepted accounting principles, Lightbridge believes they are widely used in the telecommunications industry as a measure of a company's operating performance because they assist in comparing companies on a more consistent basis without regard to depreciation and amortization which can vary significantly depending on accounting methods (particularly when acquisitions are involved). EBITDA increased by 139.8% to $5.2 million in the three months ended June 30, 1999, from $2.2 million in the three months ended June 30, 1998. For the six months ended June 30, 1999, EBITDA increased 136.1% to $10.0 million from $4.2 million for the six months ended June 30, 1998. Both the increases for the three and six months ended June 30, 1999 resulted primarily from an increase in operating income and a decrease in total depreciation and amortization expense. As of June 30, 1999, the Company had cash and cash equivalents of $25.1 million and working capital of $29.5 million. The Company believes that the current cash balances and funds available under existing lines of credit, together with cash flows provided by operations, will be sufficient to finance the Company's operations and capital expenditures for at least the next twelve months. YEAR 2000 IMPACT ON INFORMATION TECHNOLOGY COSTS Many companies' currently installed computer systems and software products are coded to accept only two digit year entries in date coded fields, potentially with the incorrect assumption of 1900 as the century. To eliminate date ambiguity, these date coded fields need to accept four digit entries, or utilize a consistent, predictable technique to distinguish twenty-first century dates from twentieth century dates. In addition, four digit year dates must be stored in database or file fields, regardless of the entry of two digit years. As a result, in less than six months, computer systems and software used by many companies may need to be upgraded to comply with these "Year 2000" requirements. Significant uncertainty exists in the software industry concerning the potential effects associated with such compliance. Lightbridge has been actively involved in addressing Year 2000 issues since early 1997. Lightbridge believes that its software products are generally Year 2000 compliant, meaning that the use or occurrence of dates after January 1, 2000 will not materially affect the performance of Lightbridge's software products with respect to date dependent data, or the ability of such products to correctly create, store, process and output information related to such date data. The Company is continuing its testing and modification efforts relating to its software products. There can be no assurance that Lightbridge's software products contain all necessary software routines and codes necessary for the accurate calculation, display, storage and manipulation of data involving dates. The Company may be required to make significant expenditures in connection with the on-going design and testing of its software-based services and products and interfaces to third-party systems for Year 2000 compatibility, and any related modifications or other development work that may be required to cause those services and products to be Year 2000 compatible. In addition, in certain circumstances, Lightbridge has warranted that the use or occurrence of dates on or after January 1, 2000 will not adversely affect the performance of Lightbridge's products with respect to date dependent data or the ability to create, store, process and output information related to such data. If any of Lightbridge's clients experience Year 2000 problems, such clients could assert claims for damages against Lightbridge. Lightbridge's agreements with clients in most cases limit liability to prevent unlimited exposure from such claims. Lightbridge has completed an inventory and review of the Year 2000 compliance status of the software and systems considered critical to its service bureau operations and its internal business, and has been obtaining appropriate assurances of compliance from manufacturers of such software and systems and agreements to modify or replace all non-compliant products. In addition, Lightbridge is converting certain of its software and systems to commercial products that are known to be Year 2000 compliant. Implementation of software products of third parties, however, will require the dedication of substantial 16 administrative and management information resources, the assistance of consulting personnel from third party software vendors and the training of Lightbridge's personnel using such systems. Based on the information available to date, Lightbridge believes it has made the necessary modifications to its service bureau systems, back office software and other systems considered critical to Lightbridge's business. Nevertheless, particularly to the extent Lightbridge is relying on the products of other vendors to resolve Year 2000 issues, there can be no assurance that Lightbridge will not experience delays in completing the resolution of such issues. If a key system, or a significant number of systems, were to fail as a result of software products that were not Year 2000 compliant, Lightbridge could incur substantial costs and experience disruption of its business, which could have a