##### 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,
    2002                                              
|          
|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 stock
held by nonaffiliates of the registrant as of June 28, 2002
was $233,198,605, based on a total of 27,597,468 shares held by
nonaffiliates and on a closing price of $8.45 as reported on The
Nasdaq Stock Market (National Market System).

The number of shares of common stock outstanding
as of March 20, 2003 was 27,136,365.

DOCUMENTS INCORPORATED BY REFERENCE

The registrant intends to file a definitive proxy
statement pursuant to Regulation 14A with regard to its
2003 annual meeting of stockholders or special meeting in lieu
thereof within 120 days of the end of the fiscal year ended
December 31, 2002. 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



|                                         |                                                                                                         |  |  |  |  |  |  | 
|---------------------------------------- | ------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                  
|                                         | Item 1. Business                                                                                       
|                                         | Item 2. Properties                                                                                     
|                                         | Item 3. Legal Proceedings                                                                              
|                                         | Item 4. Submission of Matters to a Vote of Security Holders                                            
|PART II                                 
|                                         | Item 5. Market for Registrants Common Equity and Related Stockholder Matters                          
|                                         | Item 6. Selected Financial Data                                                                        
|                                         | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations          
|                                         | Risk Factors                                                                                           
|                                         | Item 7A. Quantitative and Qualitative Disclosures About Market Risk                                    
|                                         | Item 8. Financial Statements and Supplementary Data                                                    
|                                         | Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure           
|PART III                                
|                                         | Item 10. Directors and Executive Officers of the Registrant                                            
|                                         | Item 11. Executive Compensation                                                                        
|                                         | Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|                                         | Item 13. Certain Relationships and Related Transactions                                                
|                                         | Item 14. Controls and Procedures                                                                       
|PART IV                                 
|                                         | Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K                               
|SIGNATURES                              
|CERTIFICATIONS                          
|EX-23.1 CONSENT OF DELOITTE & TOUCHE LLP
|EX-23.2 CONSENT OF KPMG LLP             



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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                                                        |    |      | 40 | 
|Item 9.        |  | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure           |    |      | 40 | 
|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.       |  | Controls and Procedures                                                                            |    |      | 40 | 
|PART IV       
|Item 15.       |  | Exhibits, Financial Statement Schedules and
    Reports on Form 8-K                                |    |      | 41 | 
|Signatures     |  |                                                                                                    | 44 |     
|Certifications |  |                                                                                                    | 45 |     



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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 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 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
mobile and 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 pre-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 the upcoming Wireless 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 2002 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.
The Company plans to record a restructuring charge of
approximately $100,000 for workforce reductions in the first
quarter of 2003 and approximately $900,000 for facilities
reductions and capital equipment write-offs in the second
quarter of 2003.

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.

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ALIAS, ALTALINKS, FRAUDBUSTER, FRAUD CENTURION,
FRAUD SENTINEL, LIGHTBRIDGE, the Lightbridge logo, PHONEPRINT
and PROFILE are registered trademarks of Lightbridge, and @RISK,
ALTAWAVE, CAS, CORSAIR, CUSTOMER ACQUISITION SYSTEM, INSIGHT,
LIGHTBRIDGE CITADEL, LIGHTBRIDGE MOBILE DATA MANAGER,
LIGHTBRIDGE ONGUARD, PHONEFUEL, POPS, PREPAY, RETAIL MANAGEMENT
SYSTEM, RMS and LIGHTBRIDGE TELESERVICES 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, including 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 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 is set forth on
page F-12 and F-13 of Notes to Consolidated Financial
Statements.

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Products and Services

Lightbridges suite of software and
network-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, voice
    recognition systems, call centers and Internet applications.                                                                                                                                                                                                                                                                                                                                                                            
|                                          
|                                           |  | TeleServices include qualification and
    activation, analyst reviews, telemarketing to existing and new
    subscribers, back-up and disaster recovery for acquisition and
    activation services, and customer care.                                                                                                                                                                                                                                                                                                                                                                                           
|                                          
|Authentication Services                    |  | Services that provide the pre-screening and
    authentication of identity data for users engaged in mobile and
    online transactions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                                          
|Risk Management                            |  | A suite of services that make online, real-time
    inquiries into proprietary databases, industry databases and
    processing modules to pre-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 pay high deposits
    to acquire wireless service. Subscribers managed on the
    Lightbridge prepaid billing system can deposit additional funds
    to their service account by using their wireless phone to
    transfer funds from a prepaid phone card or by depositing or
    transferring cash at a replenishment center or website
    designated by the carrier.
|                                          
|Mobile Data Management                     |  | A scaleable, integrated services platform for the
    development and management of data content and applications.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

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Customer Qualification and
Acquisition

Lightbridge®Customer Acquisition SystemSM(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
subscriber fraud and activating service quickly. 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.
|
| |  | 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.                                                                                                                                                                                                                                    

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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 the subscriber acquisition and activation process.
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, and customer care.
TeleServices solutions can be provided using CAS or a
carrier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 pre-screen and authenticate the
identity data of users engaged in mobile and online
transactions. Lightbridge offers the following authentication
services on an Application Service Provider (ASP)
model:



| |   |                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Lightbridge®
    CitadelTM:
    A service that allows clients to authenticate the identities of
    users involved in mobile and online transactions.
|
| |  | Lightbridge®
    OnGuardTM:
    A service that allows clients to pre-screen users involved in
    mobile and online transactions for potential fraud.

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 support models: an ASP or hosted model and 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 are generally managed at
Lightbridge facilities as outsourced offerings and 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®, a
    proprietary, inter-carrier database of accounts receivable
    write-offs and service shut-offs, identifies applicants whose
    previous accounts were shut off or written off by a
    participating carrier and provides ongoing screening of existing
    subscribers.      
|
| | 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.

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| |                                                                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 the 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 the data from the subscriber agreement 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 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.

Licensed Software
Solutions.The licensed software model
supports ongoing 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), a global
telecommunications practice, delivers full-service consulting
for customer acquisition and retention, authentication, prepaid
billing and risk management. It 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.

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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 or, in some cases, 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 pay high deposits. PrePays
Wireless Intelligent Network (WIN) 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.

PhoneFuelTM, a customer care extension
to PrePay, allows PrePay clients 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
ManagerTMallows 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.                                  

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 markets this product but it does provide replacement
units for hardware systems. The Company does not expect
PhonePrint revenues to be significant in 2003 or thereafter.

8



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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 of 2001, Lightbridge announced its
mobile business strategy to meet the needs of non-carrier as
well as carrier clients in the emerging mobile business market,
and announced an agreement with VeriSign, Inc.
(VeriSign) to authenticate the identity of consumers
engaged in mobile and on-line transactions.

Revenues attributable to Lightbridges
10 largest clients accounted for approximately 90%, 79% and
75% of Lightbridges total revenues in the years ended
December 31, 2002, 2001 and 2000, respectively. The
following Lightbridge clients accounted for more than 10% of
total revenues in the years indicated:

|                             |       |                      |    |      |   |      |    |    |   |  |    |    |  
|---------------------------- | ----- | -------------------- | -- | ---- | - | ---- | -- | -- | - |  | -- | -- | -
|                             |       |                     
|                             |       | Years Ended Dec. 31,
|                             |       |                     
|                             |       | 2002                 |    | 2001 |   | 2000
|                             |       |                      |    |      |   |     
|Sprint Spectrum L.P.         |       |                      | 30 | %    |   |      | 22 | %  |   |  | 19 | % 
|AT&T Wireless Services, Inc. |       |                      | 21 |      |   |      | 20 |    |   |  | 16 |   
|Ericsson AB                  |       |                      | 15 |      |   |      | 16 |    |   |  | 24 |   
|Nextel Finance Company       |       |                      | 11 |      |   |      | 7  |    |   |  | 4  |   
|                             |       |                      |    |      |   |      |    |    |   |  |    |   
|                             | Total |                      |    | 77   | % |      |    | 65 | % |  |    | 63 | %
|                             |       |                      |    |      |   |      |    |    |   |  |    |   

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 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 over periods of one to five 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 a 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 Finance Company
(Nextel) for the provision of credit decision
services. The agreements with AT&T and Sprint were renewed
in 2001 and extended in each case through December 31,
2003. The agreement with Nextel extends through January 15,
2004. Lightbridges distribution agreement with Ericsson
was amended in 2002 and continues in effect until either party
gives the other 180 days notice of cancellation.

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, many of which include a senior management
team sponsor. Lightbridge employs a team approach to selling in
order to develop a consultative relationship with existing and
prospective clients. In addition to

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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 solutions 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 to meet the clients particular needs.

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 and internal decision-making
processes, and general market and economic conditions.

PrePay is sold primarily pursuant to a
nonexclusive distribution agreement with Ericsson and also
through a direct sales force.

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 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 its
existing product and service offerings and to develop new
products and services to allow clients to respond to changing
market requirements. Lightbridges research and development
activities consist of both long-term efforts to develop and
enhance 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
$29.3 million, $32.3 million and $29.3 million on
engineering, research and development in the years ended
December 31, 2002, 2001 and 2000, 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
telecommunications carriers to provide certain services
themselves, could affect demand for Lightbridges products
or services and 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 mobile and 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 industry
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 by others of products and services 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.

10



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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 local number portability (LNP) in
late 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.

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, the law of trademarks,
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 provides its
software either on an outsourcing basis or under license
agreements that grant clients the right to use, but contain
various provisions intended to protect Lightbridges
ownership of and the 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 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

11



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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 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, 2003, Lightbridge had a
total of 738 employees, of which 618 were full-time and 120 were
part-time or seasonal. The number of personnel employed by
Lightbridge varies seasonally. None of Lightbridges
employees is 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. 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. The Companys
Waltham, Massachusetts call center was closed in October 2002
and is under lease until September 30, 2003. 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

12



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##### Table of Contents



4,000 square feet in Waltham for one of its two
data centers. The terms of the 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.







|        |                  
|------- | -----------------
|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, 2002.




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
|               |  |      |       |    
|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 | 
|2001           |  |      |       |     |  |   |      | 
|First Quarter  |  | $    | 16.56 |     |  | $ | 9.06 | 
|Second Quarter |  | $    | 19.40 |     |  | $ | 8.50 | 
|Third Quarter  |  | $    | 15.09 |     |  | $ | 8.92 | 
|Fourth Quarter |  | $    | 13.95 |     |  | $ | 8.61 | 

As of March 20, 2003, there were 231 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 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 financial
statements, certain of which are included elsewhere in this
Annual Report on Form 10-K.

|                                            |                                                 |                                          |         |        |  |      |         |        |  |      |         |        |  |   |         |        |  |   |         |        | 
|------------------------------------------- | ----------------------------------------------- | ---------------------------------------- | ------- | ------ |  | ---- | ------- | ------ |  | ---- | ------- | ------ |  | - | ------- | ------ |  | - | ------- | ------ | 
|                                            |                                                 |                                         
|                                            |                                                 | Years Ended Dec. 31,                    
|                                            |                                                 |                                         
|                                            |                                                 | 2002                                     |         | 2001   |  | 2000 |         | 1999   |  | 1998
|                                            |                                                 |                                          |         |        |  |      |         |        |  |     
|                                            |                                                 |                                         
|                                            |                                                 | (In thousands, except per share amounts)
|Statement of Operations Data:               |                                                 |                                          |         |        |  |      |         |        |  |      |         |        |  |   |         |        |  |   |         |       
|                                           
|Revenues                                    |                                                 | $                                        | 133,438 |        |  | $    | 176,616 |        |  | $    | 186,644 |        |  | $ | 155,923 |        |  | $ | 128,569 |       
|                                           
|Cost of revenues                            |                                                 |                                          | 65,943  |        |  |      | 80,811  |        |  |      | 81,732  |        |  |   | 67,190  |        |  |   | 59,669  |       
|                                            |                                                 |                                          |         |        |  |      |         |        |  |      |         |        |  |   |         |        |  |   |         |       
|                                           
|Gross profit                                |                                                 |                                          | 67,495  |        |  |      | 95,805  |        |  |      | 104,912 |        |  |   | 88,733  |        |  |   | 68,900  |       
|                                            |                                                 |                                          |         |        |  |      |         |        |  |      |         |        |  |   |         |        |  |   |         |       
|                                           
|Operating expenses:                         |                                                 |                                          |         |        |  |      |         |        |  |      |         |        |  |   |         |        |  |   |         |       
|                                           
|                                            | Development costs                               |                                          |         | 29,269 |  |      |         | 32,259 |  |      |         | 29,256 |  |   |         | 23,971 |  |   |         | 27,885 | 
|                                           
|                                            | Sales and marketing                             |                                          |         | 13,270 |  |      |         | 20,460 |  |      |         | 22,159 |  |   |         | 20,903 |  |   |         | 23,632 | 
|                                           
|                                            | General and administrative                      |                                          |         | 18,170 |  |      |         | 19,517 |  |      |         | 17,955 |  |   |         | 17,483 |  |   |         | 16,991 | 
|                                           
|                                            | Amortization of goodwill and acquired workforce |                                          |         |       |  |      |         |       |  |      |         | 502    |  |   |         | 1,342  |  |   |         | 2,982  | 
|                                           
|                                            | Purchased in-process research and development   |                                          |         | 1,618  |  |      |         |       |  |      |         |       |  |   |         |       |  |   |         |       | 
|                                           
|                                            | Intangible asset impairment                     |                                          |         |       |  |      |         |       |  |      |         |       |  |   |         |       |  |   |         | 7,385  | 
|                                           
|                                            | Merger related costs                            |                                          |         |       |  |      |         | 5,999  |  |      |         |       |  |   |         |       |  |   |         | 4,191  | 
|                                           
|                                            | Restructuring costs                             |                                          |         | 3,616  |  |      |         | 4,000  |  |      |         |       |  |   |         | 856    |  |   |         |       | 
|                                            |                                                 |                                          |         |        |  |      |         |        |  |      |         |        |  |   |         |        |  |   |         |       
|                                           
|Total operating expenses                    |                                                 |                                          | 65,943  |        |  |      | 82,235  |        |  |      | 69,872  |        |  |   | 64,555  |        |  |   | 83,066  |       
|                                            |                                                 |                                          |         |        |  |      |         |        |  |      |         |        |  |   |         |        |  |   |         |       
|                                           
|Income (loss) from operations               |                                                 |                                          | 1,552   |        |  |      | 13,570  |        |  |      | 35,040  |        |  |   | 24,178  |        |  |   | (14,166 | )     
|                                           
|Other income(1)                             |                                                 |                                          | 2,439   |        |  |      | 4,233   |        |  |      | 5,446   |        |  |   | 874     |        |  |   | 3,142   |       
|                                           
|Equity in loss of partnership investment    |                                                 |                                          | (464    | )      |  |      |        |        |  |      |        |        |  |   |        |        |  |   |        |       
|                                            |                                                 |                                          |         |        |  |      |         |        |  |      |         |        |  |   |         |        |  |   |         |       
|                                           
|Income (loss) before income taxes           |                                                 |                                          | 3,527   |        |  |      | 17,803  |        |  |      | 40,486  |        |  |   | 25,052  |        |  |   | (11,024 | )     
|                                           
|Provision for (benefit from) income taxes   |                                                 |                                          | (103    | )      |  |      | 3,848   |        |  |      | 9,974   |        |  |   | 6,066   |        |  |   | 2,513   |       
|                                            |                                                 |                                          |         |        |  |      |         |        |  |      |         |        |  |   |         |        |  |   |         |       
|                                           
|Net income (loss) before extraordinary item |                                                 |                                          | 3,630   |        |  |      | 13,955  |        |  |      | 30,512  |        |  |   | 18,986  |        |  |   | (13,537 | )     
|                                           
|Loss on debt extinguishment, net            |                                                 |                                          |        |        |  |      |        |        |  |      |        |        |  |   |        |        |  |   | (226    | )     
|                                            |                                                 |                                          |         |        |  |      |         |        |  |      |         |        |  |   |         |        |  |   |         |       
|                                           
|Net income (loss)                           |                                                 | $                                        | 3,630   |        |  | $    | 13,955  |        |  | $    | 30,512  |        |  | $ | 18,986  |        |  | $ | (13,763 | )     
|                                            |                                                 |                                          |         |        |  |      |         |        |  |      |         |        |  |   |         |        |  |   |         |       
|                                           
|Basic earnings (loss) per share             |                                                 | $                                        | 0.13    |        |  | $    | 0.50    |        |  | $    | 1.12    |        |  | $ | 0.71    |        |  | $ | (0.51   | )     
|                                            |                                                 |                                          |         |        |  |      |         |        |  |      |         |        |  |   |         |        |  |   |         |       
|                                           
|Diluted earnings (loss) per share           |                                                 | $                                        | 0.13    |        |  | $    | 0.48    |        |  | $    | 1.04    |        |  | $ | 0.66    |        |  | $ | (0.51   | )     
|                                            |                                                 |                                          |         |        |  |      |         |        |  |      |         |        |  |   |         |        |  |   |         |       

