##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION

Washington, 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,
    2003                                                  
|          
|OR        
|          
|o          |  | 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.)
|                                                                                                 
|67 South Bedford Street
    Burlington, Massachusetts(Address of Principal Executive
    Offices) |  | 01803(Zip Code)                     

(781) 359-4000


(Registrants Telephone
Number, Including Area Code)


Securities registered pursuant to
Section 12(b) of the Act: None

Securities registered pursuant to
Section 12(g) of the Act:

common stock, $.01 par value per
share


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 þ         No o

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be
contained, to the best of the registrants knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any
amendment to this
Form 10-K. þ

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Exchange Act
Rule 12b-2).    Yes þ         No o

The aggregate market value of the voting common
stock held by nonaffiliates of the registrant as of
June 30, 2003 was $243,788,767, based on a total of
28,347,531 shares held by nonaffiliates and on a closing
price of $8.60 as reported on The Nasdaq Stock Market (National
Market System).

The number of shares of common stock outstanding
as of March 4, 2004 was 29,883,256.

DOCUMENTS INCORPORATED BY REFERENCE

The registrant intends to file a definitive proxy
statement pursuant to Regulation 14A with regard to its
2004 annual meeting of stockholders or special meeting in lieu
thereof on or before April 29, 2004. Certain portions of
such proxy statement are incorporated by reference in
Part III of this Form 10-K.



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TABLE OF CONTENTS

|                                                |  |                                                                                                        |    |      |    | 
|----------------------------------------------- |  | ------------------------------------------------------------------------------------------------------ | -- | ---- | -- | 
|                                                |  |                                                                                                        |    | Page |   
|                                                |  |                                                                                                        |    |      |   
|PART I                                         
|Item 1.                                         |  | Business                                                                                               |    |      | 2  | 
|Item 2.                                         |  | Properties                                                                                             |    |      | 12 | 
|Item 3.                                         |  | Legal Proceedings                                                                                      |    |      | 13 | 
|Item 4.                                         |  | Submission of Matters to a
    Vote of Security Holders                                                |    |      | 13 | 
|                                               
|PART II                                        
|Item 5.                                         |  | Market for Registrants
    Common Equity and Related Stockholder Matters                              |    |      | 13 | 
|Item 6.                                         |  | Selected Financial Data                                                                                |    |      | 14 | 
|Item 7.                                         |  | Managements Discussion
    and Analysis of Financial Condition and Results of Operations              |    |      | 15 | 
|Item 7A.                                        |  | Quantitative and Qualitative
    Disclosures about Market Risk                                         |    |      | 39 | 
|Item 8.                                         |  | Financial Statements and
    Supplementary Data                                                        |    |      | 39 | 
|Item 9.                                         |  | Changes in and Disagreements
    with Accountants on Accounting and Financial Disclosure               |    |      | 39 | 
|Item 9A.                                        |  | Controls and Procedures                                                                                |    |      | 39 | 
|                                               
|PART III                                       
|Item 10.                                        |  | Directors and Executive
    Officers of the Registrant                                                 |    |      | 40 | 
|Item 11.                                        |  | Executive Compensation                                                                                 |    |      | 40 | 
|Item 12.                                        |  | Security Ownership of
    Certain Beneficial Owners and Management and
    Related Stockholder Matters |    |      | 40 | 
|Item 13.                                        |  | Certain Relationships and
    Related Transactions                                                     |    |      | 40 | 
|Item 14.                                        |  | Principal Accountant Fees
    and Services                                                             |    |      | 40 | 
|                                               
|PART IV                                        
|Item 15.                                        |  | Exhibits, Financial
    Statement Schedules and Reports on Form 8-K                                    |    |      | 41 | 
|Signatures                                      |  |                                                                                                        | 44 |     
|Ex-10.32 Office Building Lease dated 12-23-2003
|Ex-23.1 Independent Auditors Consent           
|Ex-31.1 Section 302 CEO Certification          
|Ex-31.2 Section 302 CFO Certification          
|Ex-32.1 Section 906 CEO and CFO Certifications 





---

THIS ANNUAL REPORT ON FORM 10-K 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 BELOW IN ITEM 7. MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS  RISK FACTORS, THAT MAY CAUSE THE
ACTUAL RESULTS, PERFORMANCE AND ACHIEVEMENTS OF
LIGHTBRIDGE, INC. TO DIFFER MATERIALLY FROM THOSE INDICATED
BY THE FORWARD-LOOKING STATEMENTS. LIGHTBRIDGE, INC.
UNDERTAKES NO OBLIGATIONS TO UPDATE ANY FORWARD-LOOKING
STATEMENTS IT MAKES.

1



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PART I






|        |         
|------- | --------
|Item 1. | Business

Lightbridge, Inc. (Lightbridge
or the Company) develops, markets and supports a
suite of products and services for communications providers and
online businesses that supports the customer lifecycle,
including customer qualification and acquisition, risk
management, prepaid billing, mobile data management and
authentication services. Lightbridges software-based
solutions are delivered primarily on an outsourced or service
bureau basis. These outsourced or service bureau solutions
together with the Companys TeleServices offerings comprise
the Companys transaction business. Lightbridges
transaction-based solutions provide multiple, remote, systems
access for workflow management, along with centrally managed
client-specified business policies, and links to client and
third-party systems. Lightbridge also derives revenues from
software licensing, consulting and maintenance services, and
hardware sales. While its solutions historically have been
delivered primarily to wireless carriers, Lightbridge also
provides solutions to wireline carriers and non-carrier clients.

Lightbridge offers online, real-time transaction
processing and call center services to aid communications
clients 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
also offers services designed to authenticate users engaged in
online transactions. Lightbridge develops and implements
interfaces that integrate its systems with client 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 screen applicants and online
users 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 solution development and deployment services, and business
advisory consulting. Lightbridge also offers to wireless
telecommunications carriers its PrePay billing system that is
designed to integrate with Intelligent Network standards and
offer the capability for subscribers to replenish their prepaid
accounts.

On February 22, 2002, a wholly owned
subsidiary of Lightbridge acquired all of the assets and certain
of the liabilities of Altawave Inc. (Altawave) in
exchange for the payment of $4.0 million in cash, plus up
to an additional $6.0 million payment contingent on the
achievement of certain revenue goals. No contingent payments
were required to be made in connection with the Altawave
acquisition. The technology acquired from Altawave includes
solutions that offer wireless carriers a service platform for
the development and management of data content and applications.

In June 2002, the Company announced that it was
reducing its workforce by seven percent and consolidating its
Waltham, Massachusetts call center operations into its Lynn,
Massachusetts and Broomfield, Colorado facilities by the end of
2002. In March 2003, the Company announced that it would be
streamlining its existing Broomfield, Colorado call center
operations into its Lynn, Massachusetts facility and a smaller
facility in Broomfield, Colorado by the end of May 2003. In June
2003, the Company announced it would be closing its Irvine,
California facility and transferring certain employment
positions to its Broomfield, Colorado facility and reducing its
headcount by an estimated 70 employees.

In December 2003, the Company entered into an
agreement to lease approximately 80,000 square feet in a
single building in Burlington, Massachusetts for its new
principal administrative, sales, consulting, marketing and
product development facility. In February 2004, the Company
announced the planned expansion of its call center operations to
Liverpool, Nova Scotia, Canada. The Company expects its Nova
Scotia facility to be operational in the second quarter of 2004.

On March 1, 2004, the Company announced it
had signed an agreement with InfoSpace, Inc. to acquire all
of the outstanding stock of Authorize.Net Corporation
(Authorize.Net) for $82 million in cash. The
transaction is expected to close in the second quarter of 2004,
subject to necessary approvals. Authorize.Net is a provider of
payment solutions for online customer transactions. The
Authorize.Net payment gateway provides credit card and
electronic check solutions to companies that process orders for
goods and services

2



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over the Internet. Authorize.Net connects small
and medium sized businesses to large credit card processors and
banking organizations, allowing those businesses to accept
electronic payments.


Lightbridge was incorporated in Delaware in June
1989 under the name Credit Technologies, Inc. and in
November 1994 changed its name to Lightbridge, Inc.
Lightbridge sells and markets its products and services
throughout the world both directly and through its wholly owned
subsidiaries. Unless the context requires otherwise, references
in this Annual Report on Form 10-K to
Lightbridge, the Company,
we, us and similar terms refer to
Lightbridge, Inc. and its subsidiaries.

ALIAS, ALTALINKS, FRAUDBUSTER, FRAUD CENTURION,
FRAUD SENTINEL, LIGHTBRIDGE, the Lightbridge logo, PHONEPRINT
and PROFILE are registered trademarks of Lightbridge, and @RISK,
CAS, CUSTOMER ACQUISITION SYSTEM,
CUSTOMER-FOR-LIFE-CYCLE, INSIGHT, LIGHTBRIDGE FRAUDCHEK,
LIGHTBRIDGE IDENTICHEK, LIGHTBRIDGE PREPAY IN, LIGHTBRIDGE
TELESERVICES, PHONEFUEL, POPS, PREPAY, RETAIL MANAGEMENT SYSTEM
and RMS are trademarks of Lightbridge. All other trademarks or
trade names appearing in this Annual Report on Form 10-K
are the property of their respective owners.

Business Segment Data

Based upon the way management and the Board of
Directors monitor operations, the Company operates in four
distinct segments: the transaction business, the software
license business, the consulting and services business, and the
hardware business. Within these four segments, performance is
measured based on revenues and gross profit realized from each
segment. Information about revenues, cost of revenues, and gross
profit of each segment is shown separately on the statement of
operations included in the Companys consolidated financial
statements and discussed below in Item 7.
Managements Discussion and Analysis of Financial Condition
and Results of Operations. Information about costs and
expenses other than costs of revenues is not reported by
segment. There are no transactions between segments.

In addition, information concerning the four
segments in which Lightbridge operates, and export sales is set
forth in Note 2 of Notes to Consolidated Financial
Statements.

Products and Services

Lightbridges suite of software and
software-based solutions helps communications providers and
online businesses deploy integrated, customized solutions in
support of their operational business processes. Lightbridge
offers its products and services in six broad solutions groups:



|                                           |  |                                                                                                                                                                                                                                            
|------------------------------------------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Solutions Groups                           |  | Functions                                                                                                                                                                                                                                  
|                                          
|Customer Qualification and
    Acquisition |  | Online, real-time transaction processing services
    and call center services to help carriers qualify applicants and
    activate service.                                                                                               
|                                          
|                                           |  | Transaction processing services include applicant
    qualification and service activation, as well as proprietary
    databases and processing modules that evaluate existing
    subscribers and detect potential subscription fraud.    
|                                          
|                                           |  | Transaction processing interfaces include
    interfaces that support the processing of data at a variety of
    distribution channels, including retail stores, call centers and
    Internet applications, and voice recognition systems.
|                                          
|                                           |  | 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.   

3



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|                        |  |                                                                                                                                                                                                                                                                                                                                                                                 
|----------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Authentication Services |  | Services that provide the 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.
    This solution group also includes software products that monitor
    subscriber call activity and changes in subscriber account
    information to identify incidents indicative of 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.                                                                                                                                                                                           
|                       
|Prepaid Billing         |  | A software billing solution that allows carriers
    to support the sale of prepaid wireless services to subscribers
    who prefer to pay in advance of service or who do not qualify
    for credit and might otherwise be required to provide
    substantial deposits to acquire wireless service.                                                                          
|                       
|Mobile Data Management  |  | A scaleable, integrated services platform for the
    development and management of data content and applications.                                                                                                                                                                                                                                                              



| |                                           
| | ------------------------------------------
| | Customer Qualification and
    Acquisition

Lightbridge®Customer Acquisition SystemTM(CASTM)offers online,
real-time transaction processing services for applicant credit
qualification and service activation.

Introduced in 1989 and enhanced over time, CAS
enables a carrier to close a sale at the time the customer is
ready to purchase by qualifying applicants, screening for
indications of subscriber fraud and activating service quickly.
In the second quarter of 2003, the Company announced the
extension of CAS to provide a credit risk assessment solution
for e-commerce. The credit assessment solution analyzes,
qualifies and determines credit validation for e-commerce.
Although CAS typically requires no human intervention beyond the
initial data entry, it can include analyst intervention in
carrier-specified situations. When intervention is required, CAS
routes the exception data to a queue in order to
manage workflow.

CAS accepts applicant information online from
retail stores and a variety of other carrier distribution
points. Once CAS receives the application, it can qualify the
applicant for service using both Lightbridge proprietary
databases and external sources, such as credit bureaus. CAS
validates the applicants identification and determines
creditworthiness based on client-specified business policies. If
CAS identifies an issue, it electronically routes the
application to a Lightbridge or carrier analyst for review and
action. When the analyst makes a decision, CAS notifies the
point-of-sale agent. If the applicant wants to activate service
at that time, CAS verifies the information necessary to
establish the billing account and activate service and then
transmits it to the carriers billing and activation
systems. Throughout the process, CAS routes the application and
information to system components and individuals in a secure,
controlled environment.

CAS includes the following fully integrated
modules:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | InSightTMis a database containing information about a carriers
    current accounts, previous accounts, previous applicants and
    preapproved applicants. InSight can decrease a carriers
    costs for evaluating a prospective subscriber by using
    carrier-controlled data points such as subscriber payment
    histories rather than third-party data points, such as credit
    bureau reports, or manual review processes.

4



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| |   |                                                                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | CAS interfacesdeliver data from the point of sale
    directly to CAS for decisioning. If manual intervention is
    required, data is presented to the appropriate person. Once the
    decision is made, CAS communicates it to the point-of-sale agent.



| |                                                                                                                                                                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Lightbridge®POPSTM  a browser-based
    point-of-sale application typically used in carrier-owned or
    dealer store locations. POPS runs over the Internet or an
    intranet and features a graphical user interface
    (GUI) that allows even inexperienced sales staff to
    qualify applicants quickly and activate service via a dial-up or
    network connection to CAS.
|
| | Lightbridge®Retail Management SystemTM(RMSTM)  a
    point-of-sale application that helps telecommunications
    retailers manage the sale of telecommunications products more
    efficiently. RMS handles credit screening, transaction and
    payment processing, service activation, cash drawer management,
    inventory and purchasing management and management reporting.
|
| | Lightbridge®Speech Interface  a point-of-sale application
    used in carriers agents stores or kiosks. Speech
    Interface converts voice information to text to allow even
    inexperienced sales staff to qualify applicants quickly via a
    connection to CAS.                                                                                                             
|
| | Credit
    Workstation a
    character-based workstation that allows a carriers credit
    analyst to enter information or to evaluate applications that
    require manual review.                                                                                                                                                                                                 
|
| | Browser
    Interface allows a
    carriers credit analyst to enter information or to
    evaluate applications that require manual review via a
    Lightbridge developed GUI.                                                                                                                                                                                                     
|
| | Activation
    Workstation allows the
    user to review, correct and reprocess activation requests
    returned from the billing system because of an error.                                                                                                                                                                                                                        
|
| | Fulfillment
    Workstation allows the
    user to fulfill orders for wireless handsets and accessories at
    a remote or third-party fulfillment center.                                                                                                                                                                                                                           

CAS service modules are priced on a per
transaction, per qualification or per activation basis, or, in
the case of application modules, on a licensed basis. Fees for
CAS services or applications may vary with the term of the
contract, the volume of transactions, the other products and
services selected and integrated with CAS services, the
configurations selected, number of locations licensed or degree
of customization required.



| |                           
| | --------------------------
| | Lightbridge®TeleServicesTM

Lightbridge TeleServicesencompasses a range of call center
solutions for its clients. TeleServices offerings include call
center solutions for credit decisions and activations, analyst
reviews, telemarketing to existing subscribers, back-up and
disaster recovery for acquisition and activation services,
porting support and customer care. TeleServices solutions can be
provided using CAS or a clients own customer acquisition
system. Lightbridges clients can integrate TeleServices
solutions into their existing sales and distribution strategies
to support special projects without the overhead of building and
maintaining call centers.

TeleServices solutions are priced on a per
transaction or per minute basis and may vary with the term of
the contract, the volume of transactions, the number of minutes
and the other products and services selected and integrated with
the solutions.



| |                        
| | -----------------------
| | Authentication Services

Authentication services offer carriers and online
merchants the ability to screen and authenticate the identity
data of users engaged in online transactions. Lightbridge offers
the following authentication services on an Application Service
Provider (ASP) model:



| |   |                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------
| |  | Lightbridge®IdentiChekTM: A service that allows
    clients to authenticate the identities of users involved in
    online transactions.
|
| |  | Lightbridge®FraudChekTM: A service that allows clients
    to screen users involved in online transactions for potential
    fraud.     

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Authentication services are priced on a per
transaction basis and may vary with the term of the contract,
the volume of transactions and the other products and services
selected.



| |                
| | ---------------
| | Risk Management

Lightbridges risk management solutions are
offered in two ways: an ASP or hosted service or a licensed
software model.

ASP Solutions.The
ASP or hosted model supports real-time, online access to the
Companys proprietary databases, client proprietary
databases and third-party databases in support of pre-activation
applicant screening. These services generally include the
following:



| |   |                                                                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | AirWaves:A risk
    management score provided under agreement with RiskWise, L.L.C.,
    that is designed to identify the most profitable customers, even
    among consumers whose financial history is non-existent or
    too thin for traditional risk assessment tools.
|
| |  | Fraud
    Sentinel®: A suite of
    subscription fraud management tools, offered separately or in
    combination. Fraud Sentinel includes the following components:                                                                                                          



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ProFile®, presently a proprietary,
    inter-carrier database of fraud and bad debt information,
    identifies customers whose previous accounts were written off or
    shut off by a participating carrier and provides ongoing
    screening of existing customers. The Company plans to expand the
    content of ProFile to include information from other industries
    and to market and offer database services to clients other than
    carriers.
|
| | Fraud Detect, a multifaceted fraud detection tool
    provided under agreement with Trans Union L.L.C., analyzes data
    such as an applicants Social Security number, date of
    birth, address, telephone number and drivers license
    information and identifies any discrepancies.                                                                                                                                                                 
|
| | Fraud Detect Model, a fraud scoring tool
    developed jointly by Lightbridge and Trans Union L.L.C., is a
    neural-net scoring model that quantifies the probability that a
    subscriber will be written off.                                                                                                                                                                                                                                           
|
| | Fraud ID-Tect, a multifaceted verification tool
    provided under agreement with Trans Union L.L.C., verifies
    subscriber data, identifies possible data entry errors, and
    alerts carriers to potential subscription fraud.                                                                                                                                                                                                                          
|
| | @RiskTM, a database of suspect fraud
    information, identifies subscribers whose information matches
    suspect fraud information gathered from previous fraud
    investigations.                                                                                                                                                                                                                                                                        
|
| | InstantID, a multifaceted verification tool
    provided under agreement with RiskWise, L.L.C., highlights
    verified information and possible data entry errors, and alerts
    carriers to conditions that are often associated with identity
    theft.                                                                                                                                                                                                 
|
| | FraudPoint, a fraud detection tool provided under
    agreement with RiskWise, L.L.C., validates data provided by
    subscribers to prevent subscription fraud and identify data
    entry errors.                                                                                                                                                                                                                                                          
|
| | FraudDefender, a fraud scoring tool provided
    under agreement with RiskWise, L.L.C., rank-orders fraud risk
    based on a score and helps manage review rates.                                                                                                                                                                                                                                                                                           

ASP solutions are priced on a per inquiry basis
and prices may vary with the term of the contract and the volume
of transactions. Additional fees may also be charged for
consulting, implementation and support requirements of clients.

6



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Licensed Software
Solutions.The licensed software model
supports post-activation monitoring of subscriber call and
account activity. These services may be managed at Lightbridge
or at the clients operation.



| |   |                                                                                                                                                                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Fraud
    Centurion®, a suite of
    post-activation fraud management components offered separately
    and in combination. Fraud Centurion components are designed to
    detect the fraudulent activity of active, existing subscribers
    on a carriers network. Fraud Centurion includes the
    following components:



| |                                                                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | FraudBuster®, a fraud management profiler,
    identifies most commonly known types of fraud, such as cloning,
    subscription, tumbling and cellular theft. FraudBuster collects
    subscriber account information and analyzes call usage data from
    telecommunication switches and other data sources to identify
    fraudulent activity.
|
| | Alias®, the industrys first
    subscription fraud profiler, detects suspect account activity.
    Alias, when used with @Risk in a prescreening mode, represents
    the industrys only integrated front-end to back-end
    solution for combating subscription fraud.                                                                        
|
| | Lightbridge® Predictive Intelligence uses
    high-performance algorithms, automatic feature selection and
    automatic model building to improve speed and accuracy in
    identifying fraudulent activity.                                                                                                                                     

Software solutions are priced on a licensed or
hosted basis. Additional fees may also be charged for subscriber
growth, annual maintenance, customization, consulting services,
implementation, training and other support requirements
requested by the client. Fees may vary with the term of the
contract and the number of licenses.



| |                    
| | -------------------
| | Consulting Services

Lightbridge Consulting Services
(LCS), delivers
full-service consulting for customer acquisition and retention,
statistical models, authentication, prepaid billing and risk
management. LCS leverages Lightbridges market expertise
and focus in telecommunications to help clients bring new
services to market quickly, acquire low-risk subscribers and
build customer loyalty. Clients can use LCS to supplement their
resources with both domain expertise and project-based
resources. The worldwide practice can support Lightbridge
clients in the Asia Pacific region, Africa, Europe, Latin
America and North America.

LCS capitalizes on Lightbridges established
expertise with multiple carriers, across multiple geographic
regions to provide clients with two distinct types of service:



| |   |                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Solution Development and Deployment Servicesincludes systems installation,
    integration, custom software development, project management and
    training services.
|
| |  | Business Advisory Consultingincludes management consulting
    services in customer acquisition, distribution and retention,
    and risk management.                 

Consulting Services are priced on a time and
materials basis in a majority of cases or, in some
circumstances, on a fixed fee basis.



| |                
| | ---------------
| | Prepaid Billing

Lightbridge®PrePayTM allows carriers to sell services to
customers who prefer to pay with cash or who do not qualify for
credit and would otherwise be required to provide substantial
deposits. PrePays Intelligent Network (IN) standards and
architecture allow carriers to use existing switches without
costly adjunct switches and voice trunk resources. The PrePay
software architecture is designed to scale as the number of
PrePay subscribers on a system grows. Because prepaid calls are
controlled by the carriers existing switch, there is no
impact on call setup times. Calls by prepaid subscribers are
rated in real time, and an integrated, interactive,
voice-response system automatically informs the subscriber when
account funds are low. If a subscriber depletes prepaid funds
during a call, PrePay automatically terminates the call and
suspends service until the subscriber deposits additional funds.
The subscriber can deposit additional funds over the air by
using a prepaid phone card or by depositing or transferring cash
at a replenishment center or website designated by the carrier.

7



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PhoneFuelTM,
a customer care extension to PrePay, allows subscribers to add
to their PrePay balances directly from their bank accounts or
credit cards. PhoneFuel supports Internet connections for PrePay
subscribers, enabling these subscribers to pay for services and
products using their prepaid account balance.

Prepaid billing applications are priced on a
licensed basis. Additional fees may also be charged for
subscriber growth, annual maintenance, customization, consulting
services, implementation, training and other support
requirements requested by the client. Fees may vary with the
term of the contract and the number of licenses.



| |                       
| | ----------------------
| | Mobile Data Management

Lightbridge®Mobile Data ManagerTM allows carriers to
provision and manage customized, segmented data services offered
to subscribers and allows enterprise clients to manage data
accesses. It allows:



| |   |                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------
| |  | Carriers to provision, administer and monitor
    subscribers, the data they access and the services to which they
    subscribe.
|
| |  | Enterprises to offer secure data access.                                                                                         
|
| |  | Subscribers to benefit from personalized mobile
    data services by means of a user interface.                                  

The Company is also exploring the extension of
Mobile Data Manager technology to other products and markets.

Mobile Data Manager is priced on a licensed
basis. Additional fees may also be charged for subscriber
growth, annual maintenance, customization, consulting services,
implementation, training and other support requirements
requested by the client. Fees may vary with the term of the
contract and the number of licenses.



| |            
| | -----------
| | PhonePrint®

PhonePrintoffers
wireless telecommunications carriers a cloning-fraud prevention
system by using proprietary radio frequency signal analysis to
identify attempted fraudulent calls and prevent cloners from
gaining access to a carriers analog network. The Company
no longer sells or markets this product and does not expect
PhonePrint revenues to be significant in the future.

Clients

Lightbridge historically has provided its
products and services to wireless carriers in the United States.
In 1998, Lightbridge began to market its products and services
to a broader range of telecommunications carriers operating
around the world. In November 2001, Lightbridge announced its
business strategy to meet the needs of non-carrier as well as
carrier clients, and announced an agreement with
VeriSign, Inc. (VeriSign) to authenticate the
identity of consumers engaged in on-line transactions.

Revenues attributable to Lightbridges 10
largest clients accounted for approximately 91%, 90% and 79% of
Lightbridges total revenues in the years ended
December 31, 2003, 2002 and 2001, respectively. The
following Lightbridge clients accounted for more than 10% of
total revenues in the years indicated:

|                             |       |                      |    |    |      |  |    |      |   |  |    |    |  
|---------------------------- | ----- | -------------------- | -- | -- | ---- |  | -- | ---- | - |  | -- | -- | -
|                             |       |                     
|                             |       | Years Ended Dec. 31, |   
|                             |       |                      |   
|                             |       | 2003                 |    |    | 2002 |  |    | 2001 |  
|                             |       |                      |    |    |      |  |    |      |  
|Sprint Spectrum L.P.         |       |                      | 28 | %  |      |  | 30 | %    |   |  | 22 | % 
|AT&T Wireless Services, Inc. |       |                      | 21 |    |      |  | 21 |      |   |  | 20 |   
|Ericsson AB                  |       |                      | 14 |    |      |  | 15 |      |   |  | 16 |   
|Nextel Finance Company       |       |                      | 12 |    |      |  | 11 |      |   |  | 7  |   
|                             |       |                      |    |    |      |  |    |      |  
|                             | Total |                      |    | 75 | %    |  |    | 77   | % |  |    | 65 | %
|                             |       |                      |    |    |      |  |    |      |  

The Companys PrePay billing system is sold
primarily through a distribution agreement with Ericsson AB
(Ericsson). Ericsson accounted for substantially all
of the revenues derived from the PrePay system in

8



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the years presented. The loss of one or more of
these major clients, a decrease in orders by one or more of them
or a change in the combination of products and services they
obtain from the Company would adversely affect
Lightbridges revenues, margins and net income.


Lightbridge has agreements with many of its
clients that provide for the purchase of various combinations of
products and services including CAS, risk management and
TeleServices over periods of one to three years. Although some
of these agreements contain annual minimum payment requirements,
such minimum payments are typically substantially less than the
amount of revenue Lightbridge has historically received from the
particular client and therefore provide only limited assurance
of future sales. Lightbridges client agreements also often
permit changes in the combination of products and services
purchased by the client during the term of the agreement. Such
changes can affect the revenues, margins and net income that
Lightbridge achieves from quarter to quarter in its transaction
business.

Lightbridge has agreements with AT&T
Wireless, Inc. (AT&T), Sprint Spectrum L.P.
(Sprint) and Nextel Operations, Inc.
(Nextel) for the provision of credit decision
services. The agreements with Nextel and Sprint were renewed in
2003 and extended in each case through December 2006. The
agreement with AT&T extends through December 2004. The
agreement with Ericsson was amended in 2003 and continues in
effect until either party gives the other 180 days notice
of cancellation. In February 2004, Cingular Wireless
announced an agreement to acquire AT&T. Cingular Wireless is
not presently a client of Lightbridge. The Company is unable to
predict the effect of the acquisition on its relationship with
AT&T. However, the loss of AT&T as a client would have a
significant impact on the Companys business and operations.

Because Lightbridge derives almost all of its
revenues from telecommunications carriers, the demand for
Lightbridges products and services is dependent, in major
part, on the overall market demand for the products and services
provided by telecommunications carriers. In particular,
Lightbridges transaction business is dependent on the rate
of new subscriber growth and the rate at which subscribers
switch from one carrier to another, known as the churn rate.
Accordingly, if the growth rate of the telecommunications
industry continues to slow and the churn rate does not increase,
sales of Lightbridges products and services could continue
to decline.

Sales and Marketing

Lightbridges sales strategy is to
establish, maintain and foster long-term relationships with its
clients, and to establish third-party sales alliances.
Lightbridges sales and client services activities are led
by relationship teams. Lightbridge employs a team approach to
selling in order to develop a consultative relationship with
existing and prospective clients. In addition to relationship
teams, Lightbridges sales approach includes direct sales
staff with expertise in particular solutions and sales through
channel partners and alliances, particularly internationally.

Lightbridges software products and services
typically require significant investment by the carrier with
delays frequently associated with capital expenditures, and
involve multilevel testing, integration, implementation and
support requirements. Product managers, as well as other
technical, operational and consulting personnel, are frequently
involved in the business development and sales process. The
teams conduct needs assessments and, working with the client,
develop a customized solution.

The sales cycle for Lightbridges software
products and services is typically nine to twenty-four months,
although the period may be substantially longer in some cases,
and is subject to a number of risks over which the Company has
little control, including the carriers budgetary and
capital spending constraints, internal decision-making
processes, and general market and economic conditions.

PrePay is sold primarily through a nonexclusive
distribution agreement with Ericsson. It is also sold through a
direct sales force and reseller agreements with Sentori, Inc.
and Nortel Networks, Inc.

Service and technical support for Lightbridge
products are provided through both direct field service and
support personnel and distributors. A high level of continuing
service and support is critical to the objective of developing
long-term relationships with clients. Technical assistance is
also provided as part of the standard

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##### Table of Contents



support and service package that clients
typically purchase for the length of their respective
agreements. On-site installations and various training courses
for distributors and clients are also offered.


Engineering, Research and
Development

Lightbridge believes that its future success will
depend in part on its ability to continue to enhance, implement,
and maintain its existing product and service offerings
including, without limitation CAS, and to develop, implement and
maintain new products and services that allow clients to respond
to changing market requirements. Lightbridges research and
development activities consist of long-term efforts to develop,
enhance and maintain products and services and short-term
projects to make modifications to respond to immediate client
needs. In addition to internal research and development efforts,
Lightbridge intends to continue its strategy of gaining access
to new technology through strategic relationships and
acquisitions where appropriate. Lightbridge spent approximately
$28.4 million, $29.3 million and $32.3 million on
engineering, research and development in the years ended
December 31, 2003, 2002 and 2001, respectively.

