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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
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 (IRS 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 May 4, 2001, there were 28,806,950 shares of the registrant's common
stock, $.01 par value, outstanding.
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LIGHTBRIDGE, INC.
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2001
TABLE OF CONTENTS
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
Item 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets as of March 31, 2001 and December 31, 2000... 3
Income Statements for the quarters ended March 31, 2001 and
March 31, 2000............................................ 4
Statements of Cash Flows for the quarters ended March 31,
2001 and March 31, 2000................................... 5
Notes to Unaudited Condensed Consolidated Financial
Statements................................................ 6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 9
Item 3. QUANTITATIVE AND QUALITATIVE MARKET RISK DISCLOSURES........ 14
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 15
Item 6. EXHIBITS AND REPORTS ON FORM 8-K............................ 15
16
SIGNATURE.............................................................
PART I. FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
LIGHTBRIDGE, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
MARCH 31, DECEMBER 31,
2001 2000
--------- ------------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 52,312 $ 45,569
Short-term investments.................................... 50,935 53,174
Accounts receivable, net.................................. 35,544 42,112
Inventory, net............................................ 389 2,243
Other current assets...................................... 7,322 7,680
Current portion of notes receivable....................... 620 625
-------- --------
Total current assets.................................... 147,122 151,403
Property and equipment, net................................. 28,580 28,722
Notes receivable............................................ 886 886
Other assets, net........................................... 9,275 6,669
-------- --------
Total assets............................................ $185,863 $187,680
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.................. $ 24,718 $ 30,716
Deferred revenues......................................... 10,599 11,015
-------- --------
Total current liabilities................................. 35,317 41,731
Long-term liabilities..................................... 901 963
-------- --------
Total liabilities....................................... 36,218 42,694
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares
authorized; no shares issued or outstanding at March 31,
2001 and December 31, 2000................................ -- --
Common stock, $.01 par value; 60,000,000 shares authorized;
29,705,825 and 29,633,794 shares issued and 28,813,920 and
27,689,761 shares outstanding at March 31, 2001 and
December 31, 2000, respectively........................... 297 296
Additional paid-in capital.................................. 159,996 171,303
Warrants.................................................... 206 206
Due from shareholder........................................ (115) (115)
Deferred compensation....................................... -- (9)
Retained earnings (deficit)................................. (7,995) (12,064)
Less: treasury stock, at cost............................... (2,744) (14,631)
-------- --------
Total stockholders' equity.............................. 149,645 144,986
-------- --------
Total liabilities and stockholders' equity............ $185,863 $187,680
======== ========
See notes to unaudited condensed consolidated financial statements.
3
LIGHTBRIDGE, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED INCOME STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
QUARTER ENDED
MARCH 31,
-------------------
2001 2000
-------- --------
Revenues:
Transaction................................................. $25,862 $20,427
Software licensing.......................................... 8,154 8,428
Consulting and services..................................... 10,760 8,819
Hardware.................................................... 4,570 4,712
------- -------
Total revenues............................................ 49,346 42,386
------- -------
Cost of revenues:
Transaction................................................. 14,476 9,063
Software licensing.......................................... 638 660
Consulting and services..................................... 4,708 4,052
Hardware.................................................... 3,194 3,882
------- -------
Total cost of revenues.................................... 23,016 17,657
------- -------
Gross profit................................................ 26,330 24,729
------- -------
Operating expenses:
Development costs........................................... 8,051 6,941
Sales and marketing......................................... 5,845 5,545
General and administrative.................................. 4,860 4,578
Merger related costs........................................ 5,999 --
------- -------
Total operating expenses.................................. 24,755 17,064
------- -------
Income from operations...................................... 1,575 7,665
Other income, net......................................... 1,222 1,115
------- -------
Income before provision for income taxes.................... 2,797 8,780
Provision for (benefit from) income taxes................. (1,272) 3,148
------- -------
Net income.................................................. $ 4,069 $ 5,632
======= =======
Basic earnings per common share............................. $ 0.15 $ 0.21
======= =======
Diluted earnings per common share........................... $ 0.14 $ 0.19
======= =======
See notes to unaudited condensed consolidated financial statements.