material adverse effect on Lightbridge's business, financial condition, results of operations and cash flows. Lightbridge believes that it has substantially completed its Year 2000 procedures with respect to its software products, service bureau systems, and internal business software and systems. Lightbridge has not separately tracked the costs incurred for investigating and remedying issues related to Year 2000 compliance, and all of the costs have been internal. Lightbridge currently estimates that it will spend approximately $600,000 on Year 2000 testing and compliance during 1999, of which it spent approximately $500,000 in the first six months of 1999. There can be no assurance that Company resources spent on investigating and remedying Year 2000 issues will not have a material adverse effect on Lightbridge's business, financial condition, results of operations and cash flows. Year 2000 issues may affect the purchasing patterns of clients and potential clients. Certain clients may elect to forego purchasing new software products until after January 1, 2000. In addition, many companies are expending significant resources to correct their current software systems for Year 2000 compliance. These expenditures may adversely affect the amount or timing of funds available to purchase software products or consulting services such as those offered by Lightbridge, which could have an adverse effect on Lightbridge's business, financial condition, results of operations and cash flows. The foregoing is a Year 2000 readiness disclosure within the meaning of the Year 2000 Information and Readiness Disclosure Act. INFLATION Although certain of the Company's expenses increase with general inflation in the economy, inflation has not had a material impact on the Company's financial results to date. RECENT ACCOUNTING PRONOUNCEMENTS In December 1998, the AICPA released Statement of Position No. 98-9 ("SOP 98-9") "Modification of SOP 97-2 'Software Revenue Recognition' with Respect to Certain Transactions" which the Company adopted January 1, 1999. The adoption of SOP 98-9 did not have a material effect on its consolidated financial position or results of operations of the Company. ITEM 3. QUANTITATIVE AND QUALITATIVE MARKET RISK DISCLOSURES The market risk exposure inherent in the Company's financial instruments and consolidated financial position represents the potential losses arising from adverse changes in interest rates. The Company is exposed to such interest rate risk primarily in its significant investment in cash and cash equivalents and the use of fixed- and variable-rate debt to fund its acquisitions of property and equipment in past years. Market risk for cash and cash equivalents and fixed-rate borrowings is estimated as the potential change in the fair value of the assets or obligations resulting from a hypothetical ten percent adverse change in interest rates, which would not have been significant to the Company's financial position or results of operations during 1999. The effect of a similar hypothetical change in interest rates on the 17 Company's variable-rate debt also would have been insignificant due to the immaterial amounts of borrowings outstanding under the Company's credit arrangements. For additional information about the Company's financial instruments and debt obligations, see Notes to Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended December 31, 1998. PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company held a Special Meeting in Lieu of Annual Meeting of Stockholders on June 9, 1999 at which Torrence C. Harder and Pamela D.A. Reeve were re-elected as Class III directors. Mr. Harder and Ms. Reeve received 14,179,559 and 14,177,884 votes for re-election, respectively, 25,700 and 27,375 votes were withheld, respectively, and there were no abstentions or broker non-votes. The other directors of the Company consist of (i) Debora J. Wilson, who is the sole Class I Director and whose term expires in 2000, and (ii) Andrew I. Fillat and D. Quinn Mills, who are Class II Directors and whose terms expire in 2001. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits
NO. DESCRIPTION - --------- ----------------------------------------------------------------------------------------------------------- 10.1 Seventh Loan Modification Agreement dated June 28, 1999 between the Company and Silicon Valley Bank 27.1 Financial Data Schedule for the three months ended June 30, 1999
(b) Reports on Form 8-K The Company did not file any Current Report on Form 8-K during the three months ended June 30, 1999. 18 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. By: /s/ JOSEPH S. TIBBETTS, JR. ----------------------------------------- Joseph S. Tibbetts, Jr. Senior Vice President, Finance & Administration and Chief Financial Officer (Principal Financial and Date: August 13, 1999 Accounting Officer) EX-10.1 2 EXHIBIT 10.1 Exhibit 10.1 SEVENTH LOAN MODIFICATION AGREEMENT This Seventh Loan Modification Agreement is entered into as of June 28, 1999, by and between LIGHTBRIDGE, INC., a Delaware corporation, with its principal place of business at 67 South Bedford Street, Burlington, Massachusetts 01803 (the "Borrower") and SILICON VALLEY BANK, a California-chartered bank ("Bank"), with its principal place of business at 3003 Tasman Drive, Santa Clara, CA 95054 and with a loan production office located at Wellesley Office Park, 40 William Street, Suite 350, Wellesley, MA 02181, doing business under the name "Silicon Valley East". 