Competition

The market for products and services to wireless
and other communications providers is highly competitive and
subject to rapid change. The market is fragmented, and a number
of companies currently offer one or more products or services
competitive with those offered by Lightbridge. In addition, many
telecommunications carriers are providing, or can provide
internally, products and services competitive with those
Lightbridge offers. Trends in the telecommunications industry,
including greater consolidation and technological or other
developments that make it simpler or more cost-effective for
carriers to provide certain services themselves, could affect
demand for Lightbridges products or services. These
developments could make it more difficult for Lightbridge to
offer a cost-effective alternative to a telecommunications
carriers own capabilities. In addition, Lightbridge
anticipates continued growth in the online business services
industry and, consequently, the entrance of new competitors in
the future.

Lightbridge believes that the principal
competitive factors in the communications provider and online
industries include the ability to identify and respond to
carrier, non-carrier and subscriber needs, timeliness, quality
and breadth of product and service offerings, price and
technical expertise. Lightbridge believes that its ability to
compete also depends in part on a number of factors outside its
control, including the ability to hire and retain employees, the
development of products and services by others that are
competitive with Lightbridges products and services, the
price at which others offer comparable products and services,
and the extent of its competitors responsiveness to
carrier, non-carrier and subscriber needs.

Government Regulation

The Federal Communications Commission
(FCC), under the terms of the Communications Act of
1934, regulates interstate communications and use of the radio
spectrum. Although Lightbridge is not required to and does not
hold any licenses or other authorizations issued by the FCC, the
domestic telecommunications carriers that constitute
Lightbridges clients are regulated at both the federal and
state levels. Federal and state regulation may decrease the
growth of the telecommunications industry, affect the
development of the wireless markets, limit the number of
potential clients for Lightbridges services, impede
Lightbridges ability to offer competitive services to the
telecommunications market, or otherwise have a material adverse
effect on Lightbridges business, financial condition,
results of operations and cash flows. Changing laws and
regulations have caused, and are likely to continue to cause,
significant changes in the industry, including the entrance of
new competitors, consolidation of industry participants, the
introduction of bundled wireless and wireline services and the
introduction of wireless number portability (WNP) in
November 2003. Those changes could in turn subject Lightbridge
to increased pricing pressures, decrease the demand for
Lightbridges products and services, increase
Lightbridges cost of doing business or otherwise have a
material adverse effect on Lightbridges business,
financial condition, results of operations and cash flows. The
telecommunications industry outside the United States is also
subject to government regulation, which could have similar
effects on Lightbridges ability to increase or maintain
its penetration of international markets.

10



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##### Table of Contents



In addition, privacy legislation including the
Gramm-Leach-Bliley Act (GLBA) and regulations
thereunder affect the nature and extent of the products or
services the Company is able to provide to clients as well as
the Companys ability to collect, monitor and disseminate
information subject to privacy protection. Consumer legislation
such as the Fair Credit Reporting Act (FCRA) and
Equal Credit Opportunity Act (ECOA) and state laws
also affect the nature and extent of the products or services
the Company is able to provide to clients.

Proprietary Rights

Lightbridges success is dependent upon
proprietary technology. Lightbridge has traditionally relied on
a combination of copyrights, patents, trade secrets and employee
and third-party non-disclosure agreements to establish and
protect its rights in its software products and proprietary
technology. Lightbridge protects the source code versions of its
products as trade secrets and as unpublished copyrighted works,
and has internal policies and systems designed to limit access
to and require the confidential treatment of its trade secrets.
Lightbridge software is provided either on an outsourced basis
or under license agreements that grant clients the right to use,
but contains various provisions intended to protect
Lightbridges ownership and confidentiality of the
underlying copyrights and technology. Lightbridge requires its
employees and other parties with access to its confidential
information to execute agreements prohibiting unauthorized use
or disclosure of Lightbridges technology. In addition, all
of Lightbridges employees are required as a condition of
employment to enter into confidentiality agreements with
Lightbridge. Lightbridge also relies on the law of trademarks to
establish and protect rights in its products, services and brand
names.

Lightbridge currently has several issued U.S. and
foreign patents and applications pending in the U.S. Patent
and Trademark Office and with certain foreign regulatory bodies.
There can be no assurance that any pending patent applications
will result in the issuance of any patents, or that
Lightbridges current patents or any future patents will
provide meaningful protection to Lightbridge.

There can be no assurance that the steps taken by
Lightbridge to protect its proprietary rights will be adequate
to prevent misappropriation of its technology or independent
development by others of similar technology. It may be possible
for unauthorized parties to copy certain portions of
Lightbridges products or reverse engineer or obtain and
use information that Lightbridge regards as proprietary.
Existing copyright and trade secret laws and patents issued to
Lightbridge offer only limited protection. In addition, the laws
of some foreign countries do not protect Lightbridges
proprietary rights to the same extent as do the laws of the
United States.

Lightbridges competitive position may be
affected by limitations on its ability to protect its
proprietary information. However, Lightbridge believes that
patent, trademark, copyright, trade secret and other legal
protections are less significant to Lightbridges success
than other factors, such as the knowledge, ability and
experience of Lightbridges personnel, new product and
service development, frequent product enhancements, customer
service and ongoing product support.

Certain technologies used in Lightbridges
products and services are licensed from third parties.
Lightbridge generally pays license fees on these technologies
and believes that if the license for any such third-party
technology were terminated, it would be able to develop such
technology internally or license equivalent technology from
another vendor, although no assurance can be given that such
development or licensing could be effected without significant
delay or expense.

Although Lightbridge believes that its products
and technology do not infringe on any existing proprietary
rights of others, there can be no assurance that third parties
will not assert such claims against Lightbridge in the future or
that such future claims will not be successful. Lightbridge
could incur substantial costs and diversion of management
resources with respect to the defense of any claims relating to
proprietary rights, which could have a material adverse effect
on Lightbridges business, financial condition, results of
operations and cash flows. Furthermore, parties making such
claims could secure a judgment awarding substantial damages, as
well as injunctive or other equitable relief, which could
effectively block Lightbridges ability to make, use, sell,
distribute or market its products and services in the United
States or abroad. Such a judgment could have a material adverse
effect on Lightbridge. In the event a claim relating to
proprietary technology or

11



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information is asserted against Lightbridge,
Lightbridge may seek licenses to such intellectual property.
There can be no assurance, however, that such a license could be
obtained on commercially reasonable terms, if at all, or that
the terms of any offered licenses will be acceptable to
Lightbridge. The failure to obtain the necessary licenses or
other rights could preclude the sale, manufacture or
distribution of Lightbridges products and, therefore,
could have a material adverse effect on Lightbridge.


Employees

As of January 31, 2004, Lightbridge had a
total of 668 employees, of which 572 were full-time and 96 were
part-time or seasonal. The number of personnel employed by
Lightbridge varies seasonally. None of Lightbridges
employees are represented by a labor union, and Lightbridge
believes that its employee relations are good.

The future success of Lightbridge will depend in
large part upon its continued ability to attract and retain
highly skilled and qualified personnel. Competition for such
personnel can be strong, particularly for sales and marketing
personnel, software developers and service consultants.

Additional Available Information

Lightbridges principal Internet address is
www.lightbridge.com. The Companys web site provides
a hyperlink to a third-party web site through which
Lightbridges annual, quarterly and current reports, and
amendments to those reports, are available free of charge.
Lightbridge believes these reports are made available as soon as
reasonably practicable after it electronically files them with,
or furnishes them to, the Securities and Exchange Commission
(SEC). The Company does not maintain or provide any
information directly to the third-party web site, and does not
check its accuracy. Copies of the Companys SEC reports can
also be obtained from the SECs web site at
www.sec.gov.






|        |           
|------- | ----------
|Item 2. | Properties

Lightbridge leases approximately
90,000 square feet in a single building in Burlington,
Massachusetts for its principal administrative, sales,
consulting, marketing and product development facility. This
lease expires in 2005 but the Company plans to vacate the
property in June 2004. In December 2003, the Company entered
into an agreement to lease approximately 80,000 square feet
in a single building in Burlington, Massachusetts for its new
principal administrative, sales, consulting, marketing and
product development facility. The Company leases approximately
10,000, 21,000 and 30,000 square feet for product
development facilities in Fremont and Irvine, California and
Broomfield, Colorado, respectively. The Company also leases
29,000 and 16,000 square feet for call centers in Lynn,
Massachusetts and Broomfield, Colorado. In March 2003, the
Company announced its plans to close its then existing
Broomfield, Colorado call center which is under lease until
December 31, 2004. The Company also leases approximately
4,000 square feet in Waltham, Massachusetts for one of its
two data centers. In February 2004, the Company entered into an
agreement to lease approximately 32,000 square feet in a
single building in Liverpool, Nova Scotia, Canada to house a
third call center. The terms of the Companys leases
generally run from one to six years. From time to time,
Lightbridge enters into short-term leases to provide space for
international sales offices. Lightbridge believes that its
present facilities are adequate for its current needs and that
suitable additional space will be available as needed.

12



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##### Table of Contents








|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

Lightbridge is not a defendant in any material
litigation.






|        |                                                        
|------- | -------------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security
    Holders

No matter was submitted to a vote of security
holders during the quarter ended December 31, 2003.




PART II






|        |                                                                          
|------- | -------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity
    and Related Stockholder Matters

Shares of the Companys common stock,
$.01 par value per share, are quoted on The Nasdaq Stock
Market under the symbol LTBG. The following table
sets forth, for the calendar quarters indicated, the high and
low sales prices per share of the common stock on the National
Market System, as reported in published financial sources:

|               |  |      |       |  |     |   |      | 
|-------------- |  | ---- | ----- |  | --- | - | ---- | 
|               |  | High |       |  | Low |  
|               |  |      |       |  |     |  
|2003           |  |      |       |  |     |   |      | 
|First Quarter  |  | $    | 6.82  |  |     | $ | 5.88 | 
|Second Quarter |  | $    | 9.10  |  |     | $ | 6.40 | 
|Third Quarter  |  | $    | 10.79 |  |     | $ | 8.61 | 
|Fourth Quarter |  | $    | 10.70 |  |     | $ | 8.21 | 
|2002           |  |      |       |  |     |   |      | 
|First Quarter  |  | $    | 12.81 |  |     | $ | 9.75 | 
|Second Quarter |  | $    | 13.09 |  |     | $ | 8.45 | 
|Third Quarter  |  | $    | 8.82  |  |     | $ | 6.29 | 
|Fourth Quarter |  | $    | 7.69  |  |     | $ | 5.25 | 

As of March 4, 2004, there were 193 holders
of record of common stock (which number does not include the
number of stockholders whose shares are held of record by a
broker or clearing agency but which does include each such
brokerage house or clearing agency as one record holder).

The Company has never declared or paid any cash
dividends on its common stock. The Company currently anticipates
that it will retain future earnings, if any, to fund the
development and growth of its business and therefore does not
expect to pay any cash dividends in the foreseeable future.

13



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##### Table of Contents








|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

The following selected financial data have been
derived from the Companys audited historical consolidated
financial statements, certain of which are included elsewhere in
this Annual Report on Form 10-K.

|                                                |  |                                          |         |   |      |   |         |      |  |   |         |  |  |      |         |  |  |   |         | 
|----------------------------------------------- |  | ---------------------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- |  |  | ---- | ------- |  |  | - | ------- | 
|                                                |  |                                         
|                                                |  | Years Ended Dec. 31,                     |        
|                                                |  |                                          |        
|                                                |  | 2003                                     |         |   | 2002 |   |         | 2001 |  |   | 2000    |  |  | 1999 |        
|                                                |  |                                          |         |   |      |   |         |      |  |   |         |  |  |      |        
|                                                |  |                                         
|                                                |  | (In thousands, except per share amounts) |        
|Statement of Operations Data:                   |  |                                          |         |   |      |   |         |      |  |   |         |  |  |      |         |  |  |   |         | 
|Revenues                                        |  | $                                        | 119,978 |   |      | $ | 133,438 |      |  | $ | 176,616 |  |  | $    | 186,644 |  |  | $ | 155,923 | 
|Cost of revenues                                |  |                                          | 61,949  |   |      |   | 65,943  |      |  |   | 80,811  |  |  |      | 81,732  |  |  |   | 67,190  | 
|                                                |  |                                          |         |   |      |   |         |      |  |   |         |  |  |      |        
|Gross profit                                    |  |                                          | 58,029  |   |      |   | 67,495  |      |  |   | 95,805  |  |  |      | 104,912 |  |  |   | 88,733  | 
|                                                |  |                                          |         |   |      |   |         |      |  |   |         |  |  |      |        
|Operating expenses:                             |  |                                          |         |   |      |   |         |      |  |   |         |  |  |      |         |  |  |   |         | 
|Development costs                               |  |                                          | 28,426  |   |      |   | 29,269  |      |  |   | 32,259  |  |  |      | 29,256  |  |  |   | 23,971  | 
|Sales and marketing                             |  |                                          | 14,239  |   |      |   | 13,270  |      |  |   | 20,460  |  |  |      | 22,159  |  |  |   | 20,903  | 
|General and administrative                      |  |                                          | 14,143  |   |      |   | 18,170  |      |  |   | 19,517  |  |  |      | 17,955  |  |  |   | 17,483  | 
|Amortization of goodwill and acquired workforce |  |                                          |        |   |      |   |        |      |  |   |        |  |  |      | 502     |  |  |   | 1,342   | 
|Purchased in-process research and development   |  |                                          |        |   |      |   | 1,618   |      |  |   |        |  |  |      |        |  |  |   |        | 
|Merger related costs                            |  |                                          |        |   |      |   |        |      |  |   | 5,999   |  |  |      |        |  |  |   |        | 
|Restructuring costs                             |  |                                          | 5,079   |   |      |   | 3,616   |      |  |   | 4,000   |  |  |      |        |  |  |   | 856     | 
|                                                |  |                                          |         |   |      |   |         |      |  |   |         |  |  |      |        
|Total operating expenses                        |  |                                          | 61,887  |   |      |   | 65,943  |      |  |   | 82,235  |  |  |      | 69,872  |  |  |   | 64,555  | 
|                                                |  |                                          |         |   |      |   |         |      |  |   |         |  |  |      |        
|Income (loss) from operations                   |  |                                          | (3,858  | ) |      |   | 1,552   |      |  |   | 13,570  |  |  |      | 35,040  |  |  |   | 24,178  | 
|Interest income                                 |  |                                          | 1,778   |   |      |   | 2,439   |      |  |   | 4,233   |  |  |      | 5,446   |  |  |   | 874     | 
|Equity in loss of partnership investment        |  |                                          | (471    | ) |      |   | (464    | )    |  |   |        |  |  |      |        |  |  |   |        | 
|                                                |  |                                          |         |   |      |   |         |      |  |   |         |  |  |      |        
|Income (loss) before income taxes               |  |                                          | (2,551  | ) |      |   | 3,527   |      |  |   | 17,803  |  |  |      | 40,486  |  |  |   | 25,052  | 
|Provision for (benefit from) income taxes       |  |                                          | (1,102  | ) |      |   | (103    | )    |  |   | 3,848   |  |  |      | 9,974   |  |  |   | 6,066   | 
|                                                |  |                                          |         |   |      |   |         |      |  |   |         |  |  |      |        
|Net income (loss)                               |  |                                          | (1,449  | ) |      | $ | 3,630   |      |  | $ | 13,955  |  |  | $    | 30,512  |  |  | $ | 18,986  | 
|                                                |  |                                          |         |   |      |   |         |      |  |   |         |  |  |      |        
|Basic earnings (loss) per share                 |  | $                                        | (0.05   | ) |      | $ | 0.13    |      |  | $ | 0.50    |  |  | $    | 1.12    |  |  | $ | 0.71    | 
|                                                |  |                                          |         |   |      |   |         |      |  |   |         |  |  |      |        
|Diluted earnings (loss) per share               |  | $                                        | (0.05   | ) |      | $ | 0.13    |      |  | $ | 0.48    |  |  | $    | 1.04    |  |  | $ | 0.66    | 
|                                                |  |                                          |         |   |      |   |         |      |  |   |         |  |  |      |        

|                                                  |  |                |         |  |      |   |         |      |  |   |         |  |  |      |         |  |  |   |         | 
|------------------------------------------------- |  | -------------- | ------- |  | ---- | - | ------- | ---- |  | - | ------- |  |  | ---- | ------- |  |  | - | ------- | 
|                                                  |  |               
|                                                  |  | December 31,   |        
|                                                  |  |                |        
|                                                  |  | 2003           |         |  | 2002 |   |         | 2001 |  |   | 2000    |  |  | 1999 |        
|                                                  |  |                |         |  |      |   |         |      |  |   |         |  |  |      |        
|                                                  |  |               
|                                                  |  | (In thousands) |        
|Balance Sheet Data:                               |  |                |         |  |      |   |         |      |  |   |         |  |  |      |         |  |  |   |         | 
|Cash, cash equivalents and short-term investments |  | $              | 133,488 |  |      | $ | 133,470 |      |  | $ | 118,570 |  |  | $    | 98,743  |  |  | $ | 88,427  | 
|Working capital                                   |  | $              | 137,684 |  |      | $ | 136,501 |      |  | $ | 127,129 |  |  | $    | 109,672 |  |  | $ | 88,076  | 
|Total assets                                      |  | $              | 177,836 |  |      | $ | 180,672 |      |  | $ | 188,882 |  |  | $    | 187,680 |  |  | $ | 152,540 | 
|Long-term obligations, less current portion       |  | $              | 33      |  |      | $ | 259     |      |  | $ | 667     |  |  | $    | 963     |  |  | $ | 1,772   | 
|Stockholders equity                              |  | $              | 154,503 |  |      | $ | 159,641 |      |  | $ | 161,522 |  |  | $    | 144,986 |  |  | $ | 113,907 | 

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|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

Critical Accounting Policies and
Estimates

Lightbridges discussion and analysis of its
financial condition and results of operations are based upon
Lightbridges consolidated financial statements, which have
been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of this Annual
Report on Form 10-K requires Lightbridge to make estimates
and assumptions that affect the reported amount of assets and
liabilities, disclosure of contingent assets and liabilities at
the date of its financial statements, and the reported amounts
of revenue and expenses during the reporting period. Lightbridge
bases its estimates on historical experience and on various
other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities
that are not readily derived from other sources. There can be no
assurance that actual amounts will not differ from those
estimates.

Lightbridge has identified the policies below as
critical to its business operations and the understanding of its
results of operations.

Revenue recognition.Lightbridges revenue recognition policy is significant
because revenue is a key component affecting its operations. In
addition, revenue recognition determines the timing of certain
expenses, such as commissions and bonuses. Certain judgments
relating to the elements required for revenue recognition affect
the application of its revenue policy. Revenue results are
difficult to predict, and any shortfall in revenue, change in
judgments concerning recognition of revenue, change in mix,
amount of international sales or delay in recognizing revenue
could cause operating results to vary significantly from quarter
to quarter.

Allowance for doubtful
accounts.Lightbridge must also make
estimates of the collectability of its accounts receivable. An
increase in the allowance for doubtful accounts is recorded when
the prospect of collecting a specific account receivable becomes
doubtful. Lightbridge analyzes accounts receivable and
historical bad debts, customer creditworthiness, current
domestic and international economic trends and changes in its
customer payment terms when evaluating the adequacy of the
allowance for doubtful accounts. If the financial condition of
its customers were to deteriorate, resulting in an impairment of
their ability to make payments, or if Lightbridges
estimates of uncollectibility prove to be inaccurate, additional
allowances would be required.

Income taxes and deferred
taxes.Lightbridges income tax
policy records the estimated future tax effects of temporary
differences between the tax bases of assets and liabilities and
the amounts reported in the accompanying consolidated balance
sheets, as well as operating loss and tax credit carryforwards.
Lightbridge assesses the recoverability of any tax assets
recorded on the balance sheet and provides any necessary
valuation allowances as required. If Lightbridge were to
determine that it was more likely than not unable to realize all
or part of its net deferred tax asset in the future, an
adjustment to the deferred tax asset would be charged to
operations in the period that such determination was made.

Overview

Lightbridge develops, markets and supports a
suite of products and services for communications providers and
online businesses that supports the customer lifecycle including
customer acquisition and qualification, risk management, prepaid
billing, mobile data management and authentication services.

A majority of the Companys revenues
historically have been derived from clients located in the
United States. The Companys revenues are derived from
transactions, software licensing, consulting and services, and
hardware. Transaction revenues account for a majority of the
Companys revenues and were 67%, 66% and 59% of total
revenues in 2003, 2002 and 2001, respectively. Software
licensing revenues were 7%, 8% and 14% of total revenues in
2003, 2002 and 2001, respectively. Consulting and services
revenues were 24%, 24% and 23% of total revenues in 2003, 2002
and 2001, respectively. Hardware revenues were 2%, 2% and 4% of
total revenues in 2003, 2002 and 2001, respectively. During the
three-year period from 2003 through 2001, Lightbridges
total revenues decreased by 32% to $120.0 million from
$176.6 million in 2001. This revenue decline was primarily
the result of decreases in the volume of customer qualification
and activation

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transactions processed for wireless carrier
clients in 2003 from 2001 and decreases in the licensing of the
Companys software products over the three-year period.
There can be no assurance that the Companys revenue trends
will change or that the mix of the Companys revenues will
remain constant.


Lightbridges transaction services revenues
are primarily derived from the processing of applications for
qualification of subscribers for telecommunications services and
the activation of service for those subscribers. Over time, the
Company has expanded its offerings from credit evaluation
services to include screening for subscriber fraud, evaluating
carriers existing accounts, interfacing with carrier and
third-party systems and providing call center services. The
Company also offers transaction services to screen and
authenticate the identity of users engaged in online
transactions. Transaction services are provided through
contracts with carriers and others, which specify the services
to be utilized and the markets to be served. The Companys
clients are charged for these services on a per transaction
basis. Pricing varies depending primarily on the volume and type
of transactions, the number and type of other products and
services selected for integration with the services and the term
of the contract under which services are provided. The volume of
processed transactions varies depending on seasonal and retail
trends, the success of the carriers and others utilizing the
Companys services in attracting subscribers and the
markets served by the Companys clients. Transaction
services revenues are recognized in the period in which the
services are performed.

The Companys software licensing revenues
consist of revenues attributable to the licensing of the
Companys CAS Application Modules, Risk Management, Prepaid
Billing and Mobile Data Management software. Lightbridges
CAS modules are designed to assist customers in interfacing with
the Companys transaction processing systems as well as to
perform other point-of-sale and channel functionality. The
Companys Risk Management products are designed to assist
carriers in monitoring subscriber accounts to identify activity
that may indicate fraud. The Companys Prepaid Billing
system allows carriers to market and manage prepaid wireless
services to customers. The Companys Mobile Data Management
solutions provide wireless carriers a platform for the
development and management of data content and applications. The
Companys software products are licensed as packaged
software products and each product generally requires incidental
customization or integration with other products and systems to
varying degrees. Software licensing revenues are recognized when
persuasive evidence of an arrangement exists, delivery of the
product has been made, and a fixed fee and collectibility have
been determined.

The Companys consulting and services
revenues historically have been derived principally from
providing solution development and deployment services and
business advisory consulting in the areas of customer
acquisition and retention, authentication, prepay billing and
risk management. The majority of consulting and services
engagements are performed on a time and materials basis and
revenues from these engagements are generally recognized as the
services are performed. When the Company performs work under a
fixed fee arrangement, revenues are generally recognized as
services are performed. Revenues from software maintenance
contracts are recognized ratably over the term of the
maintenance agreement and are reported as consulting and service
revenues.

The Companys hardware revenues historically
have been derived in connection with sales of its PrePay and
PhonePrint products. Revenue from hardware is recognized upon
shipment, unless testing, integration or other services are
required, in which case it is recognized upon commissioning and
acceptance of the product. Revenue from hardware sold in
conjunction with software is deferred until the software revenue
is recognized. The Company does not expect hardware revenues to
be a significant component of revenue in the future.

PhonePrint is a cloning fraud prevention system
that operates on analog networks. As a result of the limited
demand for the PhonePrint system and the Companys decision
to no longer sell or market the system, no significant revenues
are expected from the product in the future.

In 2002 and 2003, the rate of subscriber growth
and capital spending in the wireless telecommunications industry
declined. The Company believes, based in part on reports of
wireless telecommunications industry analysts, that the rate of
subscriber growth will continue to slow in upcoming years. In
November 2003, Wireless Number Portability (WNP) was
introduced and the Company believes that the rate of subscriber
churn (the rate of switching among carriers by subscribers) will
likely increase as a result. If churn increases and subscriber
applications for wireless carriers served by Lightbridge
increase, the Company expects that the

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volume of transactions will increase which may,
subject to competitive pricing pressures, result in limited
increases in transaction revenues for 2004. Lightbridge also
believes it may experience changes in the combination of
services acquired by clients and competitive pricing pressures
that could continue to negatively affect transaction revenues in
2004. Lightbridge does not expect significant growth in capital
spending in the telecommunications industry in 2004. In order to
add to its business, the Company is seeking to expand its reach
into the e-commerce business market.


On February 7, 2001 Lightbridge completed
its merger with Corsair Communications, Inc.
(Corsair). In connection with the merger,
Lightbridge issued an aggregate of approximately
10,270,000 shares of its common stock to Corsair
stockholders. In addition, the Company assumed the obligation to
issue, upon exercise of outstanding Corsair options,
approximately 1,587,094 shares of common stock. In
connection with the merger, the Company recorded a charge in the
quarter ended March 31, 2001 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. The merger with Corsair was
accounted for as a pooling-of-interests and the financial
statements were restated to include the accounts of Corsair with
those of Lightbridge for all periods presented.

In November 2001, the Company announced that it
was streamlining operations by closing its Palo Alto, California
facility and consolidating research and development activities
in its Irvine, California and Broomfield, Colorado locations.
All other Palo Alto operations, including finance, support
services and sales and marketing, were merged with functions in
Irvine or Burlington, Massachusetts.

On February 22, 2002, a wholly owned
subsidiary of Lightbridge acquired all of the assets and certain
of the liabilities of Altawave in exchange for the payment of
$4.0 million in cash, plus up to an additional
$6.0 million contingent on the achievement of certain
revenue goals in 2002 and 2003. No contingent payments were
required to be made in connection with the Altawave acquisition.
The technology acquired from Altawave includes solutions that
offer wireless carriers a service platform for the development
and management of data content and applications. The results of
Altawave have been included with those of Lightbridge from its
date of acquisition.

In June 2002, the Company announced it was
reducing its workforce by seven percent and consolidating its
Waltham, Massachusetts call center operations into its Lynn,
Massachusetts and Broomfield, Colorado facilities by the end of
the 2002. In March of 2003, the Company announced that it was
streamlining its existing Broomfield, Colorado call center
operations into its Lynn, Massachusetts facility and a smaller
facility in Broomfield, Colorado by the end of May 2003. In June
2003, the Company announced it would be closing its Irvine,
California facility and transferring certain employment
positions to its Broomfield, Colorado facility and reducing its
headcount by an estimated 70 employees.

In December 2003, the Company entered into an
agreement to lease approximately 80,000 square feet in a
single building in Burlington, Massachusetts for its new
principal administrative, sales, consulting, marketing and
product development facility. In February 2004, the Company
announced the planned expansion of its call center operations to
Liverpool, Nova Scotia, Canada. The Company expects its Nova
Scotia facility to be operational in the second quarter of 2004.

On March 1, 2004, the Company announced it
had signed an agreement with InfoSpace, Inc. to acquire all
of the outstanding stock of Authorize.Net Corporation for
$82 million in cash. The transaction is expected to close
in the second quarter of 2004, subject to necessary approvals.
Authorize.Net is a provider of payment solutions for online
customer transactions. The Authorize.Net payment gateway
provides credit card and electronic check solutions to companies
that process orders for goods and services over the Internet.
Authorize.Net connects small and medium sized businesses to
large credit card processors and banking organizations, allowing
those businesses to accept electronic payments.

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Customer Concentration

During fiscal 2003 and 2002, four of the
Companys clients each accounted for more than 10% of the
Companys total revenues. During fiscal 2001, three of the
Companys clients each accounted for more than 10% of the
Companys total revenues. Revenues from these clients are
as follows:

|         |       |                      |    |    |      |  |    |      |   |  |    |    |  
|-------- | ----- | -------------------- | -- | -- | ---- |  | -- | ---- | - |  | -- | -- | -
|         |       |                     
|         |       | Years Ended Dec. 31, |   
|         |       |                      |   
|         |       | 2003                 |    |    | 2002 |  |    | 2001 |  
|         |       |                      |    |    |      |  |    |      |  
|Sprint   |       |                      | 28 | %  |      |  | 30 | %    |   |  | 22 | % 
|AT&T     |       |                      | 21 |    |      |  | 21 |      |   |  | 20 |   
|Ericsson |       |                      | 14 |    |      |  | 15 |      |   |  | 16 |   
|Nextel   |       |                      | 12 |    |      |  | 11 |      |   |  | 7  |   
|         |       |                      |    |    |      |  |    |      |  
|         | Total |                      |    | 75 | %    |  |    | 77   | % |  |    | 65 | %
|         |       |                      |    |    |      |  |    |      |  

Lightbridge expects that most of its revenues
will continue to come from a relatively small number of clients
for the foreseeable future, although the companies that comprise
its largest clients in any given quarter may vary. Consequently,
the Companys revenues, margins and net income may
fluctuate significantly from quarter to quarter based on the
actions of a single significant client. A client may take
actions that significantly affect the Company for reasons that
the Company cannot necessarily anticipate or control, such as
reasons related to the clients financial condition,
changes in the clients business strategy or operations,
the introduction of alternative competing products or services
or as the result of the perceived quality or cost-effectiveness
of the Companys products or services. The Companys
services agreements with Sprint and Nextel expire on
December 31, 2006. The Companys services agreement
with AT&T expires on December 31, 2004. It is possible
that Sprint, AT&T and/or Nextel could elect not to renew
their Agreements, to reduce the volume of products and services
they purchase from the Company or to request significant changes
to the pricing or other terms in any renewal agreement. In
February 2004, Cingular Wireless announced an agreement to
acquire AT&T. Cingular Wireless is not presently a client of
Lightbridge. The Company is unable to predict the effect of the
acquisition on its relationship with AT&T. However, the loss
of AT&T as a client would have a significant impact on the
Companys business and operations. In addition, the PrePay
billing system is sold primarily through a distribution
agreement with Ericsson and represents substantially all of the
Companys revenue derived from the PrePay billing system.
That agreement may be terminated by either party on
180 days notice to the other. A loss of one or more of
these major clients, a decrease in orders by one or more of
these clients or a change in the combination of products and
services they obtain from the Company would adversely affect
Lightbridges revenues, margins and net income.

