##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, DC
    20549
 Form 10-K
  FOR ANNUAL AND TRANSITION
    REPORTS PURSUANT TO
    SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
    1934.
  (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934.For the fiscal year ended
    December 31, 2006ORo

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
    Incorporation or Organization)

(I.R.S. Employer
    Identification No.)30 Corporate Drive
    Burlington, Massachusetts

01803(Zip Code)(Address of Principal Executive
    Offices)    (781) 359-4000
 Registrants Telephone
    Number, Including Area Code
   Securities registered pursuant
    to Section 12(b) of the Act:
  Title of Each Class

Name of Each Exchange on Which Registeredcommon stock, $.01 par
    value per share

NASDAQ Global
    Market   Securities registered pursuant
    to Section 12(g) of the Act:
 None
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. þ
  Rule 12b-2
 o þ o
  Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE
  Form 10-K.




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##### 



TABLE OF
    CONTENTS
  PagePART IItem 1.


Business


4Item 1A.


Risk
    Factors


13Item 1B.


Unresolved Staff
    Comments


22Item 2.


Properties


22Item 3.


Legal
    Proceedings


23Item 4.


Submission of
    Matters to a Vote of Security Holders


23PART IIItem 5.


Market for
    Registrants Common Equity, Related Stockholder Matters and
    Issuer Purchases of Equity Securities


23Item 6.


Selected Financial
    Data


26Item 7.


Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


27Item 7A.


Quantitative and
    Qualitative Disclosures About Market Risk


43Item 8.


Financial
    Statements and Supplementary Data


43Item 9.


Changes in and
    Disagreements with Accountants on Accounting and Financial
    Disclosure


43Item 9A.


Controls and
    Procedures


43Item 9B.


Other
    Information


47PART IIIItem 10.


Directors,
    Executive Officers, and Corporate Governance


47Item 11.


Executive
    Compensation


47Item 12.


Security Ownership
    of Certain Beneficial Owners and Management and Related
    Stockholder Matters


47Item 13.


Certain
    Relationships and Related Transactions, and Director
    Independence


47Item 14.


Principal
    Accountant Fees and Services


47PART IVItem 15.


Exhibits, Financial
    Statement Schedules


47Signatures


52Ex-10.20 Amendment to Employment Agreement dated January 12, 2007Ex-10.36 Asset Purchase Agreement dated February 20, 2007Ex-10.37 2007 Incentive Plan dated January 1, 2007Ex-23.1 Consent of Independent Registered Public Accounting FirmEx-31.1 Certification of Chief Executive OfficerEx-31.2 Certification of Chief Financial OfficerEx-32.1 Certification of Chief Executive Officer & Chief Financial Officer   2




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##### Table of Contents



FORM 10-K
  , , , , , Form 10-K
 3




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##### Table of Contents



PART I  Item 1.
    Business  Overview
          IP-based (e-commerce point-of-sale
  point-of-sale point-of-sale,
  Form 10-K
 4




---



##### Table of Contents



New
    Developments
          T-Mobile (T-Mobile) T-Mobile
      Products
    and Services
  PAYMENT
    PROCESSING
  IP-enabled
 5




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##### Table of Contents



Solutions Groups

FunctionsPayment Gateway
    Solutions

The payment gateway allows
    IP-enabled
    merchants to accept credit card payments via web sites and
    mobile devices or from retail storefronts with integrated point
    of sale solutions and MOTO merchants.The Virtual Terminal and Batch
    Upload allow merchants to authorize, process, and manage credit
    card transactions manually from any computer that has an
    Internet connection and a web browser.The Merchant Interface is a secure
    web site that allows merchants to view and manage transactions
    and other details of their accounts, including activity reports
    and authorizations for purchases, credits and returns.The Advanced Integration Method
    (AIM) is a merchant-initiated
    server-to-server
    connection for submitting CNP transactions to the payment
    gateway.The Server Implementation Method
    (SIM) provides a solution for CNP merchants with basic
    customization needs where the payment gateway handles all steps
    in the secure transaction process.Card Present (CP) retail and
    mobile merchants may purchase third-party POS solutions or
    devices that are integrated to the Authorize.Net payment
    gateway. Merchants or solution providers integrate directly to
    the payment gateway using the CP Application Programming
    Interface (API).Additional Services

eCheck.Net®
    is a solution that allows merchants to process electronic check
    transactions directly from a web site or through the Virtual
    Terminal.Integrated Payment Solution
    (IPS)  is a service that offers merchants both an
    Authorize.Net Payment Gateway account and Wells Fargo credit
    card processing account through an integrated payment system.
    The service uses a single online application for merchants to
    apply for services and automatically provides them with a
    payment gateway and merchant credit card processing account.Fraud Detection
    Suitetm(FDS) is designed to assist web merchants to monitor, manage,
    and reduce potentially fraudulent credit card transactions with
    a customizable, rules and filter-based solution.Automated Recurring
    Billingtm(ARB) provides a system for CNP and eCheck.Net merchants to
    automatically handle regularly recurring billings or
    subscriptions according to a specific billing interval and
    duration.Support for Cardholder
    Authentication Programs, provided under agreement with Visa and
    MasterCard, for the benefit of merchants that sell products or
    services online, including the Verified by
    Visa®
    and
    MasterCard®
    SecureCodetmprograms for reducing liabilities and expenses of merchants
    arising from unauthorized use of credit cards. The Company no
    longer actively markets this service.SalesBoost.Net, provided under
    agreement with eBoz, Inc., is an integrated suite of 50 web
    promotion tools designed to boost CNP merchants sales by
    attracting shoppers to their web sites. The Company no longer
    actively markets this service.AmbironTrustwave PCI Scanning and
    Compliance Tools, provided under agreement with
    AmbironTrustWave, are leading information security and
    compliance management solutions that offer convenient and
    affordable Payment Card Industry (PCI) tools. PCI is an
    industry-wide security standard building on Visas
    Cardholder Information Security Program (CISP) and
    MasterCards Site Data Protection (SDP) program that
    increases security for storing, transmitting, and processing
    cardholder data.The
    Authorize.Net®
    Merchant Toolbox features business solutions to merchants to
    help improve security, marketing and productivity. 6




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##### Table of Contents



Solutions Groups

FunctionsThe Authorize.Net Verified
    Merchant
    Seal®
    confirms to consumers that Web sites displaying the seal are
    verified Authorize.Net merchants. The seal is designed to foster
    a sense of confidence for consumers who may be concerned about
    the security of making online purchases.   Payment
    Gateway Solutions
  IP-enabled
    point-of-sale
      Account Management
    Connection
    Methods
    
    AIM is a merchant-initiated
    server-to-server
    connection for submitting transactions to the payment gateway.
    AIM provides merchants with control over each phase of the
    customers online transaction experience, including the
    payment form and receipt page. AIM employs industry standard
    secure data encryption 7




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##### Table of Contents



technology  128-bit SSL protocol. Additional features
    include: transaction key authentication, merchant control over
    all phases of the customers online transaction experience,
    and configurable transaction response that integrate with
    merchant enterprise applications.  
    SIM is a solution for web merchants with basic customization
    needs. The Authorize.Net payment gateway handles all the steps
    in the secure transaction process  payment data
    collection, data submission and the response to the customer.
    Additional features of SIM include: a payment gateway hosted
    payment form employing 128-bit SSL data encryption, transaction
    digital fingerprints to enhance security, and a customizable
    payment gateway hosted payment form
    and/or
    receipt page.
    The Company has certified approximately 79 shopping cart
    solutions providers that have integrated their
    e-commerce
    shopping carts with the payment gateway. Certified shopping
    carts are Internet companies that provide merchants with
    easy-to-implement
    checkout page solutions or software that are already integrated
    to the payment processing gateway.
    In most cases, for CP merchants, technical integration is
    handled by the merchants POS system provider (hardware or
    software). CP merchants interested in integrating directly to
    the payment gateway can use a card payment application
    programming interface.  Additional
    Services
  eCheck.Net® e-commerce
  Integrated Payment Solution
  Fraud Detection
    Suite tm
  
    Amount Filter allows merchants to set upper and lower
    transaction amount limits
    Velocity Filter allows merchants to limit the total volume of
    transactions received per hour, which is designed to help combat
    high-volume attacks common with fraudulent transactions
    Shipping-Billing Mismatch Filter helps identify high-risk and
    potentially fraudulent transactions containing an address
    mismatch
    Transaction IP Velocity Filter helps identify excessive
    transactions received from the same IP address, isolating
    suspicious activity from a single source
    Suspicious Transaction Filter helps detect suspicious
    transactions using proprietary identification criteria and
    transaction behavior analysis
    Authorized AIM IP Address feature allows merchants connected via
    the AIM feature to list server IP addresses that are
    authorized to submit transactions
    IP Address Blocking feature, allows merchants to block
    transactions from selected IP addresses  Automated Recurring
    Billing tm
 8