4
LIGHTBRIDGE, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
QUARTER ENDED
MARCH 31,
-------------------
2001 2000
-------- --------
Cash flows from operating activities:
Net income.................................................. $ 4,069 $ 5,632
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 3,820 3,127
Deferred income taxes..................................... (3,000) --
Amortization of deferred compensation..................... -- 30
Changes in assets and liabilities:
Accounts receivable....................................... 6,568 (3,481)
Inventories............................................... 1,854 654
Other assets.............................................. 230 (717)
Accounts payable and accrued liabilities.................. (5,998) 704
Deferred revenues......................................... (416) 3,221
Other liabilities......................................... (62) 27
------- --------
Net cash provided by operating activities................... 7,065 9,197
------- --------
Cash flows from investing activities:
Purchases of property and equipment....................... (3,248) (3,355)
Purchase of short-term investment......................... (9,115) (16,690)
Proceeds from sale of investment.......................... 11,354 3,080
------- --------
Net cash used in investing activities....................... (1,009) (16,965)
------- --------
Cash flows from financing activities:
Principal payments on notes payable....................... -- (174)
Repurchase of common stock................................ -- (881)
Principal payments under capital lease obligations........ -- (39)
Proceeds from issuance of common stock.................... 581 1,706
Proceeds from note receivable............................. 106 249
Proceeds from exercise of warrants........................ -- 10
------- --------
Net cash provided by financing activities................... 687 871
------- --------
Net increase in cash and cash equivalents................... 6,743 (6,897)
Cash and cash equivalents, beginning of period.............. 45,569 49,164
------- --------
Cash and cash equivalents, end of period.................... $52,312 $ 42,267
======= ========
See notes to unaudited condensed consolidated financial statements.
5
LIGHTBRIDGE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The accompanying unaudited condensed consolidated financial statements
include the accounts of Lightbridge, Inc. and its subsidiaries ("Lightbridge" or
the "Company"). Lightbridge believes that the unaudited condensed consolidated
financial statements reflect all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of Lightbridge's
financial position, results of operations and cash flows at the dates and for
the periods indicated. Although certain information and disclosures normally
included in Lightbridge's annual financial statements have been omitted,
Lightbridge believes that the disclosures provided are adequate to make the
information presented not misleading. Results of interim periods may not be
indicative of results for the full year or any future periods. These financial
statements should be read in conjunction with the consolidated financial
statements and related notes included in Lightbridge's Annual Report on
Form 10-K for the year ended December 31, 2000.
On February 7, 2001, Lightbridge completed its merger with Corsair
Communications, Inc. ("Corsair"). Under the terms of the merger agreement, a
wholly owned subsidiary of Lightbridge merged with and into Corsair and Corsair
became a wholly owned subsidiary of Lightbridge. The merger has been accounted
for as a pooling-of-interests, and the accompanying unaudited condensed
consolidated financial statements have been restated to include the accounts of
Corsair for all periods presented. In connection with the merger, Lightbridge
recorded a charge of approximately $6.0 million, representing the cost of
professional services and fees of approximately $5.7 million and costs
associated with the termination of four employees of approximately $0.3 million.
2. SIGNIFICANT ACCOUNTING POLICIES:
SHORT-TERM INVESTMENTS
Investments, all of which are debt securities maturing in one year or less
and are classified as available-for-sale, consisted of the following at
March 31, 2001 and December 31, 2000:
MARCH 31, 2001 DECEMBER 31, 2000
---------------- -------------------
Corporate debt securities...................... $50,935 $53,174
Certificates of deposit........................ 20 20
------- -------
$50,955 $53,194
======= =======
As of March 31, 2001 and December 31, 2000, $20 of the Company's investments
were classified as cash and cash equivalents.