Results of Operations

The following table sets forth, for the periods
indicated, certain financial data as a percentage of total
revenues:

|          |                         |                          |       |      |      |  |       |      |   |  |       |      |  
|--------- | ----------------------- | ------------------------ | ----- | ---- | ---- |  | ----- | ---- | - |  | ----- | ---- | -
|          |                         |                         
|          |                         | Years Ended December 31, |      
|          |                         |                          |      
|          |                         | 2003                     |       |      | 2002 |  |       | 2001 |  
|          |                         |                          |       |      |      |  |       |      |  
|Revenues: |                         |                          |       |      |      |  |       |      |   |  |       |     
|          | Transaction             |                          |       | 67.1 | %    |  |       | 66.2 | % |  |       | 58.9 | %
|          | Software licensing      |                          |       | 6.7  |      |  |       | 7.7  |   |  |       | 14.0 |  
|          | Consulting and services |                          |       | 23.9 |      |  |       | 24.3 |   |  |       | 23.5 |  
|          | Hardware                |                          |       | 2.3  |      |  |       | 1.8  |   |  |       | 3.6  |  
|          |                         |                          |       |      |      |  |       |      |  
|          |                         |                          | 100.0 |      |      |  | 100.0 |      |   |  | 100.0 |     
|          |                         |                          |       |      |      |  |       |      |  

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|                                          |                            |                          |      |      |      |  |      |      |  |  |      |      | 
|----------------------------------------- | -------------------------- | ------------------------ | ---- | ---- | ---- |  | ---- | ---- |  |  | ---- | ---- | 
|                                          |                            |                         
|                                          |                            | Years Ended December 31, |     
|                                          |                            |                          |     
|                                          |                            | 2003                     |      |      | 2002 |  |      | 2001 | 
|                                          |                            |                          |      |      |      |  |      |      | 
|Cost of revenues:                         |                            |                          |      |      |      |  |      |      |  |  |      |     
|                                          | Transaction                |                          |      | 38.1 |      |  |      | 36.9 |  |  |      | 31.5 | 
|                                          | Software licensing         |                          |      | 1.0  |      |  |      | 0.9  |  |  |      | 1.4  | 
|                                          | Consulting and services    |                          |      | 10.6 |      |  |      | 10.2 |  |  |      | 10.4 | 
|                                          | Hardware                   |                          |      | 1.9  |      |  |      | 1.4  |  |  |      | 2.5  | 
|                                          |                            |                          |      |      |      |  |      |      | 
|                                          |                            |                          | 51.6 |      |      |  | 49.4 |      |  |  | 45.8 |     
|                                          |                            |                          |      |      |      |  |      |      | 
|Gross profit:                             |                            |                          |      |      |      |  |      |      |  |  |      |     
|                                          | Transaction                |                          |      | 29.0 |      |  |      | 29.3 |  |  |      | 27.4 | 
|                                          | Software licensing         |                          |      | 5.7  |      |  |      | 6.8  |  |  |      | 12.6 | 
|                                          | Consulting and services    |                          |      | 13.3 |      |  |      | 14.1 |  |  |      | 13.1 | 
|                                          | Hardware                   |                          |      | 0.4  |      |  |      | 0.4  |  |  |      | 1.1  | 
|                                          |                            |                          |      |      |      |  |      |      | 
|Gross profit                              |                            |                          | 48.4 |      |      |  | 50.6 |      |  |  | 54.2 |     
|                                          |                            |                          |      |      |      |  |      |      | 
|Operating expenses:                       |                            |                          |      |      |      |  |      |      |  |  |      |     
|                                          | Development costs          |                          |      | 23.7 |      |  |      | 21.9 |  |  |      | 18.2 | 
|                                          | Sales and marketing        |                          |      | 11.9 |      |  |      | 10.0 |  |  |      | 11.6 | 
|                                          | General and administrative |                          |      | 11.8 |      |  |      | 13.6 |  |  |      | 11.0 | 
|                                          | Merger related costs       |                          |      |     |      |  |      |     |  |  |      | 3.4  | 
|                                          | Purchased in-process R&D   |                          |      |     |      |  |      | 1.2  |  |  |      |     | 
|                                          | Restructuring costs        |                          |      | 4.2  |      |  |      | 2.7  |  |  |      | 2.3  | 
|                                          |                            |                          |      |      |      |  |      |      | 
|Total operating expenses                  |                            |                          | 51.6 |      |      |  | 49.4 |      |  |  | 46.5 |     
|                                          |                            |                          |      |      |      |  |      |      | 
|Income (loss) from operations             |                            |                          | (3.2 | )    |      |  | 1.2  |      |  |  | 7.7  |     
|Interest income                           |                            |                          | 1.5  |      |      |  | 1.8  |      |  |  | 2.4  |     
|Equity in loss of partnership investment  |                            |                          | (0.4 | )    |      |  | (0.4 | )    |  |  |     |     
|                                          |                            |                          |      |      |      |  |      |      | 
|Income (loss) before income taxes         |                            |                          | (2.1 | )    |      |  | 2.6  |      |  |  | 10.1 |     
|Provision for (benefit from) income taxes |                            |                          | (0.9 | )    |      |  | (0.1 | )    |  |  | 2.2  |     
|                                          |                            |                          |      |      |      |  |      |      | 
|Net income (loss)                         |                            |                          | (1.2 | )%   |      |  | 2.7  | %    |  |  | 7.9  | %   
|                                          |                            |                          |      |      |      |  |      |      | 



| |                                                                            
| | ---------------------------------------------------------------------------
| | Year Ended December 31, 2003 Compared
    with Year Ended December 31, 2002

Revenues.Revenues
and certain revenue comparisons for the years ended
December 31, 2003 and 2002 were as follows:

|                        |  |                        |         |  |         |  |       |            |  |   |         |  |  |            |       |   |            |   |         |   |  |  |       |   
|----------------------- |  | ---------------------- | ------- |  | ------- |  | ----- | ---------- |  | - | ------- |  |  | ---------- | ----- | - | ---------- | - | ------- | - |  |  | ----- | --
|                        |  | Year Ended             |         |  | % of    |  |       | Year Ended |  |   | % of    |  |  |            |       |  
|                        |  | Dec. 31,               |         |  | Total   |  |       | Dec. 31,   |  |   | Total   |  |  | $          |       |   | %          |  
|Revenues                |  | 2003                   |         |  | Revenue |  |       | 2002       |  |   | Revenue |  |  | Difference |       |   | Difference |  
|                        |  |                        |         |  |         |  |       |            |  |   |         |  |  |            |       |   |            |  
|                        |  |                       
|                        |  | (Dollars in thousands) |        
|Transaction             |  | $                      | 80,552  |  |         |  | 67.1  | %          |  | $ | 88,376  |  |  |            | 66.2  | % |            | $ | (7,824  | ) |  |  | (8.9  | )%
|Software licensing      |  |                        | 8,012   |  |         |  | 6.7   |            |  |   | 10,212  |  |  |            | 7.7   |   |            |   | (2,200  | ) |  |  | (21.5 | ) 
|Consulting and services |  |                        | 28,666  |  |         |  | 23.9  |            |  |   | 32,491  |  |  |            | 24.3  |   |            |   | (3,825  | ) |  |  | (11.8 | ) 
|Hardware                |  |                        | 2,748   |  |         |  | 2.3   |            |  |   | 2,359   |  |  |            | 1.8   |   |            |   | 389     |   |  |  | 16.5  |   
|                        |  |                        |         |  |         |  |       |            |  |   |         |  |  |            |       |   |            |  
|Total                   |  | $                      | 119,978 |  |         |  | 100.0 | %          |  | $ | 133,438 |  |  |            | 100.0 | % |            | $ | (13,460 | ) |  |  | (10.1 | )%
|                        |  |                        |         |  |         |  |       |            |  |   |         |  |  |            |       |   |            |  

The decrease in transaction revenues of
$7.8 million was due to slower subscriber growth
experienced by the Companys clients, resulting in a
reduction in transaction volume, and to clients selecting fewer
transaction products and services. The Companys
transaction revenues also declined as a result of reduced call
volume

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and a change in the combination of services
provided by Lightbridges TeleServices call centers. In
addition, in the first quarter of 2002, transaction revenues
include approximately $2.7 million in revenues from
services provided to WorldCom, Inc. (WorldCom).
In the second quarter of 2002, the Company provided
approximately $2.0 million of transaction services to
WorldCom, and did not record any related revenue due to doubts
about collectibility stemming from WorldComs financial
difficulties. No services were provided to WorldCom in 2003.


The Companys transaction revenues will
continue to reflect the industrys rate of growth of new
subscribers as well as subscriber churn. Lightbridge believes
that it may experience decreases in the demand for its
TeleServices business and changes in the combination of services
acquired by clients and competitive pricing pressures that could
negatively affect transaction revenues in 2004.

The decrease in software licensing revenues of
$2.2 million was due to fewer software contracts recorded
in 2003 as a result of the capital spending decline in the
telecommunications industry. The Company expects the level of
capital spending by carriers to continue to affect the sales of
Lightbridge software products in 2004.

The decrease in consulting and services revenues
of $3.8 million for the year ended December 31, 2003
was principally due to a decline in software sales that affected
the integration, deployment, optimization and maintenance
services associated with software sales as well as a decline in
other consulting projects. The Company expects that the level of
software sales will continue to affect consulting and services
revenues in 2004.

There was a slight increase in hardware revenues
of $0.4 million in 2003. The Company does not expect
hardware revenues to be a significant component of revenue in
2004.

Cost of Revenues.Cost of revenues consists primarily of personnel costs, costs of
maintaining systems and networks used in processing
qualification and activation transactions (including
depreciation and amortization of systems and networks) and
amortization of capitalized software and acquired technology. In
the future, cost of revenues may vary as a percentage of total
revenues as a result of a number of factors, including changes
in the volume of transactions processed, changes in the mix of
transaction revenues between those from automated transaction
processing and those from processing transactions through the
Companys TeleServices Group and changes in the mix of
total revenues among transaction revenues, software licensing
and maintenance revenues and consulting services revenues.
Generally, cost of revenue from automated transaction processing
tends to be lower than cost of revenue from processing
transactions through the Companys TeleServices Group.

Cost of revenues and certain cost of revenues
comparisons for the years ended December 31, 2003 and 2002
were as follows:

|                        |  |                        |        |  |         |  |      |            |  |   |         |  |  |            |      |   |            |   |        |   |  |  |      |   
|----------------------- |  | ---------------------- | ------ |  | ------- |  | ---- | ---------- |  | - | ------- |  |  | ---------- | ---- | - | ---------- | - | ------ | - |  |  | ---- | --
|                        |  | Year Ended             |        |  | % of    |  |      | Year Ended |  |   | % of    |  |  |            |      |  
|                        |  | Dec. 31,               |        |  | Total   |  |      | Dec. 31,   |  |   | Total   |  |  | $          |      |   | %          |  
|Cost of Revenues        |  | 2003                   |        |  | Revenue |  |      | 2002       |  |   | Revenue |  |  | Difference |      |   | Difference |  
|                        |  |                        |        |  |         |  |      |            |  |   |         |  |  |            |      |   |            |  
|                        |  |                       
|                        |  | (Dollars in thousands) |       
|Transaction             |  | $                      | 45,667 |  |         |  | 38.1 | %          |  | $ | 49,194  |  |  |            | 36.9 | % |            | $ | (3,527 | ) |  |  | (7.2 | )%
|Software licensing      |  |                        | 1,251  |  |         |  | 1.0  |            |  |   | 1,247   |  |  |            | 0.9  |   |            |   | 4      |   |  |  | 0.3  |   
|Consulting and services |  |                        | 12,741 |  |         |  | 10.6 |            |  |   | 13,663  |  |  |            | 10.2 |   |            |   | (922   | ) |  |  | (6.7 | ) 
|Hardware                |  |                        | 2,290  |  |         |  | 1.9  |            |  |   | 1,839   |  |  |            | 1.4  |   |            |   | 451    |   |  |  | 24.5 |   
|                        |  |                        |        |  |         |  |      |            |  |   |         |  |  |            |      |   |            |  
|Total                   |  | $                      | 61,949 |  |         |  | 51.6 | %          |  | $ | 65,943  |  |  |            | 49.4 | % |            | $ | (3,994 | ) |  |  | (6.1 | )%
|                        |  |                        |        |  |         |  |      |            |  |   |         |  |  |            |      |   |            |  

Transaction cost of revenues decreased in 2003
from the prior year principally due to lower transaction
revenues as a result of a lower volume of transactions processed
through Lightbridges TeleServices call centers and a
decrease in costs attributable to the Companys staff
reductions. Transaction cost of revenues was also affected by a
shift in the combination of services acquired by clients during
the year ended December 31, 2003. Transaction cost of
revenues increased as a percentage of total transaction revenues
to 56.7% in 2003 from 55.7% in 2002. The increase in cost of
transaction revenues as a percentage of transaction

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revenues was due to a change in the combination
of services acquired by clients in the year ended
December 31, 2003, as well as the level of the
Companys fixed costs which resulted in lower gross profit
margins as revenues declined. Certain of these fixed costs have
been eliminated or reduced as a result of the Companys
restructurings in 2002 and 2003. Lightbridge believes that
changes in the combination of services acquired by clients and
declining transaction volumes will continue to affect
transaction cost of revenues in 2004.


Software licensing cost of revenues remained
relatively flat in 2003 compared to 2002, and increased as a
percentage of total software licensing revenues to 15.6% from
12.2%. The increase in software licensing cost of revenues as a
percentage of revenue was attributable to the type of software
products licensed during 2003 and as a result of lower software
licensing revenue levels.

Consulting and services cost of revenues
decreased in 2003 from the prior year and remained relatively
flat as a percentage of revenue. The decrease in consulting and
services cost of revenue was attributable to a decrease in
consulting projects and revenue as well as a reduction in
headcount associated with the June 2002 restructuring.

Hardware cost of revenues increased and also
increased as a percentage of total hardware revenue to 83.3% in
2003 from 78.0% in 2002. This increase was attributable to the
increase in hardware revenues.

The Company expects that fluctuations in gross
profit may occur primarily because of a change in the mix of
revenue generated from the Companys four revenue
components, particularly revenues from software licensing, and
consulting and services, and also because of competitive pricing
pressures.

Operating Expenses.Operating expenses and certain operating expense comparisons for
the years ended December 31, 2003 and 2002 were as follows:

|                           |  |                        |        |  |         |  |      |            |  |   |         |  |  |            |      |   |            |   |        |   |  |  |        |   
|-------------------------- |  | ---------------------- | ------ |  | ------- |  | ---- | ---------- |  | - | ------- |  |  | ---------- | ---- | - | ---------- | - | ------ | - |  |  | ------ | --
|                           |  | Year Ended             |        |  | % of    |  |      | Year Ended |  |   | % of    |  |  |            |      |  
|                           |  | Dec. 31,               |        |  | Total   |  |      | Dec. 31,   |  |   | Total   |  |  | $          |      |   | %          |  
|                           |  | 2003                   |        |  | Revenue |  |      | 2002       |  |   | Revenue |  |  | Difference |      |   | Difference |  
|                           |  |                        |        |  |         |  |      |            |  |   |         |  |  |            |      |   |            |  
|                           |  |                       
|                           |  | (Dollars in thousands) |       
|Development                |  | $                      | 28,426 |  |         |  | 23.7 | %          |  | $ | 29,269  |  |  |            | 21.9 | % |            | $ | (843   | ) |  |  | (2.9   | )%
|Sales and marketing        |  |                        | 14,239 |  |         |  | 11.9 |            |  |   | 13,270  |  |  |            | 10.0 |   |            |   | 969    |   |  |  | 7.3    |   
|General and administrative |  |                        | 14,143 |  |         |  | 11.8 |            |  |   | 18,170  |  |  |            | 13.6 |   |            |   | (4,027 | ) |  |  | (22.2  | ) 
|Purchased in-process R&D   |  |                        |       |  |         |  |     |            |  |   | 1,618   |  |  |            | 1.2  |   |            |   | (1,618 | ) |  |  | (100.0 | ) 
|Restructuring costs        |  |                        | 5,079  |  |         |  | 4.2  |            |  |   | 3,616   |  |  |            | 2.7  |   |            |   | 1,463  |   |  |  | 40.5   |   
|                           |  |                        |        |  |         |  |      |            |  |   |         |  |  |            |      |   |            |  
|Total                      |  | $                      | 61,887 |  |         |  | 51.6 | %          |  | $ | 65,943  |  |  |            | 49.4 | % |            | $ | (4,056 | ) |  |  | (6.2   | )%
|                           |  |                        |        |  |         |  |      |            |  |   |         |  |  |            |      |   |            |  

Development.Development expenses include software development costs,
consisting primarily of personnel and outside technical services
costs related to developing new products and services, enhancing
existing products and services, and implementing and maintaining
new and existing products and services. The decrease in
development expenses in 2003 was primarily due to cost savings
associated with the June 2002 and 2003 restructurings.
Development expenses as a percentage of total revenues increased
in 2003 as a result of lower revenue levels. The Company expects
to continue to incur a similar level of development expenses in
2004 and may experience an increase in such expenses for that
period in connection with the further development of its
existing products and services and development of new products
and services.

Sales and Marketing.Sales and marketing expenses consist primarily of salaries,
commissions and travel expenses of direct sales and marketing
personnel, as well as costs associated with advertising, trade
shows and conferences. The increase in sales and marketing
expenses in 2003 was primarily due to the expansion of the
Companys business development organization and costs
associated with the Companys strategic partnerships and
key initiatives. The Company expects that sales and marketing
expenses will remain generally consistent as a percentage of
revenue in 2004 as compared to 2003.

General and
Administrative.General and
administrative expenses consist principally of salaries of
executive, finance, human resources and administrative personnel
and fees for certain outside professional

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services. The decrease in general and
administrative costs in 2003 was primarily due to a decrease in
headcount associated with the June 2002 and June 2003
restructurings and the Companys efforts to limit spending.
The Company may experience an increase in general and
administrative expenses in 2004 due to increased regulatory
compliance requirements associated with operating as a public
company, consumer credit and privacy regulations, and the
business of Authorize.Net Corporation, and costs associated with
the relocation of its headquarters facility.


Purchased In-Process Research and Development
(IPR&D).In connection
with the Altawave acquisition, the Company recorded a
$1.6 million charge during the first quarter of 2002 for
several IPR&D projects. The technology acquired from
Altawave includes solutions that offer wireless carriers and
enterprises a service platform for the development and
management of data content and applications. The complexity of
the technology lies in its comprehensive, secure and scalable
characteristics. The research projects in process at the date of
acquisition related to the development of the Lightbridge Mobile
Data Manager (MDM) suite of products consisting of
MDM Server, MDM Administration, MDM Altalinks and MDM
Provisioner, as well as the Consumer Group Applications
(CGA). Development of the technology was started in
2000.

The value of the projects was determined by an
independent appraiser using the income approach. The discounted
cash flow method was utilized to estimate the present value of
the expected income that could be generated through revenues
from the projects over their estimated useful lives through
2009. The percentage of completion for the projects was
determined based on the amount of research and development
expenses incurred through the date of acquisition as a
percentage of estimated total research and development expenses
to bring the projects to technological feasibility. At the
acquisition date, the Company estimated that the MDM suite and
CGA were approximately 70% and 32% complete, respectively, with
fair values of approximately $1.0 million and
$0.6 million, respectively. The discount rate used for the
fair value calculation was 37% for the MDM suite and 40% for
CGA. At the date of acquisition, development of the technology
involved risks to the Company including the remaining
development effort required to achieve technological feasibility
and uncertainty with respect to the market for the technology.
Lightbridge completed the development of the MDM suite in the
quarter ended September 30, 2002 and the CGA project in the
quarter ended September 30, 2003 having spent approximately
$150,000 and $300,000, respectively, on the projects after the
acquisition.

Interest Income.Interest income decreased by 27.1% to $1.8 million in the
year ended December 31, 2003 from $2.4 million in the
prior year. This decrease was primarily due to a decline in
interest rates.

Equity in Loss of
Partnership Investment.In June
2001, the Company committed to invest up to $5.0 million in
a limited partnership that invested in businesses within the
wireless industry. The Company uses the equity method of
accounting for this limited partnership investment. For the year
ended December 31, 2002, the Companys proportionate
share of the loss of the limited partnership was
$0.5 million. In July 2003, the partners agreed to dissolve
the partnership. Accordingly, future commitments were
eliminated, and the remaining $0.5 million investment was
written off in the quarter ended June 30, 2003.

Provision for (Benefit From) Income
Taxes.Lightbridges effective
tax rate was 43.2% and (2.9)% for the years ended
December 31, 2003 and 2002, respectively. The 2003 tax
provision reflects a benefit of $1.1 million which was
based upon the annual effective tax rate of 33.0%, as well as a
$0.3 million tax benefit from prior years research
and development tax credits. The Company has approximately
$11.7 million in loss carryforwards, principally the result
of various acquisitions, and $8.3 million of other deferred
tax assets, against which a valuation reserve of approximately
$12.1 million has been provided. Net deferred tax assets
were approximately $7.8 million at December 31, 2003.
If circumstances change so that recoverability of these assets
appears unlikely, additional valuation allowances may be
required. The Company recorded a net benefit from income taxes
in 2003 due primarily to the net loss before income taxes and
the impact of a refund of prior years research and
development tax credits.

Net Income/(Loss).Net income/(loss) for 2003 was $(1.4) million or (1.2)% of
revenues, and diluted earnings per share was $(0.05) compared to
net income in 2002 of $3.6 million or 2.7% of revenues and
diluted earnings per share of $0.13. The 2003 decrease in net
income from 2002 was primarily due to reduced revenue levels,
partially offset by a reduction in operating expenses.

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| |                                                                            
| | ---------------------------------------------------------------------------
| | Year Ended December 31, 2002 Compared
    with Year Ended December 31, 2001

Revenues.Revenues
and certain revenue comparisons for the years ended
December 31, 2002 and 2001 were as follows:

|                        |  |                        |         |  |         |  |       |            |  |   |         |  |  |            |       |   |            |   |         |   |  |  |       |   
|----------------------- |  | ---------------------- | ------- |  | ------- |  | ----- | ---------- |  | - | ------- |  |  | ---------- | ----- | - | ---------- | - | ------- | - |  |  | ----- | --
|                        |  | Year Ended             |         |  | % of    |  |       | Year Ended |  |   | % of    |  |  |            |       |  
|                        |  | Dec. 31,               |         |  | Total   |  |       | Dec. 31,   |  |   | Total   |  |  | $          |       |   | %          |  
|Revenues                |  | 2002                   |         |  | Revenue |  |       | 2001       |  |   | Revenue |  |  | Difference |       |   | Difference |  
|                        |  |                        |         |  |         |  |       |            |  |   |         |  |  |            |       |   |            |  
|                        |  |                       
|                        |  | (Dollars in thousands) |        
|Transaction             |  | $                      | 88,376  |  |         |  | 66.2  | %          |  | $ | 104,019 |  |  |            | 58.9  | % |            | $ | (15,643 | ) |  |  | (15.0 | )%
|Software licensing      |  |                        | 10,212  |  |         |  | 7.7   |            |  |   | 24,802  |  |  |            | 14.0  |   |            |   | (14,590 | ) |  |  | (58.8 | ) 
|Consulting and services |  |                        | 32,491  |  |         |  | 24.3  |            |  |   | 41,484  |  |  |            | 23.5  |   |            |   | (8,993  | ) |  |  | (21.7 | ) 
|Hardware                |  |                        | 2,359   |  |         |  | 1.8   |            |  |   | 6,311   |  |  |            | 3.6   |   |            |   | (3,952  | ) |  |  | (62.6 | ) 
|                        |  |                        |         |  |         |  |       |            |  |   |         |  |  |            |       |   |            |  
|Total                   |  | $                      | 133,438 |  |         |  | 100.0 | %          |  | $ | 176,616 |  |  |            | 100.0 | % |            | $ | (43,178 | ) |  |  | (24.4 | )%
|                        |  |                        |         |  |         |  |       |            |  |   |         |  |  |            |       |   |            |  

The decrease in transaction revenues of
$15.6 million was due to slower subscriber growth
experienced by the Companys clients, resulting in a
reduction in transaction volume, and to clients selecting fewer
transaction products and services. The Companys
transaction revenues also declined as a result of reduced call
volume and a change in the mix of services provided by
Lightbridges TeleServices call centers. During the quarter
ended March 31, 2002, transaction revenues include
approximately $2.7 million in revenues from services
provided to WorldCom. During the quarter ended June 30,
2002, the Company provided approximately $2.0 million of
transaction services to WorldCom, and did not record any related
revenue due to doubts about collectibility stemming from
WorldComs financial difficulties. The Company did not
provide any services to or record any revenue from WorldCom
during the third or fourth quarter of 2002. At December 31,
2002, WorldCom owed the Company approximately $2.0 million,
all of which had been reserved.

The decrease in software licensing revenues of
$14.6 million was due to the continued capital spending
slowdown in the telecommunications industry. Lower capital
spending by carriers affected the sales of all Lightbridge
software products.

The decrease in consulting and services revenues
of $9.0 million for the year ended December 31, 2002
was principally due to a decline in maintenance and services
revenues related to PhonePrint, a legacy product. In addition,
the decrease was also affected by a decline in software sales
and the related integration, deployment, optimization and
maintenance services provided in conjunction with software sales.

The decrease in hardware revenues of
$4.0 million was due to a decrease in the Companys
PrePay hardware sales, primarily because the version of PrePay
software available since the second quarter of 2001 enables
carriers to use locally sourced Interactive Voice Response Units
(IVRs). In addition, hardware sales declined because
a number of carriers continued to delay or cancel purchase
decisions.

Cost of Revenues.Cost of revenues and certain cost of revenues comparisons for
the years ended December 31, 2002 and 2001 were as follows:

|                        |  |                        |        |  |         |  |      |            |  |   |         |  |  |            |      |   |            |   |         |   |  |  |       |   
|----------------------- |  | ---------------------- | ------ |  | ------- |  | ---- | ---------- |  | - | ------- |  |  | ---------- | ---- | - | ---------- | - | ------- | - |  |  | ----- | --
|                        |  | Year Ended             |        |  | % of    |  |      | Year Ended |  |   | % of    |  |  |            |      |  
|                        |  | Dec. 31,               |        |  | Total   |  |      | Dec. 31,   |  |   | Total   |  |  | $          |      |   | %          |  
|Cost of Revenues        |  | 2002                   |        |  | Revenue |  |      | 2001       |  |   | Revenue |  |  | Difference |      |   | Difference |  
|                        |  |                        |        |  |         |  |      |            |  |   |         |  |  |            |      |   |            |  
|                        |  |                       
|                        |  | (Dollars in thousands) |       
|Transaction             |  | $                      | 49,194 |  |         |  | 36.9 | %          |  | $ | 55,591  |  |  |            | 31.5 | % |            | $ | (6,397  | ) |  |  | (11.5 | )%
|Software licensing      |  |                        | 1,247  |  |         |  | 0.9  |            |  |   | 2,485   |  |  |            | 1.4  |   |            |   | (1,238  | ) |  |  | (49.8 | ) 
|Consulting and services |  |                        | 13,663 |  |         |  | 10.2 |            |  |   | 18,275  |  |  |            | 10.4 |   |            |   | (4,612  | ) |  |  | (25.2 | ) 
|Hardware                |  |                        | 1,839  |  |         |  | 1.4  |            |  |   | 4,460   |  |  |            | 2.5  |   |            |   | (2,621  | ) |  |  | (58.8 | ) 
|                        |  |                        |        |  |         |  |      |            |  |   |         |  |  |            |      |   |            |  
|Total                   |  | $                      | 65,943 |  |         |  | 49.4 | %          |  | $ | 80,811  |  |  |            | 45.8 | % |            | $ | (14,868 | ) |  |  | (18.4 | )%
|                        |  |                        |        |  |         |  |      |            |  |   |         |  |  |            |      |   |            |  

Transaction cost of revenues decreased in 2002
from the prior year principally due to lower transaction
revenues as a result of a lower volume of transactions processed
through Lightbridges TeleServices call centers and a
decrease in costs attributable to the Companys staff
reductions. Transaction cost of revenues

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was also affected by a shift in the mix of
services provided to clients during the year ended
December 31, 2002. Transaction cost of revenues increased
as a percentage of total transaction revenues to 55.7% in 2002
from 53.4% in 2001. The increase in cost of transaction revenues
as a percentage of transaction revenues was due to changes in
the combination of services acquired by clients in the year
ended December 31, 2002, as well as the level of fixed
costs within the Companys infrastructure, which resulted
in lower gross profit margins as revenues declined. Certain of
these fixed costs have been eliminated or reduced as a result of
the Companys restructurings in 2001 and 2002.


Software licensing cost of revenue decreased in
2002 from the prior year due to the decline in software
revenues. Software licensing cost of revenue increased as a
percentage of total software licensing revenues increased to
12.2% in 2002 from 10.0% in 2001 due to lower software sales.

Consulting and services cost of revenues
decreased in 2002 from the prior year. Consulting and services
cost of revenues also decreased as a percentage of total
consulting services revenues to 42.1% in 2002 from 44.1% in
2001. The decrease in consulting and services cost of revenues
was attributable to a decrease in consulting projects and
revenue as well as a reduction in headcount associated with the
June 2002 restructuring.

Hardware cost of revenues decreased in 2002 from
the prior year due to a decline in hardware revenues. Hardware
cost of revenues as a percentage of total hardware revenue
increased to 78.0% in 2002 from 70.7% in 2001 due to a decrease
in hardware revenues.