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##### Table of Contents



Cardholder Authentication ® ® tm
  SalesBoost.Net,
  AmbironTrustwave PCI Scanning and Compliance Tools
  set-up
  TDS
    Solutions Groups

FunctionsCustomer Qualification
    and Acquisition

Online, real-time transaction
    processing services and contact center services to help carriers
    qualify applicants and activate service. Transaction processing
    services include applicant qualification and service activation,
    as well as risk management. Transaction processing interfaces
    include interfaces that support the processing of data at a
    variety of distribution channels, including retail stores,
    contact centers and Internet applications, and voice recognition
    systems.TeleServices

TeleServices include qualification
    and activation, analyst reviews, telemarketing to existing and
    new subscribers,
    back-up and
    disaster recovery for acquisition and activation services,
    porting support and customer care.Authentication
    Services

Services that provide screening
    and authentication of identity data for users engaged in online
    transactions.Risk Management

A suite of services that make
    online, real-time inquiries into proprietary databases, industry
    databases and processing modules to screen applicants for
    potential fraud.Consulting Services

Solution Development and
    Deployment Services include requirements planning, systems
    integration, custom software development, project management,
    and training services.Business Advisory Consulting
    encompasses management consulting services designed to leverage
    best practices in telecommunications, online commerce and allied
    industries.   Clients
    and Client Concentration
   9




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##### Table of Contents



Years Ended December 31,2006


2005


2004Sprint/Nextel(1)


20
%


33
%


37
%AT&T Wireless Services, Inc.
    (AT&T Wireless)



*



*


18Total % of Revenues from
    greater-than-10% customers


20
%


33
%


55
%     (1)
    
    Sprint Spectrum L.P. and Nextel Operations, Inc. (Sprint/Nextel)
    merged on August 12, 2005.*
    
    Represents less than 10% of total revenues.  Payment
    Processing
    TDS
    Sales and
    Marketing and Seasonality
  IP-enabled
     10




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##### Table of Contents



Engineering,
    Research and Development
    Competition
      Government
    and Industry-Specific Regulation
      e-commerce
 11




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##### Table of Contents



e-commerce,
        Proprietary
    Rights
           12




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Employees
      Additional
    Available Information
  www.lightbridge.com. www.sec.gov.
  Item 1A.
    Risk
    Factors  Our
    Future Revenues May Be Uncertain Because of Reliance on Third
    Parties for Marketing and Distribution.
       13




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Our
    Reliance on Suppliers and Vendors Could Adversely Affect Our
    Ability to Provide Our Services and Products to Our Clients on a
    Timely and Cost-Efficient Basis.
          The
    Demand for Our Payment Processing Products and Services Could Be
    Negatively Affected by a Reduced Growth of
    e-Commerce
    or Delays in the Development of the Internet
    Infrastructure.
      We
    Could Be Subject to Liability as a Result of Security Breaches,
    Service Interruptions by Cyber Terrorists or Fraudulent or
    Illegal Use of Our Services.
  e-commerce,
 14




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A
    Failure of, Error in or Damage to Our Computer and
    Telecommunications Systems Would Impair Our Ability to Conduct
    Transactions, Payment Processing and Support Services and Harm
    Our Business Operations.
    Changes
    to Credit Card Association and ACH Rules or Practices Could
    Adversely Impact Our Authorize.Net Business.
   15




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We May
    Become a Party to Intellectual Property Infringement Claims,
    Which Could Harm Our Business.
          The
    Success of Our Business Strategy Is Dependent on Our Ability to
    Further Penetrate into the Payment Processing Market and to
    Expand into New or Complementary Markets.
   16




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##### Table of Contents




    growth in our existing and targeted markets;
    our ability to provide products and services to address the
    needs of those markets; and
    competition in those markets.  We
    Have Made and May Continue to Make Acquisitions, Which Involve
    Risks.
    
    We may experience difficulty in integrating and managing
    acquired businesses successfully and in realizing anticipated
    economic, operational and other benefits in a timely manner. The
    need to retain existing clients, employees, and sales and
    distribution channels of an acquired Company and to integrate
    and manage differing corporate cultures can also present
    significant risks. If we are unable to successfully integrate
    and manage acquired businesses, we may incur substantial costs
    and delays or other operational, technical or financial problems.
    Our acquisition of other businesses could significantly reduce
    our available cash and liquidity. In other future acquisitions,
    we may issue equity securities that could be dilutive to our
    shareholders or we may use substantial amounts of our remaining
    cash, which may have an adverse effect on our liquidity. We also
    may incur additional debt and amortization expense related to
    intangible assets as a result of acquisitions. This additional
    debt and amortization expense, as well as the potential
    impairment of any purchased goodwill, may materially and
    adversely affect our business and operating results. We may also
    be required to make continuing investments in acquired products
    or technologies to bring them to market, which may negatively
    affect our cash flows and net income.    
    Acquisitions may divert managements attention from our
    existing business and may damage our relationships with our key
    clients and employees.
    Acquisitions may also result in liabilities including, without
    limitation, intellectual property infringement claims not known
    at the time of acquisition as well as for assumed obligations.  We
    Face Competition from a Broad and Increasing Range of
    Vendors.
    
    providers of online payment processing services, including
    CyberSource Corporation, Plug & Pay Technologies, Inc.,
    PayPal, Inc., Google, Inc. and LinkPoint International, Inc., a
    subsidiary of First Data Corporation. 17




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##### Table of Contents




    providers of ACH services including Fidelity National
    Information Services, Inc., Telecheck International, Inc.,
    CheckFree Corporation and Intuit Inc.        If We
    Do Not Continue to Enhance Our Existing Products and Services,
    and Develop or Acquire New Ones, We Will Not Be Able to Compete
    Effectively.
    
    identify and anticipate emerging technological and market trends
    affecting the markets in which we do business;
    enhance our current products and services in order to increase
    their functionality, features and cost-effectiveness to clients
    that are seeking to control costs and to meet regulatory
    requirements;
    develop or acquire new products and services that meet emerging
    client needs, such as products and services for the online
    market;
    modify our products and services in response to changing
    business practices and technical requirements of our clients, as
    well as to new regulatory requirements;
    integrate our current and future products with third-party
    products; and
    create and maintain interfaces to changing client and third
    party systems.    We and
    Our Clients Must Comply with Complex and Changing Laws and
    Regulations.
   18




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e-commerce,
      e-commerce
    Our
    Quarterly Operating Results May Fluctuate.
        
    how well we execute on our strategy and operating plans;
    changes in the number of transactions we process for our
    customers, including as a result of seasonality, success of each
    customers business, general economic conditions or
    regulatory requirements restricting our customers;
    changes in our pricing policies or those of our competitors;
    relative rates of acquisition of new customers and the loss of
    existing customers;
    delays in the introduction of new or enhanced services, software
    and related products by us or our competitors or market
    acceptance of these products and services; 19




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
    the amount of capital expenditures required to maintain and
    expand our business, operations, and infrastructure; and
    the impact of external factors or events, such as war, cyber
    terrorism or other acts of terrorism.      quarter-to-quarter
  Our
    Success Depends in Part on Our Ability to Protect Our
    Proprietary Technologies.
          Our
    Business May Be Harmed by Errors in Our Software.
   20




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##### Table of Contents




    we may suffer a loss of revenue if, due to software errors, we
    are temporarily unable to provide products or services to our
    merchant customers;
    we may not be paid for the products or services provided to a
    client that contain errors, or we may be liable for losses or
    damages sustained by a customer as a result of such errors;
    we may incur additional unexpected expenses to correct errors in
    our software, or to fund product development projects that we
    may undertake to minimize the occurrences of such errors in the
    future;
    we may damage our relationships with clients or suffer a loss of
    reputation within our industry;
    we may become subject to litigation or regulatory
    scrutiny; and
    our customers may terminate or fail to renew their agreements
    with us or reduce the products and services they purchase from
    us.    Our
    Initiatives to Improve Our Software Design and Development
    Processes May Not Be Successful.
    Changes
    in Management Could Affect Our Ability to Operate Our
    Business.
    We
    Face Significant Competition for a Limited Supply of Qualified
    Software Engineers, Consultants and Sales and Marketing
    Personnel.
   21




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Our
    Business Could Require Additional Financing.
    We May
    Not Be Able to Successfully Manage Operational
    Changes.
    Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties       22




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Item 3.
    Legal
    Proceedings          Item 4.
    Submission
    of Matters to a Vote of Security Holders   PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities  Price
    Range of Common Stock
    High


Low2006First Quarter

$
11.10


$
8.38Second Quarter

$
14.31


$
11.12Third Quarter

$
13.60


$
10.60Fourth Quarter

$
14.03


$
10.962005First Quarter

$
6.35


$
5.74Second Quarter

$
6.79


$
5.73Third Quarter

$
8.10


$
6.50Fourth Quarter

$
9.95


$
7.53  23




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##### Table of Contents



Performance
    Graph
    COMPARISON
    OF 5 YEAR CUMULATIVE TOTAL RETURN*
    Among Lightbridge, Inc., The NASDAQ Composite Index
    And The NASDAQ Computer & Data Processing Index
  
   *
    
    $100 invested on 12/31/01 in stock or index-including
    reinvestment of dividends.
    Fiscal year ending December 31.  Dec-01



Dec-02



Dec-03



Dec-04



Dec-05



Dec-06Lightbridge, Inc.