The amortized cost of available-for-sale debt securities is adjusted for
amortization of premiums and accretion of discounts to maturity. Realized gains
and losses, and declines in value judged to be other than temporary on
available-for-sale securities, if any, are included in interest income, net. The
cost of securities sold is based on the specific identification method. Interest
and dividends on securities classified as available-for-sale are included in
interest income, net.
INVENTORIES
Inventories, including evaluation inventory, are stated at the lower of
first-in, first-out cost, or market. Evaluation inventory is comprised of
finished hardware units delivered to a customer which are pending commissioning
of the project.
6
NOTES RECEIVABLE
In conjunction with a sale of assets in 1999, the Company received a secured
promissory note receivable of $2.2 million. The note bears interest at the rate
of 10% per annum, payable in equal monthly installments based upon a sixty month
amortization schedule with a final payment of the remaining principal with all
accrued interest due and payable in May, 2003.
OTHER ASSETS
Included in other assets are spare parts that are generally amortized on a
straight-line basis over the course of their respective useful lives, generally
two years.
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
Based upon the manner in which management and the Board of Directors monitor
its operations, Lightbridge operates in four distinct segments consisting of the
transaction business, the software licensing business, the consulting and
services business and the hardware business. Within these segments, performance
is measured based on gross profit realized from each segment. Information about
costs and expenses, other than costs of revenues, and assets and cash flows is
not reported by segment. Information about revenues and cost of revenues of each
segment is shown separately on the statement of operations. There are no
transactions between segments.
REVENUE RECOGNITION
The Company generates revenue from the processing of qualification and
activation transactions; granting of software licenses; services (including
maintenance, installation and training); development and consulting contracts;
and hardware sold in conjunction with certain software licenses. Revenues from
processing of qualification and activation transactions for wireless
telecommunications carriers are recognized in the period in which services are
performed. Certain of the Company's software license agreements have typically
provided for an initial license fee and annual maintenance based on a defined
number of subscribers, as well as additional license and maintenance fees for
net subscriber additions. The Company has entered into license agreements that
provide for either a one-time license fee or a monthly license fee with no
additional fees based on incremental subscriber growth.
The Company accounts for Software License and Maintenance revenue in
accordance with the American Institute of Certified Public Accountants Statement
of Position (SOP 97-2). "Software Revenue Recognition" and SOP 98-9
"Modification to SOP 97-2 With Respect to Certain Transactions."
Revenue from software license sales is recognized when persuasive evidence
of an arrangement exists, delivery of the product has been made, and a fixed fee
and collectibility have been determined; to the extent that obligations exist
for other services, the Company allocates revenue between the license and the
services based upon their relative fair value. Revenue from customer maintenance
support agreements is deferred and recognized ratably over the term of the
agreements. Revenue from consulting and training services is recognized as those
services are rendered. Revenue from hardware sales is recognized upon shipment,
unless testing, integration or implementation services are required, in which
case hardware revenue is recognized upon commissioning and acceptance of the
product. Revenue from hardware sold in conjunction with software licenses is
deferred until the related license revenue is recognized.
Staff Accounting Bulletin No. 101 ("SAB 101") was released on December 3,
1999 and provides the SEC staff's views in applying generally accepted
accounting principles to selected revenue recognition issues. Lightbridge's
revenue recognition practices are in compliance with SAB 101 and
7
Lightbridge's adoption of SAB 101 has not had a material effect on its
consolidated financial position or results of operations.
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:
QUARTER ENDED
MARCH 31,
-------------------
2001 2000
-------- --------
(IN THOUSANDS)
Shares for basic earnings per share......................... 27,830 26,862
Effect of dilutive options and warrants..................... 1,042 2,827
------ ------
Shares for diluted earnings per share....................... 28,872 29,689
====== ======
No adjustments were made to net income in computing diluted earnings per
share.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." In June 2000, the FASB issued
SFAS No. 138, which amends certain provisions of SFAS 133 to clarify four areas
causing difficulties in the implementation. The amendment included expanding the
normal purchase and sale exemption for supply contracts, permitting the
offsetting of certain intercompany foreign currency derivatives and thus
reducing the number of third party derivatives, permitting hedge accounting for
foreign-currency denominated assets and liabilities, and redefining interest
rate risk to reduce sources of ineffectiveness. Lightbridge adopted SFAS 133 and
the corresponding amendments under SFAS 138 on January 1, 2001. SFAS 133, as
amended by SFAS 138, did not have a material impact on Lightbridge's
consolidated results of operations, financial position or cash flows.