Operating Expenses.Operating expenses and certain operating expense comparisons for
the years ended December 31, 2002 and 2001 were as follows:

|                           |  |                        |        |  |         |  |      |            |  |   |         |  |  |            |      |   |            |   |         |   |  |  |        |   
|-------------------------- |  | ---------------------- | ------ |  | ------- |  | ---- | ---------- |  | - | ------- |  |  | ---------- | ---- | - | ---------- | - | ------- | - |  |  | ------ | --
|                           |  | Year Ended             |        |  | % of    |  |      | Year Ended |  |   | % of    |  |  |            |      |  
|                           |  | Dec. 31,               |        |  | Total   |  |      | Dec. 31,   |  |   | Total   |  |  | $          |      |   | %          |  
|                           |  | 2002                   |        |  | Revenue |  |      | 2001       |  |   | Revenue |  |  | Difference |      |   | Difference |  
|                           |  |                        |        |  |         |  |      |            |  |   |         |  |  |            |      |   |            |  
|                           |  |                       
|                           |  | (Dollars in thousands) |       
|Development                |  | $                      | 29,269 |  |         |  | 21.9 | %          |  | $ | 32,259  |  |  |            | 18.2 | % |            | $ | (2,990  | ) |  |  | (9.3   | )%
|Sales and marketing        |  |                        | 13,270 |  |         |  | 10.0 |            |  |   | 20,460  |  |  |            | 11.6 |   |            |   | (7,190  | ) |  |  | (35.1  | ) 
|General and administrative |  |                        | 18,170 |  |         |  | 13.6 |            |  |   | 19,517  |  |  |            | 11.0 |   |            |   | (1,347  | ) |  |  | (6.9   | ) 
|Merger related costs       |  |                        |       |  |         |  |     |            |  |   | 5,999   |  |  |            | 3.4  |   |            |   | (5,999  | ) |  |  | (100.0 | ) 
|Purchased in-process R&D   |  |                        | 1,618  |  |         |  | 1.2  |            |  |   |        |  |  |            |     |   |            |   | 1,618   |   |  |  | 100.0  |   
|Restructuring costs        |  |                        | 3,616  |  |         |  | 2.7  |            |  |   | 4,000   |  |  |            | 2.3  |   |            |   | (384    | ) |  |  | (9.6   | ) 
|                           |  |                        |        |  |         |  |      |            |  |   |         |  |  |            |      |   |            |  
|Total                      |  | $                      | 65,943 |  |         |  | 49.4 | %          |  | $ | 82,235  |  |  |            | 46.5 | % |            | $ | (16,292 | ) |  |  | (19.8  | )%
|                           |  |                        |        |  |         |  |      |            |  |   |         |  |  |            |      |   |            |  

Development.The
decrease in development expenses for the year ended
December 31, 2002 was due to cost savings associated with
the closing of the Companys Palo Alto, California facility
as well as the reduction in headcount associated with the June
2002 restructuring. These cost savings were partially offset by
the addition of engineering personnel necessary to support
Lightbridges product and services development plans.
Development expenses as a percentage of total revenues increased
in 2002 from the prior year as a result of lower total revenues.

Sales and Marketing.The decrease for the year ended December 31, 2002, was
primarily due to headcount reductions from closing the Palo
Alto, California facility and the June 2002 restructuring,
coupled with a decrease in costs associated with lower revenue
levels, such as commissions on sales.

General and
Administrative.The decrease in
general and administrative costs for the year ended
December 31, 2002 was primarily due to a decrease in
headcount associated with the closing of the Palo Alto facility,
the June 2002 restructuring and the Companys efforts to
limit spending, partially offset by a write-off of a secured
promissory note received by the Company in connection with a
loan to an unrelated party in 1999. The Company wrote off the
note receivable in 2002 because it believed that the note was
uncollectible due to the adverse financial and operating
condition of the maker and economic conditions. The increase in
general and administrative expenses as a percentage of total
revenues was due to lower revenues and to increased costs
associated with operating as a public company and regulatory
compliance.

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In-Process Research and Development
(IPR&D).In connection
with the Altawave acquisition, the Company recorded a
$1.6 million charge during the first quarter of 2002 for
several IPR&D projects. Lightbridge completed the
development of the MDM suite in the quarter ended
September 30, 2002, having spent approximately $150,000 on
the project after the acquisition. Total cost to complete the
CGA project after acquisition was estimated to be approximately
$300,000, of which approximately $125,000 had been spent through
December 31, 2002.

Interest Income.Interest income decreased by 42.4% to $2.4 million in the
year ended December 31, 2002 from $4.2 million in the
prior year. This decrease was primarily due to a decline in
interest rates.

Equity in Loss of
Partnership Investment.In June
2001, the Company committed to invest up to $5.0 million in
a limited partnership that invested in businesses within the
wireless industry. For the year ended December 31, 2002,
the Companys proportionate share of the loss of the
limited partnership was $0.5 million.

Provision for Income
Taxes.Lightbridges effective
tax rate was (2.9)% and 21.6% (excluding merger-related
expenses) for the years ended December 31, 2002 and 2001,
respectively. The 2002 tax provision was based upon the annual
effective tax rate of 34.0%, offset by a reduction in the
Companys valuation allowance provided against certain
acquired net loss carryforwards and an $0.8 million benefit
from research and development tax credits. At December 31,
2002, the Company had approximately $10.4 million in loss
carryforwards, principally the result of various acquisitions,
against which a valuation reserve of approximately
$10.3 million had been provided. Net deferred tax assets
were approximately $6.7 million at December 31, 2002.
The Company recorded a net benefit from income taxes in 2002 due
primarily to lower levels of profitability and the impact of a
reduction in valuation allowances and credits.

Net Income.Net
income for 2002 was $3.6 million or 2.7% of revenues, and
diluted earnings per share was $0.13 compared to net income in
2001 of $14.0 million or 7.9% of revenues and diluted
earnings per share of $0.48. The 2002 decrease in net income
from 2001 was primarily due to reduced revenue levels, partially
offset by a reduction in operating expenses.

Liquidity and Capital Resources

As of December 31, 2003, Lightbridge had
cash and cash equivalents and short-term investments of
$133.5 million. Lightbridges working capital
increased to $137.7 million at December 31, 2003 from
$136.5 million at December 31, 2002. Upon the closing
of the acquisition of Authorize.Net expected in the second
quarter of 2004, the Companys working capital will be
reduced by approximately $82 million, to reflect the
payment of the purchase price for the acquisition and
approximately an additional $2.6 million for acquisition
related transaction costs. The Company believes that its current
cash balances will be sufficient to finance the acquisition of
Authorize.Net, and the Companys operations and capital
expenditures for the next twelve months. Thereafter, the
adequacy of the Companys cash balances will depend on a
number of factors that are not readily foreseeable such as the
impact of general market conditions on the Companys
operations, cash requirements associated with acquisitions
including the acquisition of Authorize.Net, investments and
capital expenditures, and the profitability of the
Companys operations.

Accounts receivable as of December 31, 2003
increased by $2.4 million from December 31, 2002
primarily due to more revenues generated late in the fourth
quarter of 2003 and later payments by clients. As a result,
accounts receivable days outstanding increased to 60 days
for the year ended December 31, 2003 as compared to
48 days and 56 days for the years ended
December 31, 2002 and 2001, respectively.

For the year ended December 31, 2003, the
Company generated cash flows from operating activities of
$8.8 million and used $25.9 million and
$3.9 million in investing and financing activities,
respectively.

The Companys capital expenditures for the
years ended December 31, 2003 and 2002 were
$4.9 million and $4.4 million, respectively. The
capital expenditures during these periods consisted of purchases
of fixed assets, principally for the Companys services
delivery infrastructure, and computer equipment for develop-

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ment activities. The Company leases its
facilities and certain equipment under non-cancelable operating
lease agreements that expire at various dates through January
2011. The Company plans to incur capital expenditures of
approximately $6.0 million in connection with the planned
relocation of its headquarters in June 2004 and the planned
expansion of its call center operations to Liverpool, Nova
Scotia, Canada.


On October 4, 2001, Lightbridge announced
that its board of directors authorized the repurchase of up to
2 million shares of the Companys common stock at an
aggregate price of up to $20 million. The shares may be
purchased from time to time on or after October 8, 2001,
depending on market conditions. On April 23, 2003, the
board approved an expansion of the plan to authorize Lightbridge
to purchase up to 4 million shares of the Companys
common stock at an aggregate price of up to $40 million
through September 26, 2005. As of December 31, 2003,
the Company had purchased approximately 1.9 million shares
at a total cost of approximately $14.1 million since the
inception of its repurchase program. For the year ended
December 31, 2003, the Company used $5.3 million for
the repurchase of the Companys common stock under its
stock repurchase program. The Company may continue to repurchase
shares during 2004 based on prevailing market prices and other
financial considerations, and subject to the requirements of the
repurchase program and applicable laws.

At December 31, 2002 the Company had an
outstanding letter of credit in the amount of $1.0 million
which was scheduled to expire in May 2003. On January 14,
2003, this letter of credit was replaced with a
$1.0 million letter of credit, which expires in May 2004.
On January 7, 2004, the Company entered into another
$1.0 million letter of credit, which expires in January
2005.

On January 14, 2003, the Company entered
into a foreign exchange agreement, effective April 2003, with a
bank for the purchase of one currency in exchange for the sale
of another currency. This agreement is secured by
$3.0 million held by the bank. To date, there have been no
transactions under this agreement.

The Companys primary contractual
obligations and commercial commitments are under its operating
leases and letters of credit. The Companys future minimum
payments due under operating leases that include facilities
affected by restructurings and the Companys new
headquarters lease, and the amount of the Companys
commitment per period under annually renewable letters of credit
required as security under the leases for its current and new
headquarters are as follows:

|                  |  |                        |        |           |        |   |       |           |  |   |           |  |  |         |       |  |  |   |       | 
|----------------- |  | ---------------------- | ------ | --------- | ------ | - | ----- | --------- |  | - | --------- |  |  | ------- | ----- |  |  | - | ----- | 
|                  |  |                        |        | Less than |        |   |       |           |  |   | More than | 
|                  |  | Total                  |        |           | 1 Year |   |       | 1-3 Years |  |   | 3-5 Years |  |  | 5 Years |      
|                  |  |                        |        |           |        |   |       |           |  |   |           |  |  |         |      
|                  |  |                       
|                  |  | (Dollars in thousands) |       
|Operating leases  |  | $                      | 21,966 |           |        | $ | 4,114 |           |  | $ | 7,575     |  |  | $       | 4,905 |  |  | $ | 5,372 | 
|Letters of credit |  | $                      | 2,000  |           |        | $ | 2,000 |           |  | $ | 1,000     |  |  |         |      |  |  |   |      | 

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements
other than operating lease obligations, and is not a party to
any material transactions involving related persons or entities
(other than employment, separation and other compensation
agreements with certain executives). Future annual minimum
rental lease payments are detailed in Note 7 of the Notes
to Consolidated Financial Statements in Item 8 of this
Annual Report on Form 10-K.

Restructurings

In November 2001, the Company announced that it
was closing its Palo Alto, California facility and consolidating
research and development activities in its Irvine, California
and Broomfield, Colorado locations. All other Palo Alto
operations including finance, support services, and sales and
marketing were merged with functions in Irvine or Burlington,
Massachusetts. The Company recorded a restructuring charge of
approximately $4.0 million, consisting of $2.9 million
for workforce reductions and $1.1 million for facilities
and related costs, associated with the closure of its Palo Alto
location. The restructuring plan resulted in the termination of
102 personnel as follows: 24 in product and service delivery, 38
in development, 25 in sales and marketing and 15 in general and
administrative. The costs for consolidation of facilities were
predominantly

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comprised of real estate lease commitments for
unutilized office space. The Company did not adjust the Palo
Alto restructuring reserve and all related restructuring costs
were paid as of December 31, 2002.


In June 2002, the Company announced that it was
reducing its workforce by seven percent and consolidating its
Waltham, Massachusetts call center operations into its Lynn,
Massachusetts and Broomfield, Colorado facilities by the end of
2002. The Company recorded a restructuring charge of
approximately $3.6 million, consisting of $1.6 million
for workforce reductions, $1.3 million for facilities
reductions including lease obligations, utilities and security
costs on unused space and $0.7 million for capital
equipment write-offs, associated with these measures. The
restructuring plan resulted in the termination of 65 personnel
as follows: 25 in product and service delivery, 22 in
development, 11 in sales and marketing and seven in general and
administrative. The capital equipment write-offs and a majority
of severance costs related to this restructuring were incurred
by the end of 2002, and the Company anticipates that all other
costs relating to this restructuring, consisting principally of
lease obligations on unused space, will be paid by the end of
2004.

The following summarizes the changes to the June
2002 restructuring reserves during the year ended
December 31, 2003:

|                                            |  |                        |       |  |            |   |      |          |            |              |      |  |  |   |     | 
|------------------------------------------- |  | ---------------------- | ----- |  | ---------- | - | ---- | -------- | ---------- | ------------ | ---- |  |  | - | --- | 
|                                            |  | Balance at             |       |  |            |   |      |          | Balance at |             
|                                            |  | December 31,           |       |  | (Reversed) |   |      |          |            | December 31, |     
|                                            |  | 2002                   |       |  | Accrued    |   |      | Utilized |            |              | 2003 | 
|                                            |  |                        |       |  |            |   |      |          |            |              |      | 
|                                            |  |                       
|                                            |  | (Dollars in thousands) |      
|Employee severance and termination benefits |  | $                      | 343   |  |            | $ | (158 | )        |            | $            | 185  |  |  | $ |    | 
|Facility closing and related costs          |  |                        | 992   |  |            |   | 199  |          |            |              | 569  |  |  |   | 622 | 
|                                            |  |                        |       |  |            |   |      |          |            |              |      | 
|                                            |  | $                      | 1,335 |  |            | $ | 41   |          |            | $            | 754  |  |  | $ | 622 | 
|                                            |  |                        |       |  |            |   |      |          |            |              |      | 

In March 2003, the Company announced that it
would be streamlining its existing Broomfield, Colorado call
center operations into its Lynn, Massachusetts facility and a
smaller facility in Broomfield, Colorado by the end of May 2003.
In the quarter ended March 31, 2003, the Company recorded a
restructuring charge of approximately $0.1 million for
workforce reductions. In the quarter ended June 30, 2003,
the Company recorded an additional restructuring charge
associated with this action of approximately $1.0 million,
consisting of approximately $0.6 million in future lease
obligations for unused facilities and approximately
$0.4 million for capital equipment write-offs. The capital
equipment write-offs and a majority of severance costs related
to this restructuring were incurred by the end of 2003, and the
Company anticipates that all other costs relating to this
restructuring, consisting principally of lease obligations on
unused space, will be paid by the end of 2004.

The following summarizes the changes to the March
2003 restructuring reserves during the year ended
December 31, 2003:

|                                            |  |                        |   |         |  |   |          |              |  |      |     |  |  |   |     | 
|------------------------------------------- |  | ---------------------- | - | ------- |  | - | -------- | ------------ |  | ---- | --- |  |  | - | --- | 
|                                            |  | Balance at             |   |         |  |   |          | Balance at   | 
|                                            |  | December 31,           |   |         |  |   |          | December 31, | 
|                                            |  | 2002                   |   | Accrued |  |   | Utilized |              |  | 2003 |    
|                                            |  |                        |   |         |  |   |          |              |  |      |    
|                                            |  |                       
|                                            |  | (Dollars in thousands) |  
|Employee severance and termination benefits |  | $                      |  |         |  | $ | 77       |              |  | $    | 77  |  |  | $ |    | 
|Facility closing and related costs          |  |                        |  |         |  |   | 548      |              |  |      | 185 |  |  |   | 363 | 
|Capital equipment write-offs                |  |                        |  |         |  |   | 378      |              |  |      | 378 |  |  |   |    | 
|                                            |  |                        |   |         |  |   |          |              |  |      |     | 
|                                            |  | $                      |  |         |  | $ | 1,003    |              |  | $    | 640 |  |  | $ | 363 | 
|                                            |  |                        |   |         |  |   |          |              |  |      |     | 

In June 2003, the Company announced that it would
be closing its Irvine, California facility and transferring
certain employment positions to its Broomfield, Colorado
facility and reducing its headcount by an estimated 70 employees
as follows: 16 in product and service delivery, 30 in
development, 13 in sales and marketing and 11 in general and
administrative. In the quarter ended June 30, 2003, the
Company recorded a restructuring charge of approximately
$0.7 million, consisting mainly of workforce reduction
costs. In the quarter ended September 30, 2003, the Company
recorded an additional restructuring charge associated with this
action of approximately $3.3 million, consisting of
$1.1 million for workforce reductions, $1.7 million in
future lease obligations for unused facilities and
$0.5 million for capital equipment write-offs. In the
quarter ended December 31, 2003, the Company recorded an
additional restructuring charge of $0.1 million related to

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future lease obligations and employee severance
benefits. The capital equipment write-offs and a majority of
severance costs related to this restructuring were incurred by
the end of 2003, and the Company anticipates that all other
costs relating to this restructuring, consisting principally of
lease obligations on unused space, will be paid by the end of
2005.


The following summarizes the changes to the June
2003 restructuring reserves during the year ended
December 31, 2003:

|                                            |  |                        |   |         |  |   |          |              |  |      |       |  |  |   |       | 
|------------------------------------------- |  | ---------------------- | - | ------- |  | - | -------- | ------------ |  | ---- | ----- |  |  | - | ----- | 
|                                            |  | Balance at             |   |         |  |   |          | Balance at   | 
|                                            |  | December 31,           |   |         |  |   |          | December 31, | 
|                                            |  | 2002                   |   | Accrued |  |   | Utilized |              |  | 2003 |      
|                                            |  |                        |   |         |  |   |          |              |  |      |      
|                                            |  |                       
|                                            |  | (Dollars in thousands) |  
|Employee severance and termination benefits |  | $                      |  |         |  | $ | 1,795    |              |  | $    | 1,542 |  |  | $ | 253   | 
|Facility closing and related costs          |  |                        |  |         |  |   | 1,743    |              |  |      | 347   |  |  |   | 1,396 | 
|Capital equipment write-offs                |  |                        |  |         |  |   | 497      |              |  |      | 497   |  |  |   |      | 
|                                            |  |                        |   |         |  |   |          |              |  |      |       | 
|                                            |  | $                      |  |         |  | $ | 4,035    |              |  | $    | 2,386 |  |  | $ | 1,649 | 
|                                            |  |                        |   |         |  |   |          |              |  |      |       | 

Recent Pending Acquisition

On March 1, 2004, the Company announced it
had signed an agreement with InfoSpace, Inc. to acquire all
of the outstanding stock of Authorize.Net Corporation for
$82 million in cash. The transaction is expected to close
in the second quarter of 2004, subject to necessary approvals.
Authorize.Net is a provider of payment solutions for online
customer transactions. The Authorize.Net payment gateway
provides credit card and electronic check solutions to companies
that process orders for goods and services over the Internet.
Authorize.Net connects small and medium sized businesses to
large credit card processors and banking organizations, allowing
those businesses to accept electronic payments.

Inflation

Although certain of the Companys expenses
increase with general inflation in the economy, inflation has
not had a material impact on the Companys financial
results to date.

Risk Factors

If One or More of Our Major Clients Stops
Using Our Products or Services or Changes the Combination of
Products and Services It Uses, Our Operating Results Would
Suffer Significantly.

Our revenues are concentrated among a few major
clients. Our 10 largest clients accounted for approximately 91%
of our total revenues in 2003, and we expect that most of our
revenues will continue to come from a relatively small number of
clients for the foreseeable future. Consequently, our revenues,
margins and net income may fluctuate significantly from quarter
to quarter based on the actions of a single significant client.
A client may take actions that significantly affect us for
reasons that we cannot necessarily anticipate or control, such
as reasons related to the clients financial condition,
changes in the clients business strategy or operations,
the introduction of alternative competing products or services,
or as the result of the perceived quality or cost-effectiveness
of our products or services. Our services agreements with
Sprint, and Nextel expire on December 31, 2006, and our
service agreement with AT&T expires on December 31,
2004. It is possible that Sprint, Nextel and/or AT&T could
elect not to renew their agreements, to reduce the volume of
products and services they purchase from us or to request
significant changes to the pricing or other terms in any renewal
agreement. In February 2004, Cingular Wireless announced an
agreement to acquire AT&T. Cingular Wireless is not
presently a client of Lightbridge. The Company is unable to
predict the effect of the acquisition on its relationship with
AT&T. However, the loss of AT&T as a client would have a
significant impact on the Companys business and
operations. In addition, the PrePay billing system is sold
primarily through a distribution agreement with Ericsson and
represents substantially all of our revenue derived from the
PrePay billing system in the years indicated. That agreement may
be terminated by either party on 180 days

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notice to the other. The loss of any one or more
of our major clients would cause sales to fall below
expectations and materially reduce our revenues, margins and net
income.


Our Revenues Are Uncertain Because Our Clients
May Reduce the Amounts of or Change the Combination of Our
Products or Services They Purchase.

Most of our client contracts extend for terms of
between one and three years. During the terms of these
contracts, our clients typically may elect to purchase any of
several different combinations of products and services. The
revenue that we receive for processing a transaction for a
client may vary significantly depending on the particular
products and services used to process the transaction. In
particular, transactions handled through our TeleServices Group
generally result in significantly higher revenue to us than
transactions that are submitted and processed electronically.
Therefore, our revenues from a particular client may decline if
the client changes the combination of products and services it
purchases from us.

To the extent our client contracts contain
minimum purchase or payment requirements, these minimums are
typically at levels significantly below actual or historical
purchase or payment levels. Therefore, our current clients may
not continue to utilize our products or services at levels
similar to previous years or at all, and may not generate
significant revenues in future periods. If any of our major
clients significantly reduces or changes the combination of
products or services it purchases from us for any reason, our
business would be seriously damaged.

Our Revenues Are Concentrated in the Wireless
Telecommunications Industry, Which Is Experiencing Declining
Growth Rates, Consolidation and Increasing Pressure to Control
Costs.

We currently derive almost all of our revenues
from companies in the wireless telecommunications industry, and
we expect that, even after our acquisition of Authorize.Net,
wireless telecommunications companies will continue to account
for a substantial majority of our revenues for the foreseeable
future. In recent years, the growth rate of the domestic
wireless industry has slowed. In addition, consolidation has
affected the number of carriers to whom our products and
services can be marketed and sold, and competition among
wireless carriers has continued to increase, resulting in
heightened efforts by carriers to control costs. Many of our
carrier clients have sought, and may in the future seek, pricing
concessions when they renew their service agreements with us,
which could affect our revenues and profitability. In addition,
certain of our carrier clients have sought bankruptcy protection
in the past year, and we believe it is likely that additional
clients may file for bankruptcy protection if current industry
conditions continue. Bankruptcy filings by our clients or former
clients such as WorldCom may prevent us from collecting some or
all of the amounts owing to us at the time of filing, may
require us to return some or all of any payments received by us
within 90 days prior to a bankruptcy filing which could be
significant in amount as is the case with WorldCom and may also
result in the termination of our service agreements. As a result
of the foregoing conditions, our success depends on a number of
factors:



| |   |                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------
| |  | our ability to maintain our profit margins on
    sales of products and services to companies in the wireless
    telecommunications industry;
|
| |  | the financial condition of our clients and their
    continuing ability to pay us for services and products;                                  
|
| |  | our ability to develop and market new or enhanced
    products and services to new and existing clients;                                      
|
| |  | continued growth of the domestic wireless
    telecommunications markets;                                                                     
|
| |  | the number of carriers seeking to implement
    prepaid billing services; and                                                                 
|
| |  | our ability to increase sales of our products and
    services internationally.                                                               

We Have Made and May Continue to Make
Acquisitions, Which Involve Risks.

We acquired Coral Systems, Inc. in November
of 1997, Corsair in February of 2001 and the assets of Altawave
in February of 2002. We expect to close our acquisition of
Authorize.Net in the second quarter of 2004. We may also make
additional acquisitions in the future if we identify companies,
technologies or assets

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that appear to complement our business.
Acquisitions involve risks that could cause the actual results
of any acquisitions we make to differ from our expectations. For
example:




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We may be unable to integrate Authorize.Net or
    other acquired businesses successfully and to realize
    anticipated economic, operational and other benefits in a timely
    manner. Integration of Authorize.Net could prove especially
    difficult because it operates in a market in which we have
    limited expertise and because its operations are geographically
    remote from our existing facilities. The need to retain existing
    clients and employees of an acquired company and to integrate
    differing corporate cultures can also present significant risks.
    If we are unable to successfully integrate Authorize.Net or
    other acquired businesses, we may incur substantial costs and
    delays or other operational, technical or financial problems.                                                                                                                             
|
| |  | Our acquisition of Authorize.Net will
    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 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. In addition, we may assume
    contingent liabilities that may be difficult to estimate.
|
| |  | We may not be able to close our pending
    acquisition of Authorize.Net Corporation because of the failure
    to obtain certain regulatory approvals or meet certain closing
    conditions. If we do not close, we will have incurred
    significant transaction related costs, diverted
    managements attention from our existing business, and
    delayed our strategy to expand into new markets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Acquisitions may divert managements
    attention from our existing business and may damage our
    relationships with our key clients and employees.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

The Success of Our Growth Strategy Is
Dependent on Our Ability to Expand into New Markets.

In order to achieve growth in our business, we
are seeking to expand our business into new markets, including
the online transaction market and the wireless data market. If
we are not able to expand successfully into new markets, our
financial results and future prospects may be harmed. Our
ability to enter new markets depends on a number of factors,
including:



| |   |                                                                                            
| | - | -------------------------------------------------------------------------------------------
| |  | growth in the online transaction market;                                                   
|
| |  | our ability to provide products and services to
    address the needs of those markets; and
|
| |  | competition in those markets.                                                              

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.

The industries in which we do business or intend
to do business have been changing rapidly as a result of
increasing competition, technological advances, regulatory
changes and evolving industry practices and standards, and we
expect these changes will continue. Current and potential
clients have also experienced significant changes as the result
of consolidation among existing industry participants and
economic conditions. In addition, the business practices and
technical requirements of our clients are subject to changes
that may require modifications to our products and services. In
order to remain competitive and successfully address the
evolving needs of our clients, we must commit a significant
portion of our resources to:



| |   |                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------
| |  | identify and anticipate emerging technological
    and market trends affecting our core wireless business as well
    as the online market;

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| |   |                                                                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | enhance our current products and services in
    order to increase their 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 services to allow companies
    to authenticate the identity of consumers engaged in online
    transactions and 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, such as
    local number portability;                                        
|
| |  | integrate our current and future
    products; and                                                                                                                                                                                                     
|
| |  | create and maintain interfaces to changing client
    and third party systems.                                                                                                                                                                         

We must achieve these goals in a timely and
cost-effective manner and successfully market our new and
enhanced products and services to clients. In the past, we have
experienced errors or delays in developing new products and in
modifying or enhancing existing products. If we are unable to
expand or appropriately enhance or modify our products and
services quickly and efficiently, our business and operating
results will be adversely affected.

Our Clients and We Must Comply with Complex
and Changing Consumer Credit and Privacy Laws.

Government regulation influences our current and
prospective clients activities, as well as their
expectations and needs in relation to our products and services.
For example, our clients include telecommunications companies
that, to the extent that they extend consumer credit, may be
subject to federal and state regulations. In making credit
evaluations of consumers, performing fraud screening or user
authentication, our clients are subject to requirements of
federal law, including the ECOA, the FCRA and the GLBA and
regulations thereunder, as well as state laws which impose a
variety of additional requirements. Privacy legislation may also
affect the nature and extent of the products or services that we
can provide to clients as well as our ability to collect,
monitor and disseminate information subject to privacy
protection. Although most of our products and services, other
than our ProFile service, are not directly subject to these
requirements, we must take these extensive and evolving
requirements into account in order to meet our clients
needs. When we complete our acquisition of Authorize.Net, we
will also need to comply with state and federal laws governing
the processing of financial transactions. In some cases,
consumer credit laws require our clients to notify consumers of
credit decisions made in connection with their applications for
telecommunications services, and we have contracted with some of
our clients, including Sprint, AT&T, Nextel, Western
Wireless Corporation and Dobson Communications, Inc., to
provide such notices on their behalf. Our software has in the
past contained, and could in the future contain, undetected
errors affecting compliance by our clients with one or more of
these legal requirements. Failure to properly implement these
requirements in our products and services in a timely,
cost-effective and accurate manner could result in liability,
either directly or as indemnitor of our clients, damage to our
reputation and relationships with clients and a loss of business.

Our Business May be Harmed by Errors in Our
Software.

The software that we develop and license to
clients, and that we also use in providing our transaction
processing and call center services, is extremely complex and
contains hundreds of thousands of lines of computer code. Large,
complex software systems such as ours are susceptible to errors.
The difficulty of preventing and detecting errors in our
software is compounded by the fact that we maintain multiple
versions of our systems to meet the differing requirements of
our major clients, and must implement frequent modifications to
these systems in response to these clients evolving
business policies and technical requirements. Our software
design, development and testing processes are not always
adequate to detect errors in our software prior to its release
or commercial use. As a result, we have from time to time
discovered, and may likely in the future discover, errors in
software that we have put into commercial use for our clients,
including some of our largest clients. Because of the complexity
of our systems and the large volume of transactions they process
on a daily basis, we sometimes have not detected software errors
until after they have affected a significant number of
transactions. Software errors can have the effect of causing
clients that utilize

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our products and services to fail to comply with
their intended credit or business policies, or to fail to comply
with legal requirements, such as those under the ECOA, FCRA, or
GLBA. Such errors, particularly if they affect a major client,
can harm our business in several ways, including the following:




| |   |                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | we may suffer a loss of revenue if, due to
    software errors, we are temporarily unable to provide products
    or services to our clients;                                                                       
|
| |  | 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 client or its subscribers
    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 clients may terminate or fail to renew their
    agreements with us or reduce the products and services they
    purchase from us.                                                                              

Our errors and omissions insurance may not
adequately compensate us for losses that may occur due to
software errors. It is also possible that such insurance might
cease to be available to us on commercially reasonable terms or
at all.

Our Initiatives to Improve Our Software Design
and Development Processes May Not Be Successful.

The development of our core products has, in some
cases, extended over a period of more than ten years. This
incremental development process has resulted in a system which
is extremely complex. Systems of the size and complexity of ours
are inherently difficult to modify and maintain. Beginning in
2001, we began the process of rebuilding portions of our core
products in Java, replacing the proprietary three-tiered
software architecture historically employed in our products with
a new architecture using a middleware layer and a standard
database across all products. We expect that this architecture,
which relies on component-based development and reusable
frameworks, will accelerate our product development process and
make it easier to maintain our software systems. We are also
evaluating changes in our product development, testing and
control processes to improve the accuracy and timeliness of
modifications that we make to our software, including the
frequent modifications that we must make in response to changes
in the business policies and technical requirements of our
clients. We believe that our initiatives to implement a new
product architecture and to improve our product development,
test and control processes will be important to our future
competitive position and success. If we are not successful in
carrying out these initiatives on a timely basis or in a manner
that is acceptable to our clients, our business and future
prospects could be harmed.