|                                                  |  |                |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|------------------------------------------------- |  | -------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- |  |  | - | ------- | 
|                                                  |  |               
|                                                  |  | December 31,  
|                                                  |  |               
|                                                  |  | 2002           |         | 2001 |  | 2000 |         | 1999 |  | 1998
|                                                  |  |                |         |      |  |      |         |      |  |     
|                                                  |  |               
|                                                  |  | (In thousands)
|Balance Sheet Data:                               |  |                |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|                                                 
|Cash, cash equivalents and short-term investments |  | $              | 133,470 |      |  | $    | 118,570 |      |  | $    | 98,743  |  |  | $ | 88,427  |  |  | $ | 55,010  | 
|                                                 
|Working capital                                   |  | $              | 136,501 |      |  | $    | 127,129 |      |  | $    | 109,672 |  |  | $ | 88,076  |  |  | $ | 69,943  | 
|                                                 
|Total assets                                      |  | $              | 180,672 |      |  | $    | 188,882 |      |  | $    | 187,680 |  |  | $ | 152,540 |  |  | $ | 129,337 | 
|                                                 
|Long-term obligations, less current portion       |  | $              | 259     |      |  | $    | 667     |      |  | $    | 963     |  |  | $ | 1,772   |  |  | $ | 2,805   | 
|                                                 
|Stockholders equity                              |  | $              | 159,641 |      |  | $    | 161,522 |      |  | $    | 144,986 |  |  | $ | 113,907 |  |  | $ | 96,561  | 



---



|    |                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Consists principally of interest income. Includes
    a gain of $415 on the sale of an investment and a loss of $2,176
    on the sale of assets, both in the year ended December 31,
    1999.

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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. Lightbridge follows specific and detailed
guidelines in measuring revenue; however, 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 recognizing revenue could
cause operating results to vary significantly from quarter to
quarter.

Allowance for doubtful accounts.Lightbridge must also make estimates
of the uncollectability 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 uncollectability prove to be inaccurate, additional
allowances would be required.

Income 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 follows specific and detailed guidelines regarding
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 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
income in the period that such determination was made.

Overview

Lightbridge develops, markets and supports a
suite of products and services for communications providers 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 66%, 59% and 51% of total
revenues in 2002, 2001 and 2000, respectively. Software
licensing and consulting and services revenues were an aggregate
of 32%, 37% and 40% of total revenues in 2002, 2001 and 2000,
respectively. Hardware revenues were 2%, 4% and 9% of total
revenues in 2002, 2001 and 2000, respectively. During the
three-year period from 2000 through 2002, Lightbridges
total revenues decreased by 28.5% to $133.4 million from
$186.6 million in 2000. This revenue decrease was driven
primarily by decreases in volume of customer

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qualification and activation transactions
processed for wireless carrier clients in 2002 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 products or services will achieve or
maintain market acceptance or that the mix of the Companys
revenues will remain constant.


Lightbridges transaction services revenues
are derived primarily 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 pre-screen and
authenticate the identity of users engaged in mobile and online
transactions. Transaction services are provided pursuant to
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. Revenues from consulting services 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
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 actively sell or market the system, no significant
revenues are expected from the product in the future.

In both 2001 and 2002, the rate of subscriber
growth in the wireless telecommunications industry declined and
capital spending in the industry also experienced a slowdown and
decline. 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 and
that the rate of subscriber churn will remain fairly constant.
Lightbridge also expects that the capital spending slowdown and
decline in the telecommunications industry will continue in
2003, and may extend into 2004. In order to add to its business,
the Company seeks to expand its reach into the mobile data and
mobile and online business markets. The Company is also aware of

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the current plans of the FCC to require carriers
to implement LNP some time late in 2003. The Company is not able
to determine the impact, if any, of these plans on its revenues.


On February 7, 2001 Lightbridge completed
its merger with 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 of 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. No contingent payments were required to be made
in 2002 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 of 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. The
Company plans to record a restructuring charge of approximately
$100,000 for workforce reductions in the first quarter of 2003
and approximately $900,000 for facilities reductions and capital
equipment write-offs in the second quarter of 2003.

Customer Concentration

During fiscal 2002, four of the Companys
clients each accounted for more than 10% of the Companys
total revenues. During fiscal 2001 and 2000, 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,
|         |       |                     
|         |       | 2002                 |    | 2001 |   | 2000
|         |       |                      |    |      |   |     
|Sprint   |       |                      | 30 | %    |   |      | 22 | %  |   |  | 19 | % 
|AT&T     |       |                      | 21 |      |   |      | 20 |    |   |  | 16 |   
|Ericsson |       |                      | 15 |      |   |      | 16 |    |   |  | 24 |   
|Nextel   |       |                      | 11 |      |   |      | 7  |    |   |  | 4  |   
|         |       |                      |    |      |   |      |    |    |   |  |    |   
|         | Total |                      |    | 77   | % |      |    | 65 | % |  |    | 63 | %
|         |       |                      |    |      |   |      |    |    |   |  |    |   

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

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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 AT&T expire on
December 31, 2003. The Companys services agreement
with Nextel expires on January 15, 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
addition, the PrePay billing system is sold primarily through a
distribution agreement with Ericcson 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.

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##### Table of Contents



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,
|                                          |                            |                         
|                                          |                            | 2002                     |       | 2001 |   | 2000
|                                          |                            |                          |       |      |   |     
|Revenues:                                 |                            |                          |       |      |   |      |       |      |   |  |       |     
|                                          | Transaction                |                          |       | 66.2 | % |      |       | 58.9 | % |  |       | 50.7 | %
|                                          | Software licensing         |                          |       | 7.7  |   |      |       | 14.0 |   |  |       | 18.9 |  
|                                          | Consulting and services    |                          |       | 24.3 |   |      |       | 23.5 |   |  |       | 21.2 |  
|                                          | Hardware                   |                          |       | 1.8  |   |      |       | 3.6  |   |  |       | 9.2  |  
|                                          |                            |                          |       |      |   |      |       |      |   |  |       |     
|                                          |                            |                          | 100.0 |      |   |      | 100.0 |      |   |  | 100.0 |     
|                                          |                            |                          |       |      |   |      |       |      |   |  |       |     
|Cost of revenues:                         |                            |                          |       |      |   |      |       |      |   |  |       |     
|                                          | Transaction                |                          |       | 36.9 |   |      |       | 31.5 |   |  |       | 26.4 |  
|                                          | Software licensing         |                          |       | 0.9  |   |      |       | 1.4  |   |  |       | 1.0  |  
|                                          | Consulting and services    |                          |       | 10.2 |   |      |       | 10.4 |   |  |       | 9.7  |  
|                                          | Hardware                   |                          |       | 1.4  |   |      |       | 2.5  |   |  |       | 6.7  |  
|                                          |                            |                          |       |      |   |      |       |      |   |  |       |     
|                                          |                            |                          | 49.4  |      |   |      | 45.8  |      |   |  | 43.8  |     
|                                          |                            |                          |       |      |   |      |       |      |   |  |       |     
|Gross profit:                             |                            |                          |       |      |   |      |       |      |   |  |       |     
|                                          | Transaction                |                          |       | 29.3 |   |      |       | 27.4 |   |  |       | 24.3 |  
|                                          | Software licensing         |                          |       | 6.8  |   |      |       | 12.6 |   |  |       | 17.9 |  
|                                          | Consulting and services    |                          |       | 14.1 |   |      |       | 13.1 |   |  |       | 11.5 |  
|                                          | Hardware                   |                          |       | 0.4  |   |      |       | 1.1  |   |  |       | 2.5  |  
|                                          |                            |                          |       |      |   |      |       |      |   |  |       |     
|Gross profit                              |                            |                          | 50.6  |      |   |      | 54.2  |      |   |  | 56.2  |     
|                                          |                            |                          |       |      |   |      |       |      |   |  |       |     
|Operating expenses:                       |                            |                          |       |      |   |      |       |      |   |  |       |     
|                                          | Development costs          |                          |       | 21.9 |   |      |       | 18.2 |   |  |       | 15.6 |  
|                                          | Sales and marketing        |                          |       | 10.0 |   |      |       | 11.6 |   |  |       | 11.9 |  
|                                          | General and administrative |                          |       | 13.6 |   |      |       | 11.0 |   |  |       | 9.9  |  
|                                          | Merger related costs       |                          |       |     |   |      |       | 3.4  |   |  |       |     |  
|                                          | Purchased in-process R&D   |                          |       | 1.2  |   |      |       |     |   |  |       |     |  
|                                          | Restructuring costs        |                          |       | 2.7  |   |      |       | 2.3  |   |  |       |     |  
|                                          |                            |                          |       |      |   |      |       |      |   |  |       |     
|Total operating expenses                  |                            |                          | 49.4  |      |   |      | 46.5  |      |   |  | 37.4  |     
|                                          |                            |                          |       |      |   |      |       |      |   |  |       |     
|Income from operations                    |                            |                          | 1.2   |      |   |      | 7.7   |      |   |  | 18.8  |     
|Other income, net                         |                            |                          | 1.8   |      |   |      | 2.4   |      |   |  | 2.9   |     
|Equity in loss of partnership investment  |                            |                          | (0.4  | )    |   |      |      |      |   |  |      |     
|                                          |                            |                          |       |      |   |      |       |      |   |  |       |     
|Income before income taxes                |                            |                          | 2.6   |      |   |      | 10.1  |      |   |  | 21.7  |     
|Provision for (benefit from) income taxes |                            |                          | (0.1  | )    |   |      | 2.2   |      |   |  | 5.4   |     
|                                          |                            |                          |       |      |   |      |       |      |   |  |       |     
|Net income                                |                            |                          | 2.7   | %    |   |      | 7.9   | %    |   |  | 16.3  | %   
|                                          |                            |                          |       |      |   |      |       |      |   |  |       |     

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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 June 30, 2002, the Company provided approximately
$2.0 million of transaction services to WorldCom, Inc.
(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 million, all of which had been
reserved.

The Companys transaction revenues will
continue to reflect in large part the industrys rate of
growth of new subscribers as well as the rate of switching among
carriers by subscribers (subscriber churn). Lightbridge
believes, based in part on reports of wireless telecommunication
industry analysts, that the rate of subscriber growth will
continue to slow in upcoming years and that the rate of
subscriber churn will continue to remain fairly constant.
Lightbridge also believes that it may experience decreases in
the demand for its TeleServices business and changes in the
combination of services acquired by clients that could
negatively affect transaction revenues in 2003.

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 Company expects that the capital spending
slowdown and decline in the telecommunications industry will
continue in 2003 and may extend into 2004.

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. The Company does not expect hardware revenues to be a
significant component of revenue in 2003.

Cost of Revenues.Cost of revenues consists primarily of
personnel costs, costs of acquiring and maintaining systems and
networks used in processing qualification and activation
transactions (including depreciation and amortization of systems
and networks) and amortization of capitalized software and
acquired technology. 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
revenues from automated transaction processing and revenues from
processing transactions

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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.


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 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 a
change in the mix of services provided 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. Lightbridge
believes that changes in the mix of services provided to clients
will continue to affect transaction cost of revenues in 2003.

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.

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.

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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.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 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. The Company expects to continue to incur significant
development expenses in 2003 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 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.General and administrative expenses
consist principally of salaries of executive, finance, human
resources and administrative personnel and fees for certain
outside professional services. 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. The
Company may experience an increase in general and administrative
expenses in 2003 due to increased regulatory compliance
requirements associated with operating as a public company and
consumer credit and privacy regulations.

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 Mobile Data
Manager (MDM) suite of products

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consisting of MDM Server, MDM Administration, MDM
Altalinks, MDM Provisioner, and the Consumer Group Applications
(CGA). Development on 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, having spent
approximately $150,000 on the project after the acquisition.
Total cost to complete the CGA project after acquisition is
estimated to be approximately $300,000, of which approximately
$125,000 had been spent through December 31, 2002. CGA is
expected to be completed by July 2003. If the development of the
technology is not completed on schedule, the potential
consequences to the Company may be increased development costs
and increased competition from other companies that have
competitive products in the market.

Other Income, Net.Other income, net consists
predominantly of interest income and 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.The Company has committed to invest up
to $5.0 million in a limited partnership that invests in
businesses within the wireless industry. To date, the Company
has invested $953,000. 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 $464,000.

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 $802,000 benefit from research and
development tax credits. The Company has approximately
$10.4 million in loss carryforwards, principally the result
of various acquisitions, against which a valuation reserve of
approximately $10.3 million has been provided. Net deferred
tax assets were approximately $6.7 million at
December 31, 2002. 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 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.

23



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##### Table of Contents



Year
Ended December 31, 2001 Compared with Year Ended
December 31, 2000

Revenues.Revenues
and certain revenue comparisons for the years ended
December 31, 2001 and 2000 were as follows:

|                        |  |                        |         |         |  |            |       |         |  |            |         |            |  |  |       |   |  |   |         |   |  |  |       |   
|----------------------- |  | ---------------------- | ------- | ------- |  | ---------- | ----- | ------- |  | ---------- | ------- | ---------- |  |  | ----- | - |  | - | ------- | - |  |  | ----- | --
|                        |  | Year Ended             |         | % of    |  | Year Ended |       | % of    |  |            |         |           
|                        |  | Dec. 31,               |         | Total   |  | Dec. 31,   |       | Total   |  | $          |         | %         
|Revenues                |  | 2001                   |         | Revenue |  | 2000       |       | Revenue |  | Difference |         | Difference
|                        |  |                        |         |         |  |            |       |         |  |            |         |           
|                        |  |                       
|                        |  | (Dollars in thousands)
|Transaction             |  | $                      | 104,019 |         |  |            | 58.9  | %       |  | $          | 94,719  |            |  |  | 50.7  | % |  | $ | 9,300   |   |  |  | 9.8   | % 
|Software licensing      |  |                        | 24,802  |         |  |            | 14.0  |         |  |            | 35,258  |            |  |  | 18.9  |   |  |   | (10,456 | ) |  |  | (29.7 | ) 
|Consulting and services |  |                        | 41,484  |         |  |            | 23.5  |         |  |            | 39,544  |            |  |  | 21.2  |   |  |   | 1,940   |   |  |  | 4.9   |   
|Hardware                |  |                        | 6,311   |         |  |            | 3.6   |         |  |            | 17,123  |            |  |  | 9.2   |   |  |   | (10,812 | ) |  |  | (63.1 | ) 
|                        |  |                        |         |         |  |            |       |         |  |            |         |            |  |  |       |   |  |   |         |   |  |  |       |   
|Total                   |  | $                      | 176,616 |         |  |            | 100.0 | %       |  | $          | 186,644 |            |  |  | 100.0 | % |  | $ | (10,028 | ) |  |  | (5.4  | )%
|                        |  |                        |         |         |  |            |       |         |  |            |         |            |  |  |       |   |  |   |         |   |  |  |       |   

The increase in transaction revenues for the year
ended December 31, 2001 was primarily due to the increased
volume of qualification and activation transactions processed
for carrier clients and an increase in special program efforts
through Lightbridges TeleServices Call Center. Lightbridge
believes that its transaction revenues also benefited from
client promotional activities generally attributable to the
current competitive market for wireless services.