PROVISION FOR INCOME TAXES.
Lightbridge's effective tax rate was 36.5% (excluding merger-related
expenses) and 36% for the quarters ended March 31, 2001 and 2000, respectively.
The income tax provision reflects a net benefit of $1.3 million for the quarter
ended March 31, 2001. This was based upon the annual effective tax rate of
36.5%, offset by a $4.5 million tax benefit principally related to acquired net
operating loss carryforwards of Corsair and the deductible portion of merger
costs incurred in connection with the acquisition of Corsair.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THIS FORM 10-Q CONTAINS "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934. ANY STATEMENTS CONTAINED HEREIN THAT ARE NOT STATEMENTS OF
HISTORICAL FACT MAY BE DEEMED TO BE FORWARD-LOOKING STATEMENTS. WITHOUT LIMITING
THE FOREGOING, THE WORDS "BELIEVES," "ANTICIPATES," "PLANS," "EXPECTS" AND
SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THE
FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND
OTHER FACTORS, INCLUDING THE FACTORS SET FORTH UNDER "ITEM 1A. RISK FACTORS" IN
THE ANNUAL REPORT ON FORM 10-K OF LIGHTBRIDGE, INC. FOR THE YEAR ENDED
DECEMBER 31, 2000, THAT MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE AND
ACHIEVEMENTS OF LIGHTBRIDGE, INC. TO DIFFER MATERIALLY FROM THOSE INDICATED BY
THE FORWARD-LOOKING STATEMENTS. LIGHTBRIDGE UNDERTAKES NO OBLIGATIONS TO UPDATE
ANY FORWARD-LOOKING STATEMENTS IT MAKES.
Information set forth under the heading "ITEM 1A. Risk Factors" in the
Annual Report on Form 10-K of Lightbridge, Inc. for the year ended December 31,
2000 is incorporated as an exhibit to this Quarterly Report on Form 10-Q. Unless
the context otherwise requires, "Lightbridge" and the "Company" refer
collectively to Lightbridge, Inc. and its subsidiaries.
ALIAS, FRAUDBUSTER, FRAUD SENTINEL, LIGHTBRIDGE, the Lightbridge logo,
PROFILE, and TELESTO are registered trademarks of Lightbridge, and @RISK,
ALLEGRO, CAS, CREDIT DECISION SYSTEM, CUSTOMER ACQUISITION SYSTEM, FRAUD
CENTURION, INSIGHT, POPS, RETAIL MANAGEMENT SYSTEM, RMS, and TELESTO PORTAL are
trademarks of Lightbridge. PHONEPRINT is a registered trademark and PREPAY,
PREPAY OPEN, and PHONEFUEL are trademarks of Corsair Communications, Inc. All
other trademarks or trade names appearing in this Quarterly Report on Form 10-Q
are the property of their respective owners.
OVERVIEW
Lightbridge develops, markets and supports a network of integrated products
and services that enable telecommunications carriers to improve their customer
acquisition, service provisioning, retention and fraud management processes.
On February 7, 2001 Lightbridge completed its merger with Corsair
Communications, Inc. ("Corsair"), a leading provider of system solutions for the
global wireless industry. Under the terms of the merger agreement, a wholly
owned subsidiary of Lightbridge merged with and into Corsair and Corsair became
a wholly owned subsidiary of Lightbridge. In connection with the merger,
Lightbridge issued an aggregate of approximately 10,270,000 shares of its common
stock to Corsair stockholders who received 0.5978 of a share of Lightbridge
common stock in exchange for each share of Corsair common stock held. In
addition, the Company assumed the obligation to issue, upon exercise of
outstanding Corsair stock options, approximately 1,587,094 shares of common
stock. The merger was accounted for as a pooling-of-interests, and the
accompanying unaudited condensed consolidated financial statements have been
restated to include the accounts of Corsair for all periods presented.