Our Success Is Dependent in Part on PrePay,
Which May Not Achieve Market Penetration.

Our future operating results will depend to a
significant extent on the demand for and market penetration of
PrePay, our prepaid metered billing system. To date, only a
small number of wireless carriers, almost all of them outside
the U.S., have deployed PrePay, and the rate of adoption of the
PrePay system will need to increase significantly in order to
achieve our revenue targets. PrePay has been sold predominantly
by Ericsson. Ericsson, from time to time, may evaluate and seek
to distribute or acquire alternative vendors prepaid
product offerings. Any change in the terms of our distribution
arrangements with Ericsson or Ericssons desire to
discontinue our relationship would drastically affect sales of
PrePay. Although our own sales force also sells PrePay, it has
not yet generated significant PrePay sales. We cannot ensure
that sales of the PrePay system will increase or that PrePay
will gain market penetration. If PrePay does not gain market
penetration our future operating results would be adversely
affected.

If We Are Unable to Acquire Complementary
Businesses, Our Future Growth Will Be Limited.

A key element of our growth strategy is to
acquire businesses, technologies or products that expand and
complement our business. We believe acquisitions are necessary
for us to continue to grow at a desirable rate,

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and we will continue to evaluate possible
acquisition opportunities in the future. Even if we are able to
identify suitable companies or businesses to buy, we may not be
able to purchase any of these companies at favorable prices, or
at all, for any number of reasons. If we are unable to make
acquisitions, we may not be able to meet or exceed our
historical levels of growth and earnings.


We May Not Be Able to Successfully Manage
Operational Changes.

Over the last several years, our operations have
experienced rapid growth in some areas and significant
restructurings and cutbacks in others. These changes have
created significant demands on our executive, operational,
development and financial personnel and other resources. If we
achieve future growth in our business, or if we are forced to
make additional restructurings, we may further strain our
management, financial and other resources. Our future operating
results will depend on the ability of our officers and key
employees to manage changing business conditions and to continue
to improve our operational and financial controls and reporting
systems. We cannot ensure that we will be able to successfully
manage the future changes in our business.

Our Future Revenues May Be Uncertain Because
of Reliance on Third Parties for Marketing and
Distribution.

PrePay is currently marketed primarily through a
distribution agreement with Ericsson. We have also entered into
a business alliance with VeriSign to assist us in penetrating
the online transaction market. In addition, Authorize.Net
distributes its service offerings primarily through third party
resellers. We intend to continue to market and distribute our
current and future products and services through existing and
other relationships both in and outside of the United States.
There are no minimum purchase obligations applicable to any
existing distributor or other sales and marketing partners and
we do not expect to have any guarantees of continuing orders.
Failure by our existing and future distributors or other sales
and marketing partners to generate significant revenues or our
failure to establish additional distribution or sales and
marketing alliances could have a material adverse effect on our
business, operating results and financial condition.

In addition, distributors and other sales and
marketing partners may become our competitors with respect to
the products they distribute either by developing a competitive
product themselves or by distributing a competitive offering.
For example, Ericsson may evaluate and seek to distribute or
acquire alternative vendors prepaid products that compete
with PrePay, and VeriSign may elect to market or acquire
alternative fraud and identity verification products.
Competition from existing and future distributors or other sales
and marketing partners could significantly harm sales of our
products.

Our Quarterly Operating Results May
Fluctuate.

Our operating results are difficult to predict
and may fluctuate significantly from quarter to quarter. If our
operating results fall below the expectations of investors or
public market analysts, the price of our common stock could fall
dramatically. Our common stock price could also fall
dramatically if investors or public market analysts reduce their
estimates of our future quarterly operating results, whether as
a result of information we disclose, or based on industry,
market or economic trends, or other factors.

Our revenues are difficult to forecast for a
number of reasons:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Seasonal and retail trends affect our transaction
    services revenues, which historically have represented the
    majority of our total revenues, and may affect demand for our
    other products and services. As a result, our revenues can
    fluctuate. For example, our revenues generally have been highest
    in the fourth quarter of each calendar year, particularly in the
    holiday shopping season between Thanksgiving and Christmas. In
    addition, marketing initiatives undertaken by our clients or
    their competitors may significantly affect the number of
    transactions we process.
|
| |  | The sales process for our products and services
    is lengthy, sometimes exceeding twenty-four months. The length
    of the sales process makes our revenues difficult to predict.
    The delay of one or more large                                                                                                                                                                                                                                                                                                                                                                                                  

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | orders, particularly orders for software, which
    typically result in a substantial amount of non-recurring
    revenue, could cause our quarterly revenues to fall
    substantially below expectations.                                                                                                                                                                                                                                                                  
|
| |  | We ship our software products within a short
    period after receipt of an order, and we usually do not have a
    material backlog of unfilled orders of software products.
    Consequently, our revenues from software licenses in any quarter
    depend substantially on the orders booked and shipped in that
    quarter. As a result, a delay in the consummation of a license
    agreement may cause our revenues to fall below expectations for
    that quarter.
|
| |  | Our consulting services revenues can fluctuate
    based on the timing of product sales and projects we perform for
    our clients. Many of our consulting engagements are of a limited
    duration, so it can be difficult for us to forecast consulting
    services revenues or staffing requirements accurately more than
    a few months in advance.                                                                                                                 

Most of our expenses, particularly employee
compensation, are relatively fixed. As a result, even relatively
small variations in the timing of our revenues may cause
significant variations in our quarterly operating results and
may result in quarterly losses.

As a result of these factors, we believe that
quarter-to-quarter comparisons of our results of operations are
not necessarily meaningful. You should not rely on our quarterly
results of operations to predict our future performance.

Our Foreign Sales and Operations Subject Us to
Risks and Concerns Which Could Negatively Affect Our Business
Overall.

We expect our international revenues will
continue to represent a significant portion of our total
revenues. We also intend to further expand our sales efforts
internationally. In addition to the risks generally associated
with sales and operations in the U.S., sales to clients outside
the U.S. and operations in foreign countries present us with
many additional risks, including the following:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the imposition of financial and operational
    controls and regulatory restrictions by foreign governments;                                                                                                                                                                                                                                                                                       
|
| |  | the need to comply with a wide variety of complex
    U.S. and foreign import and export laws and treaties;                                                                                                                                                                                                                                                                                        
|
| |  | political and economic instability that may lead
    to reduced demand for our products and services;                                                                                                                                                                                                                                                                                              
|
| |  | changes in tariffs, taxes and other barriers that
    may reduce our ability to sell our solutions or may reduce the
    profitability of those solutions;                                                                                                                                                                                                                                         
|
| |  | longer payment cycles and increased difficulties
    in collecting accounts receivable;                                                                                                                                                                                                                                                                                                            
|
| |  | fluctuations in interest and currency exchange
    rates, which may reduce our earnings if we denominate
    arrangements with international clients in the currency of the
    country in which our products or services are provided, or with
    respect to arrangements with international clients that are
    U.S. dollar-denominated, which may make our systems less
    price-competitive;
|
| |  | changes in technology standards, such as
    interfaces between products, that are developed by foreign
    groups and may require additional development efforts on our
    part or change the buying behavior of some of our clients;                                                                                                                                                            
|
| |  | reduced protection for intellectual property
    rights in some countries;                                                                                                                                                                                                                                                                                                                         
|
| |  | difficulties in managing a global network of
    distributors or representatives and in staffing and managing
    foreign subsidiary operations;                                                                                                                                                                                                                                                   
|
| |  | costs and risks of localizing systems in foreign
    countries;                                                                                                                                                                                                                                                                                                                                    
|
| |  | additional complications and expenses related to
    supporting products internationally; and                                                                                                                                                                                                                                                                                                      

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| |   |                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the possibility that our purchase agreements may
    be governed by foreign laws that differ significantly from
    U.S. laws, which may limit our ability to enforce our
    rights under these agreements.

We Face Significant Competition for a Limited
Supply of Qualified Software Engineers and
Consultants.

Our business depends on the services of skilled
software engineers who can develop, maintain and enhance our
products and consultants who can undertake complex client
projects. In general, only highly qualified, highly educated
personnel have the training and skills necessary to perform
these tasks successfully. In order to maintain the
competitiveness of our products and to meet client requirements,
we need to attract, motivate and retain a significant number of
software engineers and consultants. Qualified personnel such as
these are in short supply and we face significant competition
for these employees, from not only our competitors but also
clients and other enterprises. Other employers may offer
software engineers and consultants significantly greater
compensation and benefits or more attractive career paths than
we are able to offer. Any failure on our part to hire, train and
retain a sufficient number of qualified personnel would
seriously damage our business.

Our Future Success Depends on the Continued
Services of Key Executive Officers.

Our future success will depend to a significant
degree on the skills, experience and efforts of our executive
officers, particularly Pamela D.A. Reeve, Chief Executive
Officer. We do not have any employment contracts requiring
Ms. Reeve or any of our other executive officers to
continue their employment for any period of time, and we do not
maintain key-person life insurance on any of our executive
officers other than Ms. Reeve. If we lose the services of
one or more of these persons, we may be unable to successfully
manage our current business or implement our planned business
objectives and our future operations may be adversely affected.

We Face Competition from a Broad and
Increasing Range of Vendors.

The market for products and services offered to
communications providers and participants in online transactions
is highly competitive and subject to rapid change. Each of these
markets is fragmented, and a number of companies currently offer
one or more products or services competitive with ours. We
anticipate continued growth and the formation of new alliances
in each of the markets in which we compete, which will result in
the entrance of new competitors in the future. We face potential
competition from several primary sources:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | software vendors that provide one or more
    customer acquisition, customer relationship management and
    retention or risk management solutions, including ECtel Ltd.,
    TSI Telecommunications Services Inc. (TSI), Fair,
    Isaac & Co. Inc., Magnum Software Systems, Inc.,
    American Management Systems, Incorporated and SLP Infoware;                                                                      
|
| |  | telecommunications equipment vendors that market
    software-based solutions to complement their hardware offerings,
    such as Hewlett-Packard Company and Ericsson;                                                                                                                                                                                                                                                      
|
| |  | service providers that offer customer
    acquisition, customer relationship management and retention,
    risk management or authentication services in connection with
    other services, including Choicepoint Inc., Visa U.S.A.,
    Experian Information Solutions, Inc., Equifax, Inc., RiskWise,
    L.L.C., Trans Union, L.L.C., Schlumberger Sema plc and Amdocs
    Ltd;                                          
|
| |  | information technology departments within larger
    carriers that have the ability to provide products and services
    that are competitive with those we offer;                                                                                                                                                                                                                                                           
|
| |  | information technology vendors that offer
    wireless and internet software applications such as Oracle
    Corporation, Microsoft Corporation and International Business
    Machine Corporation;                                                                                                                                                                                                                          
|
| |  | consulting firms or systems integrators that may
    offer competitive services or the ability to develop customized
    solutions for customer acquisition and qualification, customer
    relationship management and retention or risk management, such
    as American Management Systems, Incorporated, Accenture Ltd.,
    BearingPoint, Inc., PeopleSoft, Inc., Siebel Systems, Inc.
    and Cap Gemini Ernst & Young;

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | software vendors of prepaid wireless billing
    products, including Boston Communications Group, Inc.,
    Intervoice, Inc., Comverse Technology, Inc., Glenayre
    Technologies, Inc., VeriSign Telecommunications Services,
    Telemac Cellular Corporation, Fair, Isaac & Co. Inc.,
    ORGA Kartensysteme GmbH, Schlumberger Sema plc, Alcatel
    USA, Priority Call Management, Lucent Technologies, Inc.,
    Hewlett-Packard Company (Tandem Division), Telcordia
    Technologies, Inc. and Sixbell;
|
| |  | a number of alternative technologies, including
    profilers, personal identification numbers and authentication,
    provided by companies such as Verizon Communications, Inc.,
    Authentix Network Inc. and Fair, Isaac & Co.,
    Inc.; and                                                                                                                                                                                                                                                              
|
| |  | vendors that provide products and services in the
    wireless data market, such as Bridgewater Systems Corporation,
    OracleMobile, a division of Oracle Corporation,
    4thPass, Inc., TSI, Seven Networks, Inc. and Openwave
    Systems Inc.                                                                                                                                                                                                                                                             

Because competitors can easily penetrate one or
more of our markets, we anticipate additional competition from
other established and new companies. In addition, competition
may intensify as competitors establish cooperative relationships
among themselves or alliances with others.

Many of our current and potential competitors
have significantly greater financial, marketing, technical and
other competitive resources than we do. As a result, these
competitors may be able to adapt more quickly to new or emerging
technologies and changes in client requirements, or may be able
to devote greater resources to the promotion and sale of their
products and services. In addition, in order to meet client
requirements, we must often work cooperatively with companies
that are, in other circumstances, competitors. The need for us
to work cooperatively with such companies may limit our ability
to compete aggressively with those companies in other
circumstances.

A Failure of, Error in or Damage to Our
Computer and Telecommunications Systems Would Impair Our Ability
to Conduct Transactions and Support Services and Harm Our
Business Operations.

We provide transaction services and support
services using complex computer and telecommunications systems.
Our business could be significantly harmed if these systems fail
or suffer damage from fire, natural disaster, terrorism, power
loss, telecommunications failure or similar events. In addition,
the growth of our client base, a significant increase in
transaction volume or an expansion of our facilities may strain
the capacity of our computers and telecommunications systems and
lead to degradations in performance or system failure. Many of
our agreements with carriers contain level of service
commitments, which we might be unable to fulfill in the event of
a natural disaster, an actual or threatened terrorist attack or
a major system failure. Errors in our computer and
telecommunications systems may adversely impact our ability to
provide the products and services contracted for by our clients.
Our property and business interruption insurance and errors and
omissions insurance might not be adequate to compensate us for
any losses that may occur in the event of a natural disaster,
terrorist attack or system failure or error. It is also possible
that such insurance might cease to be available to us on
commercially reasonable terms, or at all.

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.

We rely to a substantial extent on third parties
such as RiskWise L.L.C. to provide some of our equipment,
software, data, systems and services. In some circumstances, we
rely on a single supplier or limited group of suppliers. Our
reliance on outside vendors subjects us to risks, including a
potential inability to obtain an adequate supply of required
components and reduced control over quality, pricing and timing
of delivery of components. For example, in order to provide our
credit verification service, we need access to third-party
credit information databases provided to us by outside vendors.
Similarly, delivery of our activation services often requires
the availability and performance of billing systems which are
also supplied by outside vendors. If for any reason we were
unable to access these databases or billing systems, our ability
to process credit verification transactions could be impaired.

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In addition, our business is materially dependent
on services provided by various telecommunications providers. A
significant increase in the cost of telecommunications services
that we cannot recover through an increase in the price of our
services, or any significant interruption in telecommunications
services, could seriously harm our business.

From time to time, we must also rely upon third
parties to develop and introduce components and products to
enable us, in turn, to develop new products and product
enhancements on a timely and cost-effective basis. In
particular, we must rely on the development efforts of
third-party wireless infrastructure providers in order to allow
our PrePay product to integrate with both existing and future
generations of the infrastructure equipment. We may not be able
to obtain access, in a timely manner, to third-party products
and development services necessary to enable us to develop and
introduce new and enhanced products. We may not be able to
obtain third-party products and development services on
commercially reasonable terms and we may not be able to replace
third-party products in the event such products become
unavailable, obsolete or incompatible with future versions of
our products.

Our Success Depends in Part on Our Ability to
Obtain Patents for, or Otherwise Protect, Our Proprietary
Technologies.

We rely on a combination of copyright, patent,
trademark and trade secret laws, license and confidentiality
agreements, and software security measures to protect our
proprietary rights. Much of our know-how and other proprietary
technology is not covered by patent or similar protection, and
in many cases cannot be so protected. If we cannot obtain patent
or other protection for our proprietary software and other
proprietary intellectual property rights, other companies could
more easily enter our markets and compete successfully against
us.

We have a limited number of patents in the U.S.
and abroad, and have pending applications for additional
patents, but we cannot be certain that any additional patents
will be issued on those applications, that any of our current or
future patents will protect our business or technology against
competitors that develop similar technology or products or
provide us with a competitive advantage, or that others will not
claim rights in our patents or our proprietary technologies.

Patents issued and patent applications filed
relating to products used in the wireless telecommunications
industry are numerous and it may be the case that current and
potential competitors and other third parties have filed or will
file applications for, or have received or will receive, patents
or obtain additional proprietary rights relating to products
used or proposed to be used by us. We may not be aware of all
patents or patent applications that may materially affect our
ability to make, use or sell any current or future products.

The laws of some countries in which our products
are licensed do not protect our products and intellectual
property rights to the same extent as U.S. laws. We
generally enter into non-disclosure agreements with our
employees and clients and restrict access to, and distribution
of, our proprietary information. Nevertheless, we may be unable
to deter misappropriation of our proprietary information or
detect unauthorized use of and take appropriate steps to enforce
our intellectual property rights. Our competitors also may
independently develop technologies that are substantially
equivalent or superior to our technology.

We May Become a Party to Intellectual Property
Infringement Claims, Which Could Harm Our Business.

From time to time, we may be forced to respond to
or prosecute intellectual property infringement claims to
protect our rights or defend a clients rights. These
claims, regardless of merit, may consume valuable management
time, result in costly litigation or cause product shipment
delays, all of which could seriously harm our business and
operating results. Furthermore, parties making such claims may
be able to obtain injunctive or other equitable relief that
could effectively block our ability to make, use, sell or
otherwise practice our intellectual property, whether or not
patented or described in pending patent applications, or to
further develop or commercialize our products in the U.S. and
abroad and could result in the award of substantial damages
against us. We may be required to enter into royalty or
licensing agreements with third parties claiming infringement by
us of their intellectual property in order to settle these
claims. These royalty

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or licensing agreements, if available, may not
have terms that are acceptable to us. In addition, if we are
forced to enter into a license agreement with terms that are
unfavorable to us, our operating results would be materially
harmed.


Our Business Could Require Additional
Financing.

Our future business activities, including our
planned acquisition of Authorize.Net, the development or
acquisition of new or enhanced products and services, the
acquisition of additional computer and network equipment, the
relocation of our corporate headquarters, and the international
expansion of our business will require us to make significant
capital expenditures. If our available cash resources prove to
be insufficient, because of unanticipated expenses, revenue
shortfalls or otherwise, we may need to seek additional
financing or curtail our expansion activities. If we obtain
equity financing for any reason, our existing stockholders may
experience dilution in their investments. If we obtain debt
financing, our business could become subject to restrictions
that affect our operations or increase the level of risk in our
business. It is also possible that, if we need additional
financing, we will not be able to obtain it on acceptable terms,
or at all.

Our Anti-Takeover Provisions May Discourage
Potential Acquisitions or Changes of Control.

Some provisions of our certificate of
incorporation and Delaware law could be used by our incumbent
management to make it more difficult for a third party to
acquire control of us, even if the change in control might be
beneficial to our stockholders. This could discourage potential
takeover attempts and could adversely affect the market price of
our common stock.

In particular, we may issue preferred stock in
the future without stockholder approval, upon terms determined
by our board of directors. The rights of holders of our common
stock would be subject to, and may be adversely affected by, the
rights of holders of any preferred stock issued in the future.
The issuance of preferred stock, while providing flexibility in
connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for
a third party to acquire, or of discouraging a third party from
acquiring, a majority of our outstanding stock. We also have
adopted a stockholder rights plan that may deter or delay
attempts to acquire us or to accumulate shares of common stock.
Except for the stockholder rights plan, we have no present plans
to designate or issue any shares of preferred stock.

In addition, the members of our Board of
Directors serve staggered three-year terms, with approximately
one-third of the members elected each year. This structure makes
it more difficult for stockholders to change the composition of
a majority of our Board.

Recent Accounting Pronouncements

In January 2003, the FASB issued Interpretation
No. 46, Consolidation of Variable Interest Entities,
an interpretation of Accounting Research Bulletin No. 51,
Consolidated Financial Statements (FIN 46).
FIN 46 establishes accounting guidance for consolidation of
variable interest entities (VIEs) that function to support the
activities of the primary beneficiary. FIN 46 applies to
any business enterprise, both public and private, that has a
controlling interest, contractual relationship or other business
relationship with a VIE.

In December 2003, the FASB published a revision
to FIN 46 to clarify some of the provisions and to exempt
certain entities from its requirements. Under the new guidance,
special effective date provisions apply to enterprises that have
fully or partially applied FIN 46 prior to issuance of the
revised interpretation. Otherwise, application of Interpretation
46R (FIN 46R) is required in financial statements of public
entities that have interests in structures that are commonly
referred to as special-purpose entities (SPEs) for periods
ending after December 15, 2003. Application by public
entities, other than business issuers, for all other types of
VIEs other than SPEs, is required in financial statements for
periods ending after March 15, 2004. The Company does not
have any investments in or contractual relationships or other
business relationships with any VIE and therefore the adoption
will not have any impact on the Companys consolidated
financial position or results of operations.

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In April 2003, the FASB issued
SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities
(SFAS 149). This statement is intended to result in more
consistent reporting of contracts as either freestanding
derivative instruments subject to SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities in its entirety, or as hybrid instruments with
debt host contracts and embedded derivative features. In
addition, SFAS 149 clarifies the definition of a derivative
by providing guidance on the meaning of initial net investments
related to derivatives. SFAS 149 is effective for contracts
entered into or modified after June 30, 2003. Adoption of
SFAS 149 had no effect on the Companys consolidated
financial position, results of operations or cash flows.

In May 2003, the FASB issued
SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity (SFAS 150). SFAS 150 establishes
standards for classifying and measuring as liabilities certain
financial instruments that embody obligations of the issuer and
have characteristics of both liabilities and equity.
SFAS 150 represents a significant change in practice
in the accounting for a number of financial instruments,
including mandatorily redeemable equity instruments and certain
equity derivatives that frequently are used in connection with
share repurchase programs. The Company does not use such
instruments in its share repurchase program. SFAS 150 is
effective for all financial instruments created or modified
after May 31, 2003. Adoption of SFAS 150 had no effect
on the Companys consolidated financial position, results
of operations or cash flows.






|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures
    About Market Risk

The market risk exposure inherent in the
Companys financial instruments and consolidated financial
position represents the potential losses arising from adverse
changes in interest rates. The Company is exposed to such
interest rate risk primarily in its significant investment in
cash and cash equivalents. Cash and cash equivalents include
short-term, highly liquid instruments which consist primarily of
money market accounts, purchased with remaining maturities of
three months or less. The Companys short term
investments also include debt securities maturing in one year or
less that are classified as available for sale. These
investments are carried at fair value. The Company does not
execute transactions in or hold derivative financial instruments
for trading or hedging purposes.

The 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 debt securities, if any, are included in
interest income, net. The cost of securities sold is based on
the specific identification method. Interest and dividends on
securities are included in interest income, net.

Market risk for cash and cash equivalents is
estimated as the potential change in the fair value of the
assets or obligations resulting from a hypothetical ten percent
adverse change in interest rates, which would not have been
significant to the Companys financial position or results
of operations during 2003.

The Company is not subject to any material market
risk associated with foreign currency exchange rates.






|        |                                                
|------- | -----------------------------------------------
|Item 8. | Financial Statements and Supplementary
    Data

The financial statements of the Company are
listed in the index included in Item 15(a)(1) of this
Annual Report on Form 10-K.






|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes In and Disagreements With
    Accountants on Accounting and Financial Disclosure

The information called for by this Item is not
applicable.






|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

The Company evaluated the effectiveness of the
design and operation of its disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934) as of December 31, 2003.
The Companys Chief Executive Officer and its Chief
Financial Officer supervised and participated in this
evaluation. Based on this evaluation, the Companys Chief
Executive Officer and Chief

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Financial Officer concluded that, as of
December 31, 2003, the Companys disclosure controls
and procedures were effective to provide a reasonable level of
assurance of reaching the Companys disclosure control
objectives.


There has not been any change in the
Companys internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) under the
Securities Exchange Act of 1934) that occurred in the year ended
December 31, 2003 that has materially affected, or is
reasonably likely to materially affect, the Companys
internal control over financial reporting.




PART III





|         |                                                       
|-------- | ------------------------------------------------------
|Item 10. | Directors and Executive Officers of the
    Registrant

Information required by this item will be
contained in the Companys Proxy Statement for the 2004
annual meeting of stockholders or special meeting in lieu
thereof to be filed with the Securities and Exchange Commission
on or before April 29, 2004 and is incorporated by
reference herein.






|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

Information required by this item will be
contained in the Companys Proxy Statement for the 2004
annual meeting of stockholders or special meeting in lieu
thereof to be filed with the Securities and Exchange Commission
on or before April 29, 2004 and is incorporated by
reference herein. Such incorporation by reference shall not be
deemed to specifically incorporate by reference the information
referred to in Item 402(a)(8) of Regulation S-K.






|         |                                                                                                       
|-------- | ------------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder
    Matters

Information required by this item will be
contained in the Companys Proxy Statement for the 2004
annual meeting of stockholders or special meeting in lieu
thereof to be filed with the Securities and Exchange Commission
on or before April 29, 2004 and is incorporated by
reference herein.






|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions

Information required by this item will be
contained in the Companys Proxy Statement for the 2004
annual meeting of stockholders or special meeting in lieu
thereof to be filed with the Securities and Exchange Commission
on or before April 29, 2004 and is incorporated by
reference herein.






|         |                                           
|-------- | ------------------------------------------
|Item 14. | Principal Accountant Fees and
    Services

Information required by this item will be
contained in the Companys Proxy Statement for the 2004
annual meeting of stockholders or special meeting in lieu
thereof to be filed with the Securities and Exchange Commission
on or before April 29, 2004 and is incorporated by
reference herein.

40



---



##### Table of Contents






PART IV






|         |                                                                    
|-------- | -------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules and
    Reports on Form 8-K

(a) Documents filed as part of this
report

(1) Consolidated Financial Statements

| |                                                                                                         
| | --------------------------------------------------------------------------------------------------------
| | Independent Auditors Report 
    Deloitte & Touche LLP                                                
| | Consolidated Balance Sheets as of
    December 31, 2003 and 2002                                        
| | Consolidated Statements of Operations for the
    years ended December 31, 2003, 2002 and 2001          
| | Consolidated Statements of Stockholders
    Equity for the years ended December 31, 2003, 2002 and 2001
| | Consolidated Statements of Cash Flows for the
    years ended December 31, 2003, 2002 and 2001          
| | Notes to Consolidated Financial Statements                                                              



| |     |                                           
| | --- | ------------------------------------------
| | (2) | Consolidated Financial Statement Schedules

All schedules have been omitted because the
required information either is not applicable or is shown in the
financial statements or notes thereto.