100.00




50.62




74.90




49.71




68.23




111.44NASDAQ Composite



100.00




68.85




101.86




112.16




115.32




127.52NASDAQ Computer & Data
    Processing



100.00




70.29




89.82




102.40




105.49




119.25   Holders
    Dividend
    Policy
   24




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##### Table of Contents



Issuer
    Purchases of Equity
  (c)Total Number of


(d)Maximum Dollar ValueShares


of Shares(a)Total Number


(b)Average Price


Purchased as


that Mayof Shares


Paid per


Part of Publicly


Yet Be PurchasedPeriod

Purchased


Share


Announced Plan


under the Plan (in thousands)October 1, 2006 
    October 31, 2006














November 1, 2006 
    November 30,
    2006(1)


369


$
13.71







December 1, 2006 
    December 31, 2006














Total


369


$
13.71







15,000        Securities
    Authorized for Issuance under Equity Compensation
    Plans
   25




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Item 6.
    Selected
    Financial Data  Form 10-K. Form 10-K.
    Years Ended December 31,2006


2005


2004


2003


2002(In thousands, except per share amounts)Statement of Operations
    Data:Revenues

$
95,646


$
108,278


$
115,133


$
99,023


$
107,120Cost of revenues


38,795



49,803



58,533



52,624



55,853Gross profit


56,851



58,475



56,600



46,399



51,267Operating expenses:Engineering and development costs


11,259



14,375



18,002



17,150



15,389Sales and marketing


19,571



18,072



17,705



8,960



6,848General and administrative


17,550



15,974



15,758



12,991



15,569Purchased in-process research and
    development










679







Restructuring costs


7,283



1,259



4,069



1,227



3,154Total operating expenses


55,663



49,680



56,213



40,328



40,960Income from operations


1,188



8,795



387



6,071



10,307Interest income


4,883



1,937



935



1,778



2,439Equity in loss of partnership
    investment














(471
)


(464
)Income from continuing operations
    before provision for income taxes


6,071



10,732



1,322



7,378



12,282(Benefit) provision for income taxes


(18,219
)


1,976



8,677



1,889



2,591Income (loss) from continuing
    operations


24,290



8,756



(7,355
)


5,489



9,691Discontinued operations, net of
    income taxes:Gain on sale of Fraud Centurion
    assets










2,673Gain on sale of INS assets






12,689











Income (loss) from operations


468



(2,433
)


(10,723
)


(6,938
)


(6,061
)Total discontinued operations, net
    of income taxes


468



10,256



(8,050
)


(6,938
)


(6,061
)Net income (loss)

$
24,758


$
19,012


$
(15,405
)

$
(1,449
)

$
3,630Net income (loss) per common share
    (basic):From continuing operations

$
0.89


$
0.33


$
(0.28
)

$
0.20


$
0.35From discontinued operations


0.02



0.38



(0.30
)


(0.25
)


(0.22
)Net income (loss) per common share
    (basic)

$
0.91


$
0.71


$
(0.58
)

$
0.05


$
0.13Net income (loss) per common share
    (diluted):From continuing operations

$
0.86


$
0.32


$
(0.28
)

$
0.20


$
0.34From discontinued operations


0.02



0.38



(0.30
)


(0.25
)


(0.21
)Net income (loss) per common share
    (diluted)

$
0.88


$
0.70


$
(0.58
)

$
(0.05
)

$
0.13Basic weighted average shares


27,248



26,670



26,643



27,015



28,030Diluted weighted average shares


28,245



27,282



26,643



27,416



28,433   26




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##### Table of Contents



December 31,2006


2005


2004


2003


2002(In thousands)Balance Sheet Data:Cash, cash equivalents and
    short-term investments

$
116,172


$
84,808


$
51,625


$
133,488


$
133,470Working capital

$
103,966


$
74,156


$
42,997


$
137,684


$
136,501Total assets

$
222,474


$
189,535


$
170,486


$
177,836


$
180,672Long-term obligations, less
    current portion

$
700


$
700


$
149


$
33


$
259Stockholders equity

$
190,315


$
156,953


$
135,667


$
154,503


$
159,641   Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Overview
      IP-based (e-commerce point-of-sale
  ®
    Payment
    Processing and Exit from Telecom Decisioning
    Services
   27




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Set-up
  TDS
      2007
    Developments
    2006
    Developments
     28




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##### Table of Contents



T-Mobile T-Mobile
      Operating
    Segments
    
    Payment Processing Services (Payment Processing) 
    This segment provides a transaction processing system under the
    Authorize.Net®
    brand that allows businesses to authorize, settle and manage
    credit card, electronic check and other electronic payment
    transactions online.
    Telecom Decisioning Services (TDS)  This segment
    provided wireless subscriber qualification, risk assessment,
    fraud screening, consulting services and contact center services
    to telecommunications and other companies. As discussed above,
    we sold the TDS business on February  20, 2007.       29




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Critical
    Accounting Policies and Estimates
  Form 10-K
    Revenue Recognition.
  Allowance for Doubtful Accounts.
  Share-Based Compensation. Share-Based
    Payment
  Internal-use Software.
  Impairment of Long-Lived Assets. Accounting for the Impairment or Disposal of Long-Lived
    Assets
 30




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##### Table of Contents



Income Taxes and Deferred Taxes.
    Restructuring Estimates.
  Goodwill and Acquired Intangible Assets, Impairment of
    Long-lived Assets.
   31




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##### Table of Contents



Results
    of Operations
  Year
    Ended December 31, 2006 Compared with Year Ended
    December 31, 2005
  Revenues.
  Year Ended


Year EndedDecember 31,


December 31,


$


%2006


2005


Difference


Difference(Dollars in thousands)Transaction servicesPayment Processing (Authorize.Net)

$
57,549


$
45,328


$
12,221



27.0
%TDS


35,427



57,493



(22,066
)


(38.4
)Total Transaction services revenues


92,976



102,821



(9,845
)


(9.6
)%Consulting and maintenance servicesTDS


2,670



5,457



(2,787
)


(51.1
)%Total

$
95,646


$
108,278


$
(12,632
)


(11.7
)%   T-Mobile,
      Cost of Revenues and Gross Profit.
 32




---



##### Table of Contents



Year Ended


Year EndedDecember 31,


December 31,


$


%2006


2005


Difference


Difference(Dollars in thousands)Cost of revenues:Transaction services

$
37,396


$
47,263


$
(9,867
)


(20.9
)%Consulting and maintenance services


1,399



2,540



(1,141
)


(44.9
)Total cost of revenues

$
38,795


$
49,803


$
(11,008
)


(22.1
)%Gross profit:Transaction services $

$
55,580


$
55,558


$
22



0.0
%Transaction services %


59.8
%


54.0
%Consulting and maintenance
    services $

$
1,271


$
2,917


$
(1,646
)


(56.4
)%Consulting and maintenance
    services %


47.6
%


53.5
%Total gross profit $

$
56,851


$
58,475


$
(1,624
)


(2.8
)%Total gross profit %


59.4
%


54.0
%            33




---



##### Table of Contents



Operating Expenses.
  Year Ended


Year EndedDecember 31,


December 31,


$


%2006


2005


Difference


Difference(Dollars in thousands)Engineering and development

$
11,259


$
14,375


$
(3,116
)


(21.7
)%Sales and marketing


19,571



18,072



1,499



8.3General and administrative


17,550



15,974



1,576



9.9Restructuring


7,283



1,259



6,024



478.5Total

$
55,663


$
49,680


$
5,983



12.0
%   Engineering and Development.
    Sales and Marketing.
    General and Administrative.
    Restructuring.
  Interest Income.
  (Benefit) Provision for Income Taxes.
 34




---



##### Table of Contents



Year
    Ended December 31, 2005 Compared with Year Ended
    December 31, 2004
  Revenues.
  Year Ended


Year EndedDecember 31,


December 31,


$


%2005


2004


Difference


Difference(Dollars in thousands)Transaction servicesPayment Processing (Authorize.NET)