Lightbridge offers on-line, real-time transaction processing and call center
services to aid telecommunications carriers in qualifying and activating
applicants for service, as well as software-based point-of-sale support services
for a variety of distribution channels, including dealers and agents, mass
market retail stores and Internet commerce. Lightbridge develops and implements
interfaces that integrate its acquisition system with carrier and third-party
systems, such as those for billing, point-of-sale, activation and order
fulfillment. Lightbridge also maintains and has access to databases used to
pre-screen applicants for fraud and provides software used to monitor subscriber
call activity for fraud. In addition, Lightbridge has a global
telecommunications consulting practice that provides clients with two distinct
types of services: solution development and deployment consulting, and business
advisory services.
9
The Company's PrePay billing system provides wireless telecommunications
carriers with a software solution designed to integrate with the upcoming
Wireless Intelligent Network standards. Its PhonePrint system provides such
carriers with a system to reduce cloning fraud. PhoneFuel further extends the
PrePay product line by allowing PrePay customers to offer their subscribers the
capability to add cash to their PrePay balance phones directly from their bank
accounts or credit cards using wireless application protocol. PhoneFuel supports
Internet connections for PrePay subscribers. The Company also sells hardware to
its customers.
Lightbridge derives approximately 70% of its revenues from clients located
in the United States, and the remainder from international clients.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain financial
data as a percentage of total revenues:
QUARTER ENDED
MARCH 31,
-------------------
2001 2000
-------- --------
Revenues:
Transaction............................................... 52.4% 48.2%
Software licensing........................................ 16.5 19.9
Consulting and services................................... 21.8 20.8
Hardware.................................................. 9.3 11.1
----- -----
Total revenues.......................................... 100.0 100.0
----- -----
Cost of revenues:
Transaction............................................... 29.3 21.4
Software licensing........................................ 1.3 1.6
Consulting and services................................... 9.5 9.6
Hardware.................................................. 6.5 9.1
----- -----
Total cost of revenues.................................. 46.6 41.7
----- -----
Gross profit................................................ 53.4 58.3
Operating expenses:
Development............................................... 16.3 16.4
Sales and marketing....................................... 11.8 13.1
General and administrative................................ 9.8 10.7
Merger costs.............................................. 12.3 --
----- -----
Total operating expenses................................ 50.2 40.2
----- -----
Income from operations...................................... 3.2 18.1
Other income, net........................................... 2.5 2.6
----- -----
Income before provision for income taxes.................... 5.7 20.7
Provision for (benefit from) income taxes................... (2.6) 7.4
----- -----
Net income.................................................. 8.3% 13.3%
===== =====
QUARTER ENDED MARCH 31, 2001 COMPARED WITH QUARTER ENDED MARCH 31, 2000
REVENUES. Revenues increased by 16.4% to $49.3 million in the quarter ended
March 31, 2001 from $42.4 million in the quarter ended March 31, 2000.
10
Transaction revenues increased by 26.6% to $25.9 million in the quarter
ended March 31, 2001 from $20.4 million in the quarter ended March 31, 2000,
while increasing as a percentage of total revenues to 52.4% from 48.2%. The
increase in transaction revenues for the quarter ended March 31, 2001 was due to
increased volume of qualification and activation transactions processed for
carrier clients, including new clients, and an increase in special program
efforts through Lightbridge's TeleServices Call Center, which are generally not
provided under a long-term contract. Lightbridge believes that its transaction
revenues also benefited from client promotional activities generally
attributable to the current competitive market for wireless services.