(3) Exhibits

|            |    |        |             |                                                                                                                                                                                                                                                    
|----------- | -- | ------ | ----------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |    |        | Description
|            |    |        |            
|            | 2  | .1(1)  |             | Amended and Restated Agreement and Plan of
    Reorganization dated November 8, 2000 among the Company,
    Lightning Merger Corporation and Corsair
    Communications, Inc.                                                                      
|            | 3  | .1(2)  |             | Amended and Restated Certificate of Incorporation
    of the Company                                                                                                                                                                               
|            | 3  | .2(2)  |             | Amended and Restated By-Laws of the Company                                                                                                                                                                                                        
|            | 3  | .3(3)  |             | Amendment to Amended and Restated By-Laws of the
    Company, adopted October 29, 1998                                                                                                                                                             
|            | 4  | .1(2)  |             | Specimen Certificate for Common Stock of the
    Company                                                                                                                                                                                           
|            | 4  | .2(4)  |             | Rights Agreement dated as of November 14,
    1997, between Lightbridge, Inc. and American Stock Transfer
    and Trust Company, as Rights Agent                                                                                                   
|            | 4  | .3(4)  |             | Form of Certificate of Designation of
    Series A Participating Cumulative Preferred Stock of
    Lightbridge, Inc.                                                                                                                               
|            | 4  | .4(4)  |             | Form of Right Certificate                                                                                                                                                                                                                          
|            | 10 | .1(2)  |             | 1991 Registration Rights Agreement dated
    February 11, 1991, as amended, between the Company and the
    persons named therein                                                                                                                  
|            | 10 | .2(2)  |             | Subordinated Note and Warrant Purchase Agreement
    dated as of August 29, 1994 between the Company and the
    Purchasers named therein, including form of Subordinated 14%
    Promissory Notes and form of Common Stock Purchase Warrants      
|            | 10 | .3(2)  |             | Form of Common Stock Purchase Warrants issued
    August 1995                                                                                                                                                                                      
|            | 10 | .4(2)  |             | Settlement Agreement dated February 2, 1996
    between the Company, BEB, Inc., BEB Limited
    Partnership I, BEB Limited Partnership II, BEB Limited
    Partnership III, BEB Limited Partnership IV, certain
    related parties and Brian Boyle
|            | 10 | .5(2)  |             | 1990 Incentive and Nonqualified Stock Option Plan                                                                                                                                                                                                  
|            | 10 | .6(2)  |             | 1996 Employee Stock Purchase Plan                                                                                                                                                                                                                  
|            | 10 | .7(2)  |             | Employment Agreement dated August 16, 1996
    between the Company and Pamela D.A. Reeve                                                                                                                                                           
|            | 10 | .8(2)  |             | Letter Agreement, dated August 26, 1996,
    between the Company and Brian E. Boyle, including form of Common
    Stock Purchase Warrant and Registration Rights Agreement                                                                         
|            | 10 | .9(2)  |             | Office Lease dated September 30, 1994, as
    amended, between the Company and Hobbs Brook Office Park                                                                                                                                             
|            | 10 | .10(5) |             | Office Lease dated March 5, 1997, between
    the Company and Sumitomo Life Realty (N.Y.), Inc.                                                                                                                                                    

41



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##### Table of Contents



|            |    |         |             |                                                                                                                                                                                                                      
|----------- | -- | ------- | ----------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |    |         | Description
|            |    |         |            
|            | 10 | .11(6)  |             | First and Second Amendments dated July 22,
    1997 and October 6, 1997, respectively, to the Office Lease
    included as Item 10.10                                                                                
|            | 10 | .12(7)  |             | Office Building Lease, dated March 12, 1998,
    between 8900 Grantline Road Investors and the Company                                                                                                               
|            | 10 | .13(8)  |             | Third and Fourth Amendments dated March 15,
    1999 and July 16, 1999, respectively, to the office lease
    included as Item 10.10                                                                                 
|            | 10 | .14(8)  |             | Office Lease dated October 4, 1999, between
    the Company and New Alliance Properties, Inc.                                                                                                                        
|            | 10 | .15(8)  |             | First Amendment dated September 20, 1999 to
    the Office Lease included as Item 10.9                                                                                                                               
|            | 10 | .16(9)  |             | Fifth and Sixth Amendments dated March 10,
    2000 to the office lease included as Item 10.10                                                                                                                       
|            | 10 | .17(10) |             | Employment Agreement dated May 25, 2000
    between the Company and Harlan Plumley                                                                                                                                   
|            | 10 | .18(10) |             | 1996 Incentive and Non-Qualified Stock Option
    Plan (as amended)                                                                                                                                                  
|            | 10 | .19(10) |             | 1998 Non-Statutory Stock Option Plan (as amended)                                                                                                                                                                    
|            | 10 | .20(11) |             | Office lease dated August 15, 2000 between
    the Company and Arthur Pappathanasi, trustee of 330 Scangas
    Nominee Trust                                                                                         
|            | 10 | .21(12) |             | Amendment to 1998 Non-Statutory Stock Option Plan
    adopted on November 16, 2000                                                                                                                                   
|            | 10 | .22(13) |             | Amendment to 1996 Incentive and Non-Qualified
    Stock Option Plan                                                                                                                                                  
|            | 10 | .23(14) |             | Amendment to 1996 Employee Stock Purchase Plan                                                                                                                                                                       
|            | 10 | .24(15) |             | Memorandum Agreement between Harlan Plumley and
    the Company dated April 23, 2002                                                                                                                                 
|            | 10 | .25(16) |             | Separation Agreement and Release between Carla
    Marcinowski and the Company dated June 28, 2002                                                                                                                   
|            | 10 | .26(16) |             | Letter Agreement between Thomas Reynolds and the
    Company dated July 19, 2002                                                                                                                                     
|            | 10 | .27(17) |             | Amendment to the Companys 1996 Employee
    Stock Purchase Plan, as amended                                                                                                                                         
|            | 10 | .28(17) |             | Memorandum Agreement dated August 5, 2002 by
    and between the Company and Pamela D.A. Reeve                                                                                                                       
|            | 10 | .29(17) |             | Memorandum Agreement dated August 5, 2002 by
    and between the Company and Judith Dumont                                                                                                                           
|            | 10 | .30(18) |             | Foreign Exchange Master Agreement dated
    March 31, 2003 by and among Citizens Bank of Massachusetts,
    the Company, Corsair Communications, Inc., Coral
    Systems, Inc., and Lightbridge Security Corporation.
|            | 10 | .31(19) |             | Separation agreement and release dated July
    8,2003 between Christine Cournoyer and the Company                                                                                                                   
|            | 10 | .32     |             | Office Building Lease, dated December 23,
    2003 between Corporate Drive Corporation, as Trustee of
    Corporate Drive Nominee Realty Trust, and the Company                                                      
|            | 23 | .1      |             | Independent Auditors Consent 
    Deloitte & Touche LLP                                                                                                                                                             
|            | 24 | .1      |             | Power of Attorney (See signature page hereto)                                                                                                                                                                        
|            | 31 | .1      |             | Certification of Pamela D.A. Reeve dated
    March 15, 2004                                                                                                                                                          
|            | 31 | .2      |             | Certification of Harlan Plumley dated
    March 15, 2004                                                                                                                                                             
|            | 32 | .1      |             | Certification of Pamela D.A. Reeve and Harlan
    Plumley dated March 15, 2004 (furnished but not filed with
    the Securities and Exchange Commission).                                                            



---



|    |                                                                                                                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference to the Companys
    Registration Statement on Form S-4 (Registration
    Number 333-50196), as filed with the Securities and
    Exchange Commission on November 17, 2000.
|   
|(2) | Incorporated by reference to the Companys
    Registration Statement on Form S-1, as amended (File
    No. 333-6589).                                                                               
|   
|(3) | Incorporated by reference to the Companys
    Quarterly Report on Form 10-Q for the quarter ended
    September 30, 1998.                                                                           

42



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##### Table of Contents





|    |                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
|(4) | Incorporated by reference to the Companys
    Registration Statement on Form 8-A, as filed with the
    Securities and Exchange Commission on November 21, 1997.
|   
|(5) | Incorporated by reference to the Companys
    Annual Report on Form 10-K for the fiscal year ended
    December 31, 1996.                                       
|   
|(6) | Incorporated by reference to the Companys
    Annual Report on Form 10-K for the fiscal year ended
    December 31, 1997.                                       
|   
|(7) | Incorporated by reference to the Companys
    Quarterly Report on Form 10-Q for the quarter ended
    March 31, 1998.                                           
|   
|(8) | Incorporated by reference to the Companys
    Annual Report on Form 10-K for the fiscal year ended
    December 31, 1999.                                       
|   
|(9) | Incorporated by reference to the Companys
    Quarterly Report on Form 10-Q for the quarter ended
    March 31, 2000.                                           



|     |                                                                                                                           
|---- | --------------------------------------------------------------------------------------------------------------------------
|(10) | Incorporated by reference to the Companys
    Quarterly Report on Form 10-Q for the quarter ended
    June 30, 2000.     
|    
|(11) | Incorporated by reference to the Companys
    Quarterly Report on Form 10-Q for the quarter ended
    September 30, 2000.
|    
|(12) | Incorporated by reference to the Companys
    Annual Report on Form 10-K for the fiscal year ended
    December 31, 2000.
|    
|(13) | Incorporated by reference to the Companys
    Quarterly Report on Form 10-Q for the quarter ended
    March 31, 2001.    
|    
|(14) | Incorporated by reference to the Companys
    Quarterly Report on Form 10-Q for the quarter ended
    June 30, 2001.     
|    
|(15) | Incorporated by reference to the Companys
    Quarterly Report on Form 10-Q for the quarter ended
    March 31, 2002.    
|    
|(16) | Incorporated by reference to the Companys
    Quarterly Report on Form 10-Q for the quarter ended
    June 30, 2002.     
|    
|(17) | Incorporated by reference to the Companys
    Quarterly Report on Form 10-Q for the quarter ended
    September 30, 2002.
|    
|(18) | Incorporated by reference to the Companys
    Quarterly Report on Form 10-Q for the quarter ended
    March 31, 2003.    
|    
|(19) | Incorporated by reference to the Companys
    Quarterly Report of Form 10-Q for the quarter ended
    September 30, 2004.

(b) Reports on Form 8-K filed in the
fourth quarter of 2003

On October 23, 2003, the Company furnished a
Current Report on Form 8-K to report, under Item 12,
Results of Operations and Financial Condition, the release of
its results of operations for the quarter ended
September 30, 2003. The Report also included, under
Item 7, Financial Statements, Pro Forma Financial
Information and Exhibits, a copy of the press release regarding
the Companys third quarter 2003 financial results.

43



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) 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, on the 15th day of
March, 2004.



| |                  
| | -----------------
| | LIGHTBRIDGE, INC.



| |     |                       
| | --- | ----------------------
| | By: | /s/ PAMELA D. A. REEVE

| |                                          
| | -----------------------------------------
| |                                          
| | Pamela D. A. Reeve                       
| | President and Chief Executive
    Officer

Each person whose signature appears below hereby
appoints Pamela D.A. Reeve and Harlan Plumley, and each of
them severally, acting alone and without the other, his or her
true and lawful attorney-in-fact with the authority to execute
in the name of each such person, and to file with the Securities
and Exchange Commission, together with any exhibits thereto and
other documents therewith, any and all amendments to this Annual
Report on Form 10-K necessary or advisable to enable
Lightbridge, Inc., to comply with the rules, regulations,
and requirements of the Securities Act of 1934, as amended, in
respect thereof, which amendments may make such other changes in
the Annual Report on Form 10-K as the aforesaid
attorney-in-fact executing the same deems appropriate.

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the
following persons in the capacities and on the dates indicated.

|                                         |  |                                                                                                                                        |  |                |  | 
|---------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- |  | 
|                                         |  |                                                                                                                                        |  |               
|Name                                     |  | Title                                                                                                                                  |  | Date          
|                                         |  |                                                                                                                                        |  |               
|                                        
|/s/ HARLAN PLUMLEYHarlan Plumley         |  | Vice President, Finance and Administration, Chief
    Financial Officer and Treasurer (Principal Financial and
    Accounting Officer) |  | March 15, 2004
|                                        
|/s/ PAMELA D. A. REEVEPamela D. A. Reeve |  | President, Chief Executive Officer and Director
    (Principal Executive Officer)                                                      |  | March 15, 2004
|                                        
|/s/ RACHELLE B. CHONGRachelle B. Chong   |  | Director                                                                                                                               |  | March 15, 2004
|                                        
|/s/ ROBERT E. DONAHUERobert E. Donahue   |  | Director                                                                                                                               |  | March 15, 2004
|                                        
|/s/ KEVIN C. MELIAKevin C. Melia         |  | Director                                                                                                                               |  | March 15, 2004
|                                        
|Andrew G. Mills                          |  | Director                                                                                                                               |  |               
|                                        
|/s/ DOROTHY A. TERRELLDorothy A. Terrell |  | Director                                                                                                                               |  | March 15, 2004
|                                        
|/s/ DAVID C. TURNERDavid C. Turner       |  | Director                                                                                                                               |  | March 15, 2004

44



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##### Table of Contents



INDEPENDENT AUDITORS REPORT

We have audited the accompanying consolidated
balance sheets of Lightbridge, Inc. and subsidiaries (the
Company) as of December 31, 2003 and 2002, and the related
consolidated statements of operations, shareholders
equity, and cash flows for each of the three years in the
period ended December 31, 2003. These financial statements
are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, such consolidated financial
statements present fairly, in all material respects, the
financial position of the Company and its subsidiaries as of
December 31, 2003 and 2002, and the results of their
operations and their cash flows for each of the three years
in the period ended December 31, 2003, in conformity with
accounting principles generally accepted in the United States of
America.

/s/ DELOITTE & TOUCHE LLP




Waltham, Massachusetts

March 15, 2004


F-1



---



##### Table of Contents



LIGHTBRIDGE, INC. AND
SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands except share and per
share amounts)


|                                         |                                                                                                                                                                                                                |                            |                                            |         |         |         |        |         |         |         | 
|---------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------------------------------------------ | ------- | ------- | ------- | ------ | ------- | ------- | ------- | 
|                                         |                                                                                                                                                                                                                |                           
|                                         |                                                                                                                                                                                                                | December 31,               |                                           
|                                         |                                                                                                                                                                                                                |                            |                                           
|                                         |                                                                                                                                                                                                                | 2003                       |                                            |         | 2002    |        
|                                         |                                                                                                                                                                                                                |                            |                                            |         |         |        
|ASSETS                                  
|Current assets:                          |                                                                                                                                                                                                                |                            |                                            |         |         |         |        |        
|                                         | Cash and cash equivalents                                                                                                                                                                                      |                            | $                                          | 69,685  |         |         | $      | 90,664  |        
|                                         | Short-term investments                                                                                                                                                                                         |                            |                                            | 63,803  |         |         |        | 42,806  |        
|                                         | Accounts receivable, net                                                                                                                                                                                       |                            |                                            | 20,071  |         |         |        | 17,679  |        
|                                         | Deferred tax assets                                                                                                                                                                                            |                            |                                            | 3,267   |         |         |        | 3,012   |        
|                                         | Other current assets                                                                                                                                                                                           |                            |                                            | 4,158   |         |         |        | 3,112   |        
|                                         |                                                                                                                                                                                                                |                            |                                            |         |         |        
|                                         |                                                                                                                                                                                                                | Total current assets       |                                            |         | 160,984 |         |        |         | 157,273 |        
|Property and equipment, net              |                                                                                                                                                                                                                |                            | 9,408                                      |         |         |         | 16,183 |        
|Deferred tax assets                      |                                                                                                                                                                                                                |                            | 4,553                                      |         |         |         | 3,713  |        
|Other assets, net                        |                                                                                                                                                                                                                |                            | 362                                        |         |         |         | 709    |        
|Goodwill                                 |                                                                                                                                                                                                                |                            | 1,664                                      |         |         |         | 1,664  |        
|Intangible assets, net                   |                                                                                                                                                                                                                |                            | 865                                        |         |         |         | 1,130  |        
|                                         |                                                                                                                                                                                                                |                            |                                            |         |         |        
|                                         |                                                                                                                                                                                                                | Total assets               |                                            | $       | 177,836 |         |        | $       | 180,672 |        
|                                         |                                                                                                                                                                                                                |                            |                                            |         |         |        
|                                        
|LIABILITIES AND STOCKHOLDERS
    EQUITY
|Current liabilities:                     |                                                                                                                                                                                                                |                            |                                            |         |         |         |        |        
|                                         | Accounts payable                                                                                                                                                                                               |                            | $                                          | 6,825   |         |         | $      | 5,676   |        
|                                         | Accrued compensation                                                                                                                                                                                           |                            |                                            | 4,246   |         |         |        | 5,263   |        
|                                         | Other accrued liabilities                                                                                                                                                                                      |                            |                                            | 4,134   |         |         |        | 4,206   |        
|                                         | Deferred revenues                                                                                                                                                                                              |                            |                                            | 5,461   |         |         |        | 4,292   |        
|                                         | Reserves for restructuring                                                                                                                                                                                     |                            |                                            | 2,634   |         |         |        | 1,335   |        
|                                         |                                                                                                                                                                                                                |                            |                                            |         |         |        
|                                         |                                                                                                                                                                                                                | Total current liabilities  |                                            |         | 23,300  |         |        |         | 20,772  |        
|Other long-term liabilities              |                                                                                                                                                                                                                |                            | 33                                         |         |         |         | 259    |        
|                                         |                                                                                                                                                                                                                |                            |                                            |         |         |        
|                                         |                                                                                                                                                                                                                | Total liabilities          |                                            |         | 23,333  |         |        |         | 21,031  |        
|Commitments and contingencies (Note 7)   |                                                                                                                                                                                                                |                            |                                            |         |         |         |        |        
|Stockholders equity:                    |                                                                                                                                                                                                                |                            |                                            |         |         |         |        |        
|                                         | Preferred stock; $0.01 par value,
    5,000,000 shares authorized; no shares issued or
    outstanding at December 31, 2003 and 2002                                                                           |                            |                                            |        |         |         |        |        |        
|                                         | Common stock; $0.01 par value,
    60,000,000 shares authorized; 29,647,795 and
    29,400,762 shares issued; 26,843,352 and
    27,282,224 shares outstanding at December 31, 2003 and
    2002, respectively |                            |                                            | 298     |         |         |        | 296     |        
|                                         | Additional paid-in capital                                                                                                                                                                                     |                            |                                            | 166,882 |         |         |        | 165,241 |        
|                                         | Warrants                                                                                                                                                                                                       |                            |                                            | 206     |         |         |        | 206     |        
|                                         | Retained earnings                                                                                                                                                                                              |                            |                                            | 4,072   |         |         |        | 5,521   |        
|                                         | Less treasury stock; 2,804,443 and
    2,118,538 shares at cost at December 31, 2003 and
    2002, respectively                                                                                                |                            |                                            | (16,955 | )       |         |        | (11,623 | )      
|                                         |                                                                                                                                                                                                                |                            |                                            |         |         |        
|                                         |                                                                                                                                                                                                                | Total stockholders equity |                                            |         | 154,503 |         |        |         | 159,641 |        
|                                         |                                                                                                                                                                                                                |                            |                                            |         |         |        
|                                         |                                                                                                                                                                                                                |                            | Total liabilities and stockholders equity |         | $       | 177,836 |        |         | $       | 180,672 | 
|                                         |                                                                                                                                                                                                                |                            |                                            |         |         |        

See notes to consolidated financial statements.

F-2



---



##### Table of Contents



LIGHTBRIDGE, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF
OPERATIONS

(Amounts in thousands except per share
amounts)


|                                                |                                               |                          |        |        |         |   |       |        |         |   |        |         |         | 
|----------------------------------------------- | --------------------------------------------- | ------------------------ | ------ | ------ | ------- | - | ----- | ------ | ------- | - | ------ | ------- | ------- | 
|                                                |                                               |                         
|                                                |                                               | Years Ended December 31, |       
|                                                |                                               |                          |       
|                                                |                                               | 2003                     |        |        | 2002    |   |       | 2001   |        
|                                                |                                               |                          |        |        |         |   |       |        |        
|Revenues:                                       |                                               |                          |        |        |         |   |       |        |         |   |        |        
|                                                | Transaction                                   |                          | $      | 80,552 |         |   | $     | 88,376 |         |   | $      | 104,019 |        
|                                                | Software licensing                            |                          |        | 8,012  |         |   |       | 10,212 |         |   |        | 24,802  |        
|                                                | Consulting and services                       |                          |        | 28,666 |         |   |       | 32,491 |         |   |        | 41,484  |        
|                                                | Hardware                                      |                          |        | 2,748  |         |   |       | 2,359  |         |   |        | 6,311   |        
|                                                |                                               |                          |        |        |         |   |       |        |        
|                                                |                                               | Total revenues           |        |        | 119,978 |   |       |        | 133,438 |   |        |         | 176,616 | 
|Cost of revenues:                               |                                               |                          |        |        |         |   |       |        |         |   |        |        
|                                                | Transaction                                   |                          |        | 45,667 |         |   |       | 49,194 |         |   |        | 55,591  |        
|                                                | Software licensing                            |                          |        | 1,251  |         |   |       | 1,247  |         |   |        | 2,485   |        
|                                                | Consulting and services                       |                          |        | 12,741 |         |   |       | 13,663 |         |   |        | 18,275  |        
|                                                | Hardware                                      |                          |        | 2,290  |         |   |       | 1,839  |         |   |        | 4,460   |        
|                                                |                                               |                          |        |        |         |   |       |        |        
|                                                |                                               | Total cost of revenues   |        |        | 61,949  |   |       |        | 65,943  |   |        |         | 80,811  | 
|                                                |                                               |                          |        |        |         |   |       |        |        
|Gross profit:                                   |                                               |                          |        |        |         |   |       |        |         |   |        |        
|                                                | Transaction                                   |                          |        | 34,885 |         |   |       | 39,182 |         |   |        | 48,428  |        
|                                                | Software licensing                            |                          |        | 6,761  |         |   |       | 8,965  |         |   |        | 22,317  |        
|                                                | Consulting and services                       |                          |        | 15,925 |         |   |       | 18,828 |         |   |        | 23,209  |        
|                                                | Hardware                                      |                          |        | 458    |         |   |       | 520    |         |   |        | 1,851   |        
|                                                |                                               |                          |        |        |         |   |       |        |        
|                                                |                                               | Total gross profit       |        |        | 58,029  |   |       |        | 67,495  |   |        |         | 95,805  | 
|                                                |                                               |                          |        |        |         |   |       |        |        
|Operating expenses:                             |                                               |                          |        |        |         |   |       |        |         |   |        |        
|                                                | Development costs                             |                          |        | 28,426 |         |   |       | 29,269 |         |   |        | 32,259  |        
|                                                | Sales and marketing                           |                          |        | 14,239 |         |   |       | 13,270 |         |   |        | 20,460  |        
|                                                | General and administrative                    |                          |        | 14,143 |         |   |       | 18,170 |         |   |        | 19,517  |        
|                                                | Restructuring costs                           |                          |        | 5,079  |         |   |       | 3,616  |         |   |        | 4,000   |        
|                                                | Merger related costs                          |                          |        |       |         |   |       |       |         |   |        | 5,999   |        
|                                                | Purchased in-process research and development |                          |        |       |         |   |       | 1,618  |         |   |        |        |        
|                                                |                                               |                          |        |        |         |   |       |        |        
|                                                |                                               | Total operating expenses |        |        | 61,887  |   |       |        | 65,943  |   |        |         | 82,235  | 
|                                                |                                               |                          |        |        |         |   |       |        |        
|Income from operations                          |                                               |                          | (3,858 | )      |         |   | 1,552 |        |         |   | 13,570 |        
|Other income (expense):                         |                                               |                          |        |        |         |   |       |        |         |   |        |        
|                                                | Interest income                               |                          |        | 1,778  |         |   |       | 2,439  |         |   |        | 4,233   |        
|                                                | Equity in loss of partnership investment      |                          |        | (471   | )       |   |       | (464   | )       |   |        |        |        
|                                                |                                               |                          |        |        |         |   |       |        |        
|                                                |                                               | Total other income, net  |        |        | 1,307   |   |       |        | 1,975   |   |        |         | 4,233   | 
|                                                |                                               |                          |        |        |         |   |       |        |        
|Income (loss) before provision for income taxes |                                               |                          | (2,551 | )      |         |   | 3,527 |        |         |   | 17,803 |        
|Provision for (benefit from) income taxes       |                                               |                          | (1,102 | )      |         |   | (103  | )      |         |   | 3,848  |        
|                                                |                                               |                          |        |        |         |   |       |        |        
|Net income (loss)                               |                                               | $                        | (1,449 | )      |         | $ | 3,630 |        |         | $ | 13,955 |        
|                                                |                                               |                          |        |        |         |   |       |        |        
|                                                | Basic earnings (loss) per share (Note 11)     |                          | $      | (0.05  | )       |   | $     | 0.13   |         |   | $      | 0.50    |        
|                                                |                                               |                          |        |        |         |   |       |        |        
|                                                | Diluted earnings (loss) per share (Note 11)   |                          | $      | (0.05  | )       |   | $     | 0.13   |         |   | $      | 0.48    |        
|                                                |                                               |                          |        |        |         |   |       |        |        

See notes to consolidated financial statements.

F-3



---



##### Table of Contents



LIGHTBRIDGE, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY

(Amounts in thousands)


|                                                                 |              |              |        |   |            |   |     |          |  |            |         |          |  |             |          |              |          |                |      |          |       |               |        |   |  |        |         |   |        |  |       |   |  |   |         |   |  |   |         |   | 
|---------------------------------------------------------------- | ------------ | ------------ | ------ | - | ---------- | - | --- | -------- |  | ---------- | ------- | -------- |  | ----------- | -------- | ------------ | -------- | -------------- | ---- | -------- | ----- | ------------- | ------ | - |  | ------ | ------- | - | ------ |  | ----- | - |  | - | ------- | - |  | - | ------- | - | 
|                                                                 |              |              |        |   |            |   |     |          |  |            |         | Retained |  |             |          |              |         
|                                                                 |              | Common Stock |        |   | Additional |   |     |          |  | Receivable |         |          |  |             | Earnings |              |          | Treasury Stock |      |          | Total |              
|                                                                 |              |              |        |   | Paid-in    |   |     | Deferred |  |            | From    |          |  |             |          | (Accumulated |          |                |      |          |       | Stockholders |       
|                                                                 |              | Shares       |        |   | Amount     |   |     | Capital  |  |            | Comp.   |          |  | Stockholder |          |              | Warrants |                |      | Deficit) |       |               | Shares |   |  | Amount |         |   | Equity | 
|                                                                 |              |              |        |   |            |   |     |          |  |            |         |          |  |             |          |              |          |                |      |          |       |               |        |   |  |        |         |   |        | 
|Balance, January 1, 2001                                         |              |              | 29,634 |   |            | $ | 296 |          |  | $          | 171,303 |          |  | $           | (9       | )            |          | $              | (115 | )        |       | $             | 206    |   |  | $      | (12,064 | ) |        |  | 1,944 |   |  | $ | (14,631 | ) |  | $ | 144,986 |  
|Issuance of common stock for cash                                |              |              | 68     |   |            |   | 1   |          |  |            | 695     |          |  |             |         |              |          |                |     |          |       |               |       |   |  |        |        |   |        |  |      |   |  |   |        |   |  |   | 696     |  
|Exercise of common stock options                                 |              |              | 277    |   |            |   | 3   |          |  |            | 1,870   |          |  |             |         |              |          |                |     |          |       |               |       |   |  |        |        |   |        |  |      |   |  |   |        |   |  |   | 1,873   |  
|Exercise of common stock warrants                                |              |              | 8      |   |            |   |    |          |  |            | 17      |          |  |             |         |              |          |                |     |          |       |               |       |   |  |        |        |   |        |  |      |   |  |   |        |   |  |   | 17      |  
|Retirement of treasury stock                                     |              |              | (894   | ) |            |   | (9  | )        |  |            | (11,878 | )        |  |             |         |              |          |                |     |          |       |               |       |   |  |        |        |   |        |  | (894  | ) |  |   | 11,887  |   |  |   |        |  
|Amortization of deferred                                         |              |              |        |   |            |   |     |          |  |            |         |          |  |             |          |              |          |                |      |          |       |               |        |   |  |        |         |   |        |  |       |   |  |   |         |   |  |   |         |  
|                                                                 | compensation |              |        |  |            |   |     |         |  |            |         |         |  |             |          | 9            |          |                |      |         |       |               |        |  |  |        |         |  |        |  |       |  |  |   |         |  |  |   |         | 9 | 
|Repurchase of common stock                                       |              |              |       |   |            |   |    |          |  |            |        |          |  |             |         |              |          |                |     |          |       |               |       |   |  |        |        |   |        |  | 41    |   |  |   | (374    | ) |  |   | (374    | )
|Tax benefit from disqualifying dispositions of
    stock options |              |              |       |   |            |   |    |          |  |            | 360     |          |  |             |         |              |          |                |     |          |       |               |       |   |  |        |        |   |        |  |      |   |  |   |        |   |  |   | 360     |  
|Net income                                                       |              |              |       |   |            |   |    |          |  |            |        |          |  |             |         |              |          |                |     |          |       |               |       |   |  |        | 13,955  |   |        |  |      |   |  |   |        |   |  |   | 13,955  |  
|                                                                 |              |              |        |   |            |   |     |          |  |            |         |          |  |             |          |              |          |                |      |          |       |               |        |   |  |        |         |   |        | 
|Balance, December 31, 2001                                       |              |              | 29,093 |   |            |   | 291 |          |  |            | 162,367 |          |  |             |         |              |          |                | (115 | )        |       |               | 206    |   |  |        | 1,891   |   |        |  | 1,091 |   |  |   | (3,118  | ) |  |   | 161,522 |  
|Issuance of common stock for cash                                |              |              | 72     |   |            |   | 1   |          |  |            | 584     |          |  |             |         |              |          |                |     |          |       |               |       |   |  |        |        |   |        |  |      |   |  |   |        |   |  |   | 585     |  
|Exercise of common stock options                                 |              |              | 394    |   |            |   | 4   |          |  |            | 2,118   |          |  |             |         |              |          |                |     |          |       |               |       |   |  |        |        |   |        |  |      |   |  |   |        |   |  |   | 2,122   |  
|Retirement of treasury stock                                     |              |              | (158   | ) |            |   |    |          |  |            |        |          |  |             |         |              |          |                |     |          |       |               |       |   |  |        |        |   |        |  | (158  | ) |  |   |        |   |  |   |        |  
|Repurchase of common stock                                       |              |              |       |   |            |   |    |          |  |            |        |          |  |             |         |              |          |                |     |          |       |               |       |   |  |        |        |   |        |  | 1,186 |   |  |   | (8,505  | ) |  |   | (8,505  | )
|Tax benefit from disqualifying dispositions of
    stock options |              |              |       |   |            |   |    |          |  |            | 172     |          |  |             |         |              |          |                |     |          |       |               |       |   |  |        |        |   |        |  |      |   |  |   |        |   |  |   | 172     |  
|Shareholder note written off as uncollectible                    |              |              |       |   |            |   |    |          |  |            |        |          |  |             |         |              |          |                | 115  |          |       |               |       |   |  |        |        |   |        |  |      |   |  |   |        |   |  |   | 115     |  
|Net income                                                       |              |              |       |   |            |   |    |          |  |            |        |          |  |             |         |              |          |                |     |          |       |               |       |   |  |        | 3,630   |   |        |  |      |   |  |   |        |   |  |   | 3,630   |  
|                                                                 |              |              |        |   |            |   |     |          |  |            |         |          |  |             |          |              |          |                |      |          |       |               |        |   |  |        |         |   |        | 
|Balance, December 31, 2002                                       |              |              | 29,401 |   |            |   | 296 |          |  |            | 165,241 |          |  |             |         |              |          |                |     |          |       |               | 206    |   |  |        | 5,521   |   |        |  | 2,119 |   |  |   | (11,623 | ) |  |   | 159,641 |  
|Issuance of common stock for cash                                |              |              | 84     |   |            |   |    |          |  |            | 435     |          |  |             |         |              |          |                |     |          |       |               |       |   |  |        |        |   |        |  |      |   |  |   |        |   |  |   | 435     |  
|Exercise of common stock options                                 |              |              | 163    |   |            |   | 2   |          |  |            | 995     |          |  |             |         |              |          |                |     |          |       |               |       |   |  |        |        |   |        |  |      |   |  |   |        |   |  |   | 997     |  
|Repurchase of common stock                                       |              |              |       |   |            |   |    |          |  |            |        |          |  |             |         |              |          |                |     |          |       |               |       |   |  |        |        |   |        |  | 685   |   |  |   | (5,332  | ) |  |   | (5,332  | )
|Tax benefit from disqualifying dispositions of
    stock options |              |              |       |   |            |   |    |          |  |            | 211     |          |  |             |         |              |          |                |     |          |       |               |       |   |  |        |        |   |        |  |      |   |  |   |        |   |  |   | 211     |  
|Net loss                                                         |              |              |       |   |            |   |    |          |  |            |        |          |  |             |         |              |          |                |     |          |       |               |       |   |  |        | (1,449  | ) |        |  |      |   |  |   |        |   |  |   | (1,449  | )
|                                                                 |              |              |        |   |            |   |     |          |  |            |         |          |  |             |          |              |          |                |      |          |       |               |        |   |  |        |         |   |        | 
|Balance, December 31, 2003                                       |              |              | 29,648 |   |            | $ | 298 |          |  | $          | 166,882 |          |  | $           |         |              |          | $              |     |          |       | $             | 206    |   |  | $      | 4,072   |   |        |  | 2,804 |   |  | $ | (16,955 | ) |  | $ | 154,503 |  
|                                                                 |              |              |        |   |            |   |     |          |  |            |         |          |  |             |          |              |          |                |      |          |       |               |        |   |  |        |         |   |        | 

See notes to consolidated financial statements.