The decrease in software licensing revenues for
the year ended December 31, 2001 was due to a capital
spending slowdown and decline in the telecommunications industry
which extended to Lightbridges traditional analytical
software products in risk management and retail management as
well as the Companys PrePay software product.

The increase in consulting and services revenues
for the year ended December 31, 2001 was principally due to
increased demand for consulting services, primarily custom
software development and systems integration. In addition, the
Companys maintenance revenues increased because of an
increase in the installed subscriber base.

The decrease in hardware revenues was due to
lower sales of PhonePrint. In addition, the Companys
PrePay hardware sales also decreased because the version of
PrePay software available since the second quarter of 2001
enables carriers to use locally sourced IVRs. Finally, hardware
sales declined because a number of carriers delayed or cancelled
purchase decisions.

Cost of Revenues.Cost of revenues and certain cost of
revenue comparisons for the years ended December 31, 2001
and 2000 were as follows:

|                        |  |                        |        |         |  |            |      |         |  |            |        |            |  |  |      |   |  |   |        |   |  |  |       |   
|----------------------- |  | ---------------------- | ------ | ------- |  | ---------- | ---- | ------- |  | ---------- | ------ | ---------- |  |  | ---- | - |  | - | ------ | - |  |  | ----- | --
|                        |  | Year Ended             |        | % of    |  | Year Ended |      | % of    |  |            |        |           
|                        |  | Dec. 31,               |        | Total   |  | Dec. 31,   |      | Total   |  | $          |        | %         
|Cost of Revenues        |  | 2001                   |        | Revenue |  | 2000       |      | Revenue |  | Difference |        | Difference
|                        |  |                        |        |         |  |            |      |         |  |            |        |           
|                        |  |                       
|                        |  | (Dollars in thousands)
|Transaction             |  | $                      | 55,591 |         |  |            | 31.5 | %       |  | $          | 49,397 |            |  |  | 26.4 | % |  | $ | 6,194  |   |  |  | 12.5  | % 
|Software licensing      |  |                        | 2,485  |         |  |            | 1.4  |         |  |            | 1,836  |            |  |  | 1.0  |   |  |   | 649    |   |  |  | 35.3  |   
|Consulting and services |  |                        | 18,275 |         |  |            | 10.4 |         |  |            | 18,028 |            |  |  | 9.7  |   |  |   | 247    |   |  |  | 1.4   |   
|Hardware                |  |                        | 4,460  |         |  |            | 2.5  |         |  |            | 12,471 |            |  |  | 6.7  |   |  |   | (8,011 | ) |  |  | (64.2 | ) 
|                        |  |                        |        |         |  |            |      |         |  |            |        |            |  |  |      |   |  |   |        |   |  |  |       |   
|Total                   |  | $                      | 80,811 |         |  |            | 45.8 | %       |  | $          | 81,732 |            |  |  | 43.8 | % |  | $ | (921   | ) |  |  | (1.1  | )%
|                        |  |                        |        |         |  |            |      |         |  |            |        |            |  |  |      |   |  |   |        |   |  |  |       |   

Transaction cost of revenues increased in
dollars, and as a percentage of total transaction revenues to
53.4% for the year ended December 31, 2001 from 52.2% for
the year ended December 31, 2000. The increase in
transaction cost of revenues for the year ended
December 31, 2001 resulted principally from increases in
transaction volume and costs attributable to expansion of the
Companys staff and systems capacity particularly for
Lightbridges TeleServices Call Centers. Transaction cost
of revenues was also affected by a shift in the mix of services
provided to clients during the year ended December 31, 2001.

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Software cost of revenues increased in dollars,
and as a percentage of total software licensing revenues to
10.0% for the year ended December 31, 2001 from 5.2% for
the year ended December 31, 2000. The increase in software
licensing cost of revenue for the year ended December 31,
2001 resulted principally from an increase in third-party
software and costs associated with software installation and
configuration. Software licensing cost of revenues as a
percentage of total software licensing revenues for the year
ended December 31, 2001 also increased as a result of lower
total software licensing revenues during the period.

Consulting and services cost of revenues
increased in dollars, while decreasing as a percentage of total
consulting services revenues to 44.1% for the year ended
December 31, 2001 from 45.6% for the year ended
December 31, 2002. The dollar increase in consulting and
services cost of revenues was attributable to the increase in
consulting and services business for clients. The decrease in
consulting and services cost of revenue as a percentage of
consulting and services revenues was due to increased
utilization of the consulting resources.

Hardware cost of revenues decreased in dollars,
and as a percentage of total hardware revenues to 70.7% for the
year ended December 31, 2001 from 72.8% for the year ended
December 31, 2000. The decrease was attributable to a
decrease in hardware revenues.

Operating Expenses.Operating expenses and certain
operating expenses comparisons for the years ended
December 31, 2001 and 2000 were as follows:

|                                                |  |                        |        |         |  |            |      |         |  |            |        |            |  |  |      |   |  |   |        |   |  |  |        |  
|----------------------------------------------- |  | ---------------------- | ------ | ------- |  | ---------- | ---- | ------- |  | ---------- | ------ | ---------- |  |  | ---- | - |  | - | ------ | - |  |  | ------ | -
|                                                |  | Year Ended             |        | % of    |  | Year Ended |      | % of    |  |            |        |           
|                                                |  | Dec. 31,               |        | Total   |  | Dec. 31,   |      | Total   |  | $          |        | %         
|                                                |  | 2001                   |        | Revenue |  | 2000       |      | Revenue |  | Difference |        | Difference
|                                                |  |                        |        |         |  |            |      |         |  |            |        |           
|                                                |  |                       
|                                                |  | (Dollars in thousands)
|Development                                     |  | $                      | 32,259 |         |  |            | 18.2 | %       |  | $          | 29,256 |            |  |  | 15.6 | % |  | $ | 3,003  |   |  |  | 10.3   | %
|Sales and marketing                             |  |                        | 20,460 |         |  |            | 11.6 |         |  |            | 22,159 |            |  |  | 11.9 |   |  |   | (1,699 | ) |  |  | (7.7   | )
|General and administrative                      |  |                        | 19,517 |         |  |            | 11.0 |         |  |            | 17,955 |            |  |  | 9.6  |   |  |   | 1,562  |   |  |  | 8.7    |  
|Amortization of goodwill and acquired workforce |  |                        |       |         |  |            |     |         |  |            | 502    |            |  |  | 0.3  |   |  |   | (502   | ) |  |  | (100.0 | )
|Merger related costs                            |  |                        | 5,999  |         |  |            | 3.4  |         |  |            |       |            |  |  |     |   |  |   | 5,999  |   |  |  | 100.0  |  
|Restructuring costs                             |  |                        | 4,000  |         |  |            | 2.3  |         |  |            |       |            |  |  |     |   |  |   | 4,000  |   |  |  | 100.0  |  
|                                                |  |                        |        |         |  |            |      |         |  |            |        |            |  |  |      |   |  |   |        |   |  |  |        |  
|Total                                           |  | $                      | 82,235 |         |  |            | 46.5 | %       |  | $          | 69,872 |            |  |  | 37.4 | % |  | $ | 12,363 |   |  |  | 17.7   | %
|                                                |  |                        |        |         |  |            |      |         |  |            |        |            |  |  |      |   |  |   |        |   |  |  |        |  

Development.The
increase in development expenses for the year ended
December 31, 2001 resulted primarily from the addition of
engineering personnel necessary to support Lightbridges
product development plans. Included in these development efforts
were the development of an enhanced version of
Lightbridges Risk Management software product,
FraudBuster, the continued enhancement of its Customer
Acquisition System and Retail Management System, development of
its Risk Management software product, Fraud Centurion and
continued development of its PrePay products. Development
expenses as a percentage of total revenues for the year ended
December 31, 2001 also increased as a result of lower total
revenues during the period.

Sales and Marketing.The decrease in sales and marketing
expenses for the year ended December 31, 2001 in dollars
and as a percentage of total revenue, was primarily due to a
decrease in headcount as a result of synergies attributable to
the Lightbridge merger with Corsair, coupled with a decrease in
costs associated with lower revenue levels.

General and Administrative.The increase in general and
administrative expenses for the year ended December 31,
2001 in dollars and as a percentage of total revenue was
primarily due to additional staffing levels.

Other Income, Net.Other income, net consists
predominantly of interest income and decreased by 22.3% to
$4.2 million in the year ended December 31, 2001 from
$5.4 million in the prior year. This decrease was primarily
due to a decline in interest rates.

25



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##### Table of Contents



Provision for Income Taxes.Lightbridges estimated effective
tax rate was 21.6% (excluding merger-related expenses) and 24.6%
for the years ended December 31, 2001 and 2000,
respectively. The 2001 tax provision was based upon the
estimated annual effective tax rate of 35.0%, offset by a
$4.5 million tax benefit principally related to acquired
net operating loss carryforwards of Corsair, which are expected
to be realized, and the deductible portion of merger costs
incurred in connection with the acquisition of Corsair.

Net Income.Net
income for 2001 was $14.0 million or 7.9% of revenues, and
diluted earnings per share was $0.48 compared to net income in
2000 of $30.5 million or 16.3% of revenues and diluted
earnings per share of $1.04. The 2001 decrease in net income
from 2000 was primarily due to reduced revenue levels, merger
related costs, restructuring costs and, to a lesser extent,
higher operating expenses.

Liquidity and Capital Resources

As of December 31, 2002, Lightbridge had
cash and cash equivalents and short-term investments of
$133.5 million. Lightbridges working capital
increased to $136.5 million at December 31, 2002 from
$127.1 million at December 31, 2001. The Company
believes that its current cash balances will be sufficient to
finance 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 and investments, and
the sustained profitability of the Companys operations.

For the year ended December 31, 2002, the
Company generated cash flows from operating activities of
$30.0 million and used $41.1 million and
$5.8 million in investing and financing activities,
respectively.

The Companys capital expenditures for the
years ended December 31, 2002 and 2001 were
$4.4 million and $12.0 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 development
activities. The Company leases its facilities and certain
equipment under non-cancelable operating lease agreements that
expire at various dates through January 2008.

For the year ended December 31, 2002, the
Company used $8.5 million for the repurchase of the
Companys common stock under its stock repurchase program.

In August 2001, the Company elected to forego
annual renewal of a $15.0 million unsecured working capital
line of credit with a bank because the Company believed it had
sufficient cash and short term investments to meet its
then-current operating needs. At the date of expiration, there
were no borrowings outstanding under the working capital line of
credit. At December 31, 2002, the Company had an
outstanding letter of credit in the amount of $1.0 million
expiring 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.

The Companys primary contractual
obligations and commercial commitments are under its operating
leases and a letter of credit. The Companys future minimum
payments due under operating leases and the amount of the
Companys commitment per period under an annually renewable
letter of credit required as security under the lease for its
headquarters which extends through 2005 are as follows:

|                 |  |                        |        |      |  |      |       |      |  |      |       |            |  |   |       |  |  |   |       |  |  |   |       | 
|---------------- |  | ---------------------- | ------ | ---- |  | ---- | ----- | ---- |  | ---- | ----- | ---------- |  | - | ----- |  |  | - | ----- |  |  | - | ----- | 
|                 |  | Total                  |        | 2003 |  | 2004 |       | 2005 |  | 2006 |       | After 2006
|                 |  |                        |        |      |  |      |       |      |  |      |       |           
|                 |  |                       
|                 |  | (Dollars in thousands)
|Operating leases |  | $                      | 13,687 |      |  | $    | 5,236 |      |  | $    | 3,693 |            |  | $ | 2,581 |  |  | $ | 1,021 |  |  | $ | 1,156 | 
|Letter of credit |  | $                      | 1,000  |      |  | $    | 1,000 |      |  | $    | 1,000 |            |  |   |      |  |  |   |      |  |  |   |      | 

The Company has no off-balance sheet entities 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).

The Company has committed to invest up to $5.0
million in a limited partnership formed to invest in businesses
in the wireless industry. To date, the Company has invested a
total of $953,000.

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Merger Costs

In connection with the merger with Corsair,
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.

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 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
2003.

The following summarizes the changes to the
November 2001 restructuring reserves during the year ended
December 31, 2002:

|                                            |  |                        |       |         |  |          |   |              |  |   |       |  |  |   |   | 
|------------------------------------------- |  | ---------------------- | ----- | ------- |  | -------- | - | ------------ |  | - | ----- |  |  | - | - | 
|                                            |  | Balance at             |       |         |  |          |   | Balance at  
|                                            |  | December 31,           |       |         |  |          |   | December 31,
|                                            |  | 2001                   |       | Accrued |  | Utilized |   | 2002        
|                                            |  |                        |       |         |  |          |   |             
|                                            |  |                       
|                                            |  | (Dollars in thousands)
|Employee severance and termination benefits |  | $                      | 2,143 |         |  | $        |  |              |  | $ | 2,143 |  |  | $ |  | 
|Facility closing and related costs          |  |                        | 997   |         |  |          |  |              |  |   | 997   |  |  |   |  | 
|                                            |  |                        |       |         |  |          |   |              |  |   |       |  |  |   |   | 
|                                            |  | $                      | 3,140 |         |  | $        |  |              |  | $ | 3,140 |  |  | $ |  | 
|                                            |  |                        |       |         |  |          |   |              |  |   |       |  |  |   |   | 

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

|                                            |  |                        |   |         |  |          |       |              |  |   |       |  |  |   |       | 
|------------------------------------------- |  | ---------------------- | - | ------- |  | -------- | ----- | ------------ |  | - | ----- |  |  | - | ----- | 
|                                            |  | Balance at             |   |         |  |          |       | Balance at  
|                                            |  | December 31,           |   |         |  |          |       | December 31,
|                                            |  | 2001                   |   | Accrued |  | Utilized |       | 2002        
|                                            |  |                        |   |         |  |          |       |             
|                                            |  |                       
|                                            |  | (Dollars in thousands)
|Employee severance and termination benefits |  | $                      |  |         |  | $        | 1,580 |              |  | $ | 1,237 |  |  | $ | 343   | 
|Facility closing and related costs          |  |                        |  |         |  |          | 1,312 |              |  |   | 320   |  |  |   | 992   | 
|Capital equipment write-offs                |  |                        |  |         |  |          | 724   |              |  |   | 724   |  |  |   |      | 
|                                            |  |                        |   |         |  |          |       |              |  |   |       |  |  |   |       | 
|                                            |  | $                      |  |         |  | $        | 3,616 |              |  | $ | 2,281 |  |  | $ | 1,335 | 
|                                            |  |                        |   |         |  |          |       |              |  |   |       |  |  |   |       | 

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

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the end of May 2003. The Company plans to record
a restructuring charge of approximately $100,000 for workforce
reductions in the first quarter of 2003 and approximately
$900,000 for facilities reductions and capital equipment
write-offs in the second quarter of 2003.