$
45,328


$
26,836


$
18,492



68.9
%TDS


57,493



76,812



(19,319
)


(25.2
)Total Transaction services revenues


102,821



103,648



(827
)


(0.8
)Consulting and maintenance servicesTDS


5,457



9,851



(4,394
)


(44.6
)Software licensing and hardware






1,634



(1,634
)


(100
)%Total

$
108,278


$
115,133


$
(6,855
)


(6.0
)%      35




---



##### Table of Contents



Cost of Revenues and Gross Profit.
  Year Ended


Year EndedDecember 31,


December 31,


$


%2005


2004


Difference


Difference(Dollars in thousands)Cost of revenues:Transaction services

$
47,263


$
54,127


$
(6,864
)


(12.7
)%Consulting and maintenance services


2,540



4,393



(1,853
)


(42.2
)Software licensing and hardware






13



(13
)


(100
)Total cost of revenues

$
49,803


$
58,533


$
(8,730
)


(14.9
)%Gross profit:Transaction services $

$
55,558


$
49,521


$
6,037



12.2
%Transaction services %


54.0
%


47.8
%Consulting and maintenance
    services $

$
2,917


$
5,458


$
(2,541
)


(46.6
)%Consulting and maintenance
    services %


53.5
%


55.4
%Software licensing and hardware $

$
N/A


$
1,621


$
(1,621
)


(100
)%Software licensing and hardware %


N/A



99.2
%Total gross profit $

$
58,475


$
56,600


$
1,875



3.3
%Total gross profit %


54.0
%


49.2
%        36




---



##### Table of Contents



Operating Expenses.
  Year Ended


Year EndedDecember 31,


December 31,


$


%2005


2004


Difference


Difference(Dollars in thousands)Engineering and development

$
14,375


$
18,002


$
(3,627
)


(20.1
)%Sales and marketing


18,072



17,705



367



2.1General and administrative


15,974



15,758



216



1.4Restructuring


1,259



4,069



(2,810
)


(69.1
)Purchased in-process research and
    development






679



(679
)


(100
)Total

$
49,680


$
56,213


$
(6,533
)


(11.6
)%   Engineering and Development.
  Sales and Marketing.
  General and Administrative.
  Restructuring.
  Purchased In-Process Research and Development
    (IPR&D).
   37




---



##### Table of Contents



Interest Income.
  Provision for Income Taxes.
  Discontinued
    Operations
  INS Segment
    Instant Conferencing Segment
    Liquidity
    and Capital Resources
   38




---



##### Table of Contents



Less Than








More ThanTotal


1 Year


1-3 Years


3-5 Years


5 Years(Dollars in thousands)Operating leases

$
12,963


$
3,895


$
7,382


$
1,686



       ®
   39




---



##### Table of Contents



Restructuring
    and Related Asset Impairments
    Employee Severanceand Termination


Facility Closing


AssetBenefits


and Related Costs


Impairment


TotalAccrued restructuring balance at
    January 1, 2004

$



$
985


$



$
985Restructuring accrual 
    January 2004


488











488Restructuring accrual 
    September 2004


2,090











2,090Restructuring accrual 
    December 2004


1,410



178







1,588Cash payments


(1,784
)


(841
)






(2,625
)Restructuring adjustments






(36
)






(36
)Accrued restructuring balance at
    December 31, 2004

$
2,204


$
286


$



$
2,490Restructuring accrual 
    January 2005


70



302







372Restructuring accrual 
    September 2005






1,037



654



1,691Impairment of assets










(654
)


(654
)Cash payments


(2,082
)


(650
)






(2,732
)Restructuring adjustments


(175
)


(3
)






(178
)Accrued restructuring balance at
    December 31, 2005

$
17


$
972


$



$
989Restructuring accrual 
    January 2006


1,396











1,396Restructuring accrual 
    May 2006


61







862



923Restructuring accrual 
    August 2006


296



301



211



808Restructuring accrual 
    September 2006










2,402



2,402Restructuring accrual 
    October 2006


1,705



71







1,776Impairment of assets










(3,475
)


(3,475
)Cash payments


(2,454
)


(657
)






(3,111
)Restructuring adjustments






59







59Accrued restructuring balance at
    December 31, 2006

$
1,021


$
746


$



$
1,767    40




---



##### Table of Contents



41




---



##### Table of Contents



Off-Balance
    Sheet Arrangements
    Inflation
    New
    Accounting Pronouncements
  Accounting for Uncertainty in Income Taxes 
    an interpretation of FASB Statement No. 109
  Fair Value Measurements
  Considering the Effects of
    Prior Years Misstatements in Current Year Financial
    Statements
  The Fair Value Option for Financial Assets and
    Financial Liabilities
 42




---



##### Table of Contents



Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk        Item 8.
    Financial
    Statements and Supplementary Data  Form 10-K.
  Item 9.
    Changes
    In and Disagreements With Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  (a)
    Evaluation
    of Disclosure Controls and Procedures  Rules 13a-15(e) 15d-15(e)
  (b)
    Managements
    Annual Report on Internal Control Over Financial
    Reporting  Rules 13a-15(f).
   43




---



##### Table of Contents



(c)
    Changes
    in Internal Control Over Financial Reporting    (d)
    Inherent
    Limitations of Disclosure Controls and Internal Control Over
    Financial Reporting   44




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
      Internal Control 
    Integrated Framework
        Internal
    Control  Integrated Framework Internal Control  Integrated
    Framework
 45




---



##### Table of Contents



Share-Based
    Payment
  Deloitte & Touche LLP
    46




---



##### Table of Contents



Item
    9B.  Other Information   PART III  Item 10.
    Directors
    and Executive Officers of the Registrant    Item 11.
    Executive
    Compensation    Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters    Item 13.
    Certain
    Relationships and Related Transactions    Item 14.
    Principal
    Accountant Fees and Services   PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules  Documents filed as part of this report
    Report of
    Independent Registered Public Accounting Firm 
    Deloitte & Touche LLP


F-1Consolidated
    Balance Sheets as of December 31, 2006 and 2005


F-2Consolidated
    Statements of Operations for the years ended December 31,
    2006, 2005 and 2004


F-3Consolidated
    Statements of Stockholders Equity for the years ended
    December 31, 2006, 2005 and 2004


F-4Consolidated
    Statements of Cash Flows for the years ended December 31,
    2006, 2005 and 2004


F-5Notes to
    Consolidated Financial Statements


F-6   Consolidated Financial Statement Schedules
   47




---



##### Table of Contents



Filed with

Incorporated by Referencethis





ExhibitExhibit No.

Description

Form 10-K

Form

Filing Date

No.2
.1

Stock Sale Agreement dated
    February 29, 2004 with InfoSpace, Inc., Go2Net, Inc.,
    Authorize.Net Corporation



8-K

March 9, 2004


2
.12
.2

Asset Purchase Agreement dated
    April 25, 2005 with VeriSign, Inc.



8-K

June 20, 2005


10
.13
.1

Amended and Restated Certificate
    of Incorporation



S-1

August 27, 1996


3
.23
.2

Amended and Restated By-Laws



S-1

June 21, 1996


3
.43
.3

Amendment to Amended and Restated
    By-Laws, adopted October 29, 1998



10-Q

November 13, 1998


3
.14
.1

Specimen Common Stock Certificate



S-1

August 27, 1996


4
.14
.2

Rights Agreement dated
    November 14, 1997 with American Stock Transfer and Trust
    Company as Rights Agent



8-A

November 21, 1997


14
.3

Form of Certificate of Designation
    of Series A Participating Cumulative Preferred Stock



8-A

November 21, 1997


A4
.4

Form of Rights Certificate



8-A

November 21, 1997


B4
.5

Amendment No. 1 to Rights
    Agreement dated November 14, 1997 with American Stock
    Transfer and Trust Company as Rights Agent



8-K

January 30, 2007


4
.110
.1*

1990 Incentive and Nonqualified
    Stock Option Plan



S-1

August 9, 1996


10
.610
.2*

1996 Incentive and Non-Qualified
    Stock Option Plan



S-1

August 9, 1996


10
.710
.3*

Amendment to 1996 Incentive and
    Non-Qualified Stock Option Plan



S-8

August 11, 2000


4
.810
.4*

Amendment to 1996 Incentive and
    Non-Qualified Stock Option Plan



10-Q

May 15, 2001


10
.110
.5*

1996 Employee Stock Purchase Plan



S-1

August 9, 1996


10
.810
.6*

Amendments to 1996 Stock Purchase
    Plan, as amended



10-Q

August 14, 2001


10
.110
.7*

Amendment to 1996 Stock Purchase
    Plan, as amended



10-Q

November 14, 2002


10
.110
.8*

Amendment to 1996 Stock Purchase
    Plan, as amended



10-Q

August 9, 2004


10
.210
.9*

1998 Non-Statutory Stock Option
    Plan



10-Q

August 14, 2000


10
.510
.10*

Amendment to 1998 Non-Statutory
    Stock Option Plan, as amended, effective November 16, 2000



10-K

April 2, 2001


10
.2210
.11*

2004 Stock Incentive Plan



Def.14A

April 29, 2004


10
.12*

Terms and Conditions of Stock
    Options Granted under the 2004 Stock Incentive Plan



10-Q

November 9, 2004


10
.410
.13*

Form of Notice of Grant of Stock
    Options Granted under the 2004 Stock Incentive Plan



10-Q

November 9, 2004


10
.5 48




---



##### Table of Contents



Filed with

Incorporated by Referencethis





ExhibitExhibit No.