1. DESCRIPTION OF EXISTING INDEBTEDNESS. Among other indebtedness which may be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to a loan arrangement dated as of June 18, 1996, evidenced by, among other documents, (i) an Amended and Restated Promissory Note dated June 18, 1996 in the original principal amount of Four Million Dollars ($4,000,000.00) (the "Working Capital Note" or "Working Capital Line"), and (ii) a Promissory Note dated June 18, 1996 in the original principal amount of Two Million Dollars ($2,000,000.00) (the "Equipment Note" or "Equipment Line") (hereinafter, individually and collectively, the "Notes"). The Notes are governed by the terms and conditions of a certain Amended and Restated Credit Agreement dated June 18, 1996 between Borrower and Bank, as amended by certain Loan Modification Agreements dated as of August 19, 1996, December 12, 1996, March 5, 1997, June 5, 1997, October 15, 1997, and June 26, 1998 (as amended, the "Loan Agreement"). Capitalized terms used but not otherwise defined herein shall have the same meaning as in the Loan Agreement. Hereinafter, all indebtedness owing by Borrower to Bank shall be referred to as the "Indebtedness". 2. DESCRIPTION OF COLLATERAL. Repayment of the Indebtedness is secured by the Collateral as described in the Loan Agreement, which includes certain Collateral defined in (i) a Security Agreement dated April 1, 1992 by Borrower in favor of Bank, as amended by a First Amendment to Security agreement dated October 5, 1994, and (ii) a Collateral Assignment of Trademarks dated as of October 5, 1994 (together with any other collateral security granted to Bank, the "Security Documents"). Hereinafter, the Security Documents, together with all other documents evidencing or securing the Indebtedness shall be referred to as the "Existing Loan Documents". 3. DESCRIPTION OF CHANGE IN TERMS. A. MODIFICATION(S) TO WORKING CAPITAL NOTE. 1. The maximum principal amount of the Working Capital Note is hereby increased from Four Million Dollars ($4,000,000.00) to Five Million Dollars ($5,000,000.00). B. MODIFICATION(S) TO LOAN AGREEMENT. 1. The Loan Agreement shall be amended by deleting the following definition appearing in Section 1.1 thereof: " "Revolving Maturity Date" means June 4, 1999." and inserting in lieu thereof the following: " "Revolving Maturity Date" means June 27, 2000." 2. The Loan Agreement shall be amended by deleting the following definition appearing in Section 1.1 thereof: " "Committed Revolving Line" means Four Million Dollars ($4,000,000.00)." and inserting in lieu thereof the following: " "Committed Revolving Line" means Five Million Dollars ($5,000,000.00)." 3. The Loan Agreement shall be amended by deleting the first paragraph only of Section 2.1.2 thereof entitled "Letters of Credit" reading as follows with the remaining paragraphs of Section 2.1.2 unaffected hereby: "Subject to the terms and conditions of this Agreement, Bank agrees to issue or cause to be issued Letters of Credit for the account of Borrower in an aggregate face amount not to exceed (i) the lesser of Four Million Dollars ($4,000,000.00) or the Borrowing Base minus (ii) the then outstanding principal balance of the Committed Revolving Line; PROVIDED that the face amount of outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit) shall not in any case exceed One Million Two Hundred Fifty Thousand and 00/100 Dollars ($1,250,000.00). Each such Letter of Credit shall have an expiry date no later than one hundred eighty (180) days after the Maturity Date of the Working Capital Line of Credit Note provided that Borrower's Letter of Credit reimbursement obligation shall be secured by cash on terms acceptable to Bank at any time after the Maturity Date if the term of the Agreement is not extended by Bank. All such Letters of Credit shall be, in form and substance, acceptable to Bank in its sole discretion and shall be subject to the terms and conditions of Bank's form of application and Letter of Credit Agreement." and inserting in lieu thereof the following: "Subject to the terms and conditions of this Agreement, Bank agrees to issue or cause to be issued Letters of Credit for the account of Borrower in an aggregate outstanding face amount not to exceed (i) the lesser of the Committed Revolving Line or the Borrowing Base, minus (ii) the then outstanding principal balance of the Committed Revolving Line; PROVIDED that the face amount of outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit and any Letter of Credit Reserve) shall not in any case exceed One Million Two Hundred Fifty Thousand Dollars and 00/100 ($1,250,000.00). Each Letter of Credit shall have an expiry date no later than one hundred eighty (180) days after the Revolving Maturity Date (with the exception of the Letter of Credit issued by the Bank in favor of SUMITOMO LIFE REALTY (N.Y.) INC. in the original face amount of $1,000,000.00 with a present expiry date of March 14, 2000 which Letter of Credit may extend no later than two hundred eighty days (280) days after the Revolving Maturity Date) provided in that Borrower's Letter of Credit reimbursement obligation shall be secured by cash on terms acceptable to Bank at any time after the Maturity Date if the term of this Agreement is not extended by Bank. All such Letters of Credit shall be, in form and substance, acceptable to Bank in its sole discretion and shall be subject to the terms and conditions of Bank's form of standard Application and Letter of Credit Agreement." 