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 90%,
79% and 75% of our total revenues in 2002, 2001 and 2000,
respectively. The following clients accounted for more than 10%
of our total revenues in the years indicated:

|         |       |                      |    |      |   |      |    |    |   |  |    |    |  
|-------- | ----- | -------------------- | -- | ---- | - | ---- | -- | -- | - |  | -- | -- | -
|         |       |                     
|         |       | Years Ended Dec. 31,
|         |       |                     
|         |       | 2002                 |    | 2001 |   | 2000
|         |       |                      |    |      |   |     
|Sprint   |       |                      | 30 | %    |   |      | 22 | %  |   |  | 19 | % 
|AT&T     |       |                      | 21 |      |   |      | 20 |    |   |  | 16 |   
|Ericsson |       |                      | 15 |      |   |      | 16 |    |   |  | 24 |   
|Nextel   |       |                      | 11 |      |   |      | 7  |    |   |  | 4  |   
|         |       |                      |    |      |   |      |    |    |   |  |    |   
|         | Total |                      |    | 77   | % |      |    | 65 | % |  |    | 63 | %
|         |       |                      |    |      |   |      |    |    |   |  |    |   

We expect that most of our revenues will continue
to come from a relatively small number of clients for the
foreseeable future, although the companies that comprise our
largest clients in any given quarter may vary. 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 AT&T expire on December 31,
2003. Our services agreement with Nextel expires on
January 15, 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 us
or to request significant changes to the pricing or other terms
in any renewal agreement. 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 notice to the
other. The loss of any one or more of our major clients or a
change in the particular type, quantity or combination of
products or services purchased by 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
business would also be harmed if we are unable to collect, or
experience delays in collecting, payments from any of our major
clients.

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 five 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

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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 terminates or 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 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, or may in the future seek, pricing
concessions when they renew their service agreements with us,
which could affect our revenues and profitability. In addition,
several 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 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 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 or for new
    markets;               
|
| |  | continued growth of the domestic wireless
    telecommunications markets;                                                                     
|
| |  | the number of carriers seeking to implement
    prepaid billing services;                                                                     
|
| |  | our ability to increase sales of our products and
    services internationally; and                                                           
|
| |  | our ability to increase sales of our products and
    services to other new types of clients or in new markets.                               

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 reach into new markets, including the
online transaction market and the wireless data market. As a
result, our success depends on a number of factors, including,
without limitation:



| |   |                                                                                            
| | - | -------------------------------------------------------------------------------------------
| |  | growth in the online transaction and mobile data
    management markets;                   
|
| |  | 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 in Our Industry.

The communications industry has been changing
rapidly as a result of increasing competition, technological
advances, regulatory changes and evolving industry practices and
standards, and we expect these changes

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will continue. Carriers in the telecommunications
market have also been changing quickly, as the result of
consolidation among existing carriers and financial difficulties
experienced by some carriers. 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;                                                                                                                                                       
|
| |  | 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 and
    mobile transactions and products and services for the online and
    mobile data management markets;
|
| |  | 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 LNP;                                                                                                            
|
| |  | 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 could 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 FCRA, the ECOA 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. In some cases, these regulations require our customers 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,
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

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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 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 GLBA, FCRA or ECOA. 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 be
adequate to 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 Acceptance.

In 2001 and 2002, PrePay, our prepaid metered
billing solution, did not produce the revenues that we
anticipated. We continue to anticipate that PrePay will account
for a significant amount of our revenues in 2003. As a result,
our future operating results will depend to a significant extent
on the demand for and market acceptance of PrePay. 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.

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Currently our PrePay solution has only been
commercially deployed on networks which use Ericsson switching
equipment. We introduced a separate version of our PrePay
product in 2001, making PrePay compatible with other
infrastructure equipment, and, in 2002, that version of our
PrePay product was certified for compatibility with Nortel
Networks, Inc. and Lucent Technologies, Inc. infrastructure
equipment. However, PrePay has not yet gained market acceptance.
Furthermore, although PrePay supports CDMA and TDMA air
interfaces, it is not expected to support the GSM interface
until some time in the second quarter of 2003.

Our PrePay product has been sold predominately 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 and PrePay may never
gain market acceptance. We cannot ensure that sales of the
PrePay system will increase or that PrePay will gain market
acceptance. If PrePay does not gain market acceptance 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, 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, because of 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 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. Although we have no current arrangements to
make additional acquisitions in the future, we may do so if we
identify companies, technologies or assets that appear to
complement our business. Acquisitions involve risks that could
cause the actual results of any acquisitions we may make to
differ from our expectations. For example:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In future acquisitions, we may issue equity
    securities that could be dilutive to our shareholders or we may
    use our cash which may have an adverse effect on our liquidity.
    In those acquisitions, we also may incur additional debt and
    amortization expense related to intangible assets. This
    additional debt, amortization expense and 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 certain
    contingent liabilities that may be difficult to estimate.
|
| |  | We may be unable to integrate acquired businesses
    successfully and to realize anticipated economic, operational
    and other benefits in a timely manner. Integration of an
    acquired business is especially difficult when we acquire a
    business in a market in which we have limited or no expertise or
    a business with a corporate culture different from ours. If we
    are unable to successfully integrate acquired businesses, we may
    incur substantial costs and delays or other operational,
    technical or financial problems.                                                                                                                                                                                                                           
|
| |  | Acquisitions may divert managements
    attention from our existing business and may damage our
    relationships with our key clients and employees.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

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,

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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, and sold commercially only
by Ericsson. We have also entered into a business alliance with
VeriSign to assist us in penetrating the online transaction
market. We intend to continue to market and distribute our
products through existing and other relationships. We also
intend to enter into additional distributor and sales and
marketing agreements for the sale of these and other products
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 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.                                                                                                                                            

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| |   |                                                                                                                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our consulting services revenues can fluctuate
    based on the timing of product sales and of 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.
|
| |  | We are in the process of developing a number of
    new products and services. If we do not complete our development
    efforts on schedule, or if we are not able to market our new
    products and services successfully, our revenues could fall
    substantially below expectations.                                                                    
|
| |  | Our contracts typically do not require our
    clients to purchase our products or services at their actual or
    historical levels, and frequently permit clients to make changes
    in the bundle of our products and services that they utilize,
    which changes can significantly affect our revenues and expenses
    in a given quarter.             
|
| |  | In recent years, we have implemented several
    restructurings that have resulted in significant non-recurring
    accounting charges. It is possible that we will effect further
    restructurings in the future, which could result in additional
    non-recurring charges.                                                                               
|
| |  | Adverse industry, market or economic conditions
    such as consolidation in the wireless industry, carrier
    bankruptcies, the decline in subscriber growth rates and price
    competition among carriers may negatively impact our
    clients decisions to acquire our products and services.                                                           

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 which 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 European or
    other 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;                                                                                                                                                                                                                                                                                                                         

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| |   |                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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                                                                                                               
|
| |  | 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 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 ours. We anticipate continued growth and the
formation of new alliances in the authentication services
industry, 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, Ericsson and Northern Telecom
    Limited;                                                                                                                                                                              
|
| |  | 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;                                                                                                                                                                                

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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;                                                                                                                                  
|
| |  | software vendors of prepaid wireless billing
    products, including Boston Communications Group, Inc., Brite
    Voice Systems, Inc., Comverse Technology, Inc., Glenayre
    Technologies, Inc., VeriSign Telecommunications Services,
    Telemac Cellular Corporation, Fair, Isaac & Co. Inc.,
    ORGA Kartensysteme GmbH, Schlumberger Sema plc, Logica plc,
    Alcatel USA, Priority Call Management, Lucent Technologies,
    Inc., Hewlett-Packard Company (Tandem Division), Northern
    Telecom Limited, 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 competition 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 large software companies.

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. Most of our
computer and telecommunications equipment is located at our
sites in Burlington and Waltham, Massachusetts, and, as a
result, may be vulnerable to a natural disaster. 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.

In addition to our own systems, we rely on
certain equipment, software, systems and services from third
parties that are also subject to risks, including risks of
system or processing failure or inadequacy.

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Our Reliance on Suppliers and Vendors Could
Adversely Affect Our Ability to Provide Our Services and
Products to Our Clients on a Timely and Cost-Efficient
Basis.

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.

In addition, our business is materially dependent
on services provided by various local and long distance
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;                                                                                                                                               
|
| |  | any of our patents now or hereafter acquired will
    protect our business or technology against competitors that
    develop similar technology or products or provide us with a
    competitive advantage; or
|
| |  | 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.
Patent applications filed in foreign countries are often first
published six months or more after filing.

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

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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 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.

The Telecommunications Industry Is Subject to
Government Regulation and Legal Uncertainties That Could Harm
Our Business.

Our telecommunications carrier clients are
regulated at both the federal and state levels, and our
international clients are subject to regulation by their own
countries. Current or future government regulation including,
without limitation, the introduction of LNP in late 2003, could
harm our business in several ways, for example by:



| |   |                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------
| |  | further decreasing the rate of growth of the
    wireless industry or other segments of the telecommunications
    market;     
|
| |  | affecting the development of emerging
    telecommunications markets;                                                          
|
| |  | limiting the number of potential clients for our
    products and services or reducing demand for our products or
    services;
|
| |  | introducing new requirements that would force us
    to modify our products or services; or                                    
|
| |  | increasing competition in the industry, which
    could subject us to increased pricing pressures.                             

Our Business Could Require Additional
Financing.

It is possible that we will not maintain
profitability on either a quarterly or an annual basis in the
future or that we will need to raise funds through public or
private financings. Further expansion of our business, including
the acquisition of additional computer and network equipment,
the development or acquisition of new or enhanced products and
services 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 or finance an
acquisition with equity securities, our existing stockholders
may experience dilution in their investments. It is 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

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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 desirable
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 July 2001, the Financial Accounting Standards
Board (FASB) issued Statement of Financial
Accounting Standards No. 141 (SFAS 141),
Business Combinations. SFAS 141 requires the
purchase method of accounting for business combinations
initiated after June 30, 2001 and eliminates the
pooling-of-interests method. The adoption of SFAS 141 did
not have a significant impact on the Companys financial
statements.

Also in July 2001, the FASB issued SFAS
No. 142 (SFAS 142), Goodwill and
Other Intangible Assets, which became effective
January 1, 2002. SFAS 142 requires, among other
things, the discontinuance of goodwill amortization and that
goodwill be tested for impairment at least annually. The
adoption of SFAS 142 did not have a significant impact on
the Companys financial statements.

The FASB has also issued SFAS No. 144
(SFAS 144), Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of, which was effective January 1, 2002.
SFAS 144 provides guidance on measuring and recording
impairments of assets, other than goodwill, and provides
clarifications on measurement of cash flow information and other
variables to be used to measure impairment. The adoption of
SFAS 144 did not have a significant impact on the
Companys financial statements.

In June 2002, the FASB issued SFAS No. 146
(SFAS 146), Accounting for Costs
Associated with Exit or Disposal Activities. SFAS 146
requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred.
SFAS 146 nullifies EITF No. 94-3 Liability
Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity, which required a liability be
recognized at the commitment date to an exit plan. The Company
is required to adopt the provisions of SFAS 146 effective
for exit or disposal activities initiated after
December 31, 2002. All restructuring activities prior to
December 31, 2002, including those described in Note 8
to the Companys Consolidated Financial Statements, are
accounted for under EITF No. 94-3.






|         |                                                               
|-------- | --------------------------------------------------------------
|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 of debt securities maturing in one year or less and
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.

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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 2002.

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.




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 2003
annual meeting of stockholders or special meeting in lieu
thereof to be filed with the Securities and Exchange Commission
on or before April 30, 2003 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 2003
annual meeting of stockholders or special meeting in lieu
thereof to be filed with the Securities and Exchange Commission
on or before April 30, 2003 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 2003
annual meeting of stockholders or special meeting in lieu
thereof to be filed with the Securities and Exchange Commission
on or before April 30, 2003 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 2003
annual meeting of stockholders or special meeting in lieu
thereof to be filed with the Securities and Exchange Commission
on or before April 30, 2003 and is incorporated by
reference herein.






|         |                        
|-------- | -----------------------
|Item 14. | Controls and Procedures

Within 90 days before filing this report,
the Company evaluated the effectiveness of the design and
operation of its disclosure controls and procedures. The
Companys disclosure controls and procedures are the
controls and other procedures that it designed to provide that
it records, processes, summarizes and reports in a timely manner
the information it must disclose in reports that it files with
or submits to the Securities and Exchange Commission. The
Companys Chief Executive Officer and its Chief Financial
Officer supervised

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and participated in this evaluation. Based on
this evaluation, the Companys Chief Executive Officer and
Chief Financial Officer concluded that, as of the date of their
evaluation, the Companys disclosure controls and
procedures are effective to provide a reasonable level of
assurance of reaching the Companys disclosure control
objectives.


Since the date of the evaluation described above,
there have not been any significant changes in the
Companys internal controls or in other factors that could
significantly affect those controls.




PART IV






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

(a)     Documents
filed as part of this report

|    |  |                                                                                                                                                             |  |  |     | 
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | --- | 
|(1) |  | Financial Statements                                                                                                                                        |  |  |     | 
|    |  | Independent Auditors Report 
    Deloitte & Touche LLP                                                                                                    |  |  | F-1 | 
|    |  | Independent Auditors Report 
    KPMG LLP                                                                                                                 |  |  | F-2 | 
|    |  | Consolidated Balance Sheets as of December 31,
    2002 and 2001                                                                                            |  |  | F-3 | 
|    |  | Consolidated Statements of Operations for the
    years ended December 31, 2002, 2001 and 2000                                                              |  |  | F-4 | 
|    |  | Consolidated Statements of Stockholders
    Equity for the years ended December 31, 2002, 2001 and 2000                                                    |  |  | F-5 | 
|    |  | Consolidated Statements of Cash Flows for the
    years ended December 31, 2002, 2001 and 2000                                                              |  |  | F-6 | 
|    |  | Notes to Consolidated Financial Statements                                                                                                                  |  |  | F-7 | 
|(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                                                                                               
|            | 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

41



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##### Table of Contents



|            |    |             |  |                                                                                                                                                                           
|----------- | -- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |    | Description
|            |    |            
|            | 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.                                                                           
|            | 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)     |  | Loan Agreement dated August 11, 2000 between
    the Company and Silicon Valley Bank                                                                                      
|            | 10 | .19(10)     |  | 1996 Incentive and Non-Qualified Stock Option
    Plan (as amended)                                                                                                       
|            | 10 | .20(10)     |  | 1998 Non-Statutory Stock Option Plan (as amended)                                                                                                                         
|            | 10 | .21(11)     |  | Office lease dated August 15, 2000 between
    the Company and Arthur Pappathanasi, trustee of 330 Scangas
    Nominee Trust                                              
|            | 10 | .22(12)     |  | Amendment to 1998 Non-Statutory Stock Option Plan
    adopted on November 16, 2000                                                                                        
|            | 10 | .23(13)     |  | Amendment to 1996 Incentive and Non-Qualified
    Stock Option Plan                                                                                                       
|            | 10 | .24(14)     |  | Amendment to 1996 Employee Stock Purchase Plan                                                                                                                            
|            | 10 | .25(15)     |  | Separation Agreement and Release between Thomas
    Meyer and Lightbridge, Inc. and Corsair Communications, Inc.
    dated December 7, 2001                               
|            | 10 | .26(16)     |  | Separation Agreement and Release between Brian
    Connolly and the Company dated April 1, 2002                                                                           
|            | 10 | .27(16)     |  | Memorandum Agreement between Harlan Plumley and
    the Company dated April 23, 2002                                                                                      
|            | 10 | .28(17)     |  | Separation Agreement and Release between Carla
    Marcinowski and the Company dated June 28, 2002                                                                        
|            | 10 | .29(17)     |  | Letter Agreement between Thomas Reynolds and the
    Company dated July 19, 2002                                                                                          
|            | 10 | .30(18)     |  | Amendment to the Companys 1996 Employee
    Stock Purchase Plan, as amended                                                                                              
|            | 10 | .31(18)     |  | Memorandum Agreement dated August 5, 2002 by
    and between the Company and Pamela D.A. Reeve                                                                            
|            | 10 | .32(18)     |  | Memorandum Agreement dated August 5, 2002 by
    and between the Company and Judith Dumont                                                                                
|            | 23 | .1          |  | Independent Auditors Consent  Deloitte
    & Touche LLP                                                                                                                  
|            | 23 | .2          |  | Independent Auditors Consent  KPMG LLP                                                                                                                                   
|            | 24 | .1          |  | Power of Attorney (See signature page hereto)                                                                                                                             

42



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##### Table of Contents





---



| |     |                                                                                                                                                                                                      
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (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.                                                                           
|
| | (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
    Current Report on Form 8-K dated January 31, 2002.                         
|    
|(16) | Incorporated by reference to the Companys
    Quarterly Report on Form 10-Q for the quarter ended
    March 31, 2002.    
|    
|(17) | Incorporated by reference to the Companys
    Quarterly Report on Form 10-Q for the quarter ended
    June 30, 2002.     
|    
|(18) | Incorporated by reference to the Companys
    Quarterly Report on Form 10-Q for the quarter ended
    September 30, 2002.