Description

Form 10-K

Form

Filing Date

No.10
.14*

Form of Notice of Stock Option
    Grants to Directors



8-K

February 22, 2005


10
.210
.15*

Corporate Executive Incentive Plan
    for People Managers and Senior Individual Contributors Grade 9
    and above dated January 1, 2006



8-K

February 21, 2006


99
.110
.16*

Business Unit Incentive Plan for
    People Managers and Senior Individual Contributors Grade 9 and
    above dated January 1, 2006



8-K

February 21, 2006


99
.210
.17*

Form of Executive Retention
    Agreement dated May 23, 2005 with each of Timothy C.
    OBrien, Eugene J. DiDonato and Roy Banks



8-K

May 25, 2005


10
.110
.18*

Employment Agreement dated
    August 2, 2004 with Robert E. Donahue



10-Q

November 9, 2004


10
.210
.19*

Employment Agreement dated
    January 7, 2005 with Robert E. Donahue



8-K

January 13, 2005


10
.110
.20*

Amendment to Employment Agreement
    dated January 12, 2007 with Robert E. Donahue

X10
.21*

Employees Restricted Stock
    Agreement dated May 9, 2006



8-K

May 11, 2006


10
.110
.22*

Oldham Offer Letter



8-K

September 6, 2006


10
.110
.23*

Departure of Don Oldham



8-K

November 28, 2006


9
.0110
.24

Settlement Agreement dated
    May 19, 2005 with Lucent Technologies, Inc.



8-K

May 25, 2005


10
.210
.25

Office Building Lease dated
    March 12, 1998 with 8900 Grantline Road Investors



10-Q

May 1, 1998


10
.110
.26

Office Lease dated August 15,
    2000 with Arthur Pappathanasi, trustee of 330 Scangus Nominee
    Trust



10-Q

November 8, 2000


10
.1 49




---



##### Table of Contents



Filed with

Incorporated by Referencethis





ExhibitExhibit No.

Description

Form 10-K

Form

Filing Date

No.10
.27

Second Amendment of Office Lease
    dated September 7, 2005 with Arthur Pappathanasi, trustee
    of 330 Scangus Nominee Trust



8-K

September 12, 2005


10
.110
.28

Office Building Lease dated
    December 23, 2003 with Corporate Drive Corporation, as
    trustee of Corporate Drive Nominee Realty Trust



10-K

March 15, 2004


10
.3210
.29

Lease dated February 10, 2004
    with Region of Queens Municipality, LTBG TeleServices ULC



10-Q

May 10, 2004


10
.310
.30

Office Lease dated August 10,
    2004 with EOP Operating Limited Partnership



10-Q

November 9, 2004


10
.310
.31

First Amendment to Office Lease
    dated May 3, 2005 with EOP Operating Limited Partnership



10-Q

November 4, 2005


99
.110
.32

Utah Commercial Lease dated
    October 27, 2005 between Authorize.Net Corp. and
    Scarborough Building LLC



8-K

November 1, 2005


10
.110
.33

Sublease Agreement with Oracle
    USA, Inc. dated November 7, 2005



8-K

November 15, 2005


10
.110
.34

Early Lease Termination Agreement
    with Region of Queens Municipality for Liverpool, Nova Scotia
    Premises



8-K

August 17, 2006


10
.110
.35

Confidential Settlement Agreement
    dated May 22, 2006 by and among NetMoneyIN, Inc. and
    Infospace, Inc.,
    E-Commerce
    Exchange LLC, Lightbridge, Inc. and Authorize.Net corp



8-K

May 25, 2006


10
.110
.36

Asset Purchase Agreement dated
    February 20, 2007 between Vesta Corporation and
    Lightbridge, Inc.

X10
.37*

2007 Incentive Plan dated
    January 1, 2007

X23
.1

Consent of Independent Registered
    Public Accounting Firm

X24
.1

Power of Attorney (on signature
    page)

X31
.1

Certification of the chief
    executive officer pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002

X31
.2

Certification of the chief
    financial officer pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002

X32
.1

Certification of the chief
    executive officer and the chief financial officer pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002

X99
.1

Sublease Agreement dated as of
    February 8, 2007 by and between Lightbridge, Inc. and By
    Appointment Only, Inc., as amended



8-K

February 14, 2007


99
.1  50




---



##### Table of Contents



*
    
    Management contract or compensatory plan. 51




---



##### Table of Contents



SIGNATURES      By:
    /s/  Robert
    E. Donahue   President and Chief Executive Officer
  attorney-in-fact Form 10-K Form 10-K attorney-in-fact
    Name

Title

Date/s/  Timothy
    C.
    OBrienTimothy
    C. OBrien

Vice President, Finance and
    Administration, Chief Financial Officer and Treasurer (Principal
    Financial and Accounting Officer)

March 15, 2007/s/  Robert
    E. DonahueRobert
    E. Donahue

President, Chief Executive Officer
    and Director (Principal Executive Officer)

March 15, 2007/s/  Rachelle
    B. ChongRachelle
    B. Chong

Director

March 15, 2007/s/  Gary
    HaroianGary
    Haroian

Director

March 15, 2007/s/  Kevin
    C. MeliaKevin
    C. Melia

Director

March 15, 2007/s/  Andrew
    G. MillsAndrew
    G. Mills

Director

March 15, 2007  52




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM            Share-Based Payment
  Internal Control 
    Integrated Framework
  
    F-1




---



##### Table of Contents



LIGHTBRIDGE,
    INC. AND SUBSIDIARIES



CONSOLIDATED
    BALANCE SHEETS  December 31,2006


2005(Amounts in thousands except share and per share amounts)ASSETSCurrent assets:Cash and cash equivalents

$
116,172


$
83,120Short-term investments






1,688Accounts receivable, net


5,010



11,911Deferred tax assets


4,690



Other current assets


1,871



3,432Total current assets


127,743



100,151Property and equipment, net


4,907



10,804Other assets, net


459



438Restricted cash


500



2,100Goodwill


57,628



57,628Intangible assets, net


15,582



18,414Deferred tax assets


15,655



Total assets

$
222,474


$
189,535LIABILITIES AND
    STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
1,879


$
3,448Accrued compensation and benefits


3,690



5,724Other accrued liabilities


4,689



5,203Deferred rent


606



656Deferred revenues


2,395



2,863Funds due to merchants


8,751



7,112Accrued restructuring


1,767



989Total current liabilities


23,777



25,995Deferred rent, less current portion


1,957



2,548Deferred tax liabilities


4,754



3,074Deferred revenues, less current
    portion


971



265Other long-term liabilities


700



700Total liabilities


32,159



32,582Commitments and contingencies
    (Note 11)Stockholders equity:Preferred stock, $0.01 par
    value; 5,000,000 shares authorized; no shares issued or
    outstanding at December 31, 2006 and 2005






Common stock, $0.01 par
    value; 60,000,000 shares authorized; 30,888,910 and
    30,259,882 shares issued and 27,448,926 and
    26,820,839 shares outstanding at December 31, 2006 and
    2005, respectively


309



303Additional paid-in capital


178,196



169,648Accumulated other comprehensive
    income


171



110Retained earnings


32,437



7,679Treasury stock, at cost


(20,798
)