2- 4. The Loan Agreement shall be amended by deleting in its entirety the following text of the fourth paragraph of Section 6.3 entitled "Financial Statements, Reports, Certificates." "Bank shall have a right from time to time hereafter to audit Borrower's Accounts at Borrower's expense, provided that such audits will be conducted no more often than every twelve (12) months unless an Event of Default has occurred and is continuing." and inserting in lieu thereof the following: "Bank shall have a right from time to time hereafter to audit Borrower's Accounts at Borrower's expense, provided that such audits will be conducted no more often than every twelve (12) months unless an Event of Default has occurred and is continuing. Notwithstanding the foregoing, the Borrower's initial Advance under the Committed Revolving Line shall be conditioned upon completion by the Bank of an audit satisfactory to the Bank in its sole discretion." 5. The Borrowing Base Certificate appearing as EXHIBIT B to the Loan Agreement is hereby replaced with the Borrowing Base Certificate attached as EXHIBIT A hereto. 4. FEE. Borrower shall pay to Bank a modification fee equal to Twelve Thousand Five Hundred and 00/100 Dollars ($12,500.00), which fee shall be due on the date hereof and which shall be deemed fully earned as of the date hereof. The Borrower shall also reimburse Bank for all legal fees and expenses incurred in connection with this amendment to the Existing Loan Documents. 5. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever necessary to reflect the changes described above. 6. RATIFICATION OF LOAN DOCUMENTS. Borrower hereby ratifies, confirms, and reaffirms all terms and conditions of all security or other collateral granted to the Bank, and confirms that the Indebtedness secured thereby includes, without limitation, the Indebtedness. 7. NO DEFENSES OF BORROWER. Borrower agrees that, as of this date, it has no defenses against the obligations to pay any amounts under the Indebtedness. 8. CONTINUING VALIDITY. Borrower understands and agrees that in modifying the existing Indebtedness, Bank is relying upon Borrower's representations, warranties, and agreements, as set forth in the Existing Loan Documents. Except as expressly modified pursuant to this Loan Modification Agreement, the terms of the Existing Loan Documents remain unchanged and in full force and effect. Bank's agreement to modifications to the existing Indebtedness pursuant to this Loan Modification Agreement in no way shall obligate Bank to make any future modifications to the Indebtedness. Nothing in this Loan Modification Agreement shall constitute a satisfaction of the Indebtedness. It is the intention of Bank and Borrower to retain as liable parties all makers and endorsers of Existing Loan Documents, unless the party is expressly released by Bank in writing. No maker, endorser, or guarantor will be released by virtue of this Loan Modification Agreement. 9. JURISDICTION/VENUE. Borrower accepts for itself and in connection with its properties, unconditionally, the non-exclusive jurisdiction of any state or federal court of competent jurisdiction in the Commonwealth of Massachusetts in any action, suit, or proceeding of any kind against it which arises out 3- of or by reason of this Loan Modification Agreement, provided, however, that if for any reason Bank cannot avail itself of the courts of the Commonwealth of Massachusetts, then venue shall lie in Santa Clara County, California. 10. COUNTERSIGNATURE. This Loan Modification Agreement shall become effective only when it shall have been executed by Borrower and Bank (provided, however, in no event shall this Loan Modification Agreement become effective until signed by an officer of Bank in California). This Loan Modification Agreement is executed as of the date first written above. ("BORROWER") LIGHTBRIDGE, INC. By: /s/ Joseph S. Tibbetts, Jr. --------------------------------- Name: Joseph S. Tibbetts, Jr. --------------------------------- Title: Sr. VP & CFO --------------------------------- ("BANK") SILICON VALLEY BANK, doing business as SILICON VALLEY EAST By: /s/ Pamela Aldsworth --------------------------------- Name: Pamela Aldsworth --------------------------------- Title: SVP --------------------------------- SILICON VALLEY BANK By: /s/ Michelle D. Giannini --------------------------------- Name: Michelle D. Giannini --------------------------------- Title: Assistant Vice President --------------------------------- (signed in Santa Clara County, California) 4- EX-27.1 3 EXHIBIT 27.1
5 3-MOS DEC-31-1999 JUN-30-1999 25,087,527 0 17,491,875 1,048,000 0 43,354,646 27,624,255 13,534,794 63,304,462 13,808,142 948,558 0 0 170,045 47,904,426 63,304,462 22,240,043 22,240,043 10,637,003 10,637,003 8,592,319 444,648 32,341 3,604,014 1,766,000 1,838,014 0 0 0 1,838,014 .11 .10
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