(b) Reports on Form 8-K filed in the
fourth quarter of 2002

The Company filed no reports on Form 8-K for
the quarter ended December 31, 2002.

Certification Under Sarbanes-Oxley
Act

Our chief executive officer and chief financial
officer have furnished to the Securities and Exchange Commission
the certification with respect to this Report that is required
by Section 906 of the Sarbanes-Oxley Act of 2002.

43



---



##### 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 31st day of
March, 2003.



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



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

| |                        
| | -----------------------
| |                        
| | Pamela D. A. Reeve     
| | 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 31, 2003
|                                        
|/s/ PAMELA D. A. REEVEPamela D. A. Reeve |  | Chief Executive Officer and Director (Principal
    Executive Officer)                                                                 |  | March 31, 2003
|                                        
|/s/ ANDREW G. MILLSAndrew G. Mills       |  | Director                                                                                                                               |  | March 31, 2003
|                                        
|/s/ KEVIN C. MELIAKevin C. Melia         |  | Director                                                                                                                               |  | March 31, 2003
|                                        
|/s/ RACHELLE B. CHONGRachelle B. Chong   |  | Director                                                                                                                               |  | March 31, 2003

44



---



##### Table of Contents






CERTIFICATIONS

I, Pamela D.A. Reeve, Chief Executive Officer of
Lightbridge, Inc., certify that:



| |                                                                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1.     I have reviewed
    this annual report on Form 10-K of Lightbridge, Inc.;                                                                                                                                                                                                                                                                       
|
| | 2.     Based on my
    knowledge, this annual report does not contain any untrue
    statement of a material fact or omit to state a material fact
    necessary to make the statements made, in light of the
    circumstances under which such statements were made, not
    misleading with respect to the period covered by this annual
    report;
|
| | 3.     Based on my
    knowledge, the financial statements, and other financial
    information included in this annual report, fairly present in
    all material respects the financial condition, results of
    operations and cash flows of the registrant as of, and for, the
    periods presented in this annual report;                       
|
| | 4.     The
    registrants other certifying officers and I are
    responsible for establishing and maintaining disclosure controls
    and procedures (as defined in Exchange Act Rules 13a-14 and
    15d-14) for the registrant and we have:                                                                                                       



| |                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) Designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this annual report is being prepared;
|
| | b) Evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c) Presented in this annual report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



| |                                                                                                                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 5.     The
    registrants other certifying officers and I have
    disclosed, based on our most recent evaluation, to the
    registrants auditors and the audit committee of
    registrants board of directors (or persons performing the
    equivalent functions):



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) All significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) Any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    



| |                                                                                                                                                                                                                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6.     The
    registrants other certifying officers and I have indicated
    in this annual report whether there were significant changes in
    internal controls or in other factors that could significantly
    affect internal controls subsequent to the date of our most
    recent evaluation, including any corrective actions with regard
    to significant deficiencies and material weaknesses.



| |                                     
| | ------------------------------------
| | /s/ PAMELA D. A. REEVE              
| |                                     
| | Pamela D. A. Reeve                  
| | Chief Executive Officer and Director
| | (Principal Executive Officer)       

Date: March 31, 2003

45



---



##### Table of Contents



I, Harlan Plumley, Chief Financial Officer of
Lightbridge, Inc., certify that:



| |                                                                                                                                                                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1.          I
    have reviewed this annual report on Form 10-K of
    Lightbridge, Inc.;                                                                                                                                                                                                                                                                   
|
| | 2.          Based
    on my knowledge, this annual report does not contain any untrue
    statement of a material fact or omit to state a material fact
    necessary to make the statements made, in light of the
    circumstances under which such statements were made, not
    misleading with respect to the period covered by this annual
    report;
|
| | 3.          Based
    on my knowledge, the financial statements, and other financial
    information included in this annual report, fairly present in
    all material respects the financial condition, results of
    operations and cash flows of the registrant as of, and for, the
    periods presented in this annual report;                       
|
| | 4.          The
    registrants other certifying officers and I are
    responsible for establishing and maintaining disclosure controls
    and procedures (as defined in Exchange Act Rules 13a-14 and
    15d-14) for the registrant and we have:                                                                                                       



| |                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) Designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this annual report is being prepared;
|
| | b) Evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c) Presented in this annual report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



| |                                                                                                                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 5.          The
    registrants other certifying officers and I have
    disclosed, based on our most recent evaluation, to the
    registrants auditors and the audit committee of
    registrants board of directors (or persons performing the
    equivalent functions):



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) All significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) Any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    



| |                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6.          The
    registrants other certifying officers and I have indicated
    in this annual report whether there were significant changes in
    internal controls or in other factors that could significantly
    affect internal controls subsequent to the date of our most
    recent evaluation, including any corrective actions with regard
    to significant deficiencies and material weaknesses.



| |                                                       
| | ------------------------------------------------------
| | /s/ HARLAN PLUMLEY                                    
| |                                                       
| | Harlan Plumley                                        
| | Vice President, Finance and
    Administration,       
| | Chief Financial Officer and
    Treasurer             
| | (Principal Financial and Chief Accounting
    Officer)

Date: March 31, 2003

46



---



##### Table of Contents



INDEPENDENT AUDITORS REPORT

To the Board of Directors and

Stockholders of Lightbridge, Inc.:


We have audited the consolidated balance sheets
of Lightbridge, Inc. and subsidiaries as of December 31,
2002 and 2001, and the related consolidated statements of
income, stockholders equity, and cash flows for each of
the three years in the period ended December 31, 2002.
These financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on the financial statements based on our audits. The
consolidated financial statements give retroactive effect to the
merger of Lightbridge, Inc. and Corsair Communications, Inc.,
which has been accounted for as a pooling of interests as
described in Note 1 to the consolidated financial statements. We
did not audit the statements of operations, stockholders
equity, and cash flows of Corsair Communications, Inc. for the
year ended December 31, 2000, which statements reflect
total revenues of $65,090,000 for the year ended
December 31, 2000. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion,
insofar as it relates to the amounts included for Corsair
Communications, Inc. for 2000, is based solely on the report of
such other auditors.

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 and
the report of the other auditors provide a reasonable basis for
our opinion.

In our opinion, based on our audits and the
report of the other auditors, the consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of Lightbridge, Inc. and
subsidiaries at December 31, 2002 and 2001, and the results
of their operations and their cash flows for each of the three
years in the period ended December 31, 2002 in conformity
with accounting principles generally accepted in the United
States of America.



| |                          
| | -------------------------
| | /s/ DELOITTE & TOUCHE LLP
| |                          
| | DELOITTE & TOUCHE LLP    

Boston, Massachusetts

January 24, 2003


F-1



---



##### Table of Contents



INDEPENDENT AUDITORS REPORT

To the Board of Directors 
 Corsair Communications, Inc.:

We have audited the consolidated statements of
operations, stockholders equity and cash flows of Corsair
Communications, Inc. and subsidiaries (not separately presented
herein) for the year ended December 31, 2000. These
consolidated financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audit.

We conducted our audit 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 audit
provides a reasonable basis for our opinion.

As discussed in Note 1 to the consolidated
financial statements all of the outstanding common stock of
Corsair Communications, Inc. was acquired on February 7,
2001 by Lightbridge, Inc., a publicly traded company.

In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the results of operations and cash flows of Corsair
Communications, Inc. and subsidiaries for the year ended
December 31, 2000 in conformity with accounting principles
generally accepted in the United States of America.



| |             
| | ------------
| | /s/ KPMG LLP
| |             
| | KPMG LLP    

Mountain View, California 
 January 24, 2001, except as to Note 1, 
 which is as of February 7, 2001

F-2



---



##### Table of Contents



LIGHTBRIDGE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands except share and
per share amounts)


|                                         |                                                                                                                                                                                                            |                            |                                            |         |         |         |        |         |         |         | 
|---------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------------------------------------------ | ------- | ------- | ------- | ------ | ------- | ------- | ------- | 
|                                         |                                                                                                                                                                                                            |                           
|                                         |                                                                                                                                                                                                            | December 31,              
|                                         |                                                                                                                                                                                                            |                           
|                                         |                                                                                                                                                                                                            | 2002                       |                                            | 2001   
|                                         |                                                                                                                                                                                                            |                            |                                            |        
|ASSETS                                  
|Current assets:                          |                                                                                                                                                                                                            |                            |                                            |         |         |         |        |        
|                                         | Cash and cash equivalents                                                                                                                                                                                  |                            | $                                          | 90,664  |         |         | $      | 107,499 |        
|                                         | Short-term investments                                                                                                                                                                                     |                            |                                            | 42,806  |         |         |        | 11,071  |        
|                                         | Accounts receivable, net                                                                                                                                                                                   |                            |                                            | 17,679  |         |         |        | 27,643  |        
|                                         | Inventories                                                                                                                                                                                                |                            |                                            |        |         |         |        | 263     |        
|                                         | Deferred tax assets                                                                                                                                                                                        |                            |                                            | 3,012   |         |         |        | 3,442   |        
|                                         | Other current assets                                                                                                                                                                                       |                            |                                            | 3,112   |         |         |        | 3,904   |        
|                                         |                                                                                                                                                                                                            |                            |                                            |         |         |         |        |        
|                                         |                                                                                                                                                                                                            | Total current assets       |                                            |         | 157,273 |         |        |         | 153,822 |        
|Property and equipment, net              |                                                                                                                                                                                                            |                            | 16,183                                     |         |         |         | 26,599 |        
|Deferred tax assets                      |                                                                                                                                                                                                            |                            | 3,713                                      |         |         |         | 5,015  |        
|Other assets, net                        |                                                                                                                                                                                                            |                            | 709                                        |         |         |         | 2,904  |        
|Goodwill                                 |                                                                                                                                                                                                            |                            | 1,664                                      |         |         |         |       |        
|Intangible assets, net                   |                                                                                                                                                                                                            |                            | 1,130                                      |         |         |         | 542    |        
|                                         |                                                                                                                                                                                                            |                            |                                            |         |         |         |        |        
|                                         |                                                                                                                                                                                                            | Total assets               |                                            | $       | 180,672 |         |        | $       | 188,882 |        
|                                         |                                                                                                                                                                                                            |                            |                                            |         |         |         |        |        
|LIABILITIES AND STOCKHOLDERS
    EQUITY
|Current liabilities:                     |                                                                                                                                                                                                            |                            |                                            |         |         |         |        |        
|                                         | Accounts payable                                                                                                                                                                                           |                            | $                                          | 5,676   |         |         | $      | 6,523   |        
|                                         | Accrued compensation                                                                                                                                                                                       |                            |                                            | 5,263   |         |         |        | 6,065   |        
|                                         | Other accrued liabilities                                                                                                                                                                                  |                            |                                            | 4,206   |         |         |        | 4,316   |        
|                                         | Deferred revenues                                                                                                                                                                                          |                            |                                            | 4,292   |         |         |        | 6,649   |        
|                                         | Reserves for restructuring                                                                                                                                                                                 |                            |                                            | 1,335   |         |         |        | 3,140   |        
|                                         |                                                                                                                                                                                                            |                            |                                            |         |         |         |        |        
|                                         |                                                                                                                                                                                                            | Total current liabilities  |                                            |         | 20,772  |         |        |         | 26,693  |        
|Other long-term liabilities              |                                                                                                                                                                                                            |                            | 259                                        |         |         |         | 667    |        
|                                         |                                                                                                                                                                                                            |                            |                                            |         |         |         |        |        
|                                         |                                                                                                                                                                                                            | Total liabilities          |                                            |         | 21,031  |         |        |         | 27,360  |        
|Commitments and contingencies (Note 9)   |                                                                                                                                                                                                            |                            |                                            |         |         |         |        |        
|Stockholders equity:                    |                                                                                                                                                                                                            |                            |                                            |         |         |         |        |        
|                                         | Preferred stock; $0.01 par value, 5,000,000
    shares authorized; no shares issued or outstanding at
    December 31, 2002 and 2001                                                                       |                            |                                            |        |         |         |        |        |        
|                                         | Common stock; $0.01 par value, 60,000,000 shares
    authorized; 29,400,762 and 29,093,639 shares issued; 27,282,224
    and 28,002,317 shares outstanding at December 31, 2002 and
    2001, respectively |                            |                                            | 296     |         |         |        | 291     |        
|                                         | Additional paid-in capital                                                                                                                                                                                 |                            |                                            | 165,241 |         |         |        | 162,367 |        
|                                         | Note receivable from stockholder                                                                                                                                                                           |                            |                                            |        |         |         |        | (115    | )      
|                                         | Warrants                                                                                                                                                                                                   |                            |                                            | 206     |         |         |        | 206     |        
|                                         | Retained earnings                                                                                                                                                                                          |                            |                                            | 5,521   |         |         |        | 1,891   |        
|                                         | Less treasury stock; 2,118,538 and 1,091,322
    shares at cost at December 31, 2002 and 2001, respectively                                                                                                |                            |                                            | (11,623 | )       |         |        | (3,118  | )      
|                                         |                                                                                                                                                                                                            |                            |                                            |         |         |         |        |        
|                                         |                                                                                                                                                                                                            | Total stockholders equity |                                            |         | 159,641 |         |        |         | 161,522 |        
|                                         |                                                                                                                                                                                                            |                            |                                            |         |         |         |        |        
|                                         |                                                                                                                                                                                                            |                            | Total liabilities and stockholders equity |         | $       | 180,672 |        |         | $       | 188,882 | 
|                                         |                                                                                                                                                                                                            |                            |                                            |         |         |         |        |        

See notes to consolidated financial statements.