F-4



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##### Table of Contents



LIGHTBRIDGE, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

(Amounts in thousands)


|                                                                                                       |                                                                  |                                                         |          |        |         |   |          |        |         |   |         |         |        | 
|------------------------------------------------------------------------------------------------------ | ---------------------------------------------------------------- | ------------------------------------------------------- | -------- | ------ | ------- | - | -------- | ------ | ------- | - | ------- | ------- | ------ | 
|                                                                                                       |                                                                  |                                                        
|                                                                                                       |                                                                  | Years Ended December 31,                                |         
|                                                                                                       |                                                                  |                                                         |         
|                                                                                                       |                                                                  | 2003                                                    |          |        | 2002    |   |          | 2001   |        
|                                                                                                       |                                                                  |                                                         |          |        |         |   |          |        |        
|Cash flows from operating
    activities:                                                              |                                                                  |                                                         |          |        |         |   |          |        |         |   |         |        
|Net income (loss)                                                                                      |                                                                  | $                                                       | (1,449   | )      |         | $ | 3,630    |        |         | $ | 13,955  |        
|Adjustments to reconcile net income (loss) to net
    cash provided by (used in) operating activities: |                                                                  |                                                         |          |        |         |   |          |        |         |   |         |        
|                                                                                                       | Deferred income taxes                                            |                                                         |          | (1,095 | )       |   |          | 1,732  |         |   |         | (2,190  | )     
|                                                                                                       | Purchased in-process research and development                    |                                                         |          |       |         |   |          | 1,618  |         |   |         |        |       
|                                                                                                       | Depreciation and amortization                                    |                                                         |          | 10,398 |         |   |          | 15,326 |         |   |         | 15,729  |       
|                                                                                                       | Loss on disposal of property and equipment                       |                                                         |          | 1,511  |         |   |          | 735    |         |   |         |        |       
|                                                                                                       | Tax benefit from disqualifying dispositions of
    stock options |                                                         |          | 211    |         |   |          | 172    |         |   |         | 360     |       
|Changes in assets and liabilities:                                                                     |                                                                  |                                                         |          |        |         |   |          |        |         |   |         |        
|                                                                                                       | Accounts receivable                                              |                                                         |          | (2,392 | )       |   |          | 9,964  |         |   |         | 14,469  |       
|                                                                                                       | Inventories                                                      |                                                         |          |       |         |   |          | 263    |         |   |         | 1,980   |       
|                                                                                                       | Other assets                                                     |                                                         |          | (699   | )       |   |          | 2,298  |         |   |         | 1,212   |       
|                                                                                                       | Accounts payable and accrued liabilities                         |                                                         |          | 1,359  |         |   |          | (3,361 | )       |   |         | (10,672 | )     
|                                                                                                       | Other long-term liabilities                                      |                                                         |          | (226   | )       |   |          | (408   | )       |   |         | (296    | )     
|                                                                                                       | Deferred revenues                                                |                                                         |          | 1,169  |         |   |          | (1,952 | )       |   |         | (4,366  | )     
|                                                                                                       |                                                                  |                                                         |          |        |         |   |          |        |        
|                                                                                                       |                                                                  | Net cash provided by operating activities               |          |        | 8,787   |   |          |        | 30,017  |   |         |         | 30,181 | 
|Cash flows from investing
    activities:                                                              |                                                                  |                                                         |          |        |         |   |          |        |         |   |         |        
|Purchases of property and equipment                                                                    |                                                                  |                                                         | (4,869   | )      |         |   | (4,370   | )      |         |   | (11,997 | )      
|Purchase of investments                                                                                |                                                                  |                                                         | (179,385 | )      |         |   | (119,539 | )      |         |   | (9,865  | )      
|Proceeds from sales and maturities of short-term
    investments                                       |                                                                  |                                                         | 158,388  |        |         |   | 87,804   |        |         |   | 51,218  |        
|Acquisition of Altawave                                                                                |                                                                  |                                                         |         |        |         |   | (4,949   | )      |         |   |        |        
|                                                                                                       |                                                                  |                                                         |          |        |         |   |          |        |        
|                                                                                                       |                                                                  | Net cash provided by (used in) investing
    activities |          |        | (25,866 | ) |          |        | (41,054 | ) |         |         | 29,356 | 
|Cash flows from financing
    activities:                                                              |                                                                  |                                                         |          |        |         |   |          |        |         |   |         |        
|Proceeds from notes receivable                                                                         |                                                                  |                                                         |         |        |         |   |         |        |         |   | 181     |        
|Repurchases of common stock                                                                            |                                                                  |                                                         | (5,332   | )      |         |   | (8,505   | )      |         |   | (374    | )      
|Proceeds from issuance of common stock                                                                 |                                                                  |                                                         | 1,432    |        |         |   | 2,707    |        |         |   | 2,569   |        
|Proceeds from exercise of warrants                                                                     |                                                                  |                                                         |         |        |         |   |         |        |         |   | 17      |        
|                                                                                                       |                                                                  |                                                         |          |        |         |   |          |        |        
|                                                                                                       |                                                                  | Net cash provided by (used in) financing
    activities |          |        | (3,900  | ) |          |        | (5,798  | ) |         |         | 2,393  | 
|                                                                                                       |                                                                  |                                                         |          |        |         |   |          |        |        
|Net increase (decrease) in cash and cash
    equivalents                                               |                                                                  |                                                         | (20,979  | )      |         |   | (16,835  | )      |         |   | 61,930  |        
|Cash and cash equivalents, beginning of year                                                           |                                                                  |                                                         | 90,664   |        |         |   | 107,499  |        |         |   | 45,569  |        
|                                                                                                       |                                                                  |                                                         |          |        |         |   |          |        |        
|Cash and cash equivalents, end of year                                                                 |                                                                  | $                                                       | 69,685   |        |         | $ | 90,664   |        |         | $ | 107,499 |        
|                                                                                                       |                                                                  |                                                         |          |        |         |   |          |        |        

See notes to consolidated financial statements.

F-5



---



##### Table of Contents



LIGHTBRIDGE, INC. AND
SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

(Amounts in thousands except share
data)




|   |                                  
|-- | ---------------------------------
|1. | Business and Acquisition Activity

Business
Lightbridge, Inc. (Lightbridge or the
Company) was incorporated in June 1989 under the
laws of the state of Delaware. The Company develops, markets and
supports a suite of products and services for communications
providers and online businesses that supports the customer
lifecycle, including customer qualification and acquisition,
risk management, prepaid billing, mobile data management and
authentication services.

Merger with Corsair
Communications, Inc.
On February 7, 2001, Lightbridge completed its merger with
Corsair Communications, Inc. (Corsair). The
merger was accounted for as a pooling-of-interests, and the
accompanying 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, in the quarter ended March 31, 2001, of
approximately $6.0 million, which has been paid in full,
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. At closing, Lightbridge issued an aggregate
of approximately 10,270,000 shares of its common stock to
Corsair stockholders.

Asset
Purchase On
February 22, 2002, a wholly owned subsidiary of Lightbridge
acquired all of the assets and certain of the liabilities of
Altawave Inc. (Altawave) in exchange for the payment
of $4.0 million in cash, plus up to an additional
$6.0 million payment contingent on the achievement of
certain revenue goals. The technology acquired from Altawave
includes solutions that offer wireless carriers a service
platform for the development and management of data content and
applications. The results of Altawave have been included in
these consolidated financial statements from the date of
acquisition.

The allocation of the Altawave purchase price was
based upon an independent appraisal of the estimated fair value
of the assets acquired and the liabilities assumed. The initial
purchase price of $4.0 million, plus the capitalized value
of acquisition costs and assumed liabilities totaling
$0.9 million, was allocated as follows:

|                                    |  |                 |      |  
|----------------------------------- |  | --------------- | ---- | -
|                                    |  | Estimated       |     
|                                    |  | Fair Values     |     
|                                    |  |                 |     
|                                    |  | ($ in millions) |     
|Acquired technology                 |  | $               | 1.3  |  
|Fixed assets                        |  |                 | 0.3  |  
|Goodwill                            |  |                 | 1.7  |  
|In-process research and development |  |                 | 1.6  |  
|Acquisition costs accrued           |  |                 | (0.6 | )
|Operating liabilities assumed       |  |                 | (0.3 | )
|                                    |  |                 |     
|Total cash purchase price           |  | $               | 4.0  |  
|                                    |  |                 |     

Any additional contingent consideration that
would have been paid in connection with the Altawave acquisition
would have been recorded as goodwill when the underlying
conditions were met and payment became probable. No contingent
payments were required to be made in connection with the
Altawave acquisition. The results of operations of Altawave are
not significant to the Company, and, accordingly, pro forma
disclosure of the results of operations, as if Altawave had been
acquired at the beginning of 2001, has not been provided.

In connection with the Altawave acquisition, the
Company recorded a $1.6 million charge during the first
quarter of 2002 for several IPR&D projects. The technology
acquired from Altawave includes solutions that offer wireless
carriers and enterprises a service platform for the development
and management of data content and applications. The complexity
of the technology lies in its comprehensive, secure and scalable
characteristics. The research projects in process at the date of
acquisition related to the development of the Lightbridge

F-6



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##### Table of Contents



LIGHTBRIDGE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Mobile Data Manager (MDM) suite of
products consisting of MDM Server, MDM Administration, MDM
Altalinks and MDM Provisioner, as well as the Consumer Group
Applications (CGA). Development of the technology
was started in 2000.

The value of the projects was determined by an
independent appraiser using the income approach. The discounted
cash flow method was utilized to estimate the present value of
the expected income that could be generated through revenues
from the projects over their estimated useful lives through
2009. The percentage of completion for the projects was
determined based on the amount of research and development
expenses incurred through the date of acquisition as a
percentage of estimated total research and development expenses
to bring the projects to technological feasibility. At the
acquisition date, the Company estimated that the MDM suite and
CGA were approximately 70% and 32% complete, respectively, with
fair values of approximately $1.0 million and
$0.6 million, respectively. The discount rate used for the
fair value calculation was 37% for the MDM suite and 40% for
CGA. At the date of acquisition, development of the technology
involved risks to the Company including the remaining
development effort required to achieve technological feasibility
and uncertainty with respect to the market for the technology.
Lightbridge completed the development of the MDM suite in the
quarter ended September 30, 2002 and the CGA project in the
quarter ended September 30, 2003 having spent approximately
$150 and $300, respectively, on the projects after the
acquisition.

Recent Pending
Acquisition On
March 1, 2004, the Company announced it had signed an
agreement with InfoSpace, Inc. to acquire all of the
outstanding stock of Authorize.Net Corporation for
$82 million in cash. The Company expects to incur
approximately an additional $2.6 million for acquisition
related transaction costs. The transaction is expected to close
in the second quarter of 2004, subject to necessary approvals.
Authorize.Net is a provider of payment solutions for online
customer transactions. The Authorize.Net payment gateway
provides credit card and electronic check solutions to companies
that process orders for goods and services over the Internet.
Authorize.Net connects small and medium sized businesses to
large credit card processors and banking organizations, allowing
those businesses to accept electronic payments.



|   |                                               
|-- | ----------------------------------------------
|2. | Summary of Significant Accounting
    Policies

Basis of Presentation and Principles of
Consolidation These
consolidated financial statements include the accounts of the
Company and its subsidiaries. All intercompany accounts and
transactions have been eliminated in consolidation. Investments
in entities over which the Company has significant influence,
such as the Companys investment in the limited partnership
described below, are accounted for using the equity method.

Significant
Estimates The preparation
of financial statements in conformity with generally accepted
accounting principles in the United States of America requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at each reporting
date and the amount of revenue and expense reported each period.
These estimates include provisions for bad debts, certain
accrued liabilities, recognition of revenue and expenses, and
recoverability of deferred tax assets. Actual results could
differ from these estimates.

Cash and Cash
Equivalents Cash and cash
equivalents include short-term, highly liquid instruments, which
consist primarily of money market accounts, purchased with
remaining maturities of three months or less.

Short-Term
Investments Short-term
investments consist of corporate debt securities maturing in one
year or less and are classified as available-for-sale. These
investments are carried at amortized cost, which approximates
fair value.

The carrying value of available-for-sale debt
securities is adjusted for amortization of premiums and
accretion of discounts to maturity. Realized gains and losses,
and declines in value judged to be other than

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LIGHTBRIDGE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

temporary on available-for-sale debt securities,
if any, are included in interest income, net. The cost of
securities sold is based on the specific identification method.
Interest and dividends on securities are included in interest
income, net.

Property and
Equipment Property and
equipment is recorded at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of
three to seven years. Leasehold improvements are amortized over
the term of the lease or the lives of the assets, whichever is
shorter.

Revenue Recognition and Concentration of
Credit Risk 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 communications
providers are recognized in the period when services are
performed. 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 in certain circumstances.

Revenues 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 or by utilizing the residual method.
Revenues from consulting and services contracts are generally
recognized as the services are performed. Revenues from software
maintenance contracts are recognized ratably over the term of
the maintenance agreement and are reported as consulting and
services revenues. Revenues from hardware sales 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.
Revenues from hardware sold in conjunction with software
licenses is deferred until the related license revenue is
recognized.

Substantially all of the Companys customers
are providers of wireless telecommunications services and are
generally granted credit without collateral. Lightbridge
specifically analyzes accounts receivable balances and
historical bad debts, customer creditworthiness, current
domestic and international economic trends, and changes in its
customer payment terms when evaluating the adequacy of the
allowance for doubtful accounts. The Companys revenues
vary throughout the year, with the period of highest revenue
generally occurring during the period October 1 through
December 31. The allowance for doubtful accounts at
December 31, 2003, 2002, and 2001 was approximately $2,561,
$2,955 and $2,965, respectively. The Company recorded bad debt
expense of $0, $200 and $630 and had write-offs, net of
recoveries, associated with accounts receivable of $394, $210
and $190 for the years ended December 31, 2003, 2002 and
2001, respectively.

Customers exceeding 10% of the Companys
revenues during the years ended December 31 are as follows:

|                            |       |                      |    |    |      |  |    |      |   |  |    |    |  
|--------------------------- | ----- | -------------------- | -- | -- | ---- |  | -- | ---- | - |  | -- | -- | -
|                            |       |                     
|                            |       | Years Ended Dec. 31, |   
|                            |       |                      |   
|                            |       | 2003                 |    |    | 2002 |  |    | 2001 |  
|                            |       |                      |    |    |      |  |    |      |  
|Sprint Spectrum L.P.        |       |                      | 28 | %  |      |  | 30 | %    |   |  | 22 | % 
|AT&T Wireless Services, Inc |       |                      | 21 |    |      |  | 21 |      |   |  | 20 |   
|Ericsson AB                 |       |                      | 14 |    |      |  | 15 |      |   |  | 16 |   
|Nextel Operations, Inc.     |       |                      | 12 |    |      |  | 11 |      |   |  | 7  |   
|                            |       |                      |    |    |      |  |    |      |  
|                            | Total |                      |    | 75 | %    |  |    | 77   | % |  |    | 65 | %
|                            |       |                      |    |    |      |  |    |      |  

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##### Table of Contents



LIGHTBRIDGE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Export
Sales The Company had
export sales to the following regions for the years ended
December 31:

|              |       |      |       |        |      |   |        |        |  |   |        |        | 
|------------- | ----- | ---- | ----- | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|              |       | 2003 |       |        | 2002 |   |        | 2001   | 
|              |       |      |       |        |      |   |        |        | 
|Latin America |       | $    | 9,240 |        |      | $ | 10,436 |        |  | $ | 20,615 |       
|Mexico        |       |      | 6,191 |        |      |   | 9,299  |        |  |   | 14,394 |       
|Africa        |       |      | 1,476 |        |      |   | 803    |        |  |   |       |       
|Canada        |       |      | 604   |        |      |   | 748    |        |  |   | 1,129  |       
|Asia          |       |      | 79    |        |      |   | 273    |        |  |   | 2,872  |       
|Russia        |       |      | 947   |        |      |   | 169    |        |  |   | 783    |       
|Europe        |       |      | 120   |        |      |   | 157    |        |  |   | 388    |       
|              |       |      |       |        |      |   |        |        | 
|              | Total |      | $     | 18,657 |      |   | $      | 21,885 |  |   | $      | 40,181 | 
|              |       |      |       |        |      |   |        |        | 

Goodwill and Acquired Intangible
Assets In connection with
the acquisition of Altawave, the Company recorded goodwill of
$1.7 million. The Company is required to test such goodwill
for impairment on at least an annual basis. The Company has
adopted January 1st as the date of the annual impairment
test and, therefore, performed the annual impairment test on
January 1, 2004. A comparison of the fair value of the
reporting unit to its carrying amount, including goodwill, did
not indicate impairment was present. The Company will assess the
impairment of goodwill on an annual basis or sooner if other
indicators of impairment arise.

Acquired intangible assets primarily represent
the existing technology related to the acquisition of Altawave
in 2002 and are included with other assets in the accompanying
balance sheet. These assets are being amortized on a
straight-line basis over their five year estimated useful lives.
Acquired intangible assets consisted of the following at
December 31:

|          |                           |      |   |       |      |  |   |       |  
|--------- | ------------------------- | ---- | - | ----- | ---- |  | - | ----- | -
|          |                           | 2003 |   |       | 2002 | 
|          |                           |      |   |       |      | 
|Altawave: |                           |      |   |       |      |  |   |      
|          | Acquired intangible asset |      | $ | 1,330 |      |  | $ | 1,330 |  
|          | Accumulated amortization  |      |   | (465  | )    |  |   | (200  | )
|          |                           |      |   |       |      | 
|          | Net                       |      | $ | 865   |      |  | $ | 1,130 |  
|          |                           |      |   |       |      | 

Income
Taxes The Company records
deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between the financial
reporting and tax bases of existing assets and liabilities.
Deferred income tax assets are principally the result of net
operating loss carryforwards, income tax credits and differences
in depreciation and amortization and accrued expenses and
reserves for financial purposes and income tax purposes, and are
recognized to the extent realization of such benefits is more
likely than not. Lightbridge periodically assesses the
recoverability of any tax assets recorded on the balance sheet
and provides for any necessary valuation allowances. (See
Note 9)

Warranty
Reserve The Company no
longer actively sells or markets its PhonePrint system. As a
result of the limited demand for the PhonePrint system and the
Companys decision to no longer actively sell or market
this system, no significant revenues are expected from this
product in the future. The Company has a warranty reserve to
cover the costs of PhonePrint replacement units or spare parts.
As the number of carriers still operating the PhonePrint system
has declined substantially, the Company reduced its PhonePrint
warranty reserve by $526 in 2002. The balance in the warranty
reserve at December 31, 2003 and 2002 was $250.

Development
Costs Development costs,
which consist of research and development of new products and
services, are expensed as incurred, except for software
development costs. Software development costs are

F-9



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##### Table of Contents



LIGHTBRIDGE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

capitalized after establishment of technological
feasibility which the Company defines as the point that a
working model of the software application has
achieved all design specifications and is available for
beta testing. No costs have qualified for
capitalization to date.



| |                                   
| | ----------------------------------
| | Supplemental Cash Flow Information

|                   |                            |                          |      |      |        |      |       
|------------------ | -------------------------- | ------------------------ | ---- | ---- | ------ | ---- | ------
|                   |                            |                         
|                   |                            | Years Ended December 31,
|                   |                            |                         
|                   |                            | 2003                     |      | 2002 |        | 2001
|                   |                            |                          |      |      |        |     
|Supplemental Item: |                            |                          |      |      |        |     
|                   | Cash paid for income taxes |                          | $373 |      | $3,925 |      | $4,752

Impairment of Long-Lived
Assets The Company
periodically, or when an impairment event occurs, assesses the
recoverability of its long-lived assets by comparing the
undiscounted cash flows expected to be generated by those assets
to their carrying value. If the sum of the undiscounted cash
flows is less than the carrying value of the assets, an
impairment charge is recognized.

Stock-Based
Compensation The Company
applies the intrinsic value based method of accounting for stock
options granted to employees. The Company accounts for stock
options and awards to non-employees using the fair value method.

Under the intrinsic value method, compensation
associated with stock awards to employees is determined as the
difference, if any, between the current fair value of the
underlying common stock on the date compensation is measured and
the price an employee must pay to exercise the award. The
measurement date for employee awards is generally the date of
grant. Under the fair value method, compensation associated with
stock awards to non-employees is determined based on the
estimated fair value of the award itself, measured using either
current market data or an established option pricing model. The
measurement date for non-employee awards is generally the date
performance of services is complete.

Had the Company used the fair value method to
measure compensation expense associated with grants of stock
options to employees, reported net income and basic and diluted
earnings per share would have been as follows:

|                                                                               |  |      |        |   |      |   |       |      |  |   |        | 
|------------------------------------------------------------------------------ |  | ---- | ------ | - | ---- | - | ----- | ---- |  | - | ------ | 
|                                                                               |  | 2003 |        |   | 2002 |   |       | 2001 | 
|                                                                               |  |      |        |   |      |   |       |      | 
|Net income(loss) as reported                                                   |  | $    | (1,449 | ) |      | $ | 3,630 |      |  | $ | 13,955 | 
|Stock based compensation recorded in income                                    |  |      |       |   |      |   |      |      |  |   |       | 
|Stock based compensation measured using the fair
    value method (net of tax) |  |      | 2,156  |   |      |   | 2,350 |      |  |   | 6,918  | 
|                                                                               |  |      |        |   |      |   |       |      | 
|Net income (loss) pro forma                                                    |  | $    | (3,605 | ) |      | $ | 1,280 |      |  | $ | 7,037  | 
|                                                                               |  |      |        |   |      |   |       |      | 
|Basic earnings per share pro forma                                             |  | $    | (0.13  | ) |      | $ | 0.05  |      |  | $ | 0.25   | 
|                                                                               |  |      |        |   |      |   |       |      | 
|Diluted earnings per share pro forma                                           |  | $    | (0.13  | ) |      | $ | 0.05  |      |  | $ | 0.24   | 
|                                                                               |  |      |        |   |      |   |       |      | 

F-10



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##### Table of Contents



LIGHTBRIDGE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The fair value of options on their grant date was
measured using the Black-Scholes Option Pricing Model. Key
assumptions used to apply this pricing model are as follows:

|                                                                                            |  |                          |              |  |      |  |              |      |  |  |              | 
|------------------------------------------------------------------------------------------- |  | ------------------------ | ------------ |  | ---- |  | ------------ | ---- |  |  | ------------ | 
|                                                                                            |  |                         
|                                                                                            |  | Years Ended December 31, |             
|                                                                                            |  |                          |             
|                                                                                            |  | 2003                     |              |  | 2002 |  |              | 2001 | 
|                                                                                            |  |                          |              |  |      |  |              |      | 
|Risk-free interest rate                                                                     |  |                          | 2.9% - 4.7%  |  |      |  | 2.9% - 4.7%  |      |  |  | 3.9% - 4.9%  | 
|Expected life of options grants                                                             |  |                          | 1 - 5  years |  |      |  | 1 - 5  years |      |  |  | 1 - 5  years | 
|Expected volatility of underlying stock                                                     |  |                          | 86%          |  |      |  | 90%          |      |  |  | 96%          | 
|Expected dividend payment rate, as a percentage
    of the stock price on the date of grant |  |                          |             |  |      |  |             |      |  |  |             | 

It should be noted that the option-pricing model
used was designed to value readily tradable stock options with
relatively short lives. The options granted to employees are not
tradable and have contractual lives of up to ten years.

Comprehensive
Income The Company
currently has no items of comprehensive income other than net
income.

Disclosures About Segments of an Enterprise
and Related Information
Based upon the way management and the Board of Directors monitor
the operations, the Company operates in four distinct segments:
the transaction business, the software license business, the
consulting and service business, and the hardware business.
Within these four segments, performance is measured based on
gross profit realized from each segment. Information about
revenues, cost of revenues and gross profit of each segment is
shown separately on the statement of operations. Information
about costs and expenses, other than costs of revenues, is not
reported by segment. Amortization expense of acquired intangible
assets recorded in software licensing cost of revenues for the
years ended December 31, 2003, 2002 and 2001 was
approximately $265, $542 and $651, respectively. There are no
transactions between segments.

Total assets for each reportable segment as of
December 31, 2003 and 2002 were as follows:

|                        |              |      |         |         |      |   |         |         | 
|----------------------- | ------------ | ---- | ------- | ------- | ---- | - | ------- | ------- | 
|                        |              | 2003 |         |         | 2002 |  
|                        |              |      |         |         |      |  
|Transaction             |              | $    | 20,858  |         |      | $ | 22,903  |        
|Software licensing      |              |      | 3,580   |         |      |   | 3,758   |        
|Consulting and services |              |      | 6,151   |         |      |   | 4,186   |        
|Hardware                |              |      | 1,858   |         |      |   | 113     |        
|Corporate               |              |      | 145,389 |         |      |   | 149,712 |        
|                        |              |      |         |         |      |  
|                        | Total assets |      | $       | 177,836 |      |   | $       | 180,672 | 
|                        |              |      |         |         |      |  

Corporate assets primarily represent cash, cash
equivalents and investments totaling $133.5 million as of
December 31, 2003 and 2002.

Recent Accounting
Pronouncements 

In January 2003, the FASB issued Interpretation
No. 46, Consolidation of Variable Interest Entities,
an interpretation of Accounting Research Bulletin No. 51,
Consolidated Financial Statements (FIN 46).
FIN 46 establishes accounting guidance for consolidation of
variable interest entities (VIEs) that function to support the
activities of the primary beneficiary. FIN 46 applies to
any business enterprise, both public and private, that has a
controlling interest, contractual relationship or other business
relationship with a VIE.

In December 2003, the FASB published a revision
to FIN 46 to clarify some of the provisions and to exempt
certain entities from its requirements. Under the new guidance,
special effective date provisions apply to enterprises that have
fully or partially applied FIN 46 prior to issuance of the
revised interpretation.

F-11



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##### Table of Contents



LIGHTBRIDGE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Otherwise, application of Interpretation 46R
(FIN 46R) is required in financial statements of public
entities that have interests in structures that are commonly
referred to as special-purpose entities (SPEs) for periods
ending after December 15, 2003. Application by public
entities, other than business issuers, for all other types of
VIEs other than SPEs, is required in financial statements for
periods ending after March 15, 2004. The Company does not
have any investments in or contractual relationships or other
business relationships with any VIE and therefore the adoption
will not have any impact on the Companys consolidated
financial position or results of operations.

In April 2003, the FASB issued
SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities
(SFAS 149). This statement is intended to result in more
consistent reporting of contracts as either freestanding
derivative instruments subject to SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities in its entirety, or as hybrid instruments with
debt host contracts and embedded derivative features. In
addition, SFAS 149 clarifies the definition of a derivative
by providing guidance on the meaning of initial net investments
related to derivatives. SFAS 149 is effective for contracts
entered into or modified after June 30, 2003. Adoption of
SFAS 149 had no effect on the Companys consolidated
financial position, results of operations or cash flows.

In May 2003, the FASB issued
SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity (SFAS 150). SFAS 150 establishes
standards for classifying and measuring as liabilities certain
financial instruments that embody obligations of the issuer and
have characteristics of both liabilities and equity.
SFAS 150 represents a significant change in practice in the
accounting for a number of financial instruments, including
mandatorily redeemable equity instruments and certain equity
derivatives that frequently are used in connection with share
repurchase programs. The Company does not use such instruments
in its share repurchase program. SFAS 150 is effective for
all financial instruments created or modified after May 31,
2003. Adoption of SFAS 150 had no effect on the
Companys consolidated financial position, results of
operations or cash flows.



|   |           
|-- | ----------
|3. | Investment

In June 2001, the Company committed to invest up
to $5.0 million in a limited partnership that invested in
businesses within the wireless industry. The Company used the
equity method of accounting for this limited partnership
investment. For the year ended December 31, 2002, the
Companys proportionate share of the loss of the limited
partnership was $0.5 million. In July 2003, the partners
agreed to dissolve the partnership. Accordingly, future
commitments were eliminated, and the remaining $0.5 million
investment was written off in the quarter ended June 30,
2003.



|   |                       
|-- | ----------------------
|4. | Property and Equipment

Property and equipment consisted of the following
at December 31:

|                                               |  |      |         |   |      |   |         |  
|---------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                               |  | 2003 |         |   | 2002 |  
|                                               |  |      |         |   |      |  
|Furniture and fixtures                         |  | $    | 2,430   |   |      | $ | 3,688   |  
|Leasehold improvements                         |  |      | 8,209   |   |      |   | 10,114  |  
|Computer equipment                             |  |      | 23,411  |   |      |   | 41,698  |  
|Computer software                              |  |      | 11,262  |   |      |   | 13,029  |  
|                                               |  |      |         |   |      |  
|                                               |  |      | 45,312  |   |      |   | 68,529  |  
|Less accumulated depreciation and amortization |  |      | (35,904 | ) |      |   | (52,346 | )
|                                               |  |      |         |   |      |  
|Property and equipment, net                    |  | $    | 9,408   |   |      | $ | 16,183  |  
|                                               |  |      |         |   |      |  

F-12



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##### Table of Contents



LIGHTBRIDGE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                
|-- | ---------------
|5. | Lines of Credit

At December 31, 2002 the Company had an
outstanding letter of credit in the amount of $1.0 million
which was scheduled to expire in May 2003. On January 14,
2003, this letter of credit was replaced with a
$1.0 million letter of credit, which expires in May 2004.
On January 7, 2004, the Company entered into another
$1.0 million letter of credit, which expires in January
2005.

On January 14, 2003, the Company entered
into a foreign exchange agreement, effective April 2003 with a
bank for the purchase of one currency in exchange for the sale
of another currency. This agreement is secured by
$3.0 million held by the bank. To date, there have been no
transactions under this agreement.



|   |                    
|-- | -------------------
|6. | Restructuring Costs

In November 2001, the Company announced that it
was closing its Palo Alto, California facility and consolidating
research and development activities in its Irvine, California
and Broomfield, Colorado locations. All other Palo Alto
operations including finance, support services, and sales and
marketing were merged with functions in Irvine or Burlington,
Massachusetts. The Company recorded a restructuring charge of
approximately $4.0 million, consisting of $2.9 million
for workforce reductions and $1.1 million for facilities
and related costs, associated with the closure of its Palo Alto
location. The restructuring plan resulted in the termination of
102 personnel as follows: 24 in product and service delivery, 38
in development, 25 in sales and marketing and 15 in general and
administrative. The costs for consolidation of facilities were
predominantly comprised of real estate lease commitments for
unutilized office space. The Company did not adjust the Palo
Alto restructuring reserve and all related restructuring costs
were paid as of December 31, 2002.