(20,787
)Total stockholders equity


190,315



156,953Total liabilities and
    stockholders equity

$
222,474


$
189,535    F-2




---



##### Table of Contents



LIGHTBRIDGE,
    INC. AND SUBSIDIARIES



CONSOLIDATED
    STATEMENTS OF OPERATIONS  Years Ended December 312006


2005


2004(Amounts in thousandsexcept per share amounts)Revenues:Transaction services

$
92,976


$
102,821


$
103,648Consulting and maintenance services


2,670



5,457



9,851Software licensing and hardware










1,634Total revenues


95,646



108,278



115,133Cost of revenues:Transaction services


37,396



47,263



54,127Consulting and maintenance services


1,399



2,540



4,393Software licensing and hardware










13Total cost of revenues


38,795



49,803



58,533Gross profit:Transaction services


55,580



55,558



49,521Consulting and maintenance services


1,271



2,917



5,458Software licensing and hardware










1,621Total gross profit


56,851



58,475



56,600Operating expenses:Engineering and development


11,259



14,375



18,002Sales and marketing


19,571



18,072



17,705General and administrative


17,550



15,974



15,758Purchased in-process research and
    development










679Restructuring charges and related
    asset impairments


7,283



1,259



4,069Total operating expenses


55,663



49,680



56,213Income from operations


1,188



8,795



387Interest income, net


4,883



1,937



935Income from continuing operations
    before (benefit) provision for income taxes


6,071



10,732



1,322(Benefit) provision for income
    taxes


(18,219
)


1,976



8,677Income (loss) from continuing
    operations


24,290



8,756



(7,355
)Discontinued operations, net of
    income taxes:Gain on sale of Fraud Centurion
    assets










2,673Gain on sale of INS business






12,689



Income (loss) from operations


468



(2,433
)


(10,723
)Total discontinued operations, net
    of income taxes


468



10,256



(8,050
)Net income (loss)

$
24,758


$
19,012


$
(15,405
)Net income (loss) per common
    shares (basic):From continuing operations

$
0.89


$
0.33


$
(0.28
)From discontinued operations


0.02



0.38



(0.30
)Net income (loss) per common share
    (basic)

$
0.91


$
0.71


$
(0.58
)Net income (loss) per common share
    (diluted):From continuing operations

$
0.86


$
0.32


$
(0.28
)From discontinued operations


0.02



0.38



(0.30
)Net income (loss) per common share
    (diluted):

$
0.88


$
0.70


$
(0.58
)Basic weighted average shares


27,248



26,670



26,643Diluted weighted average shares


28,245



27,282



26,643    F-3




---



##### Table of Contents



LIGHTBRIDGE,
    INC. AND SUBSIDIARIES



CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY  Accumulated


RetainedAdditional





Other


Earnings








TotalCommon Stock


Paid-in





Comprehensive


(Accumulated


Treasury Stock


StockholdersShares


Amount


Capital


Warrants


Income/(Loss)


Deficit)


Shares


Amount


Equity(Amounts in thousands)Balance, January 1,
    2004


29,648


$
298


$
166,882


$
206






$
4,072



2,804


$
(16,955
)

$
154,503Net loss






















(15,405
)










(15,405
)Foreign currency loss


















(184
)














(184
)Total comprehensive loss


































(15,589
)Issuance of common stock under
    employee stock purchase plan


84







395























395Exercise of common stock options


220



2



148























150Repurchase of common stock


























635



(3,832
)


(3,832
)Tax benefit from disqualifying
    dispositions of stock options










40























40Balance, December 31,
    2004


29,952



300



167,465



206



(184
)


(11,333
)


3,439



(20,787
)


135,667Net income






















19,012











19,012Foreign currency gain


















314















314Unrealized loss on short-term
    investments


















(20
)














(20
)Total comprehensive income


































19,306Issuance of common stock under
    employee stock purchase plan


73







290























290Exercise of common stock options


235



3



1,273























1,276Expiration of warrants










206



(206
)


















Share-based compensation










414























414Balance, December 31,
    2005


30,260



303



169,648







110



7,679



3,439



(20,787
)


156,953Net income






















24,758











24,758Foreign currency gain


















41















41Change in unrealized loss


















20















20Total comprehensive income


































24,819Issuance of common stock under
    employee stock purchase plan


20







126























126Exercise of common stock options


605



6



4,451























4,457Issuance of restricted stock awards


4































Repurchase of restricted common
    stock


























1



(11
)


(11
)Share-based compensation










3,971























3,971Balance, December 31,
    2006


30,889


$
309


$
178,196


$



$
171


$
32,437



3,440


$
(20,798
)

$
190,315    F-4




---



##### Table of Contents



LIGHTBRIDGE,
    INC. AND SUBSIDIARIES



CONSOLIDATED
    STATEMENTS OF CASH FLOWS  Years Ended December 31,2006


2005


2004(Amounts in thousands)Cash flows from operating
    activities:Net income (loss)

$
24,758


$
19,012


$
(15,405
)Income (loss) from discontinued
    operations


468



10,256



(8,050
)Income (loss) from continuing
    operations


24,290



8,756



(7,355
)Adjustments to reconcile net
    income (loss) to net cash provided by operating activities of
    continuing operations:Purchased in-process research and
    development










679Depreciation and amortization


7,539



8,968



9,859Asset impairment related to
    restructuring


3,475



654



Deferred income taxes


(18,665
)


1,813



9,081Loss on disposal of property and
    equipment






17



63Tax benefit from disqualifying
    dispositions of stock options










40Shared-based compensation expense


3,971



414



Changes in assets and liabilities:Accounts receivable


6,901



2,457



5,281Other assets


1,496



(1,485
)


248Accounts payable and accrued
    liabilities


(3,344
)


(342
)


1,648Funds due to merchants


1,639



1,554



(839
)Deferred rent


(641
)


404



4,301Deferred revenues


238



532



353Other liabilities






816



116Net cash provided by operating
    activities of continuing operations


26,899



24,558



23,475Cash flows from investing
    activities of continuing operations:Purchases of property and equipment


(2,157
)


(3,139
)


(13,764
)Change in restricted cash


1,600



(1,500
)


(600
)Purchase of short-term investments


(520
)


(3,928
)


(33,490
)Proceeds from sales and maturities
    of short-term investments


2,208



14,829



84,705Acquisition of Authorize.Net, less
    cash received










(77,510
)Net cash provided by (used in)
    investing activities of continuing operations


1,131



6,262



(40,659
)Cash flows from financing
    activities of continuing operations:Proceeds from issuance of common
    stock


4,583



1,566



545Repurchase of restricted common
    stock


(11
)






(3,832
)Net cash provided by (used in)
    financing activities of continuing operations


4,572



1,566



(3,287
)Effects of foreign exchange rate
    changes on cash and cash equivalents


(18
)


270



(192
)Net cash provided by (used in)
    operating activities of discontinued operations


468



(3,589
)


(12,360
)Net cash provided by investing
    activities of discontinued operations






15,017



2,374Net increase (decrease) in cash
    and cash equivalents


33,052



44,084



(30,649
)Cash and cash equivalents,
    beginning of year


83,120



39,036



69,685Cash and cash equivalents, end of
    year

$
116,172


$
83,120


$
39,036    F-5




---



##### Table of Contents



LIGHTBRIDGE,
    INC. AND SUBSIDIARIES



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  1.
    Business  Business
  2.
    Summary
    of Significant Accounting Policies  Basis of Presentation and Principles of
    Consolidation
  Significant Estimates
  Financial Instruments
  Cash and Cash Equivalents
  Short-Term Investments available-for-sale.
  Gross


Gross


FairUnrealized


Unrealized


MarketCost


Gains


Losses


ValueDecember 31, 2005:Corporate debt securities

$
710


$



$
(8
)

$
702Government securities


998







(12
)


986$
1,708


$



$
(20
)

$
1,688   other-than-temporary
  Property and Equipment
 F-6




---



##### Table of Contents



LIGHTBRIDGE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Deferred Rent
  Revenue Recognition and Concentration of Credit
    Risk
  set-up Set-up
  EITF 99-19, Reporting Revenue Gross as a Principal versus Net as an
    Agent
  project-by-project
   F-7




---



##### Table of Contents



LIGHTBRIDGE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Years EndedDecember 31,2006


2005


2004Balance at beginning of year

$
1,147


$
1,075


$
944Provisioning


707



762



(255
)Actual Activity


(966
)


(690
)


386Balance at end of year

$
888


$
1,147


$
1,075     Years Ended December 31,2006


2005


2004Sprint Spectrum L.P. /Nextel
    Operations. Inc.(1)


20
%


33
%


37
%AT&T Wireless Services,
    Inc.