F-3



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##### Table of Contents



LIGHTBRIDGE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF
OPERATIONS

(Amounts in thousands except per share
amounts)


|                                          |                                                 |                          |       |        |         |      |        |         |         |   |        |        |         | 
|----------------------------------------- | ----------------------------------------------- | ------------------------ | ----- | ------ | ------- | ---- | ------ | ------- | ------- | - | ------ | ------ | ------- | 
|                                          |                                                 |                         
|                                          |                                                 | Years Ended December 31,
|                                          |                                                 |                         
|                                          |                                                 | 2002                     |       | 2001   |         | 2000
|                                          |                                                 |                          |       |        |         |     
|Revenues:                                 |                                                 |                          |       |        |         |      |        |         |         |   |        |       
|                                          | Transaction                                     |                          | $     | 88,376 |         |      | $      | 104,019 |         |   | $      | 94,719 |        
|                                          | Software licensing                              |                          |       | 10,212 |         |      |        | 24,802  |         |   |        | 35,258 |        
|                                          | Consulting and services                         |                          |       | 32,491 |         |      |        | 41,484  |         |   |        | 39,544 |        
|                                          | Hardware                                        |                          |       | 2,359  |         |      |        | 6,311   |         |   |        | 17,123 |        
|                                          |                                                 |                          |       |        |         |      |        |         |         |   |        |       
|                                          |                                                 | Total revenues           |       |        | 133,438 |      |        |         | 176,616 |   |        |        | 186,644 | 
|Cost of revenues:                         |                                                 |                          |       |        |         |      |        |         |         |   |        |       
|                                          | Transaction                                     |                          |       | 49,194 |         |      |        | 55,591  |         |   |        | 49,397 |        
|                                          | Software licensing                              |                          |       | 1,247  |         |      |        | 2,485   |         |   |        | 1,836  |        
|                                          | Consulting and services                         |                          |       | 13,663 |         |      |        | 18,275  |         |   |        | 18,028 |        
|                                          | Hardware                                        |                          |       | 1,839  |         |      |        | 4,460   |         |   |        | 12,471 |        
|                                          |                                                 |                          |       |        |         |      |        |         |         |   |        |       
|                                          |                                                 | Total cost of revenues   |       |        | 65,943  |      |        |         | 80,811  |   |        |        | 81,732  | 
|                                          |                                                 |                          |       |        |         |      |        |         |         |   |        |       
|Gross profit:                             |                                                 |                          |       |        |         |      |        |         |         |   |        |       
|                                          | Transaction                                     |                          |       | 39,182 |         |      |        | 48,428  |         |   |        | 45,322 |        
|                                          | Software licensing                              |                          |       | 8,965  |         |      |        | 22,317  |         |   |        | 33,422 |        
|                                          | Consulting and services                         |                          |       | 18,828 |         |      |        | 23,209  |         |   |        | 21,516 |        
|                                          | Hardware                                        |                          |       | 520    |         |      |        | 1,851   |         |   |        | 4,652  |        
|                                          |                                                 |                          |       |        |         |      |        |         |         |   |        |       
|                                          |                                                 | Total gross profit       |       |        | 67,495  |      |        |         | 95,805  |   |        |        | 104,912 | 
|                                          |                                                 |                          |       |        |         |      |        |         |         |   |        |       
|Operating expenses:                       |                                                 |                          |       |        |         |      |        |         |         |   |        |       
|                                          | Development costs                               |                          |       | 29,269 |         |      |        | 32,259  |         |   |        | 29,256 |        
|                                          | Sales and marketing                             |                          |       | 13,270 |         |      |        | 20,460  |         |   |        | 22,159 |        
|                                          | General and administrative                      |                          |       | 18,170 |         |      |        | 19,517  |         |   |        | 17,955 |        
|                                          | Amortization of goodwill and acquired workforce |                          |       |       |         |      |        |        |         |   |        | 502    |        
|                                          | Merger related costs                            |                          |       |       |         |      |        | 5,999   |         |   |        |       |        
|                                          | Purchased in-process research and development   |                          |       | 1,618  |         |      |        |        |         |   |        |       |        
|                                          | Restructuring costs                             |                          |       | 3,616  |         |      |        | 4,000   |         |   |        |       |        
|                                          |                                                 |                          |       |        |         |      |        |         |         |   |        |       
|                                          |                                                 | Total operating expenses |       |        | 65,943  |      |        |         | 82,235  |   |        |        | 69,872  | 
|                                          |                                                 |                          |       |        |         |      |        |         |         |   |        |       
|Income from operations                    |                                                 |                          | 1,552 |        |         |      | 13,570 |         |         |   | 35,040 |       
|Other income (expense):                   |                                                 |                          |       |        |         |      |        |         |         |   |        |       
|                                          | Interest income                                 |                          |       | 2,439  |         |      |        | 4,233   |         |   |        | 5,311  |        
|                                          | Interest expense                                |                          |       |       |         |      |        |        |         |   |        | (54    | )      
|                                          | Equity in loss of partnership investment        |                          |       | (464   | )       |      |        |        |         |   |        |       |        
|                                          | Other non-operating income                      |                          |       |       |         |      |        |        |         |   |        | 189    |        
|                                          |                                                 |                          |       |        |         |      |        |         |         |   |        |       
|                                          |                                                 | Total other income, net  |       |        | 1,975   |      |        |         | 4,233   |   |        |        | 5,446   | 
|                                          |                                                 |                          |       |        |         |      |        |         |         |   |        |       
|Income before provision for income taxes  |                                                 |                          | 3,527 |        |         |      | 17,803 |         |         |   | 40,486 |       
|Provision for (benefit from) income taxes |                                                 |                          | (103  | )      |         |      | 3,848  |         |         |   | 9,974  |       
|                                          |                                                 |                          |       |        |         |      |        |         |         |   |        |       
|Net income                                |                                                 | $                        | 3,630 |        |         | $    | 13,955 |         |         | $ | 30,512 |       
|                                          |                                                 |                          |       |        |         |      |        |         |         |   |        |       
|                                          | Basic earnings per share (Note 13)              |                          | $     | 0.13   |         |      | $      | 0.50    |         |   | $      | 1.12   |        
|                                          |                                                 |                          |       |        |         |      |        |         |         |   |        |       
|                                          | Diluted earnings per share (Note 13)            |                          | $     | 0.13   |         |      | $      | 0.48    |         |   | $      | 1.04   |        
|                                          |                                                 |                          |       |        |         |      |        |         |         |   |        |       

See notes to consolidated financial statements.

F-4



---



##### 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, 2000                                         |  |              | 28,439 |            |  | $        | 284 |            |  | $           | 164,652 |              |  | $              | (95 | )             |  | $      | (272 | )      |  | $ | 399  |   |  | $ | (42,576 | ) |  |  | 1,535 |   |  | $ | (8,485  | ) |  | $ | 113,907 |  
|Issuance of common stock for cash                                |  |              | 81     |            |  |          | 1   |            |  |             | 771     |              |  |                |    |               |  |        |     |        |  |   |     |   |  |   |        |   |  |  |      |   |  |   |        |   |  |   | 772     |  
|Exercise of common stock options                                 |  |              | 613    |            |  |          | 6   |            |  |             | 2,441   |              |  |                |    |               |  |        |     |        |  |   |     |   |  |   |        |   |  |  |      |   |  |   |        |   |  |   | 2,447   |  
|Exercise of common stock warrants                                |  |              | 501    |            |  |          | 5   |            |  |             | 1,126   |              |  |                |    |               |  |        |     |        |  |   | (193 | ) |  |   |        |   |  |  |      |   |  |   |        |   |  |   | 938     |  
|Note receivable repayment                                        |  |              |       |            |  |          |    |            |  |             | (4      | )            |  |                |    |               |  |        | 157  |        |  |   |     |   |  |   |        |   |  |  |      |   |  |   |        |   |  |   | 153     |  
|Amortization of deferred compensation                            |  |              |       |            |  |          |    |            |  |             |        |              |  |                | 86  |               |  |        |     |        |  |   |     |   |  |   |        |   |  |  |      |   |  |   |        |   |  |   | 86      |  
|Repurchase of common stock                                       |  |              |       |            |  |          |    |            |  |             |        |              |  |                |    |               |  |        |     |        |  |   |     |   |  |   |        |   |  |  | 409   |   |  |   | (6,146  | ) |  |   | (6,146  | )
|Tax benefit from disqualifying dispositions of
    stock options |  |              |       |            |  |          |    |            |  |             | 2,317   |              |  |                |    |               |  |        |     |        |  |   |     |   |  |   |        |   |  |  |      |   |  |   |        |   |  |   | 2,317   |  
|Net income                                                       |  |              |       |            |  |          |    |            |  |             |        |              |  |                |    |               |  |        |     |        |  |   |     |   |  |   | 30,512  |   |  |  |      |   |  |   |        |   |  |   | 30,512  |  
|                                                                 |  |              |        |            |  |          |     |            |  |             |         |              |  |                |     |               |  |        |      |        |  |   |      |   |  |   |         |   |  |  |       |   |  |   |         |   |  |   |         |  
|Balance, December 31, 2000                                       |  |              | 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 |  
|                                                                 |  |              |        |            |  |          |     |            |  |             |         |              |  |                |     |               |  |        |      |        |  |   |      |   |  |   |         |   |  |  |       |   |  |   |         |   |  |   |         |  

See notes to consolidated financial statements.

F-5



---



##### Table of Contents



LIGHTBRIDGE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

(Amounts in thousands)


|                                                                                                    |                                                                  |                                                         |          |        |         |      |         |         |        |   |         |         |         |  
|--------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------- | ------------------------------------------------------- | -------- | ------ | ------- | ---- | ------- | ------- | ------ | - | ------- | ------- | ------- | -
|                                                                                                    |                                                                  |                                                        
|                                                                                                    |                                                                  | Years Ended December 31,                               
|                                                                                                    |                                                                  |                                                        
|                                                                                                    |                                                                  | 2002                                                    |          | 2001   |         | 2000
|                                                                                                    |                                                                  |                                                         |          |        |         |     
|Cash flows from operating
    activities:                                                           |                                                                  |                                                         |          |        |         |      |         |         |        |   |         |        
|Net income                                                                                          |                                                                  | $                                                       | 3,630    |        |         | $    | 13,955  |         |        | $ | 30,512  |        
|Adjustments to reconcile net income to net cash
    provided by
    (used in) operating activities: |                                                                  |                                                         |          |        |         |      |         |         |        |   |         |        
|                                                                                                    | Deferred income taxes                                            |                                                         |          | 1,732  |         |      |         | (2,190  | )      |   |         | (2,518  | )      
|                                                                                                    | Purchased in-process research and development                    |                                                         |          | 1,618  |         |      |         |        |        |   |         |        |        
|                                                                                                    | Depreciation and amortization                                    |                                                         |          | 15,326 |         |      |         | 15,729  |        |   |         | 13,154  |        
|                                                                                                    | Loss on disposal of property and equipment                       |                                                         |          | 735    |         |      |         |        |        |   |         |        |        
|                                                                                                    | Tax benefit from disqualifying dispositions of
    stock options |                                                         |          | 172    |         |      |         | 360     |        |   |         | 2,317   |        
|Changes in assets and liabilities:                                                                  |                                                                  |                                                         |          |        |         |      |         |         |        |   |         |        
|                                                                                                    | Accounts receivable                                              |                                                         |          | 9,964  |         |      |         | 14,469  |        |   |         | (13,778 | )      
|                                                                                                    | Inventories                                                      |                                                         |          | 263    |         |      |         | 1,980   |        |   |         | 2,103   |        
|                                                                                                    | Other assets                                                     |                                                         |          | 2,298  |         |      |         | 1,212   |        |   |         | (6,824  | )      
|                                                                                                    | Accounts payable and accrued liabilities                         |                                                         |          | (3,361 | )       |      |         | (10,672 | )      |   |         | 6,253   |        
|                                                                                                    | Other long-term liabilities                                      |                                                         |          | (408   | )       |      |         | (296    | )      |   |         | 52      |        
|                                                                                                    | Deferred revenues                                                |                                                         |          | (1,952 | )       |      |         | (4,366  | )      |   |         | 2,038   |        
|                                                                                                    |                                                                  |                                                         |          |        |         |      |         |         |        |   |         |        
|                                                                                                    |                                                                  | Net cash provided by operating activities               |          |        | 30,017  |      |         |         | 30,181 |   |         |         | 33,309  |  
|Cash flows from investing
    activities:                                                           |                                                                  |                                                         |          |        |         |      |         |         |        |   |         |        
|Purchases of property and equipment                                                                 |                                                                  |                                                         | (4,370   | )      |         |      | (11,997 | )       |        |   | (19,238 | )      
|Purchase of investments                                                                             |                                                                  |                                                         | (119,539 | )      |         |      | (9,865  | )       |        |   | (66,501 | )      
|Proceeds from sales and maturities of short-term
    investments                                    |                                                                  |                                                         | 87,804   |        |         |      | 51,218  |         |        |   | 52,590  |        
|Acquisition of Altawave                                                                             |                                                                  |                                                         | (4,949   | )      |         |      |        |         |        |   |        |        
|                                                                                                    |                                                                  |                                                         |          |        |         |      |         |         |        |   |         |        
|                                                                                                    |                                                                  | Net cash provided by (used in) investing
    activities |          |        | (41,054 | )    |         |         | 29,356 |   |         |         | (33,149 | )
|Cash flows from financing
    activities:                                                           |                                                                  |                                                         |          |        |         |      |         |         |        |   |         |        
|Payments on notes payable                                                                           |                                                                  |                                                         |         |        |         |      |        |         |        |   | (1,407  | )      
|Proceeds from notes receivable                                                                      |                                                                  |                                                         |         |        |         |      | 181     |         |        |   | 199     |        
|Repurchases of common stock                                                                         |                                                                  |                                                         | (8,505   | )      |         |      | (374    | )       |        |   | (6,146  | )      
|Proceeds from issuance of common stock                                                              |                                                                  |                                                         | 2,707    |        |         |      | 2,569   |         |        |   | 3,216   |        
|Proceeds from notes receivable from stockholders                                                    |                                                                  |                                                         |         |        |         |      |        |         |        |   | 157     |        
|Proceeds from exercise of warrants                                                                  |                                                                  |                                                         |         |        |         |      | 17      |         |        |   | 226     |        
|                                                                                                    |                                                                  |                                                         |          |        |         |      |         |         |        |   |         |        
|                                                                                                    |                                                                  | Net cash provided by (used in) financing
    activities |          |        | (5,798  | )    |         |         | 2,393  |   |         |         | (3,755  | )
|                                                                                                    |                                                                  |                                                         |          |        |         |      |         |         |        |   |         |        
|Net increase (decrease) in cash and cash
    equivalents                                            |                                                                  |                                                         | (16,835  | )      |         |      | 61,930  |         |        |   | (3,595  | )      
|Cash and cash equivalents, beginning of year                                                        |                                                                  |                                                         | 107,499  |        |         |      | 45,569  |         |        |   | 49,164  |        
|                                                                                                    |                                                                  |                                                         |          |        |         |      |         |         |        |   |         |        
|Cash and cash equivalents, end of year                                                              |                                                                  | $                                                       | 90,664   |        |         | $    | 107,499 |         |        | $ | 45,569  |        
|                                                                                                    |                                                                  |                                                         |          |        |         |      |         |         |        |   |         |        

See notes to consolidated financial statements.

F-6



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##### Table of Contents



LIGHTBRIDGE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

(Amounts in thousands except share
data)


1.     Business and
Recent Acquisitions

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 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.