The Company's transaction revenues will continue to reflect in large part
the industry's rate of growth of new subscribers as well as the rate of
switching among carriers by subscribers (subscriber churn). Lightbridge
believes, based in part on reports of wireless telecommunication industry
analysts, that the rate of subscriber growth will slow in upcoming years and
that the rate of subscriber churn will remain fairly constant.
Software licensing revenues decreased slightly to $8.2 million in the
quarter ended March 31, 2001 from $8.4 million in the quarter ended March 31,
2000, while decreasing as a percentage of total revenues to 16.5% from 19.9%.
Lightbridge believes that software licensing revenues are subject to
fluctuation and are more difficult to anticipate than Lightbridge's other types
of revenues, due to the relatively large dollar magnitude and long sales cycles
for software licenses. The sales cycles for domestic software licenses generally
extend from three to six months and may extend as long as eighteen months; sales
cycles for software licenses sold to international clients often are longer. The
predictability of software licensing revenue is further impeded because
Lightbridge's licensed software is a discretionary purchase for most customers.
As a result of the foregoing, a small number of licensing transactions may have
a significant effect on Lightbridge's software licensing revenues within a given
quarter.
Consulting and services revenues increased by 22.0% to $10.8 million in the
quarter ended March 31, 2001 from $8.8 million in the quarter ended March 31,
2000, while increasing as a percentage of total revenues to 21.8% from 20.8%.
The increase in consulting and services revenues for the quarter ended
March 31, 2001 was principally due to increased demand for consulting services,
principally custom software development and systems integration offered by the
Company.
Hardware revenues decreased slightly to $4.6 million in the quarter ended
March 31, 2001 from $4.7 million in the quarter ended March 31, 2000 while
decreasing as a percentage of total revenues to 9.3% from 11.1%.
COST OF REVENUES Cost of revenues consists primarily of personnel costs,
costs of purchasing and maintaining systems and networks used in processing
qualification and activation transactions (including depreciation and
amortization of systems and networks) and amortization of capitalized software
and acquired technology. Cost of revenues may vary as a percentage of total
revenues in the future as a result of a number of factors, including changes in
the volume of transactions processed, 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 revenues, and
consulting and services revenues and hardware revenues.
Transaction cost of revenues increased by 59.7% to $14.5 million in the
quarter ended March 31, 2001 from $9.1 million in the quarter ended March 31,
2000, while increasing as a percentage of total transaction revenues to 56.0%
from 44.4%. The increase in transaction cost of revenues for the quarter ended
March 31, 2001 resulted principally from increases in transaction volume and
costs attributable to expansion of the Company's staff and systems capacity. The
increase in transaction cost of revenues as a percentage of total transaction
revenues for the quarter ended March 31, 2001 principally resulted
11
from costs attributable to expansion of Lightbridge's staff and systems
capacity, particularly for Lightbridge's TeleServices Call Centers. Transaction
cost of revenues was also affected by a shift in the mix of services provided
during the quarter ended March 31, 2001 compared to services provided in the
comparable period in the prior year.
Software licensing cost of revenues decreased slightly to $0.6 million in
the quarter ended March 31, 2001 from $0.7 million in the quarter ended
March 31, 2000.
Consulting and services cost of revenues increased by 16.2% to $4.7 million
in the quarter ended March 31, 2001 from $4.1 million in the quarter ended
March 31, 2000, while decreasing as a percentage of total consulting and
services revenues to 43.8% from 45.9%. The dollar increase in consulting
services cost of revenues was attributable to the increase in consulting and
service revenue. The decrease in consulting and services cost of revenue as a
percentage of consulting and services revenues during the quarter ended
March 31, 2001 was due to increased utilization of the consulting resources.
Hardware cost revenues decreased slightly to $3.2 million in the quarter
ended March 31, 2001 from $3.9 million in the quarter ended March 31, 2000. This
decrease was attributable to a shift in the mix of products sold during the
quarter ended March 31, 2001.