*



*


18Total % of Revenues from
    greater-than-10% customers


20
%


33
%


55
%     (1)
    
    Sprint Spectrum L.P. and Nextel Operations, Inc. merged on
    August 12, 2005.*
    
    Represents less than 10% of revenue.  Goodwill and Acquired Intangible Assets
   F-8




---



##### Table of Contents



LIGHTBRIDGE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     December 31, 2006


December 31, 2005Accumulated








AccumulatedGross


Amortization


Net


Gross


Amortization


NetAmortizable intangible assets:Outside sales partner network

$
9,300


$
(2,131
)

$
7,169


$
9,300


$
(1,356
)

$
7,944Merchant customer base


7,000



(3,850
)


3,150



7,000



(2,450
)


4,550Existing technology


3,162



(1,730
)


1,432



3,162



(1,098
)


2,064Processor relationships


300



(69
)


231



300



(44
)


256Unamortized intangible assets:Trademarks


3,600







3,600



3,600







3,600$
23,362


$
(7,780
)

$
15,582


$
23,362


$
(4,948
)

$
18,414       Amortization2007

$
2,8322008


2,8332009


1,3172010


8002011


800Thereafter


3,400Total future amortization expense

$
11,982   Income Taxes
  Development Costs
  Internal Use Software No. 98-1, Accounting for the Cost of Computer Software Developed or
    Obtained for Internal Use SOP No. 98-1
   F-9




---



##### Table of Contents



LIGHTBRIDGE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Foreign Currency Translation Foreign Currency Translation.
  Supplemental
    Cash Flow Information
  Years Ended December 31,2006


2005


2004(In thousands)Supplemental Item:Cash paid for income taxes

$
345


$
1,481


$
2,004   Advertising Expenses
  Impairment of Long-Lived Assets Accounting for the Impairment
    or Disposal of Long-Lived Assets
  Accumulated Other Comprehensive Income (Loss) 
  Years Ended December 31,2006


2005


2004Unrealized gain (loss) on
    short-term investments






(20
)


Foreign currency gain (loss)


171



130



(184
)Accumulated other comprehensive
    income (loss)

$
171


$
110


$
(184
)   Recent
    Accounting Pronouncements
  Accounting for Uncertainty in Income Taxes 
    an interpretation of FASB Statement No. 109
 F-10




---



##### Table of Contents



LIGHTBRIDGE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Fair Value Measurements
  Considering the Effects of Prior Years Misstatements in
    Current Year Financial Statements
  The Fair Value Option for Financial Assets and
    Financial Liabilities
  3.
    Exit From
    The Telecom Decisioning Services (TDS) Business       F-11




---



##### Table of Contents



LIGHTBRIDGE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Total current assets

$
2,519Property and equipment, net


469Total other assets


41Total assets

$
3,029Total current liabilities


2,594Total liabilities

$
2,594   4.
    Share-Based
    Compensation  Stock
    Option Plans
  Stock Incentive Plans
  10-year
  Employee Stock Purchase Plan
    Stock
    Option Valuation and Expense Information under
    SFAS No. 123(R)
  Share-Based
    Payment,
 F-12




---



##### Table of Contents



LIGHTBRIDGE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Accounting for Stock Issued to
    Employees, Accounting for Stock-Based
    Compensation, Accounting for Stock-Based Compensation 
    Transition and Disclosure. Form 10-K
  Transition Election Related
    to Accounting for the Tax Effects of Share-Based Payment
    Awards
      The YearEndedDecember 31,2006Cost of revenues

$
249Engineering and development


439Sales and marketing


119General and administrative


3,164Share-based compensation expense

$
3,971    F-13




---



##### Table of Contents



LIGHTBRIDGE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     For the Year EndedDecember 31, 2006Employee StockStock Options

Purchase Plan(1)Expected term (years)

6.25


0.50Expected volatility

56%-62%


38
%Risk-free interest rate (range)

4.3 - 5.2%


4.6
%Expected dividend yield

0.0%


0.0
%       (1)
    
    The 1996 Employee Stock Purchase Plan was terminated upon
    expiration of the offering period ended January 31, 2006.    Share
    Awards
      WeightedNumber of


AverageShares


Fair ValueNon-vested at January 1, 2006





$
Granted


30,000



13.17Vested


3,750



13.17Forfeited






Non-vested at December 31,
    2006


26,250


$
13.17  F-14




---



##### Table of Contents



LIGHTBRIDGE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Stock
    Option Pro Forma Information under SFAS 123
    2005


2004(In thousands, expect per share amounts)Income (loss) from continuing
    operations as reported

$
8,756


$
(7,355
)Add: Stock-based compensation
    included in income (loss) from continuing operations


414



Deduct: Total stock-based employee
    compensation expense determined under fair value method


(2,331
)


(2,754
)Pro forma income (loss) from
    continuing operations

$
6,839


$
(10,109
)Income (loss) from continuing
    operations per common share  basic as reported

$
0.33


$
(0.28
)Income (loss) from continuing
    operations per common share  diluted as reported

$
0.32


$
(0.28
)Income (loss) from continuing
    operations per common share  basic pro forma

$
0.26


$
(0.38
)Income (loss) from continuing
    operations per common share  diluted proforma

$
0.25


$
(0.38
)Net income (loss) as reported

$
19,012


$
(15,405
)Add: Stock-based compensation
    included in net income (loss)


414



Deduct: Total stock-based employee
    compensation expense determined under fair value method


(2,520
)


(3,272
)Pro forma net income (loss)

$
16,906


$
(18,677
)Net income (loss) per common
    share  basic as reported

$
0.71


$
(0.58
)Net income (loss) per common
    share  diluted as reported

$
0.70


$
(0.58
)Net income (loss) per common
    share  basic pro forma

$
0.63


$
(0.70
)Net income (loss) per common
    share  diluted pro forma

$
0.62


$
(0.70
)     2005

2004Risk-free interest rate

3.68%  4.47%

1.9%  3.4%Expected life of options grants

1-5 years

1-5 yearsExpected volatility

55%  68%

82%Expected dividend payment rate, as
    a percentage of the stock price on the date of grant

0%

0%  F-15




---



##### Table of Contents



LIGHTBRIDGE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Weighted-Weighted-


AverageAverage


Remaining


AggregateExercise


Contractual


IntrinsicShares


Price


Term


Value(In thousands)








(In thousands)Outstanding at January 1, 2004


3,329


$
10.12Granted


2,905



5.71Exercised


(220
)


0.68Forfeited or expired


(1,331
)


9.15Outstanding at December 31,
    2004


4,683



8.00Granted


1,243



6.26Exercised


(235
)


7.25Forfeited or expired


(1,870
)


8.74Outstanding at December 31,
    2005


3,821



7.23Granted


775



11.42Exercised


(605
)


7.36Forfeited or expired


(996
)


10.30Outstanding at December 31,
    2006


2,995


$
7.29



7.65


$
19,097Vested or expected to vest at
    December 31, 2006


2,673


$
7.19



7.15


$
17,338     Options exercisable at
    December 31, 2004


2,502


$
10.05Options exercisable at
    December 31, 2005


2,012


$
8.51Options exercisable at
    December 31, 2006


1,655


$
6.92



7.13


$
11,322  F-16




---



##### Table of Contents



LIGHTBRIDGE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Weighted





WeightedAverage





AverageWeighted


Remaining





ExerciseAverage


Contractual


Number


Price forNumber of


Range of


Exercise


Life


Currently


CurrentlyOptions


Exercise Prices


Price


(Years)


Exercisable


Exercisable(In thousands)











(In thousands)12


$
3.75


$
3.75



7.62



6


$
3.75300



3.76



3.76



7.59



300



3.76547



4.44 - 5.50



5.10



7.44



302



5.13217



5.60 - 6.10



5.87



7.27



151



5.85400



6.11



6.11



8.02



159



6.11339



6.16



6.16



7.95



147



6.16336



6.17 - 7.70



6.81



7.47



206



6.86393



7.72 - 9.78



9.36



7.62



186



9.06348



9.81 - 13.17



12.45



8.17



111



12.14103



13.37 - 37.32



17.14



6.24



87



17.682,995






$
7.29



7.65



1,655


$
6.92       with-and-without with-and-without
  5.
    Discontinued
    Operations  Intelligent
    Network Solutions (INS) Business
    Guarantors Accounting and
    Disclosure Requirements for
 F-17




---



##### Table of Contents



LIGHTBRIDGE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Guarantees, Including Indirect Guarantees of Indebtedness of
    Others, Accounting
    for the Impairment or Disposal of Long-Lived Assets,
    Instant
    Conferencing Business
        Years Ended December 31,2006


2005


2004Results of operations:Total gross profit

$
468


$
4,336


$
8,565Total operating expenses(1)






6,769



19,288Income (losses) from operation of
    discontinued operations


468



(2,433
)


(10,723
)     (1)
    
    2004 includes approximately $2.3 million of goodwill and
    intangible asset impairment charges.  6.
    Disclosures
    About Segments of an Enterprise and Related
    Information   F-18




---



##### Table of Contents



LIGHTBRIDGE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    ®
      Sub-TotalPayment


Reportable


Reconciling


ConsolidatedDecember 31, 2006

TDS


Processing


Segments


Items


TotalRevenues

$
38,097


$
57,549


$
95,646


$



$
95,646Gross profit


11,938



45,162



57,100



(249
)(1)


56,851Operating income (loss)


5,057



17,909



22,966



(21,778
)(2)