Information regarding the separate revenue and
net income of Lightbridge and Corsair prior to consummation of
the merger is as follows, for the year ended December 31,
2000:

|            |             |       |   |         |         | 
|----------- | ----------- | ----- | - | ------- | ------- | 
|Revenues:   |             |       |   |        
|            | Lightbridge |       | $ | 121,554 |        
|            | Corsair     |       |   | 65,090  |        
|            |             |       |   |        
|            |             | Total |   | $       | 186,644 | 
|            |             |       |   |        
|Net income: |             |       |   |        
|            | Lightbridge |       | $ | 13,689  |        
|            | Corsair     |       |   | 16,823  |        
|            |             |       |   |        
|            |             | Total |   | $       | 30,512  | 
|            |             |       |   |        

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  |  
|                                    |  |                 |      |  

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##### Table of Contents



LIGHTBRIDGE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Any additional contingent consideration that may
be paid in connection with the Altawave acquisition will be
recorded as goodwill when the underlying conditions are met and
payment becomes probable. No contingent payments were required
to be made in 2002 in connection with the Altawave acquisition.
Contingent payments, if any, are based on the achievement of
specified revenue goals over a two-year period. 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 in-process research and development
(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 Mobile Data
Manager (MDM) suite of products consisting of MDM
Server, MDM Administration, MDM Altalinks, MDM Provisioner and
the Consumer Group Applications (CGA). Development
on 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 total estimated 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, having spent
approximately $150 on the project after the acquisition. Total
cost to complete the CGA project, after acquisition is estimated
to be approximately $300 of which approximately $125 had been
spent through December 31, 2002. CGA is expected to be
completed by July 2003. If the development of the technology is
not completed on schedule, the potential consequences to the
Company may be increased development costs and increased
competition from other companies that have competitive products
in the market.



|   |                                               
|-- | ----------------------------------------------
|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.

F-8



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##### Table of Contents



LIGHTBRIDGE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 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.

Inventories
Inventories are stated at the lower of first-in, first-out cost,
or market.

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.

Revenue from software license sales is recognized
when persuasive evidence of an arrangement exists, delivery of
the product has been made, and a fixed fee and collectibility
have been determined. To the extent that obligations exist for
other services, the Company allocates revenue between the
license and the services based upon their relative fair value or
by utilizing the residual method. Revenue from customer
maintenance support agreements is deferred and recognized
ratably over the term of the agreements. Revenue from consulting
and training services is recognized as those services are
rendered. Revenue from hardware sales is recognized upon
shipment, unless testing, integration or implementation services
are required, in which case hardware revenue is recognized upon
commissioning and acceptance of the product. Revenue from
hardware sold in conjunction with software licenses is deferred
until the related license revenue is recognized.

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 and analyzes
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, 2002, 2001, and 2000 was approximately $2,955,
$2,965 and $2,525, respectively. The Company recorded bad debt
expense of $200, $630 and $287 and had write-offs, net of
recoveries associated with accounts receivable of $210, $190 and
$1,077 for the years ended December 31, 2002, 2001 and
2000, respectively. During the quarter ended June 30, 2002,
the Company provided approximately $2.0 million of
transaction services to WorldCom, Inc. (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.

F-9



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##### Table of Contents



LIGHTBRIDGE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

|                             |       |                      |    |      |   |      |    |    |   |  |    |    |  
|---------------------------- | ----- | -------------------- | -- | ---- | - | ---- | -- | -- | - |  | -- | -- | -
|                             |       |                     
|                             |       | Years Ended Dec. 31,
|                             |       |                     
|                             |       | 2002                 |    | 2001 |   | 2000
|                             |       |                      |    |      |   |     
|Sprint Spectrum L.P.         |       |                      | 30 | %    |   |      | 22 | %  |   |  | 19 | % 
|AT&T Wireless Services, Inc. |       |                      | 21 |      |   |      | 20 |    |   |  | 16 |   
|Ericsson AB                  |       |                      | 15 |      |   |      | 16 |    |   |  | 24 |   
|Nextel Finance Company       |       |                      | 11 |      |   |      | 7  |    |   |  | 4  |   
|                             |       |                      |    |      |   |      |    |    |   |  |    |   
|                             | Total |                      |    | 77   | % |      |    | 65 | % |  |    | 63 | %
|                             |       |                      |    |      |   |      |    |    |   |  |    |   

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

|              |       |      |        |        |  |      |        |        |  |   |        |        | 
|------------- | ----- | ---- | ------ | ------ |  | ---- | ------ | ------ |  | - | ------ | ------ | 
|              |       | 2002 |        | 2001   |  | 2000
|              |       |      |        |        |  |     
|Latin America |       | $    | 10,436 |        |  | $    | 20,615 |        |  | $ | 32,175 |       
|Mexico        |       |      | 9,299  |        |  |      | 14,394 |        |  |   | 16,921 |       
|Africa        |       |      | 803    |        |  |      |       |        |  |   |       |       
|Canada        |       |      | 748    |        |  |      | 1,129  |        |  |   | 1,607  |       
|Asia          |       |      | 273    |        |  |      | 2,872  |        |  |   | 2,233  |       
|Russia        |       |      | 169    |        |  |      | 783    |        |  |   | 1,337  |       
|Europe        |       |      | 157    |        |  |      | 388    |        |  |   | 314    |       
|              |       |      |        |        |  |      |        |        |  |   |        |       
|              | Total |      | $      | 21,885 |  |      | $      | 40,181 |  |   | $      | 54,587 | 
|              |       |      |        |        |  |      |        |        |  |   |        |       

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, 2003. 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 the existing technology and workforce related to the
acquisition of Coral Systems, Inc. in 1997, and are included
with other assets in the accompanying balance sheet. These
assets are being amortized on a straight-line basis over their
estimated useful lives, ranging from five months to five years.
Acquired intangible assets consisted of the following at
December 31:

|                     |                           |      |   |        |   |  |   |        |  
|-------------------- | ------------------------- | ---- | - | ------ | - |  | - | ------ | -
|                     |                           | 2002 |   | 2001  
|                     |                           |      |   |       
|Altawave:            |                           |      |   |        |   |  |   |       
|                     | Acquired intangible asset |      | $ | 1,330  |   |  | $ |       |  
|                     | Accumulated amortization  |      |   | (200   | ) |  |   |       |  
|                     |                           |      |   |        |   |  |   |       
|                     | Net                       |      | $ | 1,130  |   |  | $ |       |  
|                     |                           |      |   |        |   |  |   |       
|Coral Systems, Inc.: |                           |      |   |        |   |  |   |       
|                     | Acquired intangible asset |      | $ | 6,901  |   |  | $ | 6,901  |  
|                     | Accumulated amortization  |      |   | (6,901 | ) |  |   | (6,359 | )
|                     |                           |      |   |        |   |  |   |       
|                     | Net                       |      | $ |       |   |  | $ | 542    |  
|                     |                           |      |   |        |   |  |   |       

F-10



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##### Table of Contents



LIGHTBRIDGE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 any necessary valuation allowances as required.
(See Note 11)

Warranty
Reserve The Company no
longer markets its PhonePrint system but it does occasionally
provide replacement units or spare parts for systems still under
maintenance. 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, 2002 is
$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 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,
|                                                        |                                          |                         
|                                                        |                                          | 2002                     |   | 2001  |  | 2000
|                                                        |                                          |                          |   |       |  |     
|The Company had the following noncash
    transactions: |                                          |                          |   |       |  |      |   |       |  |  |   |       
|                                                        | Application of note to exercise warrants |                          | $ |      |  |      | $ |      |  |  | $ | 691    | 
|                                                        |                                          |                          |   |       |  |      |   |       |  |  |   |       
|Supplemental Items:                                     |                                          |                          |   |       |  |      |   |       |  |  |   |       
|                                                        | Cash paid for interest                   |                          | $ |      |  |      | $ |      |  |  | $ | 174    | 
|                                                        |                                          |                          |   |       |  |      |   |       |  |  |   |       
|                                                        | Cash paid for income taxes               |                          | $ | 3,925 |  |      | $ | 4,752 |  |  | $ | 10,892 | 
|                                                        |                                          |                          |   |       |  |      |   |       |  |  |   |       

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.

F-11



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##### Table of Contents



LIGHTBRIDGE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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:

|                                                                  |  |      |       |      |  |      |        |  |  |   |        | 
|----------------------------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ------ |  |  | - | ------ | 
|                                                                  |  | 2002 |       | 2001 |  | 2000
|                                                                  |  |      |       |      |  |     
|Net income as reported                                            |  | $    | 3,630 |      |  | $    | 13,955 |  |  | $ | 30,512 | 
|Stock based compensation recorded in income                       |  |      |      |      |  |      |       |  |  |   |       | 
|Stock based compensation measured using the fair
    value method |  |      | 2,350 |      |  |      | 6,918  |  |  |   | 5,101  | 
|                                                                  |  |      |       |      |  |      |        |  |  |   |        | 
|Net income pro forma                                              |  | $    | 1,280 |      |  | $    | 7,037  |  |  | $ | 25,411 | 
|                                                                  |  |      |       |      |  |      |        |  |  |   |        | 
|Basic earnings per share pro forma                                |  | $    | 0.05  |      |  | $    | 0.25   |  |  | $ | 0.93   | 
|                                                                  |  |      |       |      |  |      |        |  |  |   |        | 
|Diluted earnings per share pro forma                              |  | $    | 0.05  |      |  | $    | 0.24   |  |  | $ | 0.86   | 
|                                                                  |  |      |       |      |  |      |        |  |  |   |        | 

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,
|                                                                                            |  |                         
|                                                                                            |  | 2002                     |             | 2001 |  | 2000
|                                                                                            |  |                          |             |      |  |     
|Risk-free interest rate                                                                     |  |                          | 2.9% - 4.7% |      |  |      | 3.9% - 4.9  |  |  |  | % 5.2% - 6.7% | 
|Expected life of options grants                                                             |  |                          | 1 - 5 years |      |  |      | 1 - 5 years |  |  |  | 1 - 5 years   | 
|Expected volatility of underlying stock                                                     |  |                          | 90%         |      |  |      | 96%         |  |  |  | 98%           | 
|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
including 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, 2002, 2001 and
2000 was approximately $542, $651 and $651, respectively. There
are no transactions between segments.

Total assets for each reportable segment as of
December 31, 2002 and 2001 were as follows:

|                        |              |      |         |         |  |   |         |         | 
|----------------------- | ------------ | ---- | ------- | ------- |  | - | ------- | ------- | 
|                        |              | 2002 |         | 2001   
|                        |              |      |         |        
|Transaction             |              | $    | 22,903  |         |  | $ | 37,540  |        
|Software licensing      |              |      | 963     |         |  |   | 3,251   |        
|Consulting and services |              |      | 4,186   |         |  |   | 5,445   |        
|Hardware                |              |      | 113     |         |  |   | 737     |        
|Corporate               |              |      | 152,507 |         |  |   | 141,909 |        
|                        |              |      |         |         |  |   |         |        
|                        | Total assets |      | $       | 180,672 |  |   | $       | 188,882 | 
|                        |              |      |         |         |  |   |         |        

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LIGHTBRIDGE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Corporate assets primarily represent cash, cash
equivalents and investments totalling $133.5 million and
$118.6 million as of December 31, 2002 and 2001,
respectively.

Recent Accounting
Pronouncements In July
2001, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards No. 141 (SFAS 141),
Business Combinations. SFAS 141 requires the
purchase method of accounting for business combinations
initiated after June 30, 2001 and eliminates the
pooling-of-interests method. The adoption of SFAS 141 did
not have a significant impact on the Companys financial
statements.

Also in July 2001, the FASB issued
SFAS No. 142 (SFAS 142),
Goodwill and Other Intangible Assets, which became
effective January 1, 2002. SFAS 142 requires, among
other things, the discontinuance of goodwill amortization and
that goodwill be tested for impairment at least annually. The
adoption of SFAS 142 did not have a significant impact on
the Companys financial statements.

The FASB has also issued SFAS No. 144
(SFAS 144), Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of, which was effective January 1, 2002.
SFAS 144 provides guidance on measuring and recording
impairments of assets, other than goodwill, and provides
clarifications on measurement of cash flow information and other
variables to be used to measure impairment. The adoption of
SFAS 144 did not have a significant impact on the
Companys financial statements.

In June 2002, the FASB issued
SFAS No. 146 (SFAS 146),
Accounting for Costs Associated with Exit or Disposal
Activities. SFAS 146 requires that a liability for a
cost associated with an exit or disposal activity be recognized
when the liability is incurred. SFAS 146 nullifies EITF
No. 94-3 Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity,
which required a liability be recognized at the commitment date
to an exit plan. The Company is required to adopt the provisions
of SFAS 146 effective for exit or disposal activities
initiated after December 31, 2002. All restructuring
activities prior to December 31, 2002, including those
described in Note 8, are accounted for under
EITF No. 94-3.

3.     Inventory

The Company had no inventory at December 31,
2002. Inventories at December 31, 2001 totaled $263 and
consisted of raw materials of $194 and finished goods of $69.

4.     Investment

The Company has committed to invest up to
$5.0 million in a limited partnership that invests in
businesses within the wireless industry. Through
December 31, 2002, the Company had invested a total of
$953. 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 $464. The net
carrying value of the investment at December 31, 2002 was
$489 and is included in other assets in the accompanying
consolidated balance sheet. The unaudited amounts for limited
partnership assets and partnership equity at December 31,
2002 were $602 and $567, respectively.

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LIGHTBRIDGE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

5.     Property and
Equipment

Property and equipment consisted of the following
at December 31:

|                                               |  |      |         |      |  |   |         |  
|---------------------------------------------- |  | ---- | ------- | ---- |  | - | ------- | -
|                                               |  | 2002 |         | 2001
|                                               |  |      |         |     
|Furniture and fixtures                         |  | $    | 3,688   |      |  | $ | 4,461   |  
|Leasehold improvements                         |  |      | 10,114  |      |  |   | 12,095  |  
|Computer equipment                             |  |      | 41,698  |      |  |   | 47,603  |  
|Computer software                              |  |      | 13,029  |      |  |   | 13,687  |  
|                                               |  |      |         |      |  |   |         |  
|                                               |  |      | 68,529  |      |  |   | 77,846  |  
|Less accumulated depreciation and amortization |  |      | (52,346 | )    |  |   | (51,247 | )
|                                               |  |      |         |      |  |   |         |  
|Property and equipment, net                    |  | $    | 16,183  |      |  | $ | 26,599  |  
|                                               |  |      |         |      |  |   |         |  

6.     Line of
Credit

In August 2001, the Company elected to forego
annual renewal of a $15.0 million unsecured working capital
line of credit with a bank because the Company believed it had
sufficient cash and short term investments to meet its
then-current operating needs. At the date of expiration there
were no borrowings outstanding under the working capital line of
credit. At December 31, 2002 the Company had an outstanding
letter of credit in the amount of $1.0 million expiring 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.

7.     Note
Receivable

On February 3, 1999, the Company sold
substantially all of the assets relating to a product line to a
third party. In connection with the sale, the Company received
from the buyer a secured promissory note receivable of $2,200.
The note, as amended, is included in other assets, bears
interest at the rate of 8% per annum payable in monthly
installments, with monthly principal payments due from January
2003 through December 2004 at which time a final balloon payment
is also due.

8.     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. All
restructuring costs were paid as of December 31, 2002 and
no adjustments to amounts previously recorded were required.

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

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##### Table of Contents



LIGHTBRIDGE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

administrative. The capital equipment write-offs
and the 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 2003.