DEVELOPMENT COSTS. Development expenses include software development costs
which 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 increased by 16.0% to $8.1 million in the quarter ended
March 31, 2001 from $6.9 million in the quarter ended March 31, 2000, while
decreasing as a percentage of total revenues to 16.3% from 16.4%. The dollar
increase in development costs for the quarter ended March 31, 2001 resulted
primarily from the addition of engineering personnel necessary to support
Lightbridge's product development plans. Included in these development efforts
were the development of enhanced versions of its Fraud Management software
product, FraudBuster, the continued enhancement of its Customer Acquisition
System and Retail Management System, the development of its Fraud Management
software products, Alias and @Risk, and the development of PrePay Open and
PhoneFuel. Lightbridge expects to continue to engineering and development
efforts in order to enhance its existing products and services, including its
Channel Solutions, Fraud Management and PrePay 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 slightly to $5.8 million for the
quarter ended March 31, 2001 from $5.5 million in the quarter ended March 31,
2000, while decreasing as a percentage of total revenues to 11.8% from 13.1%.
The increase for the quarter ended March 31, 2001 was 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.
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 6.2% to $4.9 million in the
quarter ended March 31, 2001 from $4.6 million in the quarter ended March 31,
2000, while decreasing as a percentage of total revenues to 9.8% from 10.7%.
This increase was primarily due to additional staffing levels.
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MERGER RELATED COSTS. In connection with the Corsair merger, Lightbridge
recorded a charge of approximately $6.0 million, representing the cost of
professional services and fees of approximately $5.7 million and costs
associated with the termination of four employees of approximately $0.3 million.
OTHER INCOME, NET. Other income, net in the quarters ended March 31, 2001
and March 31, 2000 consisted predominantly of interest income. Other income, net
increased slightly to $1.2 million in the quarter ended March 31, 2001 from
$1.1 million in the quarter ended March 31, 2000. This was primarily due to an
increase in interest income as a result of higher average cash balances during
the quarter ended March 31, 2001.
PROVISION FOR INCOME TAXES. Lightbridge's effective tax rate was 36.5%
(excluding merger-related expenses) and 36% for the quarters ended March 31,
2001 and 2000, respectively. The income tax provision reflects a net benefit of
$1.3 million for the quarter ended March 31, 2001. This was based upon the
annual effective tax rate of 36.5%, offset by a $4.5 million tax benefit
principally related to the acquired net operating loss carryforwards of Corsair
and the deductible portion of merger costs incurred in connection with the
acquisition of Corsair.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2001, Lightbridge had cash and cash equivalents and
short-term investments of $103.2 million. Lightbridge's working capital
increased 1.9% to $111.8 million at March 31, 2001 from $109.7 million at
December 31, 2000.
During the first quarter of 2001 the Company generated cash flows from
operating and financing activities of $7.1 million and $0.7 million,
respectively, and used $1.0 million in investing activities.
The Company's capital expenditures totaled $3.2 million for the quarter
ended March 31, 2001. The capital expenditures during these periods were
principally for the Company's services delivery infrastructure and computer
equipment for software development activities.
The Company has a $15.0 million unsecured working capital line of credit
with a bank. Borrowing availability on the working capital line of credit is
based on the amount of qualifying accounts receivable. Advances under the
working capital line of credit bear interest at the bank's prime rate (8.0% at
March 31, 2001). The working capital 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 $1.25 million in the aggregate. At
March 31, 2001, there were no borrowings outstanding under the working capital
line of credit. Borrowing availability at March 31, 2001 was $14.0 million for
the working capital line of credit. At March 31, 2001 the Company has an
outstanding letter of credit in the amount of $1.0 million which expires in
May 2002. The Company's agreement with the bank contains 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 August 2001.