1,188Depreciation and amortization


2,394



4,451



6,845



694
(3)


7,539   Sub-TotalPayment


Reportable


Reconciling


ConsolidatedDecember 31, 2005

TDS


Processing


Segments


Items


TotalRevenues

$
62,950


$
45,328


$
108,278


$



$
108,278Gross profit


23,049



35,426



58,475







58,475Operating income (loss)


11,275



11,378



22,653



(13,858
)(2)


8,795Depreciation and amortization


3,982



4,246



8,228



740
(3)


8,968   Sub-TotalPayment


Reportable


Reconciling


ConsolidatedDecember 31, 2004

TDS


Processing


Segments


Items


TotalRevenues

$
88,297


$
26,836


$
115,133


$



$
115,133Gross profit


37,020



19,580



56,600







56,600Operating income (loss)


16,118



3,560



19,678



(19,291
)(2)


387Depreciation and amortization


5,760



3,086



8,846



1,013
(3)


9,859     (1)
    
    Represents share-based compensation included in the unallocated
    gross profit.(2)
    
    Reconciling items from segment operating income to consolidated
    operating income include the following (amounts in thousands).  F-19




---



##### Table of Contents



LIGHTBRIDGE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  2006


2005


2004Restructuring charges &
    related asset impairments

$
7,283


$
1,259


$
4,069Litigation settlement, net


1,500







Unallocated corporate and
    centralized sales and marketing, general and administrative
    expenses


9,024



12,185



15,222Unallocated share-based
    compensation


3,971



414



Total

$
21,778


$
13,858


$
19,291   (3)
    
    Represents depreciation and amortization included in the
    unallocated corporate or centralized marketing, general and
    administrative expenses.  7.
    Funds Due
    to Merchants  ®
    8.
    Property
    and Equipment    2006


2005Furniture and fixtures

$
2,375


$
2,685Leasehold improvements


3,204



6,917Computer equipment


16,367



18,000Computer software


6,859



6,915Internally developed software


857



35029,662



34,867Less accumulated depreciation and
    amortization


(24,755
)


(24,063
)Property and equipment, net

$
4,907


$
10,804    F-20




---



##### Table of Contents



LIGHTBRIDGE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   9.
    Letter of
    Credit    10.
    Restructuring
    Costs    Employee Severanceand Termination


Facility Closing


AssetBenefits


and Related Costs


Impairment


TotalAccrued restructuring balance at
    January 1, 2004

$



$
985


$



$
985Restructuring accrual 
    January 2004


488











488Restructuring accrual 
    September 2004


2,090











2,090Restructuring accrual 
    December 2004


1,410



178







1,588Cash payments


(1,784
)


(841
)






(2,625
)Restructuring adjustments






(36
)






(36
)Accrued restructuring balance at
    December 31, 2004


2,204



286







2,490Restructuring accrual 
    January 2005


70



302







372Restructuring accrual 
    September 2005






1,037



654



1,691Impairment of assets










(654
)


(654
)Cash payments


(2,082
)


(650
)






(2,732
)Restructuring adjustments


(175
)


(3
)






(178
)Accrued restructuring balance at
    December 31, 2005


17



972







989Restructuring accrual 
    January 2006


1,396











1,396Restructuring accrual 
    May 2006


61







862



923Restructuring accrual 
    August 2006


296



301



211



808Restructuring accrual 
    September 2006










2,402



2,402Restructuring accrual 
    October 2006


1,705



71







1,776Impairment of assets










(3,475
)


(3,475
)Cash payments


(2,454
)


(657
)






(3,111
)Restructuring adjustments






59







59Accrued restructuring balance at
    December 31, 2006

$
1,021


$
746


$



$
1,767    F-21




---



##### Table of Contents



LIGHTBRIDGE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
                 F-22




---



##### Table of Contents



LIGHTBRIDGE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        11.
    Commitments
    and Contingencies    Leases and/or
    Restructured LeaseNet Lease Obligations


ObligationsGross Lease


Sublease


Net Lease


Included in GrossObligations


Income


Obligations


Lease Obligations2007

$
3,895


$
949


$
2,946


$
8722008


2,902



669



2,233



8312009


2,405







2,405



7792010


2,075







2,075



7982011


1,686







1,686



732Thereafter














Total minimum lease payments

$
12,963


$
1,618


$
11,345


$
4,012  F-23




---



##### Table of Contents



LIGHTBRIDGE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Indemnities
  Guarantors Accounting and Disclosure Requirements
    for Guarantees, Including Indirect Guarantees of Indebtedness of
    Others,
  Litigation
     F-24




---



##### Table of Contents



LIGHTBRIDGE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      12.
    Stock
    Repurchases, Warrants, Stockholder Rights Plan  Stock Repurchases
    Stockholder Rights Plan
 F-25




---



##### Table of Contents



LIGHTBRIDGE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   13.
    Income
    Taxes    2006


2005


2004Current:Federal

$
340


$



$
(777
)Foreign


53



113



627State


53



50



(254
)Deferred:Federal


(18,580
)


1,509



7,909State


(85
)


304



1,172(Benefit)/Provision for income
    taxes

$
(18,219
)

$
1,976


$
8,677     2006


2005Current Items:Assets:Allowance for doubtful accounts

$
366


$
589Accrued expenses


1,400



1,724Restructuring reserve


728



507Operating loss carryforwards


2,529



Less valuation allowance


(333
)


(2,820
)Current deferred tax assets, net

$
4,690


$
Long-Term Items:Assets:Depreciation and amortization

$
6,085


$
4,394Acquisition costs


403



604Intangible assets


680



743Capital loss carryforwards






198Equity compensation


1,196



170Net operating loss carryforwards


10,393



13,546Foreign tax credit carry-forward


732



817R&D tax credit carry-forward


4,974



6,907Valuation allowance


(8,808
)


(27,379
)Long-term deferred tax assets


15,655



Liabilities:Tax amortization of
    indefinite-lived intangibles


(4,754
)


(3,074
)Long-term deferred tax liabilities


(4,754
)


(3,074
)Total net long-term deferred tax
    assets (liabilities)

$
10,901


$
(3,074
)  F-26




---



##### Table of Contents



LIGHTBRIDGE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        2006


2005


2004Statutory federal income tax rate


35
%


35
%


34
%State taxes, net of federal benefit


8
%


0
%


4
%Foreign taxes


0
%


0
%


48
%Foreign tax credit


0
%


0
%


−136
%Change in valuation allowance


−352
%


−12
%


864
%Federal & State R&D
    credits


-2
%


−5
%


228
%Change in tax exposure reserves


0
%


0
%


−70
%Effect of liquidation of a
    subsidiary on tax attributes


0
%


0
%


−302
%Equity Compensation


7
%


0
%


0
%Other, net


4
%


1
%


−14
%−300
%


19
%


656
%    F-27




---



##### Table of Contents



LIGHTBRIDGE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   14.
    Retirement
    Plan    15.
    Earnings
    Per Share (EPS)      2006


2005


2004Shares for basic computation


27,248



26,670



26,643Options and warrants (treasury
    stock method)


997



612



Shares for diluted computation


28,245



27,282



26,643       16.  Worldcom,
    Inc. Settlement
    17.
    Related
    Party Transactions     F-28




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##### Table of Contents



LIGHTBRIDGE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      18.
    Subsequent
    Events    19.
    Interim
    Financial Information (Unaudited)  Q1


Q2


Q3


Q4(In thousands, except per share amounts)2006Revenues

$
26,542


$
25,223


$
23,275


$
20,606Gross profit

$
14,805


$
14,441


$
14,254


$
13,351Income (loss) from operations

$
645


$
(162
)

$
224


$
481Discontinued operations

$
468


$



$



$
Net income (loss)

$
1,632


$
854


$
274


$
21,998
(1)Basic earnings (loss) per share

$
0.06


$
0.03


$
0.01


$
0.80Diluted earnings (loss) per share

$
0.06


$
0.03


$
0.01


$
0.772005Revenues

$
27,174


$
26,563


$
27,232


$
27,309Gross profit

$
13,677


$
14,548


$
14,944


$
15,306Income from operations

$
1,371


$
2,466


$
1,324


$
3,634Discontinued operations

$
(2,254
)

$
12,859


$
(268
)

$
(81
)Net income (loss)

$
(1,100
)

$
15,212


$
987


$
3,913Basic earnings (loss) per share

$
(0.04
)

$
0.57


$
0.04


$
0.15Diluted earnings (loss) per share

$
(0.04
)

$
0.56


$
0.04


$
0.14     (1)
    
    Net income for the fourth quarter of 2006 reflects a partial
    reversal of a valuation allowance, resulting in recognition of a
    deferred tax asset of $20.3 million F-29