The following summarizes the changes to the
November 2001 restructuring reserves during the year ended
December 31, 2002:

|                                            |  |              |       |         |  |          |   |              |  |   |       |  |  |   |   | 
|------------------------------------------- |  | ------------ | ----- | ------- |  | -------- | - | ------------ |  | - | ----- |  |  | - | - | 
|                                            |  | Balance at   |       |         |  |          |   | Balance at  
|                                            |  | December 31, |       |         |  |          |   | December 31,
|                                            |  | 2001         |       | Accrued |  | Utilized |   | 2002        
|                                            |  |              |       |         |  |          |   |             
|Employee severance and termination benefits |  | $            | 2,143 |         |  | $        |  |              |  | $ | 2,143 |  |  | $ |  | 
|Facility closing and related costs          |  |              | 997   |         |  |          |  |              |  |   | 997   |  |  |   |  | 
|                                            |  |              |       |         |  |          |   |              |  |   |       |  |  |   |   | 
|                                            |  | $            | 3,140 |         |  | $        |  |              |  | $ | 3,140 |  |  | $ |  | 
|                                            |  |              |       |         |  |          |   |              |  |   |       |  |  |   |   | 

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

|                                            |  |              |   |         |  |          |       |              |  |   |       |  |  |   |       | 
|------------------------------------------- |  | ------------ | - | ------- |  | -------- | ----- | ------------ |  | - | ----- |  |  | - | ----- | 
|                                            |  | Balance at   |   |         |  |          |       | Balance at  
|                                            |  | December 31, |   |         |  |          |       | December 31,
|                                            |  | 2001         |   | Accrued |  | Utilized |       | 2002        
|                                            |  |              |   |         |  |          |       |             
|Employee severance and termination benefits |  | $            |  |         |  | $        | 1,580 |              |  | $ | 1,237 |  |  | $ | 343   | 
|Facility closing and related costs          |  |              |  |         |  |          | 1,312 |              |  |   | 320   |  |  |   | 992   | 
|Capital equipment write-offs                |  |              |  |         |  |          | 724   |              |  |   | 724   |  |  |   |      | 
|                                            |  |              |   |         |  |          |       |              |  |   |       |  |  |   |       | 
|                                            |  | $            |  |         |  | $        | 3,616 |              |  | $ | 2,281 |  |  | $ | 1,335 | 
|                                            |  |              |   |         |  |          |       |              |  |   |       |  |  |   |       | 

9.     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 2008 and certain of them contain provisions for
extension on substantially the same terms as are currently in
effect.

Future minimum payments under operating leases
consisted of the following at December 31, 2002:

|                             |  |           |        | 
|---------------------------- |  | --------- | ------ | 
|                             |  | Operating
|                             |  | Leases   
|                             |  |          
|2003                         |  | $         | 5,236  | 
|2004                         |  |           | 3,693  | 
|2005                         |  |           | 2,581  | 
|2006                         |  |           | 1,021  | 
|Thereafter                   |  |           | 1,156  | 
|                             |  |           |        | 
|Total minimum lease payments |  | $         | 13,687 | 
|                             |  |           |        | 

Rent expense for operating leases was
approximately $6,052, $5,979 and $4,677 for the years ended
December 31, 2002, 2001 and 2000, 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

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LIGHTBRIDGE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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.

10.     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 will 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 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, 2002, 1,191,674
    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, 2002,
    362,952 shares were available for purchase and reserved for
    issuance under the 1996 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, 2002,
499,490 shares were available for grant under the 1998
Non-Statutory Stock Option Plan.

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##### Table of Contents



LIGHTBRIDGE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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   |           |           | 3,477 |           |   | $          | 7.75  |       |  |  |   |      
|                                 | Granted   |           |       | 1,630     |   |            |       | 20.24 |  |  | $ | 11.53 | 
|                                 | Exercised |           |       | (613      | ) |            |       | 4.01  |  |  |   |       | 
|                                 | Forfeited |           |       | (538      | ) |            |       | 12.06 |  |  |   |       | 
|                                 |           |           |       |           |   |            |       |       |  |  |   |      
|Outstanding at December 31, 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 |       |  |  |   |      
|                                 |           |           |       |           |   |            |       |       |  |  |   |      

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, 2000 |  |             | 1,659 |           |  | $ | 8.20  | 
|December 31, 2001 |  |             | 2,438 |           |  | $ | 11.84 | 
|December 31, 2002 |  |             | 2,278 |           |  | $ | 11.76 | 

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##### Table of Contents



LIGHTBRIDGE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table sets forth information
regarding options outstanding at December 31, 2002:

|          |       |                 |  |             |                |          |  |              |       |             |  |   |       |  |  |  |     |  |  |   |       | 
|--------- | ----- | --------------- |  | ----------- | -------------- | -------- |  | ------------ | ----- | ----------- |  | - | ----- |  |  |  | --- |  |  | - | ----- | 
|          |       |                 |  |             |                |          |  |              |       | Weighted   
|          |       |                 |  |             |                |          |  | Weighted     |       | Average    
|          |       |                 |  |             |                | Weighted |  | Average      |       | Exercise   
|          |       |                 |  | Number      |                | Average  |  | Remaining    |       | Price for  
|Number of |       | Range of        |  | Currently   |                | Exercise |  | Contractual  |       | Currently  
|Options   |       | Exercise Prices |  | Exercisable |                | Price    |  | Life (Years) |       | Exercisable
|          |       |                 |  |             |                |          |  |              |       |            
|(000s)   |       |                 |  | (000s)     |                |          |  |              |       |            
|          | 510   |                 |  | $           | 0.38  $ 6.04  |          |  |              | 431   |             |  | $ | 3.05  |  |  |  | 4.7 |  |  | $ | 2.53  | 
|          | 473   |                 |  |             | 6.46    7.63  |          |  |              | 236   |             |  |   | 7.22  |  |  |  | 7.9 |  |  |   | 7.48  | 
|          | 544   |                 |  |             | 7.69    9.91  |          |  |              | 296   |             |  |   | 8.76  |  |  |  | 7.4 |  |  |   | 8.66  | 
|          | 492   |                 |  |             | 10.06   10.91 |          |  |              | 167   |             |  |   | 10.79 |  |  |  | 8.5 |  |  |   | 10.75 | 
|          | 653   |                 |  |             | 11.25   12.13 |          |  |              | 361   |             |  |   | 11.89 |  |  |  | 7.4 |  |  |   | 12.05 | 
|          | 423   |                 |  |             | 12.15   12.88 |          |  |              | 201   |             |  |   | 12.61 |  |  |  | 7.9 |  |  |   | 12.60 | 
|          | 406   |                 |  |             | 12.90   18.31 |          |  |              | 230   |             |  |   | 14.83 |  |  |  | 7.7 |  |  |   | 15.06 | 
|          | 398   |                 |  |             | 18.50   41.40 |          |  |              | 349   |             |  |   | 25.42 |  |  |  | 7.1 |  |  |   | 25.64 | 
|          | 6     |                 |  |             | 41.82          |          |  |              | 6     |             |  |   | 41.82 |  |  |  | 7.4 |  |  |   | 41.82 | 
|          | 1     |                 |  |             | $42.97         |          |  |              | 1     |             |  | $ | 42.97 |  |  |  | 7.5 |  |  | $ | 42.97 | 
|          |       |                 |  |             |                |          |  |              |       |             |  |   |       |  |  |  |     |  |  |   |       | 
|          | 3,906 |                 |  |             |                |          |  |              | 2,278 |             |  |   |       |  |  |  |     |  |  |   |       | 
|          |       |                 |  |             |                |          |  |              |       |             |  |   |       |  |  |  |     |  |  |   |       | 

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. The board placed a two-year time limit on the
repurchase authorization. As of December 31, 2002, the
Company had purchased approximately 1.2 million shares at a
total cost of approximately $8.8 million since the
inception of its repurchase program.

Common Stock
Warrants At
December 31, 2002, 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.

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 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 offeror
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).

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##### Table of Contents



LIGHTBRIDGE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

11.     Income
Taxes

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

|                             |         |      |      |        |   |      |       |        |   |   |       |        |  
|---------------------------- | ------- | ---- | ---- | ------ | - | ---- | ----- | ------ | - | - | ----- | ------ | -
|                             |         | 2002 |      | 2001   |   | 2000
|                             |         |      |      |        |   |     
|Current:                     |         |      |      |        |   |      |       |        |   |   |       |       
|                             | Federal |      | $    | (2,105 | ) |      | $     | 3,683  |   |   | $     | 6,462  |  
|                             | State   |      |      | 98     |   |      |       | 1,995  |   |   |       | 3,713  |  
|Deferred:                    |         |      |      |        |   |      |       |        |   |   |       |       
|                             | Federal |      |      | 1,697  |   |      |       | (1,920 | ) |   |       | (2,563 | )
|                             | State   |      |      | 35     |   |      |       | (270   | ) |   |       | 45     |  
|Tax benefit of stock options |         |      | 172  |        |   |      | 360   |        |   |   | 2,317 |       
|                             |         |      |      |        |   |      |       |        |   |   |       |       
|Income tax provision         |         | $    | (103 | )      |   | $    | 3,848 |        |   | $ | 9,974 |       
|                             |         |      |      |        |   |      |       |        |   |   |       |       

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

|                 |                                   |      |   |         |   |  |   |         |  
|---------------- | --------------------------------- | ---- | - | ------- | - |  | - | ------- | -
|                 |                                   | 2002 |   | 2001   
|                 |                                   |      |   |        
|Current Items:   |                                   |      |   |         |   |  |   |        
|Assets:          |                                   |      |   |         |   |  |   |        
|                 | Allowance for doubtful accounts   |      | $ | 1,182   |   |  | $ | 1,186   |  
|                 | Accrued expenses                  |      |   | 1,327   |   |  |   | 1,480   |  
|                 | Restructuring reserve             |      |   | 503     |   |  |   | 776     |  
|                 |                                   |      |   |         |   |  |   |        
|                 | Net current deferred tax assets   |      | $ | 3,012   |   |  | $ | 3,442   |  
|                 |                                   |      |   |         |   |  |   |        
|Long-Term Items: |                                   |      |   |         |   |  |   |        
|Assets:          |                                   |      |   |         |   |  |   |        
|                 | Depreciation and amortization     |      | $ | 1,218   |   |  | $ | 1,365   |  
|                 | Acquisition costs                 |      |   | 942     |   |  |   | 1,234   |  
|                 | Intangible assets                 |      |   | 1,461   |   |  |   | 1,042   |  
|                 | Acquired loss carryforwards       |      |   | 10,383  |   |  |   | 12,277  |  
|                 | Valuation allowance               |      |   | (10,291 | ) |  |   | (10,903 | )
|                 |                                   |      |   |         |   |  |   |        
|                 | Net long-term deferred tax assets |      | $ | 3,713   |   |  | $ | 5,015   |  
|                 |                                   |      |   |         |   |  |   |        

The net change in the valuation allowance for the
years ended December 31, 2002, 2001 and 2000 was a
decrease of approximately $(612), $(3,000) and $(6,183),
respectively. At December 31, 2002, the Company had $26,000 of
federal and state (excluding California) net operating loss
carryforwards which expire, if unused, in years 2009 through
2012. At December 31, 2002, the Company had $10,000 of
California net operating loss carryforwards which expire, if
unused, in 2004.

F-19



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##### 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:

|                                                        |  |      |     |      |  |      |     |   |  |  |     |  
|------------------------------------------------------- |  | ---- | --- | ---- |  | ---- | --- | - |  |  | --- | -
|                                                        |  | 2002 |     | 2001 |  | 2000
|                                                        |  |      |     |      |  |     
|Statutory federal income tax rate                       |  |      | 34  | %    |  |      | 35  | % |  |  | 35  | %
|State taxes, net of federal benefit                     |  |      | 2   |      |  |      | 6   |   |  |  | 6   |  
|Change in valuation allowance                           |  |      | (14 | )    |  |      | (17 | ) |  |  | (15 | )
|Non-deductible portion of Corsair transaction
    costs |  |      |    |      |  |      | 3   |   |  |  |    |  
|Research & development credits                          |  |      | (23 | )    |  |      | (5  | ) |  |  |    |  
|Other, net                                              |  |      | (2  | )    |  |      |    |   |  |  | (1  | )
|                                                        |  |      |     |      |  |      |     |   |  |  |     |  
|Effective tax rate                                      |  |      | (3  | )%   |  |      | 22  | % |  |  | 25  | %
|                                                        |  |      |     |      |  |      |     |   |  |  |     |  

12.     Employee
Profit Sharing Plan

The Company has a 401(k) Employee Profit Sharing
Plan. All employees of the Company are eligible to participate,
subject to employment eligibility requirements. The
Companys 401(k) expense was approximately $1,246, $650 and
$903 for the years ended December 31, 2002, 2001 and 2000,
respectively.

13.     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:

|                                             |  |                |        |      |  |      |        |  |  |  |        | 
|-------------------------------------------- |  | -------------- | ------ | ---- |  | ---- | ------ |  |  |  | ------ | 
|                                             |  | 2002           |        | 2001 |  | 2000
|                                             |  |                |        |      |  |     
|                                             |  |               
|                                             |  | (In thousands)
|Shares for basic computation                 |  |                | 28,030 |      |  |      | 27,987 |  |  |  | 27,362 | 
|Options and warrants (treasury stock method) |  |                | 403    |      |  |      | 804    |  |  |  | 2,015  | 
|                                             |  |                |        |      |  |      |        |  |  |  |        | 
|Shares for diluted computation               |  |                | 28,433 |      |  |      | 28,791 |  |  |  | 29,377 | 
|                                             |  |                |        |      |  |      |        |  |  |  |        | 

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 2,620,000, 2,591,000 and 999,000 for the years
ended December 31, 2002, 2001 and 2000, respectively.

14.     Quarterly
Financial Data (Unaudited)

|                                  |  |    |        |    |  |    |        |    |  |   |        |  |  |   |        | 
|--------------------------------- |  | -- | ------ | -- |  | -- | ------ | -- |  | - | ------ |  |  | - | ------ | 
|                                  |  | Q1 |        | Q2 |  | Q3 |        | Q4
|                                  |  |    |        |    |  |    |        |   
|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



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##### Table of Contents



LIGHTBRIDGE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                           |  |    |        |    |  |    |        |    |  |   |        |  |  |   |        | 
|-------------------------- |  | -- | ------ | -- |  | -- | ------ | -- |  | - | ------ |  |  | - | ------ | 
|                           |  | Q1 |        | Q2 |  | Q3 |        | Q4
|                           |  |    |        |    |  |    |        |   
|2001                       |  |    |        |    |  |    |        |    |  |   |        |  |  |   |        | 
|Revenues                   |  | $  | 49,346 |    |  | $  | 45,838 |    |  | $ | 40,011 |  |  | $ | 41,421 | 
|Gross profit               |  | $  | 26,330 |    |  | $  | 26,548 |    |  | $ | 20,890 |  |  | $ | 22,037 | 
|Income from operations     |  | $  | 1,575  |    |  | $  | 8,155  |    |  | $ | 3,284  |  |  | $ | 556    | 
|Net income                 |  | $  | 4,069  |    |  | $  | 5,888  |    |  | $ | 3,067  |  |  | $ | 931    | 
|Basic earnings per share   |  | $  | 0.15   |    |  | $  | 0.21   |    |  | $ | 0.11   |  |  | $ | 0.03   | 
|Diluted earnings per share |  | $  | 0.14   |    |  | $  | 0.20   |    |  | $ | 0.11   |  |  | $ | 0.03   | 

F-21