INFLATION
Although certain of Lightbridge's expenses increase with general inflation
in the economy, inflation has not had a material impact on Lightbridge's
financial results to date.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." In June 2000, the FASB issued
SFAS No. 138, which amends certain provisions of SFAS 133 to clarify four areas
causing difficulties in the implementation. The amendment included expanding the
normal purchase and sale exemption for supply contracts, permitting the
offsetting of certain
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intercompany foreign currency derivatives and thus reducing the number of third
party derivatives, permitting hedge accounting for foreign-currency denominated
assets and liabilities, and redefining interest rate risk to reduce sources of
ineffectiveness. Lightbridge adopted SFAS 133 and the corresponding amendments
under SFAS 138 on January 1, 2001. SFAS 133, as amended by SFAS 138, did not
have a material impact on Lightbridge's consolidated results of operations,
financial position or cash flows.
ITEM 3. QUANTITATIVE AND QUALITATIVE MARKET RISK DISCLOSURES
The market risk exposure inherent in Lightbridge's financial instruments and
consolidated financial position represents the potential losses arising from
adverse changes in interest rates. Lightbridge is exposed to such interest rate
risk primarily in its significant investment in cash and cash equivalents and
the use of fixed- and variable-rate debt to fund its acquisitions of property
and equipment in past years.
Market risk for cash and cash equivalents and fixed-rate borrowings is
estimated as the potential change in the fair value of the assets or obligations
resulting from a hypothetical ten percent adverse change in interest rates,
which would not have been significant to Lightbridge's financial position or
results of operations during the quarter ended March 31, 2001. The effect of a
similar hypothetical change in interest rates on Lightbridge's variable-rate
debt also would have been insignificant due to the immaterial amounts of
borrowings outstanding under Lightbridge's credit arrangements.
For additional information about Lightbridge's financial instruments and
debt obligations, see Notes to Consolidated Financial Statements in
Lightbridge's Annual Report on Form 10-K for the year ended December 31, 2000.
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PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On February 7, 2001, Lightbridge, Inc. held a special meeting of its
stockholders to vote upon the following proposals:
1) To approve the issuance of Lightbridge common stock to be delivered in
connection with the merger contemplated by the Amended and Restated
Agreement and Plan of Reorganization dated as of November 8, 2000 among
Lightbridge, Inc., Corsair Communications, Inc. and Lightning Merger
Corporation; and
2) To approve an amendment to Lightbridge's 1996 Incentive and
Non-Qualified Stock Option Plan to increase the number of shares of
common stock that may be issued thereunder by 2,000,000 shares, from
2,350,000 shares to 4,350,000 shares.
The number of votes cast for and against, as well as the number of
abstentions, on each proposal were as follows:
PROPOSAL VOTES FOR VOTES AGAINST ABSTENTIONS
-------- ---------- ------------- -----------
1... 12,380,610 17,186 11,139
2... 9,005,964 3,323,218 79,753
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
NO. DESCRIPTION
--- -----------
10.1 Amendment to Lightbridge's 1996 Incentive and Non-Qualified
Stock Option Plan
99.1 Information set forth under the heading "ITEM 1A. Risk
Factors" in the Annual Report on Form 10-K of the Company
for the year ended December 31, 2000 is incorporated herein
by reference
(b) Reports on Form 8-K
On February 9, 2001, the Company filed a Current Report on Form 8-K to
report under Item 2, Acquisition or Disposition of Assets, that on February 7,
2001, the Company acquired all of the outstanding capital stock of Corsair
Communications, Inc. pursuant to an Amended and Restated Agreement and Plan of
Reorganization dated as of November 8, 2000.
On March 15, 2001, the Company filed an amendment to its Current Report on
Form 8-K initially filed on February 9, 2001 to report under Item 7, Financial
Statements, Pro Forma Financial Information and Exhibits, certain financial
statements of Corsair Communications, Inc. and certain pro forma financial
information of Lightbridge, Inc.
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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:
-----------------------------------------
Harlan Plumley
VICE PRESIDENT, FINANCE AND
ADMINISTRATION,
CHIEF FINANCIAL OFFICER AND TREASURER
(PRINCIPAL FINANCIAL AND CHIEF ACCOUNTING
OFFICER)
Date: May 15, 2001
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