In June 2002, the Company announced that it was
reducing its workforce by seven percent and consolidating its
Waltham, Massachusetts call center operations into its Lynn,
Massachusetts and Broomfield, Colorado facilities by the end of
2002. The Company recorded a restructuring charge of
approximately $3.6 million, consisting of $1.6 million
for workforce reductions, $1.3 million for facilities
reductions including lease obligations, utilities and security
costs on unused space and $0.7 million for capital
equipment write-offs, associated with these measures. The
restructuring plan resulted in the termination of 65 personnel
as follows: 25 in product and service delivery, 22 in
development, 11 in sales and marketing and seven in general and
administrative. The capital equipment write-offs and a majority
of severance costs related to this restructuring were incurred
by the end of 2002, and the Company anticipates that all other
costs relating to this restructuring, consisting principally of
lease obligations on unused space, will be paid by the end of
2004.

The following summarizes the changes to the June
2002 restructuring reserves during the year ended
December 31, 2003:

|                                            |  |              |       |  |            |   |      |          |            |              |      |  |  |   |     | 
|------------------------------------------- |  | ------------ | ----- |  | ---------- | - | ---- | -------- | ---------- | ------------ | ---- |  |  | - | --- | 
|                                            |  | Balance at   |       |  |            |   |      |          | Balance at |             
|                                            |  | December 31, |       |  | Accrued/   |   |      |          |            | December 31, |     
|                                            |  | 2002         |       |  | (Reversed) |   |      | Utilized |            |              | 2003 | 
|                                            |  |              |       |  |            |   |      |          |            |              |      | 
|Employee severance and termination benefits |  | $            | 343   |  |            | $ | (158 | )        |            | $            | 185  |  |  | $ |    | 
|Facility closing and related costs          |  |              | 992   |  |            |   | 199  |          |            |              | 569  |  |  |   | 622 | 
|                                            |  |              |       |  |            |   |      |          |            |              |      | 
|                                            |  | $            | 1,335 |  |            | $ | 41   |          |            | $            | 754  |  |  | $ | 622 | 
|                                            |  |              |       |  |            |   |      |          |            |              |      | 

In March 2003, the Company announced that it
would be streamlining its existing Broomfield, Colorado call
center operations into its Lynn, Massachusetts facility and a
smaller facility in Broomfield, Colorado by the end of May 2003.
In the quarter ended March 31, 2003, the Company recorded a
restructuring charge of approximately $0.1 million for
workforce reductions. In the quarter ended June 30, 2003,
the Company recorded an additional restructuring charge
associated with this action of approximately $1.0 million,
consisting of approximately $0.6 million in future lease
obligations for unused facilities and approximately

F-13



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##### Table of Contents



LIGHTBRIDGE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

$0.4 million for capital equipment
write-offs. The capital equipment write-offs and a majority of
severance costs related to this restructuring were incurred by
the end of 2003, and the Company anticipates that all other
costs relating to this restructuring, consisting principally of
lease obligations on unused space, will be paid by the end of
2004.

The following summarizes the changes to the March
2003 restructuring reserves during the year ended
December 31, 2003:

|                                            |  |              |   |         |  |   |          |              |  |      |     |  |  |   |     | 
|------------------------------------------- |  | ------------ | - | ------- |  | - | -------- | ------------ |  | ---- | --- |  |  | - | --- | 
|                                            |  | Balance at   |   |         |  |   |          | Balance at   | 
|                                            |  | December 31, |   |         |  |   |          | December 31, | 
|                                            |  | 2002         |   | Accrued |  |   | Utilized |              |  | 2003 |    
|                                            |  |              |   |         |  |   |          |              |  |      |    
|Employee severance and termination benefits |  | $            |  |         |  | $ | 77       |              |  | $    | 77  |  |  | $ |    | 
|Facility closing and related costs          |  |              |  |         |  |   | 548      |              |  |      | 185 |  |  |   | 363 | 
|Capital equipment write-offs                |  |              |  |         |  |   | 378      |              |  |      | 378 |  |  |   |    | 
|                                            |  |              |   |         |  |   |          |              |  |      |     | 
|                                            |  | $            |  |         |  | $ | 1,003    |              |  | $    | 640 |  |  | $ | 363 | 
|                                            |  |              |   |         |  |   |          |              |  |      |     | 

In June 2003, the Company announced that it would
be closing its Irvine, California facility and transferring
certain employment positions to its Broomfield, Colorado
facility and reducing its headcount by an estimated 70 employees
as follows: 16 in product and service delivery, 30 in
development, 13 in sales and marketing and 11 in general and
administrative. In the quarter ended June 30, 2003, the
Company recorded a restructuring charge of approximately
$0.7 million, consisting mainly of workforce reduction
costs. In the quarter ended September 30, 2003, the Company
recorded an additional restructuring charge associated with this
action of approximately $3.3 million, consisting of
$1.1 million for workforce reductions, $1.7 million in
future lease obligations for unused facilities and
$0.5 million for capital equipment write-offs. In the
quarter ended December 31, 2003, the Company recorded an
additional restructuring charge of $0.1 million related to
future lease obligations and employee severance benefits. The
capital equipment write-offs and a majority of severance costs
related to this restructuring were incurred by the end of 2003,
and the Company anticipates that all other costs relating to
this restructuring, consisting principally of lease obligations
on unused space, will be paid by the end of 2005.

The following summarizes the changes to the June
2003 restructuring reserves during the year ended
December 31, 2003:

|                                            |  |              |   |         |  |   |          |              |  |      |       |  |  |   |       | 
|------------------------------------------- |  | ------------ | - | ------- |  | - | -------- | ------------ |  | ---- | ----- |  |  | - | ----- | 
|                                            |  | Balance at   |   |         |  |   |          | Balance at   | 
|                                            |  | December 31, |   |         |  |   |          | December 31, | 
|                                            |  | 2002         |   | Accrued |  |   | Utilized |              |  | 2003 |      
|                                            |  |              |   |         |  |   |          |              |  |      |      
|Employee severance and termination benefits |  | $            |  |         |  | $ | 1,795    |              |  | $    | 1,542 |  |  | $ | 253   | 
|Facility closing and related costs          |  |              |  |         |  |   | 1,743    |              |  |      | 347   |  |  |   | 1,396 | 
|Capital equipment write-offs                |  |              |  |         |  |   | 497      |              |  |      | 497   |  |  |   |      | 
|                                            |  |              |   |         |  |   |          |              |  |      |       | 
|                                            |  | $            |  |         |  | $ | 4,035    |              |  | $    | 2,386 |  |  | $ | 1,649 | 
|                                            |  |              |   |         |  |   |          |              |  |      |       | 



|   |                              
|-- | -----------------------------
|7. | Commitments and Contingencies

Leases The Company has noncancelable
operating lease agreements for office space and certain
equipment. These lease agreements expire at various dates
through 2011 and certain of them contain provisions for
extension on substantially the same terms as are currently in
effect.

F-14



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##### Table of Contents



LIGHTBRIDGE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Future minimum payments under operating leases
that include facilities affected by restructurings and the
Companys new headquarters lease, consisted of the
following at December 31, 2003:

|                             |  |           |        | 
|---------------------------- |  | --------- | ------ | 
|                             |  | Operating |       
|                             |  | Leases    |       
|                             |  |           |       
|2004                         |  | $         | 4,114  | 
|2005                         |  |           | 4,301  | 
|2006                         |  |           | 3,273  | 
|2007                         |  |           | 2,585  | 
|Thereafter                   |  |           | 7,693  | 
|                             |  |           |       
|Total minimum lease payments |  | $         | 21,966 | 
|                             |  |           |       

Rent expense for operating leases was
approximately $4,017, $6,052 and $5,979 for the years ended
December 31, 2003, 2002 and 2001, respectively.

Warranties and Indemnities The Company provides certain
warranties and related indemnities in its client contracts.
These warranties may include warranties that the transactions
processed on a clients behalf have been processed in
accordance with the contract, that products delivered or
services rendered meet designated specifications or service
levels, and that certain applicable laws and regulations are
complied with in the performance of services for or provision of
products to a client. The Company maintains errors and omissions
insurance that may provide coverage for certain warranty and
indemnity claims. However, such insurance might cease to be
available to the Company on commercially reasonable terms or at
all.

The Company generally undertakes to defend and
indemnify the indemnified party for damages and expenses or
settlement amounts arising from certain patent, copyright or
other intellectual property infringement claims by any third
party with respect to the Companys products. Some
agreements provide for indemnification for claims relating to
property damage or personal injury resulting from the
performance of services or provision of products by the Company,
breaches of contract by the Company or the failure by the
Company to comply with applicable laws in the performance of
services or provision of products by the Company to its clients.
Historically, the Companys costs to defend lawsuits, or
settle or pay claims relating to such indemnification
provisions, have not been material. Accordingly, the estimated
fair value of these indemnification provisions is not material.



|   |                                                                 
|-- | ----------------------------------------------------------------
|8. | Common Stock Option Plans, Warrants,
    Stockholder Rights Plan



| |                   
| | ------------------
| | Stock Option Plans

1990 Incentive and Nonqualified Stock Option
Plan Under the
Companys 1990 Incentive and Nonqualified Stock Option
Plan, the Company could grant either incentive or nonqualified
stock options to officers, directors, employees or consultants
for the purchase of up to 2,400,000 shares of common stock.
Options were granted with an exercise price equal to the common
stocks market value at the date of grant, as determined by
the Board of Directors of the Company (the Board),
and expire ten years later. No further grants can be made under
the 1990 Incentive and Nonqualified Stock Option Plan.

1996 Employee Stock
Plans On June 14,
1996, the Board authorized and the stockholders approved the
adoption of the 1996 Incentive and Nonqualified Stock Option
Plan and the 1996 Employee Stock Purchase Plan for the issuance
of options or sale of shares to employees. Both plans became
effective immediately after the closing of the Companys
initial public offering:



| |   |                                                                                                                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 1996 Incentive and Nonqualified Stock Option
    Plan  The 1996 Incentive and Nonqualified Stock
    Option Plan provides for the issuance of options to purchase up
    to 4,350,000 shares of the Companys common stock.
    Options may be either qualified incentive stock options or
    nonqualified stock options

F-15



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##### Table of Contents



LIGHTBRIDGE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | at the discretion of the Board. Exercise prices
    must be greater than or equal to the fair market value on the
    date of grant, in the case of incentive stock options and
    nonqualified options. At December 31, 2003,
    1,218,717 shares were available for grant under the 1996
    Incentive and Nonqualified Stock Option Plan.                                                                                                                                                             
|
| |  | 1996 Employee Stock Purchase Plan  The
    1996 Employee Stock Purchase Plan provides for the sale of up to
    600,000 shares of the Companys common stock to
    employees. Employees are allowed to purchase shares at a
    discount from the lower of fair value at the beginning or end of
    the purchase periods through payroll deductions. At
    December 31, 2003, 278,879 shares were available for
    purchase and reserved for issuance under the 1996 Employee Stock
    Purchase Plan.

1997 Stock Incentive Plan and Restricted Stock
Purchase Plan The 1997
Stock Incentive Plan and Restricted Stock Purchase Plan provided
for the issuance of up to 8,516,667 options to acquire shares of
common stock. Lightbridge assumed the obligation to issue shares
under this former Corsair plan following the merger described in
Note 1. The Company does not plan to make any further
grants under the 1997 Stock Incentive Plan and Restricted Stock
Purchase Plan.

1998 Non-Statutory Stock Option
Plan The 1998
Non-Statutory Stock Option Plan provides for the issuance of
options to purchase up to 1,000,000 shares of the
Companys common stock. Options are granted with an
exercise price no less than the common stocks market value
at the date of the grant, as determined by the Board. At
December 31, 2003, 532,525 shares were available for
grant under the 1998 Non-Statutory Stock Option Plan.

The following table presents activity under all
stock option plans:

|                                 |           |           |       |           |          |           |            |            |  |  |   |      | 
|-------------------------------- | --------- | --------- | ----- | --------- | -------- | --------- | ---------- | ---------- |  |  | - | ---- | 
|                                 |           |           |       |           |          | Weighted- |           
|                                 |           |           |       | Weighted- |          |           | Average    |           
|                                 |           |           |       | Average   |          |           | Fair Value |           
|                                 |           | Number of |       |           | Exercise |           |            | of Options | 
|                                 |           | Options   |       |           | Price    |           |            | Granted    | 
|                                 |           |           |       |           |          |           |            |            | 
|                                 |           | (000s)   |       |           |          |           |           
|Outstanding at January 1, 2000   |           |           | 3,956 |           |          | $         | 12.88      |            |  |  |   |     
|                                 | Granted   |           |       | 1,329     |          |           |            | 13.07      |  |  | $ | 8.18 | 
|                                 | Exercised |           |       | (277      | )        |           |            | 6.21       |  |  |   |      | 
|                                 | Forfeited |           |       | (363      | )        |           |            | 12.92      |  |  |   |      | 
|                                 |           |           |       |           |          |           |            |            | 
|Outstanding at December 31, 2001 |           |           | 4,645 |           |          |           | 13.17      |            |  |  |   |     
|                                 | Granted   |           |       | 1,260     |          |           |            | 9.44       |  |  | $ | 5.56 | 
|                                 | Exercised |           |       | (394      | )        |           |            | 5.39       |  |  |   |      | 
|                                 | Forfeited |           |       | (1,605    | )        |           |            | 16.34      |  |  |   |      | 
|                                 |           |           |       |           |          |           |            |            | 
|Outstanding at December 31, 2002 |           |           | 3,906 |           |          |           | 11.41      |            |  |  |   |     
|                                 | Granted   |           |       | 393       |          |           |            | 7.27       |  |  | $ | 3.86 | 
|                                 | Exercised |           |       | (163      | )        |           |            | 6.11       |  |  |   |      | 
|                                 | Forfeited |           |       | (807      | )        |           |            | 16.46      |  |  |   |      | 
|                                 |           |           |       |           |          |           |            |            | 
|Outstanding at December 31, 2003 |           |           | 3,329 |           |          | $         | 10.12      |            |  |  |   |     
|                                 |           |           |       |           |          |           |            |            | 

F-16



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##### Table of Contents



LIGHTBRIDGE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The number of options exercisable at the dates
presented below and their weighted average exercise price were
as follows:

|                  |  |             |       |           |          |   |       | 
|----------------- |  | ----------- | ----- | --------- | -------- | - | ----- | 
|                  |  |             |       | Weighted- |         
|                  |  |             |       | Average   |         
|                  |  | Options     |       |           | Exercise |  
|                  |  | Exercisable |       |           | Price    |  
|                  |  |             |       |           |          |  
|                  |  | (000s)     |       |           |         
|December 31, 2001 |  |             | 2,438 |           |          | $ | 11.84 | 
|December 31, 2002 |  |             | 2,278 |           |          | $ | 11.76 | 
|December 31, 2003 |  |             | 2,335 |           |          | $ | 10.12 | 

The following table sets forth information
regarding options outstanding at December 31, 2003:

|          |       |  |                   |        |                 |             |         |          |          |           |         |              |           |  |             |  |     |  |  |   |       | 
|--------- | ----- |  | ----------------- | ------ | --------------- | ----------- | ------- | -------- | -------- | --------- | ------- | ------------ | --------- |  | ----------- |  | --- |  |  | - | ----- | 
|          |       |  |                   |        |                 |             |         |          |          | Weighted  |        
|          |       |  |                   |        |                 |             |         | Weighted |          |           | Average |             
|          |       |  |                   |        |                 | Weighted    |         |          | Average  |           |         | Exercise     |          
|          |       |  |                   | Number |                 |             | Average |          |          | Remaining |         |              | Price for | 
|Number of |       |  | Range of Exercise |        |                 | Currently   |         |          | Exercise |           |         | Contractual  |           |  | Currently   | 
|Options   |       |  | Prices            |        |                 | Exercisable |         |          | Price    |           |         | Life (Years) |           |  | Exercisable | 
|          |       |  |                   |        |                 |             |         |          |          |           |         |              |           |  |             | 
|(000s)   |       |  |                   |        | (000s)         |             |         |          |          |           |         |             
|          | 436   |  |                   |        | $ 0.38  $ 6.04 |             |         |          | 400      |           |         | $            | 2.83      |  |             |  | 3.6 |  |  | $ | 2.56  | 
|          | 540   |  |                   |        | 6.06    7.63   |             |         |          | 232      |           |         |              | 6.79      |  |             |  | 8.4 |  |  |   | 6.74  | 
|          | 527   |  |                   |        | 7.69    9.92   |             |         |          | 313      |           |         |              | 8.76      |  |             |  | 7.0 |  |  |   | 8.71  | 
|          | 446   |  |                   |        | 10.06   10.91  |             |         |          | 253      |           |         |              | 10.77     |  |             |  | 7.5 |  |  |   | 10.77 | 
|          | 625   |  |                   |        | 11.24   12.15  |             |         |          | 573      |           |         |              | 11.90     |  |             |  | 6.3 |  |  |   | 11.92 | 
|          | 388   |  |                   |        | 12.49   12.88  |             |         |          | 266      |           |         |              | 12.63     |  |             |  | 7.1 |  |  |   | 12.63 | 
|          | 258   |  |                   |        | 12.90   18.31  |             |         |          | 200      |           |         |              | 15.11     |  |             |  | 6.7 |  |  |   | 15.33 | 
|          | 109   |  |                   |        | 19.00   42.97  |             |         |          | 98       |           |         | $            | 24.03     |  |             |  | 6.3 |  |  | $ | 23.85 | 
|          |       |  |                   |        |                 |             |         |          |          |           |         |              |           |  |             | 
|          | 3,329 |  |                   |        |                 |             |         |          | 2,335    |           |         |              |           |  |             |  |     |  |  |   |       | 
|          |       |  |                   |        |                 |             |         |          |          |           |         |              |           |  |             | 

Stock
Repurchases On
October 4, 2001, Lightbridge announced that its board of
directors authorized the repurchase of up to 2 million
shares of the Companys common stock at an aggregate price
of up to $20 million. The shares may be purchased from time
to time on or after October 8, 2001, depending on market
conditions. On April 23, 2003, the board approved an
expansion of the plan to authorize Lightbridge to purchase up to
4 million shares of the Companys common stock at an
aggregate price of up to $40 million through
September 26, 2005. As of December 31, 2003, the
Company had purchased approximately 1.9 million shares at a
total cost of approximately $14.1 million since the
inception of its repurchase program.

Common Stock
Warrants At
December 31, 2003, pursuant to the acquisition of Coral,
there were 9,682 warrants outstanding that can be converted to
purchase Lightbridge common stock at exercise prices ranging
from $3.44 to $34.35 which expire in February 2005.

Stockholder Rights
Plan In November 1997, the
Board of Directors of Lightbridge declared a dividend of one
right (each a Right and collectively the
Rights) for each outstanding share of common stock.
The Rights were issued to the holders of record of common stock
outstanding on November 14, 1997, and will be issued with
respect to common stock issued thereafter until the Distribution
Date (as defined below) and, in certain circumstances, with
respect to shares of common stock issued after the Distribution
Date. Each Right, when it becomes exercisable, will entitle the
registered holder to purchase from Lightbridge one one-hundredth
(1/100th) of a share of Series A participating cumulative
preferred stock, par value $0.01 per share, of Lightbridge
at a price of $75.00. The Rights will be issued upon the earlier
of the date which Lightbridge learns that a person or group
acquired, or obtained the right to acquire, beneficial ownership
of fifteen percent or more of the outstanding shares of common
stock or such date designated by the Board

F-17



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##### Table of Contents



LIGHTBRIDGE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

following the commencement of, or first public
disclosure of an intent to commence, a tender or exchange offer
for outstanding shares of the Companys common stock that
could result in the offer or becoming the beneficial owner of
fifteen percent or more of the outstanding shares of the
Companys common stock (the earlier of such dates being
called the Distribution Date).



|   |             
|-- | ------------
|9. | Income Taxes

The income tax provision (benefit) for the years
ended December 31 consisted of the following:

|                               |         |      |        |        |      |   |      |        |   |   |       |        |  
|------------------------------ | ------- | ---- | ------ | ------ | ---- | - | ---- | ------ | - | - | ----- | ------ | -
|                               |         | 2003 |        |        | 2002 |   |      | 2001   |  
|                               |         |      |        |        |      |   |      |        |  
|Current:                       |         |      |        |        |      |   |      |        |   |   |       |       
|                               | Federal |      | $      | (294   | )    |   | $    | (2,105 | ) |   | $     | 3,683  |  
|                               | State   |      |        | 76     |      |   |      | 98     |   |   |       | 1,995  |  
|Deferred:                      |         |      |        |        |      |   |      |        |   |   |       |       
|                               | Federal |      |        | (1,053 | )    |   |      | 1,697  |   |   |       | (1,920 | )
|                               | State   |      |        | (42    | )    |   |      | 35     |   |   |       | (270   | )
|Tax benefit of stock options   |         |      | 211    |        |      |   | 172  |        |   |   | 360   |       
|                               |         |      |        |        |      |   |      |        |  
|Income tax provision (benefit) |         | $    | (1,102 | )      |      | $ | (103 | )      |   | $ | 3,848 |       
|                               |         |      |        |        |      |   |      |        |  

The tax effects of temporary differences that
give rise to deferred tax assets at December 31 were as
follows:

|                 |                                   |      |   |         |      |  |   |         |   |  |   |         |  
|---------------- | --------------------------------- | ---- | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                 |                                   | 2003 |   |         | 2002 |  |   | 2001    |  
|                 |                                   |      |   |         |      |  |   |         |  
|Current Items:   |                                   |      |   |         |      |  |   |         |   |  |   |        
|Assets:          |                                   |      |   |         |      |  |   |         |   |  |   |        
|                 | Allowance for doubtful accounts   |      | $ | 1,024   |      |  | $ | 1,182   |   |  | $ | 1,186   |  
|                 | Accrued expenses                  |      |   | 1,178   |      |  |   | 1,327   |   |  |   | 1,480   |  
|                 | Restructuring reserve             |      |   | 1,065   |      |  |   | 503     |   |  |   | 776     |  
|                 |                                   |      |   |         |      |  |   |         |  
|                 | Net current deferred tax assets   |      | $ | 3,267   |      |  | $ | 3,012   |   |  | $ | 3,442   |  
|                 |                                   |      |   |         |      |  |   |         |  
|Long-Term Items: |                                   |      |   |         |      |  |   |         |   |  |   |        
|Assets:          |                                   |      |   |         |      |  |   |         |   |  |   |        
|                 | Depreciation and amortization     |      | $ | 1,894   |      |  | $ | 1,218   |   |  | $ | 1,365   |  
|                 | Acquisition costs                 |      |   | 649     |      |  |   | 942     |   |  |   | 1,234   |  
|                 | Intangible assets                 |      |   | 625     |      |  |   | 1,461   |   |  |   | 1,042   |  
|                 | Loss carryforwards                |      |   | 11,676  |      |  |   | 10,383  |   |  |   | 12,277  |  
|                 | R&D tax credit carry-forward      |      |   | 1,840   |      |  |   |        |   |  |   |        |  
|                 | Valuation allowance               |      |   | (12,131 | )    |  |   | (10,291 | ) |  |   | (10,903 | )
|                 |                                   |      |   |         |      |  |   |         |  
|                 | Net long-term deferred tax assets |      | $ | 4,553   |      |  | $ | 3,713   |   |  | $ | 5,015   |  
|                 |                                   |      |   |         |      |  |   |         |  

The net change in the valuation allowance for the
years ended December 31, 2003, 2002 and 2001 was a increase
(decrease) of approximately $1,840, $(612) and $(3,000),
respectively. At December 31, 2003, the Company had $27,000
of federal and state (excluding California) net operating loss
carry-forwards which expire, if unused, in years 2009 through
2012. At December 31, 2003, the Company had $9,000 of
California net operating loss carry-forwards which expire, if
unused, in 2004.

F-18



---



##### Table of Contents



LIGHTBRIDGE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following is a reconciliation of income taxes
at the federal statutory rate to the Companys effective
tax rate for the years ended December 31:

|                                                        |  |      |     |   |      |  |     |      |  |  |     |  
|------------------------------------------------------- |  | ---- | --- | - | ---- |  | --- | ---- |  |  | --- | -
|                                                        |  | 2003 |     |   | 2002 |  |     | 2001 | 
|                                                        |  |      |     |   |      |  |     |      | 
|Statutory federal income tax rate                       |  |      | 34  | % |      |  | 34  | %    |  |  | 35  | %
|State taxes, net of federal benefit                     |  |      | (1  | ) |      |  | 2   |      |  |  | 6   |  
|Change in valuation allowance                           |  |      | 72  |   |      |  | (14 | )    |  |  | (17 | )
|Non-deductible portion of Corsair transaction
    costs |  |      |    |   |      |  |    |      |  |  | 3   |  
|Research & development credits                          |  |      | (72 | ) |      |  | (23 | )    |  |  | (5  | )
|Benefit from prior years R&D tax credits                |  |      | 10  |   |      |  |    |      |  |  |    |  
|Other, net                                              |  |      | (1  | ) |      |  | (2  | )    |  |  |    |  
|                                                        |  |      |     |   |      |  |     |      | 
|Effective tax rate                                      |  |      | 42  | % |      |  | (3  | )%   |  |  | 22  | %
|                                                        |  |      |     |   |      |  |     |      | 

The 2003 R&D benefit was recorded upon
completion of a federal tax return review by tax authorities of
previously unrecognized prior year research and development tax
credits.



|    |                
|--- | ---------------
|10. | Retirement Plan

The Company has a 401(k) Retirement Plan. All
employees of the Company are eligible to participate, subject to
employment eligibility requirements. The Company pays a matching
contribution of 50% up to the first 6% contributed by the
employee. The Companys 401(k) matching expense was
approximately $1,037, $1,246 and $650 for the years ended
December 31, 2003, 2002 and 2001, respectively.



|    |                         
|--- | ------------------------
|11. | Earnings Per Share (EPS)

Basic EPS is computed by dividing income
available to common stockholders by the weighted-average number
of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities
or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of
common stock.

A reconciliation of the shares used to compute
basic income per share to those used for diluted income per
share is as follows for the years ended December 31:

|                                             |  |      |        |  |      |  |        |      |  |  |        | 
|-------------------------------------------- |  | ---- | ------ |  | ---- |  | ------ | ---- |  |  | ------ | 
|                                             |  | 2003 |        |  | 2002 |  |        | 2001 | 
|                                             |  |      |        |  |      |  |        |      | 
|Shares for basic computation                 |  |      | 27,015 |  |      |  | 28,030 |      |  |  | 27,987 | 
|Options and warrants (treasury stock method) |  |      |       |  |      |  | 403    |      |  |  | 804    | 
|                                             |  |      |        |  |      |  |        |      | 
|Shares for diluted computation               |  |      | 27,015 |  |      |  | 28,433 |      |  |  | 28,791 | 
|                                             |  |      |        |  |      |  |        |      | 

Stock options for which the exercise price
exceeds the average market price over the period have an
anti-dilutive effect on EPS and, accordingly, are excluded from
the diluted computation. Had such shares been included, shares
for the diluted computation would have increased by
approximately 2,164,000, 2,620,000 and 2,591,000 for the years
ended December 31, 2003, 2002 and 2001, respectively.

In addition, all other stock options and warrants
convertible into common stock have been excluded from the
diluted EPS computation in the year ended December 31,
2003, as they are anti-dilutive due to the net loss recorded by
the Company in that period. Had such shares been included, the
number of shares for the diluted computation for the year ended
December 31, 2003 would have increased by approximately
401,000.

F-19



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##### Table of Contents



LIGHTBRIDGE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                     
|--- | ------------------------------------
|12. | Quarterly Financial Data (Unaudited)

|                                  |  |    |        |   |    |   |        |    |  |   |        |   |  |   |        | 
|--------------------------------- |  | -- | ------ | - | -- | - | ------ | -- |  | - | ------ | - |  | - | ------ | 
|                                  |  | Q1 |        |   | Q2 |   |        | Q3 |  |   | Q4     |  
|                                  |  |    |        |   |    |   |        |    |  |   |        |  
|2003                              |  |    |        |   |    |   |        |    |  |   |        |   |  |   |        | 
|Revenues                          |  | $  | 28,423 |   |    | $ | 31,299 |    |  | $ | 29,566 |   |  | $ | 30,690 | 
|Gross profit                      |  | $  | 13,591 |   |    | $ | 15,953 |    |  | $ | 14,152 |   |  | $ | 14,333 | 
|Income (loss) from operations     |  | $  | (916   | ) |    | $ | (493   | )  |  | $ | (2,743 | ) |  | $ | 294    | 
|Net income (loss)                 |  | $  | (357   | ) |    | $ | (83    | )  |  | $ | (1,893 | ) |  | $ | 884    | 
|Basic earnings (loss) per share   |  | $  | (0.01  | ) |    | $ | (0.00  | )  |  | $ | (0.07  | ) |  | $ | 0.03   | 
|Diluted earnings (loss) per share |  | $  | (0.01  | ) |    | $ | (0.00  | )  |  | $ | (0.07  | ) |  | $ | 0.03   | 
|                                 
|2002                              |  |    |        |   |    |   |        |    |  |   |        |   |  |   |        | 
|Revenues                          |  | $  | 37,946 |   |    | $ | 33,341 |    |  | $ | 31,554 |   |  | $ | 30,597 | 
|Gross profit                      |  | $  | 19,625 |   |    | $ | 15,597 |    |  | $ | 16,096 |   |  | $ | 16,177 | 
|Income (loss) from operations     |  | $  | 1,933  |   |    | $ | (3,724 | )  |  | $ | 1,815  |   |  | $ | 1,528  | 
|Net income (loss)                 |  | $  | 2,770  |   |    | $ | (2,057 | )  |  | $ | 1,741  |   |  | $ | 1,176  | 
|Basic earnings (loss) per share   |  | $  | 0.10   |   |    | $ | (0.07  | )  |  | $ | 0.06   |   |  | $ | 0.04   | 
|Diluted earnings (loss) per share |  | $  | 0.10   |   |    | $ | (0.07  | )  |  | $ | 0.06   |   |  | $ | 0.04   | 

F-20